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transaction referred to as Bond Linked Issue Premium Structure or
BLIPS.
The Adkisons separated in December 1999 and were divorced in
late 2001.
In 2002, in response to an Internal Revenue Service (IRS)
announcement soliciting taxpayers to disclose their participation
in certain tax shelter transactions, the Adkisons informed the
IRS that they participated in the BLIPS transaction through
Shavano during 1999. During 2003, the IRS began an examination
of the Adkisons’ 1999 tax return.
In 2004, petitioner submitted to the IRS an election to
participate in a settlement program pertaining to the Shavano tax
shelter transaction. Although the parties attempted to draft a
final closing agreement with regard to petitioner’s tax liability
for 1999, the negotiations failed when petitioner requested that
the closing agreement include language stating that petitioner
was entitled to relief pursuant to section 6015(c), which
provides that taxpayers filing a joint return may seek an
allocation of the tax liability associated with the return. In
October 2004, petitioner remitted to the IRS $2.5 million to be
posted as a cash bond against his tax liability for 1999.
On December 21, 2004, respondent sent a Notice of Final
Partnership Administrative Adjustment (FPAA) to Shavano for its
taxable year ended December 21, 1999. In May 2005, a partner
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