Kornman & Assoc., Inc. v. United States 527 F3d 443 (5th Cir. 5/12/08). In Kornman, the Fifth Circuit held that a variant of the son-of-Boss tax shelter lacked economic substance, noting that the obligation to close a short sale position was a “liablity” under the partnership tax law (IRC Sec. 752).
Carlos E. Sala et ux. v. United States No. 05-cv-00636-LTB (D. Colo. Apr. 22, 2008). In Sala, the government lost a son of Boss tax shelter case in which the District Court decided there was a business purpose for the stock trading pattern engaged in by the taxpayer. Clearly caught off guard by the decision, the government is studying whether to appeal the case.
Cemco Investors, LLC v U.S. (7th Cir. 2/7/08) No. 07-2220. In Cemco, the 7th Circuit expressly rejected the son-of-Boss theory that a contingent liability does not reduce the basis in a partnership interest. The court also upheld a 40% gross valuation understatement penalty.
Jade Trading, LLC v U.S. (Ct. Claims 12/21/2007) No. 03-2164T, 2007 U.S. Claims LEXIS 405. The Court of Claims struck down a son-of-Boss tax shelter, based on a lack of economic substance and imposed a 40% gross valuation understatement penalty.
Klamath Strategic Investment Fund LLC v U.S. (Dist. Court, Eastern District of Texas, 1/31/2007) No. 5:04-cv-00278. The Federal District Court held the son-of-Boss transaction was a sham and lacked economic substance. The court refused to imposed penalties based on the IRS regulation affecting contingent liabilities. The court in Cemco Investors stated the Klamath Court was wrong in its interpretation of the regulations.Recent Court of Appeals Cases
Petaluma FX Partners v CM 591 F 3d 649 (CA DC, 2010) A Son-of-Boss tax shelter lacked economic substance and was disregarded for tax purposes
Napoliello v CM 655 F3d 1060(9th Cir, 2011) A Son-of-Boss tax shelter using foreign currency options was rejected.
BCP Trading & Investments LLC v IRS The 2021 ruling marked the latest in a saga involving IRS tax adjustments to a partnership, BCP Trading & Investments LLC, for tax years 2000 and 2001. The decision affirmed a U.S. Tax Court ruling that sided with the IRS, which had concluded that the scheme involved a Son-of-BOSS tax shelter. These shelters involve taxpayers transferring assets with significant liabilities to a partnership in situations that can enable partners to claim large losses on their individual tax returns.