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Black & Decker Corp. v. United States

436 F.3d 431 (2006)

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Black & Decker Corp. v. United States

United States Court of Appeals for the Fourth Circuit

436 F.3d 431 (2006)

Facts

The Black & Decker Corporation (BDC) (plaintiff) provided health-insurance benefits to its current and retired employees. Although BDC was certain to have substantial claims in the future on account of these benefits, the precise extent of the liability was impossible to predict. BDC incurred sizable, unrelated taxable gains, which it sought to offset by incurring losses. To this end, BDC contributed a large amount of cash to a wholly owned subsidiary, Black & Decker Healthcare Management, Inc. (BDHMI), which filed tax returns separately from BDC. In exchange, BDHMI issued stock and assumed BDC’s liability for the future health benefits. BDC did not reduce its basis in the BDHMI stock it received by the value of the assumed liabilities. BDC then sold the BDHMI stock and realized the desired losses. Had BDC’s basis in the BDHMI stock been reduced by the value of the assumed liabilities, BDC would not have realized a loss. BDC filed for tax refunds attributable to the loss, but the Internal Revenue Service (IRS) refused to issue them, arguing that BDC should have decreased its basis in the BDHMI stock by the value of the assumed liabilities. BDC sued the United States government (defendant). Both sides filed for summary judgment, but the district court denied the motions. The IRS appealed.

Rule of Law

Issue

Holding and Reasoning (Michael, J.)

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