The U.S. Supreme Court decided not to hear Dow Chemical Co's bid to revive its more than $1 billion claim in tax deductions based on partnerships the company entered. Lower courts declared those partnerships were created to avoid tax liability, in a fraudulent move to avoid paying taxes.
The justices left two rulings by the New Orleans-based 5th U.S. Circuit Court of Appeals that favor the U.S. government over the partnerships which ran since 1993 until 2003. Those partnerships are Chemtech I and Chemtec II.
The Internal Revenue Service (IRS) and the courts agreed that Dow Chemical did not have the right to the tax benefits, but on the other hand, they punished the company. Dow will have to pay a 20% penalty for substantial understatement of taxes and negligence.
Partnerships, Chemtech I and II, were created to avoid taxes
The partnerships Chemtech I and Chemtech II were involved in the case. Both partnerships ran respectively since 1993 until 1997, and since 1998 until 2003. The real purpose of the creation of these partnerships was to avoid taxes.
Chemtech I was a certain type of tax shelter. This partnership was marketed by Goldman Sachs Group Inc to big companies under the name SLIPs, which means Special Limited Investment Partnerships.
Chemtech II was created by the King & Spalding law firm. This law firm helped implement both partnerships.
The appeals court declared in its first 2014 ruling that Chemtech I allowed deductions for royalty costs, which were linked to the use of 73 Dow patents.
Chemtech II allowed deductions linked to the depreciation of a chemical plant, worth $715 million, that had a tax basis of just $18.5 million. Years later, in 2016, the appeals court upheld penalties imposed by the district court.
Dow Chemical will have to face the consequences of its lack of honesty.
