WASHINGTON Dec 3 The U.S. Supreme Court on
Tuesday unanimously ruled that Texas billionaire Billy Joe "Red"
McCombs must pay steep penalties to the Internal Revenue Service
related to more than $45 million he tried to shield from taxes.
The decision could lead to the payment of hundreds of
millions of dollars in penalties and interest that the
government has alleged other taxpayers owe in disputes similar
to the McCombs case.
McCombs, former owner of the Minnesota Vikings football
team, and his business partner Gary Woods in 1999 set up a
partnership to run a tax shelter known as a "current options
bring reward alternatives," or COBRA. It was designed to create
financial losses to offset windfall gains McCombs was expecting.
The tax shelter itself had already been ruled a sham by
lower courts. But McCombs and Woods argued that a 40 percent IRS
penalty should not apply.
In an opinion written by Justice Antonin Scalia, the high
court said the Texans' arguments were "unpersuasive."
"At the end of the day, Woods' and McCombs' $3.2 million
investment generated tax losses that, if treated as valid, could
have shielded more than $45 million of income from taxation,"
"The penalty is applicable to tax underpayments resulting
from the partners' participation in the COBRA tax shelter,"
Woods and McCombs did not immediately respond to requests
for comment on Tuesday.
Greg Garre, the lawyer who represented the Texans before the
high court in October, declined to comment on the decision. An
IRS spokesman also declined to comment.
It was unclear exactly how much money McCombs and Woods owed
the IRS because interest has accrued on the penalties, tax
lawyers said on Tuesday.
The ruling dealt a blow to other taxpayers fighting the IRS
in court or in audits over 40 percent penalties, said Nathan
Clukey, a former Justice Department attorney.
"It's game over," said Clukey, now with the law firm King &
Spalding LLP. "It's not like the court minced words here. They
were fairly explicit. It's an impressive win for the