At the May meeting of the ABA tax section, I went to a session where I heard IRS Chief Counsel, Bill Wilkins speak. Though it was only a small snippet from his speech, he mentioned that in the past year the Office of Chief Counsel had stopped the program with the Department of Justice (DOJ)/U.S. Attorney’s Offices under which attorneys from Chief Counsel’s office represented the government in certain bankruptcy cases as Special Assistant United States Attorneys (SAUSAs). I was a SAUSA for about 20 of my 30 years with Chief Counsel’s office. I think the ending of the program makes sense given the budget of the IRS but thinking about its impact on tax procedure may be worth a short post.
Understanding the program requires a little bit of understanding about the relationship between Chief Counsel, IRS and DOJ as well as a little bit of understanding about the bankruptcy code. I will briefly discuss both before discussing the potential impact of this change in procedure in the representation of the United States in bankruptcy court on tax issues.
read more...How does the federal government divide the work between the attorneys who work for the Treasury Department, viz., attorneys in Chief Counsel, IRS and those who work for DOJ in the Tax Division and how does it divide work between attorneys who work in DOJ Tax Division and U.S. Attorney’s offices? The how, and the why, of this question lays the framework for understanding the recent change at the Chief Counsel’s office and why it came about.
Back in 1933, some discussion took place in the federal government concerning who would handle tax matters in court. President Roosevelt’s Executive Order 6166 (June 10, 1933) gave the Department of Justice the power to prosecute all claims against the Federal Government and to supervise United States Attorneys in these cases. Under this authority, the Attorney General created the Tax Division in October 1933, which began representing the government in tax cases in district courts, courts of appeals, and state courts in January 1934. The position of the Assistant General Counsel of the Bureau of Internal Revenue, today known as the Chief Counsel of the IRS, was created that same year with the Revenue Act of 1934. The Chief Counsel’s office acted as in-house attorneys for the IRS and the DOJ tax division attorneys acted as the litigators, but a question arose about who would handle cases in the Tax Court. At that time the Tax Court was known as the U.S. Board of Tax Appeals, which had been established by the Revenue Act of 1924. The DOJ apparently felt that the Tax Court was essentially an administrative agency for deciding disputes that did not need its lawyers to represent the government. So, Chief Counsel acquired jurisdiction over Tax Court cases, which it retains to this day. Of course, no one knew in 1933 that the Tax Court would turn from an administrative agency into an Article I court where the bulk of tax merits litigation occurs. The Tax Reform Act of 1969 officially established the Tax Court as an Article I court; prior to this, the Tax Court was considered an independent agency of the Executive Branch.
The Tax Division basically has charge over all of remaining types of litigation involving federal taxes including refund, criminal, collection, and bankruptcy cases as well as appeals of all cases including Tax Court decisions. The Tax Division and the U.S. Attorney’s offices around the country divide up some of the representation of cases by issue and case type with the Tax Division, generally keeping the most complex cases and the U.S. Attorney’s Offices handling the more routine matters including most summons, some collection, some bankruptcy, and most criminal cases – though all approval of criminal tax cases must emanate from the Criminal Section of the Tax Division.
The 1978 Bankruptcy Act changed the game on the need for representation in bankruptcy courts by the United States. It made individual bankruptcy cases much more accessible than its 1898/1938 predecessor and it made it possible for business debtors to confirm a reorganization plan without the approval of the IRS. The individual side of the bankruptcy equation is where the resource problems occurred most notably. The routine objections to chapter 13 confirmation hearings, including a high volume of objections for unfiled returns, overwhelmed the resources of local U.S. Attorney’s offices which were not given additional staffing to handle the increased volume of bankruptcy work than grew after the passage of the 1978 Act. This growth came during the Reagan presidency when the emphasis was not on expanding government resources. So, the IRS was sending a high volume of objections in routine individual reorganization cases over to U.S. Attorney’s offices that swamped the ability of many of those offices to handle the work.
In the mid-1980s some Chief Counsel field offices trying to bridge the gap between their client’s desires and the U.S. Attorney’s abilities, began to have attorneys assigned as SAUSAs to pick up the slack. By the early 1990s, DOJ even offered to formalize the assignment of certain types of bankruptcy work to Chief Counsel rather than DOJ. Chief Counsel declined the offer fearing that it might face resource issues down the road in meeting this obligation. The fears came true in 2014. Because of shrinking budgets at the IRS, it needed a way to free up resources to work on writing regulations, providing in-house counsel advice and litigating Tax Court cases. So, it formally backed away from the SAUSA program that had existed for almost three decades. In doing so, it provided training and other resources to the U.S. Attorneys in order to bridge the gap as resources transitioned from one office to the other.
