The U.S. Court of Appeals for the Seventh Circuit in Chicago has affirmed the Tax Court, upholding the disallowance by the IRS of losses claimed by investors in a DAD (distressed asset/debt) tax shelter.

Warwick Trading LC was created by an attorney, John Rogers. The purpose of creating Warwick, according to the court, was “to beat taxes by transferring the losses of a bankrupt Brazilian retailer of consumer electronics, Lojas Arapua S.A., to U.S. taxpayers who would deduct the losses from their taxable income. Arapua had receivables with a face value of $30 million. Because the receivables were to a great extent uncollectible (they were owed by consumers, had very small balances, and were very old), they had a negligible market value. Rogers used a company that he owned, Jetstream Business Limited, to join with Arapua in forming Warwick.

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