David Stewart:   0:00
Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: the glass ceiling. For years now, women have outnumbered men in law school enrollments, but they're still dramatically underrepresented in many senior legal positions, including in the tax field. Joining me now by phone is Tax Notes chief correspondent Amanda Athanasiou. Amanda, welcome to the podcast.

Amanda Athanasiou:   0:27
Thank you for having me.

David Stewart:   0:28
You recently wrote about this issue in Tax Notes. What got you started down this path?

Amanda Athanasiou:   0:33
Well, the dearth of women in senior roles in the legal industry has been an issue for a long time, particularly large private firms. And in the wake of the #MeToo movement and the release of the new research by the ABA and some other organizations about gender bias in the profession, I started to wonder what the situation looked like today for women in tax specifically. So I wanted to see if tax professionals have similar experiences what they thought was at the root of the underrepresentation issue and how they think the paradigm might ultimately shift.

David Stewart:   1:01
And what were some of the biggest takeaways for you from your reporting?

Amanda Athanasiou:   1:04
There were a couple of key takeaways that stood out for me. One was that tax is really more similar to other legal practices than it is different in this regard. Women and men are starting out in the field in roughly equal numbers, and then the percentages of women in top tier partnerships ends up somewhere in the low twenties. Those numbers are really similar to the legal industry average and women in tax that spoke with me had stories similar to those in tax practices with some subtle differences. The other takeaway is that although the numbers have been really stubborn for years, the focus on the issue isn't going away and women that I spoke with were pretty optimistic that although change is slow, it's still happening.

David Stewart:   1:39
Now, you spoke to somebody about this recently. Tell me about who you talked to and what you talked about.

Amanda Athanasiou:   1:44
So, Kriss Rizzolo was my guest, and she's a partner at Eversheds Sutherland. She heads the firm's women's leadership initiative in the U. S. She was a source for the story and her input has been really candid throughout this process, which I've appreciated. She had some unique insights about what women are experiencing in firms, and she has some really constructive ideas about how to move forward.

David Stewart:   2:03
All right. Let's go to that interview.

Amanda Athanasiou:   2:06
With me today is Kriss Rizzolo, who is a tax partner at Eversheds Sutherland. Kriss, can you tell me a little bit about yourself and your career?

Kriss Rizzolo:   2:14
Sure. So I am tax partner at Eversheds Sutherland in the U. S. I'm in the Washington office and have been practicing tax law my whole career here in Washington. I previously was at Dewey & LeBoeuf, and when that firm went defunct, I came to Sutherland, which is now Eversheds Sutherland and found a home here. I practice in the insurance tax space, which means that I do tax law for insurance companies. And that's a unique area because insurance companies earn their income differently from other types of companies and so their taxed differently from other types of companies. So it's a fun area to practice in and exciting for me to do it. About two years ago, I volunteered to help our partner who is in charge of diversity at the firm revamp our women's programs and have an overarching program for all of the offices in the United States, and we call it our Women's Leadership Initiative. And I am the chair and I manage the programs and get others involved to help me to a variety of different programming for our women at different levels in the firm.

Amanda Athanasiou:   3:22
Kriss, I understand that you have a target in your leadership initiative. The goal is to reach 30 percent women equity partners by the year 2021. I'm wondering, how did that number get chosen and is the ultimate goal for it to be a little higher than that?

Kriss Rizzolo:   3:36
We were looking for a short term goal instead of the final goal, because I'm a firm believer that you set your targets a little at a time and step your way up to where you really want to be. Because otherwise the horizon's too long or you don't have a goal at all and you're not measuring, and that's not the right approach. So, we were looking for a number that we thought was within reach but would get us a good way toward a more balanced partnership. And so we chose 30 percent as a nice round number to try and reach within a few years and then we would reevaluate after that period of time. So the end of 2021 is our target year and we're going to reevaluate then and see where we get to now. We have since joined the Move the Needle program, where we actually have a longer term horizon and a higher percentage goal. So it's 33 percent now and 2025 is the target year. I'm hoping that we will be beyond 33 percent at 2025 I'm pushing for that. But right now those are our two goals at this point. But down the road, obviously 33 percent is not the end goal either. My view is the end goal is when no woman in this firm feels like there's no path forward for her to be a partner if that's what she wants and no woman in this goal faces obstacles toward partnership simply because she's a woman. If we get to there, then I think we've achieved what we should be achieving

