[Post updated March 2021] When this post was written ten years earlier, the Justice Department had just convicted the former chairman of prominent CPA firm BDO Seidman as well as two attorneys from Jenkens and Gilchrist. The three were convicted for for their role in a massive scheme to promote abusive tax shelters.
The government used that high profile case to announce a new push to prosecute lawyers, accountants and financial professionals involved in illegal tax schemes. Over the last several years, IRS criminal prosecutions were on the wane but with the new administration, we expect them to rise once again. And with that, plenty of opportunities for IRS whistleblowers.
The defendants in Jenkens and Gilchrist case argued that they were taking aggressive positions while representing clients before the IRS. The feds, however, said they crossed the line. They say the scheme cost $7 billion in tax losses. Apparently, the jury agreed. All three were convicted of federal conspiracy charges carrying sentences of up to 20 years.
In 2014, J&C attorney Paul Daugerdas was sentenced to 15 years in prison. Attorney Donna Guerin received an 8 year sentence.
What does this mean for tax accountants and lawyers? It means there is a line and if crossed, the feds will prosecute. The practical result is that professionals with tax practices are likely to become more conservative.
Prior to the indictments, Jenkens and Gilchrist was a national law firm with over 600 lawyers. Their tax practice took in hundreds of millions in fees for offering opinion letters and tax shelter advice. When that advice turned out to be wrong and several partners were indicted, the firm quickly collapsed.
In this case, the feds were able to line up former clients who relied on the advice given them by their accountants and lawyers. When faced with prosecution, those same clients quickly turned state’s evidence.
Although the defendants say they were simply guilty of giving bad advice, the U.S. Attorney had other thoughts. In a press release Manhattan U.S. Attorney Preet Bahara said,”The multi-billion dollar tax fraud scheme perpetrated by this corrupt group of attorneys, accountants, and bankers was stunning in scope, and today’s guilty verdicts are a just result. These privileged professionals wove an intricate web of deceit that spanned nearly a decade, enabling them to enrich themselves and their well-heeled clients to the tune of hundreds of millions of dollars. Surely there are many Americans who dread April 15th, but they put their checks in the mail nonetheless. These defendants thought they were above the law and found out the hard way that they were not.”
Strong words aimed squarely at the accountants and lawyers.
If the jury had any inclination to believe the men, their decision to use these same shelters to avoid paying taxes probably sealed their fate. For example, ex-Jenkens partner Paul Daugerdas used theses same shelters to reduce the income taxes he owed on the $95 million he made in fees on the illegal shelters to less than $8,000. Absent the shelters, he would have owed over $32 million in taxes.
Although not prosecuted, Deutsche Bank agreed to pay a penalty of over $500 million for its part in facilitating the illegal tax shelters.
With long jail sentences, huge fines and the potential collapse of the firm, most accountants and lawyers will think twice before taking edgy tax positions. Whether that is good or bad remains to be seen. These same professionals also must worry about lawsuits from their former clients.
IRS Whistleblower Rewards
The IRS whistleblower program pays cash rewards to anyone with inside information about people or businesses who cheat on their taxes. This includes lawyers and accountants who help others evade taxes. Banks too.
Whistleblowers can receive a reward of 10-30% of any amount recovered by the IRS.
Companies that underpay or avoid paying federal taxes cost the U.S. taxpayers billions each year. The lawyers at Jenkens & Gilchrist helped clients cheat the government of $7 billion. Who makes up those losses? You and I.
Want to learn more? Visit our IRS whistleblower rewards page. Ready to see if you qualify for a reward? Contact attorney Brian Mahany online, by email or by phone .
All inquiries are protected by the attorney – client privilege and kept strictly confidential. AML and IRS whistleblower cases accepted worldwide.