Ex-IRS Official Talks Tax Data Sharing Deal, Agency Tenure

Former IRS Chief Privacy Officer Kathleen Walters discusses the agency’s data sharing agreement with the Department of Homeland Security, her decision to step down, and life as a working mom.  

For more coverage, read the following in Tax Notes:

• Treasury Looks to Undo Some IRS Resignations
• IRS Posts Thousands of Jobs Amid Workforce Reductions
• IRS Has Answered Immigration Agency's Request for Tax Data

Follow us on X:

• Paige Jones: @PaigeLeeJones
• David Stewart: @TaxStew
• Tax Notes: @TaxNotes

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Credits
Host: David D. Stewart
Executive Producers: Jeanne Rauch-Zender, Paige Jones
Producers: Jordan Parrish, Peyton Rhodes
Audio Engineers: Jordan Parrish, Peyton Rhodes

Transcript

David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: heading for the exit.

Former IRS Commissioner Billy Long's recent departure was yet another in a long line of high-ranking leaders leaving the agency since President Trump returned to office. The IRS has also been sailing in uncharted waters with its response to some unprecedented requests from the Trump administration, such as the data sharing agreement with the Department of Homeland Security.

Tax Notes Acquisitions and Engagement Editor in Chief Paige Jones recently spoke with Kathleen Walters, one of the departed high-ranking leaders at the IRS, who opted to leave the agency after nearly two decades. Paige joins me now to talk more about their conversation. Paige, welcome back to the podcast.

Paige Jones: Thanks for having me, Dave. It's been a while since I've been in front of the mic as an interviewer — almost six years — but it's good to be back.

David D. Stewart: Now, could you give us some background on Kathleen?

Paige Jones: Absolutely. Kathleen describes herself as 'not a tax person,' but she was at the IRS for almost two decades. She worked in a variety of roles at the agency — anywhere from legislative affairs and human capital to, most recently, data privacy. She stepped down from her most recent role at the IRS as chief privacy officer in April, following the agency's agreement to share immigrant tax data with DHS.

David D. Stewart: What all did you talk about?

Paige Jones: Dave, we talked about everything. We chatted about how she started her career at the IRS, some of the things she's worked on most recently, like the agency's AI policy. She also gave us an inside view of what it's been like at the IRS this year amid such change and uncertainty, and she gave us some insight into why she ultimately left.

We also discussed what it's like to be working moms in tax, which is a topic near and dear to my heart. Kathleen has a 9-year-old daughter, and I have a 2-½- and a 1-½-year-old, so as Dave knows from all of my fun stories about being sick and the crazy chaos of toddlerhood. I also bonded about that with Kathleen, and she also shared some great advice about work and parenthood that I certainly took to heart and I hope others do, too.

David D. Stewart: All right, let's go to that interview.

Paige Jones: Well, we have Kathleen in the studio. Kathleen, thank you for joining us.

Kathleen Walters: Thank you for having me.

Paige Jones: Well, we'll jump right in. You've spent almost two decades at the IRS until recently, which we'll talk about a little bit later, and I'm sure audiences really want to hear that. But tell us first, what interested you in joining the IRS, and what made you stay?

Kathleen Walters: Well, I wasn't actually interested in joining the IRS, to be honest. I always wanted to go into government: I worked on the Hill during college two days a week, and then I went to law school, which I always wanted to do, and I went into private practice for a while, paid back my law school loans, and then started applying to government agencies. At the time, I was living in Dallas, and I wanted to get back to D.C., and the IRS was the first one to give me an offer. I was in legislative affairs, and the director of legislative affairs at the time was just an amazing man. I was excited about that, but I figured I'd stay for six months and then figure out which agency I wanted to go to. I was not a fan of partnership tax in law school; I loved securities, mergers — that's what I went into. But then six months turned into nearly 20 years.

Paige Jones: You mentioned that law school was always on the path, too. Tell me about your interest in that.

