The IRS is challenging a series of tax-skirting deals engineered by the much-maligned AIG Financial Products unit, the Wall Street Journal reports. The deals exploited differences in international tax codes to reduce tax payments for foreign banks—many of the same banks the US government would later pay to settle contracts with the insurer. At its height, the business was even larger than AIG’s credit-default-swap trade.
The complex deals took advantage of foreign tax credits, funneling money through offshore companies. In one deal, AIG and Barclays formed a joint venture called Pyrus Investments that let both companies claim credit for one tax payment. Pyrus had no employees, according to court documents. Proponents say it was just smart business, since such deals weren’t explicitly prohibited until recently. But the IRS commissioner says it “really perverts the foreign tax credit.” (Read more AIG stories.)