Chief Counsel to Focus on ‘Transactions of Interest,’ Rollinson Says

The IRS Office of Chief Counsel is focusing its expansion and reorganization efforts to specialize in certain tax areas ripe for guidance or enforcement, according to the Office’s new head.

IRS Chief Counsel Margorie Rollinson, who took office in March and is the first woman to hold the position in a permanent capacity, said she is emboldened by the IRS’ ability to “invest in technology and to hire people” using funds from the Inflation Reduction Act (PL 117-169). She spoke June 28 at the New York University School of Law’s annual Tax Controversy Forum in New York.

A larger Chief Counsel’s Office will be instrumental in advising the IRS on where to devote resources to promote compliance and target enforcement, she believes. An example of a key area the IRS has been publicly vocal about in terms of closing tax loopholes and curbing tax-avoidance behaviors is partnerships. “We’ve become increasingly concerned about abusive partnership transactions,” Rollinson said. The large partnership unit has identified issues during exams that are “troubling,” she commented, which led to the issuance of three pieces of partnership guidance last month on certain basis-shifting transactions.

This means transactions where taxpayers “either distribute an asset to a partnership or contribute an asset into a partnership” and “change what asset has basis,” she explained. The concern is with related parties and how basis is shifted “in a more advantageous way” for the taxpayer when the “economics” of a business do not change.

Proposed regs that were released in the partnership guidance package set rules for a “transaction of interest.” With these transactions, a taxpayer must “tell us about that transaction” and a material adviser must “tell us that you advise on that transaction,” Rollinson said. Such transactions are those that are “the same as or substantially similar to one of the types of transactions that the IRS has identified by notice, regulation, or other form of published guidance as a transaction of interest,” per the regs.

The phrase “substantially similar” applies if a transaction “is expected to obtain the same or similar types of tax consequences and is either factually similar or based on the same or similar tax strategy,” the regs continued. Rollinson hopes the IRS will receive many public comments and assured that “we plan to move expeditiously to finalize” the proposed regs. The 60-day comment period is open through August 19 and a public rulemaking hearing is scheduled for September 17.

Changes are also coming to Chief Counsel’s organizational structure. Its associate office, Partnership Special Industries, “has gotten, in my view, too big for itself,” said Rollinson. “Special industries” encapsulate the various green energy credits under the Inflation Reduction Act, which have “become more and more important” as the IRS continues to release guidance. That speciality is “getting bigger and bigger,” so Rollinson decided to split the divisions into two associate offices. One will handle pass-through and transfer tax issues while the other will be dedicated to energy incentives and excise taxes.

“My vision is these two offices [will] grow dramatically because we need to hire more partnership expertise and we certainly need to hire more credit expertise,” Rollinson said.

Using Inflation Reduction Act funds, Rollinson expects that Chief Counsel will staff 2,700 employees “by the end of the year,” including the 650 employees onboarded “in the last two years alone.”

Speaking to her new position, Rollinson said she is enthused by IRS Commissioner Danny Werfel’s goal for taxpayers to have more online options. She commented that there is an opportunity to grow the agency in a way that younger generations “can interact with” the IRS similar to how “they interact with everything else.” A point Werfel often repeats that has stuck with Rollinson is that his 80-year-old father has never used an ATM but his 20-year-old son has never been inside a bank, which illustrates the generational divide with technological comfort levels the IRS is attempting to navigate.

“I’m really pleased to be able to be there and part of that,” said Rollinson.