Bloomberg: Tax Inversions Succeed When Government Lawyers Go Private, by Zachary R. Mider:
Hal Hicks cleared his throat and addressed a roomful of peers in a midtown Manhattan auditorium. The topic: the tax-avoidance technique called inversion, in which a U.S. company claims a foreign legal address.
Waving his hands back and forth as if tracing a pendulum’s swing, Hicks explained how four government attacks over three decades had failed to stop the practice. “There’s been lots of law thrown at these transactions,” he said at the January session.
Hicks ought to know. He was the one doing the throwing, during four years as a top government tax lawyer. Then, he returned to private practice and helped set in motion a spree of inversions that a congressional panel estimates will cost at least $19.5 billion in lost tax revenue over the next decade.
Hicks epitomizes the world of high-level Washington lawyers who have played a behind-the-scenes role in helping these tax-driven address changes proliferate. Top federal tax officials, many of them career corporate lawyers, have sometimes closed loopholes only after companies slipped through them. And former officials like Hicks use skills and contacts honed in office to help companies legally outmaneuver the government.
Until this year, when address-shifting by more than a dozen companies worth $100 billion caught policy makers’ attention and President Barack Obama clamped down again, inversion rules had for a decade attracted little notice outside the small community of international tax lawyers in Washington.
At the Treasury Department and Internal Revenue Service, officials, many on hiatus from private practice, crafted the rules in dialogue with top corporate law and accounting firms.
While some European nations have historically relied on career civil servants, the top ranks of the U.S. tax administration have swapped staff with industry for decades.
It’s a low-cost way to provide government with the best legal talent, said Gregory Jenner, a former acting assistant Treasury secretary, who calls it an “incredibly beneficial tradition.”
“Putting rookies into these jobs -- they would be overwhelmed,” Jenner said. “It’s too high-level, too sophisticated, too complicated.”
The risk, critics say, is that some government lawyers may continue to sympathize with corporate interests, or be swayed by former colleagues. ...
In a statement, the Treasury said that hiring from the private sector helps “keep us at the forefront of emerging issues.” ...
No U.S. law firm has helped more companies escape the tax system through inversions in the past decade than Skadden Arps Slate Meagher & Flom LLP. Hicks, 55, who runs its international tax group, has pulled off three inversions himself, including one involving an innovative maneuver nicknamed a “skinny down distribution.” ...
Former top government officials often end up at Skadden. Hicks’s new partners there included a former IRS commissioner and two former assistant Treasury secretaries, not to mention B. John Williams, who had been the top IRS lawyer when Hicks joined the agency, and who later represented an inverted company, Ingersoll-Rand Plc, in a $774 million tax dispute with the IRS. Through a spokeswoman, Skadden declined to comment.
That year, the Tax Review called Skadden “the law firm of choice for departing government officials,” citing Hicks’s hiring.