UNITED DOMINION INDUSTRIES, INC. v. UNITED STATES

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822 OCTOBER TERM, 2000
Syllabus
UNITED DOMINION INDUSTRIES, INC. v.
UNITED STATES
certiorari to the united states court of appeals for
the fourth circuit
No. 00–157. Argued March 26, 2001—Decided June 4, 2001
Under the Internal Revenue Code of 1954, a “net operating loss” (NOL)
results from deductions in excess of gross income for a given year.
26 U. S. C. § 172(c). A taxpayer may carry its NOL either backward
or forward to other tax years in order to set off its lean years against
its lush years. § 172(b)(1)(A). The carryback period for “product lia-
bility loss[es]” is 10 years. § 172(b)(1)(I). Because a product liability
loss (PLL) is the total of a taxpayer’s product liability expenses (PLEs)
up to the amount of its NOL, § 172( j)(1), a taxpayer with a positive
annual income, and thus no NOL, may have PLEs but can have no PLL.
An affiliated group of corporations may file a single consolidated return.
§ 1501. Treasury Regulations provide that such a group’s “consolidated
taxable income” (CTI), or, alternatively, its “consolidated net operating
loss” (CNOL), is determined by taking into account several items, the
first of which is the “separate taxable income” (STI) of each group
member. In calculating STI, the member must disregard items such
as capital gains and losses, which are considered, and factored into CTI
or CNOL, on a consolidated basis. Petitioner’s predecessor in interest,
AMCA International Corporation, was the parent of an affiliated group
filing consolidated returns for the years 1983 through 1986. In each
year, AMCA reported CNOL exceeding the aggregate of its 26 indi-
vidual members’ PLEs. Five group members with PLEs reported
positive STIs. Nonetheless, AMCA included those PLEs in determin-
ing its PLL for 10-year carryback under a “single-entity” approach in
which it compared the group’s CNOL and total PLEs to determine the
group’s total PLL. In contrast, the Government’s “separate-member”
approach compares each affiliate’s STI and PLEs in order to deter-
mine whether each affiliate suffers a PLL, and only then combines
any PLLs of the individual affiliates to determine a consolidated PLL.
Under this approach, PLEs incurred by an affiliate with positive STI
cannot contribute to a PLL. In 1986 and 1987, AMCA petitioned the
Internal Revenue Service for refunds based on its PLL calculations.
The IRS ruled in AMCA’s favor, but was reversed by a joint con-
gressional committee that controls refunds exceeding a certain thresh-

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823 Cite as: 532 U. S. 822 (2001)
Syllabus
old. AMCA then filed this refund action. The District Court applied
AMCA’s single-entity approach, concluding that so long as the affiliated
group’s consolidated return reflects CNOL in excess of the group’s
aggregate PLEs, the total of those expenses is a PLL that may be
carried back. In reversing, the Fourth Circuit applied the separate-
member approach.
Held: An affiliated group’s PLL must be figured on a consolidated, single-
entity basis, not by aggregating PLLs separately determined company
by company. Pp. 829–838.
(a) The single-entity approach to calculating an affiliated group’s
PLL is straightforward. The first step in applying § 172( j)’s defini-
tion of PLL requires a taxpayer filing a consolidated return to calcu-
late an NOL. The Code and regulations governing affiliated groups
of corporations filing consolidated returns provide only one definition
of NOL: “consolidated” NOL. The absence of a separate NOL for a
group member in this context is underscored by the fact that the reg-
ulations provide a measure of separate NOL in a different context,
for any year in which an affiliated corporation files a separate return.
The exclusive definition of NOL as CNOL at the consolidated level is
important. Neither the Code nor the regulations indicate that the es-
sential relationship between NOL and PLL for a consolidated group
differs from their relationship for a conventional corporate taxpayer.
Comparable treatment of PLL for the group and the conventional
taxpayer can be achieved only if PLEs are compared with the loss
amount at the consolidated level after CNOL has been determined, for
CNOL is the only NOL measure for the group. An approach based
on comparable treatment is also (relatively) easy to understand and to
apply. Pp. 829–831.
(b) The case for the separate-member approach is not so easily
made. Because there is no NOL below the consolidated level, there
is nothing for comparison with PLEs to produce a PLL at any stage
before the CNOL calculation. Thus, a separate-member proponent
must identify some figure in the consolidated return scheme with a
plausible analogy to NOL at the affiliated corporations level. An indi-
vidual member’s STI is not analogous, for it excludes several items
that an individual taxpayer would normally count in computing income
or loss, but which an affiliated group may tally only at the consolidated
level. The “separate net operating loss,” Treas. Reg. § 1.1502–79(a)(3),
used by the Fourth Circuit fares no better. Although that figure ac-
counts for some gains or losses that STI does not, § 1.1502–79(a)(3)’s
purpose is to allocate CNOL to an affiliate member seeking to carry

