Carlos Sala invested in an investment program, the first stage of which was designed to generate significant tax losses without significant economic losses. The program relied on Helmer v. Commissioner, 34 TCM (CCH) 727 (1975), which disregarded the value of contingent liabilities in calculating a partner’s basis in the partnership interest. A district court determined that the subject investment program taken as a whole consisted of a legitimate business strategy and allowed the tax loss. The government appealed the district court’s ruling.
Careful review of case law other than Helmer would have caused Sala to look for additional ways to offset his 2000 income. The initial phase of the investment program was designed specifically to generate tax losses, which directly contradicts IRS Notice 2000-44 (issued before Sala’s investment in Deerhurst) and forbids noneconomic losses to be taken as allowable deductions. Blind reliance on prior rulings without consideration of other course cases and additional factors related to the entity at hand can lead to undesirable outcomes.