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The Supreme Court’s 2019 Term in Tax

Posted on Sep. 21, 2020
[Editor's Note:

This article originally appeared in the September 21, 2020, issue of Tax Notes Federal.

]
Jasper L. Cummings, Jr.
Jasper L. Cummings, Jr.

Jasper L. “Jack” Cummings, Jr., is of counsel with Alston & Bird LLP in Raleigh, North Carolina.

In this ninth annual review of Supreme Court opinions involving tax matters, Cummings notes that the Court has mostly abandoned standard legal decisions to focus on political themes, which he identifies in several decisions.

I. A Political Term

A. ‘Principles’ Rule

The Supreme Court term for 2019-2020 produced just one federal tax opinion and it didn’t even illuminate the meaning of the Internal Revenue Code. However, the Rodriguez opinion will further confuse tax issues in bankruptcy, just when bankruptcies are exploding because of the COVID-19 pandemic. The Court knocked down the alleged “Bob Richards rule,” which actually applied a common law equitable principle to give a consolidated group tax refund to the member that paid the tax that was later recouped by carryback of its own net operating losses.

But there are nuggets in other opinions and actions in the term that might affect federal tax practice, and there is a huge state tax constitutional opinion that is of no importance in tax practice, but it is all about politics. For an example of the nuggets, in a nontax case Justice Samuel A. Alito Jr. concluded that “actual knowledge” means, well — actual knowledge. In another nontax case Alito dissented from a holding that “knowingly” meant knowing that what you did was wrong. And in the Deferred Action for Childhood Arrivals (DACA) case, the Court applied its ever-expanding set of anti-Chevron sub-principles to strike down an agency action. In a dissent to a denial of certiorari in a tax case involving the mailbox rule, Justice Clarence Thomas confessed that he has seen the light and no longer believes in his Chevron-expanding opinion in Brand X.

And in a case asking to extend First Amendment protections to a foreign subsidiary, a U.S. corporation lost because everyone knows corporations are separate from their owners, according to Justice Brett M. Kavanaugh. But he wasn’t on the Court when it tied Hobby Lobby Corp. so closely to its shareholders that when the shareholders felt their First Amendment rights squeezed in an Obamacare tax case, Hobby Lobby felt its corporate First Amendment rights squeezed. And then there is the stare decisis principle and the Louisiana abortion restriction case, in which the dissenters cited their last anti-stare decisis holding in a state tax case to explain why the Court should reverse its 2016 holding in a similar Texas case. And several decisions involved religious groups and their desire to disassociate themselves from Congress’s authority.

Every one of these matters involves a politicized legal principle that some group of the justices wants to promote or demote. First, for example, Republicans don’t like federal common law, because states know best (a version of states’ rights theory). Second, there is the literalist interpretation approach pioneered by Justice Antonin Scalia. Third is the increasing Republican discomfort with Chevron, which drives the Republican-appointed justices to hedge deference with more and more caveats, which the Tax Court applied in Altera;1 Thomas held off changing his mind about Chevron until Scalia passed, Scalia having remained a Chevron fan even as he dissented to Brand X.2 Fourth, the Democratic-appointed justices bent over backward to make “knowingly” awfully hard to prove. And fifth, the principle that corporations are separate is like the principle of stare decisis — use it when it suits the outcome the justice wants, and if not, ignore it.

B. A Little History

All that is no surprise. If the Supreme Court just called balls and strikes, as Chief Justice John G. Roberts Jr. has suggested, it wouldn’t be so interesting. The Court has always reflected political philosophies. For example, without the midnight appointment of the great Chief Justice John Marshall by President John Adams, much of the power of the federal government that we now take for granted (well, most of us take for granted) wouldn’t exist. Marshall was a Federalist and was able to enforce the views of founders like Alexander Hamilton until 1835, long after the Federalist Party had disappeared.

The Republican Party eventually appeared as the indirect successor to the Federalists. But after exercising Hamiltonian power to preserve the union, the value of a strong federal government waned in the estimation of the new form of “big business” — plantations having been replaced by industries and railroads. So a Republican-appointed Court struck down the Democratic-enacted income tax of 1894 as a “socialist” measure in a wholly political 5-4 decision.3 A later version of that Court struck down the first New Deal measures.

But through it all the Court had many centrists, real lawyers who also had political views (Louis Brandeis advised President Wilson; Felix Frankfurter advised President Franklin D. Roosevelt) but were both acute legal experts and fair. Take, for example, Charles Evans Hughes. You can’t get much more political than being the Republican candidate for president in 1916.4 But he shifted to support of legislation designed to help labor and the poor during the second New Deal. And consider the Super Chief Justice Earl Warren.5 He had been a Republican governor of California, appointed to the Court by Republican President Eisenhower. But he was a politician of the best sort: He realized that separate was inherently not equal, and he had the capacity to bring all the other justices along with him in Brown v. Board of Education.

There are several justices today who remain in that tradition of Hughes and Warren, but others reflect the politicization of the Court by a party that has chosen to politicize values issues and to paralyze the political process so that those issues can be decided only by the Supreme Court.6 As proof of that perverse political power of today’s Supreme Court, Donald Trump’s most powerful campaign theme in the 2016 election was the need to control appointments to the Court for the protection of “values.”7

So let’s see how the tax and tax-related decisions infected by politics turned out. It makes you wish for the days when the Court cranked out literally hundreds of three-page opinions that crisply created much of what is the federal income tax.8

C. This Report

This report first addresses the indirect or minor interactions of the Court with tax matters in this term and then examines the Bob Richards rule decision, which appeared earlier in the term. That way readers don’t have to wade through Rodriguez if they don’t want to, but a deep dive is warranted.

II. Actual Knowledge

A. The Holding

Sulyma held that “actual knowledge” required by a nontax statute means actual knowledge.9 It mattered because if the plaintiff had actual knowledge of a fiduciary breach, the plaintiff could sue within three years of the knowledge, even if the suit was otherwise barred by a six-year statute of limitations. The defendant claimed that the plaintiff had received or had the opportunity to review material that would have revealed the facts complained of, but the plaintiff didn’t recall reading it. The Court remanded for a factual determination whether the plaintiff had actual knowledge, not based on a presumption of knowing from having had access to the disclosure.

The opinion of Alito identified three routes to prove actual knowledge: (1) the person’s admission; (2) proof of disclosure to the person plus some circumstantial evidence that the person read the disclosure, such as an electronic tracking of page review or the person’s action on the information read; and (3) willful blindness, which is more than recklessness and requires knowing the information would be in the disclosure and refusing to read it.

B. Federal Tax Applications

Several code sections require actual knowledge, including many about the veracity of affidavits or statements provided to the person.10 A penalty might depend on not having actual knowledge of some improper act.11 Section 897 asks about actual knowledge of ownership of a potential U.S. real property holding corporation. The regulations contain far more requirements of actual knowledge. For this purpose, we ignore the requirements of actual knowledge or reason to know.12

A regulation that requires actual knowledge probably would be subject to the Sulyma interpretation even if it specified one fact that would constitute actual knowledge.13 The more important regulations requiring actual knowledge of various facts are reg. section 1.355-6 and -7 (stock ownership), reg. section 1.367(a)-3(c)(5)(iii) (5 percent shareholders), reg. section 1.382-2T and -3 (stock ownership), reg. section 1.1441-1 and the other withholding regulations generally (agency and various other facts), reg. section 1.6015-3 (joint return liability), and various other reporting regulations. Penalties for willful violations of tax law generally depend on actual knowledge of the law.14

C. Why

All of the justices at least start with the literalist, dictionary-quoting method of finding plain meaning of statutory words.15 So it was pretty much certain that Alito would find that “actual knowledge” means actual knowledge and not any sort of constructive knowledge, based on “should have known” or “could have known” speculation.

