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IRS Tax Lawyer: From Tax Strategist to the Government

Apr 15, 2019

Deepan Patel explains his role at the IRS. While the IRS has many types of lawyers, he focuses on business taxpayer guidance, which ensures certainty for businesses making major decisions. He describes how he got into tax, where his career might go, and trade-offs between government and private practice. Deepan is a graduate of Florida State University College of Law.

Transcript

Host:

From LawHub, this is I Am The Law, a podcast where we talk with lawyers about their jobs to shed light on how they fit into the larger legal ecosystem. In this episode, Kyle McEntee interviews a tax lawyer with the IRS who highlights how expectations differ as a government lawyer compared to the private sector.

Kyle McEntee:

We're joined today by Deepan Patel, a lawyer for the IRS and 2013 graduate of Florida State University College of Law. Prior to working for the federal government, you worked for PricewaterhouseCoopers in their tax group. Although your job at PWC did not require a law license, you and almost everyone else there were licensed attorneys. Before getting to your current job with the IRS, I want to start with that first job at PWC. Can you tell us what sort of work you did there?

Deepan Patel:

Right out of undergrad after graduating Florida State with an economics and finance degree, I got an opportunity with PWCs risk assurance practice. It was a great experience. PWC was a well-known brand and people I worked with were tremendous in terms of teaching and learning. After two years of doing that, I really thought that I got a good bit of experience in terms of how businesses worked and their internal business cycles, but risk assurance and internal audit wasn't really where I saw my career going in the long term, and I've always really been interested in law and so I decided to go back to Florida State to get my law degree and while I was there I was exposed to international tax.

I actually went to the on-campus career fair that we had. One of my old mentors when I was in the risk assurance practice, he was actually at the table recruiting. He mentioned there's actually a group PWC in international tax that really focused his on law and the application of law and tax, and I actually got an internship during my 2L year in law school at PWC doing international tax. After my internship, I had a great experience and I was able to get a full-time offer after graduation from law school.

Kyle McEntee:

Were you able to get a lot of value out of your work at PWC in terms of knowing what sort of practice area you'd want to study and eventually go into?

Deepan Patel:

I mean, I think having work experience definitely helped me in terms of focusing where I wanted to take my career. I mean wasn't 100% set on tax law. At the time, I thought tax law was basically filling out tax returns and kind of dealing with tax litigation, and so it didn't really appeal to me at the time. I took some classes, some intro, federal tax corporate tax and they were interesting to me, but I really didn't have an idea of what a tax lawyer actually did. Knowledge of the background of how the tax system worked and how taxes were calculated and things like that, but I didn't really get a full sense of what day in the life of a tax attorney would be like until I actually did the internship. And I think that's what really kind of solidified me knowing that I kind of wanted to take my career in tax.

I think when I started law school, my 1L year, I wanted to do corporate law. I think just by proxy of watching shows on TV, it just looks appealing to be a big corporate lawyer. But when I did a little bit more research, I really thought it was more so drafting contract language as opposed to being in the planning stages of meetings with C-level people at companies and really thinking through how they want to accomplish their goals and how they're going to get their end product to their final customers or where they can set up holding company structures to really set up their business and their organizational structure. I think once I understood that difference and the exposure I would have in those two career fields, I really saw myself being more interested in international tax as opposed to corporate law.

Kyle McEntee:

So it sounds like taxis dealing with more of the strategic business planning side of things as opposed to the kind of grindy paperwork side that might be more associated with corporate legal work.

Deepan Patel:

Yeah, yeah, exactly.

Kyle McEntee:

And that's kind of the experience that I had with the one tax class I took where I was actually really pleasantly surprised to find how interesting and engaging the material was.

Deepan Patel:

For me too. I was actually surprised. I thought it would really be a lot more number crunching and in the weeds of figuring out how this one transaction would impact this one bottom line tax number. And when I actually got exposure to it, I saw that it was really just thinking through how businesses would work and how we can structure a transaction or structure an organizational structure to really meet a company's goals. You kind of translate that back into the business side of things in saying, yeah, this is from operational standpoint, this is what we want to accomplish, does it work from a number standpoint?

