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March 15 — The IRS doesn't plan to hire any more outside law firms to assist in litigating tax cases—even as it continues to step up legal action against big multinational corporations, Chief Counsel William Wilkins said.
While he didn't reference particular cases, Wilkins' announcement came following a wave of controversy surrounding the Internal Revenue Service's decision to use outside legal counsel in the United States v. Microsoft Corp. case.
Speaking March 15 at a Tax Executives Institute Inc. conference, the IRS official said he expects an increasing trend of complex cases against big companies marked by long trials and heavy use of experts on both sides.
Wilkins Predicts Years of Big Cases
Wilkins said this level of trial activity “appears likely to persist for a number of years to come.” He told practitioners that IRS counsel and the agency's Large Business & International Division are working together on allocating resources “to develop and litigate these cases properly.”
The chief counsel's statement on outside law firms came after a judge ruled in November that the IRS's use of Quinn Emanuel Urquhart & Sullivan LLP in an audit of Microsoft Corp.’s transfer pricing passed legal muster, but was “troubling” and could attract congressional attention.
The company tried to fight a series of summonses in the case by arguing that the IRS had violated federal law in retaining an outside law firm. Judge Ricardo Martinez of the U.S. District Court for the Western District of Washington found that Microsoft had relied mostly on speculation in making its charges and ordered the company to comply (227 DTR K-1, 11/25/15).
At the same time, Martinez said, he was “troubled by Quinn Emanuel's level of involvement in this audit. The idea that the IRS can ‘farm out' legal assistance to a private law firm is by no mean established by prior practice, and this case may lead to further scrutiny by Congress.”
Focus on Criminal Enforcement
In other developments, criminal tax enforcement will be an increasing focus for agency attorneys, the chief counsel said. The IRS is targeting crimes involving offshore accounts, refunds and employment taxes, among others, he said.
In another development, Wilkins said the IRS is expanding the number of employees who deal with skyrocketing requests for information in a wide range of circumstances, including congressional investigations, cases under the Freedom of Information Act, and other legal action.
Technology upgrades to help the agency search, sort and manage big electronic document projects are a priority, Wilkins said.
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