IRS clamps down on basis-shifting tax shelter schemes with a new approach that defers loss

Once the Proposed Regulations become final, no longer will taxpayers be able to use a "defective" redemption to shift basis to another shareholder. In a dramatic change in the Service's approach to this situation, the unused basis will remain with the taxpayer who made the investment in the redeeming corporation's stock and eventually will give rise to a deductible loss that only such investor can enjoy.