Jenkins and Gilchrist Gone

[LPC]

Jenkins and Gilchrist, once one of the largest law firms in the United States, has been the subject of a criminal prosecution for tax shelters that were promoted by its Chicago office. The firm has reportedly reached a non-prosecution agreement with the Department of Justice resulting in a $75 million fine, and will reportedly stop providing legal services on 3/31. Meaning that the firm will be gone.

My question is this: Why didn't any of the 600+ lawyers in the firm ever point out that actually no one is required to file a tax return and no one is actually liable for the income tax? What hold does this conspiracy have over lawyers that they would rather pay large fines and see their firms destroyed than let The Truth become publicly known?

You don't suppose it could be voodoo?

[SteveSy]

Jenkins and Gilchrist, once one of the largest law firms in the United States, has been the subject of a criminal prosecution for tax shelters that were promoted by its Chicago office. The firm has reportedly reached a non-prosecution agreement with the Department of Justice resulting in a $75 million fine, and will reportedly stop providing legal services on 3/31. Meaning that the firm will be gone.

My question is this: Why didn't any of the 600+ lawyers in the firm ever point out that actually no one is required to file a tax return and no one is actually liable for the income tax? What hold does this conspiracy have over lawyers that they would rather pay large fines and see their firms destroyed than let The Truth become publicly known?

You don't suppose it could be voodoo?

Why didn't any one of the 1000's of scientists stand up against the Catholic Church while they were forcing a confession out of Galileo, maybe because they were afraid?

I'm absolutely sure that the 600+ lawyers would have done just what you asked if they felt they would win or at the very least not have been punished. Just because you can't win a argument with a person with a big stick doesn’t mean you're not right. As far as the shleters I'm sure they thought they could get away with it. Funny thing is, I'm sure another firm has taken their place.....hardly no one wants or cares for the income tax, and they certainly do not feel they have a "fair share" to pay.

On the flip side Dan, why was this firm willing to risk everything trying to help people avoid the income tax if everyone is required to pay their "fair share"?

[jg]

Just because you can't win a argument with a person with a big stick doesn’t mean you're not right.

Under the power granted to the courts in the Constitution if the "person" referenced is a court it does mean that you are not right (in the legal sense). It also means there is authority to use a "big stick".

Neither you or me, or any individual, has the authority to interpret the law or the validity of the law, regardless of any desire to self-decide.

Any action based on self-decided law that is contrary to the law as it is applied and enforced is rightfully subject to the "big stick". Of course, action can be legally taken to change or revoke the application or enforcement of the law.

Your inability or unwillingness to accept the authority of the courts and the laws deemed valid by the courts is not a fault of the courts or of the laws.

[Prof]

The ever dense Steviepoo, regarding the demise of Jenkins & Gilchrist:

On the flip side Dan, why was this firm willing to risk everything trying to help people avoid the income tax if everyone is required to pay their "fair share"?

Facts: three of Jenkins partners in the Chicago office, along with lawyers in several other large firms, were sold on a tax shelter device created by KPMG (which paid a $456 million dollar fine to the IRS). The shelter, called, I think "Son of BOSS," involved a tax shelter transaction designed specifically to shelter large capital gains. [Dan, please correct me if I have failed to describe the BOSS system properly; it essentially involved creating what the IRS considered to be capital losses without economic substance, whatever that translates into. Here is a clip from a blog called http://www.whitehouseforsale.org/contri ... eer_ID=146

"A federal judge ordered Jenkins & Gilchrist in June 2003 to disclose the names of 600 wealthy clients to the Internal Revenue Service. The firm billed at least $72 million to advise these clients on setting up tax shelters that fabricated $2.4 billion worth of tax deductions, according to the IRS. The firm is fighting disclosure, saying that it did not sell bogus tax shelters but merely advised clients on how to do so—a service that it claims is protected by attorney-client privilege. The firm paid $75 million in 2004 to settle a lawsuit filed by clients who alleged that Jenkins & Gilchrist devised the tax shelters, Deutsche Bank (see Jeffrey Amling) executed them and Ernst & Young (see Leslie Brorsen) marketed them to wealthy clients. " )



One of the three Jenkins lawyers charged almost $100 million in fees for these deals over about 4 years, with fees based upon a percentage of tax savings.

In addition to the $75 million IRS fine, Jenkins has offered to pay about $90 million to taxpayers in satisfaction of a class action, which will not resolve all claims against it (opt-out rules in class actions mean that many clients are still going for the assets of individuals, etc.).

In other words, Steviepoo, your comment is what is called a
non sequitur.

As to Dan's comment, why didn't Jenkins pick up on your brilliant arguments to defend itself agains its own clients and the IRS fines? The firm has been destroyed and is disolving. What did/does it have to loose?

[Kimokeo]

How many are going to jail for this?