Unlike most applications of literal meaning, this one didn’t also promote another cause and its impact can be varied. It could have the effect of extending statutes of limitations for plaintiffs suing large corporations or tortfeasors, for example, depending on how the statute is worded. But it also can free corporate officers and directors from liability for facts of which they did not have actual knowledge. So it is sort of a neutral principle allowing Alito to exercise his literalist chops. The opinion took several swipes at loosey-goosey ways of interpreting statutes. For example, referring to an important decision of the Court on a state tax constitutional issue:

Although “the words of a statute must be read in their context,” Davis v. Michigan Dept. of Treasury, 489 U.S. 803, 809 (1989), petitioners’ argument again gives the word “actual” little meaning at all.

III. Knowingly

Rehaif16 held that a person couldn’t be convicted of a firearms charge unless he both unlawfully possessed the firearm and knew his possession was unlawful, an exceedingly high standard. The holding turned on an interpretation of the word “knowingly,” which also appears in many tax penalty and criminal rules. The politics on this case got a little confused because normally the Republican-appointed justices do not like to convict persons of gun crimes,17 so Alito and Thomas dissented.

Not surprisingly, criminal tax defendants have begun to assert the same scienter requirement for various tax crimes. The first reported decision rejected the argument because the firearms holding relied not on the words of the statute but on evidence of congressional intent.18

An analogous issue arose in a very high-profile tax-related case involving what used to be the premier tax and accounting firm in the United States, the gold standard: Arthur Andersen. Unfortunately, Arthur Andersen got involved with Enron as part of a search for profits for it and Enron in the 1990s and wound up being indicted for destroying documents before the feds arrived (or for witness tampering).19 The Supreme Court let it off the hook on this basis:

The Supreme Court reversed because the jury charge would have allowed Andersen to be convicted without finding that it knew or reasonably should have known that it was doing anything “wrong.” The statute requires acting “knowingly . . . corruptly,” and the evidence supported the view that Andersen legitimately thought it was not doing anything “wrong.” The prosecutors thought that the only way to convict Andersen was to have the charge define wrongdoing in a way that encompassed what Andersen did know it was doing: keeping documents out of the hands of federal investigators for the purpose of hindering the investigation. But Andersen did not know that was “wrong” and the Supreme Court opinion effectively says it is not wrong. Something more is needed, but the opinion is vague as to what.20

IV. The DACA Holding

A. A Trojan Horse

The Court’s rejection of the Trump administration’s rescission of the Obama administration’s DACA and Deferred Action for Parents of Americans and Lawful Permanent Residents programs has many radiations, including in tax.21 It appeared to be a defeat for the Trump administration, but it has silver linings.

It freed the Department of Homeland Security from the complex problem of how to deport hundreds of thousands of persons covered by the programs. Also, it provided the Trump campaign with a new argument for its signature issue of immigration. And not least, it allowed the chief justice to appear to be impartial while driving home the Republican-promoted regime of strict review of agency action (the about-face on Chevron deference). While that type of review hurts for a moment when deployed against Trump agency determinations, it will provide a potent rear-guard weapon when deployed by all those 200+ Federalist Society judges Senate Majority Leader Mitch McConnell, R-Ky., has gotten appointed against the regulations issued by Democratic administrations that presumably may appear in the future.22

B. The Anti-Chevron Minefield

In summary form, the Administrative Procedure Act (APA) review regime applied to the DACA rescission now involves these steps: (1) agency actions are presumed to be reviewable under the APA and the exception for actions within the agency discretion is narrow; (2) the action must not be arbitrary or capricious; (3) the court will apply that standard to the now-required agency explanations of its action stated contemporaneously with its adoption of the rule; (4) later stated new reasons (as opposed to elaboration of original reasons) will not be considered even if they would have justified the action if originally stated (the Chenery theory);23 (5) even if originally stated reasons aren’t arbitrary or capricious, if the agency failed to consider important aspects of the problem addressed by the rule then the entire rule was arbitrary or capricious; (6) if a different rule splitting the issues up would have been possible the agency should have considered it; (7) when an agency is changing a position it must consider the effect of its decision on “legitimate reliance” on the prior rule and consider making accommodations; and (8) if the agency fails any of these requirements it will have to start its administrative process all over again.

Practitioners of a certain age have seen the effects of this type of review regime on Treasury decisions adopting regulations. Over the last 50 years the preambles have grown from containing absolutely no explanations to writings that can be longer than the regulations themselves, containing a huge amount of navel-gazing that recites most every comment received (at least through formal channels). Within the space of 36 years the law has gone from what looked like a deferential approach to federal regulations in Chevron,24 to a way of nickel-and-diming the regulatory process that provides courts many ways to stymie federal regulation while continuing to mouth deference. Courts applying the “arbitrary or capricious” standard can reject even the most highly reasoned and long-thought-out Treasury positions, as illustrated in the Altera litigation (recently ended by a certiorari denial).25

So we can expect courts to diss more published tax guidance on arbitrariness grounds, but that is not all. The flyspecking of guidance is likely to be pushed down to guidance of lesser prominence than regulations, which doesn’t usually come with explanations. And because almost every taxpayer can claim legitimate reliance on a prior IRS position, that will be a good ground for objection.

V. Tax Support for Church Schools

A. State Tax Credits

Espinoza held that the Montana Supreme Court could not enforce the Montana Constitution’s version of the First Amendment’s establishment clause, by striking down a tax credit for all contributions to a fund authorized by a state law, which granted scholarships to private schools (whether or not church-affiliated), because that holding violated the federal free exercise clause.26 Justice Ruth Bader Ginsburg’s dissent said the Montana court’s action made no distinction based on religious affiliation: It eliminated the entire tax credit program regardless of the schools selected.

An in-depth analysis of the 5-4 opinion isn’t warranted in this report because there is a much more direct way to explain what happened. Justices Roberts, Thomas, Alito, Neil M. Gorsuch, and Kavanaugh will vote against any governmental action that by its terms avoids spending tax dollars on private schools that include church schools. The long legal struggle between public and parochial schools began 95 years ago with Justice James Clark McReynolds’ opinion in Pierce,27 holding that a city couldn’t force children to attend public school. The Espinoza opinion cited Pierce and the other opinions in the steady chain that has progressively narrowed the scope of the establishment clause and widened the scope of the free exercise clause of the First Amendment.28

B. Other Church Cases

Little Sisters29 held that “as provided for” in the Affordable Care Act grants sweeping authority to the Health Resources and Services Administration to provide religious and moral exemptions to eliminate some preventive care that applicable health plans must cover. Thus, the Court upheld the exemption of the Little Sisters and other church employers because it chose in this instance to like deference30 to regulations promulgated on October 13, 2017, by the Trump administration.31

There are two relevant points for tax practice: (1) Fortunately, “as provided for” in regulations does not appear in the Internal Revenue Code; and (2) T.D. 9827, by which the Trump Treasury adopted the Obamacare regulation, relied heavily on the Hobby Lobby opinion and the Religious Freedom Restoration Act. Ginsburg said of Hobby Lobby: “I think 50 years from now, people will not be able to understand Hobby Lobby.”32 And while the Court demurred this time from basing its opinion on the Religious Freedom Restoration Act, that act can be applied to self-help many taxpayers into exemptions based on their claimed religious objections to taxes.33

VI. Other Tax-Related Cases

A. Rejected Petitions

1. ‘Foreign commerce clause.’

a. An uninterested DOR.

