Frequently Asked Questions

The PSA is authorized under Internal Revenue Code §704(b) and governed by Treasury Regulation §1.704-1(b). These are established provisions of the U.S. tax code, not loopholes. The strategy uses special loss allocations within a legitimately operating trading partnership — a structure Congress created and the IRS has repeatedly examined.

In eleven audits across ten years, the IRS and California Franchise Tax Board have examined the structure at the individual return level, the partnership level, and on appeal. Every audit concluded with no changes and no disallowances.

No. An abusive tax shelter typically lacks economic substance or real economic activity. The PSA involves a genuine, actively trading partnership — one that trades foreign currency, securities, and other instruments — with real capital contributions, a deficit restoration obligation, and properly maintained capital accounts.

The structure is specifically designed to satisfy IRC §7701(o), the economic substance doctrine, as well as the at-risk rules under §465. These are the exact tests the IRS applies when evaluating partnership tax strategies.

The PSA rests on multiple layers of established law. IRC §704(b) permits partnership agreements to allocate losses disproportionately to partners as long as the allocation has "substantial economic effect." Treasury Regulation §1.704-1(b) defines exactly what that means. IRC §465 governs the at-risk rules, and Treasury Regulation §1.469-1T(e)(6) explicitly classifies trading partnership losses as non-passive — applicable even to limited partners who perform no work.

These are not interpretations or gray areas. They are codified regulations with decades of administrative guidance and case law supporting them.

You partner with an active trading partnership. Under IRC §704(b), the partnership allocates trading losses disproportionately to you — the partner with the tax liability. These losses are documented in the partnership agreement, flow to a negative Schedule K-1, and offset your capital gain or ordinary income on your individual return, dollar for dollar.

Because trading partnership losses are classified as non-passive under §1.469-1T(e)(6), there are no passive activity limitations. The loss applies directly — regardless of your level of participation in the partnership.

You keep full control of your proceeds at all times. Your sale closes, and every dollar goes to you — your account, your direction. Nothing is moved without your instruction.

You fund the PSA after receiving your proceeds — typically within one week of close. You fund 16% of your taxable gain (capital gains) or 20% of your tax owed (ordinary income). Within 30 days, 5% of your gain (capital gains) or 7.5% of your taxable amount (ordinary income) is returned to you as a self-directed investment account. Your true net outlay is 11% for capital gains or 12.5% for ordinary income.

A Schedule K-1 is a tax form that partners in a partnership receive each year showing their share of the partnership's income, losses, deductions, and credits. A negative K-1 means you received a loss allocation from the partnership — which flows to your personal tax return and offsets your taxable income or gain.

This is a standard tax form that your CPA is familiar with. We provide the complete K-1 and all supporting partnership returns within 30 days of funding.

For capital gains events, you fund approximately 16% of your taxable gain. For ordinary income events, it is approximately 20% of your tax owed. This is a single, all-in payment — all legal, accounting, administrative, and strategy costs are embedded. No retainer fees. No annual fees. Nothing after funding.

Within 30 days of funding, 5% of your taxable gain (capital gains) or 7.5% of your taxable amount (ordinary income) is returned to you as a self-directed investment account. Your true net effective cost is 11% for capital gains events or 12.5% for ordinary income events.

No. The single funding payment covers everything. The only potential additional cost is a deal-specific written legal opinion from an AmLaw 100-ranked law firm — available if you or your legal counsel require a tailored written opinion for your specific transaction. This is entirely optional and priced separately.

Eleven clients before you have been audited — by the IRS at both the Form 1040 level and the partnership level, and by the California Franchise Tax Board. Every audit concluded with no changes and no disallowances at the federal, state, and appellate levels.

The structure is built to survive an audit because it satisfies every layer of IRS scrutiny: economic substance, substantial economic effect, at-risk rules, and non-passive classification. The operating agreement, capital account maintenance, and deficit restoration obligation are all in place before funding.

If a transaction lacking economic substance is disallowed, the IRS can impose a 20% accuracy-related penalty, or 40% if not properly disclosed. This is why the PSA is structured to clearly satisfy economic substance requirements — and why independent legal opinions and proper disclosure are central to how we operate.

In eleven audits, zero clients have faced this outcome. But understanding the risk is part of making an informed decision.

The PSA is designed for individuals with significant taxable events: $500,000 or more in capital gains, $500,000 or more in ordinary taxable income, or $2 million or more in retirement assets. Business owners selling a company, real estate sellers, shareholders in a liquidity event, and high-income professionals all qualify — depending on the specifics of their situation.

Not necessarily. The PSA can be applied to any qualifying taxable event that occurred within the current tax year — as long as it is implemented before December 31. If you sold a business in February, or closed a real estate transaction in July, you may still be eligible. Schedule a consultation now to confirm your situation and timeline.

State of residence affects your total tax rate — not your eligibility. California residents face combined rates as high as 37.1% on capital gains, making the PSA particularly impactful. But the strategy is applicable in any state. The federal tax savings alone — from offsetting 20% federal capital gains and 3.8% NIIT — are significant regardless of state.

From signed agreements to K-1 delivery: approximately 30 days. Operating agreements are prepared before your close. You fund within one week of receiving your proceeds. Within 30 days of funding, your K-1, partnership returns, and self-directed investment account are all delivered.

Primarily: a sense of your expected taxable gain or income, your state of residence, and your anticipated close date (or confirmation that you've already closed this year). We do not need tax returns, financial statements, or legal documents for the initial conversation. Those come later if we move forward.

Most CPAs focus on standard deductions, entity structure, and retirement contributions. The PSA is an advanced partnership strategy that requires specialized implementation — a trading partnership, a specific operating agreement, and ongoing partnership tax compliance. Very few CPAs implement this independently.

We are complementary to your CPA — not a replacement. We handle the PSA structure. Your CPA continues everything else and incorporates the K-1 we deliver into your return.

No — and it's actually expected. The PSA is not taught in standard accounting programs and is rarely encountered in general CPA practice. Most CPAs who encounter it for the first time are skeptical — which is healthy. We welcome skeptical CPAs and encourage them to review the legal authority, the audit record, and available legal opinions directly.

Many CPAs who initially push back become supporters once they review the complete picture. Our Chief Tax Officer is available for direct CPA-to-CPA conversations.