A day in the life of your favorite tax attorney - By Daniel L. O’Neil

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on 18 February 2016
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My partner Sal and I spent last Friday on the University of Houston campus meeting with law students and lawyers looking for work at the Small Law Firm Open House

Many students had an interest in tax law and made a bee line for our table to talk to me and deposit their resume along with a cover letter; but few actually had a grasp on what an actual tax practice looks like.

It’s a reflection of some of the larger issues within the law school curriculum as currently constituted that not a single law student with an interest in tax understood or articulated the basic bifurcation between tax planning and tax controversy. In between teaching arcane cases (that serve their own purpose) and helping students learn how to read the Code (essential) practical stuff might be a good idea to mix in there as well. I am trying to land an adjunct position at UHLC or STCL so my course proposals (as an adjunct professor with a full-time private practice as a partner at a law firm) focus heavily on practical experience to give law students the skills and the vocabulary they need to crush job interviews with tax practitioners if that is where they want to apply their time and talents after law school.

Let’s talk about a tax practice.

Tax Planning


Planning requires that you know what the rules and limits are. You need to appreciate where the grey areas are and where they are not. You need to be able to identify and analyze alternatives. You need to be able to explain pros and cons of these alternatives. Planning is interesting because you get to walk up “to the line” and put your nose on it. But you need to know enough that you don’t actually cross the line, or become a habitual line-stepper because there are numerous consequences – and tax ethics are important.

Snapshot/types of cases:

Estate Planning: for families with the big bucks you are juggling estate tax, gift tax, generation skipping transfer (“GST”) tax, income tax for the Testator/Settlor, income tax for the beneficiary, and other potential tax considerations. Estate Planning is not “one size fits all” for (pick any reason) and the unified credit limits change each year, sometimes inconsequentially like last year to this year, but sometimes there are huge changes – such as those proposed by premiere Presidential candidate Bernie Sanders. You also might need to discuss old outdated law if your client did all of their estate planning stuff decades ago before portability; and for our GLBTI clients, to talk about the impacts of Post-Obergefell marriage on estate planning maneuvers such as the unlimited marital deduction or other preferential tax treatment that lawfully married couples receive over unmarried individuals. For families without estate tax style issues there are still numerous other planning issues and opportunities and you need to be able to discuss these with your clients. These can include the pros and cons of transfer on death deeds, tax consequences of JTWROS, and more. The estate tax at current levels hits less than one percent of American families – and it is very easy to plan around at the moment as long as you invest several thousand bucks in a lawyer, which is very cheap considering the 40% tax bill the family you leave behind will face if you did not appropriately plan. With a Sanders administration significantly more American families will be needing to plan; but with a Republican in the White House the most likely outcome is that the estate tax disappears, or is raised to such a high level we are never going to see a client needing tax planning that way ever again. You are not getting the full benefit of a comprehensive estate planning package if you are not getting tax advice as part of the plan. Tax lawyers are estate planning lawyers – but not all estate planning lawyers have the prior education or experience to advise you on tax issues if all they know is printing out forms from the internet for you to sign.

Business Planning:  at the formation level (which is one of our busiest areas at the moment) you have to focus on the choice of entity conversation to discuss options, benefits, and burdens before you start filing anything. You need to explain the tax consequences. You need to talk business basics about par value or no par value. You need to issue spot about the company agreement (or bylaws) and internal governance matters from a compliance perspective. You need to talk about the franchise tax. You need to have a firm idea of what the business is going to look like in the tax year and how that is going to change over time. This is important for conversions, mergers, and acquisitions later on. It is also important in the start-up world if there is serious talk about venture capital (“VC”) or private equity (“PE”) funding potentially entering the equation. This also loops back into the Estate Planning practice area when the discussion turns to a business succession plan and the potential tax consequences involved with that. Someone who just has you sign documents and files them the appropriate places is not a good business planning lawyer – there are potential tax impacts with everything you do, so you should probably have a chat with a tax lawyer about those matters. Tax lawyers are business planning lawyers even if they don’t claim “business lawyer” on their avvo webpage.

