Saturday, June 12, 2010

Court of Federal Appeals Trashes Son-of-Boss Shelter (6/12/10)

The Court of Appeals for the Federal Circuit called taxpayer foul in yet another Son-of-Boss tax shelter, this time another J&G / Daugerdas team variety. See the Stobie Creek opinion here. The Court found lack of economic substance and lack of business purpose. In effect, as in other shelters, the Court found the shelter, in layman's parlance, to be bullshit.

I write only for a narrow aspect. In rejecting the taxpayer's lament that the trial court had erroneously refused to hear from its expert witness, Stuart Smith, the Court of Appeals said (emphasis supplied):

* * * Smith's proposed testimony consisted of a lengthy legal analysis of past precedent and assumed key factual representations underlying the J & G opinion were accurate, when in actuality they were false (and known to be so by the Welleses).
In these types of opinions, the factual representations are usually the representations of the taxpayer (profit motive, etc.).  If those are the factual representations referred to, this holding is equivalent to a finding that the ultimate taxpayers (either directly or through their lead representatives on the deal) committed the type of conduct that would, at the ultimate taxpayer level, constitute fraud, thus keeping their tax statute of limitations open for ever (per Section 6501(c)(1) or (2)), and thus short-circuiting the brouhaha surrounding the Regulations fix to the 6-year statute of limitations issue. (This is a bottom-line conclusion, for which I do not go into detail, but I discuss some of the details in some of my prior blogs here on civil statutes of limitation.)  And, of course, this type of finding could suggest that a criminal case could be pursued, subject of course to the criminal statute of limitations which likely had expired absent some event refreshing the statute of limitations and subject of course also to the heightened burden of proof in criminal cases.

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