Steiner34 rejected a commerce clause challenge to the Utah system of tax credits that did not allow a credit for taxes paid on the same income to foreign countries by the Steiners’ S corporation, which did business abroad. The Supreme Court denied the petition on February 24.35 Oddly, Utah declined to brief its opposition, but the Council On State Taxation and the American Legislative Exchange Council and a couple of professors did the job for it.

The Utah Supreme Court found that the state tax credit system satisfied the internal consistency test as applied by the Supreme Court in Wynne (if every U.S. state taxed that way, there would be no discrimination against interstate commerce).36 It declined to extend the test to foreign commerce, finding no direction from the Supreme Court to do so.

The petition for certiorari basically wanted to cobble together the internal consistency test with the Court’s general requirement that foreign and domestic commerce be treated the same.37 Most of what you need to know about the politics of this petition is that one of the few amicus briefs was filed by ALEC,38 the “nonprofit” that assists Republican state legislators pursue the same goals in all states, playing one off against the other. Its brief relied heavily on Wynne, a victory for curbing state taxation, in which it also filed an amicus brief;39 indeed, ALEC may have been behind both petitions. Oddly, none of the amici referred to Evco or J.D. Adams, which might seem to have answered the question in favor of the Steiners.

b. Why is this an issue?

The Court has referred to the foreign commerce clause in upholding the power of California to apply worldwide consolidated reporting to foreign- and domestic-based corporate groups.40 But it established its fundamental test in Japan Line and Itel.41 The Court recognized that when a foreign country followed the “custom of nations” and taxed 100 percent of a tax base that a state taxed on an apportioned basis, multiple taxation necessarily occurred. J.D. Adams found a state gross receipts tax to violate the commerce clause in 1938 because it taxed 100 percent of the gross receipts from domestic and foreign commerce and thus had the potential for multiple taxation.42

The J.D. Adams opinion referred to “the vice of the statute as applied to receipts from interstate sales,” but inexplicably applied the prohibition of that vice to both interstate and foreign sales of the taxpayer. Then Evco in 1972 cited J.D. Adams for the multiple taxation of interstate commerce point in a case having nothing to do with foreign commerce.43 And then Japan Line cited Evco’s cite of J.D. Adams as forbidding double taxation of international commerce in the context of a local property tax, which presents different issues.44

So it appears that the Supreme Court held in 1938 that international double taxation could be as suspect as double taxation by domestic states, although the Court has been quite delicate in its method of saying so. Yet none of the amici cited Evco or J.D. Adams. Evidently, they were all concerned about Wynne and the issue of whether the home state of an individual has a special right to tax all of something owned by the individual. Basically, Ginsburg’s dissent in Wynne said yes, analogizing to the “law of nations”: Home states have always claimed 100 percent tax power over some subjects of taxation. The Court rejected that argument.

That Wynne issue is what Steiner was about, not the foreign commerce clause (the Steiners’ petition cited Wynne 45 times).45 In a world that hates entity-level taxation, wealthy individuals cannot stand the idea of living in a home state or country that finds their domicile to justify taxing 100 percent of something.

2. Mailbox rule.

In Baldwin the taxpayer wanted to rely on the mailbox rule to salvage the timely filing of its claim for refund, but the Ninth Circuit refused, even though it once had held that section 7502 was not the exclusive way to prove a tax filing.46 The circuit allowed the later adopted reg. section 301.7502-1(e) to reverse its prior holding because the statute was ambiguous. Such deference to the regulation was an extension of the Chevron doctrine stated in Brand X, written by Thomas.47

But Thomas dissented to the denial of the petition on the ground that he had learned better in the past 15 years. What happened between 2005 and 2020? During that period, the Chevron doctrine became a victim of the culture wars, created by Republicans to rile up various segments of voters and motivate various groups of donors.48

3. Altera.

At the end of the term, the Court denied the petition filed by Altera Corp., leaving in place the Ninth Circuit’s reversal of a remarkable unanimous Tax Court reviewed decision striking down the section 482 regulation at issue on Chevron-related grounds.49 The only useful point to be made about the denial is that all that dust kicked up and money spent by the corporate community and so-called public interest tax-exempts was for naught. The Court wasn’t interested in wading into that quagmire.

B. Stare Decisis?

Remember when Hyatt50 overruled Hall51 to hold that a state is protected by sovereign immunity from suit in the courts of another state based on alleged torts committed out of state in efforts to collect taxes?52 In their Hyatt opinion Thomas and four other Republican-appointed justices treated us to another ancient history lesson to justify ignoring stare decisis. But they had their eyes on a bigger prize: Roe v. Wade. And so it was that on June 29, when a 5-4 decision struck down a Louisiana restriction on abortion providers, four dissenting Republican-appointed justices cited Hyatt to justify their choice to ignore the holding in Whole Woman’s Health,53 which the majority said controlled the instant case.54 The dissenters lost because the chief justice said stare decisis should be observed, proving the chameleon quality of that doctrine.

C. Severability

Severability of an unconstitutional part of a statute is like stare decisis: I know when to apply it when I see it. And so on the last opinion day, the Supreme Court severed one part of the federal robocall law from another because it could, without anyone citing its 5-4 holding in 1895 that the new federal income tax was unconstitutional because the tax on property income could not be severed from the tax on services income (obviously wrong).55

D. Foreign Citizens

Foreign citizens outside U.S. territories don’t possess rights under the U.S. Constitution but may be accorded some rights if they are in the jurisdiction, according to Alliance for Open Society.56 But the Court held that did not include foreign subsidiaries of U.S. exempt organizations that didn’t want to comply with a Bush II era muzzle rule in distributing HIV materials.

The holding has tax implications: Think of controlled foreign corporations. One “cf.” cite for the principle relied on was Downes,57 a very important tax holding that the territories are not part of the U.S. for constitutional uniformity purposes, because Congress doesn’t impose tax there under the general taxing power but under the power over territories.58

The majority opinion hinged on corporations being distinct legal entities. Two points are of note: First, the opinion fortunately didn’t cite tax opinions in support (such as Moline Properties). Second, even the dissent did not bring up Hobby Lobby, the Obamacare tax case that incongruously invested a closely held corporation with religious convictions.59 And yet the majority said that the U.S. parent would not be tainted by what the foreign affiliate did. The following quotation with interlineations shows how inconsistent is the new opinion with Hobby Lobby:

We appreciate that plaintiffs [the Greens who owned Hobby Lobby Corp.] would prefer to affiliate with foreign [domestic] corporations’ organizations that do not oppose prostitution [that do not sponsor an Obamacare plan]. But Congress required foreign organizations [employers] to oppose prostitution [to provide Obamacare with its family planning coverage] in return for American funding [in return for massive subsidies]. And plaintiffs cannot export their own First Amendment rights to shield foreign organizations [Hobby Lobby Corp.] from Congress’s funding conditions.

In support of its view that different affiliates can be subject to different rules, the majority cited the important tax holding in Regan,60 which held that a section 501(c)(3) exempt could not lobby but its section 501(c)(4) affiliate could. Justice Stephen G. Breyer’s dissent took a different lesson from Regan: It allowed the charity to indirectly lobby through its affiliate. Breyer viewed the majority opinion to be based on corporate formalities that were meaningless where it counted: “Audiences everywhere attribute speech based on whom they perceive to be speaking, not on corporate paperwork they will never see.”

E. Original Jurisdiction

Arizona v. California61 refused original jurisdiction of a suit that Arizona wanted to file against California. Arizona sought leave to sue California on a state tax issue in the Supreme Court.62 The California Franchise Tax Board issued Legal Ruling 2014-01, which deems each member of a California-operating LLC to be doing business in California itself, regardless of whether the California operating LLC is manager-managed or member-managed. Arizona didn’t believe that California had constitutional power to assess and pursue collection of a tax on doing business in California against Arizona members of such LLCs.

