U.S. Supreme Court Hears Case to Decide Whether Federal Government Can Access a 40% Penalty Against Taxpayers who used Abusive Tax Shelters Before 2010 – Los Angeles Income Tax Planning and Income Tax Litigation Attorney Bruce Givner

by Bruce Givner on June 11, 2013

The U.S. Supreme Court will hear arguments next October in a case which will determine when, if ever, the federal government can impose a 40% penalty on pre-2010 taxpayers who use abusive tax shelters. United States v. Woods, 12-562.

Billy Joe “Red” McCombs is the co-founder of Clear Channel Communications Inc. and the former owner of the Minnesota Vikings and San Antonio Spurs. In 1999, McCombs, and his business partner, Gary Woods, used a tax shelter strategy known as "current options bring reward alternatives,” aka COBRA, to offset real gains with $45 million in paper losses. Essentially, McCombs and Woods sold options on foreign currencies to generate paper losses. The foreign currency transactions that generated the losses only cost $1.37 million.

When it disallowed the losses, the Internal Revenue Service (IRS) imposed a 40% penalty on the increased tax. However, the 5th Circuit Court of Appeals ruled that the 40% penalty did not apply. The IRS appealed to the U.S. Supreme Court.

In 2010, Congress passed the Health Care and Education Reconciliation Act which slapped a 40% penalty on tax shelters such as COBRA. In many lower courts, however, pre-2010 cases, such as Woods, are in limbo over whether the 40% penalty applies.

Givner & Kaye focuses on sophisticated income tax planning and compliance, tax litigation and procedure, estate planning, and asset protection plans for individuals and businesses in Beverly Hills, Calabasas, West Los Angeles, Hollywood, and other areas of Los Angeles, Orange, Ventura, San Bernardino, Riverside and Santa Barbara Counties. Call Los Angeles Estate Planning and Asset Protection Plan Attorneys Givner & Kaye at (310) 207-8008 today.

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