In a case that is likely to have a chilling effect among tax professionals, a Kentucky judge has ordered accounting giant Grant Thornton to pay $100,200,000 to a former client, for selling what is being referred to as an "abusive tax shelter." The scheme, which would purportedly allow the client to move large sums of money from offshore accounts into the United States with minimal tax effects, was also utilized by other accounting giants, including KPMG and Ernst & Young. Many of these firms have paid large sums to the government to settle the matter.
In finding Grant Thornton negligent, the trial judge held that they committed "varied and repeated misconduct" from 2000 until at least 2007. The plaintiff in the suit, William J. Yung, is the chairman and president of Columbia Sussex, a hotel company based in Kentucky. The award consisted of $20,200,000 in compensatory damages, representing taxes, penalties, and interest that the Yungs had to pay as a result of Grant Thornton's advice, as well as damages resulting from Mr. Yung's inability to secure licensure from the Missouri Gaming Commission in 2005, due to the damage caused to his reputation. The court also awarded $80,000,000 in punitive damages, for what it called "reprehensible" conduct that continued all the way through trial. Grant Thornton has indicated that they will appeal the verdict.
For several years, the IRS has targeted abusive tax shelters, which cost the United States Treasury more than $10 billion each year. As part of the effort, the IRS lists recognized abusive tax transactions online on its website, as well as providing a hotline where people can anonymously provide information related to potentially abusive tax transactions. The IRS previously had a voluntary settlement initiative for abusive tax shelters, similar to the current ongoing Offshore Voluntary Disclosure Program, allowing taxpayers to come clean and pay amounts owed without the risk of criminal prosecution.
We represent individuals throughout the United States and around the world in civil and criminal tax controversies involving allegations of abusive tax shelters. To learn more about our practice, please visit our website.