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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