Washington – Senators from both parties are pressing Supreme Court nominee Harriet Miers about her former Texas law firm’s lucrative business helping to promote tax shelters that were subsequently deemed improper by the Internal Revenue Service.
The actions of the firm Locke Liddell and Sapp, which Miers headed for much of the 1990s, received glancing scrutiny early this year, when the Senate Permanent Subcommittee on Investigations released a scathing report on the tax-shelter industry.
The report quoted the legal adviser of a potential investor as blaming the firm for effectively signing off on a “classic ‘sham’ tax shelter.”
Now that the firm’s former co-managing partner has been nominated to the Supreme Court, senators are zeroing in on Locke Liddell’s efforts.
Sen. Norm Coleman, R-Minn., the chairman of the investigations subcommittee, said Wednesday that he is “very seriously concerned” about the firm’s sale of cookie-cutter legal opinions, attesting to the legitimacy of tax shelters promoted by accounting giant Ernst and Young. He said he will raise it personally with Miers today.
The new questions come as Republican senators and conservative groups voicing qualms about the Miers nomination grow louder.
Her visits to senators on and off the Judiciary Committee are so far failing to win commitments of support, senators and their aides said.
In the late 1990s, as the stock market boomed and the rich accumulated wealth at unprecedented rates, the major accounting firms went into business developing and selling intricate ways to shelter income from taxes. They would then refer clients to prominent law firms such as Locke Liddell, which would issue opinion letters that individuals could present to the IRS as a defense for their actions.
The tax shelters involved funneling income through short- lived business partnerships that could be written off as losses.
Sen. Max Baucus, D-Mont., the ranking Democrat on the Finance Committee, sent the firm a five-page letter last week demanding detailed explanations about Locke Liddell’s activities on behalf of Ernst and Young’s Contingent Deferred Swap tax shelter, which fell under IRS scrutiny in 2000 and was designated as abusive in 2002.
Such an inquiry could spell more trouble for a nominee already facing questions about her credentials and political beliefs.
A little more than half of the transactions involving Locke Liddell were done while Miers was with the firm, according to John McElhaney, a lawyer at the firm.
Miers is not a tax lawyer, but as co-managing partner, Senate investigators from both parties say, she should have been aware of such a lucrative part of the firm’s business.
McElhaney agreed in an interview Wednesday that given the flow of money involved – an average of $1.8 million a year between 1999 and 2001 – “it’s a fair assumption that she was aware” of the activity.
Ernst and Young began work on the shelter in 1998 and enlisted Miers’ firm to provide clients with a letter indicating that the shelter “should” be upheld in court, according to the investigations subcommittee.
Locke Liddell would get $50,000 or $75,000 a letter, McElhaney said.
McElhaney said no court has ruled the transaction illegal because the government has never prosecuted a case to judgment.
What’s next
The Senate Judiciary Committee
is expected to release
Miers’ revised answers
to its questionnaire
today. Hearings are set to
begin Nov. 7 on her nomination
to succeed retiring Justice
Sandra Day O’Connor, a
swing vote on many issues.
