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Southland Executives Named in IRS Suits

Court: Agency takes action in what it calls 'abusive' tax shelters and cites gubernatorial candidate Simon and corporate leaders.

July 13, 2002|PETER G. GOSSELIN and KATHY KRISTOF | TIMES STAFF WRITERS

WASHINGTON — The Internal Revenue Service has included a cross-section of top Southern California business executives--from a studio chief to a telecommunications tycoon--in a pair of legal actions aimed at what federal officials called "abusive" tax shelters.

Topping the list are Republican gubernatorial candidate Bill Simon Jr. and his father, the late William E. Simon, a former U.S. Treasury secretary.

Also mentioned are Gary Winnick, chairman of the troubled Beverly Hills-based Global Crossing Ltd.; Henry Nicholas III, chief executive of Irvine-based Broadcom Inc.; Robert E. Shaye, chairman of New Line Cinema of New York and Los Angeles; Maurice Marciano, chief executive of clothier Guess, which is headquartered in Los Angeles; and prominent Los Angeles businessman Leonard Green.

Government officials said Friday that inclusion of the names in lawsuits seeking to enforce an IRS demand for documents from accounting giants KPMG and BDO Seidman did not necessarily mean the executives or their families were using improper shelters to slash their taxes.

But court papers in the KPMG case in particular show that the accounting firm gave the IRS more than 636,000 documents but refused to provide some material involving these Southern Californians and 1,100 other individuals.

IRS officials had harsh words for anyone engaged in tax dodges.

''The U.S. tax system is based on the principle of responsible self-assessment by taxpayers and responsible advice by tax professionals,'' said IRS Commissioner Charles Rossotti. ''It is not a game of hide-and-seek with the IRS.''

Inclusion of the younger Simon's name in the KPMG case seems certain to roil the gubernatorial race between the wealthy Republican and Democratic Gov. Gray Davis. Davis has spent months calling on Simon to disclose information about his personal finances, and on Monday began airing television ads charging that his GOP rival ''won't release his tax returns to show he's paying his fair share.''

At a campaign stop Friday in Universal City, Simon responded by portraying himself as a bystander to the legal action. ''There's a dispute right now between the IRS and two public accounting firms, and whatever the results of that dispute are we're certainly happy to live with,'' he said.

When asked whether he was aware that KPMG was arranging for tax shelters on his behalf, Simon did not answer. But the GOP candidate said, ''We rely upon the advice of tax professionals in terms of preparing tax returns and in terms of the accounting treatment that's accorded certain transactions.''

Until now, Simon, a Pacific Palisades investment banker, has ridiculed Davis' call for his tax returns, saying their release would violate his privacy and that the Democrat's demand for them reminded him of Karl Marx and Big Brother.

Winnick, Nicholas, Marciano and Green had no comment. "This is a matter between the IRS and KPMG," said Bill Blanning, spokesman for Nicholas.

Shaye could not be reached for comment.

The IRS and the Treasury Department have grown increasingly disturbed in recent years by the aggressive techniques of wealthy individuals and corporations to avoid federal taxes. Both have issued stern warnings and, the new court papers show, have launched quiet investigations into the activities of major accounting firms.

But news of the latest probes, first reported by the Wall Street Journal, comes just as one corporation after another has acknowledged it improperly accounted for billions of dollars to puff up profits, and as one top executive after another has conceded he reaped huge rewards even as his company was crumbling and its workers were being laid off.

In Washington, disclosure of lawsuits sparked calls for giving the IRS new tools to fight tax shelters. Among them: a proposal by conservative Republicans on the House Ways and Means Committee that would let the agency levy $100,000 fines against individuals who failed to report certain tax-shelter transactions.

Elsewhere, both the suits and the inclusion of individuals' names sparked cries of foul play.

''It has been asserted that [the IRS suits] are unprecedented," fumed Chuck Rettig, partner at the Beverly Hills law firm of Hochman, Salkin, Rettig, Toscher & Perez. ''What is unprecedented is the government's aggressive pursuit of publicity through numerous press releases before there has been any judicial determination.''

Rettig pointed out that none of the individuals named in the IRS actions was accused of wrongdoing. Instead, he said, many are undergoing civil IRS audits.

The IRS court actions aim to force their accounting firms, KPMG and BDO Seidman, to provide the documents.

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