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Unanimous Supreme Court Restricts Application of Federal Common Law and Invalidates Bob Richards Doctrine in Tax Refund Disputes

In a unanimous decision written by Justice Neil Gorsuch (Rodriquez v. FDIC No 18-12690), the Supreme Court vacated a decision by the U.S. Court of Appeals for the Tenth Circuit (In re United Western Bancorp, Inc.914 F. 3d 1262 (10th Cir, 2019)) that awarded a federal income tax refund of a failed bank to the Federal Deposit Insurance Corporation as receiver. The award was opposed by the Chapter 7 bankruptcy trustee for the holding company that owned the bank and had filed a consolidated federal tax return.

The Rodriguez case involved competing claims to a tax refund that arose as a result of a net operating loss incurred by the failed bank, that was carried back to a prior tax year on the consolidated return filed by the holding company. Looking beyond the specific tax issue before it, the Court focused on the limited scope of federal common law doctrines in general, as a basis to address the applicability of such doctrines to the competing rights of taxpayers to corporate tax refunds in particular.

Vacating the 10th Circuit decision and remanding the case to the lower court, the Court expressly invalidated the 47-year-old federal common law doctrine initially established in In re Bob Richards Chrysler-Plymouth Corp., 473 F. 2d 262 (9th Cir. 1973).

As applied in some other Circuit-level decisions and rejected in others, the Bob Richards doctrine established a “default rule” that in the absence of a clear and unambiguous agreement allocating or sharing a federal tax refund between or among members of a consolidated taxpayer group, the refund belongs to the entity that incurred the loss – in nearly all cases, the operating company and not the holding company.

The Court based its decision on well-established law that property rights, including interests in tax refunds owing to corporations created under state law, are governed by state law. The creation and application of federal common law to such matters is the exception and not the rule, and should be applied only where necessary to protect uniquely federal interests.

In the case of corporate tax refunds, the Supreme Court held that the federal government had no such interest in determining how a consolidated corporate tax refund, once paid to a designated agent of a consolidated group, is distributed among the consolidated group members. The decision notes that existing regulations already protect the federal interest of avoiding duplicate claims against the federal fisc for the delivery of a tax refund to a corporate group. 26 CFR 1.1502-77(d)(5). Finding no uniquely federal interest, the Court invalidated the “Bob Richards” rule and remanded the case to the lower courts to determine the issue of ownership under applicable state law, without regard to the federal common law “default rule” enunciated in Bob Richards

While the decision leaves for the lower courts to decide the ownership of corporate tax refunds among members of consolidated groups, the issue is less likely to arise in the future since the Tax Cuts and Jobs Act of 2017 eliminated the ability to carry back net operating losses (NOLs) in order to generate refunds for taxes paid in prior years.

Nevertheless, NOLs can now be carried forward indefinitely and may shelter up to 80% of income earned in subsequent years. Therefore, the ownership of NOLs still may have significant economic value to a company on a going-forward basis, and their existence can still be a key asset for companies seeking to arrange exit financing in order to emerge from Chapter 11.

©2020 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume X, Number 58


About this Author

Mark Bloom, Greenberg Traurig Law Firm, Miami, Bankruptcy and Restructuring Attorney

Mark D. Bloom is Co-Chair of the firm’s Global Restructuring & Bankruptcy Practice. Mark’s diverse experience, spanning more than 35 years, includes all areas of U.S. and cross-border financial restructuring, reorganization and bankruptcy, involving the representation of debtors, trustees, secured and unsecured creditors, and official committees and purchasers of troubled companies and their assets, both in and out of bankruptcy court.

Mark was inducted as a Fellow in the prestigious American College of Bankruptcy in 1998, and currently...

 Kenneth Zuckerbrot Shareholder New York Tax Tax & Business Group Real Estate Investment Trusts (REITs) Corporate Real Estate Operations Banking & Financial Services Mergers & Acquisitions

Kenneth Zuckerbrot Chairs the Bankruptcy Tax Group and represents public and private corporations and inbound and outbound investment companies in tax and real estate matters and has wide-ranging experience in debt restructurings. Ken's experience in both International taxation and REIT work is combined in the tax efficient acquisition structures of foreign real estate by U.S. REITs.


  • Tax

  • Bankruptcy tax planning

  • International taxation

  • Debt restructuring

  • Real estate

  • REIT taxation

  • Organization, qualification and operation of REITs