Kathleen Walters: I decided I wanted to go to law school at the age of 4, which I wouldn't necessarily recommend to decide your life career at that youthful age, but my dad was a lawyer. He was just such a good person. He was 6'5" and very thin, so he reminded me of Abraham Lincoln, so I was a huge Lincoln fan, and I really wanted to be like my dad, and so I decided at 4 I knew I was going to go straight through college and law school, and I did. I loved law school. Practicing law private didn't fulfill my service mission, which is why I decided to go back to the government.

Paige Jones: You were thinking, "Only six months at the IRS," which then turned into almost 20 years. So what made you stay?

Kathleen Walters: First of all, the mission. I think that the public looks at their paycheck and sees the money that comes out and doesn't think about all that we get for that. And I don't think we, as a government, do a good job of educating children on the purpose of the government, what we provide, and also fiscal responsibility, all those things. But we bring in 96 percent of the revenue that funds our government, which includes protecting our planes and protecting our country and roads and providing grants and scholarships and student loans. All of the things.

The mission, very powerful, but the people are great. I think, also, people think the government is a bunch of people sitting in D.C. who are intellectuals and don't understand them, but actually, I think over 90 percent of the IRS is not in DC. I think it's more like 80 to 85 percent of the government as a whole, and the people are the people that are your neighbors in Kansas City or Fresno, or wherever we have offices — a lot of places. I had the opportunity to work with incredible leaders, I had amazing mentors, and then I had a lot of opportunities. I'm not someone who aspires to be in the same job for an entire lifetime, so I was able to move to really interesting positions because I had great people who were cheering me on.

Paige Jones: You've held a number of different roles in the IRS. Can you talk a little bit about that?

Kathleen Walters: My background was in government, and I had worked on the Hill, so I applied for an open position in legislative affairs, so that's where I started. Then I had the opportunity, through some work I was doing, to be exposed to the commissioner and the deputy commissioners and top leadership, and they pulled me up to work for the deputy commissioner of operation support at the time, who then in — it was 2007, 2008 — identity theft really started to proliferate, and I had actually discovered I'm very good with the web. I discovered that there were some fake sites that were imitating the IRS and trying to get people to file with them. I discovered it because there are some years, right, where the tax deadline is not April 15. Sometimes, depending on if it's a weekend or there's a holiday in D.C., it can be a day or two later, and that was one of the years. All these sites were saying "April 15," and I knew they were fake.

We ended up determining that they were of Russian origin, so the bosses had decided we needed a dedicated privacy office. We did not have an office; we had a small group of folks embedded within — at the time, it was our wage and investment organization who worked privacy. My boss asked if I wanted to go with a more senior person — an executive — to help start off the privacy office, and that was my first executive role. I was in my early-to-mid-30s, so it was not your traditional trajectory in the government.

Paige Jones: Tell me a little bit about your role. When you left, you were the chief privacy officer, correct?

Kathleen Walters: Correct, yes.

Paige Jones: I imagine that's changed a lot over the years. Tell me a little bit about what your position entailed, or what were some of the big things that you all focused on more recently? Maybe with AI.

Kathleen Walters: It's totally different. We had two people, and then we grew to maybe 40 or 45 by the time I left and moved on to my next position. When I left this year, well, we hit our height of numbers in January — we were 650. The office had inherited other work from other organizations, including Freedom of Information Act work, which was a large portion. Our disclosure work was a large portion of the work we do. It's interesting; as a privacy officer, it's not just about protecting information, but it's ensuring that information that should be in the hands of the public, they have, for government transparency. It's a little bit of a dichotomy. AI, obviously, it's on the tip of everyone's tongue.

Paige Jones: It's everywhere.

Kathleen Walters: We developed, this past year, the first AI privacy policy for the agency, which I'm sure will continue to be edited as the technology improves and changes. Authentication, we owned authentication policy for the agency, so as we were trying to increase our online services to taxpayers, how we ensure you're the right taxpayer is critical. Balancing the burden on the taxpayer versus ensuring that they're the right person, that was a big point that we worked on.

