What General Counsel Should Ask Tax Directors

Since tax departments report up through the finance rather than legal function in most companies, it is easy for chief legal officers to be disconnected from one of the most legally complex and risky parts of an enterprise. Couple that with the fact that most tax directors are accountants, not lawyers, and you have the all-too-common situation in which the chief legal officer is unaware of tax disputes until it may be too late. This can be avoided, however, if you know the right questions to ask and understand where in-house counsel can be most helpful to the tax department.

Tax departments are staffed with accountants with ties to accounting firms. There is a natural affinity towards dealing with accountants as advisors, but an accounting firm may not be the best choice to objectively advise the company on tax litigation risk, particularly where the accounting firm advised on the underlying tax position or prepared the tax return. IRS audits can be mini-litigations that demand counsel experienced in tax disputes.

Tax arguments can hinge on legal concepts with which the legal generalist will be familiar — statutes of limitation, contract law, valuation principles, securities law, insurance law and employment law. All too frequently, we see tax departments relying on outdated decisions or cases from the wrong judicial circuit. Regular communication, asking the right questions and internal education are keys to bridging the gap between the legal and tax functions.