The solicitor general filed an amicus brief.63 He opined that Arizona did not have a sufficient interest either of its own or derivatively from its domestic entities that had to pay the $800 California tax to warrant the Court’s allowance of the rare event of a state-versus-state suit in the Supreme Court. The solicitor general is on a roll supporting state taxation of interstate business. He filed an amicus on behalf of the taxing state in Wayfair.64

You might have expected the potential plaintiff in this case to be Nevada, which has been in a long-running dispute with California over its aggressive pursuit of Gilbert Hyatt.65

F. Meddling in Parties’ Arguments

Sineneng-Smith66 rejected a circuit’s effort to remake the parties’ arguments, thus vacating the Ninth Circuit’s reversal of a conviction for violation of immigration laws. The unanimous opinion written by Ginsburg allowed the Republican-appointed justices to have their conviction and the Democratic-appointed justices to show that they could whack down the Ninth Circuit, while putting a slight brake on the ever-expanding use of the First Amendment to prevent all government action (the ground of the circuit’s reversal of the conviction).

That phenomenon of a court identifying new issues can have more application in tax cases than in other areas of the law because, at least in the Tax Court, the judges are likely to be considerably better informed about the law they are applying than sometimes are the parties. There is a strong line of authority for judicial assistance to the arguments of the parties in tax cases.67

G. Disgorgement

On June 22, in Liu,68 the Supreme Court upheld the SEC’s access to disgorgement as a remedy, which could adversely affect the IRS and Treasury’s position that disgorgement is always a nondeductible penalty.69

VII. Tax Sharing With the FDIC

A. No Federal Common Law?

The unanimous opinion in Rodriguez v. FDIC reached the right result, for the wrong reasons, in the wrong case, without the Court having a clue what it was doing, aside from what its author intended: vent a visceral dislike of one of the numerous bogeymen of the right: “federal common law.”70

That stomachache mostly inflicts the Republican-appointed justices, as reflected in the opinion written by Gorsuch. Four other justices likely went along because (1) the holding was correct, (2) no principles were at stake (Erie v. Tompkins is the law),71 and (3) they did not want to disagree with Gorsuch any more than absolutely necessary to protect the republic.72

The “no federal common law” mantra comes right out of law school civil procedure or federal practice classes, so one wonders how the reversed Tenth Circuit could have thought otherwise.73 (Hint: It didn’t think otherwise.) The Erie v. Tompkins principle applies to issues ancillary to federal taxes, too, as shown by my survey of the subject of federal tax common law in 2012: The federal courts should create federal common law only when necessary to protect uniquely federal interests.74

Rodriguez directly involved the consolidated return regulations and federal bankruptcy law: two core federal interests. One could make a good case for unique federal interests in either area of the law, but that ship has sailed. Now the Supreme Court effectively has held that the United States does not have any such interest in the ownership of tax refunds within a consolidated group. The Court shut its eyes to the fact that the lower courts in the case hadn’t been applying federal common law at all, but rather had applied a generalized view of state common law of unjust enrichment and corporate fiduciary relationships. And none of the opinions in the entire litigation cited section 6402(k).

The petitioner, Rodriguez, is trustee in bankruptcy for the parent of a banking consolidated group. Its subsidiary, the bank that lost most of the money, is in a separate receivership through the FDIC, which is a recurrent player in this recurring drama. The parent, as the agent for the group for consolidated return purposes, received a federal tax refund that was attributable to the absorption of the bank’s losses in a carryback year of the group. The parent’s trustee filed an adversary proceeding in the bankruptcy court against the FDIC to determine the ownership of the refund (the FDIC having claimed it, as it has been doing in similar cases for over 25 years). The Tenth Circuit held for the FDIC (the bank), but the Supreme Court reversed because it thought the Tenth Circuit had improperly relied on specific case law it viewed as spurious federal common law — the Ninth Circuit opinion in Bob Richards, which similarly held that the refund belonged to the subsidiary with the loss.

On remand, now the Tenth Circuit has redecided the case and reached the same judgment that the Supreme Court reversed.75 That was a fairly predictable outcome. So the point of the entire exercise was to thrash the bogeyman of federal common law, again, after it died over 80 years ago.

B. Maximum Feasible Misunderstanding

1. Either great or poor lawyering.

The more one looks into the history of the Bob Richards brouhaha, the curiouser it gets. In the words of Sen. Daniel Patrick Moynihan, this relatively simple Supreme Court opinion masks maximum feasible misunderstandings in all directions.76 They include:

  • Failure to perceive that the so-called Bob Richards rule was really based on state common law, and only in hindsight became erroneously labeled as overreaching federal common law.

  • Failure to perceive that the Bob Richards rule was limited to the narrow facts of (1) a subsidiary that produced taxable income in a carryback year, and (2) which most likely paid the tax on that income, and (3) which produced a loss carried back to that year to produce a refund, which was (4) paid to the common parent of the group, but (5) without a tax-sharing agreement to control the ownership of the refund. Any common law judge worth her salt would find the bank to have an equitable ownership of the refund under some common law theory.

  • Failure to question the alleged morphing of the Bob Richards rule from no-tax-sharing-agreement cases to cases with ambiguous agreements.

  • Failure to see that the alleged 3-4 circuit split was more like 3-1.

  • Failure to perceive or care that the circuit and district courts in Rodriguez had not grounded the judgment reversed on the Bob Richards rule.

  • Failure to question the overreaching “question presented” in the parent’s petition for certiorari.

  • Failure to fully evaluate the possibility of a federal interest in the administration of consolidated returns supporting some federal common law, or that what appears to be a federal common law rule might really be an attempted synthesis of state law.

  • Failure to curb the tendency of some justices to reach out to pluck cases for review for the purpose of exercising their political prejudices.

  • Failure of anyone in the process to speak up about any of these concerns and about the strict application of law to facts and standard practices in reading case law and judicial economy.

2. A recently invented problem.

Early commentators didn’t accord prominence to the 1973 Bob Richards opinion, and interpreted it along with other similar holdings as deferring to state law.77 They also correctly observed that Bob Richards was limited to the situation in which the loss subsidiary paid the taxes on its prior-year income, or at least produced the income that allowed the carryback of the loss to produce a refund.78 They illustrated how all those decisions arose out of state corporate law and fiduciary considerations and that generally the parent corporation had wide latitude; but in the narrow case with facts like Bob Richards some courts held that fiduciary concerns could prevail.79 It isn’t by accident that almost all these cases start in the bankruptcy court, which views itself as a court of equity.80

No commentator has wondered about the grounds stated in the opinion of the district court that the Ninth Circuit affirmed in Bob Richards. The legal publishing services didn’t then publish either the district court opinion or the bankruptcy court opinion and they cannot be found today. Presumably, the district judge wrote about “unjust enrichment,” because that is the state law ground referred to in the Bob Richards circuit opinion. For all we know the district court in Bob Richards wrote a thesis on common law unjust enrichment, which the circuit did not need to rehash in affirming it.

The early opinion most often cited in tandem with Bob Richards, Jump, did clearly intend to rely on state law because it involved a state law receivership and found as matter of what had to be state law that the loss subsidiary did not own an asset in the form of the refund.81

Further, early case law did not identify Bob Richards as applying federal common law; in fact, the first opinion to use that term and cite Bob Richards said there had been no suggestion of applying federal common law and described Bob Richards as applying unjust enrichment.82

Not until 22 years after Bob Richards was decided, in 1995, did a court first say that Bob Richards reflected federal common law in a case brought by the perennial litigant, the FDIC.83 That 1995 case was identical in posture and facts to Rodriguez. It interpreted Bob Richards to create federal common law because Bob Richards stated that the parent was a mere agent of the sub under reg. section 1.1502-77.84 The 1995 opinion drew an unwarranted negative implication from the mere fact of the parent’s agency for consolidated return purposes that it couldn’t own the refund.

