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Tax shelters are everywhere these days. The Internal Revenue Service is investigating shelter promoters, including accounting firms, banks and as many as 10 law firms. The U.S. Department of Justice has brought six enforcement actions, and is in courts around the country seeking the names of shelter users. Dockets are jammed with lawsuits by aggrieved taxpayers. Amid all the furor, one name in particular keeps popping up: Paul Daugerdas of Jenkens & Gilchrist. Daugerdas is a partner at the Dallas-based firm and was, until recently, the head of the 50-lawyer Chicago branch. He is also, according to the IRS, responsible for organizing and selling “listed” or “potentially abusive” shelters used by more than 600 people. Those are IRS buzzwords for shelters that violate the tax code. IRS regulations require tax shelter promoters to register their tax avoidance schemes and to keep a list of taxpayers who use them. In the spring of 2002, the IRS served 22 summonses on Jenkens, trying to find out if the firm was liable for failing to comply with those regulations. In particular, the summonses sought information about listed transactions and the names of the clients. In response, Jenkens hired Daniel Hartnett of Martin, Brown & Sullivan, a tax controversy firm in Chicago. In a submission to the IRS, Hartnett wrote that he had reviewed the files of 700 Jenkens clients and found that 607 contained information about a listed transaction. Nonetheless, Jenkens refused to identify its clients, on attorney-client privilege grounds. The IRS’ next step was to ask a federal court in Chicago to issue a more powerful type of summons, known as a “John Doe” summons. As part of its application, the IRS said it had “reason to believe” that all 700 clients may have engaged in listed transactions. In June, Judge John Darrah agreed with the IRS, the first time such a summons has been used against a law firm. Jenkens again told the IRS that it would not comply, making an enforcement action the likely next step. Daugerdas and the firm declined to respond to inquiries from The American Lawyer; the firm issued a statement saying that it is “prohibited by law and its ethical responsibility to its clients” from disclosing their names. (Jenkens sometimes represents American Lawyer Media.) If the Chicago court follows a recent precedent from a federal court in North Carolina, the privilege won’t offer Jenkens much protection. In that case, the IRS served a summons on Wachovia Corp., seeking information about clients of that bank who had used a particular shelter. Those clients sought a temporary restraining order to prevent the disclosure, arguing that disclosure would necessarily include tax advice received from counsel. Their law firm? Jenkens. Judge Lacy Thornburg rejected the argument, finding Jenkens was selling tax shelters, not giving legal advice. “[There is no] evidence that any individual taxpayer ever had so much as a conversation with an attorney at J&G,” she wrote. In its statement, Jenkens called the decision “unfortunate.” In contrast, a senior IRS official says: “This is the decision that we’ve been waiting for.” Without the protection of the attorney-client privilege, the identity of Jenkens clients, and their files, should be open to discovery. If that happens, Henry Camferdam Jr., would like to get a look at them. He’s an Indianapolis businessman who sued Daugerdas and Jenkens in federal court in New York last December. Camferdam claims that he paid approximately $2 million for a “canned” opinion letter that supported a shelter that Daugerdas knew or should have known was “bogus.” He also advances a number of theories of unethical conduct, among them that the fee was “unethical, excessive, and illegal.” Jenkens calls the suit “unfounded.” Camferdam’s lawyer is David Deary of Shore Deary in Dallas, who says that he will file additional suits against Daugerdas and Jenkens on behalf of approximately 20 other people who bought shelters. If all that wasn’t enough, Jenkens may also be implicated in the government’s pending action against Diversified Group Inc. While a partner at Altheimer & Gray in the mid-1990s, Daugerdas worked with that company to sell tax shelters. Litigation and government investigations continue on other fronts as well.

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