 |
| |
Court
Decision Handcuffs IRS on Tax Shelters
NYSSCPA.org E-zine Staff
NEW ORLEANS -- A federal appeals court ruling involving Compaq Computer could make it harder for the Internal Revenue Service to eliminate many corporate tax shelters, The New York Times reported Thursday.
The Times quoted some tax experts who predicted that tax shelter promoters would quickly take advantage of the ruling to fashion new shelters for corporations to shed billions of dollars in taxes.
"This is disastrous" for the integrity of the tax system," said David A. Weisbach, a University of Chicago law professor who has argued in several articles that Congress must prevent corporations from using a patina of legitimacy to justify tax shelters.
Compaq itself agreed that the ruling narrows the definition of prohibited tax shelters.
"That seems to be the gist of the decision," said Ben K. Wells, treasurer of the company, whose tax shelter was upheld in a ruling by the United States Court of Appeals for the Fifth Circuit in New Orleans.
The ruling greatly narrows the sort of deals that the IRS can disallow as having no purpose besides tax avoidance.
Federal law allows companies to cut taxes when they engage in legitimate deals but not when tax savings are the sole purpose. The court, agreeing with Compaq, said its deals involved risks, however tiny, of profit or loss and, therefore were legitimate business transactions for tax purposes.
None of the transactions affected by the court's ruling involved individuals. The ruling, issued on Friday and published yesterday in the journal Tax Notes, overturned a 1999 United States Tax Court decision that Compaq had improperly reduced its 1992 income tax bill through a series of huge, rapid-fire stock trades.
In 46 trades, Compaq bought, and then immediately sold back, more than $900 million of Royal Dutch/ Shell stock in one hour on Sept. 16, 1992. The trades were intended to let Compaq receive a tax credit for Dutch taxes on Shell dividends. Compaq, which did not have to pay these taxes, used the credit to reduce its American income taxes by $2.7 million, the court said.
Compaq says it was a minor customer of the tax shelter promoter, Twenty-First Securities, a New York investment boutique that helps investors reduce taxes.
E-zine Front Page | NYSSCPA.org Home Page
