Miers' Law Firm Profited from Shoddy Tax Shelter Opinions

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http://taxprof.typepad.com/taxprof_blog/2005/10/miers_law_firm_.html

Miers' Law Firm Profited from Shoddy Tax Shelter Opinions

Tax Analysts has unearthed a Senate Report noting that while Supreme Court nominee Harriet Miers was co-managing partner of Locke, Liddell & Sapp, the Dallas-based law firm provided investors with questionable legal opinions (at $50,000 a pop for each of 70 transactions, or $3.5 million total) for contingent deferred swap (CDS) tax shelters marketed by accounting firm Ernst & Young. Although Locke, Liddell & Sapp issued opinions that the transactions "should" be upheld in court if challenged by the IRS, the Senate Report recounts harsh criticisms of the firm's opinions by in-house lawyers at E&Y as well as by an investor's lawyer, who called the transaction "a classic ‘sham’ tax shelter."

The Senate Report in question is The Role of Professional Firms in the U.S. Tax Shelter Industry, by the Permanent Subcommittee on Investigations, Committee on Homeland Security and Governmental Affairs. (We previously blogged the report here.) The Senate Report's discussion of the role of the Locke, Lidell & Sapp law firm is at pages 86-92 of the 144-page report:

E&Y enlisted a number of professional firms to help carry out CDS transactions, including two investment firms TPCMG and Bolton Capital Planning. TPCMG acted as the general partner in each trading partnership involved in a CDS transaction and directed the activities of each partnership through Bolton Capital Planning. UBS was retained for the bank loans and swap agreements. Locke, Liddell & Sapp provided clients with a legal opinion indicating that, if challenged by the IRS, CDS “should” be upheld in court.

According to E&Y, in a typical CDS $20 million loss transaction, E&Y would receive $250,000, Bolton Capital Planning would receive $250,000, and Locke, Liddell & Sapp would receive $50,000....

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