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to comply with all pertinent state and federal laws and
thereby gave rise to the liabilities incurred in
complying with these laws. According to this logic,
every corporation would have a specified liability
carryback for all costs the corporation incurred to
comply with relevant laws. Congress did not create
such a windfall. [Sealy Corp. v. Commissioner, 171 F.3d
at 657-658.]
In Host Marriott Corp. v. United States, 113 F. Supp. 2d 790
(D. Md. 2000), affd. without published opinion ___ F.3d ___ (4th
Cir. 2001), the question whether interest payments on Federal
income tax deficiencies constitute specified liability losses
within the meaning of section 172(f)(1) was resolved in favor of
the taxpayer, who reported a CNOL for 1991. In part, the CNOL
consisted of approximately $46 million representing interest paid
on tax deficiencies for the taxable years 1977, 1978, and 1979,
and approximately $7 million in payments made on workers’
compensation claims for injuries sustained before 1988. The
taxpayer argued that both categories of payments constituted
specified liability losses that qualified for carryback to the
taxable years 1984 and 1985.
In holding for the taxpayer, the District Court cited the
plain language of section 172(f)(1)(B), stating:
The statutory language clearly poses two restrictions
upon application of the deduction in this case. First,
the claimed deduction must be a liability that arises
out of Federal or state law. Both of Plaintiff’s
losses meet this requirement. The liability for
federal income tax deficiency interest arises out of 26
U.S.C. �6601(a) under a rate established by �6621. The
liability for workers’ compensation payments arises out
of various state laws. Second, the claims must arise
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