US appeals court affirms Barnes, applies step-transaction doctrine to thwart repatriation strategy

The United States Court of Appeals for the Second Circuit on November 5 upheld the US Tax Court’s decision in Barnes v. Comm., stating that the IRS properly applied the step transaction doctrine to disregard a series of transactions designed to avoid tax on repatriation of overseas earnings. The Court upheld the Tax Court’s conclusion that Barnes received a taxable dividend from its Singapore subsidiary and was liable for the 20 percent accuracy-related penalty. See, Barnes Group Inc. and subsidiaries  v. Commissioner.