Thursday, January 29, 2009

The Job Search: An Expert's Advice

After my recent realization that I need to get a job, I contacted Tax Grotto editor Chris Bale to see if he'd be willing to answer a few questions about the current tax job market. In addition to chronicling "Movers & Shakers in the Global Tax Market" on Tax Grotto, Chris is CEO of eTaxJobs and is involved in other websites such as, so I figured he'd be the perfect person to ask about how to position myself for getting a foot in the door at a tax firm. I sent Chris a quick note asking if he'd be willing to answer a few questions to be posted here, and to my delight and amazement he promptly replied that he'd be happy to help.

The questions that I put to Chris appear below in bold with his answers following:

1. I see that some of your websites, and -- pertain to tax professionals all over the world. To what extent is your business involved with placements in the UK and to what extent in other locales?

I am based in the UK and when eTaxJobs was first launched in 2005 it had a UK only focus. This gradually grew internationally as there is considerable cross-border movement within the tax market. Many tax legislations are based on UK tax law which allows tax professionals to get up to speed very quickly in a new country. We then found that the site was attracting domestic tax professionals looking to move locally, which led to Big 4 firms in Canada, Australia, Russia, New Zealand and other countries using eTaxJobs to attract people with local tax knowledge. eTaxJobs now has a number of country specific sites and we are very strong in Canada, Luxembourg, Australia and the Middle East. However we have never really cracked the US tax market. This is on my to-do list :)Tax Grotto has no geographical bias in terms of its outlook, but because the US and UK are by far the largest tax markets globally, they dominate the news items. I would say that the split is 40:40:20 between US, UK and rest of the world.Totally Tax is a site driven by its users and we create new categories as people demand them. The directory is still in its infancy but is growing gradually.

2. What proportion of your placements are accountants and what proportion attorneys?

I should stress that eTaxJobs is just a job board and does not get involved in the recruitment process per se. Unlike in the US we are completely indepdendent and have no association with any recruitment firm. In terms of the split, we do not have hard data on this, as we rely on feedback from our clients, but the proportion is around 80:20 accountants to lawyers.

3. What types of firms do you most often deal with? Do you work exclusively with accounting firms or have you provided placement services for law firms as well?

Yes, we work with accountancy firms and law firms and boutique tax practices. We also do a lot of work with Fortune 500 and FTSE 250 companies recruiting for in-house tax professionals. Obviously a lot of our clients are recruiters and headhunters acting for others. In Europe and Australasia there is considerable movement of tax professionals between the legal and accounting professions and the historic distinction between the two for tax advice is melting.

4. To what extent do you normally deal with entry-level positions? How are these positions usually filled by the various kinds of tax firms?

We do feature these roles on our site but I would recommend that people looking for a trainee role apply directly to tax firms. There is a lot of demand for these places and fewer opportunities than 5 years ago, so it is best to invest the time and approach every hiring contract in writing.

5. How has the current economic downturn affected recruitment at the various types of firms that do tax work?

The Big 4 and law firms have certainly been hit, almost on a global basis. The sign off for new hires has been elevated to senior partner level and every new job needs to have a definite business case justified before it can be advertised. This said, they are all still hiring but not to the extent of 2008. Exceptions to this are China and Canada where the demand for tax professionals is increasing. Firms that had a strong reliance on FS tax and M&A tax have obviously taken a hit.

6. Are there any sectors of the tax job market that have been unaffected or even improved by the current financial crisis? Are there entry-level opportunities in areas such as bankruptcy, or is that work more likely to be done by those who have been squeezed out of other tax areas?

In my view transfer pricing, international executive services (ie US personal tax), executive compensation consulting and indirect tax have been relatively unaffected by the downturn. There will always be demand for tax compliance services, good for accountants but not lawyers. Yes, you are right, one option is to look at the insolvency or bankrupty markets, but by the time you have sufficient experience to be of use to a Firm, the downturn may be over and you could well be in the wrong specialism.

7. Are there any jurisdictions that are currently (or anticipated to be) "hot" in that there is a special need for people with knowledge of that jurisdiction's tax laws?

Middle East, China and Canada are all growing their tax service lines right now.

8. Looking forward past the current recession, to what extent will there be a need for American tax attorneys to work in Europe, Asia, and elsewhere?

The key demand for US tax professionals abroad is in the field of US personal tax, ie advising wealthy US executives working as expatriates.There are also opportunities for US international tax or transfer pricing experts in the major international tax jurisdictions where there is strong M&A activity ie Switzerland, UK, Singapore, HK, China, Luxembourg and Dubai.

9. For someone with a desire to work in tax, What is a more powerful credential, an LLM in tax or CPA? Can one hope to find a job with a mere JD (American law degree)?

