00-157 United Dominion Industries, Inc. v. United States

Listen to this article

“The case for the single-entity approach to calculating an affiliated group’s PLL is straightforward. Section 172(j)(1) defines a taxpayer’s ‘product liability loss’ for a given tax year as the lesser of its ‘net operating loss for such year’ and its product liability ‘expenses.’ In order to apply this definition, the taxpayer first determines whether it has taxable income or NOL, and in making that calculation it subtracts PLEs. If the result is NOL, the taxpayer then makes a simple comparison between the NOL figure and the total PLEs. The PLE total becomes the PLL to the extent it does not exceed NOL. That is, until NOL has been determined, there is no PLL.

“The first step in applying the definition and methodology of PLL to a taxpayer filing a consolidated return thus requires the calculation of NOL. As United Dominion correctly points out, the Code and regulations governing affiliated groups of corporations filing consolidated returns provide only one definition of NOL: ‘consolidated’ NOL, see Treas. Reg. sec. 1.1502-21(f). There is no definition of separate NOL for a member of an affiliated group. Indeed, the fact that Treasury Regulations do provide a measure of separate NOL in a different context, for an affiliated corporation as to any year in which it filed a separate return, infra, at ___, underscores the absence of such a measure for an affiliated corporation filing as a group member. Given this apparently exclusive definition of NOL as CNOL in the instance of affiliated entities with a consolidated return…, we think it is fair to say, as United Dominion says, that the concept of separate NOL ‘simply does not exist.'”

Reversed and remanded.

Local Effect:

The issue has not previously been considered by the Seventh Circuit.

Souter, J.; Thomas, J., concurring; Stevens, J., dissenting.

Certiorari to the United States Court of Appeals for the Fourth Circuit, 208 F.3d 452.