Who are the investors in this shelter that has the IRS prosecuting? Well know corporate entities, and owners.

Date:   6/11/2005 10:10:38 AM ( 19 y ago)

Court Case Gives Rare Look at Tax Shelter Clients
Ed Andrieski/Associated PressJoseph P. Nacchio, the former chief executive of Qwest Communications International, was one of those who invested in illegal tax shelters, according to court papers filed by Presidio, the firm that sold the shelters.

By LYNNLEY BROWNING
Published: June 11, 2005
Promoters of tax shelters zealously guard the names of their wealthy clients. But in mounting an unusual court challenge against an Internal Revenue Service ruling that branded a certain tax shelter abusive and illegal, a promoter of the shelter has had to provide a rare glimpse of the investors who bought into it.

The list of those investors, disclosed in filings in federal court in San Francisco, reads like a who's who of rich Americans, including Edward S. Lampert, the hedge fund billionaire and chairman of Sears Holdings; Paul and Maurice Marciano, the founders and co-chairmen of the Guess clothing company; Gary C. Wendt, the former General Electric and Conseco executive; and Bill Simon Jr., who ran for governor of California in 2002.

The investors are clients of Presidio, a firm that sold the tax shelters to allow investors to shield billions of dollars in income and that has gone to court to defend those shelters. Presidio, which worked with the accounting firm KPMG and which maintains that the tax shelter is legal, is seeking to force the I.R.S. to disclose the internal deliberations and legal reasoning behind its decision to ban the tax shelter.

The I.R.S. is normally prohibited from identifying individual taxpayers, unless it sues them in federal court. But the judge in this case, Vaughn R. Walker, required Presidio to identify those who bought tax shelters from it.

Yesterday, Judge Walker denied Presidio's motion to depose I.R.S. officials, saying the request was not properly written, but he said the firm could refile its request, which it said it intended to do.

The I.R.S. and the Justice Department oppose Presidio's efforts, fearing that disclosure could provide ammunition to tax shelter promoters, as well as jeopardize major criminal investigations into the promoters, including KPMG.

The case will be watched closely because it could affect the campaign the I.R.S. has been waging against what it calls abusive tax shelters. The I.R.S. has successfully forced law firms and others to disclose to it - though not publicly - the names of the wealthy investors who bought a variety of abusive shelters. The aggressive moves by the I.R.S. have enabled it to collect billions of dollars in back taxes and penalties from those who used them.

According to calculations from other numbers in the court documents, Presidio arranged 69 partnerships for its wealthy clients, which shielded income totaling as much as $2.4 billion from taxes.

The tax shelter in question is known informally as Son of Boss, or sales option bond strategy. It uses complex partnership structures to produce artificial losses to offset capital gains.

The Justice Department, in court filings, calls these tax shelters "a sham." The I.R.S., which has never considered the shelter valid for deductions, declared it illegal in September 2000. The agency said yesterday that more than 1,200 investors in the shelters had come forward under an unusual settlement offer and paid more than $3.7 billion in back taxes, interest and penalties.

Presidio, a financial services and advisory firm based mainly in San Francisco and Houston, has been under scrutiny in the government's clampdown on abusive shelters. It is being investigated by a federal grand jury in Manhattan, which is also looking at the possible role of KPMG in tax shelter abuses.

Both KPMG and the law firm now known as Sidley Austin Brown & Wood provided legal opinions to investors blessing the tax shelters.

Presidio has said that it is cooperating with other government investigations of its tax shelter work. It is a defendant, along with KPMG and several prominent law firms, in at least a dozen civil lawsuits filed by disgruntled tax shelter investors.

None of those challenges have stopped Presidio from testing how the tax code's ambiguities and complexity stand up in a federal court.

It filed more than a dozen lawsuits against the I.R.S. in October and in March after the agency told it that its role in 1999 in creating, setting up and selling these shelters to dozens of investors had put it afoul of the tax code.

Steven Bauer, a lawyer for Presidio, said Thursday, "We're asking a court of law to rule whether the tax results were appropriate under the law as it existed at the time. "

He asserted that the shelters sold by Presidio were different from the Son of Boss shelters, in that the Presidio shelter, known as blips, "has economic substance" regarding the foreign currency bets that the firm made through Deutsche Bank and that produced losses for investors. The I.R.S., however, considers the two types of tax shelters essentially the same.

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