Robert J. Fedor, Esq., L.L.C.

STARS dealings still being debated concerning tax consequences

An appeal concerning $400 million in business losses related to transactions engaged in by Wells Fargo & Co. will not be heard by the U.S. Supreme Court. Wells Fargo had hoped to have these losses written off on their tax returns thus entitling them to an $82 million refund. However, one appellate court had ruled that these losses were unrelated to any business or economic purpose outside of an attempt to avoid paying taxes.

Wells Fargo continues to dispute the manner in which the law was enforced by federal officials and thus asked the Supreme Court for a review. From the perspective of Wells Fargo, the structured trust advantaged repackaged securities financial transactions or STARS that the bank marketed were related to legitimate tax planning.

The decision by the nation's highest court is not the end of this matter, however. The economic substance doctrine used by the IRS is likely to again be challenged when it comes to STARS economic substance cases.

In using the economic substance doctrine the IRS alleges that they are examining the broader purpose and outcome of STARS transactions rather than merely the technicalities of the financial structures. One tax attorney who used to work for the U.S. Justice Department stated that one appellate ruling in favor of banks could very well land such a matter back at the Supreme Court.

Tax disputes are a constant when it comes to such a complex area of law. Reasonable individuals can disagree on the manner in which taxes are applied by agencies such as the IRS. It may be a good idea to speak to an experienced tax attorney in the event that a dispute arises. IRS rulings sometimes bring along expensive and unanticipated consequences for taxpayers, and these taxpayers have a right to have their side of the story heard.

Source: Business Recorder, "US Supreme Court declines to hear Wells Fargo-IRS tax squabble," Muhammad Iqbal, June 10, 2014

No Comments

Leave a comment
Comment Information