Regulators Shut Down BOSS Tax-Shelter Plan

The Treasury Department effectively shut down a corporate tax- shelter arrangement being marketed by major accounting firms. The arrangement is marketed by PricewaterhouseCoopers and other Big Five accounting firms under the acronym BOSS, or bond option and sales strategy. Under BOSS, a foreign corporation is formed and two partners contribute money in return for stock. The corporation also borrows money from a bank with a guarantee of additional securities equal to the loan. The corporation then distributes stock to its partners, but the securities remaining with the foreign corporation are valued at zero for tax purposes because they remain subject to the bank loan. The partnership, meanwhile, reports a tax loss--even though they’ve already gotten their investment back--and the bank debt is later repaid out of other assets. “This is a classic loss-generation shelter,” said Jon Talisman, assistant Treasury secretary for tax policy. Although the Treasury Department notice cannot completely shut down such an arrangement, it puts tax practitioners and clients on notice that the losses won’t be allowed for federal income tax purposes.