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Corporate Taxation
Many of our larger corporate clients regularly engage in complex transactions in which tax issues are of paramount importance. We have extensive experience with stock and asset acquisitions and dispositions, reorganizations, formal bankruptcies and informal workouts, liquidations, distributions and affiliated group transactions, as well as with issues relating to cancellation of indebtedness income and to the availability of loss carryovers and other business deductions and credits. We are frequently called upon to advise on the development of strategies for minimizing the incidence of federal taxation in connection with such transactions, as well as on the tax consequences of ongoing operations. Much of our work in this area consists of seeking solutions to novel problems or implementing new strategies in response to changing economic or legal considerations.
Please click on Representative Transactions to view corporate transactions in which we provided extensive tax advice in recent years.
We apply the same experience utilized in our analysis and planning of complex corporate tax transactions in our representation of individuals and medium-sized and small corporations and their owners. For these clients, we frequently provide planning advice on corporate formations, conversions of "C" corporations to "S" corporations, recapitalizations, stock transfers, spin-offs, reorganizations, liquidations and other transactions. We also negotiate and prepare buy-sell, merger and acquisition agreements. Our objective is to provide even the smallest corporation with the highest possible level of experienced counsel on corporate tax issues.
In addition to our planning work on behalf of corporate clients, we are nationally known for our corporate tax controversy and administrative practice. Our lawyers are regularly involved in dealing with revenue agents on audit, in preparing and submitting tax protests and refund claims and in negotiating with IRS appeals officers. We have prepared countless ruling requests and requests for technical advice in the course of our practice. We have also been actively involved, either on our own initiative, as a member of various professional groups or as the representative of clients or client coalitions, in participating in the preparation and promulgation of published revenue rulings, revenue procedures and regulations.
International Taxation
In the international area, many of our tax lawyers are regularly engaged in handling a wide variety of matters involving both inbound and outbound tax planning and compliance work. With respect to outbound investments, we have extensive experience regarding the corporate and tax aspects of establishing, maintaining and ultimately winding up such operations, including questions arising in the transfer pricing area. We advise from both a tax and corporate standpoint as to various types of specialized international transactions, such as structuring and implementing overseas financings, and establishing overseas insurance companies or investment companies such as mutual funds.
The growth of our practice in the area of inbound investment from Europe and Asia has tracked the substantial growth of such investment in the United States. Work in the inbound area includes both acting as tax and corporate counsel to the U.S. operations of foreign companies and handling special projects, such as acquisitions, sensitive tax audit matters, immigration matters, technology transfers and project financing for U.S. investments.
We also have extensive experience in such areas as intercompany transfer pricing, foreign currency borrowings, swaps, and hedging transactions, international mergers and acquisitions, international licensing and technology transfers, foreign tax credit, Subpart F, international joint ventures, FIRPTA, competent authority and other treaty-related matters, as well as problems relating to the repatriation of earnings and the start-up or dissolution of foreign operations by U.S. companies and U.S. operations by foreign companies. Our tax lawyers have also served as advisors to the British Government with respect to California's system of unitary taxation.
Mergers and Acquisitions
In recent years, as the international M&A field has expanded, tax partners of the firm concentrating in the international area have served as tax advisors in some of the largest acquisitions and dispositions occurring outside of the U.S. This advice has included establishing the most tax efficient structure for the acquisition (or disposition), pre-acquisition tax due diligence, financing of the acquisition, and in many instances "hedging" the foreign currency purchase price of the acquisition. Another very significant aspect of the firm's international tax practice involves the post-acquisition restructuring and rationalization of the overseas affiliates of the acquired company (both U.S. and foreign). Advice in this area draws heavily on the firm's work in sections 367 and 1491, the subpart F provisions, the branch profits tax provisions, and the foreign tax credit provisions.
