Paul L. Caron

Saturday, April 18, 2009

Son of the Boss and the Troubling Legacy of Colony, Inc.

Matthew Roche (J.D. 2009, Catholic) has published Comment, Son of the Boss and the Troubling Legacy of Colony Inc. v. Commissioner of Internal Revenue, 58 Cath. U. L. Rev. 263 (2008). Here is the abstract:

This Comment focuses on the IRS's statute of limitations as it applies to a notorious tax shelter, the Sales Option Bond Strategy, also known as the "Son of Boss" tax shelter. The Son of Boss tax shelter produced an artificial income tax deduction, by using an overstated basis in partnership interests to create artificial losses in order to offset unrelated capital gain. In 2000, the IRS declared Son of Boss shelters "Abusive tax shelter transactions" and shut them down. In 2004, the IRS issued a settlement offer to participants of the tax shelter, allowing them time to disclose their participation and pay their claimed losses with a small penalty. A number of taxpayers complied with the settlement offer, but those who did not have sued the IRS and claim that deficiency notices issued to them are unenforceable because they have been issued after the Internal Revenue Code's statute of limitations has expired.

This Comment commences in Part I by considering whether the Supreme Court's holding in  Colony, Inc. v. Commissioner ultimately precludes courts from treating overstated basis in a partnership's tax return as an omission of gross income when Son of Boss tax deficiencies were issued after the Tax Code's statute of limitations. Part I also examines the newly enacted statute of limitations period for listed transactions passed under the American Jobs Creation Act. Part II then focuses on the various approaches lower courts have taken when applying Colony's holding. Part III argues that lower courts may not be bound by Colony due to newly enacted amendments to the Tax Code and specifically contends that § 6501(e)(1)(A)(ii)  will often provide a basis for applying the statute's longer limitations period. Finally, this Comment argues that Congress should amend § 6501(e)(1)(A) to include overstated basis as a method of omitting income.

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