IRS Targets Law Firm Suspected Of Selling Abusive Tax Shelters

by Leroy Baker, for LawAndTax-News.com, New York

23 June 2003

As the Treasury Department steps up its efforts to stamp out 'abusive tax shelters', the IRS has issued a summons against one of the nation's top law firms, ordering it to disclose the names of 600 wealthy clients that the agency alleges were sold tax shelter schemes.

Chicago federal judge John W. Darrah, last week approved a request by the Revenue to issue its summons against Dallas-based law firm Jenkens and Gilchrist on the grounds that the firm has supposedly taken around $72 million in fees for tax shelter advice, according to Justice Department papers.

Jenkens and Gilchrist is keeping quiet on the issue, and in a recent statement the firm declared that it had no intention of compromising client confidentiality and would not divulge details of any of the names contained in the summons. The layers are also adamant that they have not been selling tax shelters, merely giving advice. "Americans have a right to consult with an attorney in confidence, and only the clients themselves can waive that right," the law firm announced recently, according to the NY Times.

B. John Williams, chief counsel of the IRS, said this particular type of action was a first for the government, and was primarily being used to prevent the law firm from using stalling tactics. If Jenkens and Gilchrist fails to comply with the notice inside six months, then the time frame during which the IRS can take enforcement action becomes open-ended, according to Williams. He also pointed out that the summons was directed against individuals who actually bought tax shelters, rather than those who sought advice.

Meanwhile, according to the NY Times report, Jenkens and Gilchrist hired one of its own lawyers to discover whether any of its clients had bought so called 'listed transactions' - that is tax shelters deemed abusive by the IRS. The investigation found that at least 607 of the 700 clients files examined related to listed transactions.

Commenting on the recent drive by the tax authorities against abusive tax shelters, IRS commissioner Mark W. Everson remarked that "attorneys and accountants should be pillars of our system of voluntary compliance, not the architects of its circumvention. Where necessary, we will vigorously pursue those who in fact act as promoters of abusive transactions."

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