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The Bankruptcy StrategistFeaturesBankruptcyLitigationTaxUnited States Supreme Court

Supreme Court Defers to State Law on Ownership of Tax Refund

By Michael L. Cook
April 01, 2020

Federal courts should "turn to state law to resolve" a "fight over a tax refund," held a unanimous U.S. Supreme Court on Feb. 25, 2020. Rodriquez v. FDIC (In re United W Bancorp., Inc.), 589 U.S. ___, 2020 WL 889191 (Feb. 25, 2020). Vacating a Tenth Circuit decision, the Supreme Court remanded the case for the lower court to apply state law in resolving "the distribution of a consolidated corporate tax refund." The bankruptcy trustee of a bank holding company was litigating against the Federal Deposit Insurance Corporation (FDIC), as receiver for the subsidiary bank that had incurred losses generating the refund. According the Supreme Court, it was not deciding "[w]ho is right about all this …." Id. at 4. Instead, the Court rejected the Tenth Circuit's application of the Ninth Circuit's so‑called Bob Richards rule. In re Bob Richards Chrysler‑Plymouth Corp., 473 F.2d 262, 265 (9th Cir. 1973) (in absence of tax allocation agreement, refund belongs to group member responsible for losses that led to it). In so doing, the Supreme Court rejected the Bob Richards rule as inappropriate federal "common lawmaking."

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The Supreme Court granted certiorari in Rodriguez not only to resolve a split among the circuits, but also "to decide Bob Richard's fate." Id. 3. As it evolved over time, Bob Richards supplied a federal common law rule that, absent a clear agreement to the contrary, tax refunds belong to a taxpayer group member responsible for the losses that led to the refund.

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