Tax Shelter Abuse Frequently Asked Questions

1. Is this going to cost me anything out of pocket?
NO. We pay for all costs and expenses involved in prosecuting your case. You will only have to reimburse us out of any recovery we make for you. If there is no recovery you owe nothing. Our fee is deducted from the recovery prior to the costs and expenses. If you would like for us to consider some alternative fee arrangement please let us know.

2. I participated in a Tax Shelter that was represented as legitimate by a very reputable accounting/law firm, why should I be concerned?
The Treasury Department and the IRS have undertaken an unprecedented and aggressive effort over the last 2 ½ years to combat abusive tax avoidance. The IRS is investigating 112 promoters (some of which are related) including law firms, investment banks and accounting firms. Since the beginning of 2002, the IRS has issued 313 summonses in 37 promoters cases (some of which are related) requesting information and investor lists. Of these summonses, 98 involving nine promoters have been referred to the Department of Justice for enforcement. Federal judges have issued orders authorizing the IRS to serve Summonses to Sidley Austin Brown & Wood, and other law and accounting firms requiring the firms to identify taxpayers who may have invested in listed transactions or other potentially abusive transactions. Major accounting firms and one major investment bank that will provide the IRS with a significant amount of information on past transactions and ensure future compliance with the promoter rules. Other accounting and law firms that have been identified in law suits involving abusive tax shelters include KPMG, Jenkens & Gilchrest, DeutscheBank.

3. The promoter gave me a legal opinion stating that this tax strategy should withstand IRS scrutiny. Doesn't this protect me?
In most cases, no. The vast majority of shelters come with legal opinions stating that there is substantial authority for the tax strategy. These opinions (called "more likely than not" opinions) are used as a marketing device and are touted by the promoter as a means of escaping penalties in the event the IRS challenges the shelter. Many of the opinions either misstate the strategy or contain assumptions, caveats or qualifications that make the opinion essentially meaningless. The IRS has begun an initiative to crack down on these types of legal opinions.

4. I participated in the California Franchise Tax Board's Amnesty Program, should I still be concerned?
California's controversial new "anti-tax shelter" law increases penalties, the statute of limitations, applies retroactively and its limited amnesty ran out on April 15, 2004. Participation in the amnesty program may have resolved your case with the FTB but additional issues may still exist with the IRS. The IRS has significantly expanded its agreements with the States to share information on potentially abusive transactions. We also believe that we may be able to recover damages against the responsible law and accounting firms after you participated in the amnesty program.

5. My accountant recommended this strategy as a tax reduction device and said it was safe. Now the IRS lists the strategy as an abusive tax shelter. What should I do?
The IRS has begun an aggressive campaign against abusive tax shelters and their promoters. It is not uncommon for promoters to zealously defend themselves against this initiative, sometimes at the expense of investors. In this uncertain environment, it is important that you are protected and your rights are not compromised. Our attorneys will aggressively protect your interests against the IRS and against the promoter to ensure that you achieve the best possible resolution.

6. What is a "Listed Transaction" and what does it mean to me?
IRS regulations on abusive tax shelters provide that a taxpayer must disclose certain transactions know as "listed transactions" by filing a disclosure statement (Form 8886) with its tax return. A "listed transaction" is a transaction that is the same as or substantially similar to one that the IRS has determined to be a tax avoidance transaction and identified by IRS notice or other form of published guidance. Some transactions that were not considered as "listed transactions" at the time that they were entered into by the taxpayer may later be identified as such by the IRS.

7. The promoter assured me that its lawyers would represent me if I ever got audited. Why shouldn't I use them?
If the promoter made misrepresentations that you relied on in purchasing the shelter, it is very likely that conflicts of interest exist between you and the promoter may exist. If so, that would make it difficult or impossible for its counsel to effectively represent you before the IRS. Do you believe that the promoter's lawyers will alert you to any claims you may have against the promoter? You need counsel that is interested only in your interests.

8. What is my remedy against the promoter?
Possible remedies include any back taxes, penalties and interest you owe the government. You may also be entitled to return of your investment; return of all costs or fees paid to the promoter or others to implement the strategy; restitution for any damages caused by your investment in the shelter; and reimbursement of attorneys fees you incurred.

9. I have sent in my forms, what happens next?
We will review the forms and send you a letter informing you if we are going to represent you or not. We will contact you if we need additional information from you to complete the initial evaluation. If we accept your case we will request additional records from you and set up an in depth interview to review the case and documents with you.

10. How long is this entire process going to take?
While we can never be sure how long a case maylast, some cases are resolved in several months while others may take 18 months or longer.