HMN Financial: A Court's Display of ‘Intellectual Honesty' Heartens Taxpayers in Battle Over ‘Sham Transaction' Doctrine

The Bloomberg BNA Tax Management Weekly State Tax Report filters through current state developments and analyzes those critical to multistate tax planning.

On May 20, 2010, the Minnesota Supreme Court held, in HMN Financial v. Minnesota Comr. of Rev., that the state commissioner of revenue had no authority to disregard a captive real estate investment trust for lack of business purpose or economic substance—even though the structure clearly was motivated by tax savings. The case marks a significant victory for taxpayers in an ongoing battle with states seeking to use the “sham transaction” doctrine to derail corporate structures such as REITs and Delaware holding companies. In this interview, BNA talks with Donald M. Griswold, partner in Reed Smith LLP's nationwide State Tax Group, about the court's opinion and its implications. A member of BNA's Multistate Tax Advisory Board, Griswold had been with KPMG LLP in the early 1990s, when that firm initiated the captive REIT structure.
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