Sham Transactions

Document Type



Published by the American Institute of Certified Public Accountants in Journal of Accountancy, Volume 192, issue 4, Pages 104-105.

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Federal Court Decisions;American Depository Receipts;Withholding Taxes;Foreign Tax Credits


American Institute of Certified Public Accountants

Publication Source

Journal of Accountancy


In IES Industries, Inc. v. United States (2001), the 8th Circuit Court of Appeals reversed the district court and held that the economic substance of the ADR transaction should be measured based on the gross amount of the dividend. Additionally, the court measured the business purpose test-the taxpayer's subjective intent-in light of its right to "decrease the amount of what otherwise would be [its] taxes, or altogether avoid them, by means which the law permits..." This line of reasoning suggests the courts may respect such a tax-motivated transaction if it has economic substance even if the tax considerations are more important.

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