Retirement Benefits: in the tax world retirement benefits is a highly specialized area and is traditionally regarded as the most complicated, where only “true believers” go since they find that highly specific area of the law fascinating dealing only with advanced and high dollar executive compensation issues. I had an amazing teacher in the Tax LL.M program with David Pittman in charge of the Taxation of Compensation course, and we discussed the fantastic television program Archer as well so it was a well-rounded academic experience. The retirement benefits kind of work we consistently see today though are Qualified Domestic Relations Orders (“QDRO”) in Texas family law cases. Not every family law case is going to have need for a QDRO, but I will help you out with that from start to finish. Not every Texas family law firm wants to deal with QDROs so you might hire a divorce lawyer from another firm and then figure out down the line they are referring you out to someone else you have never met before, on the other side of the state to do the QDRO. We don’t do that here at Frye, Oaks, Benavidez & O’Neil, PLLC – we help you out with your lifetime legal needs here in house.

Exempt Organizations: this helps an entrepreneur’s dream come true to finally be in a position to form a nonprofit and give back to the community that gave them so much. We help form and operate exempt orgs. We help them secure tax exemptions they are entitled to. We advise on other matters at the executive level of nonprofits. They do great work and we are happy to help them get where they are going within the confines of the laws governing nonprofits.

Those are the main flavors of planning matters we see coming through the door for our help. There are always one-offs of other planning matters in the real estate world, oil & gas world, and unusual state & local taxation (“SALT”) matters. The benefit of a Tax LL.M is that most people trust you to get the right answer, even if you do not walk around town already knowing what the right answer is.

There is a lot of reading, research, and analysis to even get started. Most times your work culminates in a tax opinion letter that the client is going to rely upon and take a tax position that might challenged. Even though you are just in the planning world, you are still taking on a fair amount of risk when you advise because no business owner (or individual) is happy when they receive a Notice of Examination from the IRS.

Tax Controversy

About: When your planning advice above (or preferably, someone else’s planning advice) is challenged by the IRS or a state taxing authority on the tax position they took, a tax controversy lawyer steps in and defends the position. Tax Controversy requires sophisticated analysis to understand not only the position the taxpayer took but also how and why the IRS is challenging it. This matters because you can sometimes negotiate a deal where your client wins even better than the original position they took and the IRS will sign off on it. BUT PAST OUTCOMES DO NOT GUARANTEE FUTURE RESULTS – just to be clear.

When you go looking for clients you are competing with CPAs and EAs (Enrolled Agents) as a tax lawyer. EAs have no formal educational requirements, they just take a basic test to get their credential. They have the least education and experience – so they are the cheapest option and tend to take a lion’s share of the business. Certain kinds of tax controversy matters are actually better suited for a CPA than a lawyer at the administrative level; but the issue is they can’t take the matter into court and up on appeal if the issue is not going to stay on the administrative end. CPAs have had a fair share of coursework and passed a complicated series of exams to get their credential. Tax lawyers with a Tax LL.M tend to have the most education, and the advocacy skills developed in the law school process. Tax lawyers can make the seamless transition from administrative to litigated controversy if the issue needs to go that route. But just to be clear – none of the three types of tax controversy professionals should ever guarantee anything and you should know that past results absolutely do not guarantee future results.

Traditional tax controversy:

IRS Examination: these are the most difficult because you are typically dealing with a Revenue Agent trying to make a name for themselves within the IRS, or you are dealing with someone fresh out of school and doesn’t have much practical experience, or you are dealing with someone who was demoted from a better job and they are bitter and going to take it out on your client. There are a thousand ways to blow an Examination – not responding to Information Document Requests (“IDRs”) or returning incomplete responses or redacting every document so thoroughly it looks like it was produced in a FOIA request from the Bush administration. The tax issues themselves matter the least and sophisticated advocacy skills usually matter the most in Examination. Examination is usually not the best forum to argue complicated tax analysis.

IRS Appeals: this is the best forum to argue sophisticated tax analysis since you are dealing with the Varsity level of the IRS. Appeals Officers have the best education, training, and experience. They can realize when the Revenue Agent went rogue in Examination. They listen to your arguments and follow along with your analysis of the law applied to the facts. Their job is to resolve tax controversies without litigation on a basis which is fair and impartial to both the government and the taxpayer and in a manner that will enhance voluntary compliance and public confidence in the integrity and efficiency of the Service. This is a very important mission statement. And they do it very well with extremely limited exceptions. Their job is to prevent the controversy spilling into the court system.

Fast Track Mediation: for certain kinds of audits, you can take a detour from IRS Appeals to Fast Track Mediation. This is not appropriate for every audit and not every case is even eligible. But the alternative dispute resolution (“ADR”) process really does speed things up and usually provides pretty favorable results for the taxpayer. Fast Track Mediation has a very experienced Appeals Officer from a different office serve as mediator between the taxpayer and the Revenue Agent. The mediator has seen enough and knows enough to really cut through the posturing and decide what the better argument is for the taxpayer based on the law and the facts. The benefit of the mediator being an IRS employee is that they can lean on the rogue Revenue Agent if they are being completely unreasonable in their position.

