Federal Circuit Seems Open to Interest Deduction in BB&T STARS Appeal

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Jan. 7 — A Federal Circuit panel hearing the first appeals-level STARS case seemed receptive to, at a minimum, allowing BB&T the interest deduction on the loan component of the transaction (Salem Fin., Inc. v. United States, Fed. Cir., No. 14-05027, oral arguments 1/7/15).

The government's counsel, Judith A. Hagley, said during oral arguments Jan. 7 before the U.S. Court of Appeals for the Federal Circuit that BB&T Corp. wasn't entitled to the deduction, because the loan wasn't for a non-tax purpose, but the judges appeared more accepting of BB&T's argument that the loan proceeds were used in BB&T's banking business.

The panel, consisting of Judges William C. Bryson, Kathleen M. O'Malley and Todd M. Hughes, didn't appear particularly hostile or friendly to either side regarding the treatment of payments made to BB&T by Barclays Bank PLC. The payments were related to U.K. tax credits received by Barclays in the trust component of the structured trust advantaged repackaged securities (STARS) transaction.

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