Deconstructing Black & Decker's Contingent Liability Shelter: A Statutory Analysis
12 Pages Posted: 27 Jul 2005 Last revised: 12 Sep 2015
Date Written: 2005
The Fourth Circuit will soon consider the government's appeal from the district court's decision in Black & Decker Corp. v. United States. This article presents two main arguments for reversing the district court's decision and awarding summary judgment to the government on its statutory claim under sections 357 and 358. The first argument, based on a close reading of the statute and legislative history, is that section 357(c) applies to assumed deductible liabilities that relate to the transferred trade or business, not to liabilities that are stripped out and transferred separately from the underlying business. The second argument, based on a purposive inquiry, is that allowing the taxpayer an accelerated deduction for its contingent healthcare claims violates the policy of section 357(c)(3) premised on proper matching of income and deductions. In view of the widespread marketing of contingent liability shelters, this case affords the Fourth Circuit an opportunity to provide much-needed guidance. This article flows from the author's earlier commentary on the district court's decision (Tax Notes, Jan. 31, 2005, p. 577) and her discussion of the Supreme Court's Hendler decision in Business Tax Stories (Bank and Stark, eds., Foundation Press 2005).
Keywords: Black & Decker, liability, contingent, tax shelter, purposive, statutory interpretation, Coltec
JEL Classification: K34
Suggested Citation: Suggested Citation