Kyle McEntee:

Can you give us an example of what one of those strategic decisions might be or the kind of different structures that a corporation would have to consider?

Deepan Patel:

One client I had was a pharmaceutical company that was based solely in the United States. They were planning to come out with a new drug they were hopeful they would receive FDA approval for. In preparation for that, they were hoping that we can come up with an efficient tax strategy going forward. And so we presented them with different jurisdictions where they could transfer their intellectual property to and gave them options between Ireland, Luxembourg and other countries where there were very favorable intellectual property regimes. And so we gave them the tax standpoint of it. We were also able to show them business operational-wise, which jurisdiction would work best with their operational product flow. Given that the company was planning to expand in Europe, the company decided that Luxembourg would be the best jurisdiction to set up a regional holding company and transfer and sell their intellectual property to that Luxembourg subsidiary.

By the US company selling its intellectual property to its Luxembourg's subsidiary, every time a good was sold, whether it's from the US entity or a foreign entity, that entity that sold the product would have to pay a royalty fee back to the Luxembourg entity. And as I mentioned, Luxembourg was a IP favorable regime so that royalty income would be subject to a lower tax rate, and so effectively that US corporation would lower its tax effective tax rate. So if I sold a good for $100 and my cost of goods sold was say 10, usually I would recognize $90 of income. But in this scenario of that $90 in income, a subsequent royalty fee would be paid to Luxembourg to reduce that $90 of income even further.

Kyle McEntee:

This sounds like the reverse merger, which some of our listeners may have become familiar with as it's become criticized on the news.

Deepan Patel:

Yeah, I think much of what the television soundbites speak to, it's really just, hey, corporations aren't paying their fair share of taxes and there's some truth to that, but I think a lot of it is really corporations are working with the tax laws and the benefits that certain countries are offering to help lower their effective tax rate. I don't necessarily see something wrong in that. I think there's a certain point where I think it does become abusive, but I don't think most corporations take it to that point just because of one, I think it's just not the right thing to do, but also I think it's just not worth the audit risk.

Kyle McEntee:

About eight months ago you transitioned from a non-legal job at PricewaterhouseCoopers to a legal job within the IRS and the Office of Chief Counsel, and before getting into the day-to-day of what you do there, I think it would help a lot for our listeners if you could explain sort of the organizational structure and what exactly it is the Office of Chief Counsel does

Deepan Patel:

In short, basically what Office of Chief Counsel does is we're basically the lawyers for the IRS. The Chief Counsel provides legal guidance and litigation support to the IRS as well as the Departments of Treasury and Justice, mainly pertaining to matters with the enforcement and administration of the internal revenue laws.

Kyle McEntee:

Can you describe how the Office of Chief Counsel is structured?

Deepan Patel:

The Chief Counsel, it's Michael Desmond, and under Michael Desmond, there's Bill Paul, who's the Deputy Chief Counsel Technical and there's Drita Tonuzi who's Deputy Chief Counsel Operations. And so those are kind of the two sections that make up the Office of Chief Counsel. So the Deputy Chief Counsel Technical, their jurisdiction is really over the legal issues arising in published guidance and that's your treasury regulations, private letter rulings, technical advice and sort of guidance that just applies broadly to all taxpayers. So recently when Congress passed the Tax Cuts and Jobs Act, the regulatory authority goes to Deputy Chief Counsel Technical to really pass regulations and guidance to implement that Tax Cuts and Jobs Act that Congress passed.

Deputy Chief Counsel Operations jurisdiction is really over issues in litigation nationwide. Her primary responsibility is matters involving the management of the entire personnel of Office of Chief Counsel, which in addition to the DC office also includes 50 field offices nationwide. And so Drita's role as Deputy Chief Counsel Operational is really more of a management side of the Office of Chief Counsel.

Kyle McEntee:

So within that structure, where does your current job fit in?

Deepan Patel:

So there's these separate divisions that focus on certain provisions of the tax code. International has certain provisions, certain statutory and regulatory sections that fall within international. Corporate has their code sections, pass throughs and partnerships, they have their code sections. There is overlap between the branches because transactions often don't only fall solely within the international tax realm or just solely within income tax and accounting or pastors. There's usually a big collaboration between different branches and the different divisions of Chief Counsel but they are separated by code section. And so my current position is in financial institutions and products.

