Court Deals Blow to KPMG, Others Marketing Bond-Linked Tax Shelters

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Bond Linked Issue Premium Structure (BLIPS) investment products marketed by KPMG LLP and multiple other investment funds lacked economic substance, a federal court ruled, granting the IRS summary judgment in the case (Shasta Strategic Inv. Fund, LLC v. United States, N.D. Cal., No. 3: 05–cv-03887, 2014 BL 2127157/31/14).
Judge Richard Seeborg of the U.S. District Court for the Northern District of California agreed with the Internal Revenue Service that transactions by Shasta Strategic Investment Fund LLC and Presidio Growth LLC lacked economic substance and should therefore be disregarded for tax purposes.
The BLIPS transactions involved investors forming various limited liability companies, and then taking out premium loans designed to match the investors' desired tax loss. Though the products were marketed as having a seven-year investment cycle, in reality almost all investors exited from them within 60 days.