Tax Court (Canal Corporation &
Subsidiaries v. Commissioner, 135 T.C.
No. 9, Aug. 5, 2010) calls into question
whether any tax advice you provide to
your client, no matter how thorough,
can successfully be used as a defense
against imposition of the accuracy-
fairly complex transaction. Two part-
ners formed a joint venture by each
contributing assets of operating busi-
nesses. The joint venture was treated
as a partnership for tax purposes.
rowed money from an unrelated bank
and distributed the funds to one of the
partners. The other partner guaranteed
the bank loan, and the partner that
received the distribution agreed to
indemnify the guarantor for any princi-
pal payments it might have to make
under the guarantee.
whether the transaction resulted in a
disguised sale of assets. The compa-
ny's long-time accounting firm assisted
in structuring the transaction in a man-
ner intended to comply with the debt-
financed transfer of consideration
exception to the disguised sale rule
of closing the transaction, the compa-
ny, a publicly-traded entity, asked its
accounting firm to render a tax opinion
on the transaction.
company for many years as both audi-
tor and tax preparer. Keep in mind that
the tax years at issue in the case pre-
date the 2002 Sarbanes-Oxley Act.
effort spearheaded by a new CEO, the
company engaged the accounting firm
and an investment banker to explore
strategic alternatives. The investment