Quote of the Day - There is nothing hidden, fraudulent or criminal about the BLIPS transaction. It was fully and openly reviewed and approved by many KPMG professionals and independent law firms who believed that BLIPS complied with the tax law. No court has ever held that the BLIPS transaction does not work.
MIPTC has covered BLIPS (Bond Linked Issued Premium Structure) tax shelters before. They're a tax shelter gone horribly wrong. Just ask Ted Swartz, who sold his business and made some $18 million, and wanted to avoid taxes as much as possible.
Yes, I know what you're saying: where am I going to get $9 million to pay my taxes when I sell my business if I can't use a tax shelter?. Although I litigate tax cases, I'm not a tax lawyer or an accountant: I just clean up the messes afterward, so I'm not much help on the front end. After reading this opinion, I'm really glad I wasn't one of the lawyers or accountants on the front end.
Allegedly, according to Mr. Swartz, KMPG told him that they could help him avoid his entire tax liability through a BLIPS tax shelter. As we now know from the IRS, that supposed tax advice was wrong. Not surprisingly, Mr. Swartz is none too happy that he paid KPMG some $1 million for this apparently faulty tax advice, so he did what most people in his position who are unhappy do: he sued.
Mr. Swartz's complaint in Washington alleged fraud against KPMG because he believes that KPMG knew the tax shelter would fail when it took his million dollars, but they had issued an opinion to him that it would not fail.
The trial court dismissed his cause of action for fraud, and not satisfied with the trial court's advice, he appealed to the Ninth Circuit. The higher court reversed the trial court and reinstated Mr. Swartz's fraud claim.
Now all Mr. Swartz has to do is convince the jurors that he really believed KPMG's advice that he didn't have to pay a dime in taxes on an $18 million gain.