Tax Court Rules Against Chicago Lawyer’s Distressed-Debt Deals

The U.S. Tax Court ruled that a distressed-debt transaction promoted to clients by Chicago lawyer John Rogers was invalid.

The deals involving Brazilian consumer debt featured transactions among U.S. taxpayers and a company in the British Virgin Islands. The government calls the transactions the Distressed Asset Debt and Distressed Asset Trust tax shelters, or DAD and DAT.

“There has been no showing of reasonable cause or good faith on Rogers’ part in conceptualizing, designing and executing the transactions,” wrote Judge Robert A. Wherry in a decision released today. “Instead, Rogers’ knowledge and experience should have put him on notice that the tax benefits sought by the form of the transactions would not be forthcoming and that these transactions would be re-characterized and stepped together to reveal their true substance.”

Last year, the U.S. Justice Department sued Rogers to prevent him from promoting the transactions. The government alleges that the transactions generate losses related to Brazilian debt that don’t cost taxpayers any money and can be used to reduce taxable income.

In its statement at the time, the government said Rogers had generated more than $370 million in improper tax deductions for more than 100 clients.

Federal Case Pending

The Justice Department’s case is pending in federal court in Chicago. In June, District Court Judge Samuel Der-Yeghiayan denied Rogers’ motion to dismiss the case.

Paul Kozacky, Rogers’ attorney in the Tax Court case, didn’t immediately return a request for comment on the ruling.

Rogers was a partner at Seyfarth Shaw LLP in Chicago until 2008, when the firm required him to resign because he had continued to promote the tax shelters, the government said.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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