Supreme Court tax case to determine extent of IRS enforcement authority

Tom Ramstack – AHN News Legal Correspondent

Washington, D.C., United States (AHN) – The U.S. Supreme Court plans to issue a ruling in a corporate tax shelter case this spring at a time of uncertainty in the tax laws.

Some tax breaks for individuals and corporations are scheduled to expire next month but Congress is still debating whether to extend them.

The United States v. Home Concrete & Supply LLC case the Supreme Court heard last week is likely to determine how much discretion the Internal Revenue Service can exercise in enforcing the tax code.

It also is expected to decide what happens to about $ 1 billion that companies commonly shelter in the bond market.

The IRS was trying to crack down on “Son of Boss” tax shelters in the case.

Boss is the acronym for “bond and option sales strategies.” In essence, corporations create paper losses by buying and selling bonds and options, then use what appears to be a loss to offset their profits.

As a result, their tax rate can be lowered significantly.

Companies that use the shelter include contact lens maker Bausch & Lomb and several homebuilders.

The lawsuit against Home Concrete & Supply is one of about 30 Son of Boss cases pending in federal courts.

Together, the cases could produce about $ 1 billion in new revenue for the federal government from taxes, interest and penalties, according to court documents.

Even then, $ 1 billion is only about one-sixth of the tax revenue the IRS says is hidden in Son of Boss shelters nationwide.

The companies say that making them pay taxes and penalties would mean the IRS is retroactively changing its own rules to make it easier to punish anyone using a tax shelter.

They say the lawsuits against them represent an unconstitutional violation of the IRS’s enforcement authority.

A judgment for the IRS would broaden the authority of many federal agencies to make up their own rules for how they enforce the laws, according to attorneys for Home Concrete & Supply.

About 1,800 people have invested in the tax shelters, according to the IRS.

The federal agency already has won other tax judgments against investors in Son of Boss shelters. However, the court judgments have been spotty and show a mix of opinion among judges.

As a result, the Supreme Court is stepping in to resolve any confusion.

The same kind of split opinions and confusion can be found in Congress as lawmakers try to decide which tax breaks for income, capital gains and estates should be extended and which should be eliminated.

The temptation for Congress to let the breaks expire is strong as lawmakers seek ways to raise new revenue.

The last time they extended the tax breaks was in 2010, but they argued the issue until mid-December.

The same arguments are arising again, this time with the added emphasis created by election year politics.

For taxpayers, the result means that any tax planning this year will be difficult, according to tax experts.

The Supreme Court docket number for United States v. Home Concrete & Supply LLC et al is 11-139.

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