Tax Law Services Portfolio Evaluation

Executive Summary

1. Introduction

The Tax Law Services (TLS) Portfolio provides litigation and legal advisory services to the Canada Revenue Agency (CRA) in all areas of tax law and in other practice areas relevant to the CRA through its headquarters office in Ottawa, a Legal Services Unit (LSU) co-located with the CRA, and regional TLS Sections. The evaluation of the TLS Portfolio was conducted between October 2011 and November 2012. This is the first evaluation of the Portfolio, as well as the first evaluation of legal services under the 2009 Treasury Board Secretariat's Policy on Evaluation. In accordance with this policy, the evaluation addresses the core issues of the relevance and performance of the TLS Portfolio.

2. Methodology

The evaluation methodology consisted of a document and data review, key informant interviews with Justice and CRA representatives, a survey of TLS Portfolio counsel, a review of closed litigation and advisory files, case studies of two litigation and one advisory file that included interviews with CRA and Portfolio staff involved in the files, and one focus group each with CRA and Portfolio representatives. Triangulation was used to verify and validate the findings obtained through these methods and to arrive at the overall evaluation findings.

3. Findings

3.1. Relevance

Continued need.
The demand for legal services continues to rise, as demonstrated by the increasing number of actively managed files and the number of hours spent by Portfolio counsel providing legal services. In addition, the levels of complexity and legal risk in tax law files have also risen during the last five years, as the federal government has focused on complex tax issues.
Alignment with federal government priorities and departmental strategic outcomes.
As the TLS Portfolio is the legal counsel to the CRA and the federal government on all tax matters, its work necessarily responds directly to government priorities related to taxation. Over the past five years, there has been good alignment between governmental priorities and commitments outlined in federal budget reports, Speeches from the Throne, Portfolio activities, and commitments established in the Department of Justice Departmental Performance Reports and Reports on Plans and Priorities. The TLS Portfolio has made efforts to align its structure and services with CRA priorities, thus ensuring that the Portfolio focuses on areas of the law that are important to the Agency.
Alignment with federal roles and responsibilities.
The TLS Portfolio assists the Minister of Justice and the Attorney General in fulfilling his responsibilities under the Department of Justice Act. Alignment of the Portfolio's legal services with the Department of Justice Act is achieved through its work to advise the CRA on matters of law, the representation of the Crown in litigation involving tax issues, and the assurance that CRA's actions and legislative and policy initiatives are in accordance with federal legislation.

3.2. Performance

Effectiveness

Multiple lines of evidence indicate that Portfolio services are high-quality, timely, and generally responsive to client needs. The long-term, positive working relationship between the TLS Portfolio and the CRA is a major contributing factor to this, as Portfolio counsel have a good knowledge of the CRA's requirements, policies and practices, as well as of the nature of the legal issues faced by them. Although overall perspectives of the Portfolio's responsiveness are generally positive, client satisfaction scores with respect to providing updates and involving the CRA in developing legal strategies may indicate opportunities for better communication about the appropriate involvement of the CRA on specific kinds of files, particularly those eligible for resolution strategies.

The TLS Portfolio has practices in place to support timely identification of legal risks. In addition to their participation on CRA risk management committees, involvement of Portfolio counsel at the audit stage through the Agency's International and Large Business Directorate further contributes to the timely identification of legal risks. The vast majority of litigation files were assessed for legal risk within 30 days of being opened. Although Justice Canada's legal risk assessment process is less standardized for advisory files, the Portfolio provides the CRA with narrative, more informal accounts of risks levels on these files.

TLS Portfolio counsel are expected to reassess legal risk of files to ensure that the CRA and Justice Canada managers are kept apprised of any significant changes. Risk assessments are mandatory at pleading and post-discovery for litigation files. The evaluation could not confirm whether legal risk reassessments are occurring when they are required; however, the evaluation found that reassessment is being carried out. The TLS Portfolio's practices for communicating legal risks to the CRA are generally effective. The Portfolio uses a number of structures, tools and processes for communicating legal risk both within the Portfolio and to the CRA, and the evaluation confirms the usefulness of many of them.

The TLS Portfolio has been successful at enhancing the CRA's already sophisticated understanding of legal issues. However, the evaluation found some evidence of CRA's misunderstandings concerning specific issues, such as when to engage the Portfolio, the importance of identifying legal risks, and the potential impacts of legal risks. In addition, evidence suggests that factors such as years of experience may have an influence on CRA employees' understanding of the Portfolio's role in assessing legal risk. These findings point to a potential opportunity for the Portfolio to improve communication and assist in meeting the Agency's training needs on these issues.

In general, the evaluation found that counsel have the appropriate resources to conduct their work, although a few areas of improvement were identified. The TLS Portfolio has access to the Fiscal Path (Intranet to provide information on the Portfolio and its processes) and Justipedia (an online departmental portal launched in 2012 to provide Justice counsel access to legal content). Satisfaction with these tools is not high, but work is underway to enhance them. As knowledge management is a key method for improving efficiency, the TLS Portfolio should continue to work to ensure that counsel are satisfied with these tools and use them.