Then there's just the traditional privacy stuff. Like I said, FOIA was a lot of our work. We get thousands and thousands and thousands of Freedom of Information Act requests every year, and the law requires a response within 20 or 30 days, which I believe doesn't necessarily reflect the complexity and the volume that we may have on any one FOIA case. We spent a lot of time on that, as well.

Paige Jones: Here at Tax Notes, we have put in FOIAs to the IRS, so I'm sure we created more work for you. But similar to you, it was in the interest of getting that information to the public, so I think sometimes we could maybe be at odds, but I think, ultimately, working towards the same goal.

Kathleen Walters: Right. The goal is that — being transparent where it's appropriate under the law, so absolutely. I do think it's very important, and right now, with everything going on in the government, I think it's even more important to know exactly what's happening.

Paige Jones: Yeah, so let's dig into that a little bit. It's been a tumultuous time at the IRS with the changes in leadership, the staff reductions, and now, just recently, we have the news that they're calling some people back. What has it been like at the agency from your perspective before you left, or even now, with knowing people who are there?

Kathleen Walters: It's challenging. We've been through a lot of challenging times, and IRS employees — I would say government employees as a whole, but I can speak personally — IRS employees are incredibly resilient, but there's only so much. We are on our seventh commissioner [or] acting commissioner since January, and the turbulence at the top has a trickle-down effect. A lot of uncertainty, a lot of fear for jobs. Are they going to do RIFs? They were going to do RIFs; they're not going to do RIFs. Now they're hiring people back. It's not a healthy working environment for people, and I give my thanks to those who are still there, trying to fight the good fight for the American public, because it's tough.

Paige Jones: Tell us a little bit about your departure, because I imagine you must feel a little conflicted leaving at a time when leadership is changing, and leadership is paramount. Tell us a little bit about your feelings.

Kathleen Walters: I was very conflicted. I've said it's the easiest and the most challenging decision I've ever made. I've worked for, if you go back to my Hill time, pretty much every administration, or with every administration, back to Clinton, and my job has always been to implement the policies of the administration.

IRS is an administrator, right? We enforce the laws; we administer them. We don't make the laws, and we don't make the policies. That's the Department of the Treasury and above, and the other agencies. Plenty of times, all administrations, there were things that, as an operator, you look at it and you're like, "This is just not going to work," because you've got a lot of people setting policies who are brilliant, but they've never run a complex operation. But it wasn't illegal, and we implemented, and we were usually, "That didn't really work."

But I was asked to do something and lead something and be part of something that, at the time, we had an opinion was not lawful. I have a clear boundary, not only because of my oath as an attorney, but also my oath as a federal employee. That was the easy part. The hard part was feeling like I let my employees down. Now, I feel like I'm going to cry. You're getting all Oprah on me, aren't you?

Paige Jones: I'm so sorry.

Kathleen Walters: Where she makes everyone cry. I had an amazing staff. Our folks are so dedicated to the mission not only of the IRS, but of protecting taxpayer data. Telling them I was leaving was probably — I know I did cry on that town hall — one of the most challenging things I've ever done in my career. When I announced I was leaving, all the executives who worked for me said they were leaving with me, so we left this critical organization at a very challenging time in the hands of senior managers, who, by the way, we picked the best ones, and they are amazing, but even for the most seasoned executive, dealing with what is going on in the government right now is hard.

That was really challenging for me, and I've kept in touch and have said, "Call me if you need anything," because that's what IRS leaders do. Our former leaders continued to mentor us, but it was hard, but also easy. You have boundaries that are clear, and once they're crossed, you really can't change.

Paige Jones: Yeah, I can't imagine being in that position. Your last day was April 28. I don't want to make you cry more, but can you tell us, what was that last day like? Was it in person? You mentioned a town hall; was it literally putting all your belongings in a box and walking out of a building with all the people who you had worked with and been with for so long?

