Jeff Paravano serves as firmwide chair of BakerHostetler’s tax group, which is among the largest law firm tax practices in the USA. Mr Paravano has a broad-based practice involving tax controversy and tax litigation; corporate, partnership, REIT and bankruptcy transactions; and domestic and cross-border tax planning. Mr Paravano previously served as senior adviser to the assistant secretary of tax policy at the United States Department of the Treasury, and as an adjunct tax professor at Georgetown.
DESCRIBE YOUR CAREER TO DATE.
Practising tax law for more than 25 years in the transactional, controversy and litigation, and policy space has made for an interesting career. It also provides a perspective on practising tax law that leads to a solutions-oriented approach to every matter. Tax lawyers involved with tax controversy and tax litigation approach tax due diligence, and the structuring and documentation of transactions, with a strengthened ability to make sure risks are minimised and positions taken are strongly supported by contemporaneous documentation. Tax lawyers involved with structuring transactions approach tax litigation with a strengthened ability to make stronger technical arguments to help lead to victory through settlement and, if necessary, trial and appellate proceedings. Innovating for and with clients on tax matters is more easily done by those with a broad range of tax experience.
WHAT DO YOU ENJOY MOST ABOUT WORKING IN THE FIELD OF CORPORATE TAX?
The tax law is changing all the time, with a continuous stream of legislation, regulatory action and court decisions. That rapid change creates opportunities for tax savings, and also makes advising clients and defending their tax positions an incredibly dynamic undertaking.
HOW HAS THE NATURE OF TAX CONTROVERSY WORK CHANGED DURING YOUR CAREER?
The one constant in every type of litigation, tax included, is that most cases settle. Taxpayers approach defending their positions based on a realistic view of the hazards of litigation – and the government (the IRS in the Tax Court; the Department of Justice’s tax division in federal district courts and the US Court of Federal Claims) does the same. In the USA, taxing authorities attempt to make law through legislation and regulation, not through court actions – meaning that court actions are supposed to be brought by the government to enforce the law, not to determine what the law may be. As a result, most tax litigation is highly factual in nature, with the taxpayer having a significant advantage because the facts in dispute are those known best by the taxpayer. While government litigators at both the IRS and Department of Justice’s tax division are among the most dedicated and talented litigators in the USA, there are changes from time to time regarding how sceptical those officials may be as they approach potentially high-dollar tax disputes. Government scepticism seems to be more frequent these days in situations in which many taxpayers have taken advantage of similar tax planning in grey areas.
THE TAX CUTS AND JOBS ACT WAS INTRODUCED A LITTLE OVER A YEAR AGO. WHAT IMPACT HAS THIS HAD ON PLANNING, RESTRUCTURING AND CONTROVERSY WORK?
The Tax Cuts and Jobs Act has created enormous opportunities for corporate taxpayers to significantly reduce their worldwide effective tax rate. It has also created challenges requiring taxpayers to re-engineer their corporate tax structures, and the manner in which they deal with many situations – both with related and unrelated parties. Moving from a worldwide system of taxation to a primarily territorial one, but with features including the new global intangible low-taxed income (GILTI) tax, the new base erosion and anti-abuse tax (BEAT) and potentially lower tax rates on foreign-derived intangible income (FDII) have together fundamentally changed how corporations approach and structure business opportunities. For example, it was not unusual in the past for a US-based corporation to contract on behalf of its foreign affiliates and then make payments to those foreign affiliates to perform services. Many of those types of arrangements now need to be changed to avoid application of BEAT. It was also fairly customary in the past for a US-based corporation to routinely make 338(g) elections to step up its non-US asset basis. The computation of GILTI makes decisions regarding those elections far more complicated.
YOU PREVIOUSLY WORKED AT THE DEPARTMENT OF THE TREASURY BEFORE RETURNING TO BAKERHOSTETLER. HOW DOES YOUR PUBLIC SECTOR EXPERIENCE BENEFIT YOUR PRACTICE AND CLIENTS TODAY?
Working in government provides an invaluable perspective regarding how to best navigate tax issues, from planning to litigation. Clients expect creative planning, innovation and strong defences of their tax positions. They are rarely interested in crossing the line to take on excessive risk and certainly do not want to waste resources fighting battles that would be more profitably settled than litigated. We plan transactions to survive scrutiny and we fight government attacks that we expect to win. Prior government service greatly informs those judgements for the benefit of our clients.