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, whether they're 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, cutting corporate tax from 35% to 21%. This and other measures are intended as a means to encourage the market and stimulate the economy, though the bill has attracted critics on both side of the aisle. One interesting fallout from the cuts is that capital expenditure has grown for a couple of quarters since they were made.
- Oil giant BP took a $1.5 billion charge as a result of the tax reforms, which affected its liabilities and deferred assets. In the long run however, like many multinational companies, BP expects the new tax regime to be positive for its balance sheet.
- The IRS has been churning out guidance and new tax forms to clarify the new reforms, something lawyers and tax advisers will likely be grateful for given the substantial impacts they have. However, this has been complicated due to a new set of procedures that require the Office of Management and Budget to review every regulation. This is further exacerbated by the fact new proposed regulations require a public comment period before they can be revised and finalized.
- The EU has gotten in on criticism of the reforms, with the supra-national body asking the OECD’s forum on harmful tax practice to review the legislation. The EU may also file a complaint with the WTO and include the US on a blacklist of tax havens. If the EU gets its way parts of the reform may be repealed or sanctions could be slapped on the US.
- Abroad there have been efforts to increase the amount of tax tech companies pay. France and Italy for example have claimed that local affiliates or service provides are ‘permanent establishments’ and must pay local tax. These were not too successful as Google and Valueclick won cases opposing the new rules. Dawn raids have also been used against tech firms perceived to be dodging what they owe, including Amazon, Google and Microsoft.
- The OECD has also proposed widespread reforms to international taxation. These include expanding the criteria for who has a taxable presence, setting minimum global taxation levels and inventing a new class of factors and assets to expand who and what can be taxed. Whatever the outcomes of these proposals their effects are some way off. At the time of writing, the OECD is seeking public comments on these proposals and will aim to have a consensus on what to do by 2020.
- 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 more than 100 jurisdictions have Foreign Account Tax Compliance Act agreements with the IRS, 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.
- 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 and should be introduced in the 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 just about the US and Europe any more. Wealth is increasingly mobile with China, Latin America, etc. all involved. That's where the most interesting work will ultimately be for young lawyers, so language skills are extremely important.”