IRS WARNS ON DONOR-ADVISED FUNDSWashington, D.C. - The Internal Revenue Service has issued a guide sheet for organizations that maintain donor-advised funds to help safeguard against abuses. The guide sheet includes a series of questions to establish whether an organization qualifies as a sponsoring organization.

"Donor-advised funds are intended to accomplish charitable purposes, rather than to generate fees from securities trading for investment advisors," said the IRS explanation. "If the arrangement produces too much private benefit to the financial company, the organization does not qualify for exemption."


Washington, D.C. - The U.S. Court of Federal Claims ruled against a family's attempt to avoid taxes on $204 million in gain realized on the sale of their business by using a tax shelter.

Members of the Welles family sold stock in Toledo-based Therma Tru Corp. in 2000, and paid $8 million to three tax shelter promoters for a "Son of BOSS" tax shelter involving digital foreign currency options, according to the Justice Department.

The court ruled that the taxpayers owe not only the taxes, but also a 40 percent penalty. In a 128-page opinion in the case, Judge Christine Odell Cook Miller found that the underlying transactions lacked economic substance. The court concluded that no reasonable chance existed for the Welles family members to earn a profit on the underlying "investments" in foreign currency options. Instead, Judge Miller ruled that the transactions were designed solely to generate tax benefits. As such, they could not be recognized for tax purposes.

Judge Miller stated that it was unreasonable to rely upon tax opinion letters written by the same attorneys who had designed and carried out the shelter. The court added that it was not reasonable to rely on the opinion letters because the factual representations on which the legal opinions were based were "demonstrably false, a fact that could not have been doubted by any sentient person involved."

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