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.
Current issues & advice
- Unsurprisingly, newly installed President Biden’s tax plans are vastly different to the those of the Trump Administration. Some of the initiatives include a proposed increase in tax for individuals with an income of $400,000 or more (Obama set the threshold at $250,000). Corporate tax will rise by 7%, the estate tax exemption will drop by 50% and the Child Tax Credit will be expanded to include 17-year-olds and other US territories. CTC per child will increase by $1,000 and parents with children under six will receive an extra $600.
- Biden’s $1.9 trillion American Rescue Plan is mooted to raise $60 billion by increasing the tax paid by large corporations and the wealthy, through three distinct increases. Households with an income of less than $25,000 will see their income increase by more than 20% due to the new legislation.
- In February 2021, the Supreme Court rejected then-President Trump’s bid to prevent a New York prosecutor from obtaining his tax records, after an unprecedented two-year battle. Trump had been the first presidential candidate to refuse to release his tax records in the last four decades. The District Attorney of New York is investigating whether Trump or his organization committed tax and insurance fraud.
- The Organization for Economic Co-operation and Development (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.
- As well as this, the OECD is also focusing on raising tax revenue from digital businesses based on the location of users. There were concerns that this unilateral tax would fall disproportionately on large US tech and internet firms.
- The IRS’s 2021 report showed tax refunds are down 32% compared with the same time last year. The organization has put this down to a delay in this year’s filing season and fewer people filing their returns. Members of the House have asked the IRS to further delay the deadline, as Biden’s COVID relief package will affect the returns of those who received unemployment benefits.
- In 2020, the European Commission Executive Vice President Margrethe Vestager said the EU will continue with its new digital tax, despite the US’s effort to block it. The new tax is an attempt to prevent large tech companies from minimizing the tax they pay in Europe through various avoidance measures. Back in 2016, the European Commission ordered Apple to pay Ireland €13 billion in back-taxes, the largest corporate tax fine in history. Fast-forward to 2020, and the European General Court ruled in Apple’s favor, though the Commission will appeal the ruling.
- The EU may also file a complaint with the WTO and has even proposed including the US on a blacklist of tax havens. If the EU gets its way, parts of US tax reforms may be repealed, or sanctions could be slapped on the US. In 2020, the Cayman Islands, Palau, Panama and the Seychelles were added to the EU’s naughty list.
- 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.
- Eleven states now tax recreational marijuana: Alabama, Arizona, California, Colorado, Illinois, Massachusetts, Michigan, Maine, Nevada, Oregon and Washington. Five more have plans to introduce a tax in the near future Washington earned the highest amount in marijuana tax in 2018, estimated at $439 million. The state spends the profit on health care programs.
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.”