Two investors recently filed suit against famed law firm Rosenman & Colin’s successor, Katten Muchin Rosenman, charging that Rosenman & Colin promoted a fraudulent tax scheme. The plaintiffs, Brian and Joelle Kelly claim that the firm played an essential role in designing, promoting and implementing a tax structure that “was nothing more than a fee generating scheme.” Kelly v. Katten Muchin Rosenman, 653067/2012 (N.Y. Sup. Ct., N.Y. Co.)
This is not the first time that the Kellys filed such a suit against Katten. Their earlier suit was dismissed for defects, including a problem with the statute of limitations. They recently re-filed their claims.
According to the plaintiffs, Rosenman & Colin prepared a legal opinion that supposedly supported the legitimacy of the tax shelter, Coastal Trading Common Trust Fund Program Series III (CTF). The opinion letter was later referenced by a tax attorney at Sidley Austin. The Kellys had retained Sidley’s predecessor firm to draft a legal opinion on whether the tax shelter could withstand scrutiny from the IRS.
The losses they originally claimed against income were subsequently disallowed by the IRS. Their suit alleges fraud, misrepresentation and conspiracy to commit fraud and seeks more than $4 million in damages.
Four years after the IRS disallowed the CTF tax shelter, it settled with Sidley Austin for $39.4 million on charges that the firm promoted abusive tax shelters and failed to comply with tax shelter registration requirements. The Sidley Austin partner who had issued the legal opinion was sentenced to more than six years in prison.
The IRS never pursued Rosenman or Katten for their involvement in the CTF tax shelter.