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824 UNITED DOMINION INDUSTRIES, INC. v.
UNITED STATES
Opinion of the Court
back a loss to a year in which the member was not part of the consoli-
dated group. Such returns are not at issue here. Pp. 831–834.
(c) Several objections to the single-entity approach—that it allows
affiliated groups a double deduction, that the omission of PLEs from
the series of items that Treas. Reg. § 1.1502–12 requires to be tallied
at the consolidation level indicates that PLEs were not meant to be
tallied at that level, and that the single-entity approach would permit
significant tax avoidance abuses—are rejected. Pp. 834–838.
208 F. 3d 452, reversed and remanded.
Souter, J., delivered the opinion of the Court, in which Rehnquist,
C. J., and O’Connor, Scalia, Kennedy, Thomas, Ginsburg, and
Breyer, JJ., joined. Thomas, J., filed a concurring opinion, post, p. 838.
Stevens, J., filed a dissenting opinion, post, p. 839.
Eric R. Fox argued the cause for petitioner. With him on
the briefs was Alan J. J. Swirski.
Kent L. Jones argued the cause for the United States.
With him on the brief were Acting Solicitor General Under-
wood, Deputy Assistant Attorney General Fallon, Deputy
Solicitor General Wallace, Richard Farber, and Edward
T. Perelmuter.*
Justice Souter delivered the opinion of the Court.
Under § 172(b)(1)(I) of the Internal Revenue Code of 1954,
a taxpayer may carry back its “product liability loss” up to
10 years in order to offset prior years’ income. The issue
here is the method for calculating the product liability loss
of an affiliated group of corporations electing to file a consoli-
dated federal income tax return. We hold that the 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.
*Richard E. Zuckerman and Raymond M. Kethledge filed a brief for
the National Association of Manufacturers et al. as amici curiae urging
reversal.

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Opinion of the Court
I
A “net operating loss” results from deductions in excess of
gross income for a given year. 26 U. S. C. § 172(c).1 Under
§ 172(b)(1)(A), a taxpayer may carry its net operating loss
either backward to past tax years or forward to future tax
years in order to “set off its lean years against its lush years,
and to strike something like an average taxable income com-
puted over a period longer than one year,” Libson Shops,
Inc. v. Koehler, 353 U. S. 382, 386 (1957).
Although the normal carryback period was at the time
three years, in 1978, Congress authorized a special 10-
year carryback for “product liability loss[es],” 26 U. S. C.
§ 172(b)(1)(I), since, it understood, losses of this sort tend
to be particularly “large and sporadic.” Joint Committee
on Taxation, General Explanation of the Revenue Act of
1978, 95th Cong., 232 (Comm. Print 1979). The Code defines
“product liability loss,” for a given tax year, as the lesser of
(1) the taxpayer’s “net operating loss for such year” and
(2) its allowable deductions attributable to product liability
“expenses.” 26 U. S. C. § 172( j)(1). In other words, a tax-
payer’s product liability loss (PLL) is the total of its product
liability expenses (PLEs), limited to the amount of its net
operating loss (NOL). By definition, then, a taxpayer with
positive annual income, and thus no NOL, may have PLEs
but can have no PLL. 2
1 Unless otherwise noted, all statutory references are to the Internal
Revenue Code of 1954, 26 U. S. C. § 1 et seq. (1982 ed. and Supp. V), as in
effect between 1983 and 1986, the tax years here in question.
2 If, for example, a company had $100 in taxable income, $50 in de-
ductible PLEs, and $75 in additional deductions, its NOL would be $25
(i. e., $100$50$75 $25); it could count only $25 of its $50 in PLEs
as PLL. If the company had $100 in income, $50 in PLEs, and $125 in
additional deductions, its NOL would be $75, and it could count its entire
$50 in PLEs as PLL. And, finally, if the company had $100 in income,
$50 in PLEs, and $40 in additional deductions, it would have positive in-
come and, thus, no NOL and no PLL.