Tough one, as I suspect it depends on which jurisdiction you are in and what type of job you want. To do tax compliance at a Big 4 I would say CPA, but obviously an LLM would suit working in a law firm doing transactional tax. The reality is that in the long term the qualification matters less than good experience. I would keep blitzing every hiring contact and not be too fussy about where you go. Get 1 year's experience and then move on when the market improves.

10. What other skills and/or credentials (language, software, etc.) would be useful for a newly-minted tax attorney in search of a tax job?

Mandarin and French open up many opportunities internationally. Software can be learnt on the job and is constantly changing anyway.

[Note: For the next question, I sent Chris a copy of my resumé to see where I might stand in the applicant pool. It shows that I have a BS and MA in economics, have worked in consulting and finance since leaving grad school, and spent a few years up to this previous May at a large management consulting firm.]
11. Looking at my resumé, can you tell me if there is anything about my background (or lack thereof) that stands out as likely to work either in my favor or to my detriment in my search for a tax job? What normally stands out on an entry-level candidate's CV?

In your favour is your previous consulting experience. You have been client facing and have a very good consultnig firm on your cv.The fact that you have an Economics background could be used to your advantage if you focus on securing a job in transfer pricing, as this is a pre-requisite for entry. There are lots of TP boutiques out there and Baker & McKenzie have a very strong global TP team, plus obviously you can look at the Big 4 firms too.The cv stacks up in terms of strong academic institutions too. For me the question mark would be why you left [your most recent job at a large consulting company]. My guess is that it was a redundancy situation ? [Note: Actually no, I just got tired of my job and decided to find something where I'd pick up some legal experience. I imagine that I'll have to dress that story up a bit when interviewing with a potential employer.]

12. What general advice would you give to law students interested in pursuing a tax career?

Don't be too picky about your first job. Get some experience under your belt, work free of charge during vacations so that you have practical tax experience on your cv and be determined. Send out applications every day and try to cover every firm that hires tax trainees.

Well I can't thank Chris Bale enough for being so generous with his time and insight. He has certainly given me some things to explore and focus on as I move toward post law school employment. The biggest takeaways are probably the following:

1. Transfer pricing seems to have shown up a few times as something I should look into. I don't know much about it beyond a min-unit in in my international business transactions class, so I'll be sure to read up and see if it sounds like something that I'm interested in.

2. I'll worry a bit less about trying to squeeze a CPA in ASAP. Perhaps that's something to worry about after snagging the first job.

3. My French is rusty and my Mandarin is horrible but improving; it can't hurt to get a little better in both of these.

4. My background doesn't sound like an automatic deal-breaker, which is good. That's a bit of a relief.

5. Bug the hell out of tax firms until one of them relents and hires me.

Monday, January 26, 2009

The Tax Canon -- Andrews '72 (Part 1)

And now back to Vic Fleischer's tax canon. This week I'll be talking about William D. Andrews, Personal Deductions in an Ideal Income Tax, 86 Harv. L. Rev. 309 (1972). Andrews, like everyone else whose work I've read as part of this project, seems to be a titan of his field. He wrote a widely used casebook (though not the one that my introductory tax course used) and a number of well regarded and oft-cited scholarly articles.

When Andrews retired from Harvard in 2007, former student Edward McCaffery said "There is much to admire about Bill’s scholarship, but what I best know and love Bill from are three articles published in the Harvard Law Review, in 1972, 1974 and 1975—known to cognoscenti simply as Andrews 72, 74 and 75." [Note that I'll be coming back to Andrews '74 in awhile as it is also included in the tax canon.]

For a peek at the substance of the 72 article, McCaffery goes on to say:

Much of income tax theory in the 20th century was dominated by the
so-called Haig-Simons definition of income, which holds essentially that Income
equals Consumption plus Savings (I = C + S)—that all money or wealth (income) is
either spent (consumption) or not (savings). Many have written about the income
side of that equation: the importance of finding and taxing “all income, from
whatever source derived.” The simple genius of Bill Andrews was to look to the
right-hand, or uses side. What we are taxing—in an income tax—is consumption
plus savings. This change of perspective effected a Copernican revolution in our
thinking about tax. Andrews 72 pointed out that, while the arguments for source
neutrality are compelling, those for use neutrality are far less so—just maybe,
“we” do not want to tax all consumption, like medical expenses or charitable
contributions, equally.
So that's what we can look forward to: another very important work from another very important guy. If I seem less than excited, it may be because this article is substantially longer than the previous ones. On the up-side, if the most difficult math consists of I = C + S then this should be a cake-walk compared to Mirrlees '71.