Kathleen Walters: I'd say it was somewhat less dramatic than that, because most of my staff — I had staff in 38 states. I had very few people in D.C. In fact, most of the people in D.C. were the executives who were also leaving, and I had notice. I wasn't one of the folks, like you hear at the Department of State recently, who got five hours' notice that they were out, and they had to pack up everything and say their goodbyes in a few hours. I had announced that I was resigning several weeks before, so I had gradually been taking — I actually didn't have a lot of personal things in my office; I went to work to work, and there was a large period of time where we were doing more telework, so I had gradually — really, the last day, I hardly had anything to take out, because a group of us who were all leaving were doing a happy hour, and I didn't want to lug all this stuff on the metro and to the restaurants. I think it didn't hit, actually, until when I stopped going to work. That day was a little different, and then, all of a sudden, you wake up the next Monday and it's, "What am I doing?"

Paige Jones: You said something made you leave the IRS. Can you tell us about that something? Was it related to sharing the immigrant —

Kathleen Walters: It was.

Paige Jones: OK.

Kathleen Walters: It was related to sharing the immigrant data. There isn't an exception under our privacy code for immigration; there is an exception for individuals who are under active criminal investigation. It's a very complex exception. I know that your listenership is well aware of the complexity of the tax code, and one of our chief counsel attorneys had spoken with DHS when they initially came in requesting the data and had sent us an email that DHS had indicated they could not satisfy the requirements of the criminal investigation. That was for 700,000 names.

When I was thrown in at the end — literally thrown in — I was excluded from a lot of things in my last month or so at work, because I was considered a "blocker." That would be someone who was going to speak up if there were violations of the law. I was thrown in last-minute when, on the day, I was told that an MOU was to be signed with DHS that I had not worked on. It ended up not getting signed that day, but it ultimately was signed after I left, I believe.

But I was thrown in and, in that first conversation I had ever had with DHS and ICE, I was told that they ultimately felt there'd be 7 million. We all knew there was — if they couldn't prove it for 700,000, they couldn't prove it for 7 million. The IRS was standing firm on what the requirements were, but none of us from the IRS side on the call felt that DHS would comply with them. They'd sign off on it and then not comply, and we had no way to know and no oversight.

We do safeguard reviews of agencies under the law. My organization did that — agencies we share data with, we go in every three years. Every three years. It would be three years down the line, and then what? You can't take it back. One of the things I think — that's something I think about when I see what's happening with data: Once your data is out there, it's gone. It's not like if someone steals something from you and you can get it back, maybe. It's gone, and you don't know where it is and what it's being used for, and that's something I took seriously when it came to my job of protecting taxpayer data.

Paige Jones: It must be very complicated, in that this was a directive coming down from and a wish from the president. How did you balance, or how do you come to terms with — you're getting a directive from the president and, as you said, your oath as an attorney, your beliefs as somebody at the IRS who upholds data privacy?

Kathleen Walters: At the time, we had an opinion from counsel it wasn't legal, so it was a very clear line to me. Whether it's the president, the secretary of the Treasury, the commissioner of the IRS, if it's not legal — even the military does not need to follow illegal directives, and that is about as chain-of-command as you can get in the federal government. When I said it was easy, that was the line, and we had an opinion of our counsel. That decision was only hard because of the people, not because of what I was being asked to do. It was very clear at the time: It was not legal.

Paige Jones: Had you encountered anything else like that during your tenure?

Kathleen Walters: Never.

Paige Jones: No?

Kathleen Walters: Never.

Paige Jones: Not even that, "Hey, we want to do this," and then they heard back from you and you said, "Look, we can't," or, "This isn't legal"? No?

Kathleen Walters: No, never.

Paige Jones: Wow. Well, I want to turn to hopefully a little bit of a lighter note, and I want to talk a little bit about working motherhood. You've been writing a little bit about this on LinkedIn, which I love, about how motherhood has made you a better leader. With the constant stream of sicknesses, illness, all of the weird things that you get as a parent and have to take time off for, tell me a little bit about how motherhood makes you a better leader, or just a better employee.

Kathleen Walters: Well, you're only a good leader if you're a good leader of people, and a large swath of the people you lead have children, or they have parental care. They have all the things that life throws at you.

Before I had my daughter, for many years — I had her late, quite late in life, feel very fortunate I was able to have her — but I really couldn't relate to any of this. I was just working all the time, and if you don't relate well with someone, it's hard to be a good leader. I think that one of the things that motherhood did for me is really helped me understand the people I led and have more empathy for them.

