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Financial Planning > UHNW Client Services > UHNW Client Advice

Gramercy Advisors Sues Jacksonville Jaguars Owner in Tax Avoidance Case

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What You Need to Know

  • Billionaire Shahid Kahn is the owner of the Jacksonville Jaguars.
  • Gramercy's role with respect to Khan’s tax strategy was limited to the execution of financial transactions.
  • The IRS and state revenue collection authorities disallowed the tax losses Khan claimed.

Gramercy Advisors is suing Shahid Khan, the owner of the Jacksonville Jaguars, to be held harmless from legal claims arising out of the billionaire’s aggressive use of tax shelters in the early 2000s. Khan sued the firm after the IRS disallowed tax losses he claimed.

Gramercy Advisors, Gramercy Financial Services, Gramercy Asset Management and Tall Ships Capital Management are suing Khan for attorneys’ fees, litigation expenses and breach of contract agreement claims, according to the lawsuit, filed in the U.S. District Court for the Southern District of New York.

The suit states that Khan pursued at least five consecutive tax-avoidance strategies in tax years 1999 through 2003 designed by accounting firm BDO Seidman LLP and other professional firms, by which Khan managed to shelter nearly all of his approximately $250 million of income for that period.

In connection with his 2001, 2002 and 2003 shelters, Khan “retained Gramercy for the limited purpose of sourcing certain assets and executing certain transactions requested by him and his tax advisors,” the suit states. Gramercy had no involvement with his 1999 and 2000 tax shelters.

Khan owns the Jacksonville Jaguars NFL football team, the Fulham Football Club of the English Premier League, and a $112 million, 223-foot yacht named Kismet, according to the suit. He also owns Flex-N-Gate Corp., a manufacturer of car parts, with affiliates within and outside of the United States. Flex-N-Gate Corp. has annual sales estimated to be in excess of $3 billion.

In written contracts, Khan “acknowledged and agreed that Gramercy had not rendered advice concerning the legal efficacy of the tax shelter strategies; that Gramercy could not be held liable to Khan for adverse tax outcomes; and that Khan would indemnify Gramercy for any litigation costs (including attorneys’ fees) arising from Khan’s breach of such promises,” the suit states.

The contracts, according to the suit, “also expressly obligate Khan to advance to Gramercy its costs incurred in defending litigation by Khan.”

The IRS and state revenue collection authorities subsequently disallowed the tax losses Khan claimed, the suit states.

“Rather than honor his contractual obligations and accept the consequences of his express, informed, and calculated assumption of risk, Khan has sought to make Gramercy the unwitting and unwilling insurer of his inherently risky efforts to avoid paying his fair share of federal and state taxes,” the lawsuit states.

Kahn proceeded to file lawsuits against Gramercy.

“Under the parties’ agreements, Khan is liable for the resultant costs.”

Gramercy states in the suit that its role with respect to Khan’s tax strategy “was limited to the execution of financial transactions at Khan’s or his advisors’ express direction, and the sourcing and management of securities meeting the criteria propounded by Khan and his legal and financial advisors.”

Gramercy, the suit states, “had no role whatsoever in advising Khan on tax matters or tax strategy, and expressed no opinion whatsoever on the legality of any tax strategy selected by Khan.”

Gramercy states in the suit that it has incurred “millions of dollars in attorneys’ fees and other costs” in defending against the lawsuits.

“On account of the valid and enforceable contracts requiring Khan to hold Gramercy harmless, advance Gramercy legal costs and fees, and refrain from bringing suit against Gramercy — as well as the repeated written acknowledgments that Gramercy provided no tax advice to him and would have no liability for the tax consequences of the transactions engaged in by Khan — Gramercy seeks an order directing Khan to advance to Gramercy any future costs associated with the lawsuits, and to indemnify Gramercy from any past, present, or future costs, fees, or expenses connected with the lawsuits.”

Khan, the suit states, is also liable for damages suffered by Gramercy as a result of Khan’s violations of his agreements with the firm.


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