Para Technologies Trust v. Commissioner

Joe Izen was a lawyer for Nassau Life Insurance Company, Ltd. (Nassau Life), a tax-shelter promoter. As counsel for Nassau Life, Izen drafted opinion letters that laid out arguments for why certain business structures could receive favorable tax treatment. Izen’s letters omitted discussions of court cases that contradicted Izen’s theories. Fred Ferber, who had a high school education, worked as a representative for Nassau Life. Tom Anderson, who had an eighth-grade education, owned an electronics business. Ferber, using Izen’s letters, helped Anderson restructure Anderson’s business as a trust called Para Technologies in order to gain favorable tax treatment. Under one interpretation of the structure, Anderson was the grantor of the trust, and Ferber was its trustee. Under the Internal Revenue Code, the tax burden related to a business trust’s income could variously fall upon either the business, a trustee, or a grantor, depending on the interpretation of the structure. The Internal Revenue Service (IRS) (defendant) found that Para Technology’s structure was not entitled to the claimed favorable tax treatment and determined deficiencies in the income taxes of Ferber, Anderson, and Para Technology (petitioners) (plaintiffs). The petitioners filed a petition for redetermination with the United States Tax Court, and all three hired Izen as their counsel. Izen had not procured written consents from the petitioners to represent them despite potential conflicts of interest. The IRS filed a motion to compel withdrawal of Izen as the petitioners’ counsel.