U.S. Supreme Court rejects Dow over $1 billion tax deduction claim

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By Lawrence Hurley | WASHINGTON

WASHINGTON The U.S. Supreme Court on Monday
declined to hear Dow Chemical Co’s bid to revive its
claim to more than $1 billion in tax deductions based on
partnerships the company entered into that lower courts said
were created primarily to avoid tax liability and had no
legitimate business purpose.

The justices left in place two rulings by the New
Orleans-based 5th U.S. Circuit Court of Appeals in favor of the
U.S. government over the two partnerships that ran from 1993 to
2003.

The lower courts agreed with the Internal Revenue Service
that Dow did not deserve the tax benefits, and also imposed a 20
percent penalty for negligence and substantial understatement of
taxes.

The case involved the partnerships Chemtech I and Chemtech
II, which ran respectively from 1993 to 1997, and 1998 to 2003.

Chemtech I was a type of tax shelter marketed by Goldman
Sachs Group Inc to large companies under the name SLIPs,
which stood for Special Limited Investment Partnerships, while
Chemtech II was created by the King & Spalding law firm. The law
firm helped implement both.

The appeals court said in its first 2014 ruling that
Chemtech I allowed deductions for royalty costs tied to the use
of 73 Dow patents, while Chemtech II allowed deductions tied to
the depreciation of a $715 million chemical plant that had a tax
basis of just $18.5 million. In a subsequent 2016 decision, the
appeals court upheld penalties imposed by the district court. (Additional reporting by Jonathan Stempel)



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