U.S. Justice Dept says wins $1 bln Dow Chemical tax shelter case

WASHINGTON (Reuters) - The U.S. Justice Department said on Wednesday it has won a $1 billion tax shelter case against Dow Chemical Co that involved a Swiss partnership, Wall Street financial giant Goldman Sachs and international law firm King & Spalding.

The U.S. District Court for the Middle District of Louisiana "rejected two tax shelter transactions entered into by The Dow Chemical Company that purported to create approximately $1 billion in phony tax deductions," Justice said in a statement.

Chief Judge Brian Jackson also imposed penalties, the department said of the decision in the Baton Rouge court.

A Dow spokeswoman said in a statement that Dow sued the U.S. government for return of taxes paid for tax years 1993-2003.

"Dow paid all taxes at issue plus interest, but requested the U.S. District Court to agree that the taxes were wrongly assessed by the IRS," the spokeswoman said.

"Dow is disappointed by the trial court's decision ... we believe the opinion is not supported by the facts and applicable law. Dow is exploring all of its options, including appeal."

The Justice Department said the tax transactions were created by Goldman Sachs and King & Spalding and involved forming a partnership that Dow operated from its European headquarters in Switzerland.

Jackson wrote in his 74-page opinion that the government was correct to reject "the artificial tax benefits created by these schemes that were designed to exploit perceived weaknesses in the tax code and not designed for legitimate business reasons," according to the Justice Department.

Assistant U.S. Attorney General Kathryn Keneally of Justice's Tax Division said: "It is offensive to all taxpayers who pay their fair share when our largest corporations believe that they can claim hundreds of millions of dollars in tax deductions that are manufactured by abusive tax schemes."

Goldman Sachs could not immediately be reached for comment. A King Spalding spokesman declined to comment.

(Reporting by Patrick Temple-West in Washington, with Ernest Scheyder and Lauren LaCapra in New York; Editing by Kevin Drawbaugh)