[Vision2020] Judge Hands I.R.S. Victory in Tax Shelter
News of Christ Cult
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Mon Dec 31 08:54:18 PST 2007
[image: The New York Times] <http://www.nytimes.com/>
December 27, 2007
Judge Hands I.R.S. Victory in Tax Shelter By LYNNLEY
A civil court has ruled that a popular tax-avoidance scheme known as Son of
Boss was abusive and any deductions claimed for it were invalid, an
important victory for the Internal Revenue
its battle against questionable tax shelters sold to wealthy
The decision, by the United States Court of Federal Claims, covers one of
the most widely used aggressive tax shelters of the late 1990s through
The ruling, issued on Friday and discussed by an I.R.S. spokesman for the
first time Wednesday, also could have significance for Deutsche
the German bank that is under criminal investigation by Manhattan federal
prosecutors over its work with questionable tax shelters that the I.R.S.
considers similar to Son of Boss.
Deutsche Bank officials could not be reached immediately last night for
The ruling, in a case that was closely watched by tax specialists, concerned
an entity known as Jade Trading, which sued the I.R.S in the Court of
Federal Claims in 2003 for a refund after the agency ruled its claims for
tax deductions invalid.
Jade Trading was a partnership controlled by Robert W. Ervin of Sturgis,
Ky., and was used by him and his brothers in 1999 to help offset income
taxes due on $40 million in profit from the sale of their cable television
The Ervin brothers paid fees to the American International
to Sentinel Advisors, an investment firm, among others, for a Son of
Boss shelter that they then used to generate around $40 million in
artificial tax losses.
The 75-page ruling, by Judge Mary Ellen Coster Williams, also said that a
key part of the transaction "was devised and marketed by a tax accounting
group, BDO Seidman's 'Tax Sells' Division, as a tax product, not by an
investment adviser as a vehicle to earn profit."
Son of Boss, which the I.R.S. formally disallowed in 2000 and has never
considered valid for deductions, involves creating artificial losses that
are then used improperly to offset legitimate gains. The scheme is based on
an older shelter, bond and options sales strategy, or Boss.
Mr. Ervin and his partners had tried to claim that they had made $450,000 in
investments that had generated $40 million in losses.
Judge Williams's ruling said that the losses claimed by Mr. Ervin and his
partners were "purely fictional."
She further wrote that the transaction's "fictional loss, inability to
realize a profit, lack of investment character, meaningless inclusion in a
partnership and disproportionate tax advantage as compared to the amount
invested and potential return, compel a conclusion that the spread
transaction objectively lacked economic substance."
One definition of an abusive tax shelter is a tax-motivated transaction that
lacks economic substance.
By 2005, the I.R.S. had persuaded more than 1,200 people who bought Son of
Boss tax shelters to come forward and pay $3.7 billion in taxes owed or risk
being prosecuted by the government. The government can be expected to use
the ruling in this case to pressure additional taxpayers to settle.
Tax shelters similar to Son of Boss are at the center of the government's
criminal case against former employees of the accounting firm KPMG. That
case, which federal prosecutors once billed as the largest tax fraud case in
history, has faltered since the judge dismissed charges against 13
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