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Court rules Wells Fargo liable 20 percent penalty after allegedly abusive tax shelter

By Mark Iandolo | May 31, 2017

MINNEAPOLIS (Legal Newsline) — The U.S. Department of Justice announced May 25 that a federal court in Minneapolis ruled Wells Fargo is liable for a 20 percent negligence penalty for the $350 million of foreign tax credits it claimed while participating in an alleged abusive tax shelter called the Advantaged Repackaged Securities (STARS).

Although Wells Fargo said STARS was a single, integrated transaction, the jury found that the transaction was actually two economically distinct transactions – a loan and a trust. The jury, therefore, held that Wells Fargo entered the trust for tax reasons only.

“The jury verdict is a resounding message to companies trying to exploit an abusive transaction that no matter how sophisticated the scheme, these sham tax shelters will not stand,” said acting assistant attorney general David A. Hubbert of the Justice Department’s Tax Division. “The court’s opinion is equally clear that taxpayers who engage in such transactions can be subject to significant penalties.”

The Internal Revenue Service assisted the Justice Department in this case. Handling the issue for the department were Tax Division chief senior litigation counsel Dennis Donohue, trial attorneys William Farrior, Harris Phillips and Viki Economides. Paralegal Joanna Lara also assisted.

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U.S. Department of Justice