The shelters were called BLIPS, FLIP, OPIS, and SOS. All were allegedly designed to create phony losses that investors could use to reduce their taxes. For example, BLIPS — “Bond Linked Issue Premium Structures” — were sold to at least 186 wealthy individuals and generated at least $5 billion in tax losses.
A client would borrow from an offshore bank to buy foreign currency from the same bank. Roughly two months later the client would sell the currency back to the lender, creating what the government contends was a phony tax loss that the client could then deduct from his capital gains and income from other investments.
SOS was a similar but more complex currency deal; FLIP and OPIS involved investment swaps through the Cayman Islands, a well-known tax haven. The IRS contends that all these loans and investments were risk-free, sham transactions designed solely to reduce taxes — to the tune of nearly $12 billion in phony losses that cost the Treasury $2.5 billion.