Bassin Law Firm Helps Torpedo IRS Private Firm Litigator Regulations
by Stuart J. Bassin
Beginning in 2014-2015, the IRS began experimenting with hiring private law firms to represent the agency in complex tax litigation. At first, the agency retained Quinn Emanuel, a Los Angeles litigation boutique, to assist with its audit of Microsoft Corporation’s transfer-pricing issues. The experiment drew criticism from multiple sources, ranging from Congressional committees to opinion pieces written by Stu Bassin for the tax press. Earlier this month, in an announcement published in the Federal Register on August 7, 2020, the IRS withdrew proposed regulations which would have authorized hiring of firms like Quinn Emanuel, bringing the experiment to an end.
The criticism took several forms. Many questioned the agency’s departure from the historic practice of employing solely government employees (i.e. Chief Counsel and Tax Division lawyers) to represent the agency in tax controversies as raising concerns regarding whether it was proper to delegate a government policy-making role to outsiders. Others questioned whether the budget-strapped IRS should pay as much as $1000/hour to hire prominent lawyers. Stu Bassin and other former government tax lawyers rejected the judgment implicit in the IRS action that an outside law firm, particularly a firm with no expertise with taxation or litigation in the Tax Court, could better represent the government in the Microsoft litigation than the most skilled government litigators. Also, based upon his experience in conducting complex tax litigation, Stu observed that the addition of private lawyers to the cast of constituencies involved in IRS decision-making would interfere with efficient development of the government’s case. (For example, the IRS planned to have revenue agents trained as accountants conduct witness interviews while top-tier litigators sat in the back of the room taking notes.)
Two years after hiring Quinn Emanuel, the IRS issued proposed regulations, apparently seeking to institutionalize the practice of hiring outside lawyers to represent the agency in court. At a public hearing on the regulations, Stu Bassin repeated his previously expressed concerns and raised a new statutory problem with the practice, explaining that the Section 6103 restriction against disclosure of tax return information prohibited participation of outside lawyers like Quinn Emanuel in taxpayer audits—an obstacle that the Service had not previously addressed.
Separately, Congress largely resolved the dispute through legislation enacted in 2019, barring outside lawyers from participating in summons proceedings. The Service has now withdrawn the original proposed regulations and has offered new proposed regulations, renouncing the practice of hiring outside lawyers to participate in taxpayer audits.
Ultimately, the experiment is over and The Bassin Law Firm is pleased to have helped produce a victory for good and responsible government.
As IRS Ditches Contractor Experiment, Pitfalls May Persist
An outline of Stu's comments can be found here.