Attorney Kevin Murphy holds a copy of the $100 million judgment won by his client, William Yung and his family, from Grant Thornton over a tax strategy Judge Patricia Summe said the firm knew was fraudulent.
Accounting firm Grant Thornton must pay $100 million in damages to a Northern Kentucky hotel and casino owner for "egregious and highly reprehensible conduct," the Kentucky Supreme Court has ruled.
Grant Thornton’s Cincinnati office had marketed a tax shelter strategy to William Yung designed to transfer millions of dollars from the Cayman Islands – where Yung has holding corporations – without paying taxes.
Yung owns hotels, casinos as well as a Crestview Hills-based hospitality company, Columbia Sussex Corp., which manages hotels around the United States, including the Renaissance Cincinnati.
Grant Thornton employees marketed the complex tax shelter strategy to Columbia Sussex in 2000, according to the Supreme Court's opinion.
The strategy involved the Cayman Island corporations buying $30 million in U.S. Treasury notes, then transferring them to shareholders in the U.S. – avoiding federal taxes.
The opinion, issued Thursday, said Grant Thornton did not disclose that the firm itself believed there was a 90 percent chance the lRS would disallow it in an audit because of new regulations.
When Yung asked about the new regulations, Grant Thornton wrongly stated that the regulations actually helped its conclusion that the tax shelter was “more likely than not” valid, according to the opinion.
Grant Thornton, which is based in Chicago and has 59 offices, even suspended the sale of the tax shelter to new customers, the opinion says. But it advised Yung that his transactions would not be affected.
The high court's opinion says the tax shelter “was a product that (Grant Thornton) knew very early on would likely implode with the IRS, causing serious financial and business consequences for” Yung.
A Grant Thornton spokesman said the company is “disappointed with the most recent decision regarding this matter, which dates back almost 20 years, and is reviewing its options for appeal.”
By 2004, the IRS was auditing Yung and found that the transactions were fully taxable. Yung settled with the IRS for more than $18 million.
Yung sued Grant Thornton in Kenton County Circuit Court, and Judge Patricia Summe awarded approximately $20 million to cover liability to the IRS and nearly $1 million in fees paid to Grant Thornton. Summe imposed another $80 million in punitive damages.
Summe said the accounting firm had played a "game of audit roulette" with its tax advice to Yung.
A state appeals court later reduced the $80 million in punitive damages to $20 million. But the Supreme Court reinstated the full $80 million, saying Grant Thornton’s conduct “was egregious and highly reprehensible, and a substantial punitive damage award is warranted.”
Yung's attorney Kevin Murphy said his client “got justice today” and commended Summe, whose opinion was upheld by the high court.
"Despite a whole array of arguments asserted by the defendant and by several organizations filing amicus curiae briefs, the Kentucky Supreme Court ultimately found that Judge Summe got it right in every respect," Murphy said in a statement. "I am thrilled for the Yungs and to see that justice was served.”