Saturday, January 24, 2009

The Tax Canon -- Mirrlees '71 (Part 2)

Well it turns out that my first guess about the bit of math that I was unsure of was pretty close to correct, and it wouldn't have mattered if I were way off anyway. Ah well. Anyhoo, I have now finished reading J. A. Mirrlees, An Exploration in the Theory of Optimum Income Taxation, 38 Rev. Econ. Stud. 175 (1971) (actually reading the tough math-y parts several times) and have a few observations to report.

It was actually alot of fun to read a real economics paper for the first time in about five years. I had almost forgotten about the incredible number of limiting assumptions that cause such papers to almost never end up being about what their titles imply. I actually began reading with the idea that this paper would tell me about how to design the income tax to be as efficient as possible; it technically did this insofar as one is willing to accept the umpteen limiting assumptions that mostly bear no relation to the real world. To be fair, this particular paper is quite brilliant and did make a real contribution to the economic study of optimal taxation theory. It is just not something that a policy-maker can grab an apply without taking a huge leap of faith.

The paper begins with a list of assumptions, including a complete disregard of intertemporal issues, uniformity of preferences and utility functions among taxpayers, the disallowance of migration, perfect information, and a single type of labor and a single consumer good in the economy.  You know, just like real life.

The model is set up such that there is a finite number of laborers/taxpayers in the economy each with a different amount of output that they can produce per unit of time. That is, worker 1 can produce one widget per hour, worker 2 can produce two widgets per hour, etc. up to some maximum. The utility of each laborer is a positive function of how much he consumes and a negative function of how much he works. That is, ideally every worker would want to consume infinite widgets and work zero hours. The job of the government is to set a tax rate for each type of worker (each level of per-hour productivity) so as to maximize aggregate utility given the amount of time that each worker will choose to work. Of course each worker must choose how much to work based on how much he wants to/gets to consume which is partially a function of the tax rate. It is this interplay between optimization problems that leads to quite a few pages of fancy math.

You may have noticed that the model makes taxation choices based on a taxpayer's productivity, not his income. Mirrlees attempts to square this with the real world when he says, "One might obtain information about a man's income-earning potential from his apparent I.Q., the number of his degrees, his address, age or colour; but the natural, and one would suppose the most reliable, indicator of his income-earning potential is his income." This may be so, but the assumption that productivity is indicated by income might be one of the larger assumptions that this model uses.

After a bit of brain-hurting math, Mirrlees demonstrates his results by running a number of numerical examples (each with different assumptions about preferences, utility functions, etc.) and spits out some results that are a bit surprising. Optimum marginal tax rates tend to be relatively unvaried among different income brackets (or productivity levels) which would indicate that we might want to consider a flat tax rate. The actual flat tax rate is sensitive to the distribution of skills (or productivity) among the population as well as the income/leisure preferences. These two points aren't particularly surprising, but what is is that of all the combinations of assumptions tested, the highest optimum marginal tax rate came out to be 60% with the great majority being less than half that.

Another important result is that the income tax is not shown to be a very good tool for the redistribution of wealth (well, really consumption and utility). It seems that it would be more efficient to tax at a (low) flat rate and then use some other mechanism to achieve redistributive ends. 

Well, again, at least insofar as our world correlates to Mirrlees' world of limiting assumption.

This was fun and I look forward to reading more about optimal tax theory, but next time I'll be going back to the legal tax canon and will thus be reading William D. Andrews, Personal Deductions in an Ideal Income Tax, 86 Harv. L. Rev. 309 (1972).

Oh, almost forgot. This time around the part that made me feel stupid was easily the amount of math that I have forgotten since finishing grad school only a few years ago. What I would have once flown through, my brain must now stare at and chug through at a snail's pace. This is something that I'm going to have to work on.

Wednesday, January 21, 2009

Real Estate Depreciation

When I started this blog, I determined that I would refrain from commenting on current and proposed tax policy because I'm just a student and really don't know what I'm talking about. There's really nothing much more unbearable than reading through a know-nothing's pontifications on the state of the universe. However, I've got two cents burning a hole in my pocket, so I'm going to throw 'em in. [I'll try to keep this from becoming a habit.]

Today's post by Professor James Maule on his MauledAgain blog discusses a proposal, articulated in a 2007 post by Robert Flach on his Wandering Tax Pro blog, to end the IRC's allowance of real estate depreciation deductions. From every angle this makes good economic sense; the deduction may have helped contribute to the overinflation of the housing market, and there is no reason to allow a deduction on an asset that is in fact appreciating in value. However, after realizing what a good idea discontinuing the deduction would be, one realizes the political impossibility of doing away with it.

My first thought was that if we can't outright do away with real estate depreciation we must be able to find away to counteract its effect. My second thought was to toughen the recapture rules -- perhaps by upping the tax paid on recapture -- and giving the option to depreciate as much (up to a point) or as little as the taxpayer thinks is economically accurate with the threat of penalties if they are found to have deducted too much when they eventually sell the property. My third thought was that this is a dumb idea (for a number of reasons that I won't waste your time by enumerating).

