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Industry Spotlight: Paul Handleman

Published by Teresa Garcia on Tuesday, May 3, 2016

Journal cover May 2016   Download PDF

A note from the publisher: The Novogradac Journal of Tax Credits is honored to share the following profile of Paul Handleman, who retired in March from the Internal Revenue Service (IRS) Office of Chief Counsel. In his long and influential career, Paul was at the center of the development of consequential tax credit regulations and guidance. 

In his role as chief of Branch 5, Paul’s clear and coherent intellect was deeply respected by tax practitioners. While the tax credit questions the affordable housing, community development and historic preservation communities faced were often complex and arcane, we could always trust that the communities’ questions would receive a sound, reasoned and consistent hearing within the IRS. 

As you will read in these pages, during Paul’s many years of service at the IRS he witnessed the creation of both the low-income housing tax credit (LIHTC) and the new markets tax credit (NMTC), and, most importantly, helped lead the successful implementation and ongoing operation of both programs. Paul’s central role in the continuing evolution and regulation of the LIHTC and other significant tax credits must not be overlooked, and we thank him for all his contributions to the productive dialogue between the IRS and affordable housing, community development and historic preservation communities. 

Paul’s efforts at the IRS helped ensure that the LIHTC would continue as strong and vibrant program that has housed more than 13 million people, and counting.  Paul’s efforts also helped ensure the success of the NMTC, leading to more than $70 billion in investments in distressed communities, and the rejuvenation of the historic tax credit so it could continue a journey that has led to the expenditure of more than $118 billion for the preservation of historic properties. In short, Paul’s legacy at IRS is unrivaled in its positive impact on low-income families and distressed communities.

I know I speak for many in the tax credit community when I say that his thoughtful presence at the IRS will be greatly missed.

Michael J. Novogradac
Publisher, Novogradac Journal of Tax Credits

Paul Handleman, the man behind some of the country’s most influential general business tax credit regulations and guidance for the past 30 years, officially retired in March from the Internal Revenue Service (IRS) Office of Chief Counsel. Handleman spent the last eight of those years as chief of Branch 5, which has jurisdiction over the low-income housing tax credit (LIHTC), new markets tax credit (NMTC), historic rehabilitation tax credit (HTC) and other general business tax credits. As head of the branch, Handleman managed the day-to-day operations, assigned workloads and tracked progress of the priority guidance plan that the IRS uses to address tax issues through regulations, revenue rulings, revenue procedures, notices and other guidance. 

Handleman’s education and tax law background helped prepare him for a career at the Office of Chief Counsel. He received his undergraduate degree in politics from the University of California, Santa Cruz, and his law degree from Golden Gate University School of Law in San Francisco. It was during his summer internship at the San Francisco U.S. Attorney’s office that he got his first taste working in tax law. “It was a net-worth case,” said Handleman. “A drug dealer was reporting $25,000 a year in taxable income in the early 1980s, but he had bought a piece of land for millions in cash and the government found $700,000 in cash on the premises. It was sort of an Al Capone case. The government wasn’t going after him for drugs, but because he wasn’t paying his taxes.” 

Handleman said he had no intention to pursue a career in criminal law, but the memorable case played a small factor in his decision to get a master of laws (LL.M) degree in taxation from Georgetown University. He worked two years as a tax associate for a Washington, D.C., law firm before joining the IRS Office of Chief Counsel in 1986 as an attorney advisor working on private letter rulings and Internal Revenue Bulletin guidance. 

His first regulations assignment on the job helped launch the LIHTC. “I was there near the beginning,” said Handleman, who started his career with the Office of Chief Counsel the same year the LIHTC was enacted. “I did the original compliance monitoring guidance. I worked on the Guide for Completing Form 8823 and recent Audit Technique Guide.” Few people at the time could predict that the LIHTC would become a permanent part of the tax code in 1993, let alone that it would go on to produce more than 2.8 million affordable rental homes over the next 30 years. “That was when the [LIHTC] was still temporary,” said Handleman. “I was advised by a higher-up in Chief Counsel to go get different experience and work in a different branch of Chief Counsel, because the program wasn’t permanent yet.”

Handleman heeded the advice and worked in another branch for five years, but eventually returned to Branch 5 in 1997. This gave him the opportunity to develop the original guidance for another new tax credit program: the NMTC. One of the issues that Handleman was hoping to clarify before he retired was the use of NMTC self-leveraged loan structures. He said that banks were reluctant to be leverage lenders during and after the national financial crisis, so businesses in low-income communities began using self-leveraged loans as a way to fund the tax credits. “I think Treasury should issue guidance because we’re getting questions from IRS agents in the field on whether these [transactions] should be allowed,” said Handleman. 

If the IRS does not issue explicit guidance on self-leveraged loans and later decides to disallow tax credits on certain transactions, Handleman warns the industry reaction may be “another Historic Boardwalk Hall.” In the Historic Boardwalk Hall case, the Third Circuit Court of Appeals disallowed HTCs for a certain investor in a historic rehabilitation project because it had no meaningful upside or downside in the transaction. The ruling effectively put a cork in HTC investments until the IRS released Revenue Procedure 2014-12, establishing safe harbor guidance. A similar crisis affecting the NMTC can be avoided, said Handleman, if preemptive guidance is issued so that tax credit participants are clear on what exactly the IRS will allow. “Practitioners do not always agree with the lines, but they appreciate that there are lines,” he said. 

In addition to issuing guidance, the Office of Chief Counsel represents the IRS in litigation and advises the Department of Justice on tax matters. The highest-profile tax credit case Handleman was involved in was Historic Boardwalk Hall. Handleman was responsible for reviewing court documents and ensuring that they were technically accurate on Internal Revenue Code Section 47. “My branch had jurisdiction over the credit; I was involved with the Tax Court and the Third Circuit litigation,” said Handleman. “The Tax Court and appellate attorneys rely on our expertise.”

Handleman decided to retire this year after three decades of helping shape some of the nation’s largest and most enduring tax credit programs. It’s fitting that just as his career with the Office of Chief Counsel began with laying the groundwork for the LIHTC, so the issuance of LIHTC compliance monitoring regulation in February would bookend it. “I hit 30 years in the beginning of March and I’m glad to fully retire,” he said. “Beyond not working, I plan to do some traveling.” Handleman has returned to his native Southern California, to enjoy the year-round sunshine and to be closer to family and friends. He embarked on a two-week, cross-country road trip from Washington to his new home in San Diego with his spouse and Beans, their 10-year-old Cardigan Welsh Corgi.

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