In a nutshell
“Tax touches virtually every aspect of the economy,” says Leslie Samuels, senior counsel at Cleary Gottlieb. Accordingly, tax law encompasses a variety of activities, from transactional support and structuring to tax planning and tax controversy.
Working alongside corporate lawyers, tax attorneys ensure that transactions are as tax-efficient as possible, be they centered on public or private M&A, capital markets, investment funds (private equity, REITs and mutual funds), joint ventures or partnerships. Tax planning advice requires familiarity with all relevant domestic and international laws, and it is essential to have an understanding of clients’ overall objectives and the structuring of their businesses.
Tax controversy is more of an independent category, covering a range of contentious tax issues. These include tax-based litigation, IRS examinations and tax shelter investigations. Disputes are usually resolved at the administrative level. Transfer pricing is also grouped with tax controversy.
What lawyers do
- Advise clients on the tax elements of transactions.
- Analyze cases and regulations to develop a real understanding of the tax implications of transaction structures. Findings are summarized as memoranda or given through direct counseling.
- Negotiate terms dealing with the tax aspects of transactions.
- Draft agreements, especially for M&A and joint ventures, which are particularly tax-intensive. An important element is the drafting of tax disclosures.
- Liaise with other non-tax lawyers and clients to ensure the smooth running of transactions.
- If working in tax controversy, negotiate with the IRS, respond to IRS questions, and draft memoranda and briefs.
Realities of the job
- Tax lawyers need to keep up with all new developments in both the law and the economy as a whole. This is especially important for a young lawyer, who needs to build expertise. The law is always changing.
- By keeping up to date, tax lawyers can become real experts and even innovators within the legal landscape. With experience, they may be able to offer a solution to a tax issue that has previously been unsolvable. For example, the tax lawyer will produce a new financial instrument that becomes accepted by the market. This will sometimes prompt the government to review its regulations.
- It’s vital to have an affinity for reading case law and regulations, as this is how juniors will spend some of their time. They must be able to rationalize their findings and summarize them accurately.
- Tax lawyers must have full confidence in their advice. The research must be methodical and complete.
- In order to ensure that commercial transactions are as tax-efficient as possible, tax practices work closely with corporate departments and understand the non-tax issues that drive transactions. A successful tax department can be a useful marketing tool for firms looking to attract new clients.
- Tax lawyers need to express themselves clearly and concisely. Solid technical knowledge is essential, as is the ability to explain technical information to non-experts.
- Excellent interpersonal skills are a must. Tax controversy can sometimes involve liaising with the IRS, and it is important that lawyers be upfront and straight-talking. They may also work with international clients, so cultural awareness is important.
- Lawyers have the chance to work on a variety of matters, including charity and pro bono. They are expected to comment on proposed regulations and may also give tutorials to colleagues and clients.
- Tax lawyers sometimes break up their career by spending time working for the government, notably the IRS.
- The Trump administration has made tax reform a key policy. In 2017 the President signed the US Tax Cuts and Jobs Act bill, cutting corporate tax from 35% to 21%. The measures were intended as a means to encourage the market and stimulate the economy, though the bill has attracted critics on both side of the aisle and the changes are expected to add more than $1.5 trillion to public debt over the next decade.
- Oil giant BP expects a one-off $1.5 billion charge as a result of tax reforms, which will affect its liabilities and deferred assets. Like many multinational companies, BP expects the new tax regime to be positive for its balance sheet in the long-run.
- Globally, there has been more cooperation regarding tax havens and information exchange to address the role of businesses in eroding countries’ tax bases. So far, 113 jurisdictions have Foreign Account Tax Compliance Act agreements with the IRS to some degree, which has helped create greater lines of communication between the IRS and foreign financial firms. The IRS's offshore voluntary disclosure program allows overseas account holders to rectify any tax shortcomings, thus warding off the threat of penalty action.
- International transfer pricing has given some of the world's biggest companies a headache recently, as high-profile cases involving Amazon, Apple and Facebook have demonstrated. The movement of goods and currency across borders throws up various tax issues that authorities have been getting stricter on.
- Following the Supreme Court's approval of same-sex marriage in June 2015, gay and lesbian married couples may now file joint tax returns at state and federal levels.
- Heads up, readers, this one could affect you: effective as of the 2016 fiscal year, students who wish to qualify for tax breaks on educational expenses must now file a copy of the 1098-T Tuition Statement form before applying.
- The US is the only major economy not to have a value-added tax (VAT) system. However, there is a belief among some experts that a federal VAT system could be introduced in future.
What top tax lawyers advise
Leslie Samuels, senior counsel, Cleary Gottlieb:
“It’s important to keep your eyes and ears open to make sure you understand everything about the transaction so your advice is the most effective it can be.”
“You don’t have to be a math genius to be a very successful tax lawyer. You’re dealing more with concepts. We don’t prepare tax returns, and we certainly don’t get busy before the tax filing dates.”
“To the extent that tax lawyers think they’re just servicing the corporate lawyers, it’s a total mistake. The work is so much broader than that.”
“Keeping up with developments is exciting and demanding. There’s so much you have to keep up with every day! But that’s how you become an expert, which is one of the attractive aspects to practicing tax law. You really can become the go-to person who knows everything about topic X.”
Basil Zirinis, partner, Sullivan & Cromwell:
“Because it's such a human area of the law, it can be extremely emotional. Do you leave assets outright? Do you trust your family? There is no right answer. When families are fighting they want you to help them settle it, but given the emotions and family history it can very difficult. It's not about 'right' or 'wrong' family members, it's just that there is often no clear or perfectly right answer.”
“Students should definitely take as many tax courses as they can in law school - including corporate tax. The more of a background they have in tax, the more helpful it will be.”
“The broader the courses you take, the better off you'll be. We do everything from corporate law to litigation in our practice – so the broadest possible academic experience is important.”
“An international perspective on the world in general is helpful, especially because the explosion of wealth is global. It's not US and Europe any more. It's increasingly mobile – China, Latin America, etc. That's where the most interesting work will ultimately be for young lawyers, so languages are extremely important.”