In Focus
February 21, 2003
ejected tax shelter advice continues to be in the news.
My last InFocus featured Merrill Lynch, a relative newcomer to the tax shelter advice field. Just like the Merrill Lynch client (drug company Wyeth), clients of accounting firms Ernst & Young and KPMG will have to pony up millions of dollars to the IRS.
But clients are fighting back - not against the IRS but instead against the accounting firms that promoted the rejected tax shelters. Clients allege that their accountants should have known that the tax shelter advice was flawed, but chose to put their own self-interest ahead of their clients.
Accounting firms defend by saying they warned their clients of the risks. But according to a New York Times article (2/7/02), the lawsuits have several common, disturbing elements. First, large fees were charged (in some cases, $1 million just to hear the strategy). Second, the clients were not allowed to seek independent advice. Third, the deals were pitched as virtually sure things. And finally, many clients had longstanding, trusting relationships with these same accountants.
A flood of litigation is expected to sort out who wins the fight.
— James J. Eccleston
FinancialCounsel.com
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