Firm Settles Two Class-Action Lawsuits over Tax Shelters

One of the biggest law firms in Dallas has agreed to pay $75 million to about 100 former clients who claim the firm designed and sold tax shelters that were rejected by the IRS.

The firm, Jenkens & Gilchrist, issued a statement Friday saying the settlement "does not indicate we agree with any of the plaintiffs’ claims," and calling it "a sound business decision." The agreement, involving two class-action suits filed in 2002 and 2003, still needs court approval.

"Suffice it to say there's hundreds of millions of dollars in fees paid to people, and that doesn't include penalties" levied by the IRS, said attorney David Deary, whose firm represents about 100 of the class-action plaintiffs. He told the Fort Worth Star-Telegram that all his clients are individuals "who had sold a business or had a large capital gain" and were told that they could shelter their gains from federal income taxes using six or seven different strategies.

"The bottom line is, the IRS's position is that none of these strategies had a business or economic purpose," but rather were purely designed to avoid taxes, Deary said. The Dallas Business Journal reported that Shore Deary is also pursuing legal action against Wachovia Corp./First Union Corp., Ernst & Young LLP, KPMG LLP and others over the allegedly faulty tax strategies.

Jenkens & Gilchrist Chairman Tom Cantrill said in a prepared statement that "we continue to believe the legal advice provided to our clients accurately reflected the state of the tax laws at the time it was provided." He said the firm is confident that it "will also be able to resolve all outstanding issues such as the government's demand for privileged information."

Cantrill was referring to the Justice Department’s legal attempts to force the firm to follow a summons issued by the IRS that seeks the identities of its tax-shelter clients. The tax code requires promoters of abusive tax shelters to keep investor lists and turn over those lists to the IRS if asked.

The firm contends the names are protected by attorney-client privilege, but the New York Times reported last week that the Justice Department asked the courts to suspend attorney-client confidentiality because the firm engaged in fraud.

The IRS believes Paul Daugerdas, a Jenkens & Gilchrist partner operating out of Chicago, was behind questionable shelters used by more than 600 people.

One Jenkens & Gilchrist client was Indiana millionaire Henry Camferdam Jr., who claims he paid a total of $7 million in 1999, including several million dollars to the law firm, for a tax shelter that the firm said would legally shield $70 million in profits from taxes, the New York Times reported. The IRS, however, ruled the shelter was not legitimate and Camferdam is being audited by the IRS for his 1999 return.

You may like these other stories...

Here's a CPA who truly walks the walk. On March 15, Frank Ryan, CPA, departed San Diego, California, with plans to be in Ocean City, Maryland, by July 2 to teach a course at the Maryland Association of CPAs’ (MACPA...
When Theodore J. Flynn first joined the Massachusetts Society of CPAs (MSCPA) in 1970, it was a different world and a different profession.  The "Big Eight" were still headquartered in Boston. Vietnam War...
Accountant Rickey Charles Goodrich had it a little too good. Many bean counters would kill to serve as financial guru to the likes of Pearl Jam. Goodrich was hired in 2005, and the following year, he became the CFO of Curtis...

Upcoming CPE Webinars

Apr 17
In this exciting presentation Excel expert David H. Ringstrom, CPA shares tricks that you can use with pivot tables every day. Remember, either you work Excel, or it works you!
Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.