IRS Wins Major Tax Shelter Case —WSJ Washington Wire

Tax Court Judges Structured Trust Advantaged Repackaged Securities” (“STARS”) as Illegitimate.  Costs to BNY/Mellon May Exceed $800M.

The Internal Revenue Service won a high-profile tax shelter case involving Bank of New York Mellon Corp. on Monday, in a ruling that could cost the company more than $800 million.  John D. McKinnon at the WSJ Washington Wire reports the news:

The Tax Court ruling likely adds fuel to a growing debate over corporate taxes in Washington, as lawmakers seek to close government budget gaps and shore up U.S. competitiveness.

 . . . The latest court case involves a convoluted tax shelter known as “STARS” (or “Structured Trust Advantaged Repackaged Securities”) that was designed to generate artificial tax credits for businesses that signed up, according to the IRS. It was marketed by accountants to banks more than a decade ago.

The IRS has sought to disallow the tax benefits for several financial institutions that engaged in it, and the BNY Mellon lawsuit has emerged as a test case.

On Monday, the U.S. Tax Court rejected the BNY Mellon argument that the strategy was a legitimate loan aimed at generating low-cost funding for its banking business. Instead, the Tax Court ruled that “the STARS transaction in essence…was an elaborate series of pre-arranged steps designed as a subterfuge for generating, monetizing and transferring the value of foreign tax credits among the STARS participants.”

BNY/Mellon Says it Will Appeal. 

Tax Court Finds “STARS” Trusts Illegitimate