Justice Department Seeks Client Names in Tax-Shelter Case | AccountingWEB

Justice Department Seeks Client Names in Tax-Shelter Case

The U.S. Justice Department is taking legal action to force a law firm to reveal the identities of its tax-shelter clients.

The law firm, Jenkins Gilchrist, participated in fraud, the Justice Department said in court papers filed in U.S. District Court in Chicago this week. Citing the crime-fraud exception to attorney-client privilege, the Justice Department contends that the firm should not be allowed to hide their clients’ identities from the Internal Revenue Service, the New York Times reported.

The IRS has issued 25 summonses for the names of Jenkens Gilchrist clients and other information. The firm has refused, saying that revealing the names of clients would amount to disclosing the tax advice they were given, and thus the names of clients should be protected. The Justice Department is seeking a court order to enforce the summons.

The IRS summonses are based in part on Treasury Department rules requiring tax-shelter organizers and promoters to keep lists of their clients and to provide them if asked.

Jenkens Gilchrist has said that it did not sell tax shelters; it sold advice about tax shelters. The Justice Department calls the firm "an organizer and seller of tax shelters."

Richard Painter, a University of Illinois law school professor who has studied the crime-fraud exception, told the New York Times that the court filing was "a significant ratcheting up" and "should not be mistaken as business as usual by the government" but as a sign of determination to identify tax law violators.

Court papers filed this week show that Jenkens Gilchrist, which is based in Dallas but ran its tax-shelter business from Chicago, split fees with BDO Seidman, a large accounting firm that was considered an aggressive seller of tax shelters. The firm is also refusing to identify its clients.

The court document showed how one person in 2000 avoided $5.9 million in income taxes and $2.6 million in capital gains taxes on income of $28 million. After paying $960,000 to Jenkens Gilchrist and $660,000 to BDO Seidman, the unidentified individual’s net cost was 81 percent less than the federal income taxes would have been otherwise.

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