Free Response to Cross Motion [Dispositive] - District Court of Federal Claims - federal

Case 1:05-cv-00999-MMS

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UNITED STATES DISTRICT COU] :T FOR THE NORTHERN DISTRICT OF I'EXAS

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2003 i -- - '_
L_._
,

Jo_

DOE l,
Plaintiffs, v.

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.

_

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CLEK&, ;.;.S. b_S'_

No.--

KPMG,

LLP, Defendant.

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V

g

I, Keith A. Tucker, declare: I.

=S EA I..ED
Unit 6H;

My current legal residence is 3831 Turtle Creek Bmdcvard;

Dallas, TX 75219. 2. [ am currently employed by Waddell & Reed Financial, Inc. as Chah-man

and CEO. I have held that position shlee 1998. 3. 4. I have personal knowledge as to the facts hereir_ KPMG has been my l_cso_ tax adv_r since at least 1984 and I have

regularly sought tax planning advie_ fi-om KPMG. 5. In lhe Spring of 2000, [ had discussions with Mr. Eugene-Sehorr, a tax

partner at KPMG who has since retired, about potential

strategies for mkrtimizing my

Federal income tax liability for the year 2000 in accorchncc with the Federal income tax laws. 6. A short time after this h_ conversation with Mr. Schorr, a tax par_er at wig o_her K£MG tax p|anaing

K.PMG who has since mtire._t, Mr. Schorr conferred

XHIBITAJ Docket No.

u!)b
12307-04

7-

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partners, ,including

Mr. Timo_y

Slain,

who was _ par_cr

K.PMG's "innovative

Strategies" group. Mr. Speis_ a K.PMG tax parmer, then met with mc to discl_s my tax situation and W present various aitemafives for po_:nti_ implementation in the year

2000.
7. Based on these discussions, [ agreed with KPMG (Mr. Speiss, a KPMG

tax par_er) that an approach that KPMG proposed known as "short options'* would ix: appropriate for my particular tax situa_on. 8. In Ju|y of 2000, Mr. Spclss, a KPMG tax partner, agreed to provide me letter indicating that KPMG would provide tax advice to me for the I received that

with an engagement

year 2000 oncerning the implementation of the "short option" proposal engagement letter in the fast week of August 2000. 9. engagement During the second of week: of August |ev,er they had issued to me.

2000, KPMG withdrew the that it took this action

KPMG exphlned

because the "short options" proposal had been listed _ a tax shdt_r by the Interaal Revenue Service ("IRS") pursuant to Notic= 2000-44, 2000°2 C,B. 255. Because of rids, KPMG stated that Lheycould no longer recommend _ 10. proposal. letter regarding the "short

After KPMG's withdraw_ of its engagement

options" st_tegy,

Mr. Speiss, a KPMG tax'partner, and ] disous_d whether there were KPMG, in

any other strategies that would be appropriate for my year 2000 tax planning. the person of Mr. Spciss and oth_r KPMG tax pa_crs, alternative Raasactio_. 11. KPMG proposed _othcr

attempted to tdeafify and plan

strategy in the Fall of 2000, but that strategy

fai]_ due to a ]ack of appropriate tingeing,

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12. KPMG

In December of 2000, Mr. Sp, i_s, a KPMG tax parmer, advised me *&at

could amlyze and develop a customized solution to my 2000 tax p|aaaing needs. 13. KPMG ul_tmlely proposed thin I eo_sider implementing m investment

structure that was designed to meet my particular needs, including certain beneficial tax results. 14. K.PMO represented that this proposal was not a short options _mtegy and and thus could be recommended e_gagement letter to me tl_ to me by

wouM not be subject to Notie2 2000.44, KPMG, Accordingly, KPMG issued _

iadlcated KPMG

would provide tax mtviee concerning the propoml. 15. long-term KPMG developed an iave_ment _ratagy for me that wascoraprised of a

customized inveatment blnm_re that had the potential to yield favorable

economie and tax-re]_ed benefits over a series of years. To this day, I am still engaged in that investment s'_ctm'. 16. In addition to the tax mivice that KPMG provided to me, K.PMG

recommended that I engage Brown & Wood to provide a legal opinion that would give me additiomd corrffort in rite _ of an IRS challenge to the s_cture. Brown & Wood

provided such a legal opinion to me. 17. Based upon the mx and legal advice of both K.PMG and Brown & Wood, I

engaged KPMG to implement and _,_ecute the invesiment smmtu_ for um in Dec_mb_ of 2000. 18. memorandum As pm of the talx advice I received fi-om KPMG, KPMG provided to me a in which KPMG advised, among other things, that the investment smmmr¢ described m Noti¢, 2000-44.

was not similar to the Iran._'tions

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19.

