Rodriguez v. Federal Deposit Insurance Corporation

The Bob Richards rule, which provides that in the absence of an agreement, a refund belongs to the group member responsible for the losses that led to it, promulgated in response to issues stemming from the IRS’s allowing affiliated groups of corporations to file consolidated federal tax returns, is not a legitimate exercise of federal common lawmaking.

The IRS allows affiliate groups of corporations to file a consolidated federal tax return, and issues a refund as a single payment. The regulations provide little guidance as to distribution of the refund, resulting in disputes  where no tax allocation agreement is in place. Federal courts generally look to state law to resolve the issues. However, some courts have engaged in federal common lawmaking, resulting in the Bob Richards rule, which provides that in the absence of an agreement, a refund belongs to the group member responsible for the losses that led to it. In re Bob Richards Chrysler-Plymouth Corp., 473 F. 2d 262 (1973). The Tenth Circuit ruled in favor of Respondent, relying on an evolved Bob Richards rule which allocates the funds to the group member responsible for the losses both where no agreement is in place and where an existing agreement does not unambiguously state otherwise. The Supreme Court held that the Bob Richards rule is an illegitimate exercise of federal common lawmaking power and that strict conditions must be satisfied before a federal judge may indulge in federal common lawmaking, including that absent specific congressional authorization, “it must be necessary to protect uniquely federal interests.” Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U. S. 630, 640 (1981). Here, the Court found that the Tenth Circuit bypassed important threshold questions to engage in illegitimate federal common lawmaking. VACATED and REMANDED.