Refund paid to fiduciary not owed to taxpayer’s common parent

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A U.S. district court ruled June 16 that a common parent of a consolidated group was not owed a refund from the IRS that was paid to the Federal Deposit Insurance Corporation (FDIC) as a fiduciary.

In Clark County Bancorporation v. U.S. Department of Treasury, No. 3:14-cv-05811 (W.D. Wash. 2015), a corporation (CCB) owned a bank, which was a member of CCB’s consolidated group. In 2001, CCB entered an agreement with the bank regarding the filing and allocation of taxes.

In 2009, the bank was closed by its state regulator, and the FDIC was appointed as its receiver. The FDIC subsequently submitted a notice to the IRS concerning the FDIC’s fiduciary relationship with the bank, and the FDIC then filed amended tax returns for tax refunds attributable to losses of the bank. CCB also filed amended tax returns for the CCB group for the same period, but the IRS processed the amended tax returns filed by the FDIC rather than CCB. The IRS issued refund checks to the FDIC related to the amended tax returns it had filed. CCB filed a refund suit in the district court claiming that it was entitled to the refund.

The U.S. District Court for the Western District of Washington held that CCB had no right of action against the government and that the government no longer owed any party once the refund payments were made. The court cited Treas. Reg. Sec. 301.6402-7(k), which says that “[a]ny refund or tentative carryback adjustment paid to the fiduciary discharges any liability of the Government to the same extent as payment to the common parent under § 1.1502-77 or § 1.1502-78 of this chapter.”

The IRS noted that CCB, the bank and the FDIC may seek a judicial determination regarding the ownership of the refunds but that the government’s liability was extinguished when payment was made to the fiduciary.


Andy Cordonnier
+1 202 521 1502

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