New York Times:  Many Moons Later, the IRS Questions a Tax Deal, by Gretchen Morgenson:

The IRS works in mysterious ways. Its wheels grind slowly, but grind they do, as seen in the case of Fairfax Financial Holdings of Toronto.

Close readers of this column may recall that Fairfax, an insurer, received a sweet $400 million tax benefit through a complex
transaction that ran from 2003 to 2006. Tax experts have questioned the
deal for years, but Fairfax has defended it — as it did in this space in March.

Then, in a bolt from the blue, the IRS issued an opinion in June. In a
memorandum providing generic legal advice to IRS agents [AM 2012-007 (June 27, 2012)], the service
sided with the skeptics. It said that the terms of the transaction
failed the most basic test required under tax laws to generate the $400
million benefit. …

Robert Willens, an authority on accounting and tax law in New York, is among the
skeptics on the transaction. Writing about the deal in Tax Notes in
2009 [Synthetic Consolidation: Tne Next Big Thing, 123 Tax Notes 1013 (May 25, 2009)], Mr. Willens said it had no business purpose and was “flawed” for
the reasons recently cited by the IRS Fairfax criticized him and his
article, calling it false and misleading.

In an interview last week, Mr. Willens said the legal advice published
by the IRS was a surprise after all these years. Where it might lead
is anybody’s guess.

(Hat Tip:  Ann Murphy, Mike Talbert.)