Reddam v. CIR, No. 12-72135 (9th Cir. 2014)
Annotate this CaseThe Commissioner disallowed petitioner's claimed deduction on his 1999 tax return for a capital loss purportedly generated by several Cayman Islands entities. Petitioner invested in an Offshore Portfolio Investment Strategy (OPIS) in order to reduce the tax liability associated with petitioner's strategy of either taking his company, DiTech, public or selling it. The Tax Court affirmed. Applying the economic substance doctrine, the court concluded that the record amply supported the Tax Court's factual conclusion that petitioner pursued the OPIS product solely for its tax benefits and that the Tax Court had ample record support for its factual conclusion that the OPIS transaction had no practical economic effects other than the creation of income tax losses. Accordingly, the court affirmed the judgment of the district court.
Court Description: Tax. The panel affirmed the Tax Court’s decision affirming a decision by the Commissioner of Internal Revenue disallowing a capital loss deduction because it lacked economic substance and was intended to create capital losses. Taxpayer pursued a tax and investment program marketed by KPMG, the Offshore Portfolio Investment Strategy (OPIS), to reduce the tax liability associated with either taking his company public or selling it. Applying the economic substance doctrine, the panel held that the record supported the Tax Court’s conclusion that taxpayer pursued the OPIS product solely for its tax benefits, as well as the conclusion that the product had no practical economic effects other than the creation of income tax losses.
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