Blair Stover Former Grant Thornton Tax Partner Cleared

January 22, 2015 – Former Grant Thornton Tax Partner, A. Blair Stover, was cleared in a Complaint filed by the California FTB in September 2012, which alleged that Mr. Stover, Kruse Mennillo Business Financial Services LLC, and another Kruse Mennillo Partner, had assisted in the preparation of false tax returns filed with the California FTB. Superior Court Judge Hon. Robert C. Vanderet ruled that the State had failed to produce evidence in support of the allegations and dismissed the Complaint with respect to all three named parties.

The Court’s ruling is likely the final chapter in a contentious seven-year legal battle between Grant Thornton and Mr. Stover that has gained significant attention within the legal community.

In December 2008, Mr. Stover filed a civil action against Grant Thornton seeking the recovery of damages in excess of $6 Million related to legal fees and expenses incurred by him arising from tax shelter transactions that were promoted by Grant Thornton to its clients from the late 1990’s through 2001. Mr. Stover, an attorney, was employed in the Grant Thornton tax practice in Kansas City, Missouri from 1993 through 2001. His practice extended to clients throughout the United States, including Southern California.

Mr. Stover left Grant Thornton in 2001 to join Kruse Mennillo LLP, a highly specialized firm that concentrates on the automotive industry. A significant number of clients and professional staff followed Mr. Stover to the new firm.

Court records related to the case indicate that in December 2003, Mark Stutman, the Managing Partner of Grant Thornton’s international tax practice, transmitted a letter to U. S. Senators Charles Grassley and Max Baucus, the Chairman and ranking member of the U.S. Senate Finance Committee, advising that Mr. Stover had developed and assisted clients with the implementation of tax shelters that were not approved by the firm and that upon learning this, his partnership was involuntarily terminated. The Stutman letter sparked an intensive investigation by IRS and the State of California into the tax advice rendered by Mr. Stover during the late 1990’s through 2001.

Grant Thornton subsequently admitted that the Stutman letter was misleading in the respect that it falsely accused Mr. Stover of being the developer of the tax strategies. The firm produced numerous documents in the case evidencing that its national tax practice extensively researched and approved the use of the subject tax strategies by its clients. Moreover, the firm admitted that Mr. Stover had played no role in the development of the subject tax strategies and that his partnership with the firm had not been involuntarily terminated.

It is noteworthy that Mr. Stover’s civil action was not based on defamation damages, but rather, the recovery of expenses incurred by him when Grant Thornton refused to honor its defense obligations to the clients who followed him to Kruse Mennillo. Grant Thornton’s client engagement letters had included a defense clause that provided that in the event of an audit the firm would defend the structures at no additional expense to the client. Mr. Stover undertook the defense obligation when Grant Thornton refused to do so.

Grant Thornton settled the case, entering into a pre-trial settlement agreement with Mr. Stover in December, 2013.