Lance Drury Law
Ste. Genevieve 573-883-3056
Columbia 573-886-8900
St. Louis 314-200-0003

Tax Shelters at Risk With IRS Appeals Court Victory

The subject of tax shelters and financial transactions meant to reduce taxable income has been a perpetual source of contention between taxpayers and the IRS.A recent and prominent case, Superior Trading LLC et al. v Commis-sioner of Internal Rev-enue, No. 12-3367, tipped the issue in favor of the IRS. In a hit to taxpayers seeking to reduce taxes through some types of distressed asset/debt ("DAD") transactions, the Seventh Circuit Appeals Court in Chicago, IL sided with the IRS.The court ruled that such transactions are not legitimate tax shelters. Using such financial engineering in an attempt to reduce taxable income will very likely result in the original tax and additional penalties owed to the IRS. This is not the first time that the IRS won such cases.This appeals court decision is likely to influence an up-coming Supreme Court case about a similar question in “United States v. Woods.” The Supreme Court is scheduled to hear arguments in October 2013.In both instances, the issue at hand is whether DAD transactions generate “economic value” that can be compared to tax-deductible business losses. Economic value is contrasted with financial operations that have no purpose or no relation personal or business operations.Rather, transactions absent economic value are done for no other purpose than to generate a tax shelter of questionable legality.Critically, Superior Trading LLC’s transac-tions were found to be outside the scope of “economic value,” thus taxable. The IRS was judged to be within its bounds of authority to impose additional fines on top of the original tax that Superior Trading LLC unsuccessfully tried to avoid.The Supreme Court issued a statement ac-knowledging that though the IRS often wins these types of cases, the issue is not black-and-white. Importantly, in 2007 the IRS ruled that DAD transactions could be construed as tax shelters.It is interesting to note that the attorney for Superior Trading et al. was barred from pro-moting tax shelters after the DOJ found that he promoted over $370M of invalid tax deductions for previous clients. 

As Seen On

NBC ABC Fox News Channel USA Today BIO - The Biography Channel CBS
NBC ABC Fox News Channel USA Today BIO - The Biography Channel CBS

Schedule a No Obligation Tax Consultation

Contact us today and get relief from your tax burden. You can also receive a FREE chapter from the best-selling book, Protect and Defend, just by requesting it from the form below.

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

close

Privacy Policy

The Law Firm of Lance R. Drury
150 Merchant Street
Ste. Genevieve, MO 63670

Phone: 314-200-0003
Fax: 573-883-3095
Ste. Genevieve Law Office Map

St. Louis Office
3636 South Geyer Road, Suite 100
St. Louis, MO 63127

Phone: 314-200-0003
Fax: 314-238-7201

Columbia Office
3610 Buttonwood Drive, Suite 200
Columbia, MO 65201

Phone: 573-886-8900
Fax: 573-886-8901

Facebook Twitter You Tube Linked In Rss Feed
Review Us

Back to Top

"The choice of a lawyer is an important decision and should not be based solely upon advertisements."

- Lance

Privacy Policy | Business Development Solutions by FindLaw, a Thomson Reuters business.