By Erin McManus
June 9 — 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.
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.
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.”
The court's June 9 decision not to hear the case leaves open issues of economic substance, as it recently acknowledged in United States v. Woods, 134 S. Ct. 557, 2013 BL 333860 (2013), “so the denial of the petition might seem surprising,” Andy S. Grewal, a professor at the University of Iowa College of Law, told Bloomberg BNA.
“But past practice suggests that the Court prefers to resolve disputes where two circuit courts reach different results for the exact same transaction,” Grewal said.
“WFC followed the oft-failed approach of arguing that its complex facts made its case stand out from other complex transactions. That approach makes it easy for the government to avoid fundamental economic substance questions in its briefs in opposition. Going forward, taxpayers should frame their petitions differently,” Grewal said.
To contact the reporter on this story: Erin McManus in Washington at email@example.com
To contact the editor responsible for this story: Cheryl Saenz at firstname.lastname@example.org
Additional information is available in BNA's Supreme Court Docket Watch: 2013-2014 Term Tax Law Cases.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).