Weekly SSRN Tax Article Review And Roundup: Speck Reviews Field's Tax Lawyers As Tax Insurance

This week, Sloan Speck (Colorado) reviews a new work by Heather Field (UC-Hastings), Tax Lawyers as Tax Insurance, 60 Wm. & Mary L. Rev. __ (2019).

In Tax Lawyers as Tax Insurance, Heather Field explores the issuance of tax legal opinions as a form of de facto insurance against the risks of an adverse tax determination by governmental authorities. Field moves beyond the conventional framing of tax opinions as “insurance” against penalties, instead casting opinion practice as providing “a limited and conditional indemnity” to clients by way of the opinion writer’s malpractice insurance. Field contrasts this informal insurance with the burgeoning market in formal tax insurance policies, giving particular attention to intersections and entanglements that complicate the broader question of how individuals and firms address tax-related risk. Field argues that thinking about tax opinions through the lens of insurance yields insights into the value and limitations of transactional lawyering, among other things.

Field expressly eschews normative conclusions about tax opinions’ insurance function. To some extent, however, I found Field’s detailed and enlightening positive project inextricable from prescriptive or value-driven questions about tax lawyering more generally. If tax planning drives deadweight loss or complexity, then malpractice recoveries presumably subsidize bad behavior—especially if, as Field implies, tax opinions’ insurance function isn’t sufficiently priced into legal fees. Furthermore, the uncertain scope and magnitude of this insurance function—necessarily so, since data that might inform this topic are virtually impossible to gather—make normative concerns all the more pressing.

The insurance aspects of tax advice also presumably vary according to context. For me, high-quality, long-form bespoke tax opinions seem most likely to constitute insurance, either economically or in the relevant parties’ practical understanding. The representations, opinion language, and caveats often are highly negotiated, and the final product, typo-free and printed on the finest fancy paper, memorializes a deepening of the lawyer-client relationship. By contrast, my intuition is that short-form, boilerplate publicly filed opinions, almost always issued at a “will” level, have less of an insurance function. Indeed, many contractual condition or inducement opinions may fall into this second category. In addition, one might distinguish between tax shelter opinions and other written advice. Field cites reports that a small number of tax shelter opinions may drive a substantial proportion of payouts in the formal insurance market. Although the “tax shelter” category has something of a retrospective feel, the distinction seems potentially meaningful to Field’s descriptive project.

Reputations and relationships matter as well. Field’s construction of tax opinions as tax insurance depends heavily on malpractice recoveries through suit or settlement, and clients may be loath to initiate these processes, if doing so requires firing the firm, as opposed to just the tax team. Good corporate, real estate, or capital markets advice is hard to find, and clients, especially at the highest level, may feel some qualms about switching advisors wholesale. Compounding this reluctance are the facts that lawyers talk (sometimes even when they shouldn’t), and that legal communities can feel quite small. If lawyers trade on their reputations, so do clients. Another issue in opinion practice involves the (human) identity of the (corporate) client. Tax directors may push for tax opinions—and higher levels of comfort in a given opinion—to give themselves cover if things go south. During a painful and costly audit, a thick opinion from a white-shoe firm provides an excellent shield against the wrath of other executives. This aspect of tax advice—the opinion as unemployment insurance—may shape a lot of the contours that Field highlights in her analysis.

Finally, Field’s article implicates questions about privatization and tax administration. As Field notes, Treasury’s multi-decade expansion of no-rule areas has fed the demand for written tax advice and opinions. This shift doesn’t just put pressure on the insurance function of opinion practice; it also relocates many of the guardrails on tax abuse from the public sector to the private sector. Treasury essentially passes on the opportunity to shape transactions, in effect outsourcing that function to lawyers and other advisors. Tax opinions’ insurance function is an underappreciated part of this privatization process, and Field’s article represents a significant contribution to these conversations.

Overall, Field’s careful and comprehensive article yields important insight into the nature of tax advising. Lawyers, as well as tax academics, should find her analysis of vital interest in understanding opinion practice in an evolving market.

