Could STARS Controversy be Headed for U.S. Supreme Court?
It is not common for the U.S. Supreme Court to hear tax-related cases. Certainly, the nine-member panel doesn’t typically get involved in questions over most audits or tax appeals. But sometimes, when it’s clear that there is no other way to resolve conflicting decisions made at lower jurisdictional levels, the high court deigns to weigh in to try to clear up confusion.
Just such a series of cases making their way through the system has some legal experts speculating that the Supreme Court may be asked to intervene. The question the justices appear likely to face is the validity of controversial tax shelters known as STARS.
That’s an acronym for “structured trust advantaged repackaged securities.” And there are some tax law experts who say that STARS represents an effort by the Internal Revenue Service (like the Foreign Bank Account Reporting law) to close what it sees as tax loopholes at the global level.
The subject is currently the focus of challenges by four major international banks. They’re contesting IRS claims that they used STARS between 1999 and 2006 to evade federal tax liabilities. Key to the government’s argument is the notion that STARS deals lacked “economic substance” and were used only to generate foreign tax credits, which the banks then used to reduce or avoid U.S. liability.
Two cases earlier this year went in favor of the IRS, but one of them was reversed on appeal before the Tax Court. And earlier this month, a Massachusetts court ruled that STARS transactions involving Sovereign Bancorp, a division of Spain’s Banco Santander did have economic substance. A fourth case, involving Wells Fargo, has yet to go to trial.
Source:Reuters.com, “Spanish bank gets partial win in STARS tax shelter fight,” Patrick Temple-West, Oct. 18, 2013