The following is an excerpt from Practice Perspectives: Vault's Guide to Legal Practice Areas.
Elizabeth Lu, Partner—U.S. and International Tax and Eric Carstens, Partner—State and Local Tax (2023)
Elizabeth C. Lu focuses her practice on U.S. and international tax matters. She advises clients on international tax issues, including the subpart F anti-deferral rules, foreign tax credit planning, repatriation, and the international provisions of the Tax Cuts and Jobs Act (GILTI, FDII, BEAT, etc.). She has experience advising multinational corporations on global supply chain restructurings, acquisitions, dispositions, joint ventures, post-acquisition integrations, internal reorganizations, tax controversies, and intellectual property migrations. Elizabeth also advises clients on tax treaties, cost-sharing agreements, and the taxation of the digital economy.
Eric D. Carstens focuses his practice on state and local tax matters, assisting clients with state tax controversy, compliance, and multistate planning across all states for a variety of tax types and unclaimed property. Eric engages in all forms of taxpayer advocacy, including litigation, legislative monitoring, and audit defense. He works closely with several of the firm’s taxpayer coalitions focused on specific state tax policy issues, such as the taxation of digital goods and services and unclaimed property.
Describe your practice area and what it entails.
Elizabeth: The U.S. & International Tax group generally advises clients on the U.S. and non-U.S. tax implications of their transactions.
Eric: My practice area is state and local tax (SALT) and covers a wide range of tax, fee, and unclaimed property issues that arise for companies and individuals across the United States. SALT attorneys are typically brought in to help resolve contentious audit issues, advise on new or uncertain areas of the law and tax policy, or opine on legal issues for financial statement purposes. My practice regularly involves advising clients on constitutional (and federal) limitations to state and local taxation and ensuring that state and local tax/revenue departments do not exceed them. State and localities are the laboratories for democracy, but often their tax experiments don’t work from a legal and/or policy standpoint—and that’s where we come in.
What types of clients do you represent?
Elizabeth: I represent U.S.-based multinational corporations across a variety of industries (tech, retail, health/life sciences, automotive, etc.), as well as foreign companies with U.S. operations. I tend to work with companies that have significant cross-border operations.
Eric: The clients I represent are predominantly Fortune 500 companies (particularly in the technology sector) and high-net-worth individuals. In the unclaimed property space, I represent a significant number of large companies in the health care space.
What types of cases/deals do you work on?
Elizabeth: I help companies set up their intellectual property (“IP”), supply chain, and cash management structures to operate efficiently from a U.S. tax perspective. For instance, I advise clients on how income earned by a U.S. company can qualify for the lower tax rate that applies to foreign derived intangible income (“FDII”), how income earned by foreign subsidiaries can qualify for the lower rate that applies to global intangible low-taxed income (“GILTI”), and how they can get tax credits in the United States for foreign taxes they pay overseas. When a client acquires a target company, I help integrate the target company’s legal entities, IP, and operations into the client’s pre-existing structure in a tax-efficient manner. This often involves undertaking tax-free reorganizations from a U.S. federal income tax perspective and coordinating with U.S. corporate attorneys and foreign tax counsel.
Eric: I represent taxpayers in tax controversies across the country at the state and local level. My adversary is almost always a state or local government official—both tax administrators and their attorneys. Often my cases start as appeals to a proposed assessment or denials of a claim for refund and then proceed to state tax appeals tribunals and sometimes state court. Due to the federal limitations prevalent in my practice, we have increasingly seen disputes (particularly declaratory judgment lawsuits) in federal court. In the unclaimed property space, I represent companies undergoing multistate audits by third-party audit firms and companies seeking to enter into voluntary disclosure agreements with states.
How did you choose this practice area?
Elizabeth: The tax lawyers I talked to seemed to actually like their job. They said tax was a good fit for people who liked the logic games section of the LSAT—logic games was my favorite, so I thought I’d give tax a try.
Eric: To be honest, this was not a practice area I had identified going into law school (my objective at first was to be a constitutional lawyer), but after taking a SALT class in law school, I was intrigued by the combination of constitutional law and policy (I have a political science background) that exists in the SALT space. I was fortunate enough to get a law clerk opportunity with McDermott during law school, and the rest is history.
What is a typical day like and/or what are some common tasks you perform?
