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Tax Refund

By: Derek Hawkins//April 8, 2020//

Tax Refund

By: Derek Hawkins//April 8, 2020//

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United States Supreme Court

Case Name: Simon E. Rodriguez v. Federal Deposit Insurance Corporation

Case No.: 18-1269

Focus: Tax Refund

The Internal Revenue Service (IRS) allows an affiliated group of corporations to file a consolidated federal return. See 26 U. S. C. §1501. The IRS issues any refund as a single payment to the group’s designated agent. The tax regulations say very little about how the group members should then distribute that refund among themselves. If a dispute arises and the members have no tax allocation agreement in place, federal courts normally turn to state law to resolve the distribution question. Some courts, however, have crafted their own federal common law rule, known as the Bob Richards rule. See In re Bob Richards Chrysler-Plymouth Corp., 473 F. 2d 262. The rule initially provided that, in the absence of an agreement, a refund belongs to the group member responsible for the losses that led to it. But it has since evolved, in some jurisdictions, into a general rule that is always followed unless an agreement unambiguously specifies a different result. Soon after United Western Bank suffered huge losses, its parent, United Western Bancorp, Inc., was forced into bankruptcy. When the IRS issued the group a $4 million tax refund, the bank’s receiver, respondent Federal Deposit Insurance Corporation (FDIC), and the parent corporation’s bankruptcy trustee, petitioner Simon Rodriguez, each sought to claim it. The dispute wound its way through a bankruptcy court and a federal district court before the Tenth Circuit examined the parties’ tax allocation agreement, applied the more expansive version of Bob Richards, and ruled for the FDIC.

The Bob Richards rule is not a legitimate exercise of federal common lawmaking. Federal judges may appropriately craft the rule of decision in only limited areas, Sosa v. Alvarez-Machain, 542 U. S. 692, 729, and claiming a new area is subject to strict conditions. One of the most basic is that federal common lawmaking must be “ ‘necessary to protect uniquely federal interests.’ ” Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U. S. 630, 640. The Bob Richards rule has not satisfied this condition. The federal courts applying and extending Bob Richards have not pointed to any significant federal interest sufficient to support the Bob Richards rule. Nor have the parties in this case. State law is well-equipped to handle disputes involving corporate property rights, even in cases, like this one, that involve federal bankruptcy and a tax dispute. Whether this case might yield the same or a different result without Bob Richards is a matter the court of appeals may take up on remand.

Vacated and remanded

Dissenting:

Concurring:

Full Text


Derek A Hawkins is trademark corporate counsel for Harley-Davidson. Hawkins oversees the prosecution and maintenance of the Harley-Davidson’s international trademark portfolio in emerging markets.

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