Section of Taxation Publications
  VOL. 52
NO. 4
Back to Contents Page
Back to TTL Home Page


Article Abstracts

Are Separate Liability Losses Seperate for Consoidated Groups?
Don Leatherman

Don Leatherman is Associate Professor of Law at the  University of Tennessee College of Law; B.A., Goshen College, 1975; J.D., Dickinson College of Law, 1981; LL.M., New York University, 1984. The author thanks Thomas Davies, Andrew J. Dubroff, Amy Morris Hess, Colleen Medill, Carol Parker, and Gregory Stein for their helpful comments.


This article considers how a consolidated group should account for a separate liability loss ("SLL"), a subject of continuing litigation between the government and taxpayers. I conclude that a consolidated group should determine its SSL in the first instance as if it were a single entity, but that a member should use a separate-corporation approach in measuring how much of the group's SLL it may carry back to its separate-return year.

Part I of this article provides an overview of the consolidated return regulations and outlines how the regulations apply the single-entity and separate-corporation approaches. It also describes how we should choose between the approached when the regulations are silent, as they are, for example, about SLLs. Part II explains the mechanics of and the policy behind section 172(f), the SLL provision, and concludes that section 172(f) does not require a consolidated group to adopt either approach. Part III describes why a group should take its SLL into account in the same way is does its CNOL. Part IV considers the vexing problem of how a group should compute its SLL. Subpart A of that part uncovers the relevant policy concerns and concludes that the better policy supports the consolidated-first approach. Subpart B sets out the relatively straight forward technical case for that approach. Subpart C describes the elaborate but ultimately flawed technical case for any separate-first approach, considering both the Service's position (accepted by one court) and the case more generally for a separate-first approach. Part V concludes that the better policy and technical arguments support the consolidated-first approach. Finally, an appendix to the article suggests regulatory approaches the service may adopt to limit tax avoidance under section 172(f).



The A.L.I. Tax Treaty Study—A Critique and a Modest Proposal
Philip F. Postlewaite
David S. Makarski

Philip F. Postlewaite is Professor of Law at the Northwestern University School of Law; B.B.A. 1967, Texas Christian University; J.D. 1970, University of California at Berkeley; LL.M. in Taxation 1971, New York University.

David S. Makarski ia an Associate with Jenner & Block in Illinois; former law clerk to the Honorable William J. Bauer, United States Court of Appeals for the Seventh Circuit and the Honorable Charles P. Kocoras, U.S. District Court, N.D. III.; B.A. 1993, Northwestern University; J.D. 1996, Northwestern University School of Law.


As of January 1, 1998, forty-nine income tax treaties had been entered between the United States and various foreign countries. Income tax treaties purport to serve two main purposes. First, treaties supposedly mitigate or eliminate potential double taxation by providing consistent rules specifically governing the taxation of income items such as business profits, income from real property, dividends, interest, royalties, and other items of income. They also set forth specialized rules applicable to certain classes of persons, such as students, teachers, athletes, and artists. Second, tax treaties supposedly stimulate trade and investment between the two treaty partners and add a degree of certainty to international transactions.

This article examines the role of tax treaties in the United States taxing regime and what role, if any, they should play in the effectuation and implementation of U.S. tax policy. In the introduction, technical aspects of tax treaties are examined, including negotiation and ratification. Thereafter, the American Law Institute's proposals regarding the improvement of the U.S. income tax treaty network are examined. The proposals are premised on the continued participation therein by the United States. The article summarizes A.L.I.'s study of, and recommendations regarding, the structure, interpretation, and use of tax treaties, and critiques those proposals. Where the authors differ with the A.L.I. Study, alternative proposals and justifications for those proposals are advanced. Finally, the Article questions the soundness of A.L.I.'s underlying premise regarding the continued use of international income tax treaties by the United States. In lieu of the tax treaty network, the Article recommends the elimination of income tax treaties and the codification of treaty principles in the Code, accompanied by a repeal of the current taxing regime applicable to non-resident aliens and foreign corporations resident in a non-treaty country.



Comment Abstract

The Tax Implications of Catching Mark McGwire's 62 nd Home Run Ball

The major league baseball season of 1998 bore witness to one of the most memorable spectacles in history of American sports. One of baseball's most cherished and enduring records, the single-season home run record of 61 set by Roger Marris in 1961, was broken in dramatic fashion by St. Louis Cardinals' slugger Mark McGwire, as he raced the Chicago Cubs' Sammy Sosa to set the mark… As impressive as their sportsmanship was, though, perhaps the saga's classiest individuals were the many fans who gave the home run balls they caught to the heroes who hit them, instead of selling them for a certain gain.

Amidst this atmosphere of good feeling, the service initially emerged as the season's bad guy. On September 8, Service spokesman Steven Pyrek unleashed a storm of controversy when he stated in response to a sportswriter's question that a ball becomes the property of the fan who catches it once it has left the field, even if that fan were to give it to the player who hit it; and accordingly "the giver is responsible for paying any applicable tax on any larger gift." In short, if McGwire's 62 nd home run ball were worth $1,000,000 the person who returned the ball to McGwire would be handed a gift tax bill of $150,000.

The following day, the Service issued News Release 98-56, stating that the person who caught Mark McGwire's 62 nd home run ball would not be subject to either income tax on catching the ball or gift tax on immediately returning the ball to McGwire. The Service's position compared the situation to that of a person who declines a prize or returns unsolicited merchandise.

This comment presents the tax background of this historic sports issue and analyzes the legal basis for the Service's position.




Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center



If you are an ABA member, you can receive The Tax Lawyer and the Section NewsQuarterly, both quarterly publications, when you join the Section of Taxation. Anyone can subscribe to The Tax Lawyer by contacting the ABA Service Center.