2025-05-16
Yesterday the Tax Court published Stevens v. Commr., T.C. Memo. 2025-45, a 50-page opinion where the taxpayers (husband and wife) sold their S corporation for $37 million, and entered into a tax shelter transaction to shelter the gain. The tax shelter generated interest deductions of $34 million (over a 3 year period). The IRS disallowed the interest deductions, and the Tax Court agreed with the disallowance.
Before entering into the tax shelter, the taxpayers became concerned with the risk of penalties. It was suggested that they get a tax opinion for their protection. One of their advisors, Jonathan Gopman, recommended Jeffrey Rubinger, a tax attorney, for the opinion letter. Rubinger agreed to provide the opinion letter for a flat fee of $40,000.
The CPA preparing the tax return asked the taxpayers if it was advisable to disclose the position as a tax shelter on their tax return. The taxpayers contacted Gopman. Gopman in turn sought Rubinger’s views. "Rubinger explained to Gopman that he would advise against claiming the interest deductions at all. Rubinger asked Gopman not to reveal this advice to petitioners." Gopman refused.
By the time the taxpayers filed their tax return, they knew that Rubinger had advised against claiming deductions for the interest.
Penalties were imposed on the taxpayers. The taxpayers contended that they should not be subject to penalties because they “relied on Mr. Rubinger as a tax professional”. The Tax Court stated:
The evidence also showed that, knowing that Rubinger did not stand behind that opinion letter, they claimed the deductions anyway. Securing the tax opinion letter was therefore not a “reasonable attempt” to comply with the Code. * * * Furthermore, respondent has produced evidence that petitioners should have known that the tax benefits claimed were “too good to be true.”* * * Soliciting Rubinger’s tax opinion letter was designed to protect petitioners from penalties, not to assess their “proper tax liability.”