Visiting the Committees

Commentary and Updates by the Committees

The Compensation and Benefits Committee provides a forum for members of the Taxation Section to learn and discuss issues relating to executive compensation, tax-qualified retirement plans, and health and welfare benefit arrangements. Membership in the Committee is open to employee benefit practitioners and Taxation Section members, and the participation of members of the Labor and Employment Law Section is encouraged. The Committee strives to include in discussions, high-level members of the Internal Revenue Service, U.S. Department of Labor Employee Benefit Security Administration, and California Franchise Tax Board.

The Compensation and Benefits Committee schedules quarterly conference calls for all members interested in the topics that affect compensation and benefits. Members interested in participating, providing comments, submitting articles for Quick Points on Compensation and Benefits topics, or for more information regarding upcoming meetings and events should contact the Committee Chair, Colleen Hart, at chart@proskauer.com.

The Corporate and Pass-Through Entities Committee focuses on issues faced by corporate taxpayers and provides opportunities for practitioners and corporate tax counsel to maintain a level of expertise in the field of corporate tax law, expand their professional contacts, and serve the profession, the public and the legal system. Membership in the Committee offers practitioners information on developments with respect to corporate and business tax and a greater voice on developments in such legislation.

Normally, the Committee holds quarterly meetings via teleconference and interested members of the Tax Section are welcome to participate. In addition, members and other interested parties are welcome to submit articles for Quick Points on Corporate and/or Pass-through topics of general interest to the members of the Taxation Section. For more information regarding upcoming meetings and events should contact the Committee Co-Chairs, Aaron Johnson, at (916) 441-2430 or ajohnson@wilkefleury.com or Cameron Hess at (916) 920-5286 or chess@wkblaw.com.

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Partnership Found to be a Sham in Son-Of-BOSS TEFRA Case

In BCP Trading and Investments, LLC, et al, v. Commissioner, T.C. Memo. 2017-151, a consolidated TEFRA case, the Tax Court held that a partnership utilized in a variant of a Son-of-BOSS tax shelter was a sham and disregarded it for tax purposes.

The Tax Court agreed with the partners that it lacked jurisdiction to consider the partners' outside basis that the Internal Revenue Service had disallowed in the Final Partnership Administrative Adjustment (FPAA). However, the Court rejected the tax matters partner's argument that it lacked jurisdiction to sham the partnership, concluding that the validity of the partnership was a partnership item pursuant to United States v. Woods, 571 U.S. ___, 14 S. Ct. 557, 563 (2013). The Court also noted that it had jurisdiction to consider facts in the record that were not strictly partnership items in determining that the partnership was a sham.

The partners also claimed that the statute of limitations on assessment had expired because the Form 872-P (Consent to Extend the time to Assess Tax Attributable to Items of a Partnership) signed by the tax matters partner for tax year 2000 was invalid due to duress and conflict issues. The Court rejected these arguments and found that the partners had ample opportunity to object to the statute extension and that Ernst & Young did not manipulate the tax matters partner into signing it.

The Court then examined the Son-of-BOSS variant transaction and agreed with the IRS theory that the partnership utilized in the transaction was merely a sham, falling in line with other cases disallowing deductions in Son-of-BOSS deals. The Son-of-BOSS transactions, which are a variation of the older "bond and options sales strategy," involve contribution of assets encumbered by significant liabilities to a partnership. However, the liabilities are typically not completely fixed at the time of contribution, and are ignored by the partners for purposes of computing basis. This arrangement results in the generation of large, but not out-of-pocket, losses on the partners' individual income tax returns.

The Court analyzed the transactions by first considering whether the partnership, BCP Trading and Investments, LLC ("BCP"), was a valid partnership for tax purposes. That inquiry involves an analysis of the various partnership factors set forth in Luna v. Commissioner, 42 T.C. 1067, 1077 (1964), and other cases, as well as a separate inquiry of whether the partnership actually conducted any business activity independent of tax avoidance. The Court concluded that the client members did not join together to undertake business under BCP, noting that "[w]hat we find is a scrupulous adherence to the formal requirements of making BCP look like a partnership, but a complete absence in its operating agreement and actual operations of any objective indication of a mutual combination for the present conduct of an ongoing enterprise." The Court also held that there was no business activity aside from tax avoidance.

