U.S. Court of Appeals for the Fifth Circuit Joins Other Circuits in Invalidating Tax Losses Claimed in “Son of Boss” Tax Shelter

WASHINGTON - On May 15, 2009, the Fifth Circuit, in Klamath Strategic Investment Fund v. United States (No. 07-40861), affirmed the district court’s decision denying over $50 million in claimed tax losses arising from the taxpayers’ investment in a "Son of Boss (BLIPS)" tax shelter. Joining the majority of circuits which have ruled on the question, the Fifth Circuit held that "a lack of economic substance is sufficient to invalidate the transaction regardless of whether the taxpayer has motives other than tax avoidance," and concluded that "no reasonable possibility of profit existed" for the transaction in question here.

"We are pleased that the Fifth Circuit has joined all the other appellate courts in ruling that ‘Son of Boss’ tax deductions are not permissible, and we are also pleased that the court has recognized that determinations of this sort must be made on the objective evidence irrespective of the claimed motives of the individual investors," said John A. DiCicco, the Tax Division’s Acting Assistant Attorney General.