Elizabeth: I typically spend a few hours on client calls learning about the issues they are facing, and providing advice. I also have internal calls with other USIT attorneys to discuss technical issues. I also spend a fair amount of time researching legal issues and drafting tax analyses.
Eric: No day is ever the same, which I really like about the SALT area. My typical day has evolved over the years (initially focused on background research and drafting as a junior associate), but currently involves a lot of legal writing, review, and client interaction (calls, emails, etc.). I have several recurring client calls every day and frequently travel to SALT conferences and to visit clients and discuss key issues. Because my practice is so broad in scope (all 50 states and thousands of localities nationwide) and the laws are never completely uniform, research is almost always required when an issue/question arises and, as a partner, I am more often reviewing the research of others. Common work product includes drafting briefs and protests (in appeals), settlement agreements, internal client memoranda, opinion letters, and emails alerting clients of new developments and/or responding to legal questions. I work with other partners at McDermott to manage a coalition of companies in the state and local tax policy space (digital goods and services focused), and that workflow involves analyzing state and local legislation, drafting talking points for coalition members, and maintaining 50-state matrices of transaction tax compliance considerations.
What training, classes, experience, or skills development would you recommend to someone who wishes to enter your practice area?
Elizabeth: In addition to taking classes in individual, corporate, international, and partnership tax, I recommend taking one or two financial accounting or tax accounting courses.
Eric: Legal writing is very important and something that should be a heavy focus of someone seeking to enter the SALT practice. It’s something even the most senior lawyers are constantly seeking to improve upon. Law school tends to not have a ton of SALT classes, but take any that you can if you are interested in the area. Because SALT issues often flow from federal issues in the income tax space, taking several federal income tax classes in law school can be very valuable and give young lawyers a head start over their peers. Many SALT lawyers elect to get a Tax LL.M. (for example, Georgetown Law has a specific SALT Certificate Program that Tax LL.M.s can complete), and I personally found that to be very valuable for my career (although there are many very successful SALT lawyers who did not get a Tax LL.M.). Advanced constitutional law classes are also very valuable to those wishing to enter the SALT practice area. The most valuable SALT experience I had was the firsthand knowledge and learning developed during my law clerk experience and as a junior associate.
What do you like best about your practice area?
Elizabeth: I like that tax planning is both technical and collaborative. It’s technical, so it’s intellectually satisfying, and there’s always something new to learn. It’s collaborative in that we work on teams with our clients to come up with solutions to address their tax challenges. My colleagues are always happy to explore new ideas and planning opportunities.
What misconceptions exist about your practice area?
Eric: People think tax lawyers are good at math and very busy during tax compliance season or need a fully developed accounting background. For example, my family and friends always think I must be very busy around Easter getting ready for April tax returns. While it certainly doesn’t hurt to understanding the basics of tax accounting (and is something they teach as part of Tax LL.M. programs), my practice doesn’t require more than a broad stroke understanding, and we typically are not involved in the weeds of preparing and filing tax returns. My job mostly entails arguing that a tax law is being applied in a way that is not allowed by state statute, federal law, or the U.S. Constitution several years after the tax returns were filed or advising on whether a specific product, service, or income should be included on the tax return months before it is due. While April tends to be a busy time due to state legislatures being in session, it is not for the reasons family and friends assume.
What is unique about your practice area at your firm?
Elizabeth: At McDermott, we focus on developing trusted advisor relationships with our clients and work with them on an ongoing basis, not only when they’re doing an M&A deal. We work closely with tax departments on everything from IP transactions to post-acquisition integrations to supply chain planning to audits and litigation. We provide comprehensive tax advice that takes into account each company’s unique profile and priorities.
As a junior attorney, how did you learn the ins-and-outs of the tax code so that you could hit the ground running on your clients’ complex issues?
Eric: As a junior attorney, the best way to learn the issues is firsthand experience and projects under the supervision of more senior SALT lawyers. SALT naturally doesn’t lend itself to having an answer off the cuff, so state and/or local research is almost always required, and working through the weeds in the state and local tax code in response to client questions and getting feedback from those more senior is really the only way to learn. I really learned a ton from business development projects as a junior attorney (e.g., preparing PowerPoints for a conference speech or drafting a blog for our Inside SALT blog or article for a SALT publication) and can’t emphasize enough the importance of taking on as many of those opportunities as possible when starting to increase your knowledge base and understanding of the issues impacting clients.