Investors Lose, Abusive Tax Shelters Protected

New York Times

Unfortunately, many physician-investorshave bought into tax shelters, only to beburned when they turn out to be illegal.According to a report, arecent federal ruling has declared thatinvestors cannot sue an accounting firmover the sale of their illegal shelter. Sometax lawyers say that this could set a precedentfor how compensation is handled infuture illegal tax shelter cases, affectinghow investors approach tax shelters andhow firms sell them. In the aforementionedcase, the judge ruled that the accountingfirm, BDO Seidman, and Deutsche Bank didnot intentionally plan to commit fraud andsteal money from the investors. Theinvestors assert that they were swindled bythe firm, and want to sue for fraud andbreach of fiduciary duty. Traditionally, firmsthat find themselves in such a legal bindwould rather settle the disputes arbitrarilyor through settlements in private to avoidany public embarrassment.