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End of SAUSA Program at Chief Counsel’s’ Office

Posted on June 3, 2015

At the May meeting of the ABA tax section, I went to a session where I heard IRS Chief Counsel, Bill Wilkins speak.  Though it was only a small snippet from his speech, he mentioned that in the past year the Office of Chief Counsel had stopped the program with the Department of Justice (DOJ)/U.S. Attorney’s Offices under which attorneys from Chief Counsel’s office represented the government in certain bankruptcy cases as Special Assistant United States Attorneys (SAUSAs).  I was a SAUSA for about 20 of my 30 years with Chief Counsel’s office.  I think the ending of the program makes sense given the budget of the IRS but thinking about its impact on tax procedure may be worth a short post.

Understanding the program requires a little bit of understanding about the relationship between Chief Counsel, IRS and DOJ as well as a little bit of understanding about the bankruptcy code.  I will briefly discuss both before discussing the potential impact of this change in procedure in the representation of the United States in bankruptcy court on tax issues.

How does the federal government divide the work between the attorneys who work for the Treasury Department, viz., attorneys in Chief Counsel, IRS and those who work for DOJ in the Tax Division and how does it divide work between attorneys who work in DOJ Tax Division and U.S. Attorney’s offices?  The how, and the why, of this question lays the framework for understanding the recent change at the Chief Counsel’s office and why it came about.

Back in 1933, some discussion took place in the federal government concerning who would handle tax matters in court.  President Roosevelt’s Executive Order 6166 (June 10, 1933) gave the Department of Justice the power to prosecute all claims against the Federal Government and to supervise United States Attorneys in these cases. Under this authority, the Attorney General created the Tax Division in October 1933, which began representing the government in tax cases in district courts, courts of appeals, and state courts in January 1934.  The position of the Assistant General Counsel of the Bureau of Internal Revenue, today known as the Chief Counsel of the IRS, was created that same year with the Revenue Act of 1934. The Chief Counsel’s office acted as in-house attorneys for the IRS and the DOJ tax division attorneys acted as the litigators, but a question arose about who would handle cases in the Tax Court.  At that time the Tax Court was known as the U.S. Board of Tax Appeals, which had been established by the Revenue Act of 1924.  The DOJ apparently felt that the Tax Court was essentially an administrative agency for deciding disputes that did not need its lawyers to represent the government.  So, Chief Counsel acquired jurisdiction over Tax Court cases, which it retains to this day.  Of course, no one knew in 1933 that the Tax Court would turn from an administrative agency into an Article I court where the bulk of tax merits litigation occurs. The Tax Reform Act of 1969 officially established the Tax Court as an Article I court; prior to this, the Tax Court was considered an independent agency of the Executive Branch.

The Tax Division basically has charge over all of remaining types of litigation involving federal taxes including refund, criminal, collection, and bankruptcy cases as well as appeals of all cases including Tax Court decisions.  The Tax Division and the U.S. Attorney’s offices around the country divide up some of the representation of cases by issue and case type with the Tax Division, generally keeping the most complex cases and the U.S. Attorney’s Offices handling the more routine matters including most summons, some collection, some bankruptcy, and most criminal cases – though all approval of criminal tax cases must emanate from the Criminal Section of the Tax Division.

The 1978 Bankruptcy Act changed the game on the need for representation in bankruptcy courts by the United States.  It made individual bankruptcy cases much more accessible than its 1898/1938 predecessor and it made it possible for business debtors to confirm a reorganization plan without the approval of the IRS.  The individual side of the bankruptcy equation is where the resource problems occurred most notably.   The routine objections to chapter 13 confirmation hearings, including a high volume of objections for unfiled returns, overwhelmed the resources of local U.S. Attorney’s offices which were not given additional staffing to handle the increased volume of bankruptcy work than grew after the passage of the 1978 Act.  This growth came during the Reagan presidency when the emphasis was not on expanding government resources.  So, the IRS was sending a high volume of objections in routine individual reorganization cases over to U.S. Attorney’s offices that swamped the ability of many of those offices to handle the work.

In the mid-1980s some Chief Counsel field offices trying to bridge the gap between their client’s desires and the U.S. Attorney’s abilities, began to have attorneys assigned as SAUSAs to pick up the slack.  By the early 1990s, DOJ even offered to formalize the assignment of certain types of bankruptcy work to Chief Counsel rather than DOJ.  Chief Counsel declined the offer fearing that it might face resource issues down the road in meeting this obligation.  The fears came true in 2014.  Because of shrinking budgets at the IRS, it needed a way to free up resources to work on writing regulations, providing in-house counsel advice and litigating Tax Court cases.  So, it formally backed away from the SAUSA program that had existed for almost three decades.  In doing so, it provided training and other resources to the U.S. Attorneys in order to bridge the gap as resources transitioned from one office to the other.

Some Chief Counsel attorneys devoted almost all of their time to the SAUSA program and many devoted a fair percentage.  In his speech, Chief Counsel Bill Wilkins stated that the termination of the SAUSA program freed up over 30,000 hours of attorney time in its field offices.  This equals about 15 attorneys not taking into account the leave and other down time associated with each attorney.  A great result for Chief Counsel’s office, but what about the system of collecting taxes through bankruptcy?  I do not know for a certainty but when a program goes on for that long even though it is essentially based on a handshake rather than a formal assignment of the work, the office being relieved of work makes adjustments to devote its staff to other things and the whole program started because the U.S. Attorney’s office could not handle the volume of IRS bankruptcy cases in the first place.

The SAUSA program only existed in the cities in which the Chief Counsel attorneys were located or within 50 miles thereof.  So, it never existed in all cities around the country.  In Virginia, we had outstanding representation in bankruptcy court in the Alexandria and Norfolk divisions of the Eastern District where Bob Coulter and Greg Stefan, two former DOJ Tax Division attorneys, worked.  Those cities were never a part of the SAUSA program.  In Richmond, where the Chief Counsel field office was located, two or more SAUSAs handled almost all of the cases that the U.S. Attorney’s office would otherwise have handled.  In cities like Richmond, you might notice the government struggling to keep up with routine bankruptcy work of the IRS as it adjusts the work from one office to the other.

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