Financial Products
A substantial segment of the firm's international tax practice involves financial products. Over the last five years, we have served as special tax counsel with respect to over one hundred billion dollars of public and private debt offerings, primarily in foreign markets. The terms of those offerings have been extremely diverse, and have included zero coupon and other discount obligations, floating rate obligations, foreign currency obligations and other short-, medium- and long-term obligations. We provide advice to issuers on the tax consequences of issuing such obligations and, in public offerings, also draft disclosure language discussing the tax consequences to purchasers.
Another major component of our financial products practice involves the taxation of "notional" principal contracts, such as interest rate swaps and currency swaps, forward contracts, and interest rate caps, floors, collars, futures, options and related products. Our involvement with these products has included not only rendering advice as to the tax consequences of entering into, maintaining and closing out such transactions, but also drafting the tax and other provisions of the related documentation and meeting with the Internal Revenue Service and the Treasury Department on proposed legislation, regulations and other guidance affecting such products. One of our international tax partners, Clifford E. Muller, assisted by three associates, recently co-authored the extremely comprehensive and well received Tax Management Portfolio on "Tax Aspects of Foreign Currency."
Finally, over the past few years we have been extensively involved with structuring centralized hedging and liquidity management centers in Europe, the Far East, and Latin America. The tax consequences of the particular structure are extremely important in determining whether there is a net overall economic benefit of establishing such a structure. In virtually all situations the firm has been able to devise a structure that achieves the business objectives while (1) avoiding the tax pitfalls associated therewith and (2) maximizing the tax planning opportunities.
Transfer Pricing
Intercompany transfer pricing is one of the most significant areas of our international tax practice. The firm has unique experience in this area, both in terms of planning and controversy work, and has several partners, counsel and associates who assist clients in this area. Our attorneys are intimately familiar with the new transfer pricing regulations and their application to a wide array of transactions of U.S. and non-U.S. based multinationals, and are presently engaged in several ongoing projects for major multinational corporations to ensure compliance with the new regulations. Such compliance is imperative in light of the valuation misstatement penalties applicable in this area, which have become even more burdensome in light of the more stringent penalty provisions contained in the Omnibus Budget Reconciliation Act of 1993. The firm's experience in this area extends to both U.S. and non-U.S. based companies, and to all manner of intercompany transactions (tangible and intangible property, services, etc.). The firm also has experience in securing Advance Pricing Agreements, which in many cases have become more attractive in light of the new regulations.
Insurance and Foreign Mutual Funds
The firm has practiced for more than 30 years in tax matters affecting the life insurance and property and casualty insurance industries. Recently, the firm's international insurance tax practice has included advice to a large Canadian life insurance company on the U.S. income and branch profits tax implications of the incorporation of its U.S. branch, and advice on restructuring alternatives to a large U.K. reinsurance company that is owned by several major U.S. insurance companies. We also have assisted in the formation of several Bermuda and Barbados group "captive" insurance companies that insure U.S. risks of their U.S. shareholders.
Over the past few years, we also have been actively involved in the establishment of mutual funds in Ireland, Guernsey and Luxembourg. In this connection, we have given particular attention to the potential application to a foreign mutual fund's indirect U.S. shareholders of the "passive foreign investment company" or PFIC provisions of the Code. We also have anticipated enactment of the "passive foreign corporation" provisions contained in H.R. 13, the Tax Simplification Act of 1993.
Litigation and Other Controversy Work
Another significant aspect of the firm's international tax practice is its controversy work. As the Internal Revenue Service has stepped up its enforcement in the international area, our involvement in assisting clients respond to IRS inquiries has increased exponentially. This aspect of the practice includes drafting responses to IRS requests for information and proposed audit adjustments, as well as protests to the Appeals Office. We typically provide extensive behind-the-scenes advice on audit strategy. Where necessary, we have assisted our clients in dealing face-to-face with IRS examiners and Appeals Officers.
