Judge Fines Investment Fund for Avoiding Taxes

In a decision that observers are calling a significant victory in the fight against abusive tax shelters, a federal judge has ruled that Long Term Capital Management used bogus transactions to avoid $40 million in taxes.

Long Term Capital Management, the now-defunct investment firm that received a $3.6 billion bailout, wrongly claimed about $106 million in tax deductions in 1997, Judge Janet Bond Arterton of U.S. District Court in Connecticut ruled Friday.

The Internal Revenue Service was correct to reject the deductions, the judge ruled, because they had no real economic value. The company's transactions involved selling stock and deducting 100 times its value. The back taxes, penalties and interest could bring the fund's tax bill to $75 million, the Washington Post reported.

The judge, in her decision, said the company prepared its tax return in an attempt to hide some losses and “thereby potentially win the audit lottery and evade IRS detection."

Experts told the Post that the government could not “win” the case unless penalties were imposed. Charles P. Hurley, the IRS lawyer who led the government's case and is now in private practice, said in an interview that companies may be discouraged from engaging in complicated, technical transactions that create losses only on paper.

"It's just one decision," he said. "But I think it's a decision that a lot of people were paying attention to and has the potential to influence people on both sides of the fence" on the issue of tax shelters.

You may like these other stories...

IRS must take oath on Lerner emails: judgeMackenzie Weinger of Politico reported on Thursday that a federal judge ordered the IRS to explain under oath how it lost emails connected to Lois Lerner, the ex-IRS official at the...
The Republican-controlled House of Representatives passed a bill on Friday morning that would permanently extend the bonus depreciation tax break for businesses.The measure, HR 4718, which was crafted by Representative Pat...
The Republican-led House of Representatives is expected to pass a bill this week that would permanently extend the bonus depreciation tax break. But don’t expect President Obama to sign it.The Obama administration said...

Upcoming CPE Webinars

Jul 16
Hand off work to others with finesse and success. Kristen Rampe, CPA will share how to ensure delegated work is properly handled from start to finish in this content-rich one hour webinar.
Jul 17
This webcast will cover the preparation of the statement of cash flows and focus on accounting and disclosure policies for other important issues described below.
Jul 23
We can’t deny a great divide exists between the expectations and workplace needs of Baby Boomers and Millennials. To create thriving organizational performance, we need to shift the way in which we groom future leaders.
Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.