69

MARVEL ENTERTAINMENT, LLC, AS SUCCESSOR TO MARVEL

ENTERTAINMENT, INC., F.K.A. MARVEL ENTERPRISES, INC. 

AND AS AGENT FOR MEMBERS OF MARVEL ENTERPRISES, 

INC. AND SUBSIDIARIES GROUP, PETITIONER v. 

COMMISSIONER OF INTERNAL REVENUE, 

RESPONDENT

Docket No. 12113–13. Filed July 21, 2015. 

MEG was an affiliated group that filed consolidated 

returns. On Dec. 27, 1996, certain MEG member entities filed 

for bankruptcy under 11 U.S.C. ch. 11 and subsequently 

excluded cancellation of indebtedness (COD) income from 

their respective gross incomes under I.R.C. sec. 108(a)(1)(A) 

for MEG’s short taxable year ending Oct. 1, 1998. Pursuant 

to I.R.C. sec. 108(b)(2)(A), MEG reduced each member entity’s 

allocable share of consolidated net operating loss (CNOL) by 

each member entity’s previously excluded COD income. MEG 

carried forward into its successor affiliated group a 

$47,424,026 CNOL and used this amount to offset income of 

the successor group for its taxable years ending Dec. 31, 2003 

and 2004. R determined deficiencies for 2003 and 2004, 

arguing that I.R.C. sec. 108(b)(2)(A) required MEG’s 1998 tax 

attribute reduction to occur at the consolidated level rather 

than at the individual entity level. P, the successor to MEG 
70 145 UNITED STATES TAX COURT REPORTS (69) 

1 Unless otherwise indicated, all section references are to the Internal 

Revenue Code (Code) in effect for all relevant years, and all Rule references are to the Tax Court Rules of Practice and Procedure. 

and as agent for the members of the affiliated group, timely 

filed a petition disputing R’s determinations. Held: Where a 

member of a consolidated group has excluded COD income 

during a consolidated return year before the adoption of sec. 

1.1502–28T, Temporary Income Tax Regs., 69 Fed. Reg. 12071 

(Mar. 15, 2004), the NOL subject to reduction pursuant to 

I.R.C. sec. 108(b)(2)(A) is the entire CNOL of the consolidated 

group. See United Dominion Indus., Inc. v. United States, 532 

U.S. 822 (2001). 

Mark J. Silverman, Michael H. Salama, Matthew D. 

Lerner, and Andrew F. Gordon, for petitioner. 

Curt M. Rubin, Steven N. Balahtsis, and Lawrence L. 

Davidow, for respondent. 

OPINION 

RUWE, Judge: Respondent determined deficiencies in petitioner’s Federal income tax for its consolidated taxable 

return years ending December 31, 2003 and 2004, of 

$2,144,756 and $14,453,653, respectively. Petitioner’s deficiencies result from members of its predecessor consolidated 

group filing for bankruptcy under 11 U.S.C. chapter 11 and 

realizing cancellation of indebtedness (COD) income for the 

consolidated group’s short taxable year ending October 1, 

1998. Certain members of the predecessor consolidated group 

excluded the COD income from their respective gross 

incomes pursuant to section 108(a)(1)(A). 1 When subsequently reducing net operating loss (NOL) as required by section 108(b)(2)(A), each debtor member of the consolidated 

group reduced its allocable share of the group’s consolidated 

net operating loss (CNOL) by its previously excluded COD 

income. 

This matter is before the Court on the parties’ crossmotions for summary judgment pursuant to Rule 121. The 

parties have asked this Court to decide, as a matter of law, 

whether a consolidated group’s NOL subject to reduction 

under section 108(b)(2)(A) for its short taxable year ending 

October 1, 1998, is (1) the entire CNOL of the consolidated 

group or (2) a portion of the CNOL allocable to each member 

of the consolidated group. Accordingly, the only issue before 
(69) MARVEL ENTM’T, LLC v. COMMISSIONER 71

2Petitioner is an entertainment company known for its comic book characters. On September 16, 2005, Marvel Enterprises, Inc. (Marvel Enterprises), merged with its wholly owned subsidiary Marvel Entertainment, 

Inc., with Marvel Enterprises surviving the merger but changing its name 

to Marvel Entertainment, Inc. On December 31, 2009, Marvel Entertainment, Inc., was acquired by the Walt Disney Co. (Disney) and was merged 

into Maverick Merger Sub, LLC (Maverick), a Delaware limited liability 

company wholly owned by Disney. Upon filing the certificate of merger 

with the secretary of state for the State of Delaware, Maverick changed 

its name to Marvel Entertainment, LLC. 

the Court is the legal question concerning the NOL subject 

to reduction under section 108(b)(2)(A). This is an issue of 

first impression in this Court. 

Background 

At the time the petition was filed, the principal place of 

business for Marvel Entertainment, LLC (petitioner), 2 was 

in New York, New York. 

On December 27, 1996, Marvel Entertainment Group, Inc. 

(MEG), and certain of its operating and inactive subsidiaries—Fleer Corp. (Fleer), Skybox International, Inc., Marvel 

Characters, Inc., Heroes World Distribution, Inc. (Heroes), 

the Asher Candy Co., Malibu Comics Entertainment, Inc. 

(Malibu), Frank H. Fleer Corp., and Marvel Direct Marketing, Inc.—filed voluntary petitions for relief under chapter 

11 of the Bankruptcy Code with the U.S. Bankruptcy Court 

for the District of Delaware. At the time of its bankruptcy 

filings, MEG and its subsidiaries filed consolidated Federal 

income tax returns as members of a consolidated group of 

corporations whose common parent was Mafco Holdings, Inc. 

On April 24, 1997, MEG and its subsidiaries became a 

separate affiliated group (MEG Group) and filed consolidated 

Federal income tax returns for the short taxable years 

ending December 31, 1997, and October 1, 1998. 

