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Doh! HOMER comes to grief

November 18, 2008

Perhaps naming a tax shelter for Homer Simpson was a mistake.

Certainly John B. Ohle III is wishing he never heard of the "HOMER" tax shelter, a tortured acronym for "Hedge Option Monetization of Economic Remainder" Mr. Ohle, a former supervisor at Banc One's "Innovative Strategies Group," has been indicted for promoting "fraudulent tax shelters" -- namely HOMER.

The indictment is interesting in that it says that HOMER, a knockoff of the "COBRA" tax shelter, was never just an agressive tax planning tool, but was just slickly-packaged fraud. From the Department of Justice press release:

The indictment alleges that Ohle and his co-conspirators marketed HOMER as a legitimate tax elimination strategy, despite the fact that HOMER was actually designed as a carefully planned series of steps to fraudulently produce the tax loss amounts desired by the clients. Jenkens allegedly issued a false and fraudulent opinion letter that found that it was "more likely than not" that the transaction would withstand IRS challenge. Ohle and two Jenkens lawyers are alleged to have known that the opinion letter contained false representations, including that the clients had a substantial non-tax business purpose in engaging in the HOMER transaction; that the clients created the HOMER trust for estate planning purposes; and that the clients exchanged the options for third-party notes for sound economic reasons.

Mr. Ohle appears to like home cooking; he is also accused of using HOMER to fraudulently reduce his own taxes.

Regardless of whether the Government proves its case - and Mr. Ohle is presumed innocent until and unless it does - this indictment will make advisors think twice before doing tax deals based on a wink-and-a-nudge business purpose.

Other coverage:

The TaxProf
Linda Beale
TaxGrrl

Tags: tax crime.tax shelters.