Paul L. Caron

Friday, March 1, 2013

Dow Chemical Loses $1 Billion Tax Shelter Case

DowChemtech Royalty Associates v. United States, No. 05-cv- 00944 (M.D. LA Feb. 26, 2013):

The resolution of this case turns, in large part, on this Court's application of judicial doctrines that have been developed by the courts for more than three-quarters of a century. For the reasons which follow, the Court finds that the Chemtech transactions should be disregarded for tax purposes because: a) the transactions fail both tests under the economic substance doctrine; b) the partnership was a sham and had no legitimate business purpose; and c) even if this Court were to respect the partnership as a separate entity for tax purposes, it would not treat the banks as true equity partners. Finally, the Court finds that a 20% penalty applies for substantial understatement and negligence.

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