On October 1, 1998, MEG Group was acquired by Toy Biz, 

Inc. (Toy Biz), pursuant to MEG Group’s fourth amended 

plan of reorganization (fourth plan of reorganization). MEG 

and its subsidiaries became members of a new consolidated 

group of which Toy Biz was the common parent. As part of 

the transaction Toy Biz changed its name to Marvel Enterprises, Inc. In connection with the fourth plan of reorganiza-
72 145 UNITED STATES TAX COURT REPORTS (69) 

tion, four MEG Group members had certain debts eliminated 

and realized COD income as follows: 

Member COD income 

MEG ............................................... $2,497,828

Fleer ............................................... 163,680,402

Heroes ............................................ 4,930,767

Malibu ............................................ 353,466

Total ............................................. 171,462,463

MEG, Fleer, Heroes, and Malibu each excluded its COD 

income from their respective gross incomes for the short taxable year ending October 1, 1998, pursuant to section 

108(a)(1)(A). 

Section 108(b)(2)(A) provides that the amount excluded 

under section 108(a)(1)(A) shall be applied to reduce tax 

attributes starting with any net operating loss for the taxable year and any net operating loss carryover to such 

taxable year. As of October 1, 1998, MEG Group had a 

CNOL of $187,154,680. For purposes of applying section 

108(b)(2)(A), MEG Group allocated the CNOL among its 

consolidated group members as follows: 

Member Share of CNOL 

MEG ............................................... $71,330,567

Fleer ............................................... 82,656,671

Heroes ............................................ 4,058,504

Malibu ............................................ 2,707,590

Total ............................................. 1160,753,332

1 As of Oct. 1, 1998, MEG Group had a CNOL of 

$187,154,680. The record does not explain where the remaining $26,401,348 was allocated. 

On its consolidated Federal income tax return for the short 

taxable year ending October 1, 1998, MEG Group reduced 

the share of CNOL separately attributable to each of MEG, 

Fleer, Heroes, and Malibu by the lesser of (1) each member’s 

excluded COD income or (2) each member’s allocable share of 

CNOL, as follows: 

Allocated 

CNOL 

Excluded 

COD income 

Reduction of 

CNOL 

Remaining 

CNOL 

MEG $71,330,567 $2,497,828 $2,497,828 $68,832,739

Fleer 82,656,671 163,680,402 82,656,671 -0-

Heroes 4,058,504 4,930,767 4,058,504 -0-

Malibu 2,707,590 353,466 353,466 2,354,124

Total 160,753,332 171,462,463 89,566,469 71,186,863
(69) MARVEL ENTM’T, LLC v. COMMISSIONER 73

3This amount represents MEG Group’s original $187,154,680 CNOL less 

$89,566,469 of total reduction of CNOL as of October 1, 1998. The CNOL 

carryforward was limited by sec. 382. 

MEG Group joined the Marvel Group on October 2, 1998, 

and carried forward into the Marvel Group its remaining 

$97,588,211 3 CNOL (CNOL carryforward). The CNOL 

carryforward was subsequently decreased to $96,391,831 on 

December 21, 1998, to reflect the dissolution of Fleer. 

Respondent examined MEG Group’s consolidated Federal 

income tax return for its short taxable year ending October 

1, 1998, and made no adjustments to the claimed CNOL 

carryforward. 

MEG Group’s CNOL carryforward of $96,391,831 was used 

by the Marvel Group in subsequent years to offset income as 

follows: 

Taxable year ending CNOL carryforward Income offset Remaining CNOL 

Dec. 31, 1999 $96,391,831 $797,679 $95,594,152

Dec. 31, 2001 95,594,152 29,862,818 65,731,334

Dec. 31, 2002 65,731,334 18,307,308 47,424,026

Respondent did not examine the Marvel Group’s consolidated 

returns for its taxable years 1999, 2001, and 2002. The 

Marvel Group claimed a CNOL carryforward of $47,424,026 

into its taxable year ending December 31, 2003. 

On March 28, 2013, respondent mailed to petitioner a 

notice of deficiency determining deficiencies for petitioner’s 

taxable years 2003 and 2004 of $2,144,756 and $14,453,653, 

respectively. In the notice of deficiency respondent challenged 

the Marvel Group’s computation of the CNOL carryforward 

and took the position that MEG Group should properly have 

reduced its $187,154,680 CNOL as of October 1, 1998, by 

$171,462,463, the total of excluded COD income for MEG, 

Fleer, Heroes, and Malibu. This reduction would have 

resulted in a remaining CNOL as of October 2, 1998, and 

carried into the Marvel Group subject to the limitations of 

section 382, of $15,692,217. Petitioner timely filed a petition 

disputing the determinations in the notice of deficiency. 

Discussion 

Either party may move for summary judgment regarding 

all or any part of the legal issues in controversy. See Rule 
74 145 UNITED STATES TAX COURT REPORTS (69) 

121(a). Summary judgment is intended to expedite litigation 

and to avoid unnecessary and expensive trials. Shiosaki v. 

Commissioner, 61 T.C. 861, 862 (1974). Summary judgment 

is appropriate where the pleadings and other materials show 

that there is no genuine dispute as to any material fact and 

that a decision may be rendered as a matter of law. Rule 

121(a) and (b); Sundstrand Corp. v. Commissioner, 98 T.C. 

518, 520 (1992), aff ’d, 17 F.3d 965 (7th Cir. 1994). The burden is on the moving party to demonstrate that no genuine 

dispute as to any material fact remains and that it is entitled 

to judgment as a matter of law. FPL Grp., Inc. & Subs. v. 

Commissioner, 116 T.C. 73, 74–75 (2001). In deciding 

whether to grant summary judgment the Court must consider the factual materials and inferences drawn from them 

in the light most favorable to the nonmoving party. Bond v. 

Commissioner, 100 T.C. 32, 36 (1993); Naftel v. Commissioner, 85 T.C. 527, 529 (1985). However, the nonmoving 

party is required ‘‘to go beyond the pleadings and by * * * 

[its] own affidavits, or by the ‘depositions, answers to interrogatories, and admissions on file,’ designate ‘specific facts 

showing that there is a genuine issue for trial.’ ’’ Celotex 

Corp. v. Catrett, 477 U.S. 317, 324 (1986); see also 

Rauenhorst v. Commissioner, 119 T.C. 157, 175 (2002); FPL 

Grp., Inc. & Subs. v. Commissioner, 115 T.C. 554, 559 (2000). 

Summary judgment is appropriate in the matter sub judice 

because the parties agree on all material facts and the only 

dispute we must resolve is one of law. 

