) tax claim of $688 million from the Internal Revenue System
(IRS) was recently ruled out by the U.S. Court of Federal Claims.
After losing the legal battle, BB&T will now incur $250
million as post tax charges in third-quarter 2013.
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The claim was under the purview of the Structured Trust
Advantaged Repackaged Securities (STARS) tax shelter program,
which was criticized by the Federal judge Thomas Wheeler as "an
economically meaningless tax shelter".
The outstanding tax for 2002-2007 was cleared by BB&T in
2010. The company thought that clearing the outstanding tax would
give it a fair chance of making claims. However, earlier this
The Bank of New York Mellon Corporation
) lost a similar case against the IRS, BB&T set aside $281
million as a charge to increase its reserves.
STARS was originally a deal between
) and six U.S. banks. Though it had a legal approach based on the
concept of tax shelter, the deeper motives were dubious.
The U.S. law forbids double taxation of companies that hold
transactions worldwide. Therefore, once a transaction is
completed, such a company can claim "foreign tax credits" from
Internal Revenue System (IRS). However, the controversial deal
between the U.K. banking giant and the U.S. banks was inked
merely to exploit the aforementioned law and reap tax benefit.
IRS is still dealing with two pending STARS tax claim lawsuits
Wells Fargo & Company
) and Banco Santander, S.A. Tax shelter schemes are often complex
and have loopholes. Large financial institutions often indulge in
tax arbitraging, thereby misusing the same.
Currently, BB&T carries a Zacks Rank #3 (Hold).