Reports of abusive or fraudulent tax schemes are making countless headlines in current news cycles. The latest political or celebrity scandal frequently involves an illegal tax shelter or tax evasion, but these illegal acts arise in more day-to-day scenarios than most people realize.
A 2020 study unveiled that countries worldwide are losing over $427 billion each year due to tax fraud. The United States’ losses alone total nearly $90 billion. Both corporate entities and private individuals are responsible for these staggering figures. But these losses are not always the result of the taxpayer’s fraud. A number of unlawful tax shelters often originate with fraudulent misrepresentations made by those with a fiduciary duty to the taxpayer, such as accountants.
A fiduciary is invested with legal rights and powers to act for the benefit of a beneficiary. A fiduciary owes its beneficiary a fiduciary duty, which is one of “utmost good faith, trust, confidence, and candor ….” Black’s Law Dictionary (11th ed. 2019). A fiduciary relationship must be created by contract or by operation of law in order to be legally enforceable.
A number of business relationships create fiduciary duties. Examples include business partners to other partners, a corporate director to the corporation, or a tax advisor to a client. Whether an accountant or a tax advisor is a fiduciary depends upon whether the accountant presents himself as an expert and whether the client relies and depends on the tax advisor. Breaches occur when the fiduciary acts for the benefit of himself, fails to disclose vital information, or acts in a way that is contrary to the beneficiary.
BP LLP attorneys recently represented a client in a breach of fiduciary duty case involving fraudulent tax shelters. The plaintiff, Chris Cohan, sought advice from his long-term accountants and financial advisors at KPMG when considering the sale of his business enterprise. Instead of providing legitimate and sound tax advice, KPMG formulated a scheme using a series of illegal tax shelters designed to generate bogus losses and to ultimately avoid IRS scrutiny. When the IRS investigated Mr. Cohan, he was ordered to pay over $200 million in taxes, penalties, interest and fees. Mr. Cohan, with the help of BWP, sued and obtained a significant settlement against KPMG for making fraudulent misrepresentations and breaching their fiduciary duty to Mr. Cohan in their tax advice.
BP LLP attorneys have extensive knowledge and experience in breach of fiduciary duty cases – including those involving fraudulent tax advice. Don’t fall victim to tax advisors’ breach of fiduciary duties and unlawful tax practices. It is best to know when a breach occurs in order to be proactive in mitigating damages and preventing future harm – not only to your finances but also to your reputation. We have successfully obtained significant settlements for victims of illegal tax practices. If you have any questions about breach of fiduciary duty cases, we can help.
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