Opinion ID: 2647663
Heading Depth: 2
Heading Rank: 1

Heading: The Corporate Set-Up

Text: Pursuant to J&G’s advice the Gaughfs directed their lawyer, Maurice Holloway, to form four legal entities—three corporations and a partnership, all formed under South Carolina law—which Holloway did in September 1999, as follows: (1) Gaughf Enterprises, LLC, a limited liability corporation wholly owned by Jack Gaughf; (2) Balazs Ventures, LLC, a limited liability corporation wholly owned by Nan Gaughf; (3) Gaughf Properties, L.P., a limited partnership consisting of partners Gaughf Enterprises, LLC and Balazs Ventures, LLC (pursuant to a partnership agreement signed on behalf of the corporate partners by their sole owners—Jack Gaughf and Nan Gaughf, respectively); and (4) Bodacious, Inc., a corporation of which Jack Gaughf 4 According to the tax court, had the Gaughfs sold the stock without a tax shelter, they would have been taxed on a capital gain of approximately $4.3 million instead of incurring a capital loss. 139 T.C. at 227. 5 The Son of Boss tax shelter “is a ‘variant of the Bond and Options Sales Strategy (“BOSS”) shelter’ ” and “involves ‘the transfer of assets along with significant liabilities to a partnership, with the goal of increasing basis in that partnership.’ ” 106 Ltd. v. Comm’r, 684 F.3d 84, 86 n.1 (D.C. Cir. 2012) (quoting Napoliello v. Comm’r, 655 F.3d 1060, 1062 (9th Cir. 2011)) (quotation marks and brackets omitted). Because the liabilities are not completely fixed at the time of the transfer, “the partnership ignores them in computing basis . . . result[ing] in high-basis assets that produce large tax—but not out-of-pocket—losses.” Id. (quotation marks omitted). 5 was 100% owner and president. Holloway filed a Form SS-4 (“Application for Employer Identification Number”) on behalf of each of the four entities with the IRS Service Center in Atlanta, Georgia. The SS-4 forms identified the “principal officer, general partner, grantor, owner, or trustor” of Gaughf Enterprises, LLC, Gaughf Properties, L.P. and Bodacious, Inc. as “Andrew Jackson Gaughf, Jr.” and of Balazs Ventures, LLC as “Nan Gaughf”; each filing further identified the “[r]eason for applying” as “[s]tarted a new business” and listed the Gaughfs’ personal address in Pickens, South Carolina as the entity’s “[m]ailing address.” JA 522, 529, 530, 526. Jack Gaughf set up three separate investment accounts with Deutsche Bank Alex. Brown LLC (Alex. Brown), an affiliate of Deutsche Bank AG (Deutsche Bank), one each in the name of Gaughf Enterprises, LLC, Gaughf Properties, L.P. and Bodacious, Inc. On November 24, 1999, $90,000 was deposited into Gaughf Enterprises, LLC’s Alex. Brown account. Five days later, on November 29, 1999, Gaughf Enterprises, LLC entered into two currency option transactions with Deutsche Bank: (1) a “long” option under which Gaughf Enterprises, LLC agreed to pay Deutsche Bank an up-front premium of $4,500,000 on December 1, 1999 and Deutsche Bank agreed to pay Gaughf Enterprises, LLC a $9,000,000 payout on December 22, 1999 if the Japanese yen were trading at more than 105.76 yen to the U.S. dollar and (2) a “short” option under which Deutsche Bank agreed to pay Gaughf Enterprises, LLC a $4,455,000 premium on December 1, 1999 and Gaughf Enterprises, LLC agreed to pay Deutsche Bank $8,910,000 on December 22, 1999 if the Japanese yen were trading at more than 105.78 yen to the dollar. 6 The next day, November 30, 1999, Gaughf Enterprises, LLC transferred the currency options to Gaughf Properties, L.P. as a contribution to capital. The same day, $45,000—the difference between the long and short option premiums—was transferred from Gaughf Enterprises, LLC’s Alex. Brown account to Deutsche Bank. The remaining $45,000 in Gaughf Enterprises, LLC’s Alex. Brown account was transferred to Gaughf Properties, L.P.’s Alex. Brown account—also as a contribution to capital—except for $900 which, under an agreement between Gaughf Enterprises, LLC and Bodacious, Inc., was deemed a contribution to capital by Bodacious, Inc. On December 20, 1999, the two Japanese currency options Gaughf Properties, L.P. held expired unexercised, with no pay-out to or by either Gaughf Properties, L.P. or Deutsche Bank. The long and short of it is that the only money that changed hands in connection with the options was the $45,000 premium differential Gaughf Enterprises, LLC had paid Deutsche Bank on November 30, 1999. On December 27, 1999, both Gaughf Enterprises, LLC and Balazs Ventures, LLC signed their general partnership interests in Gaughf Properties, L.P. over to Bodacious, Inc. “as a substitute general partner,” while Gaughf Enterprises, LLC—but not Balazs Ventures, LLC—assigned its limited partnership interest as well to Bodacious, Inc. Also on December 27, 1999, the Gaughfs signed a liquidation agreement on behalf of Bodacious, Inc. and Balazs Ventures, LLC, terminating Gaughf Properties, L.P. and distributing “[a]ny and all assets of the Partnership held by the Partnership as of the date of dissolution” to its partners in accordance with an attached schedule, which gave Bodacious, Inc. 99.6% of the partnership assets and Balazs Ventures, LLC the remaining 0.4%. JA 1080. As a result of the liquidation, the cash in Gaughf Properties, L.P.’s Alex. Brown account— consisting of Gaughf Enterprises, LLC’s $45,000 capital 7 contribution plus accrued income thereon—was distributed to Bodacious, Inc. on December 29, 1999.6