While we always seek to avoid the time and expense of litigation of tax controversies, we have no hesitancy in turning to litigation to protect a client's interests. Our lawyers are experienced in every facet of tax litigation and have appeared before federal courts throughout the country. In Barclays PLC v. Franchise Tax Board of California, which challenged California's method of worldwide unitary taxation, we filed an amicus curiae brief with the Supreme Court on behalf of the Government of the United Kingdom. We also filed a separate amicus brief on behalf of the Governments of Austria, Australia, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, The Netherlands, Norway, Portugal, Spain, Sweden, and Switzerland. We have an impressive list of victories, including in particular two of the most significant and frequently cited international tax cases -- Hershey Foods in the Tax Court involving section 367 and Procter & Gamble in the Tax Court and Sixth Circuit involving section 482.
Partnership Taxation
Sutherland lawyers have extensive experience with the issues affecting the formation, operation and dissolution of partnerships, both general and limited. We are frequently called upon to draft or review partnership agreements and related documents to ensure compliance with the complex rules for special allocations of tax benefits, proper maintenance of capital accounts, the proper treatment of appreciated or encumbered property contributed by or distributed to partners, and the classification of partnership debt for purposes of the allocation provisions. We have also provided extensive advice and opinions as to the classification of foreign and domestic entities for U.S. tax purposes. We have also participated as a member of professional groups and on behalf of clients in commenting on regulations under Subchapter K governing partnership matters.
In addition to advising with respect to partnerships formed to acquire or construct real estate projects, we have advised with respect to the specialized issues presented by partnerships formed through the contribution of assets that have values differing from their tax basis. Examples of such issues include mandated allocations to account for "book-tax disparity" and contribution-distribution scenarios that raise "disguised sale" questions. Ventures of this kind cover a diverse economic spectrum, and have involved natural resources, electric cogeneration operating facilities, soft-drink distribution, television and cable operations, and other traditional manufacturing, financial and sales businesses. In addition to insurance companies, pension funds, private investors and developers, our clients in some of these transactions have included Air Products, Coca-Cola Enterprises, First Financial Management Corporation, Northern Telecom, Hospital Corporation of America, Philip Morris and Procter & Gamble.
State and Local Tax
The importance of state and local tax planning has risen significantly in recent years. Only a decade ago, federal tax rates were so high and state tax rates and enforcement were so minimal that taxpayers focused their attention, with good reason, on federal tax planning opportunities.
Times have changed. With reductions in federal tax rates, legislative elimination of many federal tax planning opportunities, increases in state and local tax rates, and aggressive enforcement efforts at the state and local level, state and local tax issues frequently push their way to the forefront and affect the business decision-making process. Indeed, when all state and local taxes are combined, the effective rate of such taxes may exceed a taxpayer's federal tax liability.
For years, we have provided extensive advice to clients about state tax planning opportunities. Our work has encompassed many diverse questions, some examples of which include:
- Advising companies on methods for restructuring their organization and activities to minimize state taxes.
- Analyzing the proper framework for the state and local taxation of the rapidly evolving telecommunications industry.
- Analyzing state and local tax considerations involved in the relocation of a taxpayer's business to another state.
- Advice concerning whether and when state "nexus" attaches by reason of telecommuting and the provision of computer-based services.
- Evaluating and modifying a taxpayer's corporate organizational structure to minimize compliance costs and control effective state tax rates.
- Obtaining favorable advance rulings from various state departments of revenue to assist taxpayers in their state tax planning activities.
- Determining the proper states in which taxpayers should file tax returns.
- Reviewing sales tax concerns inherent in the construction of a new manufacturing plant.
- Determining the proper use of net operating losses in particular states.
- Evaluating the potential use tax liability of an out-of-state mail-order vendor that used an alternative to the United States Post Office to deliver catalogs.
- Evaluating the potential liability of non-resident partners for state income tax as the result of professional services performed by the partnership in a particular state.
- Determining the state tax consequences of acquisitions and dispositions of businesses.
- Developing a basis for securing "advance rulings" from the District of Columbia Department of Finance and Revenue.
- Drafting and shepherding passage of state tax legislation for clients.
- Advising insurance companies on the applicability of the "in lieu of" exemption to sales and use taxes.