The rest of the listed misunderstandings will be explained further. There really is no alternative to working through the course of this litigation to see the foolishness that occurred here, all in the name of the FDIC getting cash out of the turnip and some justices bashing those awful federal courts that create federal common law (or are said to do so). What the Supreme Court thought the Tenth Circuit did and what the Tenth Circuit thought it was doing don’t precisely coincide because of how the petitioner presented the issue.

C. The Proceedings Below

1. Bankruptcy court.

The IRS deposited the $4 million refund at issue with the bankruptcy court in the parent’s bankruptcy case and the dispute was over its ownership: Did the parent own it and owe a debt to the bank (or not; the trustee’s position), or did the bank own it and the parent held it as agent for the bank (the FDIC position)? The refund was attributable to the carryback of a loss generated by the bank in 2010 to the group’s 2008 year when the bank generated substantial income for the group and the parent did not generate any income.

The parent’s trustee relied on the group’s tax-sharing agreement and claimed it created a debtor-creditor relationship between the parent and the bank as to any refunds attributable to the bank’s losses. However, some language in the agreement ambiguously indicated the parent acted as an agent for the bank in receiving the refund (mostly deriving from the reg. section 1.1502-77 agency status).

The bankruptcy court determined that parent had legal title to the refund vis-à-vis the IRS but that the beneficial ownership of the refund was controlled by the tax-sharing agreement.85 It then determined that the agreement treated the bank as a creditor. It relied on many opinions in analogous cases that applied the same set of interpretational considerations. The FDIC argued that the Bob Richards default rule (the alleged federal common law) should apply to make it owner of the refund. The Ninth Circuit in Bob Richards, which had been followed by the district court’s Tenth Circuit, held that in the absence of any tax-sharing agreement at all, the member with the loss carried back should get the refund it generated. The bankruptcy court in Rodriguez rejected that argument because there was a tax-sharing agreement, which it had interpreted to reach the opposite result, thus properly distinguishing Bob Richards on the facts.

2. District court.

The district court reversed.86 It found the contract was ambiguous on the point in issue but contained a clause directing that ambiguities be resolved in favor of the bank. It extensively discussed but did not apply the Bob Richards rule in reaching its conclusion based on the contract’s tie-breaker clause.

3. Tenth Circuit.

The Tenth Circuit affirmed the district court.87 Unlike the district court, it placed more weight on its prior adoption of the Bob Richards view in Barnes (a natural pride of authorship tendency of circuit courts), which also did not involve the interpretation of a tax-sharing agreement because there was none.88 Barnes contained dictum that seemed to expand the Bob Richards rule to also apply when there was a tax-sharing agreement but it was ambiguous. However, the Rodriguez opinion turned to the interpretation of the contract and its tie-breaker provision and applied that to affirm, as had the district court. The Tenth Circuit’s ground of decision was clearly the same as the district court: interpretation of the tax-sharing agreement using its tie-breaker provision.89 The discussions of Barnes and Bob Richards were not the grounds of the decision. At most, the opinion found its contract interpretation to be consistent with those cases, in a dictum statement.

To say the lower court Rodriguez opinions were based on Bob Richards is like saying a decision is based on the Constitution when it interprets a statute to avoid having to reach a constitutional issue.90

D. The Petition

1. Question presented.

The parent’s bankruptcy trustee filed a petition for certiorari.91 To call the question presented argumentative would be too kind.92 It implied that the petitioner had lost because the Tenth Circuit applied against it a dreaded “federal common law rule” as to which there was a deep split in the circuits. Even though the petition came close to mischaracterizing the Tenth Circuit opinion, it did the job intended. Counsel for petitioner knew the justices and knew a circuit split is a terrible thing to waste.

The petition was aimed at the Republican-appointed justices, although we don’t know who voted to hear the case. Most recently an opinion disparaging federal common law was penned by Alito.93 The culture war against federal common law was pioneered by Scalia, as reflected in a tax case dissent in Craft.94 The political reasoning is pretty simple: Republicans generally are all for devolution of power (and hence inaction) to the states. See the recent handling of the COVID-19 pandemic by the Trump administration. And opposing federal common law is the gift that keeps on giving because it makes a matched set with Republicans’ new-found hatred of the Chevron doctrine: We don’t want those pesky administrators making legislative choices, either.95

So why was the Supreme Court’s holding unanimous if federal common law is mostly a Republican-appointed-justice issue? One guess is that in keeping with the relative calm during most of the 2018 and 2019 terms, the other justices have been working hard to cooperate when they can in hopes of peeling off one of the Group of Five to their side.

2. Circuit split.

The petition touted a 3-4 circuit split, almost perfect facts to support grant of the petition. Problem was, on the side of four circuits rejecting Bob Richards’s federal common law, only the Sixth Circuit actually set up that tenpin and knocked it down as bad federal common law. The Eleventh Circuit opinion mentioned Bob Richards only once in a footnote and did not utter the phrase “federal common law.”96 The Third Circuit opinion similarly just distinguished Bob Richards as inapplicable when there was a contract and did not mention federal common law.97 And the Second Circuit opinion didn’t mention either Bob Richards or federal common law.98

So when Gorsuch’s opinion talked about the Sixth Circuit as illustrating the split, he knew what he was doing, which was to join in the dissembling petition’s approach.

3. The argument.

The petition mischaracterized the district court opinion below. It said the judge said he was “bound to follow” Bob Richards because the Tenth Circuit had adopted it.99 The district judge didn’t say that. He found that the Tenth Circuit had adopted it in a case with facts similar to Bob Richards (no tax-sharing agreement), but then found it unnecessary to decide whether it controlled the bank’s case because it could be decided on the contract and state law.

Then the petition made its own ambiguous statement, presumably to muddy the issue of whether it was mischaracterizing the facts: It said applying the Bob Richards rule, the court found the contract ambiguous and “moreover” the tie-breaker in the rule supported finding for the bank.100 In fact, the district court found the contract to be ambiguous because it was ambiguous and applied the tie-breaker as the primary ground of decision. Then the petition described the circuit opinion somewhat more correctly, more or less admitting that the tie-breaker rule produced the decision.

The petition relied heavily on a purported sub-rule to the Bob Richards rule supposedly applied in the Fifth, Ninth, and Tenth circuits, that the subsidiary should win unless the contract unambiguously said otherwise. Of course, the principal holdings at issue in Bob Richards and Barnes did not involve a contract at all. Neither did the Fifth Circuit case. It was only the Indymac case in the Ninth Circuit, which found the contract did clearly provide the result, that provided a theory for the petitioner to argue that if a contract is not clear, then the Bob Richards rule controls.101

A litigant can be forgiven (although not by me) for stretching the truth in a court argument. Subject to the pliable Code of Professional Responsibility, the counterbalancing influence of the other side should normally offset most overreaches. And the FDIC has proven it can take care of itself. So the real issue here is, what did the Supreme Court think about this ginned-up controversy?

E. The Opinion

1. Activist court.

Gorsuch characterized the Bob Richards rule the way the petition did: “It represents a general rule always to be followed unless the parties’ tax allocation agreement unambiguously specifies a different result.” Then he adopted the petitioner’s characterization of the lower court’s opinion: “The Tenth Circuit employed this more expansive version of Bob Richards in the case now before us.” Then he stated the standard for the limited-scope federal common law: “Common lawmaking must be ‘necessary to protect uniquely federal interests.’”

