U.S. Tax Court Invalidates Taxpayer’s FASIT Arrangement, Upholds IRS Deficiency Determination

The U.S. Tax Court ruled that a pharmaceutical corporation’s FASIT arrangement was invalid because the Series A/E Stock didn’t meet the regular interest requirements, thereby upholding the IRS’s deficiency determination. The taxpayer, a pharmaceutical corporation, created a financial asset securitization investment trust (FASIT) arrangement by designating a segregated pool of intercompany loans as FASIT assets and issuing three interests. The IRS found the arrangement invalid, requiring the recognition of interest income. The court ruled the Series A/E Stock failed to provide unconditional principal entitlement and fixed interest payments, with its liquidation preference and dividends contingent on board discretion. Moreover, the ...