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826 UNITED DOMINION INDUSTRIES, INC. v.
UNITED STATES
Opinion of the Court
Instead of requiring each member company of “[a]n af-
filiated group of corporations” to file a separate tax return,
the Code permits the group to file a single consolidated re-
turn, 26 U. S. C. § 1501, and leaves it to the Secretary of
the Treasury to work out the details by promulgating regu-
lations governing such returns, § 1502. Under Treas. Regs.
§§ 1.1502–11(a) and 1.1502–21(f),3 an affiliated group’s “con-
solidated taxable income” (CTI), or, alternatively, its “con-
solidated net operating loss” (CNOL), is determined by
“taking into account” several items. The first is the “sepa-
rate taxable income” (STI) of each group member. A mem-
ber’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 im-
portant “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 dividends-received
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.
II
Petitioner United Dominion’s predecessor in interest,
AMCA International Corporation, was the parent of an
affiliated group of corporations that properly elected to file
3 Unless otherwise noted, Treasury Regulation references are to the
regulations in effect between 1983 and 1986, 26 CFR § 1.1502–11 et seq.
(1982–1986).

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consolidated tax returns for the years 1983 through 1986.
In each of these years, AMCA reported CNOL (the lowest
being $85 million and the highest, $140 million) that ex-
ceeded the aggregate of its 26 individual members’ PLEs
($3.5 million to $6.5 million). This case focuses on the
PLEs of five of AMCA’s member companies, which, together,
generated roughly $205,000 in PLEs in 1983, $1.6 million
in 1984, $1.3 million in 1985, and $250,000 in 1986. No one
disputes these amounts or their characterization as PLEs.
See 208 F. 3d 452, 453 (CA4 2000) (“The parties agree” with
respect to the amount of “the product liability expenses in-
curred by the five group members in the relevant years”).
Rather, the sole question here is whether the AMCA af-
filiated group may include these amounts on its consoli-
dated return, in determining its PLL for 10-year carryback.
The question arises because of the further undisputed fact
that in each of the relevant tax years, each of the five compa-
nies in question (with minor exceptions not relevant here),
reported a positive STI.
AMCA answered this question by following what com-
mentators have called a “single-entity” approach 4 to calcu-
lating its “consolidated” PLL. For each tax year, AMCA
(1) calculated its CNOL pursuant to Treas. Reg. § 1.1502–
11(a), and (2) aggregated its individual members’ PLEs.
Because, as noted above, for each tax year AMCA’s CNOL
was greater than the sum of its members’ PLEs, AMCA
treated the full amount of the PLEs as consolidated PLL
eligible for 10-year carryback. In AMCA’s view, the fact
that several member companies throwing off large PLEs
also, when considered separately, generated positive taxable
income was of no significance.
From the Government’s perspective, however, the fact
that the several affiliated members with PLEs also gen-
4 Axelrod & Blank, The Supreme Court, Consolidated Returns, and 10-
Year Carrybacks, 90 Tax Notes, No. 10, p. 1383 (Mar. 5, 2001) (hereinafter
Axelrod & Blank).