Some Chief Counsel attorneys devoted almost all of their time to the SAUSA program and many devoted a fair percentage. In his speech, Chief Counsel Bill Wilkins stated that the termination of the SAUSA program freed up over 30,000 hours of attorney time in its field offices. This equals about 15 attorneys not taking into account the leave and other down time associated with each attorney. A great result for Chief Counsel’s office, but what about the system of collecting taxes through bankruptcy? I do not know for a certainty but when a program goes on for that long even though it is essentially based on a handshake rather than a formal assignment of the work, the office being relieved of work makes adjustments to devote its staff to other things and the whole program started because the U.S. Attorney’s office could not handle the volume of IRS bankruptcy cases in the first place.
The SAUSA program only existed in the cities in which the Chief Counsel attorneys were located or within 50 miles thereof. So, it never existed in all cities around the country. In Virginia, we had outstanding representation in bankruptcy court in the Alexandria and Norfolk divisions of the Eastern District where Bob Coulter and Greg Stefan, two former DOJ Tax Division attorneys, worked. Those cities were never a part of the SAUSA program. In Richmond, where the Chief Counsel field office was located, two or more SAUSAs handled almost all of the cases that the U.S. Attorney’s office would otherwise have handled. In cities like Richmond, you might notice the government struggling to keep up with routine bankruptcy work of the IRS as it adjusts the work from one office to the other.
Alexandria is not within 50 miles of any Chief Counsel attorneys? Interesting. Even without counting the ones in DC, Baltimore to Alexandria is only 41 miles. But thanks for the history.
Non-lawyers can be admitted to practice in Tax Court. It seems to me that if the federal government were really interested in saving resources, it could establish a program for DoJ paralegals to do most of the tax work in bankruptcy court. Just takes a bureaucrat able to think outside the box, sort of like thinking outside of DC boundaries or state lines.
While Alexandria was within 50 miles of the Washington DC field office and maybe the Baltimore office also, IRS collection work for Virginia was assigned to the Richmond office located about 100 miles away. It would have been possible to negotiate an understanding between the Richmond and Washington field offices to have Washington cover Alexandria under the SAUSA program but such negotiations were not easy and, as a practical matter, Alexandria was well served by the AUSA located there.
I am certain it is still the case but much of the out of court bankruptcy work for cities like Norfolk and Alexandria was handled by the paralegals in the Richmond Chief Counsel office. While I do not believe that the Bankruptcy Court would allow a paralegal to appear on behalf of the United States, I agree that much of the bankruptcy work outside of court could be handled by paralegals and may still be. In Chief Counsel’s office much of the work on small cases is handled by paralegals. I am not aware of any of the Chief Counsel paralegals passing the Tax Court test and appearing on behalf of the Government in Tax Court but I have seen a paralegal who was a law student appear on behalf of the Government under the student practice rules.
But why was the work assigned to an office 100 miles away when there were closer ones within 10 and 50 miles? No real reason, other than the artificial boundaries that were eventually discontinued. When I worked for IRS, the most important local official was the District Director, who turned out to be expendable.
I was not a lawyer when I worked at IRS, but the attitude I encountered in National Office was that one out of every five lawyers graduated in the bottom 20 percent of their class, and they were more likely to go to work for IRS than for DoJ. Later, when in representing clients in bankruptcy court I encountered some SAUSAs, I did not see any great enthusiasm from them about the assignment, or any great competence in carrying out. Of course, different offices at different times likely produced different results.
It would probably take an act of Congress to allow trained and certified paralegals to represent the government (or debtors, for that matter) in bankruptcy court — I’m not sure who would lobby against it, maybe the ABA. There is a real problem in bankruptcy courts these days with mass-production law firms with investor-financed advertising budgets doing work that may or may not be acceptable. I think the judges themselves would prefer competent paralegals to some of the lawyers appearing before them now.
I was a Senior Trial Attorney and a Reviewer with the Tax Division when the SAUSA program came into existence. The Service pushed hard to establish the program; senior leadership of the Tax Division, and certainly the preponderance of rank and file Tax Division attorneys were not enthusiastic with the development of the program. Much of this was simply a turf battle as far as I could tell. While that situation diminished as time passed and the IRS/SAUSA attorneys became more experienced, I doubt that the tension ever disappeared. In my own view having watched the program evolve while I was at DOJ (1980-93), the program was a success.
My guess is that potentially becoming a SAUSA was a cheap recruiting tool for Chief Counsel that enabled it to attract many bright attorneys who wanted to gain some litigation experience outside of the USTC. They will no longer have that opportunity due to this decision. It may well be mandated by budget considerations, but one wonders in light of hiring Quinn Emmanuel attorneys at a high hourly rate whether this was an appropriate decision.
Wouldn’t the rational division of labor be to put all the tax litigation into the IRS, even the criminal cases? Is there any reason for the Tax Division to exist except DOJ desire for control and budgetary authority? It’s hard for me to believe that Justice puts the resources into taxes that it ought to (from the perspective of, say, the President and Congress), given that its focus is on other things.
It would probably make more sense to put IRS criminal investigation into the Justice Department, since they don’t do much tax work these days anyway. How many judicial districts would generate enough tax cases to keep one IRS prosecutor busy?
Better yet, transfer the responsibility of litigating Tax Court cases to DOJ Tax!