In a previous article, “Eight Signs Your California Tax Shelter or Offshore Asset Protection Trust Is Actually Tax Evasion,” I pointed out that several partners were in trouble at Arnold and Porter for promoting abusive tax shelters. The current state of charges, indictments, and investigations against other firms are almost too numerous to count.

Indictments against KPMG were thrown out by a New York appellate court (not on the merits, but because the government “interfered with defendants’ relationship with counsel“), yet charges are currently pending against Ernst & Young as well as several law firms. Ernst & Young has been snagged in an investigation in which Ernst set up illegal tax shelters for wealthy citizens seeking to hide income or conceal it as capital gains. But the investigation of Ernst has led to interesting revelations that have entangled estate planning lawyers in criminal and possibly civil charges.

Ernst & Young asked “friendly law firms to write opinion letters assuring the taxpayers that the shelters were ‘likely’ to pass muster should the IRS investigate their legality. In return, the firms received a fixed fee for each case–usually $50,000, but at times up to $150,000, according to court records.” The case is currently being tried in New York, but will surely have a ripple effect at the San Diego branch offices of the big accounting firms, including any local San Diego estate planning lawyers that have written such opinion letters.

Those that lost money will likely be able to recoup their losses against the firms through malpractice cases. Several rules of California professional responsibility are violated by such an arrangement (especially if their interests were not disclosed) and the case for professional negligence is strong. The firms would likely seek to avoid the limelight, so they would probably attempt to settle to avoid public embarrassment.

Filed under: Asset Protection Trusts, Current Events, Offshore Trusts, San Diego Estate Planning, Tax, Trusts