Interesting article in yesterday’s New York Times, Court Case Gives Rare Look at Tax Shelter Clients:
Promoters of tax shelters zealously guard the names of their wealthy clients. But in mounting an unusual court challenge against an IRS ruling that branded a certain tax shelter abusive and illegal, a promoter of the shelter has had to provide a rare glimpse of the investors who bought into it. The list of those investors, disclosed in filings in federal court in San Francisco, reads like a who’s who of rich Americans…
The investors are clients of Presidio, a firm that sold the tax shelters to allow investors to shield billions of dollars in income and that has gone to court to defend those shelters. Presidio, which worked with the accounting firm KPMG and which maintains that the tax shelter is legal, is seeking to force the IRS to disclose the internal deliberations and legal reasoning behind its decision to ban the tax shelter.
Yesterday, Judge Walker denied Presidio’s motion to depose IRS officials, saying the request was not properly written, but he said the firm could refile its request, which it said it intended to do.
The IRS and the Justice Department oppose Presidio’s efforts, fearing that disclosure could provide ammunition to tax shelter promoters, as well as jeopardize major criminal investigations into the promoters, including KPMG.
The case will be watched closely because it could affect the campaign the IRS has been waging against what it calls abusive tax shelters. The IRS has successfully forced law firms and others to disclose to it — though not publicly — the names of the wealthy investors who bought a variety of abusive shelters. The aggressive moves by the IRS have enabled it to collect billions of dollars in back taxes and penalties from those who used them.
According to calculations from other numbers in the court documents, Presidio arranged 69 partnerships for its wealthy clients, which shielded income totaling as much as $2.4 billion from taxes.
The tax shelter in question is known informally as Son of Boss, or sales option bond strategy. It uses complex partnership structures to produce artificial losses to offset capital gains.
For a view sympathetic to Presido, see here.
