Supreme Court Won't Hear Wells Fargo's Appeal on Economic Substance

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The U.S. Supreme Court declined to review a decision by a federal appeals court that affirmed the disallowance by the Internal Revenue Service of a $423 million capital loss claimed by a subsidiary of Wells Fargo & Co. on the basis that the underlying transaction lacked economic substance (WFC Holdings Corp. v. United States, U.S., No. 13-1037, cert. denied 6/9/14).

The U.S. Court of Appeals for the Eighth Circuit found that a lease restructuring transaction entered into by WFC Holdings Corp. lacked economic substance even though the transaction generated non-tax economic profits and complied with the tax code (164 DTR K-2, 8/23/13).
The government argued that the Eighth Circuit decision wasn't a threat to legitimate transactions. The government described the WFC transaction as a prepackaged “tax product” sold to WFC by KPMG LLP that was meant “to create an enormous tax loss.”