With all of the lawyer jokes that abound in this culture, it is a fairly easy task to surmise that many Americans have low opinions of lawyers. As a lawyer myself, I sometimes find that difficult. But then I look at stories about lawyers in the news and, in particular, at practitioners who work with tax shelter clients, and I think I understand.
An article in the New York Times on March 17 addressed the "many hats" of Lawrence Hill, a tax lawyer at Dewey Ballantine who is defending Deutsche Bank from allegations that it helped create and promote illegal tax shelters. Hill was at KPMG from 1989 through 1996, and then at Brown & Wood (now Sidley Austin Brown & Wood) after that. Both of these firms have been named in the investigations of corporate tax shelters. A Senate Subcommittee report focused on the role of accountants and lawyers in promoting tax shelters, and analyzed KPMG's role in four tax shelter products. KPMG avoided criminal indictment by accepting a deferred prosecution agreement involving external oversight of the firm and a $456 million fine. See this Washington Post story. Ruble, a former partner at Brown & Wood, wrote opinions for many of the KPMG shelters and has been indicted along with various KPMG tax professionals. See this story.
Spokespersons have indicated that Hill was not a part of that tax shelter activity at either firm. But the article notes Hill's having also worked at White & Case where he apparently commented on a shelter promoted by accounting firm BDO Seidman.
Is it an ethical violation for an attorney who has been a member of various firms that have promoted shelters also to defend shelter promoters? Not really, as Tanina Rostain noted in the Times article. Anyone defending shelter transactions would want a skilled tax lawyer who understood the arguments on both sides, and someone with Hill's experience would be ideal.
But there is something here that does not sit well, nevertheless. It is perhaps the most fundamental point of the Senate investigative subcommittee's study of the four KPMG deals. Senate Subcommittee report. The committee looked at professionals--lawyers, accountants, and bankers--and concluded that they had all played a role in promoting shelters that cost the American people millions in tax revenues, in return for fat fees. At issue is a concern that the ethics rules overemphasize advisers' loyalty to clients and undercut the importance of maintaining the integrity of the tax system. Accordingly, tax advisers willingly manipulate the tax rules in ways that they know were not intended by Congress, in order to help their clients avoid tax.
It may be that the criminal indictments of R.J. Ruble and his colleagues will dampen the zest for devising tax shelters. And, too, the many civil suits by disgruntled clients who believe they were mislead about the efficacy of the tax strategies sold to them may further discourage tax shelter promotion. Even if HIll and others brought to the defense of the law firms and banks involved in investor suits manage to protect them from their taxpayer-clients' wrath, the visibility of the cases and the costs of litigation should weigh in on the cost-benefit analysis in a way that discourages overly aggressive tax planning.
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