Center Blog

Learning from the Past: Lessons in Appointments Vetting

Lesson #4: Tax Compliance is Viewed as a Reflection of Personal Integrity


October 25, 2016

Robert Rizzi, Partner and Dianna Mullis, Associate, Steptoe & Johnson, LLP

This post is part of a series on lessons learned from past presidential appointments. We’re grateful for the expertise of Robert Rizzi & Dianna Mullis of Steptoe & Johnson, LLP in developing this series.



This post is part of a series on lessons learned from past presidential appointments. We’re grateful for the expertise of Robert Rizzi & Dianna Mullis of Steptoe & Johnson, LLP in developing this series. You can read Part 3 here.

Lesson #4: Tax Compliance is Viewed as a Reflection of Personal Integrity

An unusual Senate confirmation case involved a married couple, Kurt Campbell who was nominated by President Obama to be assistant secretary for the State Department’s Bureau of East Asian and Pacific Affairs, and Lael Brainard, who was nominated by the president to be undersecretary for international affairs at the Department of the Treasury.

The details are set forth in an exhaustive report by the staff of the Senate Finance Committee with respect to the nomination of Brainard, but there is no such report for Campbell even though most of the issues relate to taxes that either were reported on joint returns or that appear to have been primarily within Campbell’s domain.

The Senate Foreign Relations Committee appeared to have no concerns with the couple’s joint tax returns and speedily recommended confirmation of Campbell, whose nomination was quickly approved by the full Senate. The Senate Finance Committee, however, took an entirely different tack, spending 10 months reviewing Brainard’s nomination and the couple’s taxes, and finally issuing a report before clearing her for confirmation.

The report included such responses from the nominee as, “I disclosed my husband’s payment of a penalty of $43.89 and interest of $4.32 for 2006 on a Dodge pickup truck for which he takes sole responsibility.” In the case of a deduction taken on their joint tax return for a home office on a separate floor their house that was used solely for their consulting business, more than a half dozen separate sets of questions were asked by the Senate staff and answered by Brainard and her advisers.

The lesson from this case is that, in the modern world of two-career marriages, and of increasingly complex tax compliance requirements, it is absolutely necessary to prepare for a nomination in the same way one might prepare for an IRS audit (although no self-respecting IRS agent would concern himself with $4.32 of interest).

To some extent, the Brainard case is that tax compliance has become a surrogate for an integrity standard for senior positions. Instead of focusing on the business ethics, personal moral standards, reputation in the community or other indicators, underpayment of taxes has become the benchmark.

Whether or not this is an appropriate test is largely beside the point. Following the pattern in this case and many other nominees in the Obama administration, nominees are well advised to treat tax issues as among the most important in terms of preparation and for purposes of possible remedial steps early in the process.

Read Part 1Read Part 2Read Part 3Read Part 5Read Part 6

 


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