Kyle McEntee:

In your position, are you actually interacting a lot with the banks or is it more interacting with the other attorneys there at the IRS?

Deepan Patel:

I would say it's a mix of both. So you do work directly with taxpayers, so if a taxpayer wants to engage in a certain transaction, they want to know how the IRS will view that transaction, and so they can apply for a private letter ruling, a PLR. Basically how the process works is the taxpayer will send a PLR submission to the IRS and if that submission is very much dealing with financial institutions or products, then it'll be assigned to the FIP group and once it's assigned to FIP, it's given to a docket attorney or general attorney.

And so say that case fell to me, I would read the submission that the taxpayer sent. Then if there was any questions, either factually or technically, I would contact the taxpayer and ask them for clarification. Once I gather enough factual information from the taxpayer, when I determine how that ruling will come out to the extent it also affects other divisions within Chief Counsel, I would definitely go into their offices and meet with them and run them through the back pattern and get their insight on how their statutory expertise would impact this transaction.

Kyle McEntee:

So if I'm understanding this correctly, it sounds like you'll have a corporation or other taxpayer who's engaging in a transaction or establishing a new subsidiary, something like that, and it's not exactly a run-of-the-mill transaction, and so what they want to do is go ahead and find out from the IRS how the government is going to view this from a tax perspective rather than just consulting their own legal counsel but not actually having that kind of certainty. Is that right?

Deepan Patel:

Exactly. That's exactly right. If you compare that to the EPA or environmental laws, there's back and forth, is there too many regulations? For tax, the more regulations we have, it actually is better for the taxpayer because it gives the taxpayer more certainty on how that transaction will be viewed. And so generally, taxpayers favor regulations because it gives them certainty.

Kyle McEntee:

I think this ties into what you had mentioned before where it's not corporations engaging in the sort of stereotypical tax cheating that you might hear criticized on the news, but rather corporations trying to work within the law, but at the same time optimizing their transactions and corporate structures to get the most favorable tax position, but not actually engaging in what we might consider tax cheating.

Deepan Patel:

Yep, I'd say that's fair. I don't think corporations have this malice view of not paying taxes. I don't think that's a fair assessment. I think they do try to use the tax laws and structure their businesses in a way that's advantageous, but I think that's more so a business judgment as opposed to trying to break the laws laws and not pay taxes.

Kyle McEntee:

Could you talk a bit about what actually goes into making those sorts of decisions? Because I assume the corporations have their legal counsel who they've consulted about this and you're going to be doing similar work, but are there differences between how you might end up coming up with an interpretation and how their corporate counsel may have looked at it?

Deepan Patel:

I think it's very similar. So basically if there's a certain transaction that's going to be occurring, they would already have an idea of which code sections are going to be relevant for that transaction. So for me personally, my first step is usually reading through the facts and making sure I have a good understanding of them. After I do that, I'm a visual learner, so personally I just kind of draw up on a notepad what's occurring. In the example we use the intellectual property, I would draw a box with US corporation. Underneath that, I would draw a box for foreign Luxembourg subsidiary, and then I would draw an arrow showing IPs moving from the US corporation to the foreign subsidiary. That way, visually, I kind of just understand what the transaction is trying to accomplish.

After I take those facts that I just read through and whatever I think is very relevant to the transaction, I'll put those and jot them down next to the picture I just drew. That gives me a good baseline of how I understand everything. If I go ask someone else questions, at least I have kind of a visual drawing that I can also share with them so they're quickly brought up the speed on the facts of the ruling at hand.

Second, I would actually go more into detail about which tax laws and which regulations are really at issue here. To do that, it's mainly just research. At the IRS, we're lucky to have a full library with librarians. We also have access to all case files of previous rulings and the inner workings of what went into those rulings. Most common we use is probably West Law, that's mainly treatises as well as statute and regulatory language. Once I feel I have a good understanding of those two things, the facts and the law, I usually will speak with my senior attorney or a branch sheet, walk them through how I think the tax law applies to those facts. Based on that discussion, they'll say, look into additional secondary sources or look into these additional cases which might shed more light onto the application of the laws to those facts and kind of do a little bit more research if necessary at that point. And then after that, I would start drafting the actual ruling of how the service will rule on that transaction.