[SteveSy]

Neither you or me, or any individual, has the authority to interpret the law or the validity of the law, regardless of any desire to self-decide.

Who says? I have every right to interpret and or the validity of the law. Show many anything whatsoever that says I have no authority. Whether or not others will accept my interpritation however is debatable.

Your inability or unwillingness to accept the authority of the courts and the laws deemed valid by the courts is not a fault of the courts or of the laws.

Of course that's true of anything that can wield power....just ask people who were under Stalin, the KGB, Saddam, Kim Jong, Mexican corruption, Old English rule etc. etc....It wasn't the fault of any of those that the people who paid the price did not accept their authority.

Your point in meaningless as always...

[SteveSy]

In other words, Steviepoo, your comment is what is called a
non sequitur.

What you posted means? So what?

The fact is they were more than willing to help people not pay the tax. Obviously they did not feel nor did they promote the fact that people had an obligation to pay income taxes. Yet it seems only small time lawyers or CPA's who have little in the way of a firm, resources or overall knowledge of the tax law are the one's trying to protect the income tax.

As to Dan's comment, why didn't Jenkins pick up on your brilliant arguments to defend itself agains its own clients and the IRS fines? The firm has been destroyed and is disolving. What did/does it have to loose?

Why should they, they'll lose. Just because a court knocks down an argument doesn't mean it was wrong.....these people called judges sitting in their chair are just people. In fact I've shown many times they can't even agree on something as fundamental as what kind of tax it is and have repeatedly claimed each other’s theories are frivolous. Some are borderline illiterate. The only reason 99.9999% of the people comply with the court's reasoning on the income tax is because they're afraid, it's not because they think they should have to pay it. If it truly was taxation based on representation there wouldn't be an income tax. You’re not representing someone if you’re doing something that’s not representing desires of the vast majority of the people you represent.

Just because they didn’t try an argument doesn’t mean or imply it’s not valid.

[jg]

Neither you or me, or any individual, has the authority to interpret the law or the validity of the law, regardless of any desire to self-decide.

Who says? I have every right to interpret and or the validity of the law. Show many anything whatsoever that says I have no authority. Whether or not others will accept my interpritation however is debatable...

As stated in my post, the Constitution grants the authority to decide questions of interpretation and validity of laws to the courts.
Did you intentionally change my statement about authority to a question about your rights or are you unable to recognize what is meant by authority?

You have the right (at least morally) to violate any law you deem improper, imo; but you do not have any right to do so without an expectation of enforcement and potential penalty as proscribed in the law as applied and enforced, contrary to your beliefs.

Your inability or unwillingness to accept the authority of the courts and the laws deemed valid by the courts is not a fault of the courts or of the laws.

Of course that's true of anything that can wield power....just ask people who were under Stalin, the KGB, Saddam, Kim Jong, Mexican corruption, Old English rule etc. etc....It wasn't the fault of any of those that the people who paid the price did not accept their authority.

Your point in meaningless as always...

Your reference to Stalin and others is disgusting and intellectually dishonest. You seem to argue that because some governments have authority based solely on force that all governmental authority everywhere is thereby invalid or can be ignored.

Again: Any action based on self-decided law that is contrary to the law as it is applied and enforced is rightfully subject to the "big stick". Of course, action can be legally taken to change or revoke the application or enforcement of the law.

You have a legal and moral right to question authority; but you do not have a legal right to ignore or disobey the authorities because of your self serving interpretation of the law.

[SteveSy]

Neither you or me, or any individual, has the authority to interpret the law or the validity of the law, regardless of any desire to self-decide.

Who says? I have every right to interpret and or the validity of the law. Show many anything whatsoever that says I have no authority. Whether or not others will accept my interpritation however is debatable...

As stated in my post, the Constitution grants the authority to decide questions of interpretation and validity of laws to the courts.
Did you intentionally change my statement about authority to a question about your rights or are you unable to recognize what is meant by authority?

You have the right (at least morally) to violate any law you deem improper, imo; but you do not have any right to do so without an expectation of enforcement and potential penalty as proscribed in the law as applied and enforced, contrary to your beliefs.

Your inability or unwillingness to accept the authority of the courts and the laws deemed valid by the courts is not a fault of the courts or of the laws.

Of course that's true of anything that can wield power....just ask people who were under Stalin, the KGB, Saddam, Kim Jong, Mexican corruption, Old English rule etc. etc....It wasn't the fault of any of those that the people who paid the price did not accept their authority.

Your point in meaningless as always...

Your reference to Stalin and others is disgusting and intellectually dishonest. You seem to argue that because some governments have authority based solely on force that all governmental authority everywhere is thereby invalid or can be ignored.

