U.S. Department of Justice Prevails in “Son of Boss” Tax Shelter Case

February 4, 2009

A federal district court in Los Angeles ruled in favor of the U.S. government in a case concerning an abusive tax shelter known as “Son of Boss”. Cambridge Finance Partners was retained by the Department of Justice to provide consulting support and to support the expert testimony of Stanford finance professor Steven Grenadier.

At issue in the case was a package of exotic “Asian-style” options written against a basket of REIT stocks to supposedly shield real estate investors against losses from a second terrorist attack in the wake of the 9/11 attacks. U.S. District Judge John F. Walter ruled that the option transactions had no real economic substance and were simply designed to fabricate tax basis in certain partnerships. Among the factors he cited was Professor Grenadier’s “persuasive” testimony that the option package offered virtually no likelihood of a payoff to investors and that investors dramatically overpaid for the transactions.

This case marked the third time that Cambridge Finance Partners has assisted the Department of Justice with tax shelter cases that have gone to trial. Earlier cases include the widely publicized 2003 trial against the partners of Long-Term Capital. The government has won all three trials.

DOJ Press Release