By Patrick Temple-West
WASHINGTON, Sept 20 BB&T Corp lost on
Friday a multimillion-dollar tax dispute with the U.S. Internal
Revenue Service in federal court over a transaction the judge
called "an economically meaningless tax shelter."
In a ruling that could affect other U.S. banks with similar
disputes, BB&T unit Salem Financial was fighting for a tax
refund of $772 million related to a deal that it said was meant
to advance its core business.
A U.S. Court of Federal Claims judge disagreed.
"(T)he weight of the evidence shows that tax avoidance was
singularly and precisely the goal pursued in execution of the
STARS transaction," Judge Thomas Wheeler said in a 67-page
BB&T, in a statement late Friday, said it was reviewing the
court decision and evaluating its legal options. The firm
expects to book an after-tax, related charge of about $250
million in the current quarter, but remain profitable for the
"We are surprised and very disappointed with the court's
ruling and continue to firmly believe that this was a legitimate
financing transaction," BB&T's Chairman and Chief Executive
Officer Kelly King said.
STARS is short for "structured trust advantaged repackaged
securities." The IRS has accused several banks of generating
artificial foreign tax credits through STARS from roughly 1999
to 2006 with the assistance of UK bank Barclays Plc.
Barclays was not a party in any of the STARS cases.
Foreign tax credits are awarded to U.S. companies by the IRS
to ensure that they are not taxed twice on the same profits by
the U.S. government and by a foreign government.
Wheeler said the final dollar amount in the BB&T dispute
will still need to be confirmed between the bank and the IRS.
BB&T, in a filing with the U.S. Securities and Exchange last
month said that as a result of the litigation, its future
uncertain tax positions could range from a $496 million benefit
to a $328 million expense.
In February, Bank of New York Mellon lost a STARS case
in U.S. Tax Court. The bank has said it is
appealing the decision.
Wells Fargo and Santander Holdings are
challenging the IRS in separate STARS disputes.