CBS case may provide opportunities to obtain cash refunds, increase NOL carryforwards, or increase subsidiary stock basis

Industrial Products & Services Tax Alert

Companies that participated in the foreign sales corporation (FSC) or extraterritorial income (ETI) exclusion regimes may have underreported the basis of their underlying assets based on the decision of the US Court of Federal Claims in CBS Corporation v. United States (Fed. Cl., No. 10-153T, 5/11/12). According to the court’s ruling, companies that have sold assets which were used to generate FSC commissions or ETI exclusions may be able to restore a portion of the basis of these assets. Such a restoration of basis may result in a decrease in the amount of gain or an increase in the amount of the loss reported on the sale in open tax years, an increase in a net operating loss (NOL) carryforwards in closed tax years, or an increase in the basis in the stock of a currently held or recently sold subsidiary. Accordingly, by applying the outcome of this case to their particular fact patterns, companies may be able to enhance their current or future cash flow.

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