March 23, 2017 / 5:38 PM / 3 years ago

IRS beats ex-Sprint CEO, COO lawsuit over tax shelter scandal

(Reuters) - A federal judge on Thursday dismissed a $159.4 million lawsuit by two former top Sprint Corp (S.N) executives who were caught up in a 2003 tax shelter scandal, and said the Internal Revenue Service was to blame for costing them their jobs.

U.S. District Judge Paul Oetken in Manhattan said the IRS was immune from damages claims for its alleged “deceit” or “misrepresentation” toward Sprint’s former chief executive William Esrey and former chief operating officer Ronald LeMay.

Daniel Rosen, a partner at Baker & McKenzie representing the plaintiffs, declined to comment.

Esrey and LeMay sued the government last April 22, claiming they were forced from their Overland Park, Kansas-based phone company after disclosing they were being audited over their use of tax shelters to protect gains from stock options.

The plaintiffs said the IRS helped Ernst & Young, which was their tax advisor and sold them the shelters, hide key details about criminal and civil probes into the shelters’ promotion, leaving them unable to defend themselves to Sprint’s board.

They said it was not until 2013, when Ernst & Young agreed to pay $123 million to settle the criminal probe, that the extent of its knowledge a decade earlier became known.

In his decision, Oetken said the IRS normally waives immunity when its employees commit certain wrongdoing “while acting within the scope of their employment.”

But he said that because Esrey’s and LeMay’s claim “rests on allegations of concealment, it falls squarely” within an exception to that waiver covering alleged deceit or misrepresentations, requiring the lawsuit’s dismissal.

Esrey and LeMay had sought $42.5 million and $116.8 million, respectively.

The IRS had no immediate comment. Ernst & Young is not a defendant, and spokeswoman Amy Call Well did not immediately respond to requests for comment.

The case is Esrey et al v U.S., U.S. District Court, Southern District of New York, No. 16-03019.

Reporting by Jonathan Stempel in New York; Editing by Marguerita Choy

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