In the increasingly conservative legal and regulatory climate, lack of guidance is a costly problem for corporate taxpayers. “Companies may feel compelled to seek and pay for legal opinions on what the law means,” says Timothy J. McCormally, executive director of the Tax Executives Institute Inc., in Washington, D.C., which has 5,700 members in the United States. “These transaction costs are difficult to quantify but are still significant.” In the absence of guidance, some taxpayers may choose an interpretation of the rules that the agency may ultimately decide is wrong. Says McCormally: “That creates conflicts that take time and money to resolve.”
Lure of a Pension
As its crackdown on corporate taxpayers intensifies, the IRS is scrambling to beef up staffing of its LMSB division, in part by seeking to lure experienced tax executives away from Corporate America. The IRS is wooing the most promising candidates — those with five years or more of corporate experience — with a compensation package that includes an $85,000-a-year salary, benefits, and — that new rarity in the corporate world — a pension. Currently, the agency’s full-time technical enforcement staff numbers 4,855, up 6 percent since 2003.
However, the agency will face a big problem in the next few years. The LMSB Division has some of the most experienced and technically expert workers in the agency, but a “significant” percentage is nearing retirement, says commissioner Nolan. She adds that she has been using “every single speaking engagement in front of professional organizations as an opportunity to recruit.”
As the agency bears down on corporate taxpayers, some companies are girding for battle. That’s one reason why the phone is ringing more frequently at TaxSearch Inc., a tax executive recruitment boutique on Sullivan Island, South Carolina. “I’m staffing a lot of tax-controversy experts right now as companies prepare for the coming wave of tax disputes,” says Tony Santiago, president of TaxSearch. Until recently, only the largest companies with the most aggressive tax positions have had controversy experts on staff. Such specialists are expensive to hire; Santiago says the average total cash compensation for tax lawyers with controversy expertise is about $225,000 to $300,000. CPAs with controversy expertise can command total cash compensation as high as $140,000 to $200,000.
Santiago says he has placed three tax-controversy specialists with clients in the past six months alone. Meanwhile, other clients are mulling the possibility. Before the recent hiring surge, Santiago had placed only two experts in the last 3 years. “I’m seeing more plans for hiring in that area than I have in 10 years,” he says.
Kris Frieswick is a freelance writer based in Boston.