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Opinion of the Court
erated positive separate taxable income is of critical signifi-
cance. According to the Government’s methodology, which
we will call the “separate-member” approach,5 PLEs in-
curred by an affiliate with positive separate taxable income
cannot contribute to a PLL eligible for 10-year carryback.
Whereas AMCA compares the group’s total income (or loss)
and total PLEs in an effort to determine the group’s total
PLL, the Government compares each affiliate’s STI and
PLEs in order to determine whether each affiliate suffers
a PLL, and only then combines any PLLs of the individual
affiliates to determine a consolidated PLL amount.
In 1986 and 1987, AMCA petitioned the Internal Revenue
Service for refunds of taxes based on its PLL calculations.
The IRS first ruled in AMCA’s favor but was reversed by
the Joint Committee on Internal Revenue Taxation of the
United States Congress, which controls refunds exceeding a
certain threshold, 26 U. S. C. § 6405(a). AMCA then filed
this refund action in the United States District Court for
the Western District of North Carolina. The District Court
agreed with AMCA that an affiliated group’s PLL is de-
termined on a single-entity basis, and held that, so long
as the group’s consolidated return reflects CNOL in excess
of the group’s aggregate PLEs, the total of those expenses
(including those incurred by members with positive sepa-
rate taxable income) is a PLL that “may be carried back
the full ten years.” No. 3:95–CV–341–MU (June 19, 1998),
App. to Pet. for Cert. 39a. The United States Court of Ap-
peals for the Fourth Circuit reversed, and held that “deter-
mining ‘product liability loss’ separately for each group mem-
ber is correct and consistent with [Treasury] regulations.”
208 F. 3d, at 458.
Because the Fourth Circuit’s separate-member approach
to calculating PLL conflicted with the Sixth Circuit’s adop-
tion of the single-entity approach in Intermet Corp. v. Com-
5 Ibid.

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missioner, 209 F. 3d 901 (2000), we granted certiorari, 531
U. S. 1009 (2000).6 We now reverse.
III
The case for the single-entity approach to calculating an
affiliated group’s PLL is straightforward. Section 172( j)(1)
defines a taxpayer’s “product liability loss” for a given tax
year as the lesser of its “net operating loss for such year”
and its product liability “expenses.” In order to apply this
definition, the taxpayer first determines whether it has
taxable income or NOL, and in making that calculation it
subtracts PLEs. If the result is NOL, the taxpayer then
makes a simple comparison between the NOL figure and
the total PLEs. The PLE total becomes the PLL to the
extent it does not exceed NOL. That is, until NOL has been
determined, there is no PLL.
The first step in applying the definition and methodol-
ogy of PLL to a taxpayer filing a consolidated return thus
requires the calculation of NOL. As United Dominion cor-
rectly points out, the Code and regulations governing affili-
ated groups of corporations filing consolidated returns pro-
vide only one definition of NOL: “consolidated” NOL, see
Treas. Reg. § 1.1502–21(f). There is no definition of separate
NOL for a 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 affili-
6 Intermet involved “specified liability losses” (SLLs), not PLLs. The
difference, however, does not matter. The PLL was a statutory prede-
cessor to the SLL, and PLLs were folded into the SLL provision in
§ 11811(b)(1) of the Omnibus Budget Reconciliation Act of 1990, 104 Stat.
1388–532. Thus, “[i]n all relevant respects, the provisions on [PLLs] and
SLLs are the same.” Leatherman, Current Developments for Consoli-
dated Groups, 486 PLI/Tax 389, 393, n. 5 (2000) (hereinafter Leatherman,
Current Developments).

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830 UNITED DOMINION INDUSTRIES, INC. v.
UNITED STATES
Opinion of the Court
ated 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 United Dominion says, that the concept of
separate NOL “simply does not exist.” Brief for Petitioner
15. 7 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 con-
tains 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 rela-
tionship in the consolidated context. If, then, the relation-
ship is to remain essentially the same, the key to understand-
ing 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 cal-
culation 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
7 In addition to Treas. Reg. § 1.1502–79(a)(3), discussed infra, at 832–834,
two other provisions, 26 U. S. C. § 1503(f)(2) and the current version
(though not the version applicable between 1983 and 1986) of Treas. Reg.
§ 1502–21(b) (2000), refer to separate group members’ NOLs. The parties
here have not emphasized those provisions, and with good reason. Not
only are they inapplicable to the question before us (either substantively,
temporally, or both), but, as one commentator has observed, their refer-
ences to separate NOLs “ste[m] more from careless drafting than mean-
ingful design.” Leatherman, Are Separate Liability Losses Separate for
Consolidated Groups?, 52 Tax. Law. 663, 705 (1999) (hereinafter Leather-
man, Separate Liability Losses).

