Calvin H. Johnson (Texas) has published Johnson Doesn’t FLIP for Davis Argument, 109 Tax Notes 137 (Oct. 3, 2005), also available on the Tax Analysts’ web site as Doc 2005-19716, 2005 TNT 191-35:

In Tales From the KPMG Skunk Works: The Basis-Shift or Defective Redemption Shelter, 108 Tax Notes 431 (July 25, 2005) [blogged here], I argued that KPMG’s FLIP shelter did not work, even at its starting technical argument. When UBS redeemed stock from the set-up Cayman Island entity (Cayman), Cayman had a sale or exchange and not a dividend under section 302, so that no shift of Cayman’s $100 million basis to the U.S. taxpayers trying to buy $100 million shelter in shelters was possible. KPMG avoided indictment, but not because of the merits of their tax shelters. KPMG was selling junk, at the $100 million loss level, not only because the various substance-over-form rules were fatal, but also because there was nothing to their legal argument from the get-go.

John F. Prusiecki of Chicago defended the FLIP in a letter to the editor (108 Tax Notes 1475 (Sept. 19, 2005), arguing the sale or exchange treatment for Cayman "is simply not the law." I reject his reliance on United States v. Davis, 397 U.S. 1071 (1970), and his conclusion.