In MEG Group’s short taxable year ending October 1, 

1998, four of its consolidated group members realized total 

COD income of $171,462,463 resulting from bankruptcy 

filings under chapter 11. Each of the four MEG Group debtor 

members excluded the COD income from its respective gross 

incomes under section 108(a)(1)(A). MEG Group also had a 

$187,154,680 CNOL for its short taxable year ending October 

1, 1998. Under section 108(b)(2)(A), MEG Group allocated a 

portion of the group’s CNOL to each of the four MEG Group 

debtor members and reduced the allocated CNOL shares by 

each member’s previously excluded COD income. As a result, 

MEG Group reduced its $187,154,680 CNOL by $89,566,469 

of the $171,462,463 in excluded COD income. 

The sole issue for decision is whether the NOL subject to 

reduction under section 108(b)(2)(A) is the entire CNOL of a 
(69) MARVEL ENTM’T, LLC v. COMMISSIONER 75

consolidated group (single-entity approach) or a portion of a 

consolidated group’s CNOL allocable to each group member 

(separate-entity approach). Respondent argues that the 

‘‘ ‘NOL’ that must be reduced under section 108 is the entire 

CNOL’’ of a consolidated group. According to respondent, 

‘‘the MEG Group should properly have reduced its 

$187,154,680 CNOL as of October 1, 1998 by $171,462,463, 

the total of the excluded COD income for each of Fleer, 

Heroes, MEG and Malibu resulting in a remaining CNOL as 

of October 2, 1998 * * * of $15,692,217.’’ Respondent concludes that this method of tax attribute reduction would have 

‘‘result[ed] in $0 of CNOL carryover into the * * * [Marvel 

Group] consolidated return taxable years ending December 

31, 2003 and December 31, 2004.’’ 

Petitioner argues that the NOL subject to reduction under 

section 108(b)(2)(A) is limited to the share of a consolidated 

group’s CNOL allocable to each member entity. Specifically, 

petitioner asserts that ‘‘where a taxpayer that is a member 

of a consolidated group excluded COD income from gross 

income during a taxable year ended October 1, 1998 pursuant to section 108(a)(1)(A), the ‘net operating loss’ or ‘net 

operating loss carryover’ of the taxpayer that was subject to 

reduction under section 108(b)(2)(A) was the portion of the 

CNOL of the consolidated group attributable to such 

member.’’ 

1. Preliminary Matter 

In the notice of deficiency respondent challenged MEG 

Group’s use of the separate-entity approach and took the 

position that MEG Group should properly have reduced its 

$187,154,680 CNOL for its short taxable year ending October 

1, 1998, by $171,462,463, the total of excluded COD income 

for the four MEG Group debtor members. The single-entity 

approach advocated by respondent would have resulted in a 

remaining CNOL of $15,692,217 for MEG Group following its 

short taxable year ending October 1, 1998. Although the 

notice of deficiency pertains to petitioner’s 2003 and 2004 calendar tax years, the resolution of the instant matter depends 

on the appropriate method of tax attribute reduction used by 

MEG Group for its short taxable year ending October 1, 

1998. Both parties agree that, if the separate-entity approach 
76 145 UNITED STATES TAX COURT REPORTS (69) 

4Title 11 governs bankruptcy cases. 

is proper pursuant to section 108(b)(2)(A), petitioner is not 

liable for any income tax deficiencies for 2003 and 2004. On 

the other hand, the parties agree that if the single-entity 

approach is proper pursuant to section 108(b)(2)(A), petitioner is liable for the additional tax as set forth in the notice 

of deficiency. 

Section 172(e) provides that ‘‘[i]n determining the amount 

of any net operating loss carryback or carryover to any taxable year, the necessary computations involving any other 

taxable year shall be made under the law applicable to such 

other taxable year.’’ The law governing the instant matter is 

the law applicable for the year in which the COD income was 

excluded by MEG, Fleer, Heroes, and Malibu. See Laney v. 

Commissioner, T.C. Memo. 1997–403, 1997 Tax Ct. Memo 

LEXIS 484, at *32 (‘‘[T]he nature and amount of the carryover item is determined and redetermined under the law in 

effect for the year in which the carryover item arose * * * 

rather than the year(s) to which the carryover item is carried.’’), aff ’d without published opinion, 168 F.3d 482 (4th 

Cir. 1999). Accordingly, the resolution of this case will be 

based on the relevant law in effect for petitioner’s short taxable year ending October 1, 1998. 

2. Applicable Law 

Section 61(a) generally defines gross income as ‘‘all income 

from whatever source derived’’. This includes income from 

the ‘‘discharge of indebtedness’’. Sec. 61(a)(12); see also 

Gitlitz v. Commissioner, 531 U.S. 206, 213 (2001). Section 

108(a) provides certain exceptions to this general rule. One 

of these exceptions provides that COD income is excluded 

from the taxpayer’s gross income if ‘‘the discharge occurs in 

a title 11 case’’. 4 Sec. 108(a)(1)(A). However, the price of 

exclusion is that certain of the taxpayer’s favorable tax 

attributes must be reduced to the extent of the excluded 

COD income. Section 108(b) provides, in pertinent part: 

SEC. 108(b). REDUCTION OF TAX ATTRIBUTES.— 

(1) IN GENERAL.—The amount excluded from gross income under 

subparagraph (A), (B), or (C) of subsection (a)(1) shall be applied to 

reduce the tax attributes of the taxpayer as provided in paragraph (2). 
(69) MARVEL ENTM’T, LLC v. COMMISSIONER 77

(2) TAX ATTRIBUTES AFFECTED; ORDER OF REDUCTION.—Except as 

provided in paragraph (5), the reduction referred to in paragraph (1) 

shall be made in the following tax attributes in the following order: 

(A) NOL.—Any net operating loss for the taxable year of the discharge, and any net operating loss carryover to such taxable year. 

Both parties agree that, pursuant to section 108(a)(1)(A), 

MEG, Fleer, Heroes, and Malibu correctly excluded their portions of $171,462,463 of COD income from their respective 

gross incomes for the short taxable year ending October 1, 

1998. The parties also agree that MEG Group had a 

$187,154,680 CNOL for its short taxable year ending October 

1, 1998. However, the parties disagree over what constitutes 

a taxpayer’s NOL under section 108(b)(2)(A) when that taxpayer is a member of a consolidated group. Respondent contends that the NOL subject to reduction is the consolidated 

group’s entire CNOL. Petitioner contends that the NOL subject to reduction is an allocable portion of CNOL attributable 

to each member of the consolidated group. Whether the NOL 

to be reduced under section 108(b)(2)(A) is the entire CNOL 

or an allocable portion of the CNOL is the sole issue for resolution in this case. 