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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 vir-
tue entitled to some weight in case of doubt: it is (relatively)
easy to understand and to apply.
The case for the separate-member approach, advanced
(in one variant) by the Government and adopted (on a dif-
ferent rationale) by the Court of Appeals, is not so easily
made. In the analysis of comparable treatment just set
out, of course, there is no NOL below the consolidated level
and hence nothing for comparison with PLEs to produce
PLL at any stage before the CNOL calculation. At the
least, then, a proponent of the separate-member approach
must identify some figure in the consolidated return scheme
that could have a plausible analogy to NOL at the level of
the affiliated corporations. See A. Dubroff, J. Blanchard,
J. Broadbent, & K. Duvall, Federal Income Taxation of Cor-
porations Filing Consolidated Returns § 41.04[06], p. 41–75
(2d ed. 2000) (hereinafter Dubroff) (“Even if separate en-
tity treatment was appropriate, it is unclear how a member
with [PLEs] would compute its separate NOL”). The Gov-
ernment and the Court of Appeals have suggested different
substitute measures. Neither one works.
The Government has argued that an individual group
member’s STI, as determined under Treas. Reg. § 1.1502–12,
is analogous to a “separate” NOL, so that an affiliate’s STI
may be compared with its PLEs in order to determine any
separate PLL. An individual member’s PLL would be the
amount of its separate PLEs up to the amount of its negative
STI; a member having positive STI could have no PLL.
The Government claims that an STI-based comparison
places the group member closest to the position it would
have occupied if it had filed a separate return. But that

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832 UNITED DOMINION INDUSTRIES, INC. v.
UNITED STATES
Opinion of the Court
is simply not so. We have seen already that the calcula-
tion of a group member’s STI by definition 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 cap-
ital gains and losses, charitable-contribution deductions, and
dividends-received deductions. Treas. Regs. §§ 1.1502–12( j)
to (n). Owing to these exclusions, an affiliate’s STI will tend
to be inflated by eliminating deductions it would have taken
if it had filed separately, or deflated by eliminating an income
item like capital gain.
When pushed, the Government concedes that STI is “not
necessarily equivalent to the income or [NOL] figure that
the corporation would have computed if it had filed a sepa-
rate return.” Brief for United States 21, n. 14. But, the
Government claims, “[t]here has never been a taxpayer with
[PLEs] who had a positive [STI] but a negative separate
[NOL].” Tr. of Oral Arg. 27. In other words, the Govern-
ment says that the deductions excluded from STI have never
once made a difference and, therefore, that STI is, in fact, a
decent enough proxy for a group member’s “separate” NOL.
But whether or not the excluded items have made a differ-
ence in the past, or make a difference here, they certainly
could make a difference and, given the potential importance
of some of the deductions involved (a large charitable contri-
bution, for example), it is not hard to see how the difference
could favor the Government.
The Court of Appeals was therefore right to reject the
Government’s reliance on STI as a functional surrogate for
an affiliate’s “separate” NOL. 208 F. 3d, at 459–460. But
what the Court of Appeals used in place of STI fares no
better. The court relied on Treas. Reg. § 1.1502–79, which
contains a definition of “separate net operating loss” that
the court believed to be “analogous to an individual’s ‘net
operating loss’ on a separate return.” 208 F. 3d, at 460.
Section 1.1502–79(a)(3) provides that, “[f]or purposes of this

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subparagraph,” the “separate net operating loss of a member
of the group shall be determined under § 1.1502–12 . . . ,
adjusted for the . . . items taken into account in the com-
putation of ” the CNOL. As the Court of Appeals said, the
directive of § 1.1502–79(a)(3) (unlike the definition of STI)
“takes into account, for example, [a] member’s charitable
contributions” and other consolidated deductions. 208 F. 3d,
at 460–461.
But this sounds too good. It is true that, insofar as
§ 1.1502–79(a)(3) accounts for gains and losses that STI does
not, it gets closer to a commonsense notion of a group mem-
ber’s “separate” NOL than STI does. But the fact that
§ 1.1502–79(a)(3) improves on STI simply by undoing what
§ 1.1502–12 requires in defining STI is suspicious, and the
suspicion turns out to be justified. Section 1.1502–79(a)(3)
unbakes the cake for only one reason, and that reason has
no application here. The definition on which the Court of
Appeals relied applies, by its terms, only “for purposes of ”
§ 1.1502–79(a)(3), and context makes clear that the purpose
is to provide a way to allocate CNOL to an affiliate mem-
ber that seeks to carry back a loss to a “separate return
year,” that is, to a year in which the member was not part
of the consolidated group. See Treas. Reg. § 1.1502–79
(titled “Separate return years”); § 1.1502–79(a) (titled “Car-
ryover and carryback of [CNOL] to separate return years”);
§ 1.1502–79(a)(1) (“[i]f a [CNOL] can be carried . . . to a sepa-
rate return year . . .”). No separate return years are at
issue before us; all NOL carrybacks relevant here apply to
years in which the five corporations were affiliated in the
group. The Court of Appeals thus applied concepts address-
ing separate return years to a determination for a consoli-
dated return year, without any statutory or regulatory basis
for doing so. Cf. 49 Fed. Reg. 30530 (1984) (“[A]lthough the
consolidated net operating loss is apportioned to individual
members for purposes of carry backs to separate return
years [under § 1.1502–79(a)], the apportioned amounts are not

