Media Dragon: Tax Heaven and Hell

Heavy are our footsteps this morning ... And my heart goes to Gabbie, Ruby, Lach, Chris, MT, Kim, Kate and others

Melbourne sweating through one of its hottest weeks in 155 years as nation swelters

The ATO's estimate of a $2.5 billion "tax gap" between what big corporates should be paying compared to what they are paying prompts Mr Killaly's interest, who argues it could be a multiple of that figure.

Mr Killaly has a nice anecdote about his view of the Australian Tax Office's role: "You've got to be like a blue heeler constantly going after a creature that's got a mind of its own,and it's big and strong."

Another Bullshit Tax Shelter Bites the Dust (11/14/17)

In Smith v. Commissioner, T.C. Memo. 2017-218, here, the taxpayers implemented and claimed the tax benefits of a tax shelter concocted by a Houston lawyer to shelter their income upon retirement. Professor Bryan Camp has a nice discussion of the gambit and the result in Lesson From The Tax Court: The Power Of Fact-Finding (TaxProf Blog 11/13/17), here, who described it as a "Rube Goldberg scheme," which, he confessed, "I don’t understand how this works even as I am writing it!"

While I, like Professor Bryan Camp, don't profess to understand all the machinations, I think the core idea was for the taxpayers to create a limited partnership in which they directly or indirectly owned all the partnership interests - 98% LP interests and 2% GP interests. They contributed significant cash and marketable securities to the partnership through an interim entity, an S Corporation. The limited partnership was allegedly created for estate planning and preservation reasons. Without the intervention of the S Corporation, that would not be particularly noteworthy. The S Corporation first received the assets and then contributed them to the limited partnership. (I haven't focused on the precise order of those steps, but it is not important.) The S corporation then, in the same year, liquidated.

The machinations resulted in the following:
At the beginning of the process, the taxpayers had the cash and assets;
At the end of the process, the taxpayers had the LP interests and, indirectly, the GP interests; and
Between the beginning and the end the Subchapter S corporation was created and liquidated.
The taxpayers then claimed ordinary loss deductions based on the purported tax results of the S corporation. I confess that I did not spend the time to fully understand exactly how those results worked. Normally, the liquidation of an S corporation generates a capital loss to the extent that the value of the assets distributed is less than the shareholders' basis in the stock. I think, however, that the lawyer pulled of some other sleight of hand to create the appearance of an ordinary loss in the S Corporation that flowed through to the shareholders via the K-1. The ordinary loss was needed to shelter the ordinary income that caused the taxpayers to adopt the "Rube Goldberg scheme" in the first instance. I may not have that right, because, in my mind, it is not critical to the result in the case...

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(20 Nov 2017)

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(20 Nov 2017)

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(20 Nov 2017)

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(20 Nov 2017)

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Company registered at 10 Downing Street in name of Italian mafia boss

(17 Nov 2017)

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