As the Portfolio's challenges and needs grow more complex, the evaluation found that advancing its technological capabilities has become increasingly critical due to the fact that the Department may be lagging behind the private sector in terms of technological support. In particular, the use of e-discovery software is not widespread, and the Portfolio may want to assess whether there are potential efficiencies to gain from its greater use and, if so, what the barriers are to its use.

The TLS Portfolio has a number of structures and tools in place to assist its counsel in providing high-quality, coordinated, "whole-of-government" services, such as the National Coordination Committees, the file assignment process, and practice directives. Evaluation results show that, in general, these structures and tools are working well and are viewed positively by Portfolio counsel.

Training opportunities are available to TLS Portfolio counsel internally, through a third party and through the CRA. Counsel are generally satisfied with the training offered, although those with more than five years of experience are substantially less satisfied. This may indicate a need for more mid- and senior-level training. The current travel cap limits the ability for counsel to travel for training which, in turn, increases the importance of internal training opportunities or external training offered online or remotely. The evaluation found some limitations in the effectiveness of the Portfolio's use of these technologies.

The TLS Portfolio ensures its whole-of-government approach by coordinating with the Portfolio, as well as with other areas of Justice Canada, as needed. The evaluation found room for improvement with respect to communication between the Portfolio and CRA LSU, when appropriate, and involving specialized sections like the Public Law Sector. There has been an increase in the number of files involving constitutional and Aboriginal law issues; broader consultation may become increasingly important.

Disagreements with TLS Portfolio legal advice are considered rare, as the Portfolio has such a comprehensive understanding of the CRA's practices and policies. As a result, the advice of the TLS Portfolio is not only considered in decision making, but is relied upon by the CRA. This finding goes beyond the outcome identified for the TLS Portfolio, which focuses on the consideration of the advice in recognition of the fact that legal advice is just one factor that affects clients' decisions.

Efficiency and Economy

Between 2008/09 and 2011/12, the cost of legal services (minus disbursements) recovered from the CRA rose by 83% due to additional workload, which resulted in an increase in the number of full-time equivalents (FTEs), and increases in the rates applied to each FTE.

The TLS Portfolio has undertaken several steps to improve its efficiency while maintaining the quality of legal services. It assigns files based on expertise and workload. It also manages its work by aligning resources with the level of legal risk, complexity and profile of files; higher-risk and complexity files have more counsel assigned to them, a greater level of effort expended on them, and more senior counsel assigned who spend a greater proportion of the hours on the file than more junior counsel. These practices all correspond with approaches to law practice management outlined in the literature, which promote the delegation of work and the alignment of resources based on the "value" of the work.

In collaboration with the CRA, the TLS Portfolio has instituted measures to resolve matters efficiently. The Portfolio supports the CRA's increased focus on compliance activities by assigning counsel to assist the Agency auditors on complex, large business audits that target aggressive tax planning. CRA and the Portfolio believe that this work better prepares files for possible litigation and leads to the earlier resolution of files.

The TLS Portfolio and the CRA have instituted a process to group project files with similar legal issues that involve thousands of individual taxpayers. This process takes a strategic approach to litigation by selecting a test case that is best suited to determine the legal issues involved, while the other cases are held in abeyance. The efficiency of this approach, however, is outside of the TLS Portfolio and CRA's control, as the courts must agree to hold the similar cases in abeyance and to bind these cases by the decision in the test case in order for the full efficiency of the approach to be realized.

In another effort to contain legal costs and provide efficient services, the TLS Portfolio and the CRA have a resolution process that pursues alternatives to litigation on low-risk, low-impact files that are not expected to change tax law. Preliminary information on the use of the resolution process shows that, although it appears to reduce the time files are open and the hours spent on the files, its impact currently is limited, given the limited number of files using the process. With wider use, the resolution process could have a more substantial impact on legal cost reduction. Although the resolution process has proven effective, the TLS Portfolio has not shown an increase in the use of dispute resolution (DR) more generally during the last five years. The most common DR process used is negotiation.

Another area where the TLS Portfolio has been active but could consider further improvements is in knowledge management. The literature on law practice management points to knowledge management as a key way to reduce risk and improve performance. Making collective knowledge available reduces duplication of efforts and streamlines the provision of legal services.

Managing the demand for legal services and improving the efficiency and economy of the delivery of those services are joint responsibilities of the TLS Portfolio and the CRA. Expanding the resolution process could bring efficiencies to handling more files that are low profile and that will not affect tax law. The potential of the resolution process to reduce legal costs would appear to support the TLS Portfolio and CRA review as to whether its expansion is appropriate.

The evaluation identified two main challenges facing the TLS Portfolio. Losing experienced counsel to the private bar or retirement without being able to replace them is a key challenge. This situation has the potential to affect the efficiency of legal services in complex matters, erode the experience and knowledge base of the Portfolio, and affect the quality of legal work. In addition, cost recovery in an environment of fiscal restraint will create additional pressures to reduce costs while maintaining the quality of legal services.

Date modified: