Only in the USA

With the UK taxman now employing increasingly aggressive tactics, and sometimes paying little mind to the pesky inconveniences of the law, the clandestine activities of the US taxman and its lawyers in running a test case have been exposed in circumstances which may give UK taxpayers cause to think twice about voluntarily committing themselves to be bound by the outcome of test cases.

The case involved a representative action in which the taxman sought to challenge an avoidance scheme known as the Kershing Tax Shelter. Some 1,300 taxpayers had agreed to be bound by a test case to be heard by a US court. The taxman's lawyers cut a behind the scenes deal with the representative taxpayer, under which that taxpayer received a favourable deal in return for throwing the case in court. The representative taxpayer duly obliged, got the deal but all of the other taxpayers were dumped in the mire and the taxman thought he had a result.

That is until the court subsequently became aware that the case had been thrown. The court held that the lawyers' actions had not only been a fraud on the court, but also a fraud on all of the taxpayers who had agreed to be bound by the outcome of the court case. The court, therefore, awarded all 1,300 of the taxpayers the same favourable deal which had been given unofficially in the test case.

It has yet to be reported whether the lawyers acting for the US taxman are to be prosecuted.