Post Appeals Mediation: for certain kinds of audits, if you got a bad result from the Appeals Officer after the in-person Conference, then you get another shot at ADR. Post Appeals Mediation is a last bite at the apple before you have to go into court so there is almost no reason not to give it a try, if your case is eligible. This provides a final “sanity” check on your tax position with the IRS and forces their hand to dig in to their position. This is valuable “discovery” before they will bury you with real discovery with real deadlines once you go into court. Discovery in a tax case is very, very expensive because it is very time intensive. Post Appeals Mediation gives you an option to avoid that and avoid court altogether, which most taxpayers like the sound of if they are eligible to give ADR another (or a first) try.

When you go “into court” for some types of cases you have a choice of venue – Tax Court, District Court, Court of Federal Claims, or possibly Bankruptcy Court. Some types of cases do not have a choice of venue and you are stuck with one. But if you have the choice, it is a very important choice to make. This is part of your main advising in the controversy process. There are straight tax cases (statistically, most likely to go into Tax Court) and then there is litigation with a tax nexus so this helps start the analysis.

Tax Court has judges that specialized in tax practice before they got on the bench. You want complicated, sophisticated tax arguments to go to Tax Court for the most part so their expertise knows what to do with these complicated cases. District Court for the most part has judges that come from more of a civil litigation or general practice, than focusing on tax. To limit costs for small cases you can elect a simplified procedure in Tax Court to speed things up but you offset by giving up appeals. There is a lot to consider in the choice of venue.

If the matter isn’t resolved at trial then you go through appeals, potentially all the way up to the Supreme Court of the United States – they don’t hear many tax cases but they do hear some.

Scope of representation is important in knowing what you are hiring your tax controversy lawyer to do – are they just doing Exam? Or will they also do Appeals, FTM, and PAM? Are they admitted in Tax Court, like me? Are they admitted in S.D.Tex and N.D.Tex like me? Are they admitted in the 5th Circuit to handle appeals, like me? Are they admitted in SCOTUS if you have to go there? (One partner at my firm is admitted there, my application package is there and being processed so I should be admitted there as well soon!)

Nontraditional tax controversy:

In terms of how bad an audit is going for you, sometimes you get a visit from two IRS Special Agents. Unlike the Revenue Agent that is usually nice and mild-mannered, these Special Agents are criminal investigative officers and carry guns. They are not there to talk about the Astros and the weather with you. They think you are a criminal and they are trying to get the smoking gun they need to turn over to the Department of Justice who can then bury you in federal prison for decades. There are also the companion state offenses – usually the Feds take the lead on prosecuting since they have better resources, but maybe it is political and the State wants you first. And then there are other sorts of issues that involve tax in one way or another, such as UPL.

Federal Tax Crimes include failure to file, tax evasion, making false statements, tax fraud, evasion of payment, failure to supply information, failure to keep records, fraudulent withholding, motor fuel excise tax offenses, aiding or assisting the preparation of a false or fraudulent document, removal or concealment with intent to defraud, attempts to interfere with administration of the tax laws, conspiracy to defraud the government, false/fictitious/fraudulent claims, conspiracy to commit offense, fictitious obligations, identity theft, and more. There are also companion State White Collar Crimes for the same sort of fraud flavors. And there are also the Unauthorized Practice of Law (“UPL”) issues that do come up occasionally – these can lead to a criminal prosecution if not taken seriously and appropriately handed early on. When the “practice area” that led to the UPL complaint and investigation against you is in the tax arena, you might think about picking up the phone and talking with a tax lawyer that also served as an investigator on the District 4 Subcommittee of the Texas Unauthorized Practice of Law Committee.

A day in the life of your favorite tax lawyer touches many practice areas, because tax affects literally every single practice area from family law to criminal defense to personal injury to bankruptcy. A day in the life of your favorite tax lawyer impacts many people too, for the good things (entrepreneurs starting new businesses or finally forming that nonprofit to give back to the community) as well as the bad things (notice of examination or unexpectedly coming home to two IRS Special Agents on your porch.) If you need help with a tax issue, any sort of federal or Texas state tax issue, we would love to start a conversation with you today.


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