Kligfeld Holdings, Kligfeld Corporation, Tax Matters Partner - Page 11

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          and a joint return for 2000 on April 29, 2001.  Any distributed             
          cash was reported as a nontaxable return of capital rather than a           
          capital gain because the amount of cash distributed never                   
          exceeded the adjusted basis.                                                
               Meanwhile, the IRS began to notice that very large amounts             
          of capital gains seemed to be disappearing from the nation’s tax            
          base via strategies like that of the Kligfelds.  In 2000, the IRS           
          released Notice 2000-44, 2000-2 C.B. 255, which gave notice that            
          Son-of-BOSS transactions were officially “listed,” meaning the              
          IRS would aggressively pursue all taxpayers who had engaged in              
          them.  The IRS reasoned that the transactions didn’t reflect                
          economic reality, and the disregarded liabilities must be taken             
          into account when computing basis.  Without an inflated basis to            
          shade them, the losses flowing from the partnership would wither            
          away, and taxpayers using the Son-of-BOSS strategy would be left            
          with a large tax bill for their now-unsheltered gains.  In June             
          2003, the government issued a summons to the law firm of Jenkens            
          & Gilchrist, which had been promoting the arrangement.  The                 
          summons sought the name and address of every U.S. taxpayer who              
          had pursued the strategy.                                                   
               Kligfeld was among those caught in this summons net.  The              
          Commissioner began examining the entities involved, and in                  
          September 2004, he sent Holdings 2 an FPAA for its 1999 taxable             
          year.  On the same day, he also issued a notice of deficiency to            

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