BB&T Corp loses $772 million 'tax shelter' court case

Fri Sep 20, 2013 10:09pm EDT
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By Patrick Temple-West

WASHINGTON (Reuters) - BB&T Corp lost on Friday a $772 million 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 related to a deal that it said was meant to advance its core business.

A U.S. Court of Federal Claims judge disagreed.

"The 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 decision.

"For the foregoing reasons, the Court finds that Plaintiff (BB&T) was engaged in an economically meaningless tax shelter," he said.

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 quarter.

"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 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.   Continued...

A BB&T bank is pictured in Alexandria, Virginia July 22, 2010. BB&T Corp. shares were lower after the bank came in with higher profit but fell short of earnings forecasts. REUTERS/Molly Riley