Evidently, the solicitor general for the FDIC at oral argument agreed, and the opinion stated, that the government, too, didn’t believe the federal courts should “apply a federal common law rule to . . . put a thumb on . . . the scale” when deciding which corporate group member owns some or all of a consolidated refund.” The solicitor general mostly argued the truth, which is that the lower courts decided the law on the state law contract issue and that coincided with Bob Richards.

Contradicting his earlier characterization of the lower court holding, Gorsuch refused to decide on what basis the lower courts had held: “Who is right about all this we do not decide.” And then he explained the incongruity by explaining that he did not care what the lower courts did because “we took this case only to underscore the care federal courts should exercise before taking up an invitation to try their hand at common lawmaking. . . . Whether this case might yield the same or a different result without Bob Richards is a matter the court of appeals may consider on remand.”

Well there you have it. Is that an activist Supreme Court or what?

2. The federal interest.

The Gorsuch opinion managed to preclude the possibility of showing a unique federal interest that would justify a federal common law rule with a sleight of hand. First it stated that the Bob Richards opinion didn’t even attempt to establish such an interest to justify itself. Of course, there was a good explanation for that, which the Court missed: Bob Richards didn’t conceive itself as creating federal common law. Then the Court stated: “If special exceptions to these usual rules sometimes might be warranted, no one has explained why the distribution of a consolidated corporate tax refund should be among them.” That kills the possibility that the Bob Richards rule might be revived by concocting a federal policy to support it. If the primary advocate of the Bob Richards rule in its entire history — the FDIC — can’t justify it, and the solicitor general won’t defend it, it is toast.

F. The Remand

The Tenth Circuit issued its remand decision on May 26 and reached the same conclusion it reached the first time: FDIC wins. The remand opinion stated, in effect: “We thought there was a rule that said it would apply unless we figured out another way to decide the case; we did figure out another way to decide the case; so we did not have to follow that other rule.” Then the remand opinion somewhat more fulsomely analyzed the state contract law and reached the same legal conclusion based on state law that it had reached the first time. History shows that circuit courts have a way of thumbing their noses at the Supreme Court, and the Tenth Circuit did that nicely here.

G. So What Is the Relevance of Rodriguez?

1. Parents rule!

“Possession is nine-tenths of the law.” Sometimes called the law of the streets,102 the presumption of ownership from possession is actually currently applied as the common law in many if not most states.103 The consolidated return regulations authorize the IRS to put the common parent in possession of a tax refund owed to the group. Moreover, each group member must consent to those regulations when they joined the group.104 It is generally recognized that consolidated groups need tax-sharing agreements, in part to produce a result different from the parent having to pay all the group tax and keeping all the group refunds. The other part of the need for a contract is that it can be very hard to figure out precisely how much any member must pay or is owed without complex instructions for the computations.

All those considerations support the parent’s ownership of a refund vis-à-vis the members, absent a contract or equitable state law principles. That is the state of the law post Rodriguez.

Therefore, by discarding the Bob Richards rule, the Supreme Court in effect has installed the common parent as the refund owner by default. That makes sense because, since its officers will sign the group return, it is on its own to attach the check, absent an agreement. So the Supreme Court has left it to state courts (or legislatures) to come up with theories of why the refunds belong to some other group member in myriad fact circumstances, which usually require many provisions of a tax-sharing agreement.

So what have state courts said about these cases? Essentially nothing.105 Almost all the case law is from federal courts, mostly bankruptcy courts or on appeal, purporting to apply Bob Richards and occasionally state law. That is further evidence that possession is nine-tenths of the law. State law doesn’t care to upset that, and bankruptcy courts wade in only because finding the assets of the bankrupt estates is their job. No one noticed that Congress expressed a view on the subject in section 6402(k).

2. Back to square 1.

Most authorities that attempt a deep dive into the Bob Richards issue follow a sort of three-step analysis that is instructive now that we are back to square 1. They begin with a case made famous by the final paragraph in a 1953 dissent of Justice Robert H. Jackson, the best informed of the justices on federal taxation. The case was one of the earliest analogues to Rodriguez in the context of a bankruptcy and the lower court found no right to the refund in the consolidated group member that supplied the loss, absent a contract.106

The Supreme Court granted certiorari but didn’t decide that issue,107 although a later opinion applied the case to hold that the losing member did not have a right to the tax savings.108 Mainly addressing a different procedural issue, Jackson’s dissent observed that the loss member was entitled to reimbursement of tax savings based on unjust enrichment (note: that is the Bob Richards position):

The plaintiff’s management, probably without improper intent, failed to claim for the plaintiff the advantages of its position, turning them over without compensation for the advantage and profit of another affiliated corporation. On the face of it the plaintiff seems entitled to what fair arm’s-length bargaining would probably have yielded. To ask this can hardly be stigmatized as capitalizing mere nuisance value. This is not the blackmail that offers to forgo doing another injury if bought off. This merely seeks a share in the benefit that it transferred. I would reverse and remand to the district court for findings in accordance with this sketchily stated doctrine of unjust enrichment.

A different possible ground for compensating the loss member might be based on fiduciary obligations stemming from a parent-subsidiary relationship, particularly when a minority shareholder of the subsidiary claimed it had been mistreated by the parent.109 But a prominent decision by the prominent Delaware Chancery Court rejected that claim.110 Then, the third turn of the wheel was the discovery in the Bob Richards line of cases that the loss member had owned the refund all along under an unjust enrichment theory, just as Jackson had proposed.

One curious thing about that theory is that it has been based on reg. section 1.1502-77 by sort of reverse reasoning: If the common parent is the agent solely vis-à-vis the IRS and by virtue of a federal tax regulation, that must mean that the parent otherwise would have no right to the refund and the loss member owns it. That never made sense, in part because it conflicts with the “possession is nine-tenths of the law” common law. To the extent the Bob Richards theory was based on that negative inference, it should go. But other state law principles should be more carefully examined and can produce the same result as Bob Richards, as the remand in Rodriguez found and as Jackson predicted.

3. Federal common law revisited.

We don’t know whether Bob Richards drilled down on California state case law on unjust enrichment because the district court opinion that the circuit affirmed isn’t available in any of the reporters. But the California Court of Appeal had endorsed the common law of unjust enrichment shortly before the Bob Richards opinion:

We are cited no California cases that are close aboard, and independent research reveals none. Lack of precedent applicable to the facts peculiar to this case is not surprising, however, as the authors of the Restatement recognize that the essential nature of equity cases concerned with problems of restitution makes definitive precedent unlikely. We are guided by the “Underlying Principles” delineated in the Restatement on Restitution: “The rules stated in the Restatement of this Subject depend for their validity upon certain basic assumptions in regard to what is required by justice in the various situations. In this Topic, these are stated in the form of principles. They cannot be stated as rules since either they are too indefinite to be of value in a specific case or, for historical or other reasons, they are not universally applied. They are distinguished from rules in that they are intended only as general guides for the conduct of the courts. . . .” (P. 11.) The governing principle is expressed in the opening sentence of the Restatement on Restitution, as follows: “The Restatement of this Subject deals with situations in which one person is accountable to another on the ground that otherwise he would unjustly benefit or the other would unjustly suffer loss.” (P. 1.)111

If there is to be no federal common law in tax cases, the federal courts will have to become much more proficient in finding state law. My 2012 article outlined a nine-step analysis that could be applied to determine federal interests and state law in this type of case.112

VIII. Conclusion

The republic would benefit from the Court once again calling balls and strikes. The federal tax law has many questions more important than the Bob Richards rule that need answers. Even though the Court says it does not sit to correct error, it sometimes does, and should try it on some tax cases: There is error aplenty.

