Billionaire Henry Nicholas battling with the IRS

Dispute centers on tax shelters (what else?) that are supposed to save the Broadcom co-founder from paying millions of dollars to the government. Nicholas, whose criminal charges related to stock options backdating were dismissed last year, is not directly named in the IRS case, which helps explain why the litigation has gotten little attention. From the Daily Journal:

At issue is whether Broadwood [one of the Nicholas investment funds] made legitimate investments in certain distressed loan portfolios issued by formerly state-owned banks in China and Korea, or whether, as the IRS claims, the investment fund acquired distressed loan portfolios at significantly less than their face value for the purpose of reducing tax liability in the U.S. "It appears that Nicholas purchased, in the aggregate, $300 million in artificial tax losses in order to shelter his income and low basis stock," John A. Lindquist, a senior litigation attorney in the U.S. Justice Department Civil Tax Division wrote in a joint report summarizing the case in May 2010. Joseph L. Chairez, of Baker & Hostetler LLP, represents Broadwood and disputed that claim in court documents.

[CUT]

Steven A. Banks, vice dean and professor at UCLA School of Law, who reviewed the complaint in the tax case, said the IRS clearly hopes to show through marketing materials and other evidence that the transactions to purchase the loans lacked "economic substance," and that there was little to no actual risk of sustaining the losses that would justify a tax deduction. Speaking generally, Banks said tax shelters are sometimes used by individuals who generate huge capital gains to try to generate huge capital losses to offset those gains and the resulting tax liability.