Stobie Creek: Too Good to Be True‘

Is a tax shelter that purports to eliminate more than $200 million of gain, with an investment of $2 million and no realistic possibility of profit, "too good to be true"‘ According to the Court of Federal Claims, which filed its decision in Stobie Creek Investments, LLC v. United States on July 31, the answer is yes. In a lengthy opinion, Judge Christine Miller found that a contingent-liability shelter lacked economic substance and affirmed hefty partnership-level penalties. In a setback for the government, however, the court declared the retroactive section 752 regulations invalid. The decision highlights three issues of special interest for practitioners: economic substance, retroactive regulations, and penalties.