Cir

John Paul Reddam claimed a deduction on his 1999 tax return of $50,164,421 for a capital loss purportedly generated by several Cayman Islands entities. The Commissioner of Internal Revenue disallowed the deduction, finding that the transaction lacked economic substance. After a bench trial, the Tax Court affirmed. Reddam v. Comm’r, No. 22557-08, 2012 WL 1215220 (T.C. Apr. 11, 2012). We have jurisdiction over Reddam’s appeal under 26 U.S.C. § 7482 (a)(1) and affirm.

I. Factual Background

A. Reddam’s $48,500,000 capital tax gain and search for tax reduction strategies

In 1995, Reddam founded several companies (collectively “DiTech”) that originated, purchased, and serviced residential home loans. Reddam was the sole shareholder, chief executive officer, and chairman of the board of each entity. Between 1995 and 1997, DiTech grew significantly.

Reddam used KPMG for his personal taxes and DiTech’s corporate returns. KPMG also served as DiTech’s auditor. In 1998, Reddam hired a KPMG partner, Scott Carnahan, as the president of Di-Tech.

In 1998, Reddam considered either taking DiTech public or selling it; he also investigated ways to reduce the tax liability associated…