Terry Gerton Here on Federal News Network, we’ve talked quite a bit about what’s happening to the IRS workforce in general, but we haven’t explored the specific issues with the Office of General Counsel and the tax attorneys. There’s been a tremendous reduction in that workforce. What does that mean more broadly for the IRS’ functions and responsibilities?
Gil Rothenberg I think there are there are negative repercussions of that. And basically, as I’ve explained to others, it it has to do not only with the people that are not there anymore, but also what I refer to as a brain drain. Lots of people in the tax community, my old position as head of appellate at DoJ Tax, I had employees, attorneys with a lot of experience handling a lot of difficult cases. And when I dealt with IRS — IRS was my main client — there were a lot of people at IRS with similar expertise. And my main worry is you’re gonna lose a lot of the expertise. And when it comes to complex tax issues, the people that have been there and done that have the experience to know, ‘oh, well, this particular issue bleeds over into another issue.’ And so that’s my main worry, besides just not having enough people, is not having the right people.
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Terry Gerton Well you mentioned the DoJ’s tax appellate unit. They’ve also seen a pretty significant reduction, at our numbers say about 40% exit rate. So combined, what does that mean for the the court’s ability to handle the various especially corporate tax cases?
Gil Rothenberg Well, number one, I don’t think the judges are going to be happy because it typically will be a longer process in terms of when will a case be ready for the appellate courts. You require the parties have to file appellate briefs, extensive appellate briefs. If there’re 40% less people, that means it’s gonna take longer and there’re gonna need to be extensions of time and that is going to delay resolution. And actually that’s not good for either the government, and it’s not good for the taxpaying public, because taxpayers, lots of times interest is still running, and taxpayers need to have a final resolution of their case. And I think this is going to delay that process. And especially when you’re dealing with corporate matters, typically they involve millions, if not tens of millions of dollars in tax. And as I mentioned, interest runs on that. So to me that’s, just from a procedural point of view, it’s bad for the system.
Terry Gerton The longer a case stretches out, typically the more expensive it is, just because you’re accruing all kinds of legal costs along the way. Does that motivate either DoJ or IRS to pursue more settlements or be less aggressive in their enforcement?
Gil Rothenberg Well, I think that could be a natural result. Now, in terms of settlements, most tax settlement first of all, most tax disputes don’t end up in court, okay? So you’re just dealing with IRS. Most of the time, if there’s a she-said-he-said or evaluation question, most of the time those do get settled. Settlements will take longer with fewer IRS employees because there are fewer supervisors to oversee that process. Okay, so that’s going to be delayed. Will it mean more settlements? I mean, I can certainly envision a situation where if there’s not enough people to do the job. You might decide, do I really want to hold out for an 80% settlement? Maybe I’ll settle for a 60% settlement. And I remember when I was a much younger attorney, that when we were understaffed, one of the questions we had was, well, do we simply not even file an appellate brief in a case that we deemed to be inconsequential and frivolous, because hopefully the courts can figure it out themselves. Well, even though we considered it, I decided I really didn’t want to do that because I viewed part of our role is to make it easier for judges who are not tax experts to understand the issue. Even though in many instances the government was going to win because the taxpayers’ argument simply would have lacked merit, I still wanted to file something with the court so the judges didn’t have to wade through everything and could just understand, oh, yeah, we know what’s going on. So to me, I decided not to do that, and we did stretch out a few cases. But I think when it comes to IRS audits and things at an earlier stage before it gets to litigation, I think you will see more settlements, and more settlements in the taxpayers’ favor than might otherwise be the case if the IRS was fully staffed.
Terry Gerton I’m speaking with Gil Rothenberg. He’s currently an adjunct professor at American University’s School of Law. Well, you’ve noted that these experienced lawyers aren’t easy to replace, and there are many significant cases, I guess, before the courts, with major corporations. Does this incentivize the companies to exercise a little different legal strategy, or they’re leveraged in how these cases are gonna play out?
Gil Rothenberg Well, it’s very hard to quantify that, but in terms of what I like to tell people is that when I was working at DoJ tax, we were never out-lawyered. And we were never out-lawyered, even though we were facing some of the most sophisticated and capable tax attorneys in the country. When it came time to presenting the legal arguments, I had enough expertise in my office and enough top-notch tax specialists who were lawyers who could litigate that we met on an even, it was kind of an even process. Well, what I worry about is that, okay, so many of those top lawyers who used to work in my office are gone. Now, yes, there are attorneys who are stepping in; they have less experience. Will they be able to craft as persuasive of a product? I think eventually, yes, but that takes time. And as I I did mention to Bloomberg a while ago, I view part of the problem also is who is going to be the next group of tax specialists that will that will work for either IRS or the DoJ tax group that’s now been folded into the civil and criminal divisions? So a lot of times when I would interview potential hires, I could explain, okay, this is one of the best places in the world to work if you’re a tax lawyer. And I still believe it is, but it’s going to be harder to recruit them in this environment that is so highly politicized. Even though tax really is and was apolitical, you still have the view that, okay, am I still going to have a job next year? So forth. I didn’t really have that worry when I was working at DoJ.
Terry Gerton So that’s a pretty clear articulation of the pipeline challenge, making sure that you’ve got legal tax experts coming up through the process, but DoJ is also reorganizing their tax appellate group right now. What does that tell you about the administration’s intent in pursuing these really challenging tax cases?
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Gil Rothenberg Well, that’s kind of a hard question to answer. I am somewhat optimistic because my understanding is even though the tax division as a separate entity with its own Senate confirmed head is going away, the tax group, the civil tax group that includes all of the trial people and all of the appellate people on the civil side is being folded as a discrete unit within the civil division at DoJ. So I think that tax expertise will be kept intact. And the same thing on the criminal side. Even though the criminal tax folks are moving to the criminal division, they’re still going as a unit. So I am somewhat optimistic that the tax expertise will be kept intact, even though the tax division itself is going away. At least that is my hope.
Terry Gerton When you think about all of these challenges, what’s the risk to the government’s ability to recover revenue in the long term?
Gil Rothenberg Well, I think it inhibits that. I mean, there were many cases in which, on these corporate tax shelters, there was a clear incentive for the government to say, ‘okay, if it was something that IRS and DoJ said was an illegal tax shelter, we were not gonna settle that. We were gonna go to litigation and the tax community was going to understand that if you have clients that are going to be into this type of program that we think is abusive, you are not going to get a favorable settlement, you’re not going to get a settlement at all, because you’re wrong, at least in my perspective; the government’s right. And in most of those cases, the so-called abusive tax corporate tax shelters that was in the forefront about ten or fifteen years ago, the government prevailed in almost all of those instances.
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