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WOULD THEY HAVE BOUGHT A TAX SHELTER CALLED "DORC"?

July 01, 2005

Tax Analysts reports this morning:

Three people who purchased a foreign currency option plan dubbed HOMER –- a grantor trust scheme designed to generate fake losses to help offset legitimate income gains -- are suing Bank One and its financial and legal partners for peddling the tax scheme.

Doh! If you name a tax shelter after a cartoon character, you should at least use something adorable (SMURF?) or heroic ("BATMAN"?). Instead they name it after a blundering incompetent. Small wonder things didn't work out:

Bank One personnel purportedly developed the Hedge Option Monetization of Economic Remainder (HOMER) strategy along with fellow defendants Deutsche Bank and White & Case LLP. American Express and Arthur Andersen LLP are also named in the suit for signing off on the HOMER plan while preparing the plaintiffs’ 2001 tax returns.

They tortured the name to come up with that acronym? Why not Derivative Option Remainder Currencies? Or Currency Remainder Asset Program?

Shelter buyers Donald R. Wilson Jr.; his wife, Laurie Wilson; and business associate Kenneth S. Brody filed suit in federal court on June 13 charging their respective financial and tax advisers with breach of contract, fraud, negligent representation, and civil conspiracy for not warning them about the estate planning maneuvers. The shelter clients claim they were told the plan "took advantage of a ‘legal’ loophole in the tax code to reduce tax liability."

The plan was apparently a knockoff of one called COBRA - a much catchier acronym. Since it backfired, maybe it should now be called Derivative Underwritten Debentures (DUD).

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