Bad Tax Shelters -- Accountability or the Lack Thereof: Ten Years of Tax Malpractice

131 Pages Posted: 1 May 2014

See all articles by Jacob L. Todres

Jacob L. Todres

St. John's University - School of Law

Date Written: February 24, 2014

Abstract

In the 1990’s and early 2000’s the tax landscape in the United States was overrun by an epidemic of tax shelters that was unprecedented. The shelters were designed and sold by seemingly reputable large accounting and law firms. The same shelters were sold to many taxpayers. They became generic, off-the-shelf, products. However, the tax shelters had no business substance. The shelters were eventually found to be invalid by the courts. In light of the invalidity of the shelters, the large fees paid for the shelters and the large damages caused by participating in the invalid shelters, there were predictions that many malpractice suits against the sellers of the shelters would ensue.

For this article I attempted to determine whether the predicted wave of tax malpractice suits occurred and what impact, if any, resulted in the area of tax malpractice litigation.

Much to my surprise, there ended up being very few cases focusing on substance. There were several class actions that were settled but, in light of the settlements, offered no useful insights. Most of the other reported cases dealt with procedural issues such as whether the action must be arbitrated, federal versus state venue, statute of limitations, etc. In the end, there were only a few cases that addressed any issue of substance. The only exception was a huge case in Kentucky, Yung v. Grant Thornton LLP , that was decided in late November, 2013. The case was huge because of its length (over 200 pages) and because it awarded $20 million in compensatory damages and $80 million in punitive damages.

In the article I analyze the few existing generic tax shelter cases and try to fit them into the general principles governing tax malpractice. I then also review the other developments in the tax malpractice area during approximately the last decade.

Suggested Citation

Todres, Jacob L., Bad Tax Shelters -- Accountability or the Lack Thereof: Ten Years of Tax Malpractice (February 24, 2014). St. John's Legal Studies Research Paper No. 14-005, Available at SSRN: https://ssrn.com/abstract=2431388 or http://dx.doi.org/10.2139/ssrn.2431388

Jacob L. Todres (Contact Author)

St. John's University - School of Law ( email )

8000 Utopia Parkway
Jamaica, NY 11439
United States
718-990-6627 (Phone)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
336
Abstract Views
2,939
Rank
163,955
PlumX Metrics