December 1, 2013 – Former Grant Thornton Tax Partner, A. Blair Stover, has entered into a settlement agreement with his former firm, ending a five year legal battle involving tax shelters.
In December 2008, Mr. Stover filed a civil action against Grant Thornton LLP in Missouri, seeking the recovery of damages in excess of $6 Million related to legal fees, expenses and losses incurred by him arising from tax shelter transactions that were developed and recommended by Grant Thornton LLP to its clients from the early 1990’s through 2001.
Mr. Stover, an attorney, was employed in the Grant Thornton LLP tax practice in Kansas City from 1993 through 2001. His practice extended to clients throughout the United States, including Southern California. During that period, Grant Thornton LLP’s National Tax Office in Washington D.C. researched and developed and approved several tax strategies involving the use of multiple business entity structures (“MBES”). These included the ESOP-S Corporate Structure (“ESOP”) and Roth GIFT, or Roth C Corporate Structure (“Roth C”). The firm concluded that both structures were supported by substantial technical authority and appropriate for use by the firms’ clients. In connection with client engagements related to the implementation of the tax strategies, Grant Thornton LLP agreed to defend the clients upon audit at no additional expense and, to reimburse them for any civil penalty incurred by the client in conjunction with the use of the strategy. Both the ESOP and Roth structures were widely recommended to the firm’s clients by attorneys and CPA’s employed by Grant Thornton LLP during this period.
Mr. Stover recommended both strategies to clients located in Southern California during his tenure with the firm. In September 2001, Mr. Stover left Grant Thornton LLP to join the California based firm of Kruse Mennillo LLP, a firm specializing in the automotive industry.
In December 2005, Grant Thornton LLP was named in a class action in Federal Court in Los Angeles, alleging that from 1999 – 2001 the firm advised clients located in southern California to establish ESOP-S Corporate structures and that the structures violated various Federal tax statutes. Further, the Complaint alleged that Grant Thornton LLP had breached its contractual obligation to defend the clients when they were audited with respect to the ESOP-S Corporate structures. Mr. Stover was also named in the action. In Court filings related to the case, Grant Thornton LLP contended that Mr. Stover had been the developer of the ESOP-S Corporate structure and that the firm had not performed technical research to support the merits of the structure.
From 2005 – 2007, Grant Thornton LLP and Mr. Stover were named in several civil actions in Southern California alleging that the firm had advised clients to establish tax shelters utilizing the ESOP-S Corporate and Roth GIFT/C-Corporate structures and, that the structures violated Federal statutes. In each case, Grant Thornton LLP contended that it had not developed the structures and that Mr. Stover had acted independently in advising clients with respect to both strategies. Ultimately, Grant Thornton LLP entered into confidential settlement agreements with all of the Plaintiffs in these actions. Although Mr. Stover was included in the settlement agreements, he was not required to contribute financially to the settlement amounts.
In February 2008, the Internal Revenue Service filed two separate civil injunction actions in a Missouri Federal Court against Mr. Stover and Allen R. Davison, another former Grant Thornton LLP tax partner in Kansas City, alleging that they had developed and advised their clients to implement abusive tax shelters involving the use of ESOP-S Corporate and Roth-C Corporate structures. Court documents reflect the fact that Mr. Stover had not advised clients to implement either structure since 2001.
Court documents related to the case reveal that in December 2008, Mr. Stover discovered that Mark Stutman, a senior tax partner at Grant Thornton LLP, had transmitted a responsive letter to Senators Charles Grassley and Max Baucus, the Chairman and ranking Member of the U.S. Senate Finance Committee in December, 2003. The Stutman letter asserted that Mr. Stover and Mr. Davison had been the developers and sole promoters of the ESOP-S Corporate and Roth GIFT/C-Corporate structures and that Grant Thornton LLP had no knowledge of the structures prior to the Spring of 2001. The Stutman letter further implied that both partners had been fired when the firm learned of the structures.
Court documents related to the case reveal that Scott Curtin, another former Grant Thornton LLP tax partner, testified that the Stutman letter was false. Mr. Curtin was Managing Partner of the firm’s Kansas City office from 2002-2005. Mr. Curtin admitted that he had been involved in drafting the Stutman letter and that it misled the U.S. Senate in the respect that it falsely stated that Mr. Stover had been the developer and sole promoter of the ESOP-S Corporate and Roth C Corporate structures. Mr. Curtin acknowledged that Mr. Stover had not been involved in the development of either structure and that both structures had been widely recommended by tax professionals at Grant Thornton LLP from the 1990’s through 2001. Mr. Curtin further acknowledged that Mr. Stover had not been fired or asked to leave the firm in 2001.
In connection with more recent federal governmental inquiries, Grant Thornton LLP has produced numerous documents that illustrate the true scope of its technical research and development of the ESOP-S and Roth C structures. These documents tend to indicate that previous representations Grant Thornton LLP has made to various Courts in California may have been false.