Related to:

Opinion EC-COI-89-21

Date: 07/19/1989
Organization: State Ethics Commission

Tax shelters are reportable on Statements of Financial interest, pursuant to G.L.c. 268B, section 5, as either "investments" or "business" if the fair market value of the shelter is greater than $1,000, regardless of whether the shelter produces tax losses or income.


You are a state employee required to file a Statement of Financial Interest (SFI). You have asked the Commission to provide an opinion as to whether "tax shelters" are reportable on SFIs pursuant to G.L. c. 268B, s.5.


1. Is a "tax shelter" (a venture created to generate tax losses for the purpose of offsetting income) reportable on an SFI pursuant to c. 268B, s.5?

2. Does a tax shelter become reportable on an SFI if it begins to produce revenue instead of tax losses? 3. Is a tax shelter, which is structured as an assumption of a pre-existing debt of another person, reportable on an SFI if losses are generated? Is it reportable if revenue is generated?

4. Would the answers to the above questions

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differ if the shelters are owned by a spouse?


1 & 2. "Tax shelters" are reportable on SFIs for purposes of G.L. c. 268A, s.5 either as an investment (if in excess of $1,000) or as a business entity.

3. Yes to both questions if the debt or revenue is in excess of $1,000.

4. No.


1 & 2. A "tax shelter" is any "device used by taxpayers to reduce or defer payment of taxes."[1] A tax shelter is reportable on an SFI because it must be characterized in one of only two ways:

          (i) as a business, or (ii) as an investment.[2]

If the tax shelter is organized as a business,[3] it would be reportable on an SFI under Question D [4] if the filer or a Family Member (as defined therein) owns more than 1% of the equity in the business.

If the tax shelter is held as an "investment"[5] it is reportable on an SFI under Question G if the fair market value of the investment is greater than $1,000 and the interest is owned beneficially by the filer or a Family Member. The shelters are reportable on SFIs even if they do not generate income because disclosure, for purposes of either Question D or G, is based on an equity ownership test, not an income test.

In the present case, you have posed a series of hypothetical situations. One example cited by you is whether the acquisition of office equipment, not evidenced by any documents, is reportable. Under the arrangement, an individual would not take possession of the equipment but, for purposes of the example, would be permitted by tax rules to claim a deduction. That situation, although presumably not characterized as a business, would be characterized as an investment because the person would be holding the equipment primarily to generate tax losses. It would therefore be reportable under Question G.

3. Another example cited by you is the assumption of a pre-existing debt for the purpose of generating tax losses. That too would be reportable as an investment under Question G if its fair market value[7] is in excess of $1,000. It is also reportable under Question L[8] if the debt or other liability is in excess of $1,000 and the assumed debt is owed by the filer or a Family Member.

4. The answers to each of the above questions would remain the same if a spouse is the exclusive owner of a shelter, whether by pre-nuptial agreement or other ownership, because SFI Questions D, G and L each require disclosure of financial information in connection with the filer and his or her Family Members. For purposes of c. 268A, s.5, a spouse is a Family Member whose financial interests must be disclosed under Questions D, G, and L.

The Commission intends that this opinion is to be applied prospectively only. In response to recent changes in the tax code, the Commission expects to undertake a review of the SFI filing instructions to incorporate, among other things, the issues addressed here.

[1] Black's Law Dictionary, Fifth Edition, 1979.

[2] The ultimate purpose of either a business or an investment the same, namely, the attainment of some economic advantage in exchange for the contribution of something of value. In the case of tax shelters, someone has contributed something of value (usually money) in exchange for generating tax losses which are then used to offset, reduce or defer taxes on other income accruing to the taxpayer. Just as the generation of income results in an economic advantage, the generation of such tax losses also results in an economic advantage to the taxpayer.

[3] For example, as a corporation, a general or limited partnership or other unincorporated association. For purposes of G.L. c. 268A, s.5, a "business" is defined as "any entity organs for profit, non-profit or charitable purposes."

[4] "Business Ownership/Equity."

[5] There is a wide variety of items which may be reported as an "investment" and the Commission has not attempted to create an exhaustive list. As a general guideline, an "investment" for purposes of the conflict of interest law would be any tangible or intangible property held primarily for the purpose of attaining an economic advantage, whether directly (as in the case of income) or indirectly (as in the case of tax shelters). Excluded from this definition are, among other things, items held chiefly for enjoyment.

[6] "Securities and Investments" Alternatively, if the tax shelter is an investment in real property, the investment may have to be disclosed in Question K2

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("Investment and Rental Property"). 

[7] This is an interest for which a value can be determined pursuant to an independent appraisal. Cf. EC-COI-FD-87-2 (value of certain trust assets too speculative to be reportable).

[8] "Other Credit Information."


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