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834 UNITED DOMINION INDUSTRIES, INC. v.
UNITED STATES
Opinion of the Court
separate NOLs of each member”). Hence, while § 1.1502–79
might not distort an affiliate’s separate NOL in the same way
that STI does, the facial inapplicability of that regulation
only underscores the exclusive concern of § 1.1502–11(a) with
consolidated NOL.
In sum, neither method for computing PLL on a separate-
member basis squares with the notion of comparability as
applied to consolidated return regulations. On the contrary,
by expressly and exclusively defining NOL as CNOL, the
regulations support the position that group members’ PLEs
should be aggregated and the affiliated group’s PLL deter-
mined on a consolidated, single-entity basis.
IV
Several objections have been raised to a single-entity ap-
proach to calculating PLL that we have not considered
yet. First, the Government insists that a single-entity rule
allows affiliated groups a “double deduction.” The Govern-
ment argues that because PLEs are not included among the
specific items (charitable-contribution deductions, etc.) for
which consolidated, single-entity treatment is required under
Treas. Reg. § 1.1502–12, PLEs are “consumed” or “used up”
in computing members’ STIs, which, pursuant to Treas.
Regs. §§ 1.1502–11(a) and 1.1502–21(f), are then used to cal-
culate the group’s CTI or CNOL. According to the Govern-
ment, to permit the use of PLEs first to reduce an individual
member’s STI and then to contribute to an aggregate PLL
for carryback purposes would be tantamount to a double
deduction.
The double-deduction argument may have superficial ap-
peal, but any appeal it has rests on a fundamental mis-
conception of the function of STI in computing an affiliated
group’s tax liability. Calculation of a group member’s STI
is not in and of itself the basis for any tax event, and there
is no separate tax saving when STI is calculated; that occurs
only when deductions on the consolidated return equal in-

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835 Cite as: 532 U. S. 822 (2001)
Opinion of the Court
come and (if they exceed income and produce a CNOL) are
carried back against prior income. STI is merely an ac-
counting construct devised as an interim step in computing
a group’s CTI or CNOL; it “has no other purpose.” Inter-
met, 209 F. 3d, at 906 (“A member’s STI is simply a step
along the way to calculating the group’s taxable income or
CNOL”). The fact that a group member’s PLEs reduce
its STI, which in turn either reduces the group’s CTI or con-
tributes to its CNOL “dollar for dollar,” ibid., is of no other
moment.8 If there were anything wrong in what United
Dominion proposes to do, it would be wrong in relation to
CNOL and its use for any carryback. Yet, as noted above,
no one here disputes that the group members had PLEs in
the total amount claimed or that the AMCA group is entitled
to carry back the full amount of its CNOL to offset income
in prior years. The only question is what portion, if any, of
AMCA’s CNOL is PLL and, as such, eligible for 10-year,
as opposed to 3-year, carryback treatment. There is no
more of a double deduction with a 10-year carryback than
one for three years.
A second objection was the reason that the Court of
Appeals rejected the single-entity approach. That court
attached dispositive significance to the fact that, while the
Treasury Regulation we have discussed, § 1.1502–12, specifi-
cally provides that several items (capital gains and losses,
charitable-contribution deductions, etc.) shall be accounted
for on a consolidated basis, it does not similarly provide
for accounting for PLEs on a consolidated basis: “The reg-
ulations provide for blending the group members’ [NOLs],
8 It makes no difference whatsoever whether the affiliate’s PLEs are
(1) first netted against each member’s income and then aggregated or
(2) first aggregated and then netted against the group’s combined income:
under either method, AMCA’s CNOL is the same. See Axelrod & Blank
1394 (noting that this conclusion follows from “the associative principle of
arithmetic (which holds that the groupings of items in the case of addition
and subtraction have no effect on the result)”).

