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Rite Aid Corp. v. United States

255 F.3d 1357 (2001)

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Rite Aid Corp. v. United States

United States Court of Appeals for the Federal Circuit

255 F.3d 1357 (2001)

Facts

Rite Aid Corporation (Rite Aid) (plaintiff) acquired all of the stock of Penn Encore (Encore), a discount-bookstore chain. Rite Aid and Encore filed tax returns as a consolidated group. Several years later, Rite Aid sold Encore to another corporation in a stock sale. Rite Aid realized a net loss of approximately $22 million on the sale of its Encore stock. At the time of the sale, Encore’s aggregate adjusted basis in all of its assets exceeded the value of those assets by approximately $ 28.5 million. This excess was defined by United States Department of Treasury regulations as the duplicated-loss factor of a subsidiary in a consolidated group. The Internal Revenue Service (IRS) (defendant) did not allow Rite Aid to recognize the $22 million loss it realized pursuant to a Treasury regulation that disallowed recognition of loss from a sale of a subsidiary in a consolidated group if the subsidiary’s duplicate-loss factor exceeded the realized loss to the parent. Rite Aid paid the full taxes as calculated by the IRS and sued for a refund, arguing that the regulation was unlawful. The United States Court of Federal Claims ruled in favor of the IRS, saying that the regulation was lawful. Rite Aid appealed.

Rule of Law

Issue

Holding and Reasoning (Mayer, C.J.)

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