Dallas-based law firm Jenkens & Gilchrist Corp. will pay $76 million to the Internal Revenue Service to settle charges over its aggressive marketing of questionably legal tax shelters to wealthy individuals.
As part of the settlement, the government said it won't prosecute the firm for selling the shelters, or writing opinion letters supporting them as legitimate. The IRS estimated that the shelters generated as much as $1 billion in phony tax losses.
Jenkens & Gilchrist, which has been in operation for more than 50 years, at one time employed more than 600 attorneys at offices in Dallas, Chicago, Los Angeles and New York. According to trade publications, in 2006, the firm’s attorney count had dwindled to 268, while by Feb. 28, reports said the number was closer to 200 lawyers remaining with the firm. The firm is now in the process of winding down its legal practice and business affairs.
The IRS said that the penalty also stems from the firm’s violation of the tax law concerning shelter registration, and maintenance and turnover to the IRS of tax shelter investor lists. Packages the firm marketed to the high-net-worth individuals included listed transactions such as BEST, BOSS and OPS -- all acronyms which have surfaced as part of the government’s pursuit of KPMG executives charged with marketing improper shelters.
“This should be a lesson to all tax professionals that they must not aid or abet tax evasion by clients or promote potentially abusive or illegal tax shelters, or ignore their responsibilities to register or disclose tax shelters,” said IRS Commissioner Mark W. Everson, in a statement. “Pursuing abusive tax shelters is a top priority for the IRS.”
The IRS estimates that 1,400 investors were affected by the firm’s advice and will owe interest and penalties on their underpayment of tax. In January 2005, Jenkens agreed to pay $81.6 million to clients who had sued over its tax-shelter advice.
