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Wells Fargo liable for penalties for engaging in abusive tax shelter scheme

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Staff Writer |
Wells Fargo
Banking   Structured Trust Advantaged Repackaged Securities

On Wednesday, a federal court in Minneapolis, Minn. ruled that Wells Fargo is liable for a 20 percent negligence penalty in connection with $350 million of foreign tax credits that it claimed based on its participation in an abusive tax shelter known as Structured Trust Advantaged Repackaged Securities (STARS).

This follows a Minnesota jury’s verdict on Nov. 17, 2016, that ruled Wells Fargo was not entitled to those foreign tax credits because the transaction lacked both economic substance and a non-tax business purpose.

After a three-week trial, the jury in this case was asked to determine whether Wells Fargo’s STARS transaction had economic substance, and the jury made some key factual findings.

Wells Fargo contended that STARS was a single, integrated transaction that resulted in low-cost funding, but the jury found that in reality, the transaction consisted of two economically distinct and independent transactions: a loan and a trust.

The jury found that the trust structure had no reasonable potential for pretax profit and that Wells Fargo entered into the trust structure solely for tax reasons. The jury also found that Wells Fargo entered into the loan solely for tax-related reasons.


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