Top IRS Lawyer Pick Poised for Second Act at Besieged Tax Agency

Two decades ago, the IRS was locked in a battle with the biggest US accounting firms over a billion-dollar tax shelter industry. To help strike back, President George W. Bush brought in Donald Korb.

Known as a deft litigator, Korb helped the IRS collect over $3 billion from abusive transactions and aided the Justice Department in pursuing a multibillion-dollar criminal tax fraud case that led to accounting giant KPMG paying $456 million in penalties.

Now, Korb is poised to return to the agency, where he could face a new wave of aggressive tax planning expected by some professionals. This time around, the Trump administration has prodded out about a quarter of the IRS workforce, and the agency is without most of its top brass, as well as a commissioner after the president removed Billy Long this month. Republicans have been clawing back billions the agency got to step up enforcement, suggesting it won’t be the highest priority.

President Donald Trump in April nominated Korb as IRS chief counsel, the same position he held under Bush. The Senate Finance Committee hasn’t yet scheduled a hearing, though Korb’s confirmation seems likely.

Korb would arrive at the IRS after more than a decade at Sullivan & Cromwell LLP, where the firm says he’s saved companies upwards of billions of dollars in potential taxes.

Korb declined to comment. The Treasury Department didn’t respond to multiple requests for comment.

As chief counsel, Korb would guide litigation strategies and manage regulations. It’s a job where he is likely to thrive, former government officials who worked with him said. But with a shrunken workforce, projected funding decreases, and a massive new tax law to implement, significant challenges lie ahead.

“He’s voluntarily leaving the safety and affluence of private practice and going back into an agency that’s under severe pressure,” said Larry Gibbs, an IRS commissioner in the late 1980s for whom Korb was an assistant.

‘By-the-Book Guy’

The IRS Office of Chief Counsel has lost roughly 350 people since the start of the Trump administration, a 13% decrease, according to the National Taxpayer Advocate. That includes multiple division leaders with technical expertise and decades of institutional knowledge.

Leadership changes have also rocked the office since the administration took power.

William Paul, a longtime IRS lawyer, took the acting chief counsel role when Trump took office. Then Paul was pulled from the role in March in favor of Trump ally Andrew De Mello, who has since been replaced by Ken Kies, Treasury’s assistant secretary for tax policy. Paul said he was viewed as uncooperative with the Trump administration.

“Don Korb is a very much by-the-book guy,” said Mark Mazur, a former Tax Policy Center director who oversaw the IRS research arm during Korb’s tenure. “This administration doesn’t look like they’re following the book.”

Korb and his office will face pressure from the administration to quickly release guidance on complicated sections of the tax-and-spending law, such as tax breaks for tips and overtime. Korb didn’t have to deal with implementing a major tax law during his first time in the role.

Trump’s deregulatory initiative and a major court decision adds to the pressure.

The US Supreme Court’s Loper Bright Enterprises v. Raimondo ruling scrapped the decades-old judicial deference to agency rulemaking, emboldening taxpayer challenges. And Trump is requiring agencies to remove 10 pieces of guidance for every new one.

Tax Shelter Crackdown

Korb had two runs at the IRS—as an attorney and assistant to the commissioner—before reentering as chief counsel in 2004 amid a decade-long battle against corporate tax shelters. Korb’s office, alongside the DOJ Tax Division, managed what at the time was the largest criminal tax fraud case ever, centered on KPMG.

It was the culmination of the agency’s work going after some of the biggest accounting firms selling shelters the IRS said hid billions of dollars of income from the government.

Korb was hard on tax shelters and willing to try out different positions and arguments in litigation, said Tom Cullinan, a Chamberlain Hrdlicka shareholder and former IRS official who represented clients in IRS disputes when Korb was chief counsel.

Korb spearheaded the strategy, which included offering a settlement to taxpayers who invested in the so-called Son of Boss shelters, where users artificially generated losses to offset income. More than 1,500 participated.

“For those who haven’t come forward and intend to take the IRS to court, we plan an aggressive litigation strategy,” Korb said in 2004. “The word is getting out that there won’t be a better deal waiting if people take these cases to court.”

But the government made some missteps.

A New York federal judge in 2006 found the government put pressure on KPMG to disregard its typical practice of paying legal fees for its workers—violating their constitutional rights to a fair trial and to the assistance of counsel.

And a Texas federal judge said IRS regulations retroactively barring Son of Boss tax shelters didn’t apply to those who used the shelters before the rules were released.

The strategy in the early 2000s could foreshadow how Korb will treat tax avoidance going forward, especially since tax professionals expect more aggressive planning techniques in the face of a weakened IRS. Korb’s nomination could send the message the IRS will be tough, said Lisa Zarlenga, a Steptoe partner who previously worked at Treasury.

The US Tax Court late last year had thousands of conservation easement and micro-captive insurance cases. The IRS has warned these arrangements are abusive tax avoidance schemes.

Korb, along with the DOJ tax unit—which is soon to be dismantled and split between the broader criminal and civil divisions—will have to figure out the agency’s overall legal strategy with a pared-down staff.

“On YouTube, it takes about 10 minutes to find a tax shelter,” Cullinan said. “The question is more of the resources to do something about it.”