KPMO explidtly

_s_l

me tha_ no penalties

would

be levied

in

connection with any audit of the investment stru_.

20.

Pursuantto ray agreement with KPMG, I paid KPMG $500,000 for tax

advice regarding implementing the investment structure, 21. Based on my prior dealings with KPMG and its representations to me, ]

believed and expected that KPMG would keep confidential, all of the details of their tax advice concvming the investment strategy and all related documcats, 22. K.PMG did not inform me and I was not aware that KPMG had any

obligation to identify and disc|ose to the IlLS certain transactions o_atdze.d by KPMG. Based on representations made by KPMG, I believed that KPMG did not have an obligation to disolose to any person the fact that I engaged in the investmem structure, or any related information. Further, based on the representations made by K.PMG, I

believed that the investment structure was not an "abusive" subject to any special roles.

tax transaction that was

23.
Schorr,

On variousoccasions prior to August 27, 2003, KPMG (including Messrs,
and other KPMG tax partners) consistently advised me that the

Speiss,

investment smictm_ that KPMG developed for me was not abusive, and that there was no obligation on me or KPMG to disclo.se to the IRS or any person that I engaged in the

investment structure. 24. On or aboutApril 9, 2002, I was contacted by KPMG to disc.ss whe_er I
struchn'tO the ]]_ disclosure pm'suant to its provided

wished to disclose the details of the hv_ent Announcement 2002-2, 2002-i

C.B. 304, which

would have

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"amnesty"

from the appli_fion

of any tax T_'nalti_ by the ERS _

respect to the

investment strategy. 25. KPMG expressly recommended that I not disclose the investment strategy

under Announcement 2002-2, KPMG explained to me that the investment structure was not a _'listed" transaction, and in paztlcuhr was not a transaction described in Notice 2000--44, and that the investment stxue_e had significant economic consequences. 26. In April 2002, KPMG advised me that it bad z'e_ived summonses from
advised me that the LnvesUncnt _turv was.not subj_t to disclosure o t

theIRS. KPMG

theIILSpursuant those to summonses and that KPMG KPMG's taxadvice tome. 27.

would not discloseo theIRS t

Ina telephone confenmce August27,2003,Mr. Spciss, taxparmerat on a the

KPMG, advLsed me for the first time that KPMG had changed its view and reach_

conclusion that my name and the tax advice [ rce,eivcd from KPMG wi_ rcspsct to the investment s_'uctur¢ planned for me by KPMG were responsive to an IRS summons and_ therefore, were going to b¢ disoloscd to the IRS. Mr. Spriss, a lax partner at KPMG, identified the summons as a summons that r_quostrd information regarding Notice 200044 transactions. Mr. Speiss, a tax partner at KPMO, explained that he disagreed with tiffs conclusion and that he believed that the investment structure was not subs_nfiaUy to the transaction identitied as abusive in Notic¢ 2000-44. 28. On September 3, 2003, in'response to my telephone rails to him, bfr, could only sirailar

David Fowler, partner KPMG, a at

called me to informme thatKPMO

promise that it would not disclos¢ to the IRS b_for_ midnight on September 8, 200.3, my name and any of the documents in KPMG's f-des relating to the investment _.

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29.

KPMG did .or at any time advim me in writing that it intended to disclose

my name and documents to the IRS. 30. participation [ have not disclo.,_l to aayone other than my ounsc! the details of my in the investment swogm_ or any documents or the d_tails of my

commtm_catlons with K_M(3. To th, best ofmy knowlodgc, KPMG has not disclosed to anyone any such details or communicatiov_.

I declare under penalty of perjury that to the best of my knowledge, is true and correct. Executed this _ day of September, 2003.

the foregoing

Keith A. Tucker