SCOTUS Opinion: Court Strikes Down The “Bob Richards Rule”

The IRS allows affiliated corporations to file a group tax return. When the IRS issues a tax return to the group as a whole, federal law does not describe how to allocate the funds. The Ninth Circuit created a rule for that when it decided In re Bob Richards Chrysler-Plymouth Corp., 473 F.2d 262 (1973). The “Bob Richards Rule” mandated that unless the corporations had an agreement between themselves as to how to distribute the tax refund proceeds, the refund should go to those group members responsible for the losses that led to the refund. In Rodriguez v. FDIC, a bank (in receivership) and its parent company (in bankruptcy) each sought to obtain a $4 million refund issued to the companies as a group. The Tenth Circuit applied the Bob Richards rule and gave the tax refund to the parent company. The Court, in a unanimous decision by Justice Gorsuch, reversed, holding that there was no legal basis for the federal courts to apply its own rule where there was no federal interest at stake. Courts must look to state law to resolve these issues.

A link to the opinion is here.