- Matt Carlson, Mather, CA

The Estate and Gift Tax Committee is comprised of attorneys throughout the State of California who devote a significant portion of their practice to understanding the evolving areas of estate and gift tax planning, drafting, compliance, and controversy work. One of the primary functions of the Committee is to provide valuable, informative, high quality continuing education programs on behalf of the Taxation Section.

If you are interested in becoming a member or submitting a topic to speak or write on, please contact the Estate and Gift Tax Committee Chair, Abby Feinman, at (310) 788-4722 or abby.feinman@kattenlaw.com.

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The Committee holds meetings at least quarterly via teleconference. Our next meeting will be at the Tax Section Annual Meeting in Carlsbad. Any member of the Tax Section who is interested is welcome to participate. We also welcome any member or other interested party who would like to write on a topic-to submit a brief article for Quick Points. This article can be any estate and gift topic of general interest to the members of the Taxation Section. Also, if you are interested in speaking at an event, or have a topic that you believe would be of interest to the members, we welcome input. We are excited about our topics that will be presented at the Tax Section Annual Meeting in Carlsbad in November. There are also lots of other amazing topics from other areas of tax that will be presented as well. It will be a great conference and will not disappoint. We are already working on the slate of topics for our Annual two-day Estate and Gift Tax Conference in San Francisco in March 2018. If anyone has topic suggestions or would like to participate on a panel please let us know-we would love to have you. It is also never too early to submit a topic for our annual Washington D.C. trip, which is always a great time with a chance to get to know people from the Internal Revenue Service ("IRS"), Treasury, Joint Committee, Tax Court and Senate Finance Committee, among others.

Call for Estate and Gift Tax Articles

California Tax Lawyer, the Taxation Section's official publication, is sent free to members of the Section. The journal is designed to keep tax lawyers and other tax professionals apprised of the latest developments in the field, as well as up-to-date on the activities of the Section. To receive a subscription, you need only join the Section.

Anyone can submit an article to the Editors for consideration for publication in California Tax Lawyer. Submissions are typically due February 15, May 15, August 15, and November 15. If you are interested in submitting on article on any Estate & Gift Tax topic, please contact Abby Feinman, at (310) 788-4722 or abby.feinman@kattenlaw.com for more information. Also, please read the guidelines on the Taxation Section website before submitting your article.

Call for Speakers and Topics

Throughout the year, the Estate & Gift Tax Committee is asked to make video and live presentations on various topics of interest to estate and gift tax practitioners. These include presentations made and the State Bar's Annual Meeting (usually held in September each year), the Annual Meeting of the Taxation Section (typically held at the end of October or early November) and several webinars presented throughout the year. If you have a topic you are interested in presenting and you would like the Estate & Gift Tax Committee to consider it for inclusion at one of the upcoming conferences, please contact Abby Feinman, at (310) 788-4722 or abby.feinman@kattenlaw.com.

Tax Reform Agenda

One of the goals of the President's tax reform agenda is the abolition of "the death tax, which penalizes farmers and small business owners who want to pass their family enterprises on to their children." (2018 Budget of the United States Government 13 (2017)). The Committee on Ways and Means justified the estate tax repeal of 2010 in similar terms. "The Committee finds that the estate, gift, and generation-skipping transfer taxes are unduly burdensome on all taxpayers, and particularly decedents' estates, decedents' heirs, and businesses, such as small business, family-owned businesses, and farming businesses. The Committee further believes it is inappropriate to impose a tax by reason of the death of a taxpayer." (H.R. Rep. 37, 107 ^th Cong., 1^st Sess., at 25 (2001)).

One might wonder how the United States ("U.S.") arrived at such an "unduly burdensome" and "inappropriate" tax. Although Federal death-related taxes date back to 1789, the modern...