BB&T Wins Interest Deduction, Loses Foreign Tax Credits in STARS Appeal

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May 14 — BB&T Corp. can deduct interest incurred from the loan portion of its STARS transaction with Barclays PLC, but it can't claim foreign tax credits from the trust portion (Salem Fin., Inc. v. United States, Fed. Cir., No. 14-05027, 2015 BL 148218, 5/14/15).

The U.S. Court of Appeals for the Federal Circuit ruled May 14 that the “structured trust advantaged repackaged securities” (STARS) transaction that BB&T entered into with Barclays from 2002 to 2007 could be bifurcated into its trust and loan components.

Judge William C. Bryson said that the entire purpose of the trust transaction was to generate U.S. foreign tax credits, finding that it lacked economic substance despite complying with the letter of the tax code.