3. United Dominion 

To resolve the issue in this case we must determine 

whether a consolidated group can allocate and apportion its 

CNOL to its consolidated group members so that each 

member can have a separate NOL subject to reduction under 

section 108. Respondent’s primary position is that consolidated group members are prohibited from having separate 

NOLs unless specifically authorized to do so by a provision 

of the consolidated return regulations. Respondent asserts 

that ‘‘[t]he question of whether members of a consolidated 

group have separate NOLs was considered and decided by 

the Supreme Court in United Dominion Indus., Inc. v. * * * 

[United States], 532 U.S. 822 (2001)’’. Petitioner contends 

that United Dominion ‘‘addressed an entirely different question than the issue before this Court, a question that had 

nothing to do with section 108.’’ 

United Dominion involved the appropriate method for calculating product liability losses (PLL) of an affiliated group 

of corporations that elected to file a consolidated return. For 

the years at issue in United Dominion (i.e., 1983–86), section 
78 145 UNITED STATES TAX COURT REPORTS (69) 

5The Court explained that a consolidated group member’s separate taxable income ‘‘excludes several items that an individual taxpayer would normally account for in computing income or loss, but which an affiliated 

group may tally only at the consolidated level, such as capital gains and 

losses, charitable-contribution deductions, and dividends-received deduc172 allowed PLLs to be carried back 10 years rather than the 

3 years generally permitted for normal NOLs. A taxpayer’s 

PLL was defined in section 172(j)(1) as the lesser of: (1) the 

taxpayer’s NOL for the year and (2) the taxpayer’s allowable 

deductions attributable to product liability expenses (PLE). 

In other words, a taxpayer’s PLL was the total of its PLEs, 

limited to the amount of its NOL. United Dominion, 532 U.S. 

at 825. 

The issue presented in United Dominion was how to calculate the PLL of a consolidated group eligible for the 10- 

year carryback under section 172. The Government argued 

that the PLL of a consolidated group member should be 

determined using a ‘‘ ‘separate-member’ approach’’ (i.e., comparing each group member’s PLEs to that member’s separate 

NOL). Id. at 828, 831. The Government proposed that a 

group member’s negative separate taxable income should 

serve as a proxy for that member’s separate NOL. Id. Pursuant to this approach, PLEs ‘‘incurred by an affiliate with 

positive separate taxable income cannot contribute to a PLL 

eligible for 10-year carryback.’’ Id. at 828. Therefore, under 

the Government’s methodology, the taxpayer would have 

been prevented from taking full advantage of certain group 

members’ PLEs. 

The taxpayer argued that the PLLs for a consolidated 

group should be determined using a ‘‘ ‘single-entity’ 

approach’’ (i.e., comparing the consolidated group’s CNOL to 

the aggregate PLEs of the group members). Id. at 827. The 

single-entity approach benefited the taxpayer in United 

Dominion because its CNOL exceeded its aggregate PLEs in 

each of the years at issue, thus making all PLEs eligible for 

a 10-year carryback. 

The Supreme Court began its opinion by rejecting the 

Government’s argument that a consolidated group member’s 

separate taxable income acts as a ‘‘surrogate’’ for a separate 

NOL, thereby allowing a group member’s separate taxable 

income to be compared with its PLEs in order to determine 

a separate PLL. 5 Id. at 831–832. The Court explained por-
(69) MARVEL ENTM’T, LLC v. COMMISSIONER 79

tions.’’ United Dominion Indus., Inc. v. United States, 532 U.S. 822, 832 

(2001). This causes a group member’s separate taxable income to be inflated by eliminating certain deductions or deflated by eliminating certain 

items of income such as capital gains. Id. 

tions of the consolidated return regulations pertaining to 

consolidated taxable income and CNOL as follows: 

Under Treas. Regs. §§ 1.1502–11(a) and 1.1502–21(f), an affiliated 

group’s ‘‘consolidated taxable income’’ (CTI), or, alternatively, its 

‘‘consolidated net operating loss’’ (CNOL), is determined by ‘‘taking into 

account’’ several items. The first is the ‘‘separate taxable income’’ (STI) 

of each group member. A member’s STI (whether positive or negative) 

is computed as though the member were a separate corporation (i.e., by 

netting income and expenses), but subject to several important ‘‘modifications.’’ Treas. Reg. § 1.1502–12. These modifications require a group 

member calculating its STI to disregard, among other items, its capital 

gains and losses, charitable-contribution deductions, and dividendsreceived deductions. Ibid. These excluded items are accounted for on a 

consolidated basis, that is, they are combined at the level of the group 

filing the single return, where deductions otherwise attributable to one 

member (say, for a charitable contribution) can offset income received by 

another (from a capital gain, for example). Treas. Regs. §§ 1.1502– 

11(a)(3) to (8); 1.1502–21(f)(2) to (6). A consolidated group’s CTI or 

CNOL, therefore, is the sum of each member’s STI, plus or minus a 

handful of items considered on a consolidated basis. [United Dominion, 

532 U.S. at 826.] 

The Supreme Court ultimately agreed with the taxpayer, 

holding (8 to 1) that a ‘‘group’s product liability loss must be 

figured on a consolidated basis in the first instance, and not 

by aggregating product liability losses separately determined 

company by company.’’ Id. at 824. In arriving at this conclusion the Court examined the consolidated return regulations 

and emphasized that ‘‘the Code and regulations governing 

affiliated groups of corporations filing consolidated returns 

provide only one definition of NOL: ‘consolidated’ NOL’’. Id. 

at 829. The Court also instructed that a generally applicable 

concept of a separate NOL in the consolidated return context 

‘‘simply does not exist.’’ Id. at 830. 

