The recent opinion in Wells Fargo & Co. v. United States, No. 09-CV-2764 (PJS/TNL), 2017 U.S. Dist. LEXIS 80401 (D. Minn. May 24, 2017) provided a thoughtful application of the economic substance doctrine.
In the same opinion, the court also addressed the applicability of a negligence penalty for the underpayments associated with the aspects of the STARS transaction that lacked economic substance; the penalty potentially applied to its claims for foreign tax credits derived from the trust component of the transaction. Wells Fargo, 2017 U.S. Dist. LEXIS 80401 at *13. The question was what a taxpayer must establish to avoid a negligence penalty under section 6662(b)(1) of the Internal Revenue Code; Wells Fargo argued that it should not be penalized if the position it took on its tax return was objectively reasonable under relevant authority.… Read More