IRS Probes Memphis Tax Shelter

by Leroy Baker, Tax-News.com, New York

18 July 2003

The campaign by the taxing authorities in the United States against tax shelters continues unabated as the Internal Revenue Services probes a scheme using a Tennessee-based investment company.

According to Bloomberg, filings held in the regulator's offices in Washington reveal that officers of 24 publicly traded companies including Eli Lilly chairman Sidney Taurel and former Sprint chairman William Esrey bought the tax shelter schemes.

"The partnerships that used this strategy are under scrutiny right now," David Van Wie, co-founder of InterTrust Technologies Corp. who invested $8 million in a shelter told Bloomberg. "At this point I'd be crazy not to be worried about it," he added.

The shelters used partnerships created by Bolton Capital Planning of Memphis and invested in currencies, interest-rate swaps, and options linked to the performance of the S&P 500. The partnerships hoped to generate losses during their first year and profits during subsequent years. This allowed those who invested in the shelters to offset other forms of income, such as stock option gains.

The particular shelter being investigated by the IRS delays tax payment by converting income earned from stock option profits into capital gains, cutting the then tax rate from 39.6% to 20%.

However, the 80 executives and businesspersons who are said to have purchased the scheme during 2000 and 2001 are now facing tax bills that could run into millions of dollars as a result of the IRS audits.

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