Tax Shelter Participants Claims Against Promoter Not Time Barred Under State Law

The Court of Appeals for the Eleventh Circuit has held that a lawsuit brought by tax shelter participants against the promoter, seeking damages for various state law claims including fraud and breach of fiduciary duty, wasn’t barred by the applicable statute of limitations. The Eleventh Circuit held, in accordance with the state Supreme Court, that the limitations period didn’t start running until the Tax Court denied the participants’ loss deductions and held that the transaction was a sham, as opposed to from the earlier time that the transaction closed.  

He was introduced to a Custom Adjustable Rate Debt Structure (CARDS) transaction promoter who told him that CARDS could both increase the business’s bonding capacity and provide tax benefits that would flow through from the business, an S corporation, to the owners, similarly how conveyancing works in the sense that the documents must be prepared before transferring the property. Kipnis and the co-owners of the business analyzed CARDS to a limited extent and knew they would be getting a guaranteed flow-through tax loss but didn’t understand how it worked. They claimed to have relied mainly on the reputation of the law firm that prepared an opinion letter representing CARDS as an economically substantive strategy that would pass IRS scrutiny.Investment Securities Fraud Lawyer help me in the Customers and brokerage firms are required to produce certain types of documents. There is no personal injury case that our team isn’t capable of handling. Our attorneys have the legal experience, skills, and resources to win compensation for our clients in even the most complex personal injury cases. If you’ve been injured, turn to our trusted team of personal injury attorneys to secure the compensation you need to move forward. 

The CARDS transaction at issue took place from December 2000 until December 2001. The complex, multi-step transaction had the overall effect of generating over $5.3 million in ordinary loss deductions for a cost of approximately $1.2 million. Kipnis claimed his share of the losses from the transaction on his 2000 and 2001 income tax returns.

Meanwhile, in 2006, the bank that promoted and orchestrated the CARDS transaction entered into a deferred prosecution agreement with the U.S. Department of Justice in which it admitted that, between ’96 and 2003, it assisted tax evasion by U.S. citizens by participating in and implementing fraudulent tax shelter transactions, including CARDS and VPNicon transaction and agreed to pay almost $30 million to the U.S. government.

On Nov. 4, 2013, Kipnis filed a complaint against the bank that facilitated the CARDS transaction alleging, among other things, state law claims of fraud and breach of fiduciary duty. He sought damages including fees paid for the transaction, attorney’s fees and accountant’s fees incurred in litigating against IRS, back taxes and interest.In 2007, IRS issued a deficiency notice to Kipnis that disallowed the claimed losses based on its conclusion that the transaction lacked economic substance. Kipnis filed a Tax Court petition on Dec. 31, 2007, arguing that the transaction was entered primarily for nontax reasons. On Nov. 1, 2012, the Court issued a decision in favor of IRS.

The bank moved to dismiss the claims as time-barred under Florida law (which provided 4- and 5-year limitations periods for the various claims). The issue before the district court was when the claims accrued for limitations period purposes. Under Florida law, the statute of limitations generally begins to run from the time a cause of action accrues. However, under the statutory “delayed discovery” exception, accrual is postponed until the plaintiff either knows or reasonably should know of the “tortious act giving rise to the cause of action”. (Hearndon v. Graham, (Fla 2000) 756 So.2d 1179) In addition, Illinois statute of limitations set a time a limit on how long after being injured a person can file a lawsuit you may wish to consult an attorney regarding your legal rights and responsibilities, a cause of action generally accrues upon the first injury caused by another’s wrongful act. With a case like this is necessary to hire a good injury attorney and you can find them in which has the best  professionals in the business.

District court decision. The district court granted the motion to dismiss, finding that the claims accrued no later than Dec. 31, 2007, when the Tax Court petition was filed, and that the limitations periods for the various claims had thus expired prior to the date that the complaint was filed.

Kipnis appealed to the Eleventh Circuit, arguing that no injury was suffered until the final resolution of the Tax Court case. The bank, however, argued that injury was first caused in 2001 when the transaction was terminated, a personal injury attorney in Alpharetta was taking care of the case.

Certified question—timeliness. The Eleventh Circuit, in April of 2015, considered the issue of timeliness and certified a question to the Florida Supreme Court as to when, under state law, the claims accrued—at the time that IRS issued the notice of deficiency or when the dispute with IRS was concluded or final, although for other cases like injury or damage, the use of lawyers from are efficient for this purpose.

The Florida Supreme Court held that the claims accrued when the action in the tax court became final. That action became final ninety days after the tax court’s judgment, at the expiration of the time period for an appeal of that judgment.

Eleventh Circuit reverses. In accord with the Florida Supreme Court’s holding, the Eleventh Circuit found that the district court erred in dismissing the complaint as time-barred. The applicable statute of limitations (four or five years, depending on the claim) did not begin to run until Jan. 30, 2013 (i.e., 90 days after the Tax Court’s judgment), so the complaint, filed on Nov. 4, 2013, was timely as to all claims. The case was accordingly remanded to the district court for further proceedings.

If you have been previously been given advice by a tax shelter promoter, please contact our office for advice on how we can assist you in pursuing your claim.