Amanda Athanasiou:   5:10
That's great. A big topic right now is work-life balance and more workplaces are offering flexibility, sort of flex schedules, part time, remote work. There's a lot of discussion about what this means for women, but it seems like the women in these flex-type programs are still not the ones generally making it to partner at large firms. The paradigm still seems to be that an attorney needs to have sort of full-time plus availability to be on that partner track for women and men. So I'm wondering if you expect this to remain the case in large private law firms.

Kriss Rizzolo:   5:41
I don't think so. I think ultimately firms will have to deal with the fact that men and women in firms need to be able to have a family life. And though we will expect our associates and counsel to work hard, we will not expect them to sacrifice their family lives for their careers. And I think that's going to happen more quickly than some of the other advances for women. Because I think that the technology has made it so much easier for partners and clients to interact with associates and counsel wherever they are, and that makes it a whole lot easier to run the business and do what our clients demand of us and still be able to have a family life, some balance and not have to worry too much about always being in the office.

Amanda Athanasiou:   6:37
That's good to hear. I think there have been a lot of developments that make that seem like more of a possibility and even more of a reality today, which is encouraging. A number of sources, including yourself, have underscored the importance of client demands to diversity among lawyers. You mentioned that that might have something to do with why there seems to be, at least anecdotally, a larger proportion of women in, say, insurance tax law. The insurance industry itself has a number of leaders in diversity and inclusion, and I'm wondering if you could say a little bit more about the importance of clients to this process and how to avoid pitfalls like tokenism, for example.

Kriss Rizzolo:   7:11
I think that clients are the driver when it comes to law firms. They basically are the ones that provide the revenue and therefore partners in law firms listen to their client. And if a client is saying, "I want you to do x when it comes to diversity and inclusion," then law firms will make the effort to do x. My diversity and inclusion director has a lot on her plate, and one of the biggest things on her plate is the diversity and inclusion surveys that come in from our clients on a regular basis. They have developed over time, too. It's really interesting. It started off with just how many women partners, how many women associates, how many women council as a percentage of your whole ⁠— all of those questions. But now it's become how many women partners and also diverse. I don't want to minimize the diverse aspects of this, but we're focused on women here, so I'm going to focus on women. So it's now how many women partners, how many women associates, how many women council are working on my matters. How much time are they doing on my matters? Are there women who are leading my matters? And so the questions have changed. And as the questions change, I think that signals that clients are going to start saying, "Look, if you come to me with a team that has a token woman on it, and then that woman doesn't actually do the work. I'm going question whether or not I give you the next matter. Or if you walk into my office with a team of men, I'm not going to give you the business. It's a matter of fact. I'm not even gonna take the meeting." And I've heard of that happening where someone will show up with a team of men and the woman who happens to be in charge of the matter just basically won't even see them. That's good news because it's really the client putting their money where their mouth is. Instead of just touting we want diverse teams, they actually are not accepting anything but diverse teams. And that's not every client yet. But it's happening more and I think it will continue to grow.

Amanda Athanasiou:   9:13
That was really interesting to hear. It's really encouraging that clients are, you know, they're walking the walk. Rhannion Kinghall Were, who is chair of the Women in Tax U.K., made the excellent point at the end of the story about women that we can't just be talking amongst ourselves on this issue. You had recommended that the higher-ups to be looking at there third and fourth and fifth year associates and making sure those middle classes with the women in those classes are getting the same kind of training and experience is men. And you mentioned that men attend training sponsored by your firm's Women's Leadership Initiative. Is there anything else that those in leadership positions, including men, can be doing in their day-to-day practice to make sure that they're helping to foster the development of the top talent among all genders in tax law?

