Tax Shelters: Up Off the Canvas?

Recently, taxpayers prevailed at trial in two federal tax shelter cases: TIFD III-E Inc. v. United States, 2009 WL 3208650 (D. Conn. Oct. 7, 2009) (“Castle Harbour III”) and Consolidated Edison Co. v. United States, 2009 WL 3418533 (Fed. Cl. Oct. 21, 2009) (“Con Ed”). Doing full justice to these cases would require detailed descriptions of their facts, the arguments presented and the rationales in the opinions. I leave this work to the inevitable parsing and spinning in briefs in tax shelter cases to come and to more length commentary. See, e.g., Lee A. Sheppard, Con Ed’s Night of the Living Dead, Tax Notes, Nov. 9, 2009 at 619. Instead, this article addresses two larger themes. Part I places Castle Harbour III and Con Ed in the context of current tax shelter litigation. It notes that waves of taxpayer success and government success have alternated. The recent cases show that the Service has not yet landed a knock-out punch to end the tax shelter decisions: that, in some courts, shelters linked to ongoing, substantial business may be more likely to be validated than “freestanding” transactions