Court Rules Against Mississippi Businessman’s Tax Shelter Promoted by KPMG
May 4th, 2010
U.S. Department of Justice
A federal court in Jackson, Miss., has ruled in favor of the United States involving a businessman’s attempt to use a KPMG- marketed tax shelter to avoid paying income tax on approximately $18 million in capital gains. According to the opinion, in 2001, J. Kelley Williams of Jackson became aware that he would have $18 million in capital gains from one of his investments. His KPMG accountant suggested that he use a marketed tax shelter strategy by the name of “Family Office Customized” or “FOCUS” to avoid paying tax on that gain. The tax shelter involved a series of preplanned steps using foreign currency straddles and a three-tiered partnership structure to create sham losses.
Chief Judge Henry T. Wingate disallowed the losses generated by the shelter and upheld the imposition of a 20% penalty. In particular, the court noted that the steps to the shelter “lacked economic substance and served no other purpose than to provide the structure through which Williams could enjoy the reduction of his tax burden.” In holding that the FOCUS shelter lacked validity, the court observed that FOCUS was “like BOSS, Son of Boss, OPIS, CARDS, BLIPS and other such plans developed by major accounting firms like KPMG, and structured to create artificial losses for tax purposes.”
“This latest victory, for the American people and for the United States, should serve as yet another warning to taxpayers that they cannot get away with tax code manipulations to claim non-economic loses” said John DiCicco, Acting Assistant Attorney General of the Tax Division. “The Justice Department and the Internal Revenue Service will continue to vigorously litigate abusive tax positions.”
Mr. DiCicco commended the trial team for their handling of the case, including attorneys Michael Wilcove, Paul Allulis, and Pascale Guerrier and paralegal Meghan Barrett.
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