The Court’s analysis was as follows: 

The first step in applying the definition and methodology of PLL to a 

taxpayer filing a consolidated return thus requires the calculation of 

NOL. As * * * [the taxpayer] correctly points out, the Code and regulations governing affiliated groups of corporations filing consolidated 

returns provide only one definition of NOL: ‘‘consolidated’’ NOL, see 

Treas. Reg. § 1.1502–21(f). There is no definition of separate NOL for a 
80 145 UNITED STATES TAX COURT REPORTS (69) 

6Sec. 1.1502–79(a)(3), Income Tax Regs., is the precursor to sec. 1.1502– 

21(b)(2)(iv), Income Tax Regs., and allows for the allocation or apportionment of CNOL in limited circumstances. Under this regulation the amount 

of CNOL that is apportioned to a consolidated group member is the 

amount attributable to the member, which is the group’s CNOL multiplied 

by a fraction. The numerator of the fraction is the separate NOL of the 

member, and the denominator is the sum of the separate NOLs of all 

group members in such year having such losses. 

member of an affiliated group. Indeed, the fact that Treasury Regulations do provide a measure of separate NOL in a different context, for 

an affiliated corporation as to any year in which it filed a separate 

return, infra, at 832–834, underscores the absence of such a measure for 

an affiliated corporation filing as a group member. Given this apparently 

exclusive definition of NOL as CNOL in the instance of affiliated entities 

with a consolidated return (and for reasons developed below, infra, at 

834–838) we think it is fair to say, as * * * [the taxpayer] says, that 

the concept of separate NOL ‘‘simply does not exist.’’ Brief for Petitioner 

15. The exclusiveness of NOL at the consolidated level as CNOL is 

important here for the following reasons. The Code’s authorization of 

consolidated group treatment contains no indication that for a consolidated group the essential relationship between NOL and PLL will differ 

from their relationship for a conventional corporate taxpayer. Nor does 

any Treasury Regulation purport to change the relationship in the 

consolidated context. If, then, the relationship is to remain essentially 

the same, the key to understanding it lies in the regulations’ definition 

of net operating loss exclusively at the consolidated level. Working back 

from that, PLEs should be considered first in calculating CNOL, and 

they are: because any PLE of an affiliate affects the calculation of its 

STI, that same PLE necessarily affects the CTI or CNOL in exactly the 

same way, dollar for dollar. And because, by definition, there is no NOL 

measure for a consolidated return group or any affiliate except 

CNOL, PLEs cannot be compared with any NOL to produce PLL 

until CNOL has been calculated. Then, and only then in the case of the 

consolidated filer, can total PLEs be compared with a net operating loss. 

In sum, comparable treatment of PLL in the instances of the usual corporate taxpayer and group filing a consolidated return can be achieved 

only if the comparison of PLEs with a limiting loss amount occurs at the 

consolidated level after CNOL has been determined. This approach 

resting on comparable treatment has a further virtue entitled to some 

weight in case of doubt: it is (relatively) easy to understand and to apply. 

[United Dominion, 532 U.S. at 829–831; fn. ref. omitted.] 

The Court also examined section 1.1502–79(a)(3), Income 

Tax Regs., which apportions a consolidated group’s CNOL to 

members of the group for the purpose of carrying back losses 

to separate return years. 6 The Court acknowledged that section 1.1502–79(a)(3), Income Tax Regs., provides a close 

analogy for a separate member NOL but found that this 
(69) MARVEL ENTM’T, LLC v. COMMISSIONER 81

regulation applies only narrowly to determine carryback and 

carryforward NOLs to separate return years in which the 

member was not part of the consolidated group. The Court 

reasoned that, because no carrybacks to separate return 

years were at issue, section 1.1502–79(a)(3), Income Tax 

Regs., was inapplicable in calculating the taxpayer’s PLL 

using the separate-entity approach. Id. at 833. In describing 

the inapplicability of the apportionment rules, the Court 

stated that section 1.1502–79(a)(3), Income Tax Regs., 

‘‘unbakes the cake for only one reason, and that reason has 

no application here.’’ Id. 

Petitioner’s argument that United Dominion addresses an 

issue distinctly different from tax attribute reduction under 

section 108 fails to recognize that the Supreme Court’s decision concerning the proper computation of a consolidated 

group’s PLL could only have been reached by first determining whether members of a consolidated group have separate NOLs. We agree with petitioner that United Dominion 

concerned the application of PLL carryback rules in the 

consolidated group context. However, a central prerequisite 

to the Supreme Court’s decision in United Dominion was the 

legal determination of whether separate NOLs exist for 

consolidated group members where no specific rule provides 

authority for NOL computation on a separate-entity basis. 

Despite the fact that the matter currently before the Court 

involves the application of section 108(b)(2)(A)—rather than 

section 172—the critical issue is identical to that in United 

Dominion: whether the pre-2003 consolidated return regulations allow for the separate-entity approach. The Supreme 

Court in United Dominion concluded that a consolidated 

group member cannot have a separate NOL for a consolidated return year unless a specific consolidated return regulation allocates and apportions part of the CNOL to that 

member. No such regulation existed for petitioner’s short taxable year ending October 1, 1998, and therefore the proper 

NOL subject to reduction under section 108(b)(2)(A) is petitioner’s CNOL. In applying the Supreme Court’s holding in 

United Dominion to the matter currently before us, we conclude that the NOL subject to reduction under section 

108(b)(2)(A) for petitioner’s short tax year ending October 1, 

1998, is the consolidated group’s CNOL. 
82 145 UNITED STATES TAX COURT REPORTS (69) 

4. Petitioner’s Arguments 

a. Statutory Language 

Despite our conclusion above that United Dominion is dispositive in the instant matter, we nonetheless will address 

petitioner’s remaining arguments. Petitioner argues that the 

‘‘clear and unambiguous’’ language of section 108 pertains 

exclusively to the individual members of a consolidated 

group. According to petitioner, the words ‘‘the taxpayer’’ in 

both section 108(b)(1) and (2) ‘‘refer only to the debtor 

member [of a consolidated group] that has excluded COD 

income as a result of that member’s bankruptcy.’’ Petitioner 

therefore reasons that ‘‘the tax attributes’’ subject to reduction under section 108(b)(2)(A) cannot include the CNOL of 

the entire affiliated group because ‘‘the CNOL is not an 

attribute belonging to an individual member of a consolidated group, and thus cannot be what is reduced under section 108(b).’’ 

Respondent does not dispute that ‘‘the statutory language 

appears to have been written with stand-alone companies in 

mind.’’ However, respondent contends that ‘‘this is a common 

statutory construct, because Congress delegated authority to 

the Secretary to promulgate regulations that would make the 

adjustments necessary to apply general Code provisions to 

groups filing consolidated returns.’’ 

