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IRS Wins Battle Over Tax Shelter

by Glen Shapiro, LawAndTax-News.com, New York

01 January 2008


Ruling on December 21, the United States Court of Federal Claims found in favor of the Internal Revenue Service, announcing that the so-called 'Son of Boss' tax shelter was an abusive scheme, and that any deductions claimed under it should therefore be disallowed.

The closely-watched case involved Jade Trading, which in 2003 took legal action against the US tax authority after it ruled that millions of dollars in artificial tax losses were not valid.

Delivering her verdict on the matter earlier this month, Judge Mary Ellen Coster Williams suggested, according to a New York Times report, that the losses being claimed by Jade Trading's principal, Robert Ervin and his brothers, who were his business partners at that time, were "purely fictional".

"In sum, this 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," the Judge was further quoted by Reuters as observing.

The decision is expected to have implications for other, similar cases, including one involving Deutsche Bank.


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