Friday, January 11, 2013

Court of Appeals for the D.C. Circuit Rejects Another BullShit Tax Shelter (1/11/13)

In Consolidated Edison Company of New York v. United States,  703 F.3d 1367 (Fed. Cir. 2013), here, the D.C. Circuit rejected another bull shit tax shelter.  This opinion was presaged in Wells Fargo & Company v. United States, 91 Fed. Cl. 35 (2010), discussed in a prior blog, Court Finds Tax Motivated Transactions are Bullshit (Federal Tax Crimes Blog 1/11/10), here.

I previously described the trial court opinion as " a major, if perhaps temporary, victory."  DC Circuit Discusses Cost / Benefit Analysis for Tax Evasion (Federal Tax Crimes Blog 11/9/09), here.  (In that blog I cite readers to the D.C. Circuit's discussion of cost-benefit analyses in hokey tax shelters and related scams in Mayer Brown LLP v. IRS, 562 F.3d 1190 (D.C. Cir. 2009), here.  This latter case was an attempt by Consolidated Edison's lawyers to get information from the Government that it imagined might help in its and related litigation.  It did not work, perhaps because the underlying genre of shelter had an odor piscatorial, although that particular iteration had not yet been called foul by the D.C. Circuit.  Now it has been called foul.

I have said before that, when major companies hide bull shit behind smoke and mirrors, I don't understand why that is not criminal behavior.  The smoke and mirrors in this and related cases had no real purpose of than hiding the fact that there was no real deal there.  Is this just a different package for the type of ploy that drew criminal penalties in Son-of-Boss?

And, since we spend a lot of time on this blog on offshore conduct, I ask readers to consider whether the conduct of corporations, individuals and others who enter these bullshit tax shelters with the intent to hide them from the IRS are any more praiseworthy than the majority of those with offshore accounts?  Yet, they are not having to give up high percentages of their net worth.  All they are doing is paying the tax they already owed after the IRS lucked into finding the shelter and perhaps some penalty, but not much in terms of the culpability of the conduct.  Shame on the IRS, and shame on Congress for allowing it.


  1. Great headline! :)

  2. In one of my first classes at NYU with Prof. James Eustice (of Bittker & Eustice fame), I had the timerity to question the analytical underpinning of an incongrous decision of the Federal Court of Claims. Prof. Eustice stared at me and with a snigger rhetorically asked: "Do you expect me to explain the Dark Hole of Federal taxation?" Having read the decision of the Claims Court in Con Ed., it is clear the Dark Hole is alive and well.

    To your comment though, in my opinion this was criminal--there was no deal and the LILO was entirely driven by tax considerations, with a thin (what else could there be without putting real dollars at risk) business rationale strapped to that objective after the fact.

    My question though is why the lawyers who defend such nonsense, reiterating the nonsense in that process, are not sanctioned by intelligent Federal judges? And why did the court not impose severe penalties as the First Circuit did in the Egan case, which you blogged on previously? No wonder there is little to no faith in the USGOV when the Federal courts are sanctioning egregious behavior either affirmatively or by inaction.

    Can you enlighten this bewildered soul?

  3. My only response is to quote the master: "Do you expect me to explain the Dark Hole of Federal taxation?"

    Think of the millions of dollars wasted in conceptualizing and implementing this bullshit, then burying it on the return in the hopes that it would not be caught, then by the IRS in catching it and bringing the taxpayer to task, and then in litigating it (costs by the IRS and DOJ, the taxpayer (for which the public shared the cost through tax deductions), and by the court system in dealing with the bullshit).

    Judge Saylor in Egan got it right - sanction the bastards!

    And, even the Code civil sanctions are not nearly strong enough to punish and discourage this behavior. Of course, the criminal sanctions should have been deployed and such behavior really would have been discouraged.

    The IRS and this Congress treat offshore account holders shabbily in comparison to the master minds -- that's an oxymoron -- of these bullshit shelters. Damn shame.

    Thanks for your comment.

    Jack Townsened

  4. Damn shame indeed,

  5. Tax evaders don't have the corner on the market of bullshit. The US's claim to tax expats is bullshit. The IRS claim to the right to assess penalties against unreported bank accounts of Canadian residents is bullshit. Shall I continue? All this to say that I rather sympathize more with the tax evaders who come up with bullshit to avoid taxes than the tax collectors who are full of absolute bullshit. The enemy of my enemy is my friend.


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