When the relevant statutory language is clear and 

unambiguous and the statutory scheme is coherent and consistent, the Court’s function is to apply the statute as written 

and according to its terms. Robinson v. Shell Oil Co., 519 

U.S. 337, 340 (1997); Fernandez v. Commissioner, 114 T.C. 

324, 329–330 (2000). The statute must be read as a whole, 

and the meaning of a particular portion of a statutory provision must be determined with reference to its context. See 

FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 

133 (2000). If a statute is ambiguous or silent, we may look 

to the statute’s legislative history in an attempt to determine 

congressional intent. Burlington N. R.R. v. Okla. Tax 

Comm’n, 481 U.S. 454, 461 (1987); Fernandez v. Commissioner, 114 T.C. at 329–330. 

Section 108(a)(1)(A) provides, in pertinent part, that 

‘‘[g]ross income does not include any amount which (but for 

this subsection) would be includible in gross income by rea-
(69) MARVEL ENTM’T, LLC v. COMMISSIONER 83

7 A taxpayer can elect to reduce the basis of any depreciable property by 

the amount of debt discharged before reducing the amounts of any other 

tax attributes. Sec. 108(b)(5). MEG Group did not make such an election. 

son of the discharge (in whole or in part) of indebtedness of 

the taxpayer if * * * the discharge occurs in a title 11 case’’. 

(Emphasis added.) Section 108(b)(1) further provides that 

‘‘[t]he amount excluded from gross income * * * shall be 

applied to reduce the tax attributes of the taxpayer’’. 

(Emphasis added.) Absent an election under section 

108(b)(5), 7 the taxpayer must first reduce ‘‘[a]ny net operating loss for the taxable year of the discharge, and any net 

operating loss carryover to such taxable year.’’ Sec. 

108(b)(2)(A). Because MEG Group did not make an election 

under section 108(b)(5), the first tax attributes subject to 

reduction are MEG Group’s current year and carryover 

NOLs. 

Ordinarily, a corporation that is not a member of a consolidated group computes its NOL on a stand-alone basis. Thus, 

where a corporation with excluded COD income is not a 

member of a consolidated group, the NOL to be reduced is 

clear. However, section 108 does not lend this degree of 

clarity to the consolidated return scenario. Although we 

agree with the parties that section 108 appears to have been 

written in contemplation of stand-alone entities, nowhere 

does the statute specifically define ‘‘the taxpayer’’ as either 

a member entity of a consolidated group or the consolidated 

group as a whole. Furthermore, section 108 does not articulate whether the ‘‘tax attributes’’ subject to reduction are 

those at the consolidated level or are those allocable to each 

member entity. 

Although the legislative history of section 108(b) does not 

include any specific indication of legislative intent concerning 

the application of section 108(b)(2)(A) to consolidated groups, 

it does provide insight into the general purpose of section 

108(b). The report of the Senate Committee on Finance 

states that section 108 is 

intended to carry out the Congressional intent of deferring, but eventually collecting within a reasonable period, tax on ordinary income 

realized from debt discharge. Thus in the case of a bankrupt or insolvent 

debtor, the debt discharge amount is applied to reduce the taxpayer’s net 

operating losses and certain other tax attributes, unless the taxpayer 
84 145 UNITED STATES TAX COURT REPORTS (69) 

8Sec. 1017 is cross-referenced in sec. 108(b)(2)(E)(ii). 

elects to apply the amount first to reduce basis in depreciable assets. 

* * * [S. Rept. No. 96–1035, at 10–11 (1980), 1980–2 C.B. 620, 625.] 

In a notice of proposed rulemaking, the Department of the 

Treasury succinctly summarized this legislative history as 

follows: 

The legislative history of the Bankruptcy Tax Act states that the 

exclusion of discharge of indebtedness (COD income) from gross income 

under section 108 is intended to promote a debtor’s fresh start. S. Rep. 

No. 1035, 96th Cong., 2d Sess. 10 (1980), 1980–2 C.B. 620, 624; H.R. 

Rep. No. 833, 96th Cong., 2d Sess. 11 (1980). The exclusion provided by 

the statute generally operates, however, to defer, rather than eliminate, 

income from discharge of indebtedness. [62 Fed. Reg. 955, 956 (Jan. 7, 

1997).] 

To minimize the potential for permanent exclusion, a 

consolidated group member that excludes COD income must 

reduce tax attributes which would otherwise be available to 

offset its income. A consolidated group’s CNOL is a favorable 

tax attribute that consolidated group members share. In 

order for the legislative objective of deferral to be accomplished while the group is intact, attribute reduction must be 

applied to the CNOL as a whole and not some lesser portion 

deemed attributable to the debtor member. MEG Group’s 

apportionment of its CNOL to its consolidated group members for purposes of section 108(b) attribute reduction produced a result that was inconsistent with the intent of Congress to defer, rather than permanently eliminate, COD 

income. Thus, our decision that United Dominion prohibits 

the separate-entity approach for petitioner’s short taxable 

year ending October 1, 1998, comports with Congress’ 

intention that COD income be deferred rather than eliminated wholesale. 

b. Section 1017 Argument 

Petitioner also argues that section 1017 8 is evidence that 

Congress intended for consolidated groups to use the separate-entity approach under section 108(b)(2)(A). Section 

1017(b)(3)(D) provides a special rule for reducing asset basis 

under section 108 in the case of an affiliated group, providing 

a lookthrough rule that allows for basis reduction when a 

member of a consolidated group holds stock in a subsidiary. 
(69) MARVEL ENTM’T, LLC v. COMMISSIONER 85

Petitioner argues that section 1017 demonstrates that Congress was cognizant of the application of section 108 in the 

consolidated group context and provided specific rules for 

consolidated groups where the default separate-entity 

approach was not intended. Because there is no similar Code 

provision detailing NOL reduction for consolidated groups 

under section 108(b)(2)(A), petitioner concludes that Congress 

intended for the separate-entity approach to apply. 

