Reuters, HP Loses $190 Million Tax Case Against IRS, by Lynnley Browning:

Hewlett-Packard Co. on Monday lost a battle with the IRS for more than $190 million in tax refunds tied to a Dutch tax shelter designed by the derivatives arm of American International Group. [Hewlett-Packard Co. v. Commissioner, T.C. Memo. 2012-135 (May 14, 2012).] The ruling turns a spotlight on an aggressive tax-cutting strategy created last decade by AIG Financial Products and bankrolled by several European banks. The strategy involved trading derivatives with the aim of generating capital losses and foreign tax credits for large corporations, like HP, which then used them to try to lower their U.S. tax bills.

Judge Joseph Goeke of United States Tax Court in Washington, D.C., ruled against HP, which had sued the IRS in 2009 seeking the refunds.

The strategy, broadly known as a foreign tax credit generator, involves complex investments by large U.S. companies in foreign entities, typically in low-tax jurisdictions. The companies claim on their U.S. tax returns offsetting, or tax-lowering, credits for payments they make or owe to foreign tax authorities on the investments.

The IRS contends that many foreign tax credit generators lack economic substance and are engineered to create artificial financial benefits that are not valid for IRS deductions. The IRS outlawed many foreign tax credit generators around 2007. [Lawyers from Sullivan & Cromwell and Skadden blessed the HP transactions.]