IRS Wins Tax Shelter Case Involving Bank of New York Mellon Corp.

The IRS has prevailed in a tax shelter case in which Bank of New York Mellon Corp. failed in its efforts to keep $900 million in tax benefits.

The tax shelter, called Structured Trust Advantaged Repackaged Securities, or STARS, was marketed to banks more than 10 years ago. The IRS has been trying to disallow the tax benefits for some of the financial institutions that used it, the Wall Street Journal reported, with the BNY Mellon lawsuit serving as a test case.

The IRS denied BNY’s use of foreign tax credits, expense deductions and trust income to lower its tax bill. The company filed a lawsuit against the agency.

On Feb. 11, the U.S. Tax Court denied BNY’s claim that the strategy was legitimate. “U.S. tax laws and treaties do not recognize sham transactions or transactions that have no economic substance as valid for tax purposes,” the court said in its opinion, Reuters reported. Court papers say that the IRS had determined tax deficiencies totaling about $215 million for 2001 and 2002. BNY plans to appeal.