Calling him “the most prolific, pernicious and utterly unrepentant tax cheat in United States history,” prosecutors called for a lengthy sentence for former Jenkens & Gilchrist Chicago head Paul Daugerdas – and they got it. Last June, Daugerdas was sentenced to 15 years in prison for his role in a multi-billion tax fraud scheme. It was a relief for prosecutors who had pursued a long and difficult road to put Daugerdas behind bars.
Daugerdas, an accountant and an attorney, began his tax career in 1975 at the accounting firm of Arthur Andersen. Daugerdas quickly rose to partner at Andersen and would spend most of his professional life at the firm until he was forced to resign among allegations that he was diverting fees to himself. Daugerdas moved on to Altheimer & Gray and finally, as the head of the Chicago office of Jenkens & Gilchrist, which would be his last stop as a tax professional.
It was Daugerdas, according to prosecutors, who would take the lead role in a scheme to design tax shelters meant to generate fraudulent losses for wealthy clients from 1994 to 2000. Those losses allowed wealthy clients to reduce or completely eliminate income taxes – to the tune of $7 billion. Not only did Daugerdas help build and promote the schemes, he helped defend and perpetuate them, writing opinion letters which claimed the tax shelter losses or deductions would “more likely than not” survive IRS challenge and falsifying documents to substantiate the tax claims.
The tax shelters dreamed up and promoted by the Daugerdas and his cronies, alleged prosecutors, were “Short Sales,” “Short Options Strategy” (SOS), “Swaps,” and “HOMER.” The two most damaging to the Treasury were the Short Sale tax shelter which generated at least $2.6 billion in false and fraudulent tax losses and the SOS tax shelter which generated at least $3.9 billion in false and fraudulent tax losses.
The tax shelters eventually raised eyebrows, including those at Forbes. Janet Novack linked the shelters to Daugerdas in 2002, finding at least one law firm (Jenkens) with an “intriguing involvement in tax shelters.”