By David Cay Johnston

Aug. 21, 2004

The law licenses of two former Internal Revenue Service lawyers have been suspended for two years after a federal court ruling last year that they defrauded the courts so that the I.R.S. could win 1,300 tax shelter cases.

W. Kenneth McWade was suspended by the Oregon Supreme Court in an order dated Aug. 10 and released yesterday by the Oregon State Bar.

Four months ago Arkansas officials suspended the license of William A. Sims.

The United States Tax Court has also suspended both lawyers for two years, and the I.R.S. director of practice has suspended them indefinitely.

The suspensions followed complaints brought by Michael Louis Minns, a Houston lawyer who represented 124 of the tax shelter buyers, most of them airline pilots. One buyer is seeking a $6 million refund.

The Federal Court of Appeals for the Ninth Circuit in San Francisco found in January 2003 that the lawyers had defrauded the court by making a corrupt deal with a few of the pilots who bought tax shelters in the 1970’s and 1980’s. Under the deal, no tax-collection actions in regard to the shelters would be taken against these pilots in return for testimony that would hurt the others.

The court called this ”extreme misconduct” and asked why the I.R.S. had not disciplined the lawyers, each of whom was paid a $1,000 bonus for his work on the cases.

Mr. Minns then asked the I.R.S. in which state each was licensed so that he could seek their disbarment. The I.R.S. refused, saying disclosure of their law licenses would violate their confidentiality.

In fighting suspension, the two lawyers filed papers contending that they had acted properly.

Mr. McWade, reached at home in Hawaii, said, ”I guess the court has decided that Oregon lawyers are not entitled to due process.” Mr. Sims did not respond to voice mail and e-mail messages.

The two men left the I.R.S. after their conduct came under scrutiny.