It's Time for US Consolidated Tax Groups to Assess What They Need in an Intercompany Tax-Sharing Agreement.

• Author: Jones, Kristin B.

The US Supreme Court and Congress recently changed rules governing tax-sharing agreements (TSA) between affiliated groups of corporations, so it's time for companies to evaluate whether they need such an agreement or, if they have one, whether it's adequate.

A TSA, also known as an intercompany tax agreement or a tax allocation agreement, is a legal contract between related entities that defines rights and obligations on various tax matters, such as who is responsible for preparing and filing returns and paying taxes and how disputes among the parties are handled, among many other items. For corporate members of a consolidated group, a TSA is a must--but existing agreements may require modifications to accommodate a 2020 Supreme Court ruling and relevant provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the stimulus bill enacted in March 2020 to counter the dire economic impact of the COVID-19 pandemic.

In Rodriguez v. Federal Deposit Insurance Corporation,' the Supreme Court struck down a judicial federal common law rule--known as the Bob Richards rule--that courts had used for decades to allocate tax refunds among members of corporate affiliated groups that lacked a written TSA or when their agreement was ambiguous about the allocation of refunds. (2)

Facts of the Case

In 2008, United Western Bancorp Inc. (UWBI), a bank holding company, and subsidiaries including United Western Bank (hereafter "the bank"), entered into a tax allocation agreement. UWBI filed a tax return for the consolidated group that year based on the bank's taxable income. (UWBI had no income for that year.) In 2010, the bank generated net operating losses (NOLs), and UWBI requested a $4.8 million refund from the Internal Revenue Service to recover taxes the bank paid on its 2008 income.

The bank closed in 2011, and the Federal Deposit Insurance Corporation (FDIC) was appointed as its receiver. In 2012, UWBI filed for bankruptcy protection. The FDIC filed a claim in bankruptcy court arguing that, as the bank's successor, it was entitled to the $4.8 million tax refund, because the refund stemmed exclusively from the bank's business loss carrybacks.

In 2013, Simon Rodriguez was appointed the Chapter 7 trustee for the bankruptcy estate. He sued the FDIC, arguing that the tax refund was owned by UWBI and was part of the bankruptcy estate. The bankruptcy court agreed and granted summary judgment in his favor. However, the US District Court for the...