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January 02, 2014
Principal Lawrence Kolbe’s Approach in Offshore Portfolio Investment Strategy (OPIS) Tax Dispute Upheld

Brattle principal Dr. Lawrence Kolbe provided testimony on behalf of the U.S. Internal Revenue Service (IRS) that aided in upholding a U.S. Tax Court decision for the Government in an Offshore Portfolio Investment Strategy (OPIS) dispute.

On December 18, 2013, Circuit Judges Hartz and Tymkovich, and District Judge Jackson, writing for the U.S. Court of Appeals for the Tenth Circuit, confirmed the decision by the Tax Court in Scott and Audrey Blum v. Commissioner of Internal Revenue, finding the transaction lacked economic substance. Part of the decision discussed Dr. Kolbe’s testimony, stating among other things that:

The government’s expert, Dr. Kolbe, agreed that OPIS was unlikely to produce a profit. This fact, coupled with other elements of the transaction—such as overpriced options—led Dr. Kolbe to conclude that the net present value of and expected rate of return on OPIS were both negative. No prudent investor, in other words, would enter into such a transaction based on its non-tax characteristics. The Tax Court weighed the testimony and reasonably decided that Dr. Kolbe’s conclusions were … helpful in determining whether the transaction presented a reasonable chance of profitability. …

Likewise, [the Taxpayer’s] attacks on Dr. Kolbe’s methods don’t land a punch. It was appropriate for the Tax Court to rely on Dr. Kolbe’s testimony about expected rates of return. …

Dr. Kolbe, a principal in Brattle’s Cambridge, MA office, specializes in financial economics, particularly as it applies to rate regulation and project or asset valuation.