Calvin H. Johnson (Texas) has a busy day, as he is making two presentations today at Northwestern:

1.  Righteous Anger at the Wicked States: The Meaning of The Founders’ Constitution (Cambridge University Press, 2005), as part of Northwestern’s Faculty Workshop Series:

Righteous Anger of the Wicked States is a history of why the U.S. Constitution was adopted. The most pressing need was to allow the federal government to tax to pay off the debts of the common defense. The Constitution went far beyond the immediate fiscal needs to create a supreme, three-part national government. The book argues that the Founders’ anger at the states for their recurring breaches of duty to the united cause explains both critical steps and the driving impetus for the revolution.

12:00 p.m. CST in RB 239 (Faculty Commons) at Northwestern Law School.

2.  Tales From the KPMG Skunk Works: The Basis-Shift or Defective-Redemption Shelter, 108 Tax Notes 431 (July 25, 2005), as part of Northwestern’s Advanced Topics in Taxation Series organized by David Cameron and Philip Postlewaite:

In this report, Johnson argues that the basis-shift or defective-redemption shelter, called FLIP or OPIS by KPMG, was an early product of KPMG’s endeavor to develop complete tax packages that could be sold for multimillion-dollar fees to many customers. The FLIP/OPIS shelter gives a rare opportunity, he says, to see both KPMG internal deliberations and also the profession’s many independent evaluations. KPMG said the shelter was likely to prevail, Johnson writes, but the tax profession has reached a consensus that the shelter did not meet professional standards, shown by its acceptance of the IRS’s generous settlement offer.

In the FLIP/OPIS shelter, Johnson says, a Cayman Islands straw entity borrowed from a foreign bank, bought the bank’s stock, and was redeemed out of the stock a few weeks later. The technical claim was that the basis of the Cayman Islands straw could not be used in the redemption, but was shifted to stock held by a related U.S. taxpayer to produce a large artificial tax loss for that taxpayer. Johnson argues that the basis did not shift, in part because the Cayman Islands entity did not recapture any significant fraction of the redeemed shares, so that the redemption was not "essentially equivalent to a dividend." Johnson also argues that various substance-over-form doctrines prevent the loss: Non-bona-fide losses are not allowed; transactions without expectation of pretax profit are not respected; accounting that does not clearly reflect income can be defeated by the IRS; and the step transaction doctrine applies. Prof. Johnson is unwilling to speculate as to how broadly the lessons learned from FLIP/OPIS describe the current professional culture.

4:00 p.m. CST in RB 339 at Northwestern Law School.