Also, you have to juggle a million balls when you have a small child, and I was not as good at delegating before I had a child. You get into that mindset, "Well, I know I can do this well, so I'll just do it, and I don't mind, because what am I doing tonight? I'll just work all night." Once you have a child, delegation is critical, and delegating well makes you a better leader because you're bringing up other people. I was fortunate to have the most amazing deputy, the most amazing executive team, and if I had to not be there, I knew they had it covered.

There's so many things that I think motherhood was a benefit, although I did fear having a child would inhibit my career, and I actually took a step back out of the executive ranks after I had her for a couple of years because I didn't want to regret. You can always get a job, theoretically, but you're never going to get those pivotal years with your child. I was so thankful to have been able to have her at such an advanced maternal age, and it was the best decision, and it all worked out. Yeah, I think we underestimate what parenthood, as a whole, how it can shape you in a way that provides humanity, that helps you lead people better.

Paige Jones: You mentioned that it helped you relate to the people you were leading. This might be a little bit out of left field, but there are people with life experiences that you'll never have. How do you recommend leading those [people]? How do you approach that?

Kathleen Walters: Well, one of the things that I did as chief privacy officer — and I was also acting chief risk officer during a period this past couple of years — is I aspired to do one-on-ones with every employee. The chief risk office was very small, so I spoke with everyone, but the chief privacy office, I got to about 200. I would usually schedule two or three a week, 30 minutes, virtual, because they were not in D.C., and it was about whatever they wanted to talk about. This was prior to return to office; a lot of them were at home. You'd meet their pets, you might see their kid. How do you get to know someone? You listen to them. That, to me, I would recommend to any leader. It is time-consuming, but they were my favorite conversations of the week.

Paige Jones: In talking a little bit about motherhood, you moved back into that executive role when your daughter was very young. What advice, or what would you tell women, young mothers like myself — I have a 1-½- and a 2-½-year-old at home — or just entering the tax profession or thinking of entering the tax profession or the IRS, what would you say?

Kathleen Walters: There's a quote, which I've written about on LinkedIn, from Oprah that is somewhat — I'm going to probably slaughter and paraphrase it, but, "You can have everything, but you can't necessarily have it all at one time." I think you have to understand that there are going to be times in your career where you're not going to be able to put in maybe as much at work because your parents are ill or your child is ill, etc., and then there are going to be times when you need to give your all to work and you're going to need support, and that's OK for your job, and that's OK for your child, because that is what life is like, right?

Adulting is not easy. I think if you go into it with that mindset — that you can't just constantly be at a high level with everything in your life, you will burn out and you will disappoint yourself, because you're not going to be successful in all of the different things — that would probably be one of my best pieces of advice.

Paige Jones: That resonates for me, especially. I think we were sold the, "You can have it all," but you're absolutely right — just not all at the same time, because it's impossible to juggle sleepless nights with big things going on at work all at the same time. You can't operate well off of two hours of sleep with a child screaming in your ear.

You've worked a lot in data privacy and AI. What do you think is next?

Kathleen Walters: Well, one of the things I hate to say, because I don't want to bring folks down, but your data's already probably out there somewhere. Then it becomes a question of, OK, if you accept that that's likely the case for mostly all of us, then what can you do to protect yourself in the back end?

In terms of AI, if I knew where it was going, I wouldn't be looking for a job, because I would be investing in companies that were taking it there. I like to say, though, the thing about AI is that — I remember when the internet proliferated in the '90s, and I remember the first time I leveraged it. I had taken a class in Irish history, and I'm like, "I wonder if I can do any of the research here instead of reading books in the library," and I started finding all kinds of things. But then I thought, "Well, how do I know this source is legitimate?" Right? The internet, can you imagine life without it? I can't, but it had its own problems, and it still does, but it also serves a really good benefit to us. A lot of it is the intention of the people who are creating the sites, etc., and then the intention of the people who are using it.