We disagree with petitioner’s argument for the following 

reasons. First, as previously discussed, the plain language of 

section 108 does not demonstrate that Congress intended the 

application of the separate-entity approach as a default rule 

for tax attribute reduction. Second, the fact that Congress 

enacted a special rule for consolidated groups in section 

1017(b)(3)(D) is not instructive as to what it intended under 

section 108(b)(2)(A). In our view, a more plausible explanation for the enactment of section 1017(b)(3)(D) was Congress’ desire to provide specific and immediate relief for 

consolidated groups in this narrow context. Accordingly, we 

will refrain from inferring congressional intent based on the 

mere absence in section 108(b)(2)(A) of a rule corollary to section 1017(b)(3)(D). 

c. Consolidated Return Regulations 

The law applicable to MEG Group’s 1998 tax attribute 

reduction also includes the consolidated return regulations in 

effect at that time. See sec. 1502 (providing that the Secretary shall prescribe regulations that are necessary to determine consolidated groups’ tax liabilities). Petitioner argues 

that these consolidated return regulations ‘‘require the determination of an individual member’s share of the consolidated 

group’s CNOL.’’ 

The Code applies to a consolidated group to the extent that 

the consolidated return regulations do not provide otherwise. 

Sec. 1.1502–80(a), Income Tax Regs. A consolidated group 

member’s gross income and deductions for a consolidated 

return year are included in the computation of the entire 

group’s consolidated taxable income or CNOL. Secs. 1.1502– 

11(a), 1.1502–12, Income Tax Regs.; sec. 1.1502–21T(e), Temporary Income Tax Regs., 61 Fed. Reg. 33333 (June 27, 

1996). Section 1.1502–21T(b)(2), Temporary Income Tax 
86 145 UNITED STATES TAX COURT REPORTS (69) 

9Sec. 1.1502–21T, Temporary Income Tax Regs., 61 Fed. Reg. 33328 

(June 27, 1996), was a temporary regulation in petitioner’s short taxable 

year ending October 1, 1998. 10These post-United Dominion regulations appear to follow the invitation of the Supreme Court: 

Thus, it is true, as the Government has argued, that ‘‘[t]he Internal 

Revenue Code vests ample authority in the Treasury to adopt consolidated return regulations to effect a binding resolution of the question 

presented in this case.’’ Brief for United States 19–20. To the extent that 

the Government has exercised that authority, its actions point to the single-entity approach as the better answer. To the extent the Government 

disagrees, it may amend its regulations to provide for a different one. 

[United Dominion, 532 U.S. at 838.] 

Regs., 61 Fed. Reg. 33328 (June 27, 1996), 9 provides that, 

when a member of a consolidated group leaves the group, a 

portion of the group’s CNOL is allocated to the departing 

member. In addition, section 1.1502–21T(b)(2), Temporary 

Income Tax Regs., supra, applies to apportion a consolidated 

group’s CNOL to group members in certain circumstances in 

order to carry back losses to pre-consolidated-return years. 

For COD income discharged after August 29, 2003, section 

1.1502–28T, Temporary Income Tax Regs., 68 Fed. Reg. 

69025 (Dec. 11, 2003), prescribes a hybrid approach that first 

reduces the tax attributes of the member entity, then applies 

a lookthrough rule to reduce attributes of the member 

entity’s subsidiaries, and lastly reduces attributes of the 

consolidated group. With slight modifications, this temporary 

regulation was adopted as final and effective for COD income 

discharged after March 21, 2005. Sec. 1.1502–28(d), Income 

Tax Regs. 10

Petitioner’s argument that the pre-2003 consolidated 

return regulations allow for the separate-entity approach 

under section 108(b)(2)(A) is without merit. The matter sub 

judice involves MEG Group’s tax year ending October 1, 

1998, which is before the Commissioner’s issuance of section 

1.1502–28T, Temporary Income Tax Regs., supra, or the 

adoption of section 1.1502–28, Income Tax Regs. The pre2003 consolidated return regulations did not specifically 

articulate how a consolidated group should reduce its tax 

attributes under section 108(b). However, as previously discussed, the Supreme Court in United Dominion Indus., Inc. 

v. Commissioner, 532 U.S. 822 (2001), found that the pre2003 consolidated return regulations did in fact prohibit the 
(69) MARVEL ENTM’T, LLC v. COMMISSIONER 87

allocation of separate NOLs for consolidated group members 

unless it was within the ambit of a specific regulatory provision. For this reason, we are not persuaded by petitioner’s 

argument to the contrary. 

d. Temple-Inland 

In an attempt to bolster its position that United Dominion 

has no significance with respect to attribute reduction under 

section 108, petitioner cites Temple-Inland, Inc. v. United 

States, 68 Fed. Cl. 561 (2005). Temple-Inland involved damages resulting from the Government’s breach of a thrift 

acquisition agreement under which a consolidated group 

acquired three failing thrifts. Id. at 562–563. Among the 

damages were the values of lost income tax deductions 

caused by the Government’s enactment of legislation that 

eliminated the tax benefits associated with the thrift acquisition agreement. Id. at 563. After an examination of the 

consolidated group’s tax returns for the years at issue, the 

taxpayer and the Internal Revenue Service (IRS) entered into 

a closing agreement which included agreed-upon amounts for 

the taxpayer’s bad debt deductions for the taxable years 1991 

and 1992. Id. at 563, 568. 

Following the execution of the closing agreement, the 

Government disagreed with the taxpayer’s computation of 

the deductions. Id. at 564–565. The Government argued that 

the group’s consolidated tax attributes should have been 

reduced under section 108(b). Id. at 569. The U.S. Court of 

Federal Claims held for the taxpayer, ruling that the closing 

agreement between the IRS and the taxpayer specifically 

provided that tax attribute reduction would be limited to the 

tax attributes that were generated by the insolvent consolidated group members. Id. at 569. 

Although the Temple-Inland court made its determination 

on the basis of the closing agreement, the court included a 

footnote stating: ‘‘United Dominion dealt with the carryback 

period for product liability losses under section 172(b) and 

has nothing to do with [s]ection 108.’’ Id. at 569 n.5. Petitioner emphasizes this footnote to support the proposition 

that United Dominion is ‘‘narrow in scope’’ and ‘‘ha[s] no 

significance with respect to section 108.’’ 

