SOUTH CAROLINA DEPARTMENT OF REVENUE
Public Affairs Office
Contact: Danny Brazell
Phone: (803) 898-5464
For Immediate Release
February 10, 2005
SOUTH CAROLINA DEPARTMENT OF REVENUE ISSUES "NOTICE OF INTENT TO DISBAR" TO 14 TAX PROFESSIONALS INCLUDING LAWYERS AND CPA'S RELATING TO FLIP/OPIS TAX SHELTERS
The South Carolina Department of Revenue, Regulatory Division, today issued a "Notice of Intent to Disbar" to 14 tax professionals relating to their involvement in two abusive tax shelters commonly referred to as FLIP and OPIS. At least eight of the individuals are certified public accountants and two are lawyers. Each are currently, or formerly, associated with the accounting firm KPMG, First Union Bank or the former law firm of Brown & Wood. The tax shelters were sold to at least 20 residents of South Carolina. Both shelters were "basis shifting tax" shelters designed to offset large capital gains.
Each of the individuals named in the Notice to Disbar were involved in either the creation, development or marketing of the tax shelters, and in several cases, advised clients that the transactions not be registered as a tax shelter even though such actions violated the federal tax shelter registration provisions.
The Department's notice alleges that First Union Bank and KPMG abused the trust and confidence which they gained from representing taxpayers in this state over a number of years by enticing them into purchasing highly abusive tax shelters. The sales pitches occurred after a resident incurred a large capital gain liability typically through the sale of a family owned business. The transactions were highly complex and the taxpayers were repeatedly assured by both First Union and KPMG that they were legitimate investment strategies and did not constitute tax shelters. Certain residents were also given legal opinions by a former partner of the Brown & Wood law firm, which added further to the appearance of legitimacy.
The residents were not told that at the time of the sale, higher-ups in KPMG had warned that the transactions constituted abusive tax shelters and should be registered with the IRS.
The Notice released today was issued under IRS Circular 230, which provides ethical procedures and rules for tax professionals. The Notice alleges: (1) failure to use due diligence; (2) conflicts of interest leading to a lack of independence; (3) failing to comply, and advising the firm (KPMG) not to comply, with tax shelter registration provisions; and (4) participating in disreputable conduct.
Department of Revenue Director Burnet R. Maybank, III said the Notice contains only allegations and that the respondents have 90 days to refute the allegations from either a factual or legal prospective. In the event the matter is not satisfactorily resolved within 90 days, the Department will issue a Final Agency Decision (FAD) and each person named in the FAD will have the right to a trial before an independent Administrative Law Judge.
The Notice will not take effect (i.e., the individual will not be debarred from practicing before the Department of Revenue) until either the 90 days has
concluded (if no appeal is requested) or unless, and until, the Administrative Law Judge rules in favor of the Department of Revenue.
Maybank said that the names of the individuals, who reside in the states of South Carolina, North Carolina, California, Colorado, Georgia, New York, Virginia, and Florida would not be released at this time.
The Department's Notice names only individuals, and not their firms, because Circular 230 only allowed the debarment of individuals at the time of the relevant acts and not the firms. (Circular 230 has since been amended.)
Maybank also said that the Department of Revenue's Circular 230 investigation is still ongoing into both FLIP/OPIS as well as other tax shelters, and he anticipates other debarment actions being filed.