Here’s the rest of this week’s SSRN Tax Roundup:

• Busingye Agnes (Uganda Revenue Authority), OECD’S Action Plan on Tax Base Erosion and Profit Shifting (BEPS); Emphasis on Treaty Abuse and Avoidance of Permanent Establishments and Multilateral Instruments for the Cases Study of Uganda, Revista Derecho Fiscal No. 14 (January–June 2019)
• Reuven S. Avi-Yonah (Michigan), Does Customary International Tax Law Exist? (2019)
• Vorris J. Blankenship (Independent), Divorce, QDRO, Retirement, Death: Not Necessarily in That Order, 163 Tax Notes 685 (2019)
• Serhan Cevik (IMF) & Fedor Miryugin (IMF), Death and Taxes: Does Taxation Matter for Firm Survival?, IMF Working Paper No. 19/78 (2019)
• Heather M. Field (Hastings), A Tax Professor’s Guide to Formative Assessment, 22 Florida Tax Review __ (forthcoming 2019)
• Eric He (Duke University–Fuqua School of Business), Martin Jacob (WHU–Otto Beisheim School of Management), Rahul Vashishtha (Duke–Fuqua School of Business) & Mohan Venkatachalam (Duke University–Fuqua School of Business), The Effect of Capital Gains Tax Policy Changes on Long-Term Investments (2019)
• Daniel Hemel (Chicago), Audits, Markets, and Patents, 87 U. Chicago L. Rev. Online 78 (2019)
• Sahid Hossain (Bangladesh University of Professionals), Offshore Investment and Tax Avoidance Issues: A Review from the Literature (2019)
• Bob Kilpatrick (Northern Arizona) & Dennis R. Lassila (Texas A&M–Department of Accounting), Compensation Vs. Qualified Dividends for Shareholder-Employees After the TCJA, 129 J. Tax’n 6 (2018)
• Kelvin Law (Nanyang Technological University) & Lillian F. Mills (University of Texas at Austin–McCombs School of Business), Taxes and Haven Activities: Evidence from Linguistic Cues (2019)
• Michael Littlewood (University of Auckland), Legislating Against Tax Avoidance (2019)
• Anne Wanyagathi Maina (Independent), The Kenyan Tax Regime for the Oil and Gas Sector: An International Tax Perspective to Policy and Practical Challenges, Revista Derecho Fiscal No. 14 (January–June 2019)
• Antonio Lopo Martinez (University of Coimbra) & Raimundo da Silva, Do Brazilian Publicly Traded Companies That Pay Less Tax Create More Jobs? (2019)
• Antonio Lopo Martinez (University of Coimbra) & Aline Maioli Rodrigues, The Effect of Corporate Diversification on Tax Aggressiveness in Brazilian Companies (2019)
• Antonio Lopo Martinez (University of Coimbra) & Welliton Botão Martins, Tax Aggressiveness, Market and Idiosyncratic Risks in Brazil (2019)
• Gordon Moore (University of West of Scotland), Amanda Young (University of West of Scotland), Abeer Hassan (University of West of Scotland) & Kieran James (University of West of Scotland), Will the Implementation of a Sugar Tax Reduce Obesity Levels? An Insight from Scotland, 1 Indonesian J. Contemp. Mgm’t Res. __ (forthcoming 2019)
• Joy Sabino Mullane (Villanova), Tax Practice Gets a Mary Kay Makeover: The Tale of Peterson and the Danielson Rule (2019)
• Alan Sage (MIT), Mike Langen (Maastricht University–Department of Finance) & Alex Van de Minne (MIT), Where Is the Opportunity in Opportunity Zones? Early Indicators of the Opportunity Zone Program’s Impact on Commercial Property Prices (2019)
• Jay A. Soled (Rutgers), Reimagining the Estate Tax in the Automation Era, 9 U.C. Irvine L. Rev. 787 (2019)
• Monica Victor (Florida), Addressing Developing Countries’ Tax Challenges of the Digitalization of the Economy (2019)
• William Weeks (Indiana), Turney Berry (Wyatt Tarrant & Combs LLP), Jonathan G. Blattmachr (Milbank, Tweed, Hadley & McCloy LLP), Jason E. Havens (Holland & Knight LLP), Nancy A. McLaughlin (Utah), James Slaton, Steve Swartz & Philip Tabas, ABA RPTE Conservation Easement Task Force Report: Recommendations Regarding Conservation Easements and Federal Tax Law, 53 Real Property, Trust & Estate L.J. 245 (2019)