Saturday, January 5, 2008

End of a Tax Shelter

"The government notched a victory in a high-profile tax-shelter case, as the U.S. Court of Claims ruled that a so-called Son of Boss transaction was an abusive effort to avoid paying taxes. ... 'Son of Boss' is a catch-all term used to describe a variety of transactions that involve transferring an asset, plus some type of offsetting liability, to a partnership in order to increase the cost basis, for tax purposes, in the partnership. ... To offset the expected tax bill, the brothers purchased a $15 million option and then simultaneously sold an option for nearly the same amount. They contributed both legs of the option transaction to a limited liability corporation. After exiting the partnership, they claimed they had a tax basis of roughly $15 million, ignoring the call option they had sold. .. "The most significant aspect of the court's decision is that it analyzed whether the transaction could make money in excess of the fees and determined that it could not,' said Brian Skarlatos, a tax-controversy attorney at Kostelanetz & Fink, LLP", WSJ, 27 December.

In 1999 partners of two of the now seven largest CPA firms alerted me to this scheme and asked me to peddle it to my clients. I looked at it and said something to the effect: "Do you think after the silver straddle deals of the early 1980s, this can fly"? The stuff that is sold sometimes amazes me.

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