Jenkens & Gilchrist, the 56-year-old national law firm based in Dallas, has agreed to settle tax fraud charges that the IRS and Justice Department have investigated for four years. The firm will pay a $76 million settlement. See Marcy Gordon, Jenkens & Gilchrist to pay $76M, shut doors for promoting tax shelters, San Diego.com (March 29, 2007). The firm, which is closing its doors for good, will not be prosecuted; but former members of the firm are still subject to prosecution. See Jenkens to Close on Bloomberg.com.
The firm promoted super-aggressive tax shelters like COBRA (currency options bring reward alternatives) and BOSS (Bond & Option Sale Strategy) that are listed transactions under the reportable transaction regulations requiring promoters to maintain lists of clients and register or disclose information about the transactions. It engaged in extensive litigation (with the government and with its clients) over the last few years. See, e.g., May 2004 Department of Justice Release (announcing that the firm had been ordered to release the names of its shelter clients to the IRS after it had fought IRS summonses claiming privilege); Lynnley Browning, Lawsuit Over Tax Shelter May Derail a Settlement, NYTimes (Nov. 8, 2004). For various blog coverage of the firm's tax shelter problems, see Three Jenkens & Gilchrist Attorneys in the Cross-Hairs, White Collar Crime ProfBlog, Jan 2006 (discussing tax-opinion writers Daugerdas, Mayer and Guerin); What's New in Tax Shelters, A Taxing Matter (May 28, 2006); and Tax Shelters, Tax Lawyers and Tax Crime, A Taxing Matter (January 2006).
The harm to the firm's reputation from the tax shelter begun in 2003 took its toll over the several years of the government investigation. It lost attorneys to other firms since the onset of the investigation into its tax shelter practice, see.e.g, Wall St. J. Law Blog (noting decampments to Baket Hostetler). Civil lawsuits had already resulted in payments to investors in the shelters of more than $81 million. Terry Mason & Cheryl Hall, Jenkens & Gilchrist Shrinking in Wake of Tax Scandal, Dallas Morning News (Feb. 27, 2007). It voted to dissolve early this year.
IRS Commissioner Everson commented that "this should be a lesson to all tax professionals that they must not aid or abet tax evasion by clients or promote potentially abusive or illegal tax shelters, or ignore their responsibilities to register or disclose tax shelters." IRS release IR-2007-72 (Mar. 29, 2007).