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836 UNITED DOMINION INDUSTRIES, INC. v.
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Opinion of the Court
and they explicitly define [CNOL] without an accompanying
reference to consolidated [PLEs]. This omission . . . makes
clear that blending those expenses is not permitted . . . .”
208 F. 3d, at 458.
We think the omission of PLEs from the series of items
that § 1.1502–12 requires to be tallied at the consolidated
level has no such clear lesson, however. The logic that in-
vests the omission with significance is familiar: the men-
tion of some implies the exclusion of others not mentioned.
Leatherman v. Tarrant County Narcotics Intelligence and
Coordination Unit, 507 U. S. 163, 168 (1993) (“Expressio
unius est exclusio alterius”). But here, as always, the
soundness of that premise is a function of timing: if there
was a good reason to consider the treatment of consolidated
PLL at the time the regulation was drawn, then omitting
PLL from the list of items for consolidated treatment may
well have meant something. But if there was no reason to
consider PLL then, its omission would mean nothing at all.
And in fact there was no reason. When the consolidated
return regulations were first promulgated in 1966, there was
no carryback provision pegged to PLEs or PLLs; those
notions did not become separate carryback items until 1978,
when the 10-year rule was devised. See Revenue Act of
1978, § 371, 92 Stat. 2859; see also Leatherman, Current De-
velopments 393, n. 5. Omission of PLEs or PLLs from the
series set out for consolidated treatment in the 1966 regula-
tion therefore meant absolutely nothing in 1966. The issue,
then, is the significance, not of omission, but of failure to
include later: has the significance of the earlier regulation
changed solely because the Treasury has never amended it,
even though PLL is now a separate carryback? We think
that is unlikely. The Treasury’s relaxed approach to amend-
ing its regulations to track Code changes is well documented.
See e. g., Dubroff 41–72, n. 193; Axelrod & Blank 1391; Leath-
erman, Separate Liability Losses 708–709. The absence of
any amendment to § 1.1502–12 that might have added PLEs

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837 Cite as: 532 U. S. 822 (2001)
Opinion of the Court
or PLLs to the list of items for mandatory single-entity
treatment therefore is more likely a reflection of the Treas-
ury’s inattention than any affirmative intention on its part to
say anything at all.
Last, the Government warns that “[t]he rule that peti-
tioner advocates would permit significant tax avoidance
abuses.” Brief for United States 40. Specifically:
“Under petitioner’s approach, a corporation that is cur-
rently unprofitable but that had substantial income in
prior years could (i) acquire a profitable corporation
with product liability expense deductions in the year
of acquisition, (ii) file a consolidated return and (iii)
thereby create an otherwise nonexistent ‘product liabil-
ity loss’ for the new affiliated group that would allow
the acquiring corporation to claim refunds of the tax it
paid in prior years.” Ibid.
The Government suggests, for example, that “a manufac-
turing company (with prior profits and current losses) that
has no product liability exposure could purchase a tobacco
company (with both prior and current profits) that has
significant product liability expenses” and that “[t]he com-
bined entity could . . . assert a ten-year carryback of ‘product
liability losses’ even though the tobacco company has always
made a profit and never incurred a ‘loss’ of any type.” Id.,
at 40–41, n. 27.
There are several answers. First, on the score of tax
avoidance, the separate-member approach is no better (and
is perhaps worse) than the single-entity treatment; both en-
tail some risk of tax-motivated behavior. See Leatherman,
Separate Liability Losses 681 (Under the separate-member
approach, “[d]espite sound non-tax business reasons, a group
may be disinclined to form a new member or transfer assets
between members, because it may worry that it would lose
the benefit of a ten-year carryback,” and “may be encouraged
to transfer assets between members to increase its consoli-