The only reason people comply with the income tax is based solely on force. It's exactly the same, the level of punishment may be different but the compliance is due to the same exact reason. Your favorite statement is meaningless as it applies to anyone forcing their authority on others. If you're trying to imply validity due through your statement you would have to also accept every other authority is valid through the same reasoning. I'm not claiming anything is invalid becuase of what you said.....you're attempting to make some kind of menaingless point and all I did was show you how meaningless your point is.

[grammarian44]

How many are going to jail for this?

Exactly zero. I don't necessarily agree with this, but this is the bargain as now struck.

One argument in favor of no sentences for J&G current partnership is that no current partners actually hatched or participated in Son-of-Boss. But then I don't know of any of those who in fact did participate who are going to jail, either. Maybe those individuals are in jail already, for all I know.

To people engaged in this practice, it is often very questionable whether the tax opinion being rendered is really given with knowledge that the opinion is incorrect as a matter of law. It's not at all easy to see, for example, that Son-of-Boss will be disallowed just from looking at the design of the deal.

Arguably this uncertainty is a reason not to ship any of these people to the pokey. But then, once convicted, their intent to defraud has already been affirmed. Because it has, they deserve jail every bit as much as any other tax cheat who meets the same knowledge standards.

The real reason these kinds of people are not headed to jail is that they can afford legal counsel to file every conceivable challenge to the sentence. Knowing this, the government is willing to strike a deal to get the tax revenue, put out the standard press release, and end the matter.

[Cpt Banjo]

To people engaged in this practice, it is often very questionable whether the tax opinion being rendered is really given with knowledge that the opinion is incorrect as a matter of law.

I had the opportunity to sit through a meeting in which one of the J&G tax attorneys from Chicago was pitching one of their cockamamie shelters to a client of mine, and it was so barren of economic substance that I couldn't believe that anyone could possibly think it had a snowball's chance of ever surviving IRS or judicial scrutiny, and I told the guy so. In my mind, it had no legal basis at all. Fortunately, my client didn't fall for it.

I've always wondered if pure greed or a habit of pushing the envelope as far as possible blinded these people to reality and dulled their judgment. In any case, I have no sympathy for the attorneys who charged exorbitant fees simply for issuing opinion letters chock full of disclaimers or the accountants who pimped their clients into falling for these shams. I hope every one of them has lost his or her license to practice.

[grammarian44]

To people engaged in this practice, it is often very questionable whether the tax opinion being rendered is really given with knowledge that the opinion is incorrect as a matter of law.

I had the opportunity to sit through a meeting in which one of the J&G tax attorneys from Chicago was pitching one of their cockamamie shelters to a client of mine, and it was so barren of economic substance that I couldn't believe that anyone could possibly think it had a snowball's chance of ever surviving IRS or judicial scrutiny, and I told the guy so. In my mind, it had no legal basis at all. Fortunately, my client didn't fall for it.

I've always wondered if pure greed or a habit of pushing the envelope as far as possible blinded these people to reality and dulled their judgment. In any case, I have no sympathy for the attorneys who charged exorbitant fees simply for issuing opinion letters chock full of disclaimers or the accountants who pimped their clients into falling for these shams. I hope every one of them has lost his or her license to practice.

I'm not saying these people deserve any sympathy--they don't. Still, to people actually in the practice, a lack of economic substance is not easy to spot, and not solely because of greed or pure desire to push the envelope. There are no formulas for determining in advance what transactions do or do not have economic substance. Right now Congress is sitting on at least two proposals--one originating in the JCT--that would attempt to "codify" the doctrine precisely because the courts cannot settle on the meaning of economic substance. The courts are all over the place. If I want to know what transactions are considered substantial, should I consider Saba Partnership, Compaq Computer, or Long Term Capital Holdings as the blueprint to follow? Can you tell me the exact rules for distinguishing substantial from purely tax-motivated transactions?

And if you don't "push the envelope" by at least trying to edge up to the line between substantial and insubstantial without actually crossing it, isn't there a sense in which you've failed your clients? You have a duty both to keep them from getting nailed by the IRS and to keep them from paying any more tax than they have to.

Maybe to you, Son-of-Boss was self-evidently insubstantial. Lots of other pretty smart, morally reputable people drew a different legal conclusion, at least for a time.

The problem with KPMG/J&G's people is that they continued to sell the ideas after they should have known better--i.e., after very similar products had already been shot down and after they were put on notice that losses were likely to be disallowed.

[wserra]

a lack of economic substance is not easy to spot

That's the whole idea, right? (But I understand what you mean.)

[grammarian44]

a lack of economic substance is not easy to spot

That's the whole idea, right? (But I understand what you mean.)

Of course! To dishonest people, the name of the game is to conceal the circularity or insubstantiality of the transaction behind legitimate-sounding transactional gibberish.

But when it comes to the manipulation of loss reporting or loss timing, debt/equity classifications, contingent payment debt instruments, foreign tax credits, or transfer pricing issues, even honest people who are trying to do the right thing cannot easily distinguish substantial from insubstantial transactions.