Washington (June 25, 2003) -- The Treasury and the Internal Revenue Service have issued regulations designed to take out a tax shelter commonly known as "Son of Boss."

The regulations address the tax treatment of the assumption of certain obligations by a partnership from a partner. The new regs ensure that temporary or permanent non-economic tax losses cannot be created by transferring these obligations to partnerships.

In one variation of a “Son of Boss” transaction, a taxpayer purchases and writes economically offsetting options and then purports to create substantial positive basis by transferring those option positions to a partnership. On the disposition of the partnership interest, the liquidation of the partnership, or the taxpayer's sale or depreciation of distributed partnership assets, the taxpayer claims a tax loss, even though the taxpayer has incurred no corresponding economic loss.

"These regulations are part of our increased efforts to shut down abusive tax shelter transactions," said Treasury assistant secretary for tax policy Pam Olson. "The regulations will remove any question that the transactions do not produce the results claimed by the promoters of the transactions."


-- WebCPA staff

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