Add a new name to the list of wealthy former clients who have sued Sidley Austin Brown & Wood and tax lawyer R.J. Ruble over complaints about the use of dubious tax shelters.
San Francisco venture capitalist Dixon R. Doll, whose capital management firm has helped launch more than 50 companies, has sued in federal court, naming financial services firm Stars Holding Co., formerly known as MyCFO.com, and a host of others, including Sidley Austin and accounting firm Grant Thornton LLP.
The suit alleges securities fraud, breach of contract and negligence regarding a tax-shelter product the defendants developed. Doll v. Stars Holding Co., No. C05-1132BZ.
JOINING THE CROWD
Dolls suit joins those of Seattle businessman Theodore Schwartz and Reese M. Jones, chairman of Silicon Valley broadband firm Netopia Inc., in similar tax-shelter suits naming Ruble and Sidley Austin.
A Sidley Austin spokesperson said the firm had no comment at this time, about the allegations.
The dispute stems from the increased scrutiny the Internal Revenue Service focused on the booming business of tax shelters for the wealthy several years ago. Similar suits have also named New Yorks LeBoeuf, Lamb, Greene & MacRae in separate litigation as well as accounting giant KPMG.
Doll contends in his suit that he paid financial advisors and lawyers $1.2 million to use a tax strategy that Ruble, Sidley Austin and Grant Thornton knew would be unacceptable to the IRS. It also alleges that Ruble supplied allegedly independent opinion letters stating that the tax product would pass legal muster when he knew, or should have known, it would not.
It looks like the word opinion has been turned into the word guarantee, said Rubles attorney, Jack Hoffinger of Hoffinger, Stern & Ross in New York. I dont believe the opinion letter talked about what the IRS would do but what the court would do.
The law firm expelled Ruble in October 2003 after the IRS began more aggressive assessment of tax shelters.
The basic concept was to limit taxes by investing in a variety of shelters that would produce losses that could be written off against the clients taxable capital gains. In Dolls case, Chenery Associates, a California company run by Roy H. Hahn, created a means of sheltering income by investing in nonperforming loans made by banks.
Doll contends that neither the law firm nor his financial advisors disclosed that Sidley helped design the nonperforming loan product, and their opinion letter could not relied on as independent.
The suit, filed by San Francisco attorney William M. Lukens, states that Doll used the tax shelters in 2000 and 2001, after the IRS published a 1999 notice that similar tax products, marketed to taxpayers to generate tax losses, created artificial losses, and were not allowable under federal tax law.