Kriss Rizzolo:   9:53
Yes, I think that it is important for male partners to really seriously consider mentoring and sponsoring women attorneys. I think they need to reach out and say, "OK, I see your talent. I want to make sure that you are developing the skills you need, and I want to make sure that you have an advocate at this firm so that you can move forward into the partnership ranks." We have a very talented woman in our tax practice who is at a senior level, but not at partnership yet. And she is backed by one of the most powerful partners of the firm, really in terms of being on his team, working for his clients, and he thinks very highly of her and he has really shown respect for her skills. And I think he's an advocate for her in the end, and I think that's a good thing because that will help her move forward in her career. And I'd like to see more men looking around at the women in their groups and going, "Well, why not her? She's talented. She's got the skills. She's got the brains. Let me help that person come along." I was lucky because I had that myself. I had two partners who were male, who looked at my talent and just said, "OK. We're going to teach you everything you need to know, and we're going be your advocates. We're going to be behind you every step of the way." And that was so important for me and the development of my career. I think that is probably the most important thing that any male partner can do is to just guide some woman partner along on her career path and be an advocate for her.

Amanda Athanasiou:   11:39
One of the anecdotes that a woman tax lawyer shared for the story was about a time when a client's firm didn't feel comfortable working with women for cultural reasons. And she wasn't permitted to talk when there was a call. She was left out of meetings, and she said she wasn't fired for being a woman. She felt it was handled respectfully, but these seem like the kind of things that it might seem like a tough question for the partner or even innocuous to some. But they clearly affect a lawyer's billable hours, their relationship with the client, and ultimately, the service that's provided to the client. So I was wondering how you might recommend that partners handle a situation like that.

Kriss Rizzolo:   12:15
I'm going to tell a story about a partner of mine who no longer is practicing. He retired, but he was involved in a case where the client had cultural issues with women and our most talented lawyers who could work on the matter were women. My partner was one of those people who believed in using the best people no matter what, and he went forward and he had the women staff his team. They were at the meetings. They were part of the process and the process went forward to a point, and then it was an arbitration, and when it finally came time to the arbitration, the client actually hired another firm to handle the actual arbitration. And it was all male team that handled the arbitration. I tell that story because I like to think that I would be more like my partner and would stand there behind the women who were on my team and say, "This is my team. Take it or leave it." It's a hard call to make when the people on the other side of that take it or leave it are a very big client who could potentially produce a lot of revenue. And so it's a tough one. I would hope that in that circumstance, the firm would in fact instead of just accepting it blindly, work with the client to find a way to work within their cultural norms, but still be able to have the women involved in the matter in some fashion. That's more than just sitting in a room, not speaking, and not having her work acknowledged. If it really comes down to, "Well, OK, we really can't do that," maybe you think about not taking that client. Or maybe you have to really seriously think about, "Well, then, what are we going to do for this woman instead?" Because you're shutting her out of a very important opportunity. And if she doesn't get that opportunity, what opportunity are you going to give her instead? Because you can't just shut somebody out like that or put her on the sidelines of a matter like that and then not recognize that that's what is happening.

Amanda Athanasiou:   14:14
Thank you, Kriss, so much for joining me again on this topic.

Kriss Rizzolo:   14:18
I'm happy to have done it. I appreciate the opportunity to talk about this.

David Stewart:   14:22
Now for another edition of Willis Weighs In, where Tax Notes contributing editor Ben Willis discusses tax planning issues with Executive Editor for Commentary Jasper Smith.

Jasper Smith:   14:31
Thanks, Dave. Ben, this episode we'll be exploring a topic that always seems to be a hot button issue in the tax community: carried interest. Specifically, we're going to be touching on some questions about carried interest and the exception for corporations, including some related to your July 22nd article on the topic. So to start, can you talk a little bit about how the TCJA addresses the carried interest loophole?

Ben Willis:   14:53
Sure. I personally don't think they actually did address the loophole, but their attempt to address it was based on extending the one-year holding period to a three-year holding period for certain partnership interests provided to hedge fund managers.

Jasper Smith:   15:08
OK. So let's back up a bit then. Why don't you think that they adequately addressed the loophole?

Ben Willis:   15:12
Well, hedge fund managers and private equity fund managers have been taxed at capital gain rates on services they're providing to investment partnerships for decades now, and America greatly as a whole, has viewed this as a loophole. And President Trump himself said that he was attempting to repeal the loophole by enacting this provision and the way that they did that was creating this three-year holding period. But in my view, that doesn't eliminate the benefit of receiving a capital gain rate, which is taxed at 20 percent versus the 37 percent rate that those folks would normally be taxed at.

