BDO Seidman's Clients Try to Rescue Accounting Firms

Last month, the Chicago-based U.S. Court of Appeals for the Seventh Circuit ruled that accounting firms cannot hide behind the cloak of client privilege and must disclose information to the Internal Revenue Service about participation in certain types tax shelters that are considered to be abusive. Now, approximately 100 clients of BDO Seidman, the world's fifth-largest accounting firm, have asked the court to reconsider that ruling.

BDO's clients are represented by Steven Brown, a partner with the Chicago law firm of Martin Brown & Sullivan. Mr. Brown, a former attorney with the Internal Revenue Service, noted the concern that is shared by many accounting professionals should the ruling stand. "If it's well-known that a firm represents people in any area, from antitrust to white-collar crime, then the government could ask for a list of their clients."

Mr. Brown has hinted that there is a good chance this case may make it to the Supreme Court, no matter how the appellate court responds to the request to rehear the ruling that BDO must turn over its tax shelter client lists to the IRS. That won't help BDO, however, should the ruling go against them. "We'll take it as far as we can," said Mr. Brown, "but the case effectively ends when the stay is lifted."

Earlier this year PricewaterhouseCoopers LLP, Merrill Lynch & Co., and Ernst & Young LLP each reached settlements with the IRS over the issue of marketing and selling abusive tax shelters. Other cases are currently pending against now defunct Arthur Andersen LLP, KPMG LLP, and the Texas-based law firm Jenkens & Gilchrist P.C.

The appeals court is expected to make a decision before Labor Day.

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