Large Donor Sues UBS Over Abusive Tax Shelter
The University of Arizona Foundation and two of their largest donors, Karl and Stevie Eller, have filed suit against Swiss bank UBS for its role in an abusive tax shelter scheme. The Ellers’ previously donated $23 million to the University.
The lawsuit claims that UBS was acting as the Ellers’ financial advisor and that they are responsible for the Ellers being duped into investing millions into an abusive tax shelter.
The case begins with the Ellers seeking a way to donate to the University and making a return on their money. The complaint says that Karl Eller met with representatives of the Quellos Group. (Two Quellos employees were sentenced in 2011 to four years in prison for their involvement in another sham tax shelter scheme.)
Contingent Deferred Swap – Abusive Tax Shelter
Ultimately Mr. & Mrs Eller agreed to participate in a shelter program known as a Contingent Deferred Swap (“CDS”). Years later, a U.S. Senate investigation described that program as a way to generate “phony paper losses for taxpayers, using a series of complex, orchestrated transactions, structured finance, and investments with little or no profit potential.” Those “losses” were then used to reduce an investor’s tax burden.
The Ellers thought they were making a sizable contribution to the University and receiving a tax benefit. Unfortunately, the tax benefits never materialized. Instead they were audited and had to pay.
The Ellers claim that UBS, Quellos and Pricewaterhouse Coopers all conspired to sell “illegal tax shelters to high net worth individuals.” The complaint also mentions several well known law firms that allegedly offered favorable tax opinions on these CDS swap transactions. For reasons not clear in the complaint, the Foundation and the Ellers only named UBS as a defendant, however. The others were not sued.
The 79 page lawsuit offers plenty of history on abusive tax shelters and contingent deferred swaps but doesn’t outline the damages suffered by the Foundation or how much the Ellers had to pay the IRS when their shelter was audited.
The complaint was filed under Arizona’s civil racketeering law. If guilty, UBS could be forced to pay triple damages and attorney’s fees. Originally, the complaint was filed this summer in state court but was just removed to federal court.
Civil suits against promoters and others involved with abusive tax shelter schemes are on the wane. The wave of tax shelters and phony welfare benefit plan (419 plan) litigation has about run its course. This case proves, however, that there are still some big claims out there. And we have no doubt that promoters will invent new scams in the months to come.
About our firm. The IRS lawyers at Mahany & Ertl have handled a wide range of abusive tax shelters. From phony 419 and 412 “welfare benefit plans,’ to captive insurance companies, we can both defend you before the IRS (audit defense, criminal tax defense and listed transaction penalties) and in pursuing malpractice claims against the accountant or lawyer that designed the shelter.For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct). All inquiries are protected by the attorney – client privilege and kept in strict confidence. Many tax fraud cases can be handled on a contingent or flat fee basis.
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Written by Brian Mahany, Esq.