Tax Accounting
We are frequently called upon to advise clients, both in planning matters and in controversies, on tax accounting issues. We have extensive experience in providing advice on cash, accrual, capitalization, change of accounting method, installment method and taxable year questions. Moreover, we have a national reputation in providing tax accounting advice to clients engaged in such specialized industries as the retail industry, textiles, automobile manufacturing, communications, utilities, financial institutions, food processing, health care and consumer products generally.
Tax Legislation
Our firm has maintained an active legislative practice for many years in conjunction with the other aspects of our tax work. Several partners in Washington devote significant time to legislative and government relations work, and we maintain ongoing contacts with Members and key staff of the Finance, Ways & Means and Joint Tax Committees. We have found that such relationships regularly provide important information (often at the "early warning" stage) on legislative developments, as well as better access to Members and more rapid responses to clients' legislative concerns.
We have been quite successful in advocating clients' legislative interests by having our technical professionals in specific substantive areas operate as a team with the firm's leislators. We perform such work for domestic and international corporations, trade associations, ad hoc coalitions, charitable organizations and individuals. Our role varies with the needs of each particular case. In some instances, we assume primary or lead responsibility for all aspects of a legislative problem; in others, we serve as a technical or political backup to a client's representative or as a part of the client's team of lobbyists.
In the course of our legislative work, we provide a variety of different services, including, for example, active direct lobbying with the Congress or with Treasury Department and other Administration officials, developing political strategy, assembling coalitions of taxpayers to advocate common legislative interests, scheduling meetings with and providing introductions to key tax policymakers, monitoring and timely reporting on developments and trends, attending hearings and meetings and analyzing specific legislative proposals. We draft suggested statutory provisions, supporting memoranda and report language for possible use by staff personnel. We also testify on behalf of clients, prepare clients' representatives for testimony and develop special briefing programs and presentations.
Tax Litigation and Controversy
While we seek to avoid litigation of tax controversies unless there is no other means of adequately protecting our clients' interests, our lawyers are experienced in every facet of tax litigation -- from trials in the U.S. Tax Court, district courts or the Court of Federal Claims to arguments before the Supreme Court. We have become nationally recognized for our work in tax litigation. Our experience includes corporate, tax accounting, international and insurance tax cases, as well as cases involving individuals and tax-exempt organizations. In addition to our representation of actual litigants, we are frequently called upon to represent clients as amicus curiae.
Tax-Exempt Organizations
We have maintained an extensive practice over the past 40 years representing tax-exempt organizations, including particularly universities and their related medical centers, public and private charitable organizations and religious organizations. We have assisted in the formation of new charitable organizations and trade associations; the reorganization of academic medical centers and other exempt organizations; the formation, funding and expansion of business subsidiaries of exempt organizations; the litigation of unrelated business income tax controversies; planning to minimize unrelated business income tax liabilities; the legislative consideration of modifying current unrelated business income tax laws; negotiation of employment contracts and fringe benefit arrangements; the utilization of self-insurance trusts and captive insurance companies for medical malpractice and general liabilities; both the acquisition and divestiture of non-profit hospitals by various clients; compliance with private foundation restrictions and regulations; and the tax-exempt financing of various hospital and university capital projects.
Examples of our continuing tax-exempt clients include the American Council on Education, Duke University, Emory University, the Dartmouth-Hitchcock Medical Center, the American Bar Endowment, the Carnegie Corporation of New York, the University of Iowa, the New England Alumni Trust and the Southeastern Council of Foundations. In addition to these and other continuing clients, we have in recent years undertaken special projects for numerous other exempt organizations, including the Fort Sanders Alliance and Fort Sanders Regional Medical Center (Knoxville, Tennessee), the Commission on College Retirement, MetroHealth Foundation, Group Health Plan, Harvard, Stanford and Southern Methodist Universities and the Universities of Texas and North Carolina. Our exempt organization clients are based throughout the United States and in several foreign jurisdictions, including Bermuda and Switzerland.
A number of our lawyers spend a substantial portion of their time on matters involving tax-exempt organizations. One of our partners is a past chair of the Committee on Exempt Organizations of the ABA Section of Taxation and is a member of the IRS Exempt Organizations Advisory Group.
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