Kyle McEntee:

After you finish doing your research and coming up with your interpretation and presenting it to the corporation who's asked for it, does this then look like a traditional adversarial legal relationship where maybe they're going to seek an appeal or some other sort of different ruling or what exactly does that look like?

Deepan Patel:

Usually we're able to get to the same result that the taxpayer's looking for. Usually it doesn't, there's not a huge disagreement in terms of how it would be treated. There might be minor differences, but usually for big picture, it's usually very similar to what the taxpayer is thinking how it would be treated. In the instance that there is a disagreement, at that point the taxpayer can come in for an adverse conference and where they would meet with us and kind of explain why their view is different from our view. And so there is an opportunity for the taxpayer to come back to the service and kind of give their perspective on why they think the transaction should be treated the way their initial submission documented the treatment as opposed to how we, the IRS view it. So there's a process where the taxpayer is able to come in, well another time, and kind of explain in person why their view is different from ours.

Kyle McEntee:

With the position you're currently working in, it sounds like you can get a really wide variety of situations coming your way, especially when the international angle is taken into account. So I'm wondering how complex that really is on your side if you have to say, be familiar with the law in Luxembourg and Ireland and all the different places that these corporations are doing business in, or if it's really just looking at the US side of the law where you don't actually have to be concerned with how a foreign tax authority is going to view a transaction.

Deepan Patel:

In some respects. In that transaction where the IP is moving to Luxembourg, there still is a treaty between the US and Luxembourg, and so that's kind of another benefit of why you choose Luxembourg as a jurisdiction as opposed to say the Caymans where although there's no corporate income tax, the US doesn't have a tax treaty, it's not very beneficial for transactions that occur between the US and Caymans. If you look at between US and Luxembourg, because of that tax treaty, you would still need to make sure that the transaction qualifies for that treaty. So it's not so much that I wouldn't be concerned at all from the foreign aspects of the transaction, I just would want to make sure that the requirements of the treaties are still being met.

Kyle McEntee:

But you're not in a situation where you're expected to become an expert on 100 or 180 different country's tax policies, right?

Deepan Patel:

Yeah, no, yeah, for sure not. I think being an expert on just the US, all the different code sections in the US tax code is fairly impossible enough to do that I don't think it would be possible to do that and international.

Kyle McEntee:

Yeah, I was just trying to get a sense of what sort of knowledge base or expertise would really be expected of somebody working that kind of job.

Deepan Patel:

The biggest attribute I think you could have going into tax law is just your ability to research and write. Because so much of the tax law is very nuanced and fact specific, it's hard to really become an expert in any broad area. You become an expert more so just with your experience in those types of transactions as opposed to just reading the tax laws that are applicable to those transactions.

Kyle McEntee:

While I know you're still relatively new to your position with the IRS, I was wondering if you could talk a bit about the career potentials, if this is the type of place where you'd be able to stay for a long time and advance, or if it's a job where it's rather typical for someone to work a few years and then maybe return to the private sector.

Deepan Patel:

One big benefit of the IRS is it's such a large organization that there are opportunities within the organization if you want to take your career in a different trajectory. For example, currently I focus a lot on guidance and research and writing, but to the extent that I wanted to take my career into more litigation, you do have the ability to do rotations with SPSC, which is a small business, small enterprise, or LB&I, which is large business international. And you do have a opportunity to do a rotation with them, and you can focus more on tax court cases and litigation, or if you want to go into the more audit side of things, you can work with exam and deal with the auditing.

I think one big benefit with the government position versus private practice is point blankedly, the hours. Your hours in government are significantly better than your hours in private practice. And so to the extent that you want to spend more time focusing on your family or other aspects of your life, I think government positions do lend themselves better to flexibility and scheduling. On the flip side, in private practice, and whether it's consulting firms or law firms, you do work a lot of hours, but you're also, by working those increased hours, you're also getting exposure to way more transactions than you might at the government. So I think there's a pro and con in terms of the hours and the work you put in, but you also end up with more broad background and more broad experience with transactions you do see.

Host:

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