Katie <katiej_1...[at]yahoo.com> wrote:

- quote -

I'm impressed. The FTB has always struck me as being more
assertive than the IRS and more persistent, too.

By '75 the FTB seemed to have given up trying to get me file
tax returns for 1969 and 1970, perhaps because they finally
figured out that I wouldn't owe any taxes if I did file.

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Katie <f6sdlj$5o1$1[at]panix3.panix.com> wrote:

- quote -

But the cancellation of the non-recourse debt would cause
taxable phantom income.

I'm told that the usual method of handling that was for the
tax(not-)payer to change accountants.

Seth

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Doug <PurplePengui...[at]yahoo.com> wrote:

- quote -

Well, it's sort of like the late 1970's-early 1980's, but
MUCH more complicated. I was a state income tax auditor
(California Franchise Tax Board) from 1975 to 1982, and we
were just starting to get a handle on some of the tax
shelter arrangements that were rampant in the mid to late
1970s as we were auditing those returns. A lot of them took
advantage of the fact that limited partners, in those
pre-1986-Act days, were able to use nonrecourse debt as
basis for deducting losses. So assets were purchased at
inflated prices, financed by nonrecourse loans, and
sometimes the taxpayer was able to get tax benefits in the
first year way in excess of their actual cash investment in
the limited partnership. After that nobody cared what
happened to the asset itself (real estate, movies, etc.) and
when it was sold the partners would claim a big loss.
(Ironically enough, some of the real estate shelters turned
out to be good deals in the end if the partnership hung on
to the property long enough.)

The "at risk" rules and passive loss and credit limitations
of the 1986 Act put a stop to most of those structures.

Modern tax shelter transactions are MUCH more complex. There
are a bunch of IRS Notices and Revenue Rulings describing
them. If you go into the IRS web site and search on "abusive
tax avoidance transactions" you will get a lot of references.
One you might look at is the one called "Son of Boss," which
is described in Notice 2000-44
(http://www.irs.gov/pub/irs-utl/notice_2000-44.pdf). But
that's just one example. Trying to read the descriptions of
these transactions always makes my head ache.

Katie in San Diego

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That's what I understand. And please remember, I am not a
CPA. I have one year at H&R Block (2003) and one year at
Jackson Hewitt (2007). So for starters, I don't see a whole
lot of well-heeled clients.

But what I understand is that tax shelters are back, bigger
than ever. It's as if we have time warped back to the
1970s.

At the bottom of Sch B, the taxpayer is asked "At any time
during 2006, did you have an interest in or a signature or
other authority over . . ." And "During 2006, did you
receive a distribution from, or were you the grantor of, or
a transferor to . . ." As if we can keep people on the
straight and narrow if only we ask specific enough questions!

I would like a fuller explanation of what is going on. Any
help you can give in this regard would be appreciated.

-Doug

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