Son of Boss? I'm intrigued


R

Rich Carreiro

Having seen IRS Announcement 2004-46 posted here, I can't
help but be intrigued.

Can anyone inform mere mortals like myself what the heck the
"Son of Boss" abusive tax shelter was and how it got its
name?
 
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D

D.F. Manno

Rich Carreiro said:
Having seen IRS Announcement 2004-46 posted here, I can't
help but be intrigued.

Can anyone inform mere mortals like myself what the heck the
"Son of Boss" abusive tax shelter was and how it got its
name?
Google is your friend:
In 2000, the IRS and Treasury Department shut down the
tax shelter, similar to the banned Bond and Option Sales
Strategy (BOSS). Son of Boss uses a partnership stake and
short sales of options to generate artificial tax losses
that offset an individual's legitimate income, according
to an IRS description. Because some tax consultants
continued to push the strategy, the IRS followed up in
2003 with specific regulations against Son of Boss.
<http://msnbc.msn.com/id/4873985/>

--
D.F. Manno
(e-mail address removed)
"They that can give up essential liberty to obtain a little
temporary safety deserve neither liberty nor safety."
(Benjamin Franklin)
 
W

William Brenner

From "Tax Prof Blog":

"The IRS announced today that taxpayers who invested in the
infamous "Son of Boss" tax shelter can avoid certain
penalties if they come forward by June 21. The IRS estimates
that over 5,000 taxpayers used the shelter to create a
large, artificial loss to offset an unusual, one-time gain
like the sale of a business or stock options. The typical
investor evaded $10-$50 million in taxes, for total tax
avoidance of more than $6 billion, not including interest
and penalties."

Another search revealed that the name "Son of Boss" evolved
from an earlier similar shelter appropriately named "Boss".
Makes sense.

A detailed description of the shelter structure was not to
be found. Perhaps for good reason.
 
E

Ed Zollars, CPA

Rich said:
Can anyone inform mere mortals like myself what the heck the
"Son of Boss" abusive tax shelter was and how it got its
name?
Someone else will have to describe the mechanics of "Son of
BOSS" though as I recall it involved some rather contrived
liabilities and tax indifferent offshore entities (or maybe
that was another one <grin>).

However, it was the successor to the BOSS shelter that the
IRS had previously issued a notice on to say they would
challenge the positions taken. Both were marketed by an
international accounting firm.
 
D

Dan Evans

Rich Carreiro said:
Having seen IRS Announcement 2004-46 posted here, I can't
help but be intrigued.

Can anyone inform mere mortals like myself what the heck the
"Son of Boss" abusive tax shelter was and how it got its
name?
My understanding is that the IRS attacked certain tax
shelter transactions described as "bond and options sales
strategy" (i.e., "BOSS") in Notice 99-59, 1999-2 C.B. 761,
and that later tax shelters with similar structures were
labeled "Son of BOSS" transactions.

But don't ask me how they were supposed to work.

*Dan Evans
*Author of the Tax Protester FAQ
*http://evans-legal.com/dan/tpfaq.html
 
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P

Peter C. Gatto, CPA

Rich Carreiro said:
Having seen IRS Announcement 2004-46 posted here, I can't
help but be intrigued.

Can anyone inform mere mortals like myself what the heck the
"Son of Boss" abusive tax shelter was and how it got its
name?
"Son of BOSS" aka "Baby BOSS" was the progeny of BOSS, "Bond
and Option Sales Strategy" after the forbearer went the way
of the dodo bird after IRS Announcements 1999-59 and
2000-44.

There were variations, but it always came back to "basis
stuffing" in a partnership; i.e., the basis was artificial
and had no economic substance. ACM Partnership v.
Commissioner is the case that broke this tax shelter dyke.

One variation had the taxpayer (TP) simultaneously purchase
call options and write offsetting call options with the same
expiration date that "created" positive basis in a
partnership interest once the options were transferred to
the partnership. Additional amounts would normally be
transferred into the partnership and the partnership would
engage in investment activities. (Business purposes and all
that blah, blah, blah.)

TP's position was that TP's basis in the partnership was
increased by the cost of the purchased call options but not
reduced under §752 by the partnership's assumption of TP's
obligation regarding the written offsetting call options.

TP would then dispose of the partnership interest and claim
a loss in the amount of the purchased call options. If you
assume $10MM for both the purchase of and writing of
options, TP would claim a $10MM loss. Considering the IRS's
statement that the foregone tax revenue is in the billions
of dollars, you can easily see that $10MM or much more was
not an uncommon amount.

Again, there were many "basis stuffing" variations, but the
above was the one that gave rise to the original acronym.
The Son of BOSS transactions merely modified the BOSS
transactions to purportedly fit within the above-mentioned
notices. Once the Service got into promoter files via the
summons process, the various tax shelter strategies came to
light and the Service began issuing tax shelter notices by
the truck load.

This gave rise to the April 2002 deadline for anyone
involved in a "listed transaction" to fess up. The TP also
did not give up their right to fight the Service on the
merits of their particular transaction. If a TP did fess up
they were guaranteed no penalty if they were ultimately
found to not have a sustainable position. Interest, of
course, would still apply.

The rest, as they say, is history.

