Daniel Hemel Previews Tax Refund SCOTUS Case

Argument preview: Whose refund is it anyway?

Where’s my refund? Millions of Americans ask that question each spring as they await checks from the Internal Revenue Service for tax overpayments. The question takes on added significance if your refund exceeds $4 million and you are teetering on the edge of insolvency. This was the circumstance facing United Western Bank, whose eight-year wait for a $4 million refund gave rise to Rodriguez v. Federal Deposit Insurance Corp. On December 3, the Supreme Court will decide whether—and when—to bring that wait to an end.

United Western Bank—a wholly owned subsidiary of United Western Bancorp, Inc., or UWBI—was a Denver-based bank with eight branches across Colorado. UWBI, like many other corporate parents, filed consolidated federal income tax returns on behalf of itself and its subsidiaries, including United Western Bank. Per IRS regulations, a parent company may file a consolidated return on behalf of subsidiaries in which it owns at least an 80 percent stake. If the consolidated return establishes a claim to a refund, the IRS sends the check to the parent rather than to the subsidiary whose losses gave rise to the refund claim. That’s what happened here.

In 2010, United Western Bank—the subsidiary—suffered more than $35 million in losses. At the time, federal tax law allowed a corporation to “carry back” losses up to two years. UWBI—the corporate parent—sought to do just that. In 2011, it requested a refund from the IRS of more than $4 million, which reflected the carryback of United Western Bank’s 2010 losses to offset the bank’s 2008 income.

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Tax policy