By Chuck Gallagher — Business Ethics Keynote Speaker and Trainer
The Wall Street Journal reported on Thursday that Kenneth Kies is on his way out at Treasury. He was the assistant secretary for tax policy, and he was also serving as acting chief counsel of the Internal Revenue Service, which means that on paper he was the government’s top tax lawyer twice over. According to people the Journal describes as familiar with the matter, Kies had been clashing with White House officials behind the scenes. That included a recent meeting where he reportedly argued that a request the White House was considering would violate Section 7217 of the Internal Revenue Code. He is leaving both posts in the coming weeks.
The Journal did not say what the request was. A Trump official told the New York Times, “We appreciate his service to our nation.” Kies himself has not said anything publicly that I have seen. So let me be careful here, because nothing has been proven and I am working off reporting sourced to people who would not put their names on it.
Here is what I can tell you about Section 7217, though. This was my world once.
What Section 7217 Actually Says
It is a short law. It makes it unlawful for the president, the vice president, anyone working in the Executive Office of the President, or a cabinet-level official, with the attorney general excepted, to ask the IRS, directly or indirectly, to start or stop an audit of any particular taxpayer. Indirectly covers having somebody else make the call for you. The penalty runs up to five years in prison and a fine.
There is a second half that gets less attention. If an IRS employee receives a request like that, the law says they shall report it to the Treasury Inspector General for Tax Administration. Not may. Shall. The person on the receiving end does not get to weigh it and decide.
Congress added the section in July of 1998, as part of the IRS Restructuring and Reform Act. The House vote was 402 to 8. The Senate was 96 to 2. You do not see numbers like that anymore, and you did not see them all that often then either. Whatever else was true about Washington in 1998, both parties looked at the idea of a president being able to point the tax code at one particular citizen, and decided that was a door worth closing.
Why This One Lands Close to Home
I was a tax partner at twenty-six. At one point I was one of only three CPAs in the country asked to testify before the House Ways and Means Committee on a new employee benefits provision of the tax law. Ways and Means is the committee that wrote the bill I just described, though that came years after my testimony and after everything else I am about to tell you.
I was also stealing.
I was two months behind on a house payment. I was the trustee on an education trust a client had set up for his two young children, because he was not allowed to be the trustee himself and he picked somebody he trusted. I sat in my office on a Friday afternoon and I convinced myself that taking the money was a loan, because I typed up a note. A note is evidence of a loan, and a loan is not theft. Need, opportunity, rationalization. That is the whole machine, and it ran on me for four years and better than two hundred thousand dollars.
Here is the part I keep thinking about with this story. Nobody stopped me. There was no Kenneth Kies in my office. No system existed that would make somebody look at that trust account and say, Chuck, you cannot be the one holding this. If there had been, I would have had to solve my problem some other way, and I would have a different life. Remember, no trust fund for Chuck, no chance of theft.
Pull One Leg From the Stool
Every unethical choice needs three things. A need. An opportunity. And a rationalization that makes the whole thing feel survivable while you are doing it. Pull one leg from the three-legged stool and you cannot stand on the stool.
You cannot control need in other people’s lives. If somebody’s life is out of balance, whether that is money or health or a marriage coming apart, you can be aware of it, but you are not going to fix it from a corner office. You have some control over rationalization, more than you might think, although less than you would like. What you can control is opportunity, and that is where systems come in.
Section 7217 is a system. It is a leg pulled out of the stool on purpose, by a Congress that had watched what a president can do once he decides the tax code is a weapon. The law does not ask the president to be a good person. It just removes the option. That was the design.
This Is Not Really About Washington
Set the politics down for a minute. I am not the fellow to tell you how to vote and I have never tried to be.
Look at the structure instead. An organization writes a rule. The rule exists to keep people between the lines. Then one man’s actual job, his whole job, is to sit in a meeting and say, that thing you are considering, we cannot do that. And then, reportedly, he is the one who leaves.
I do not know that those two facts are connected. People familiar with the matter told the Journal they believe they are. The administration says it appreciates his service. It seems that both of those things can be said in the same week without anybody having to reconcile them.
But I have watched this shape in companies for twenty years and it never needs a villain. The first person who raises the objection gets moved, and nobody says why. The second person watches that happen. The third person does not raise the objection at all, and by then you no longer have a compliance problem, you have a culture, and the culture is doing exactly what it was built to do. Every choice has a consequence. That includes the choice to remove the one person who was willing to say the words out loud.
The Question I Would Ask a Board
Who in your organization is authorized to say we cannot do that? Name the person. Now think about what happened to the last one who said it.
If you cannot answer the second question, that is not necessarily a comfort. It might only mean nobody has tried it yet. And if thinking about it pains you at all, then perhaps there is something there worth looking at before somebody outside the building looks at it for you.
Frequently Asked Questions
What is Section 7217 of the Internal Revenue Code?
It makes it unlawful for the president, the vice president, employees of the Executive Office of the President, and cabinet-level officials other than the attorney general to request, directly or indirectly, that the IRS conduct or terminate an audit or investigation of any particular taxpayer. It also requires any IRS employee who receives such a request to report it to the Treasury Inspector General for Tax Administration. Congress added it in July of 1998 as part of the IRS Restructuring and Reform Act, by a vote of 402 to 8 in the House and 96 to 2 in the Senate.
Did the White House actually break the law?
Nobody has established that, and I want to be plain about it. The Wall Street Journal reported that Kies argued a request the White House was considering would violate the statute. Considering is not the same as making. The Journal did not identify the request. No charge has been brought, no finding has been made, and the administration has said only that it appreciates his service. What is on the record is that the government’s top tax lawyer raised the objection and is now leaving.
Why does it matter that these IRS jobs are open?
Kies held two of them at once. His exit leaves the IRS without Senate-confirmed leadership in both the commissioner and the chief counsel roles at the same time, in the middle of implementing new tax law. Those are the seats where somebody is supposed to know the answer to a question like this one before it gets asked.
Isn’t this just politics?
You can read it that way if you want to. I would rather read it as a systems question, because I have watched the same shape in hospitals, in banks, in construction firms, and in a CPA practice I used to run. The test I use is simple. Does the rule survive contact with somebody who has a reason to want it gone? A rule that only holds when nobody objects to it is not really a rule. It is a preference.
What should a company do to protect people who raise objections?
Write down who has the authority to stop something, and then make sure that authority does not sit downstream of the person most likely to be stopped. Put the reporting obligation in writing, the way 7217 does, so the objection does not depend on one person’s courage on one particular afternoon. And watch what happens to the people who use it. Your employees are already watching. Typically they draw their conclusions long before HR does.
Take the Next Step
I spent four years as the most trusted man in the room, and the room was wrong about me. There was no rule in that office that would have caught it, and no one whose job it was to look. That is the part of my story that boards actually need, and it is the part I talk about when I am invited in. If your leadership team is building systems that only work when everybody cooperates, you have not built a system. You have built a hope. Learn more or book a conversation at ChuckGallagher.com.
