Friday, March 30, 2007
Dallas-based law firm Jenkens & Gilchrist settled the government's long-running investigation of its role in tax shelter sales by agreeing to pay the IRS a $76 million penalty and entering into a non-prosecution agreement (available below) with federal prosecutors. While the firm avoided criminal charges, it announced that it was shutting its doors because of the significant hit it took from the settlement. The tax shelters were sold to wealthy investors through devices that were "Son of BOSS" variants with such quaint names as BLISS, BEDS, COBRA, SOS, HOMER, and BART -- tax lawyers definitely have a great sense of humor. The agreement requires the firm, even though it is out of business, to continue to cooperate with prosecutors and the IRS, and undertake its best efforts to make former partners and employees available as witnesses. Unlike the KPMG deferred prosecution agreement that caused prosecutors such problems, there is no mention of attorney's fees, although I suspect that the firm's partnership agreement did not provide much if any coverage for such costs.
The non-prosecution agreement further provides that Jenkens & Gilchrist did not waive its attorney-client privilege and work product protection "with respect to its representation in connection with [the] criminal investigation, its representation in the IRS promoter penalty audit, and its representation in private civil litigation." This provision may be an acknowledgment of criticisms of the Department of Justice's McNulty Memo that can make waiver of the protections of confidential attorney information a condition for not prosecuting the organization. Jenkens & Gilchrist cannot assert the tax privilege regarding its shelter transactions, but the nature of the underlying tax shelters put that narrow protection out of reach anyway.
The firm's closing shows that lawyers have to be able to trust one another because each lawyer carries the wallet of all the partners. The tax shelters were promoted out of Jenkens & Gilchrist's Chicago office, yet the entire firm collapsed over the conduct of one group of partners. An AP story (here) discusses the case. (ph)