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NY Law Firm Credits Trump Tax Plan For Irish Expansion

August 13, 2018

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New York-based Tully Rinckey has joined the small but growing number of American firms with an outpost in Ireland, and the firm says the Trump administration’s tax law overhaul deserves part of the credit.

Founder Matthew Tully said the sweeping tax reforms paved the way for the firm to expand internationally but maintain its headquarters in the United States under a new incorporation model.

The 75-attorney firm began probing the idea of international expansion three years ago and settled on Dublin as its first destination, in part because of potential tax advantages.

But after the Tax Cuts and Jobs Act was signed into law in December, its two equity partners pivoted, reorganizing the firm’s American operations and jumping into Ireland shortly afterwards under a new structure.

In the U.S., the firm has been split into two parts: a professional limited liability corporation that employs all its attorneys and a service corporation that employs the non-lawyers and owns all of the firm’s leases. The partners had earlier been contemplating an “Irish inversion:” moving the headquarters of the firm overseas to take advantage of that country’s lower corporate tax rate.

“Once the Trump tax plan was starting to move through Congress, we realized the advantages of inversion weren’t as compelling as splitting up the law firm and doing the service incorporation,” Tully said.

Tully opened the firm in upstate New York in late 2001, after surviving the 9/11 attacks on the World Trade Center, where he worked in the law department of Morgan Stanley. The firm now has 10 offices in three states and Washington, D.C., with its largest in Albany.

The New York City and upstate New York offices are full service, while the D.C. and San Diego, California offices focus on representing federal employees and the military in their interactions with the government. The firm concentrates on insurance defense at its two Texas offices.

According to Tully, the firm first considered Hong Kong for its first international expansion before concluding it was not viable. It next looked to London, before Brexit hit, prompting the pivot to Dublin. The partners then spent 18 months researching regulatory requirements in the U.S. for overseas expansion and the pros and cons of various tax strategies. Under the old rules, moving the corporate headquarters to Ireland would have allowed the firm to avail itself of that country’s 12 percent tax rate, rather than the 39 percent for pass-through entities.

Instead, three months after the Trump tax plan passed, they split the firm into two parts. Now, the service corporation, with over 70 percent of the firm’s assets, is taxed at 22 percent, while the PLLC, with less than 30 percent of assets, is taxed at 37 percent.

“Luckily for us, we were able to be very nimble,” Tully said. “Because of our Irish planning, we were able to be the tip of the spear on this.”

Next, the firm retrained its sights on Ireland, creating both a separate law firm and a separate Irish service corporation, whose majority ownership is a Delaware corporation controlled by Tully and his fellow equity partner Greg Rinckey.

The new territorial-based system tax system allows American shareholders of a controlled foreign corporation to deduct 100 percent of foreign-sourced dividends.

The Dublin office, which opened on July 4, currently has three solicitors. But Tully hopes to grow the number to 10 by the end of 2018 and 35 within three years. The office aims to serve European companies with their international business matters as well as American businesses looking to establish themselves in Ireland and the European Union.

DLA Piper announced plans in May to open a Dublin office, following Detroit-based Clark Hill and Covington & Burling. In 2010, Dechert became the first U.S. firm to establish itself in the country.

Tully Rickney, meanwhile, has aspirations for further growth. Domestically, it’s targeting a new office in San Antonio within six months. Internationally, it’s eyeing London in nine months and Dubai and Singapore in the next two years. And the firm wants to have 100 fee earners in six months and to double that number in three years.

“When you consider that 15 years ago, it was just me in my home office, the hard part is well behind us. Adding that first attorney was tough. Going from two to three was tough,” Tully said. “Going from 75 to 100 is comparatively easy.”

According to Tully, a handful of other U.S. firms had split into two entities before the Trump tax cuts. He expects to see more go ahead with the plan, and says that he’s been contacted by nine different managing partners from law firms with annual turnover ranging from $1.5 million to $1 billion.

While the tax advantages will be sharper for those larger firms, it will be easier for other small firms to commit to restructuring.

“This is one of the few things that we don’t believe should be a secret,” he said. “If it’s something that can save firms from failing – by distributing more income that would have gone to taxes, through lawful means – I don’t see a downside to it.”

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