Tax Procedure: Sometimes Substance Over Form Means Equity is Debt

Substance over form 2The notion that substance controls over form does some heavy lifting in the tax world. Among other things, it separates real losses from fake ones; it tells us when debt is really equity; and, as the Ninth Circuit ruled earlier this month, sometimes it can tell us that equity is really debt. Hewlett-Packard Co. v. Comm’r, Nos. 14-73047 & 14-73048, 2017 U.S. App. LEXIS 22536 (9th Cir. Nov. 9, 2017).

In Hewlett-Packard, the taxpayer purchased preferred stock issued by a Dutch company that invested in notes which featured certain interest payments that were contingent upon future events. Hewlett-Packard, 2017 U.S.… Read More

Tax Shelters: The Government Prevails Against Santander

Santander Holdings United States v. United StatesThe IRS and the Tax Division of the Department of Justice have expended significant effort fighting tax shelters, and they have enjoyed many successes in that endeavor. One transaction that the government challenged was known as “STARS,” an acronym for Structured Trust Advantaged Repackaged Securities. STARS was a transaction that Barclays promoted to a number of U.S. banks; it gave Barclays tax benefits in the United Kingdom, while the U.S. counterparties claimed significant foreign tax credits with minimal risk.

The IRS and the Tax Division pursued a series of cases attacking the STARS transaction as a tax shelter. Deploying the economic substance doctrine, the government obtained favorable rulings in two cases:

  • In Bank of New York Mellon Corp.
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