tag:blogger.com,1999:blog-1519969502186924526.post5159122908377637805..comments2023-10-24T08:00:53.865-05:00Comments on Federal Tax Crimes: The Role of the Taxpayer's Independent Lawyer in Tax Shelter Promotions with Promoter Opinions (10/8/11)Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-1519969502186924526.post-65652540404888699082011-10-13T00:27:10.689-05:002011-10-13T00:27:10.689-05:00Good analysis..
I also agree with the IRS for this...Good analysis..<br />I also agree with the IRS for this case.west taxhttp://west-tax.comnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-50693751305764547542011-10-09T16:59:35.618-05:002011-10-09T16:59:35.618-05:00I agree with the IRS on this one. The skulduggery ...I agree with the IRS on this one. The skulduggery of he attorneys involved here amazes me.<br /><br />But the chief culprit here is the trust fund lawyer (Mr. Folger?) trying to hold on to the trust fund after the family (heirs of the San Francisco Chronicle) wanted to sell the newspaper and dissolve the trusts. He manipulated and scared the family in several ways and this tax shelter is just one of them. <br /><br />The reasons why it was a liability to pay a mere 15% tax on a $2 billion profit is laughable. He wanted to wait for the statue of limitations on something to expire, etc, etc.<br /><br />He hired several law and accounting consultants including a professor of economics. He incurred $4 million of legal and professional fees. This was one of several ethical errors, and I wonder if the family still retains him.<br /><br />But as to why the shelter works (or worked) is also wrong. Apparently if one enters into a partnership one first doubles his liability and 1/2 goes into the partnership, then 1/2 stays with him? <br /><br />Maybe in the courtroom, one can pull liabilities out of thin air, but not in real life. Liabilities in accounting are limited to one's assets. One cannot instantly double one's liabilities while keeping the same assets, anymore than one can instantly double one's assets while keeping the same liabilities. Anything else is accounting fraud.<br /><br />Whoever assigns liabilities without keeping this equation in balance is making an error.<br /><br />Maybe the tort bar thinks that assigning liabilities is a no-loss proposition for them, but it happens that people pay millions of dollars to incur financial liabilities (to offset capital gains in this instance).<br /><br />The Tax Code makes the same mistake by allowing some deductions and not allowing others, imputing income and expenses, where there are none, allowing some companies some deductions, but not others, amongst other accounting errors.<br /><br />It is only a time until people figure out a way to exploit these errors for financial gain, by trading exemptions and deductions for example (as in the Altria case).<br /><br />It is a mistake to think of a liability as bad or an asset as good. Or a deduction good, and a tax bad. If you exchange books, these accounts are reversed and then the IRS is caught flatfooted.Mnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-66755863466834635032011-10-09T15:18:24.841-05:002011-10-09T15:18:24.841-05:00Jack--
A couple of comments. First, I've alw...Jack--<br /><br /> A couple of comments. First, I've always been leary of the "it's too good to be true" argument by the government. The SG's office tried that argument in an estate tax case that made its way to the Supreme Court in the early to mid-90's. The issue was whether Congress could retroactively change the law without violating due process. Taxpayer argued that the law that was repealed was relied on for purposes of estate planning, and that to change the law retroactively violated due procees.<br /><br />The assistant SG started off their oral argument by saying that it was not reasonable for the taxpayer to rely on the law that was repealed because it was "too good to be true." The Justices almost laughed the Assisant SG out of the courtroom. The Assistant AG quickly moved on to another argument, one which prevailed.<br /><br />The "too good to be true" argument is dangerous because it is so subjective. I can find for you in the tax code a number of substantive tax results that are counter-intuitive but taxpayer friendly. Some of these results may seem too good to be true to some people.<br /><br />It is far better jurisprudence to find another way to rule against the taxpayer. For example, in Candyce Martin Trust, the exact nature of Sideman's advice in "greenlighting" the transaction is not clear. The court could have very easily concluded that, because the plaintiff failed to prove the precise nature of Sideman's advice, the plaintiff could not obtain penalty relief by claiming reasonable reliance on that advice. Plaintiff loses, and honest tax attorneys don't lose sleep worrying about how courts will apply the "too good to be true" doctrine in future cases.<br /><br />Second, on the question of conflict of interest, technically the judge got it right, nothwithstanding the observations in the first two comments to your post. I'm not at all denying that law firm pressure to "please" clients, with an eye to maximizing firm revenue, exists. It clearly exists. Which is why I have managed to practice law in a way which allows me, and no one else, to control the advice given to clients and to control what happens when there is pressure placed by the client to reach a legal conclusion that is simply not justifiable in my view.