CTITF Update   

For the first time in almost 70 years, the Supreme Court has decided a consolidated return case (United Dominion Industries, Inc., S. Ct., 6/4/01), and it was decided in the taxpayer's favor.

After losing in the Fourth Circuit (208 F3d 452 (2000)), United Dominion successfully petitioned the Supreme Court for certiorari, based on a conflict between circuits. Shortly after the Fourth Circuit's decision, the Sixth Circuit decided Intermet Corp., 209 F3d 901 (2000), in favor of the taxpayer. In its ruling, the Sixth Circuit explicitly rejected the rationale adopted by the Fourth Circuit. The government did not oppose United Dominion's petition for certiorari, advising the Court that the case was significant because more than 100 similar cases are pending currently.

The narrow issue involved in United Dominion was the application of the so-called "long carryback" provision in the context of a consolidated return. The long carryback rule in Sec. 172(b)(1)(C) provides a 10-year carryback period for a specified liability loss (SLL), in place of the normal two-year carryback period provided by Sec. 172(b)(1)(A). (The actual statutory provision involved in United Dominion was the predecessor to Sec. 172(b)(1)(C). The predecessor provision, former Sec. 172(b)(1)(I), covered product liability losses (PLLs). Under current law, PLLs are a subset of SLLs.) Even more narrowly, the issue involved in United Dominion was the application of the limitation in Sec. 172(f)(2), which provides that the amount of SLLs entitled to the 10-year carryback cannot exceed the net operating loss (NOL). The government's position was that the carryback must be determined first on a separate-company basis; each member of the consolidated return with SLLs must have an NOL. The taxpayer's position, which the Court adopted, was that the carryback must be determined on a group basis. Under this theory, it did not matter whether the member with SLL deductions had an NOL. As long as the group had an NOL, the member's SLLs (in an amount not exceeding the group's NOL) could be carried back.

This case is significant beyond the narrow issues raised under Sec. 172. In United Dominion, the government argued the su-premacy of the separate-entity theory, contrary to recent consolidated return regulations (which emphasize the single-entity theory and were the basis for United Dominion's argument).

From the AICPA Tax Division's Consolidated Tax Issues Task Force