BofA in tax shelter probe

Probe of offshore investments expanding
Knight Ridder - Friday, June 03, 2005
The Dallas Morning News

By Will Deener

DALLAS _ A state and federal investigation into offshore trusts involving Dallas billionaires Sam
and Charles Wyly first reported in February may actually involve dozens of other corporations and
executives who used a similar tax shelter.

The Wyly brothers in the 1990s set up offshore trusts that held stock and options in the names of
family members. They claim the trusts were set up to benefit their family members and some
charities, but apparently regulators think they might have been set up as tax shelters.

"The Wylys are cooperating with all inquiries and look forward to successfully resolving these
issues," said Bill Brewer, the Dallas lawyer representing the Wylys.

The Internal Revenue Service has said as many as 42 corporations and many more executives may have
been involved in "an abusive tax avoidance transaction" involving the transfer of stock options to
family controlled entities. However, an IRS spokesman refused to identify the companies and
executives involved.

Earlier this year, Michael's Stores Inc. said the U.S. Securities and Exchange Commission and the
New York County District Attorney were examining stock transactions between these trusts and the
company's chairman Charles J. Wyly and vice chairman Sam Wyly.

Michaels said that it had received a grand jury subpoena from the Manhattan district attorney's
office for documents related to offshore trusts that held Michaels shares on behalf of family
members of the Wyly brothers..

During the 1990s, Bank of America advised the Wyly brothers on tax matters and is under scrutiny by
regulators, according to a Wall Street Journal report Friday.

Bank of America spokeswoman Shirley Norton refused to confirm or deny that the company is under
investigation. "We don't comment on those kinds of matters," she said.

The Wyly brothers set up numerous trusts in the Isle of Man, a small but well-known tax haven in the
Irish Sea. The 227-square mile island is a British dependency and attracts some of the United
Kingdom's wealthiest residents, primarily because of its low tax rate.

Apparently, the Wyly brothers aren't the only ones who used the popular stock option transaction
marketed by Bank of America. The IRS earlier this year released a statement regarding the
transactions, saying it had identified 42 corporations, many more executives and unreported income
of more than $700 million.

In a May 19 statement, IRS Commissioner Mark Everson called the transfer of stock options to
family-controlled entities an "abusive tax transaction."

But Brewer said the offshore trusts and related transactions are "complex and sometimes
misunderstood." Further, he said, several different financial institutions and experts advised the
Wyly brothers, and all the transactions were reported appropriately.

"These are family and charitable trusts that were established for purposed such as estate planning,"
Brewer said. It's not entirely clear how the Wyly trusts operated. But in general here is how the
IRS describes the tax shelters:

First a public company grants stock options to a senior executive. The executive then transfers the
options to a trusts or partnership controlled by the executive's family.

The parties structure the transfer as a "sale" and the trust then "pays" the executive for the
options with a long-term or deferred note _ say due in 30 years. Shortly after the options are
transferred, the trust exercises the stock options and sells the stock in the open market.

The executive then takes the position that tax is not owned until the date of the deferred payment _
in this case 30 years _ although the executive has access to the partnership assets.

The IRS announced a settlement offer for anyone involved in these types of transactions. The offer
expired last week, but the IRS spokesman said he did not know how many executives or companies
responded.

(c) 2005, The Dallas Morning News.
http://www.menafn.com/qn_news_story.asp?storyid=cqp_vweict0zgu0hpuku


Report: BofA in tax shelter probe
Regulators investigate bank's role in $100 million-plus transaction, WSJ says.

June 3, 2005: 7:59 AM EDT

NEW YORK (CNN/Money) - Bank of America, the nation's third-largest bank, is under investigation for
helping two wealthy Texans hide their fortunes from taxes, a newspaper reported
Friday.

The Wall Street Journal, citing unnamed sources, said federal and state authorities are probing
whether Bank of America violated securities and anti-money laundering laws in helping Sam and
Charles Wyly shelter more than $100 million in stock-option gains from U.S. taxes. The paper
indicated the probes could expand to include other wealthy clients of the Charlotte, N.C.-based
bank.

A Bank of America spokeswoman told the Journal the bank is cooperating with investigators and
doesn't believe it broke any laws. A lawyer for the Wylys said his clients did nothing wrong.

The Internal Revenue Service, the Securities and Exchange Commission, and New York District Attorney
Robert Morgenthau are reportedly focusing on a popular stock-option transaction that Bank of America
and other financial services companies marketed to executives and prominent investors during the
1990s bull market.

The IRS concluded the transaction was an illegal tax shelter and banned it in 2003.

According to the Journal, The IRS alleges that more than 40 unidentified U.S. companies and dozens
of executives used the shelter to avoid more than $700 million in taxes.

The Journal noted that the Bank of America investigation comes amid a broader IRS campaign to
penalize tax professionals for marketing improper shelters.

© 2005 Cable News Network LP, LLLP. A Time Warner Company ALL RIGHTS RESERVED.
http://money.cnn.com/2005/06/03/news/fortune500/bofa_probe/


BofA in tax-shelter probe
Charlotte Business Journal - 9:10 AM EDT Friday

Bank of America Corp. and other financial institutions that marketed a once-popular stock-option
transaction are being investigated by Manhattan District Attorney Robert Morgenthau.

The Internal Revenue Service and the Securities and Exchange Commission have joined in the probe,
lawyers familiar with the case told The Wall Street Journal.

The investigation could have broad implications for big investors who sought help from
financial-services companies during the bull market of the 1990s in locking in gains on stock
options.

Under the shelter, which the IRS outlawed in 2003, executives donated options to trusts that they
said they neither owned nor controlled. Authorities, however, contend that users did in fact retain
control. The IRS says at least 42 unnamed U.S. corporations and dozens of executives used the
shelters and failed to report income and pay taxes totaling more than $700 million.

It isn't clear how many of the companies and executives were clients of BofA or its predecessor
banks, such as NationsBank Corp., which merged with BankAmerica Corp. in 1998 to form
Charlotte-based BofA (NYSE:BAC).

BofA spokeswoman Shirley Norton told the newspaper the bank is cooperating in the investigations and
believes it followed the law.

"We always cooperate with investigations, and we can't comment on customer relationships," she said,
declining further comment.

© 2005 American City Business Journals Inc.
http://charlotte.bizjournals.com/charlotte/stories/2005/05/30/daily28.html?jst=b_ln_hl