AI is not that different, it's just that the technology is much more complicated. And one of the things I'm concerned about, if AI is pulling data from everywhere to get us answers, there is a large volume of misinformation and disinformation out there. How do you train AI to know what actually is legitimate or not? Just like how do I know if this website's legitimate or not? Some of the foundational issues with AI are not that different from foundational issues that we've had with other technologies; it's just a little more complicated, and the speed of the progression of AI is exponential. That's a challenge for the government, which tends to work slowly on regulating things.

Paige Jones: I'm going to ask the question that everybody wants to know: What is next for you?

Kathleen Walters: I am not sure. I am incredibly service-minded; I was not planning on leaving the government. I loved my entire experience there, I'd say possibly with the exception of 2025, so I have some guiding principles of what I'm looking for. I'm an operations expert, I've been in HR, privacy, I was our assistant deputy commissioner over all of operations, I was our deputy chief of staff, so I'm looking for operations jobs or chief of staff jobs. That's my skill set.

I have a mantra, "I would never recommend myself for a job I wouldn't hire myself for," and I've turned down some jobs because I've told the people, "Yeah, you're great, but I wouldn't hire myself for this particular position." But it has to be for an organization that has a compelling mission.

Paige Jones: Do you imagine that you'll return to the federal government, if not immediately, maybe in —

Kathleen Walters: I 100 percent want to return to the government in the future to help rebuild and fill some of the gaps that we've realized are in the law, and even in our potentially Constitution, which I hate to say — sorry, Founding Fathers, but there are some things that I don't think they anticipated, and we are experiencing that now.

There's no question in my mind: I will go back to the government someday in some capacity. I was 23 days shy of early retirement, which would've meant I would've had healthcare and everything after. The silver lining in that is, because I didn't qualify, I can go back.

Paige Jones: You mentioned that there are some changes in the law. Can you tell us a little bit about what you're thinking if and when you return? We'll say "when" and maybe manifest that a little bit. What would you look at changing immediately? What do you think is the biggest thing that you're like, "If I get back, this is what I want to do"?

Kathleen Walters: Well, that's a complicated question. I don't know, because I don't know where we're going to be at that point. I know where we are now, I don't really have a vision for what the future is going to look like, but what I can say is, as we've learned — "separate but equal" [branches of government] on its own seems like a wonderful concept, but if you have separate but equal, then who's the decider? We've always accepted the Supreme Court deciding, but separate but equal doesn't necessarily mean that's the case. In fact, back in 2000, whenever the Supreme Court decided the presidential election, I remember having a conversation. Gore was part of the executive branch, he was vice president, and I'm like, "Technically, it was separate but equal. Couldn't the executive branch challenge the judicial branch?"

We've always accepted the Supreme Court as the end of the story, but the Constitution isn't necessarily set up that way. There are a lot of things that I think we're going to need to reflect on, and I know I've been working with a lot of organizations on the side for fun — which tells you what my idea of fun is — to try to look at what's happened and what we know now and think about what we might need to fix, but where we'll be as a country and as a government in a year, six months, I don't know, so I can't say I know yet what it is that I would be best fit to help fix.

Paige Jones: Any last words that you would share with your fellow colleagues who are still at the IRS? What would you say to them?

Kathleen Walters: I had a conversation with a very high-level person who I had mentored years ago when I was leaving, and that individual is still there. Basically, first of all, I think some of the two most powerful words you can say to them and to federal employees is, "Thank you." I just flew this past weekend, and I was thanking all the TSA agents for what they did, so I want to thank them for continuing on.

Also, as I had told my friend when I was leaving, "Set your boundaries." Whatever they are, we all can set our own. Mine was what was lawful, and once you have boundaries and you're committed to respecting them, decisions become easy.

Paige Jones: Is there anything else that you would like to say or to share with our listeners?

Kathleen Walters: No, I just want to thank you for having me, and I really appreciate it.

Paige Jones: Thank you for coming on.

David D. Stewart: That's it for this week. You can find me online @TaxStew, that's S-T-E-W, and be sure to follow @TaxNotes for all things tax. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.

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