Peter C. Gatto, CPA


\\
From: (e-mail address removed) (John H. Fisher)
Subject: STRONG FILING SEASON PRODUCES E-FILE RECORDS
Newsgroups: misc.taxes.moderated
Approved: (e-mail address removed)
Distribution: world
Precedence: first-class
Organization: AOL http://www.aol.com

IR-2004-65, May 10, 2004

STRONG FILING SEASON PRODUCES E-FILE RECORDS

WASHINGTON - The Internal Revenue Service released statistics today from
the recently completed filing season that show electronic filing reaching
60 million returns and home computer usage jumping more than 21 percent.

"We saw continued strong growth in the e-filing program this year," said
IRS Commissioner Mark W. Everson. "It seems safe to say that next year we
will reach a milestone with half of all individual returns being processed
electronically."

IRS statistics released today are through April 30, which includes the
flood of April 15 deadline returns. The numbers show a strong filing
season in several categories:

- E-file sets record. E-file reached just under 60 million, a 15.4 percent
increase. That shattered the total number of electronic returns for all of
last year by 7 million.
- Home computer use soars. Self-prepared tax returns that were e-filed by
computer jumped 21.7 percent, topping 14 million.
- Tax professionals go electronic. Tax professional use of e-file jumped
15.8 percent, with 41.7 million filing electronic this year.
- Free File reaches new mark. In its second year, the public-private
partnership between the IRS and a consortium of tax software companies saw
3.4 million taxpayers use the free on-line filing service. That's a 22
percent increase from last year.
- IRS.gov and "Where's My Refund?" usage increases. The IRS web site
continued to see more use from taxpayers this year, including the "Where's
My Refund?" feature. There were more than 19.2 million inquiries to the
on-line service to check on refunds, another record.
- Direct Deposit grows. Nearly 47 million taxpayers chose direct deposit
of refunds this year, an 11 percent increase from the 2003 record.

These numbers will continue to grow through the Aug. 15 extension deadline
and the Oct. 15 deadline for those seeking a second extension.

"This year shows a clear trend line developing with e-filing," Everson
said. "The number of e-filers jumped 15 percent this year. E-file has more
than doubled in size during the past five years."

Everson also noted the Free File program enjoyed a successful second year.
Free File, which remains available through IRS.gov, gives taxpayers free
access to the benefits of online tax preparation and e-filing.

"I'm gratified that Free File showed strong growth," Everson said. "This
is an important program. Free File helps taxpayers in underserved and
disadvantaged communities, and it's working," Everson said.

Each private company sets its own eligibility requirements for the Free
File program. The IRS hosts the Free File Web page, but the online tax
preparation occurs on the companies' Web sites. The companies file the
returns using IRS's secure e-file transmission system.

Everson also praised IRS workers, tax professionals and tax volunteers for
putting in long hours to help produce a strong filing season.

"Their hard work and dedication gave the IRS a smooth, successful filing
season," Everson said.

"Jack" - John H. Fisher - (e-mail address removed)
Philadelphia, Pa - Atlantic City, NJ - West Wildwood, NJ
My Newsgroups & Boards at: http://members.aol.com/TaxService/index.html

Where Ignorance is bliss, 'tis folly to be wise!=:)
 
V

Vince DiChiacchio

Thanks for the references. I looked at Notice 1999-59.

An example is the easiest way to explain my interpretation.
A taxpayer pays $100 into a corporation. The corporation
distributes it back to him, but the taxpayer does not reduce
basis because he has an obligation to pay back the $100.
The corporation is liquidated and the taxpayer takes a $100
loss for his unrecovered basis.

What happened to the $100 obligation? It was paid off by
other corporate assets. The taxpayer is instructed to take
the position that the relief of his $100 obligation is not
income.

So this intricate tax shelter is another way of saying,
"Here is some income. Don't report it. And pay me fees for
this incredible loophole."

Am I missing something here?

Vince, CPA
 
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P

Peter C. Gatto, CPA

Vince DiChiacchio said:
Thanks for the references. I looked at Notice 1999-59.

An example is the easiest way to explain my interpretation.
A taxpayer pays $100 into a corporation. The corporation
distributes it back to him, but the taxpayer does not reduce
basis because he has an obligation to pay back the $100.
The corporation is liquidated and the taxpayer takes a $100
loss for his unrecovered basis.

What happened to the $100 obligation? It was paid off by
other corporate assets. The taxpayer is instructed to take
the position that the relief of his $100 obligation is not
income.

So this intricate tax shelter is another way of saying,
"Here is some income. Don't report it. And pay me fees for
this incredible loophole."

Am I missing something here?
You're not missing anything. You clearly see that the
promoters and accounting firms were instructing their
clients to take mutually exclusive tax positions. That is,
reduce the distribution by the amount of the debt obligation
in year one, but when the debt is repaid in year two, do not
then take that amount into income (thereby resulting in a
"one-sided timing difference").

I don't feel one bit sorry for people who entered into these
transactions. Large corporations had their own tax advisors
who could review the transactions (even if they could not
"take home" the paper explaining the transaction. Their
advisors were sophisticated enough to understand the
underpinnings of the TATs. They played audit roulette and
lost (unless they invested the temporary tax savings and
made so much money as to more than offset the now due taxes
and interest).

For individuals who sold a business for a large gain and
then had their advisors bring the TAT to them, I can feel a
little empathy, but not much. Even with no tax knowledge,
common sense would tell me that I should not be able to take
a $10MM tax loss if I did not have now, or would not have in
the future, a $10MM economic loss. The bad thing for the
individuals is that they would not be keeping up with these
developments and would not have known about the April 2002
opportunity to fess up and get out of penalties if their
position was ultimately not sustained.

I'll get off my soap box now.

Peter C. Gatto, CPA
 

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