Barclays’ structured trust advantaged repackaged securities (Stars) are perhaps the most well-known FTC generators and they have allowed multiple US banks to reduce their tax liabilities — though the Internal Revenue Service is challenging this in the courts.

The Internal Revenue Service fought back when some of the benefits were claimed, and on May 14, 2012 they won in the US Tax Court, leading to the benefits being disallowed. This case, along with another won by the IRS in September last year, allows a rare glimpse into the world of international tax arbitrage.

The type of transaction can generally be classified as a so-called “FTC Generator” as one of the main benefits, if not the main benefit, concerns positive tax attributes created by it.

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A Bloomberg article kicked the whole thing off:

The scheme will form a centrepiece of the Budget initiatives to help small to medium-sized businesses cope with the recession. Its unveiling marks the culmination of months of negotiations with insurers spearheaded by Lord Mandelson, the business secretary.

Here’s the 1,500 word dispatch in full:

It was one of a series of articles that appeared in the mainstream press contemporaneous to AIG’s bailout that dissected just what the insurer had been doing that made it so risky, and so systemically important.