Canadian-born John Paul Reddam, owner of I'll Have Another, a
horse that won two legs of U.S. racing's elusive Triple Crown in
2012, was also the founder of DiTech, a home loan business.
Affirming a 2012 U.S. Tax Court ruling, a three-judge 9th Circuit
Court of Appeals in Pasadena, California, ruled that Reddam engaged
in a "Byzantine" tax and investment strategy that served no business
purpose other than to avoid taxes.
Reddam's lawyer, David Wiechert, said he was evaluating options for
The ruling was the latest win for the IRS in a fight against tax
transactions promoted by accounting firms in the late 1990s. Reddam
engaged in a transaction once marketed by KPMG LLP under the name
"Offshore Portfolio Investment Strategy," or OPIS, the decision
In 1999, Reddam sold DiTech to the mortgage-lending division of
General Motors for an initial payment of $70 million. He incurred a
$48.5 million capital gain, which he attempted to avoid by using the
OPIS program, according to the court.
The IRS challenged Reddam's 1999 tax return, arguing that his OPIS
transaction was invalid and that he owed $8 million in federal
The IRS said in 2001 that it would not recognize the tax benefits of
OPIS transactions and in 2003 the agency opened a settlement process
for OPIS users.
But Reddam did not participate and challenged the IRS by filing an
action in Tax Court, the decision said.
The IRS has been relying more frequently on arguments about business
purpose, or "economic substance," to challenge corporate and
individual tax shelters, lawyers have said.
The economic substance doctrine is a legal strategy that focuses
less on particular financial structures and more on their broader
purposes and outcomes.
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Reddam vaulted to national fame in 2012 when I'll Have Another was
on the verge of becoming just the 12th horse to complete the Triple
Crown, a difficult sweep of three legendary races: the Kentucky
Derby, the Preakness Stakes and the Belmont Stakes. The last horse
to complete it was Affirmed in 1978.
Reddam bought the colt for just $35,000, a bargain price in a sport
where top horses change hands for millions of dollars. But I'll Have
Another suffered a freak accident on the eve of the Belmont and
Reddam withdrew him, ending his racing career.
The case is John Paul Reddam v Commissioner of Internal Revenue; The
9th Circuit Court of Appeals in Pasadena, No. 12-72135.
(Reporting by Patrick Temple-West; Editing by Kevin Drawbaugh)
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