<br /><br />But if Sideman's firm had a conflict of interest just because the firm realized that they would maximize their revenue if they gave a favorable opinion, then every attorney has a conflict of interest in that situation. Which means that that clients could never rely on tax advice from their attorneys. <br /><br />Clients always want their attorneys to tell them that it is OK for the clients to do what they want to do. And good attorneys look for legitimate ways to achieve the client's objective, without being afraid to tell clients that some objectives are not feasible. <br /><br />And law firms always face situations where, if a client chooses OPtion A, the firm will get paid much more money than if a client chooses option B. Good firms, don't chase dollars at the expense of the client's well being, but they don't have a legally recognizable "conflict of interest" just because they realize that, if the client chooses Door #1, the firm will generate more fees than if the client chooses Door #2.<br /><br />Best regards,<br /><br />DdDAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-30907515989639399282011-10-09T11:08:49.325-05:002011-10-09T11:08:49.325-05:00Great perspective Jack:
IMHO the Court's stat...Great perspective Jack:<br /><br />IMHO the Court's statement "that the Sideman firm and PWC did not have a profit motive or other monetary interest in the outcome of the transaction because those advisors were paid at an hourly rate to advise" is misguided and displays an ignorance of the way this all works. Law firms make money, and more money, from taking a transaction to consummation, not from cratering it. As my then chairman once pointed out when I tried to get out of giving an opinion on one of these: " We make money from giving %$#@ opinions, not from hunting away clients." I did not give in but my compensation suffered. All of this is carefully orchestrated. Do I make my point?<br /><br />Secondly, surely Mr. Sideman is on the hook here for the penalties and fees? If the scofflaws here want to turn their guns on Mr. Sideman, surely they have a good case?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-81052937687618599762011-10-09T09:44:15.428-05:002011-10-09T09:44:15.428-05:00Great post Jack.
I believe however, that the cour...Great post Jack.<br /><br />I believe however, that the court's statements that "that the Sideman firm and PWC did not have a profit motive or other monetary interest in the outcome of the transaction because those advisors were paid at an hourly rate" is misguided and displays an ignorance of how the relationships work.<br /><br />Of course, PWC, B&W and the Sideman firm had a financial interest in the transaction. The whole point of a big law or accounting firm is to bill as many hours as possible, and the only way to do that is to get involved in the transaction. Everyone and their mother knew this nonsense didn't work to do what was claimed, but many big firms, including one of the most prominent, Cravath Swain & Moore, gave opinions endorsing them, as the Senate report on Tax Haven Abuses made clear.<br /><br />Let me relate a story. I was once presented with a shelter for a client, to basically endorse the transaction like Mr. Sideman was asked to do. I took a look, did a quick and dirty economic analysis, and said it didn't work, and that, it could not work. The chairman of my firm called me and berated me telling me, in no uncertain terms, that "we make money from delivering opinions, not from saying @#@#@# no." <br /><br />I looked at the transaction again next day, and held my ground. I was told that I would "lose" the client (fine with me, but I expressed some fake remorse), but I ended up getting penalized in my compensation and alienating some "important" people. I never got an internal or external referral again for such work, but the firm "blessed" plenty of similar transactions. Now, we worked on an hourly rate and never, to the best of my knowledge, took a contingent fee, though there was often a "performance bonus" at the end.<br /><br />Until the government severely penalizes the law and accounting firms monetarily and systematically, that is all partners, not just the principals, this type of transaction will occur and reoccur in different forms, and courts should really smarten up to what is actually going on from a common sense perspective. <br /><br />Two more points if I may:<br /><br />1. Defense lawyers who defend these transactions through the court system surely have a level of culpability. How can those lawyers make arguments that are obviously nonsense to a court without risking sanction? The Egan case you covered previously is a good example.<br /><br />2. Wouldn't the culprits here have a pretty good case against Mr. Sideman for recovery of the penalty portion and costs, grossed up to make them whole? Surely this a course that any good lawyer would advise?Anonymousnoreply@blogger.com