Jones on The Venerable Firms Behind Santa Monica Pictures

Darryll K. Jones (Pittsburgh) has published The Venerable Firms Behind Santa Monica Pictures, 109 Tax Notes 257 (Oct. 10, 2005), also available on the Tax Analysts web site as Doc 2005-19506, 2005 TNT 196-27. Here is part of the Introduction:

The saddest and most frustrating aspect of Santa Monica Pictures LLC v. Commissioner, T.C. Memo. 2005-104 (May 11, 2005), is not that the opinion is 322 pages long with 227 footnotes. It is not even that the opinion, despite its overwhelming verbosity, provides scant precedential guidance given the incredible stupidity of some allegedly smart people. It is instead that the opinion represents a painstakingly detailed record of moral and ethical breakdown among leaders and well-heeled members of our tax profession. In fact, representatives of nearly every sector of the tax profession have some responsibility for Santa Monica Pictures' sordid story of arrogant greed and laughing irresponsibility. Those include Harvard Law School, the U.S. Tax Court, the IRS, accounting firm Grant Thornton, and, most especially, such "venerable" law firms as O'Melveny & Meyers; White & Case; Shearman & Sterling; Chamberlain, Hrdlicka, White, Williams & Martin; and Kaye, Scholer, Fierman, Hayes & Handler.

After reading the opinion, the rest of us ought to resolve once and for all that tax sheltering is theft, pure and simple, despite the white- collar professionals who perpetuate the practice. Those who practice in tax shelters are involved in a conspiracy to steal and Santa Monica Pictures represents the worst kind of attempted grand theft. If you are one of those members of our profession who likes to pontificate about "business purpose" and "step transactions" without naming the polite perpetrators who make such sophistry as "substance over form" worth talking about, you probably should not read this month's column. The Santa Monica perpetrators, named in the opinion and in this column, were absolutely adept at the practice of smoke and mirrors and at the same time so obviously and transparently corrupt. Even those praised for their "credibility" were complicit in the scheme. Sadly, those suspects may well represent living metaphors for the entire profession.