FOOTNOTES

1 See Jasper L. Cummings, Jr., “What Is Anti-Deference Really About?Tax Notes Federal, Sept. 23, 2019, p. 2075.

2 National Cable and Telecommunications Association v. Brand X Internet Services, 545 U.S. 967, 1015 (2005).

3 Pollock v. Farmers’ Loan & Trust Co., 157 U.S. 429 (1895), aff’d on rehearing, 158 U.S. 601 (1895). See Cummings, The Supreme Court, Federal Taxation and the Constitution, ch. V (2013).

4 Similarly, William Howard Taft was a Republican president, but he had more trouble controlling his political instincts on the bench. See The Child Labor Tax Case, Bailey v. Drexel Furniture Co., 259 U.S. 20 (1922), discussed at Cummings, The Supreme Court, supra note 3, at ch. III.F.

5 Bernard Schwartz, Super Chief: Earl Warren and His Supreme Court — A Judicial Biography (1963).

6 See Ross Douthat, “The Tempting of Neil Gorsuch,” The New York Times, June 21, 2020.

7 See Cummings, “Evangelizing Into the White House,” Tax Notes, Jan. 30, 2017, p. 629.

8 See Cummings, The Supreme Court’s Federal Tax Jurisprudence (2d ed. 2016).

9 Intel Corp. Investment Policy Committee v. Sulyma, 140 S. Ct. 768 (2020).

10 Section 860E(4)(b) (not have actual knowledge that affidavit is false); section 1445(b)(7)(A)(i) (similar); section 4253(l)(2) (until actual knowledge that statement is false); section 6015(c)(3)(C).

11 Section 6672(e)(3).

12 Reg. section 1.101-1(f)(4)(ii).

13 Reg. section 1.163-5(c)(2)(i)(B)(5) (mailing address).

14 See United States v. Horowitz, 361 F. Supp. 3d 511 (D. Md. 2019) (foreign bank account report; but willful blindness also a ground).

15 See Cummings, The Supreme Court’s Federal Tax Jurisprudence, supra note 8, at ch. VI.B.

16 Rehaif v. United States, 139 S. Ct. 2191 (2019).

17 See, e.g., Abramski v. United States, 134 S. Ct. 2259 (2014), discussed in Cummings, “The Supreme Court’s 2013 Term in Tax,” Tax Notes, Oct. 6, 2014, p. 65.

18 United States v. Hunsche, 2020 U.S. Dist. LEXIS 52423 (S.D. Ill. 2020). Cf. Norman v. United States, 942 F.3d 1111 (Fed. Cir. 2019) (lost on “knowingly”).

19 The government indicted Andersen under 18 U.S.C. section 1512(b), a witness tampering statute, as it existed in 2001: “Whoever knowingly uses intimidation or physical force, threatens, or corruptly persuades another person, or attempts to do so, or engages in misleading conduct toward another person, with intent to . . . cause or induce any person to . . . destroy an object with intent to impair the object’s . . . availability for use in an official proceeding . . . shall be fined.”

20 See Cummings, “Arthur Andersen Lives to Fight Another Day (Maybe),” Tax Notes, July 25, 2005, p. 463.

21 Department of Homeland Security v. Regents of the University of California, Dkt. No. 18-587 (2020).

22 See Cummings, “Anti-Deference,” supra note 1.

23 SEC v. Chenery Corp., 318 U.S. 80, 94 (1943).

24 Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc., 467 U.S. 837 (1984).

25 Altera Corp. v. Commissioner, 145 T.C. 91, 117 (2015), rev’d, 926 F.3d 1061 (9th Cir. 2018), petition for hearing en banc denied, 941 F.3d 1200 (9th Cir. 2019), petition for cert. filed, No. 19-1009 (Feb. 13, 2020), and denied (June 22, 2020).

26 Espinoza v. Montana Department of Revenue, 140 S. Ct. 2246 (2020). See Jennifer McLoughlin, “Supreme Court Reverses Montana Scholarship Tax Credit Decision,” Tax Notes Federal, July 6, 2020, p. 160.

27 Pierce v. Society of Sisters, 268 U.S. 510 (1925).

28 See Cummings, The Supreme Court, supra note 3, at ch. VIII.D.

29 Little Sisters of the Poor St. Peter and Paul Home v. Pennsylvania, 140 S. Ct. 2367 (2020).

30 See Cummings, “Anti-Deference,” supra note 1.

31 82 F.R. 47792.

32 See Cummings, “Gorsuch and Gun Taxes,” Tax Notes, Apr. 24, 2017, p. 487; Cummings, “Hobby Lobby and Federal Taxes,” Tax Notes, Nov. 3, 2014, p. 519.

33 See Cummings, “Day 1 Tax Orders for the Next President,” Tax Notes Federal, Sept. 9, 2019, p. 1773.

34 Steiner v. Utah State Tax Commission, 449 P. 3d 189 (2019).

35 Steiner v. Utah State Tax Commission, 140 S. Ct. 1114 (2020).

36 Comptroller of the Treasury of Maryland v. Wynne, 575 U.S. 542 (2015). See Cummings, “Internal Consistency and the Federal Income Tax,” Tax Notes, July 6, 2015, p. 99.

37 Steiner v. Utah State Tax Commission, No. 19-755 (T.C. filed Dec. 12, 2019).

38 Steiner v. Utah State Tax Commission, 2020 U.S. S. Ct. Briefs LEXIS 97.

39 See Cummings, “Internal Consistency,” supra note 36.

40 Barclays Bank PLC v. Franchise Tax Board of California, 512 U.S. 298 (1994); Container Corp. of America v. Franchise Tax Board, 463 U.S. 159 (1983).

41 Japan Line Ltd. v. County of Los Angeles, 441 U.S. 434 (1979); Itel Containers International Corp. v. Huddleston, 507 U.S. 60 (1993).

42 J.D. Adams Manufacturing Co. v. Storen, 304 U.S. 307 (1930).

43 Evco v. Jones, 409 U.S. 91 (1972).

44 Japan Line, 441 U.S. at 448.

45 See Cummings, “Internal Consistency,” supra note 36.

46 Baldwin v. United States, 921 F.3d 836 (9th Cir. 2019), cert. denied, 140 S. Ct. 690 (2020).

47 Brand X, 545 U.S. 967.

48 See Cummings, “Anti-Deference,” supra note 1.

49 See Cummings, “Holding Treasury to Its Word: Altera and Capricious Regulations,” Tax Notes, Oct. 26, 2015, p. 519; Cummings, “A Look Ahead: Anticipated 2019 Court Decisions,” Tax Notes, Dec. 17, 2018, p. 1439.

50 Franchise Tax Board v. Hyatt, 139 S. Ct. 1485 (2019).

51 Nevada v. Hall, 440 U.S. 410 (1979).

52 See Cummings, “The Supreme Court’s 2018 Term in Tax,” Tax Notes Federal, Aug. 12, 2019, p. 1001.

53 Whole Woman’s Health v. Hellerstedt, 136 S. Ct. 2292 (2016).

54 June Medical Services LLC v. Russo, 140 S. Ct. 2103 (2020).

55 Barr v. American Association of Political Consultants Inc., 140 S. Ct. 2335 (2020). Pollock, 157 U.S. 429, aff’d on rehearing, 158 U.S. 601.

