Settlement Proposed in Tax Shelter Case

Tax shelters were a lucrative business in the 1990s, but as the Internal Revenue Service cracked down on investors, they turned around and filed suit against those who sold the shelters. One such suit was tentatively resolved this week with an attorney set to pay a fraction of what he earned toward the settlement.

Paul Daugerdas, a tax partner in the Chicago office of law firm Jenkens & Gilchrist of Dallas, allegedly earned $93 million in fees from 1999 through 2003, according to people who have seen documents in connection with the proposed settlement of the class-action litigation being overseen by the Federal District Court in Manhattan, the New York Times reported, adding that the total added up to nearly $19 million a year for Daugerdas.

Despite these earnings, the proposed settlement would order Daugerdas to pay just $3.9 million toward the $75 million settlement.

The lion's share of the $93 million is revenue from his tax shelter work, in which he designed and sold the questionable shelters to more than 1,100 clients and then offered legal advice as to their validity, the Times reported.

Tax shelters are complex investment deals intended to reduce or eliminate income taxes, the Times reported, adding they are illegitimate when they have no real business purpose. Daugerdas sold shelters with names such as Cobra (currency options bring reward alternatives), and Son of Boss, a variant on an earlier shelter called bond and options sales strategy, the Times reported.

Patrick Dorton, a spokesman for Mr. Daugerdas, wrote in an e-mail response to a Times reporter's questions: "Mr. Daugerdas has complied with all of his professional ethical obligations and responsibilities as an attorney at Jenkins & Gilchrist. All the tax work performed by Mr. Daugerdas was completely consistent with the tax law at the time and was vetted by other tax experts inside and outside the law firm."

On its website, trade publication Tax Analysts reported that Jenkens & Gilchrist reaped "in excess of $250 million.''

Thomas H. Cantrill, chairman of Jenkens & Gilchrist, declined to comment on any income figures yesterday, citing a confidentiality agreement in the settlement, the Times reported. "We thought the opinions we were issuing were correct at the time, but it's fair to say that the climate has changed dramatically since those days," he told the Times.

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