(Corrects headline from $900 billion to $900 million)
WASHINGTON, Feb 11 (Reuters) - A U.S. court ruled on Mondayagainst Bank of New York Mellon Corp's bid to keep $900million in tax benefits it called a legal funding strategy, butwhich tax authorities deemed abusive.
The Internal Revenue Service had earlier denied Bank of NewYork's use of foreign tax credits, expense deductions and trustincome for 2001 and 2002 to lower its tax bill. The companyfiled a lawsuit against the agency.
The U.S. Tax Court agreed with the IRS, ruling that thetransactions lacked "economic substance," meaning they were donesolely for tax purposes.
A Bank of New York spokesman had no immediate comment.
The case was the first to go to trial since the IRS accusedsome banks of generating artificial foreign tax credits throughloans with London-based Barclays Plc.
The tax benefit stems from a $1.5 billion loan to BNY Mellonfrom Barclays, which also helped several other U.S. banksgenerate billions of dollars in foreign tax credits.
Barclays has not been accused of any wrongdoing.
The banks in question used foreign tax credits, which aregiven to U.S. companies to prevent them from being double-taxedby two countries for the same income. The banks call it a legalfunding strategy; the government calls them sham tax shelters.
The transaction "was an elaborate series of pre-arrangedsteps designed as a subterfuge for generating, monetizing andtransferring the value of foreign tax credits," wrote Tax CourtJudge Diane Kroupa in a 55-page decision. (Reporting by Kim Dixon and Patrick Temple-West; Editing byKevin Drawbaugh, Bernard Orr)
Barclays (BARC)
