One of the largest law firms globally, Baker McKenzie, known for its intimidating presence in the Biglaw scene has just started what could become a historic legal tug war. With 4,800 attorneys and over $3.3 billion in revenue, they have just sued one of the most feared federal agencies in the United States—the IRS.
Just this week, Baker McKenzie took the IRS to task, filing a lawsuit against the agency in a federal court under the Freedom of Information Act. Heading the charge is George Clarke, the key player in the firm’s North America tax dispute group. According to the allegations in the lawsuit, the IRS has failed to disclose crucial information such as memos, policy statements, and training materials relating to their increased focus on audits of partnerships and other pass-through entities.
The information sought includes materials like those discussed by an IRS employee at a recent ABA Section of Taxation conference in November 2023. This material signaled a shift in IRS strategy, taking partnership audits to a previously uncharted level, according to a report.
This new level of scrutiny does make one wonder why Clarke, a Biglaw partner himself, would specifically target the IRS’s enforcement of partnership agreements. Of course, the official sentiment from Clarke is to “learn more about the Internal Revenue Service’s practices so that I can better represent my clients.” After all, keeping tabs on agency practices is not just a hobby—it’s a responsibility in his line of work.
And it’s not just about keeping track. The pressure on partnerships is already mounting as the IRS has reportedly begun 75 examinations on large partnerships. These include hedge funds, real estate investment partnerships, and – guess what – law firms. The agency is also set to send compliance letters to an additional 500 partnerships, a clear signal of the increased scrutiny and tightening regulatory landscape.
The spotlight is now firmly on Baker McKenzie as the conflict between Biglaw and the IRS unfolds, painting a riveting picture of what is shaping up to be a heavyweight clash between the legal and tax giants.