Jasper Smith:   15:51
So does the IRS believe that the loophole has been addressed?

Ben Willis:   15:54
No. They believe that there is a loophole within the provision trying to fix the loophole. And so the loophole is an exception in section 1061 for corporations. The provision basically provides that if a corporation is holding an applicable partnership interest then the provision doesn't apply because it's really focused on individuals. The problem is, is that individuals can convert a corporation to an S corporation by making an election and get all the same benefits that they would have had they held that interest directly. And so they've come out with a notice, Notice 2018-18, that provides they plan to promulgate regulations in the next couple months, providing that corporation in 1061 shall be limited toC corporations.

Jasper Smith:   16:44
So with this Notice 2018-18, is the IRS effectively saying that they're looking to redefine what a corporation is?

Ben Willis:   16:52
Yes, that's exactly right.

Jasper Smith:   16:53
Well is corporation an ambiguous term?

Ben Willis:   16:55
Not at all. The code is very clear in any classification regulations, the statue. Even subchapter S for S corporations defines corporation, which includes S corporations, and so there is no ambiguity for Treasury to clarify.

Jasper Smith:   17:11
So if you're correct on that, why does the IRS think it has the authority to alter the statute?

Ben Willis:   17:16
I believe it's because 1061 is intended to be a pure anti-abuse provision. And so they believe because it's designed to prevent abuse and they think using an S corporation would allow for that abuse that they have the ability to modify the statute and redefine terms that have already been defined. Unfortunately, the law is clear that Treasury does not have the ability to legislate. And in fact, there are other appear anti-abuse statutes and provisions out there where courts have held this. And in fact, the IRS has itself. One good example related to S corporations is found in Rev. Rule 763-63. All this supports the fact that they can't actually issue the regulations they want to.

Jasper Smith:   18:01
Well, do you think that Treasury has any tools to adequately address these S corporation transactions?  

Ben Willis:   18:07
I think there may be a fact pattern where they have a sham or an agency argument that can be made. If a private equity fund manager who's taking advantage of this rule drops their interest in an S corporation, holds it for a year, sells it, liquidates the corporation, depending on the facts and circumstances, it could be argued that the entity wasn't a true entity and respected or that the entity was your agent on behalf of the fund manager. And in that instance, it is possible they could make an argument. That said, I believe the thresholds for both of those respecting the entity under Moline and an agency argument, they're just uphill battles that the IRS will have difficulty overcoming.

Jasper Smith:   18:50
OK. Well, thanks, Ben. As always, we certainly appreciate your perspective and would also like to thank those who reached out with questions, and we encourage you to continue to submit those questions whether you agree with Ben's take or not. You can find him on Twitter at @willisweighsin or by email at ben.willis@taxanalysts.org.

David Stewart:   19:08
And now, coming attractions. Each week, we preview commentary that'll be appearing in the Tax Notes magazines. I'm joined by Content and Acquisitions Manager Faye McCray. Faye, what will you have for us?

Faye McCray:   19:20
Thank you, Dave. In Tax notes Federal, Stephen Fisher discusses the limitations RICs face regarding capital loss carryforwards. John Cunningham explores when partnerships and sole proprietorships should restructure. In Tax Notes State, the advisory board members identified pertinent issues for 2019 and 2020. Martin Eisenstein and David Bertoni discuss efforts to expand tax enforcement against out-of-state companies based on Wayfair. In Tax Notes International, José Rubens Scharlack considers how the TCJA might affect Brazilian subsidiaries of U.S. multinationals. Leopoldo Parada analyzes the OECD proposal for a unified approach under pillar 1. And finally, on the Opinions page, Marie Sapirie discusses the GREEN Act's proposals.

David Stewart:   20:07
You can read all that and a lot more in the December 16th editions of Tax Notes Federal, State, and International. That's it for this week. You can follow me online at @TaxStew, that's S-T-E-W. If you have any comments, questions, or suggestions for a future episode, you can email us a podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week for another episode of Tax Notes Talk.