Appeals court finds for IRS, against companies that created tax shelter to write off $18 million

By Leslie Gamboni | Jul 1, 2013

NEW ORLEANS – Three companies have lost an appeal in the U.S. Court of Appeals for the Fifth Circuit related to the writing off of millions of dollars in taxes.

The case involves Nevada Partners, Carson Partners and Reno Partners which partnered for tax purposes in order to execute a three tiered investment strategy called “The Focus Plan” that was allegedly designed to produce a deductible tax loss, according to background information.

The IRS argued that it found the arrangement of the tiered partnerships as actions that created an abusive tax shelter. The IRS alleged that the plan was designed to generate artificial tax losses through foreign transactions.

According to the lawsuit, the IRS issued 11 notices of final partnership administrative adjustments to the partnerships that eliminated $18 million of tax losses and determined that penalties were appropriate due to actions of the companies.

The IRS declared that the plan was a sham working for the benefit for a single individual by the name of James Kelley Williams.

In the original case the IRS proposed three penalties against the companies including negligence, substantial understatement and underpayment.

The courts ruled in favor of the IRS and the partnerships appealed the court’s decision.

Circuit Judge James L. Dennis, Kathy King and Funtunato Benavides affirmed the court’s original decision viewing the actions executed in accordance with “The Focus Plan” as lacking in economic substance. This resulted in the actions being disregarded for tax purposes. The companies also received penalties for negligence, but were not charged with a misstatement penalty.

Case No. 10-60559.

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