Manhattan U.S. Attorney Files Civil Injunction Lawsuit Against New York Lawyer To Block Promotion Of Abusive Tax Shelter Transactions

Preet Bharara, the United States Attorney for the Southern District of New York, and John Dalrymple, Deputy Commissioner for Services and Enforcement for the Internal Revenue Service (IRS), announced today that the United States filed a civil injunction complaint in Manhattan federal court alleging that HAROLD LEVINE, an attorney in New York, has promoted abusive tax shelters while serving as a partner and head of the tax practice group in the New York office of the law firm Herrick Feinstein LLP. LEVINE currently is a partner and chair of the tax practice group in the New York office of the law firm Moritt Hock & Hamroff LLP.

The Complaint asserts that LEVINE promoted, implemented and/or participated in at least 90 unlawful tax schemes designed to cheat the Government out of hundreds of millions of dollars in tax liability. According to the Complaint, LEVINE, operating together with other known tax-shelter promoters, used companies with phony losses on their books to shield millions of dollars of income garnered by other companies disposing of their assets. The Complaint alleges that, in an attempt to disguise the illegitimacy of these transactions, LEVINE knowingly told lies or caused the corporations involved in these unlawful transactions to tell lies concerning the supposed tax benefits of the transactions. As set forth in the Complaint, LEVINE received more than $5 million in fees as a result of his participation in these unlawful tax avoidance schemes. The Complaint seeks to bar LEVINE from organizing, promoting or selling any tax shelters that allegedly use an intermediary-type transaction or state tax credits designed to reduce or eliminate tax liabilities in the future, as well as any other plans or arrangements intended to secure tax benefits or unlawfully evade tax liabilities in exchange for fees. LEVINE may be subject to penalties in the future based on the fraudulent tax shelter conduct alleged in the Complaint.

Manhattan U.S. Attorney Preet Bharara said: “Those who promote illegal tax avoidance schemes are not simply committing a fraud on the United States Government. They are taking advantage of the hard-working, honest Americans who pay their share in taxes when the bill comes due. This Office will not tolerate those who unlawfully seek to game the system in order to evade their tax obligations.”

IRS Deputy Commissioner for Services and Enforcement, John Dalrymple, said: "This action demonstrates that the IRS will pursue those who cheat the tax system no matter how sophisticated or intricate the transactions may be. The vast majority of U.S. taxpayers pay their fair share. We owe it to them to stop tax cheating in whatever form it takes."

According to the allegations contained in the Complaint:

The abusive tax shelter transactions promoted by Levine include “intermediary transactions,” in which the corporate income taxes on the gains received from the sale of corporate assets are illegally avoided for the benefit of shareholders, and “state tax credit transactions,” in which a real estate project owner avoids paying taxes on the gains from the sale of the transferable state tax credits it earns or receives. Levine formed and/or used five corporations – termed “promoter entities” – to carry out these schemes. These promoter entities would acquire the asset-selling corporations and eliminate their capital gains tax using the promoter entities’ phony losses. With respect to the 90 unlawful transactions charged in the complaint, the promoter entities improperly deducted over $515 million in bad debt losses on their tax returns. The government estimates that the tax loss resulting from their promotion of the tax schemes at issue in this case exceeds $129 million, not including penalties and interest, virtually all of which may now be uncollectible due to the lack of assets remaining in the tax-avoiding corporations.

In particular, LEVINE promoted, implemented, and/or participated in over a dozen intermediary transactions, notwithstanding public IRS notices and regulations warning that the IRS considers such transactions “tax avoidance transactions,” and may challenge the tax results of any such transaction and assert penalties on those who promote or participate in them. LEVINE therefore attempted to disguise the true nature of the transactions to avoid IRS enforcement efforts. In addition, LEVINE also promoted, implemented, and/or participated in about 75 abusive state tax credit transactions which, similar to the intermediary transactions, were structured to permit real estate project owners to evade substantial tax liability while allowing LEVINE and others to profit from a portion of the tax savings.

This case is being handled by the Office’s Tax and Bankruptcy Unit. Assistant U.S. Attorneys Alicia M. Simmons and Tara M. La Morte are in charge of the case.

U.S. v. Harold Levine