Tuesday, September 25, 2012
Forbes: Judge Shoots Down Another Forbes 400 Member's Tax Shelter, by Janet Novack:
A California federal district court judge on Friday rejected, on summary judgment, a bid by billionaire Broadcom co-founder Henry Nicholas, III, to claim hundreds of millions in tax losses from a shelter marketed more than a decade ago by myCFO, Inc. the wealth advisory firm started by Forbes 400 member James Clark, co-founder of Netscape, and backed by venture capitalist John Doerr. [Broadwood Investment Fund LLC v. United States, No. 08-0295 (C.D. CA Sept. 21, 2012).] An attorney for Nicholas, BakerHostetler partner Jeffrey H. Paravano, said Monday that Friday’s ruling will be appealed.
The Nicholas case involves what the IRS has branded the distressed asset/debt or “DAD” shelter. In this ploy, a U.S. taxpayer purchases (through a partnership) junk foreign debt for pennies on the dollar and then claims big paper tax losses—losses that are real, but that were sustained by a foreign lender, not the U.S. taxpayer. DAD was marketed to the ultra-wealthy in 2001 and 2002 after the IRS began cracking down on even more brazen tax gambits, such as the notorious Son of Boss shelter. New 400 member Shahid Khan, owner of the NFL’s Jacksonville Jaguars, is currently suing BDO Seidman for, among other things, selling him DAD shelters for both 2002 and 2003. In October 2004, Congress changed the tax code to bar partnerships from being used to transfer foreign losses to U.S. taxpayers, thus clearly outlawing DAD after that point.