Document Type

Article

Publication Date

1-2026

Abstract

There have been two tax shelter waves in recent memory: The first one ended in 1986, and the second in 2006. We are now amid a third one. The first wave lasted from around 1970 to 1986. It was based on mass marketed shelters sold to individuals with nonwage ordinary income like lawyers, accountants, physicians, and dentists, who were subject to high tax rates. The basic structure of the first wave of tax shelters depended on the Supreme Court’s misguided opinions in Crane and Tufts, which held that the amount realized from the sale of encumbered property included nonrecourse debt.2 Crane held so in 1947 for debt equal to the fair market value of the property, and Tufts extended it in 1983 for debt that was more than the FMV at the time of the sale. The result was that debt was henceforth included in basis for depreciation purposes, even though tax law usually does not give taxpayers basis when they acquire an asset unless tax had been paid on the amounts used for the acquisition. That is why borrowed amounts that do not represent taxable income should not be included in basis, especially if the debt is nonrecourse.

Comments

Reprinted with the permission of Tax Analysts

Download


Included in

Tax Law Commons

Share

COinS