President Donald Trump on Thursday named former Ernst & Young LLP executive David Kautter to serve as the interim head of the Internal Revenue Service after the current chief, John Koskinen, finishes his term on November 12.
During his three decades of work at Ernst & Young, Kautter served as the director of national tax practices at a time when his firm was engaged in a massive effort to assist wealthy clients with tax avoidance schemes.
Kautter’s position meant that he managed the “strategic direction, day-to-day operations, and quality of technical advice” for E&Y’s firmwide tax practices.
Between 1999 and 2004, E&Y developed a team called Viper to devise strategies for clients making more than $10 million from having to pay U.S. taxes. The effort allowed some 200 wealthy clients to avoid taxes worth about $2 billion. Kautter took on the director-level role in 2000, a period that coincided with the Viper deals.
In 2010, four of the individuals involved in the illegal tax-shelter scheme were sentenced to serve between 20 and 36 months in prison, though two of the sentences were later overturned. In 2013, E&Y paid the IRS a $123 million settlement relating to the scheme.
Kautter managed to escape charges or a prison sentence, but he would not seem like an obvious choice to run the agency his company defrauded. Yet Democrats will have little ability to make that case publicly, because when he was nominated to be assistant treasury secretary for tax policy, the party rolled over. In a bizarre Finance Committee hearing that took place in a small, private room just off the Senate floor, Democrats joined Republicans to approve him by a 26-0 vote.
Kautter, who was appointed by Trump this summer to manage tax policy at the Treasury Department, did face questions about the tax avoidance scandal during his confirmation hearings that preceded the vote. Kautter was included in email chains at E&Y concerning the tax avoidance effort, but told lawmakers that “the firm set up a separate reporting structure with respect to tax shelters” that did not involve his office.
“When I took over, that was the system that was in place and continued until the tax shelter group was dissolved,” Kautter added.
Kautter expressed regret for not preventing the scheme, telling a Senate hearing that the firm “greatly disappointed me, and I felt members of the group abused the trust that the firm had placed in them. Looking back, I should have been more active.”
The top ranking Democrat on the committee, Sen. Ron Wyden of Oregon, chided Kautter during the confirmation vote, noting the nominee had served a senior role at E&Y while the company not only marketed tax avoidance schemes, but had attempted to cover up the scandal. Wyden said that although he took Kautter at his word that it was not his responsibility to do anything about the abuses, he could have done more. “I do not think it is appropriate to look the other way when confronted with evidence of wrongdoing,” the senator said.
“Mr. Kautter committed to me that he would maintain the highest level of ethical and professional standards if he is confirmed. We all know actions speak louder than words. Mr. Kautter will be judged by his actions going forward,” Wyden said, announcing his support.
Indeed, it is always better to be judged “going forward” rather than judged for what one has already done.
Wyden’s gentle admonition was the only voice raised in skepticism during the confirmation vote, and so few senators had bothered to appear that the hearing was adjourned and reconvened in a room off the Senate floor, where it is easier to get lawmakers to show up, since they had to be nearby to vote on the Senate floor.
The vote, according to a transcript, was called at 12:15 p.m., a roll call was held and 26 aye votes were recorded, according to a transcript. The makeshift committee adjourned at 12:30.
Kautter was no stranger to the committee. Though he didn’t register as a lobbyist, his bio notes that he was “responsible for maintaining the firm’s relationships with tax writing committees and staff on Capitol Hill, in the U.S. Treasury Department, the Internal Revenue Service National Office, law firms, other major accounting firm’s tax practices and the media.”
Following the committee vote, he was whisked through the full Senate on a voice vote just before the August recess. The objection of a single senator would have stalled, though not killed, his nomination.
Quartz’s Tim Fernholz, reporting on Kautter’s July confirmation hearing, noted that the appointment highlights “the revolving door that has put much of tax policy in the hands of people emerging from corporate cultures that emphasize avoiding tax payments at all costs.”
Kautter left in 2011 to take an academic position at American University. Since 2015, he worked as the head of the Washington office of the accounting firm RSM LLP.
During the Obama administration, current IRS head John Koskinen faced mounting criticism from conservatives who claimed that he unfairly investigated right-of-center nonprofit groups. During his tenure, both left-wing and right-wing political nonprofits faced scrutiny over their tax status; conservative groups attempted to make the issue a marquee Obama-era scandal. In effect, and, perhaps, in intent, the attention neutered the ability of the IRS to investigate political groups looking for cover as tax-exempt nonprofits. With law enforcement out of the way, a mostly anything-goes approach has taken hold.
On top of that win, Attorney General Jeff Sessions has also paid out a “generous” settlement to those conservative groups, a remarkable turn of events, as it means movement conservatives are redistributing government money to movement conservative groups — along with an apology for the initial investigations.
Republicans were quick to cheer his interim appointment to lead the IRS. “Thankfully, we do not have to deal with Mr. Koskinen too much longer. I am pleased to see President Trump pick a new acting IRS leader, David Kautter, who will take the job in November,” Rep. Jeff Duncan, R-S.C., said in a press statement.
President Trump, meanwhile, continues to withhold his tax returns, claiming that he is under an audit.