56 Agency for International Development v. Alliance for Open Society International Inc., 140 S. Ct. 2082 (2020).

57 Downes v. Bidwell, 182 U.S. 244 (1901).

58 See Cummings, The Supreme Court, supra note 3, at 410.

59 Burwell v. Hobby Lobby, 573 U.S. 682 (2014). See Cummings, The Supreme Court’s Federal Tax Jurisprudence 474.

60 Regan v. Taxation With Representation of Washington, 461 U.S. 540 (1983).

61 Arizona v. California, 140 S. Ct. 684 (2020).

62 See Arizona v. California, 2019 U.S. S. Ct. Briefs LEXIS 2100, file no. 150 (2019).

63 Arizona v. California, 2019 U.S. S. Ct. Briefs LEXIS 7667 (2019).

64 See Cummings, “2018 Term in Tax,” supra note 52.

65 Id.

66 United States v. Sineneng-Smith, 140 S. Ct. 1575 (2020).

67 See Cummings, “The Tax Court’s Duty to Apply the Properly Applicable Law,” 23 DTR J-1 (Feb. 5, 2010).

68 Liu v. SEC, 140 S. Ct. 1936 (2020).

69 Nathan J. Richman, “Supreme Court Throws IRS a Disgorgement Deduction Knuckleball,” Tax Notes Federal, July 6, 2020, p. 163.

70 Rodriguez v. FDIC, 140 S. Ct. 713 (2020). See Lee A. Sheppard, “Gambling on Tax Allocation Agreements,” Tax Notes Federal, Mar. 30, 2020, p. 2027; Reuven S. Avi-Yonah, “Rodriguez, Tucker, and the Dangers of Textualism,” Tax Notes Federal, Apr. 6, 2020, p. 87. As to tax-sharing agreements generally, see Cummings, “Tax Sharing Agreements and Related Contracts,” Tax Notes, Sept. 22, 2014, p. 1411 (which discusses the consolidated return regulations that might be relevant but have not been cited in any of the discussions; they create intercompany receivables or contributions and dividends to account for the movement of earnings and profits).

71 Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938).

72 See, e.g., opinion of Gorsuch in Bostock v. Clayton County, 2020 U.S. LEXIS 3252 (2020): the 6-3 decision extending the reach of the sex anti-discrimination law.

73 United Western Bancorp Inc. v. FDIC (In re United Western Bancorp Inc.), 914 F.3d 1262 (10th Cir. 2019) (Rodriguez), citing In re Bob Richards Chrysler-Plymouth Corp., 473 F.2d 262 (9th Cir. 1973).

74 Cummings, “Nationwide Uniformity and the Common Law of Federal Taxation,” 66 Tax Lawyer 1 (2012). The article criticized the IRS effort to create a national uniform “alter ego” rule, apart from state law. But it pointed out that sometimes it is appropriate for federal courts in applying federal statutes to employ a generalized understanding of state law that becomes relevant, usually meaning the common law as generally applied by state courts.

75 In re United Western Bancorp Inc., 914 F.3d 1262.

76 See Moynihan, Maximum Feasible Misunderstanding: Community Action in the War on Poverty (1970).

77 See W. Bruce Johnson, “The Other Key: Competition Between Shareholders and Creditors for the Tax Benefits of Bankruptcy,” 49 Bus. Law. 1121 (1993).

78 Bruce A. McGovern, “Fiduciary Duties, Consolidated Returns, and Fairness,” 81 Neb. L. Rev. 170 (2002) (an extensive and scholarly work).

79 Id.

80 See 2 Collier on Bankruptcy, para. 105.01.

81 Jump v. Manchester Life and Casualty Corp., 579 F.2d 449 (8th Cir. 1978). See Brad B. Erens, Scott J. Friedman, and Kelly M. Mayerfeld, “Bankrupt Subsidiaries: The Challenges to the Parent of Legal Separation,” 25 Emory Bankr. Dev. J. 65, 106 (2008).

82 United States v. Bass Financial Corp., 1984 U.S. Dist. LEXIS 17384 (N.D. Ill. 1984). See also Smith v. Tele-Communication Inc., 134 Cal. App. 3d 338 (1982); County of Orange v. County of Orange, 183 B.R. 609 (Bankr. M.D. Cal. 1995).

83 BSD Bancorp Inc. v. FDIC (In re BSD Bancorp Inc.), No. 94-1341 (S.D. Cal. 1995).

84 See generally Cummings, “Principal and Agent Law in Taxation,” Tax Notes, Sept. 24, 2018, p. 1845.

85 United Western Bancorp Inc. v. FDIC (In re United Western Bancorp Inc.), 558 B.R. 409 (Bankr. Colo. 2016).

86 United Western Bancorp Inc. v. Rodriguez (In re United Western Bancorp Inc.), 574 B.R. 876 (D. Colo. 2017).

87 Rodriguez v. FDIC (In re United Western Bancorp Inc.), 893 F.3d 716 (10th Cir. 2018).

88 Barnes v. Harris, 783 F.3d 1185 (10th Cir. 2015).

89 Rodriguez, 893 F.3d 716, restated at In re United Western Bancorp Inc., 914 F.3d 1262, to remove n.3. Footnote 3 stated: “Rodriguez now argues on appeal that not all of this refund is attributable to the Bank’s operating losses. But nowhere in the bankruptcy proceedings or in the district court did he make that argument.”

90 See Cummings, The Supreme Court, supra note 3, at 47.

91 Rodriguez, No. 18-1269 (U.S. filed Apr. 1, 2019).

92 Supreme Court Rule 14 states, “The questions should be short and should not be argumentative or repetitive.”

93 Dissent in Maine Community Health Options v. United States, 140 S. Ct. 1308 (2020).

94 United States v. Craft, 535 U.S. 274 (2002). See Ian Binnie et al., “A Dialogue on Rights,” 1999 N.Z. L. Rev. 547, 553 (1999). See also Avi-Yonah, supra note 70 (recognizing antipathy of Gorsuch for judge-made law).

95 See Cummings, “Anti-Deference,” supra note 1.

96 Zucker v. FDIC (In re BankUnited Financial Corp.), 727 F.3d 1100 (11th Cir. 2013).

97 Cantor v. FDIC (In re Downey Financial Corp.), 593 F. App’x 123 (3d Cir. 2015).

98 Superintendent of Insurance v. Ochs (In re First Central Financial Corp.), 377 F.3d 209 (2d Cir. 2004).

99 Petition at 11.

100 Id.

101 In re Indymac Bancorp Inc., 554 F. App’x 668 (9th Cir. 2014).

102 See dissent of Justice John Paul Stevens in Taylor v. Freeland & Kronz, 503 U.S. 638 (1992).

103 See Willcox v. Stroup, 467 F.3d 409 (4th Cir. 2006), cert. denied, 550 U.S. 904 (2007).

104 Reg. section 1.1502-75(a)(1).

105 See 2 Taxation of Corps Filing Consolidated Returns, para. 54.08.

106 Western Pacific Railroad Corp. v. Western Pacific Railroad Co., 197 F.2d 994 (9th Cir. 1951).

107 Western Pacific Railroad Corp. v. Western Pacific Railroad Co., 345 U.S. 247 (1953).

108 Meyerson v. El Paso Natural Gas Co., 246 A.2d 789 (Del. Ch. 1967); Wolfensohn v. Madison Fund Inc., 253 A.2d 72 (Del. 1969).

109 See W. Eugene Seago and Edward J. Schnee, “Parent-Subsidiary Loss Carryback: The Ownership Issue,” J. Tax’n (Sept. 2017).

110 El Paso Natural Gas, 246 A.2d 789.

111 Kossian v. American National Insurance Co., 254 Cal. App. 2d 647 (1967).

112 Cummings, “Nationwide Uniformity,” supra note 74, at 10-13.

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