So here is my current thought: why not continue to allow taxpayers to profit from the fiction that their real property depreciates in value so long as there is no evidence to the contrary? The catch would be that a property value assessment for local property tax purposes would count as evidence to the contrary. If a tax assessment showed that a taxpayer had claimed too much in depreciation deductions since the purchase or previous assessment, then the service could either 1. require taxes on recapture to be paid immediately, or 2. require the rate of depreciation be adjusted match the current trend as evidenced by the change in value since the property's purchase or previous tax assessment. Certainly there are quite a few issues to work out before attempting to implement such a policy (and I won't waste your time by typing out my current list), but I cannot think of any that would be an outright deal-breaker.

Tuesday, January 20, 2009

Gotta Get a Job

After my morning walk and bowl of kibble, I perused my daily slew of websites and blogs. Of particular note -- aside from much about the inauguration of our new president -- was a post on Paul Caron's TaxProf Blog about the poor state of academia and professordom and such. The second section was an excerpt from a Forbes article describing the experience of law student couple who graduated with a ton of student loan debt and ended up getting divorced partially because of the financial strain.

This isn't really a new story, but I was still thinking about it a few minutes later in the shower -- it probably stuck with me because the students graduated from a law school just down the street -- when a horrible realization struck: I am those students. When I graduate in a year and a half, both I and Mrs. Goose will be paying off loans of a similar magnitude as those discussed in the excerpt. Plus I have the added responsibility/expense of a puppy of my own on the way. The couple in the article apparently had six-figure jobs and still had troubles, so my non-plan of just assuming that whatever job I take after school will be adequate suddenly seems extremely foolish. So the big realization is that I need to get serious about setting up gainful employment in 18 months or so.

To that end, I'll plan on chronicling here my endeavors to learn about the job market, how best to promote oneself, and any other tidbits and adventures that may come along. Perhaps my inevitable mistakes will prove useful to someone out there.

Monday, January 19, 2009

The Tax Canon -- Mirrlees '71 (Part 1)

It is a great testament to my laziness that I have failed to yet finish J. A. Mirrlees, An Exploration in the Theory of Optimum Income Taxation, 38 Rev. Econ. Stud. 175 (1971) simply because I came across a bit of math that I no longer remember how to work with. To continue reading I must either: 1. assume that my current understanding is good enough (it's a pretty minor point anyway), or 2. crack a book that is sitting on my shelf at home and spend ten minutes getting back up to speed. For days now I have elected to do neither. In any case, I think I'll post some background information in the hopes that this will motivate me to hurry up and finish.

I have heard the name Mirrlees a number of times, but I did not until now know anything about him or his work. (This is officially the part of the blog post where I admit to now feeling stupid.) Apparently Professor Mirrlees won a Swedish prize of some sort in 1996 -- other than that he's not so notable. (This is probably where I first heard of him.)

It seems that Professor Mirrlees is an economist's economist -- the sort of brilliant person who made me realize that my efforts in grad school were pointless, thus causing me to leave with a lowly MA. He's the sort who seems to enjoy complex mathematics for its own sake, and ends up shedding light on some of mankind's more pressing problems merely by happy happenstance. Reading his mini-autobiography, one learns that Professor Mirrlees has exuded brilliance (though he would not make such an immodest claim) since boyhood, and continues to work for the simple pleasure of it. His many publications are phenomenol in their breadth as well as their complexity (so it seems to me anyway) and I hope to have the chance to read some of it in the future. (Actually, if I want to learn anything about optimal tax theory, I will have no choice but to read many Mirrlees papers.)

Most interestingly, much commentary about Professor Mirrlees' work on optimal taxation points out how much it is at odds with what most of us assume must be attributes of an efficient and effective tax system. I'll save a breakdown for my later post about his '71 paper, but suffice it to say that it is officially gee whiz stuff.

Wednesday, January 14, 2009

Apparently Tax Professors Do Actual Work

Mauled Again has a particularly timely post today about what Professor Maule goes through in preparing to teach his classes each semester. It is timely because one of the classes for which he describes his preparations is the same one that I just began yesterday -- Introduction to the Taxation of Business Entities (called Tax II at my law school.) After reading through the 27 steps required for Professor Maul to prepare to teach a class, I do have a much greater appreciation of what my professors must do to make such seemingly effortless presentations day after day. However, as a former management consultant I question the efficiency in the ordering and repetition of some of the steps on Professor Maule's checklist. For instance, it appears that he might want to wait until after he has reviewed the most recent addition of his casebook (step 13) before compiling supplemental materials (steps 4 - 7).

Anyhow, I thank Professor Maule for this post as I am sure that I am not the only law student who found it illuminating.