Dead lawyer, tax evasion and a 14-year-old case

Tax court ruling opens makes appeal likely

February 04, 2007|By New York Times News Service

The federal tax court has ruled in favor of the Internal Revenue Service in a 14-year-old evasion case involving a now-dead lawyer who was one of the nation's leading tax advisers, millions of dollars in reported real estate kickbacks and a Supreme Court ruling that ended a long-standing practice of secrecy in tax court.

And if that is not enough, it is probably not over.

In the decision last week, Judge Harry A. Haines of the U.S. Tax Court ruled that the lawyer, Burton W. Kanter, and two associates had accepted kickbacks from the Pritzker family of Chicago, which owns the Hyatt hotels, and then evaded taxes on the payments.

The court found "overwhelming objective evidence" that the three defendants "participated in a complex, well-disguised scheme to share kickback payments."

Lawyers for the three said they were stunned by the decision and would appeal it, expecting it to go to the Supreme Court for a second time.

They said the decision ran counter to the findings of a special trial judge who heard the case in 1994. That judge, they said, determined that small amounts of tax were due because of technical violations but that there was no civil fraud.

The two associates are Claude M. Ballard, a former general partner at Goldman Sachs who before that was a real estate executive at Prudential Insurance, and Robert W. Lisle, a Prudential real estate executive who died before the original trial. Kanter died in 2001.

The case involved a San Francisco hotel that Lisle had Prudential, now Prudential Financial, build in 1973. He then steered the management contract for the hotel, which became the Hyatt Embarcadero, to the Pritzkers in 1973. In return, court papers say, A.N. Pritzker, the family patriarch, agreed to pay 10 percent of the hotel's profit to the three men and two others, who soon left the deal. The court ruling indicates that Pritzker was willing to pay because the hotel was crucial to developing the Hyatt brand.

The IRS audited the deal, leading the three men to sue the IRS, resulting in a 1994 trial before the special trial judge, D. Irvin Couvillion.

Five years later, a regular tax court judge, Howard A. Dawson Jr., issued the formal judgment, describing Kanter as the architect of a long-running scheme to evade taxes.

One of the taxpayers' lawyers received information suggesting that Couvillion had reached the opposite conclusion, and filed motions seeking the original report. But the tax court maintained that the report was part of the "internal deliberative processes of the court" and could not be disclosed.

The Supreme Court held otherwise in 2005, ending the tax court's practice of withholding such findings.

When the report was made public, it showed that the trial judge had found no fraud. The Supreme Court required a new decision, and last week Haines upheld the fraud ruling.

N. Gerold Cohen of Sutherland Asbill & Brennan, the lawyer for Kanter's estate, and Steven S. Brown of Martin Brown and Sullivan, Ballard's lawyer, said they could not fathom how Haines could have found fraud when the trial judge had not.

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