U.S. Sues Tax Lawyer for Aiding Unlawful Shelter Schemes

The U.S. sued attorney Harold Levine, alleging he made more than $5 million in fees for helping cheat the government out of hundreds of millions of dollars in tax revenue while leading the tax practice at a New York law firm.

Levine, chairman of the tax practice group at Moritt Hock & Hamroth LLP, worked with other shelter promoters and used companies with phony losses on their books to shield millions of dollars in income, U.S. Attorney Preet Bharara alleged today in a lawsuit filed in Manhattan federal court.

The U.S. said Levine knowingly lied or caused corporations to tell falsehoods concerning the supposed tax benefits of the illegal shelters. He’s also accused of promoting and participating in at least 90 unlawful tax schemes and not disclosing the transactions to the Internal Revenue Service.

The corporations also improperly deducted more than $515 million in bad debt losses on their tax returns, according to the government’s complaint.

“The IRS will pursue those who cheat the tax system no matter how sophisticated or intricate the transactions may be,” John Dalrymple, the agency’s commissioner for services and enforcement, said in a statement.

Levine didn’t respond to a voice-mail message left at his office seeking comment on the suit.

“Every one of the alleged incidents cited in the lawsuit occurred before Mr. Levine joined Moritt Hock,” the firm said in an e-mailed statement. “Although any charges like these are concerning, we firmly believe in Mr. Levine and our legal system.”

‘Intermediary Transactions’

The shelters Levine promoted included “intermediary transactions” in which the income taxes on gains from the sale of a company’s assets were illegally avoided for the benefit of shareholders, the U.S. said.

Levine also helped clients employ “state tax credit transactions” in which a real estate project owner can avoid paying taxes on the gains from the sale of a transferable state tax credit it earns or receives.

The attorney formed five so-called promoter entities to carry out the schemes, according to the lawsuit. They would use phony losses to eliminate capital-gains tax in acquiring asset-selling corporations, the U.S. said.

False Letter

Levine is also accused of approving a false tax opinion letter while serving as co-chairman and partner in Herrick Feinstein LLP’s tax department.

The firm demanded Levine’s resignation in September 2012 immediately after it discovered the activities alleged in the government’s lawsuit, Blake Eastman, a Herrick Feinstein spokesman, said in an e-mail.

“Harold Levine was a rogue partner who concealed his activities from all other Herrick lawyers,” Eastman said. “The firm has been fully cooperating with the IRS in its investigation of Harold Levine.”

As a result of the tax schemes, the IRS has made or will make federal tax assessments of more than $130 million, virtually all of it uncollectable, according to the government.

The U.S. is seeking to bar Levine from “organizing, promoting or selling any tax shelters that purportedly use an intermediary-type transaction or state tax credits designed to reduce or eliminate tax liabilities in the future.”

He may also be subject to penalties based on fraudulent tax-shelter conduct, Bharara’s office said.

The case is U.S. v. Levine, 14-cv-004057, U.S. District Court, Southern District of New York (Manhattan).

Before it's here, it's on the Bloomberg Terminal.