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It appears law firms are wearing class-action targets on their backs over tax and securities advice.

McMillan has become the latest big-name law firm hit with a class action. It was sued by an investor in March over the tax advice the firm issued involving the Royal Crown Gold Reserve Inc.

Investor Melvin Schneider wants to represent between 250 and 300 investors in a suit against Royal Crown, its promoters and McMillan over the tax shelter.

Royal Crown's mandate was to purchase gold properties in Canada and develop them into profitable businesses. It had claims in British Columbia.

The lawsuit alleges that a tax opinion offered by Mc-Millan partner Michael Friedman determined that the "amounts paid by investors to acquire a legal and beneficial ownership of a mining claim should constitute a Canadian Development Expense for the purpose of s. 66.2 of the [Income] Tax Act."

According to the lawsuit, investors would buy four units in a cell of land for $100,000. The claim alleges that under the offering memorandum, investors would put up $20,000 and provide a promissory note for $80,000.

They would then pay $3,200 in interest on the note, which would be tax deductible, and receive a $3,000 royalty payment. The claim alleges that over three years, the scheme provided investors with returns of 39.23%, 92.78%, and 34.02%.

However, the Canada Revenue Agency later rejected the proposed tax deductions because Royal Crown had not obtained a tax shelter number, the development expense was "inflated, unreasonable and unsupportable" and the promissory note was a contingent liability.

It reassessed investors and charged them penalties and interest. The lawsuit accuses McMillan of negligence, alleging it "provided the tax opinions to the promoters which were a necessary prerequisite for the promotion and sale of the units as a tax deductible investments.


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