Death may have been certain for prominent Chicago tax attorney Burton Kanter, who died in 2001, but taxes are not -- following a decision Tuesday by the 7th U.S. Circuit Court of Appeals.
The unanimous opinion, written by Judge Diane Wood, directed the U.S. Tax Court to find that the late lawyer did not engage in a fraudulent scheme to avoid taxes, as alleged by the Internal Revenue Service. The Dec. 1 ruling in the 23-year-old case -- which at one point went before the U.S. Supreme Court -- will wipe out about $15 million, plus interest, in tax deficiencies and civil penalties that the government claimed Kanter owed for his role in alleged illicit kickbacks.
"The frustration is that it's taken this many years to get to the point where all three taxpayers were completely vindicated," said Richard Pildes, a New York University School of Law professor who represented Kanter's survivors before the appellate courts.
Joan Oppenheimer of the U.S. Department of Justice's Tax Division, who represented the IRS in the case, declined to comment.
Kanter built a reputation as a tax law innovator who aided some of Chicago's wealthiest families, including heirs of the Hyatt Hotels-owning Pritzker family and "Playboy" founder Hugh Hefner, with new estate planning methods. He also found new ways to finance movies such as the 1975 film "One Flew Over the Cuckoo's Nest."
He was a prolific writer and speaker on tax law, said Randall G. Dick, a San Francisco solo practitioner who handled Kanter's case in the lower courts and, over the years, had litigated some cases for Kanter's clients defending his advice. They worked together at the now-defunct Levenfeld, Kanter, Baskes & Lippitz. Kanter, who was 71 when he died, held his last law firm post as counsel to Neal, Gerber & Eisenberg until 1999. The IRS alleged that Kanter, who got the agency's attention by not reporting taxable personal income for a number of years in the 1980s, had worked with Prudential Life Insurance executives Claude Ballard and the late Robert Lisle in crafting investments to evade taxes. A Tax Court judge ruled against the three in 1999. But the 5th and 11th circuits overturned that ruling with respect to Lisle and Ballard, respectively, after a 2005 Supreme Court decision forced the disclosure of a confidential 300-page report by a special trial judge that found no fraud. The 7th Circuit's decision follows suit with respect to Kanter.
"The most important aspect of this line of cases is that the [special trial judge] reports can't be kept secret," said Leandra Lederman, a tax law professor at Indiana University Maurer School of Law-Bloomington.