Law360, New York (November 26, 2013, 1:42 PM EST) -- Three recent cases applied the economic substance doctrine, with quite different results, to the structured trust advantaged repackaged securities ("STARS") transaction, one of several "foreign tax credit generators" that the IRS is aggressively challenging. Most practitioners are very familiar with the "conjunctive vs. disjunctive vs. multifactor test" conflict over economic substance. These STARS cases illustrate that often what really drives the decisions are some of the nitty-gritty details of applying the applicable standard, which often allow courts a great amount of discretion. Some of the analysis in these cases was highly questionable. When the cases are appealed, we may get further clarification of how the economic substance doctrine should really work....
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