Petitioner’s reliance on a footnote in Temple-Inland is misplaced. Temple-Inland does not address the central issue of 
88 145 UNITED STATES TAX COURT REPORTS (69) 

whether a CNOL can be apportioned among consolidated 

group members absent a rule in the consolidated return 

regulations allowing for such apportionment. The holding of 

Temple-Inland is based on the finality of the closing agreement between the IRS and the taxpayer and has nothing to 

do with the application of section 108(b)(2)(A) to a member 

of a consolidated group. For this reason we are unpersuaded 

by petitioner’s argument that Temple-Inland limits the 

application of United Dominion to section 172. 

e. Gottesman 

Petitioner alternatively contends that its application of the 

separate-entity approach should prevail because the method 

was reasonable under existing law when its consolidated tax 

return was filed for 1998. Petitioner cites Gottesman & Co. 

v. Commissioner, 77 T.C. 1149 (1981), in support of the 

proposition that a taxpayer’s reasonable interpretation will 

be upheld where the Secretary has failed to issue sufficient 

guidance under the consolidated return regulations. As evidence that the separate-entity approach to attribute reduction was ‘‘reasonable under the circumstances’’ before United 

Dominion—and thus, analogous to Gottesman—petitioner 

cites multiple IRS private letter rulings. 

In Gottesman the issue was whether the regulations 

promulgated by the Secretary under section 1502 required 

accumulated taxable income for section 531 purposes to be 

calculated on a separate company basis or on a consolidated 

basis. Id. at 1149–1150. Before 1966 affiliated corporations 

filing consolidated returns were required by the regulations 

to compute their accumulated taxable income on a combined 

basis for section 531 purposes. Id. at 1152–1153. The 1966 

regulations were silent on the issue. Id. at 1153–1155. The 

Secretary proposed regulations requiring computation on a 

combined basis in 1968, withdrew the proposed regulations 

in 1971 without explanation, and did not issue new proposed 

regulations until 1979. Id. at 1155. 

We addressed whether it was proper for the taxpayer to 

apply a separate company method for the taxpayer’s 1973– 

75 tax years. Id. at 1157–1158. In holding for the taxpayer, 

we stated: 
(69) MARVEL ENTM’T, LLC v. COMMISSIONER 89

We cannot fault * * * [the taxpayer] for not knowing what the law 

was in this area when the Commissioner, charged by Congress to 

announce the law (sec. 1502), never decided what it was himself * * * 

Thus, we find that the Commissioner’s regulations regarding the 

manner in which the accumulated earnings tax was to be imposed on 

corporations making consolidated returns were ambiguous during the 

years at issue. This ambiguity was of the Commissioner’s making, and, 

as such, must be held against him * * * [The taxpayer’s] interpretation 

of these regulations was reasonable under the circumstances. * * * 

[Id.] 

In Gottesman we upheld the taxpayer’s interpretation of 

the consolidated return regulations as ‘‘reasonable under the 

circumstances’’ because of an ‘‘ambiguity’’ in the existing law. 

The ambiguity in the applicable regulations had not been 

resolved by the Supreme Court when Gottesman was decided. 

However, the Supreme Court in United Dominion, 532 U.S. 

at 834, ‘‘expressly and exclusively defin[ed] NOL as CNOL’’ 

in the consolidated return context. The fact that United 

Dominion was decided in 2001 whereas the relevant year for 

purposes of determining the application of section 108 and 

the meaning of NOL is 1998 is of no consequence because 

Supreme Court opinions generally ‘‘must be given full retroactive effect’’. See Harper v. Va. Dep’t of Taxation, 509 U.S. 

86, 97 (1993) (‘‘When this Court applies a rule of federal law 

to the parties before it, that rule is the controlling interpretation of federal law and must be given full retroactive effect 

in all cases still open on direct review and as to all events, 

regardless of whether such events predate or postdate our 

announcement of the rule.’’); Hawknet, Ltd. v. Overseas Shipping Agencies, 590 F.3d 87, 91 (2d Cir. 2009) (citing Harper, 

509 U.S. at 97); Miller v. Commissioner, T.C. Memo. 2001– 

55, 2001 Tax Ct. Memo LEXIS 65, at *14 (‘‘When the U.S. 

Supreme Court announces a rule of law and applies it to the 

litigants in the case announcing the rule, that rule applies 

retroactively to all other pending cases unless barred by the 

statute of limitations or res judicata.’’). 

The issue in the current case, which was central to the 

opinion of the Supreme Court in United Dominion, is identifying the appropriate NOL in the consolidated return context. Although we acknowledge that petitioner’s application 

of the separate-entity approach in filing its 1998 consolidated 

tax return was plausible at the time, it is contrary to the rule 

in the consolidated return regulations as interpreted by the 
90 145 UNITED STATES TAX COURT REPORTS (69) 

Supreme Court in United Dominion. Petitioner’s application 

of the separate-entity approach for purposes of defining NOL 

not only conflicts with the binding precedent of United 

Dominion, but also is the approach specifically rejected by 

the Supreme Court in that case. Because United Dominion 

clarified that a separate NOL does not exist in the consolidated return regulations, there is no remaining ambiguity as 

to this issue for petitioner’s consolidated return for the short 

taxable year ending October 1, 1998. Therefore Gottesman is 

inapplicable to the current case. 

Regarding petitioner’s argument concerning the IRS’ preUnited Dominion determinations advocating the separateentity approach, section 6110(k)(3) explicitly provides that 

the IRS’ written determinations are not precedential. We also 

note that the private letter rulings and written determinations that petitioner cited were issued before the Government’s position in United Dominion was rejected by the 

Supreme Court. 

In conclusion, we find that respondent correctly applied 

section 108(b)(2)(A) in accordance with the Supreme Court’s 

opinion in United Dominion. Neither the Code nor the 

applicable consolidated return regulations provide authority 

for an affiliated group to allocate and apportion CNOL to 

consolidated group members for purposes of reducing tax 

attributes pursuant to section 108(b)(2)(A). We hold that for 

the relevant consolidated return years in issue the consolidated return regulations required that a consolidated group’s 

entire CNOL be treated as the NOL subject to reduction. 

In reaching our decision, we have considered all arguments 

made by the parties, and to the extent not mentioned or 

addressed, they are irrelevant or without merit. 

To reflect the foregoing, 

An appropriate order and decision will be 

entered granting respondent’s motion for 

summary judgment and denying petitioner’s 

motion for summary judgment

f 

.