White Paper

Contingent Deferred Swaps: Sometimes Truth is Stranger than Fiction

 
“Although this post has nothing to do with tax advantaged bonds, it does involve taxpayers, large sums of money, allegations of deceit and a strange saga in which the IRS has become embroiled. The story begins in 1999, when William Esrey, the CEO of Sprint Corporation at the time, and Ronald LeMay, COO of Sprint at the time, engaged in a Contingent Deferred Swap (“CDS”) transaction being promoted by Ernst & Young (“EY”). The two high ranking executives then each engaged in a second CDS transaction in 2000, and in a Contingent Deferred Swap Add-On (“CDSA”) transaction in both 2000 and 2001, that were also being promoted by EY.
As a tax-exempt bond lawyer, I do not understand how the CDS or CDSA transactions were supposed to work. However, the tax positions they involved must have been fairly egregious, because in 2002, both the civil and criminal divisions of the IRS and the U.S. attorney’s office located in the Southern District of New York began investigating EY’s role as a promoter of these transactions. At some point during 2002, the IRS also began to audit entities owned by Esrey and LeMay through which they engaged in the CDS and CDSA transactions. The two executives initially chose to have EY represent them during these audits.”

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Faculty

Cynthia C. Mog

Squire Patton Boggs