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838 UNITED DOMINION INDUSTRIES, INC. v.
UNITED STATES
Thomas, J., concurring
dated [PLL], even when those transfers would otherwise be
ill-advised”). Second, the Government may, as always, ad-
dress tax-motivated behavior under Internal Revenue Code
§ 269, which gives the Secretary ample authority to “disallow
[any] deduction, credit, or other allowance” that results from
a transaction “the principal purpose [of] which . . . is evasion
or avoidance of Federal income tax.” 26 U. S. C. § 269(a).
And finally, if the Government were to conclude that § 269
provided too little protection and that it simply could not live
with the single-entity approach, the Treasury could exercise
the authority provided by the Code, 26 U. S. C. § 1502, and
amend the consolidated return regulations.
* * *
Thus, it is true, as the Government has argued, that “[t]he
Internal Revenue Code vests ample authority in the Treas-
ury to adopt consolidated return regulations to effect a bind-
ing resolution of the question presented in this case.” Brief
for United States 19–20. To the extent that the Govern-
ment 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.
The judgment of the Court of Appeals is reversed, and
the case is remanded for proceedings consistent with this
opinion.
It is so ordered.
Justice Thomas, concurring.
I agree with the Court that the Internal Revenue Code
provision and the corresponding Treasury Regulations that
control consolidated filings are best interpreted as requiring
a single-entity approach in calculating product liability loss.
I write separately, however, because I respectfully disagree
with the dissent’s suggestion that, when a provision of the

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839 Cite as: 532 U. S. 822 (2001)
Stevens, J., dissenting
Code and the corresponding regulations are ambiguous,
this Court should defer to the Government’s interpretation.
See post this page (opinion of Stevens, J.). At a bare mini-
mum, in cases such as this one, in which the complex statu-
tory and regulatory scheme lends itself to any number of
interpretations, we should be inclined to rely on the tradi-
tional canon that construes revenue-raising laws against
their drafter. See Leavell v. Blades, 237 Mo. 695, 700–701,
141 S. W. 893, 894 (1911) (“When the tax gatherer puts his
finger on the citizen, he must also put his finger on the law
permitting it”); United States v. Merriam, 263 U. S. 179, 188
(1923) (“If the words are doubtful, the doubt must be re-
solved against the Government and in favor of the tax-
payer”); Bowers v. New York & Albany Lighterage Co., 273
U. S. 346, 350 (1927) (“The provision is part of a taxing stat-
ute; and such laws are to be interpreted liberally in favor
of the taxpayers”). Accord, American Net & Twine Co. v.
Worthington, 141 U. S. 468, 474 (1891); Benziger v. United
States, 192 U. S. 38, 55 (1904).
Justice Stevens, dissenting.
This is a close and difficult case, in which neither the stat-
ute nor the regulations offer a definitive answer to the cru-
cial textual question. Absent a clear textual anchor, I would
credit the Secretary of the Treasury’s concerns about the
potential for abuse created by the petitioner’s reading of
the statutory scheme and affirm the decision of the Court
of Appeals on that basis.1
1 Justice Thomas accurately points to a tradition of cases constru-
ing “revenue-raising laws” against their drafter. See ante this page
(Thomas, J., concurring). However, when the ambiguous provision in
question is not one that imposes tax liability but rather one that crafts
an exception from a general revenue duty for the benefit of some taxpay-
ers, a countervailing tradition suggests that the ambiguity should be re-
solved in the government’s favor. See, e. g., INDOPCO, Inc. v. Commis-
sioner, 503 U. S. 79, 84 (1992); Interstate Transit Lines v. Commissioner,

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840 UNITED DOMINION INDUSTRIES, INC. v.
UNITED STATES
Stevens, J., dissenting
As the majority accurately reports, during the time rele-
vant to this case, § 172(b)(1)(I) of the Internal Revenue Code
of 1954 allowed any “taxpayer” who “ha[d] a product lia-
bility loss” to carry back its excess product liability losses
for 10 years. The resolution of this case turns on whether,
when a group of affiliated corporations files a consolidated
tax return, the entire group should be considered the “tax-
payer” for the purposes of implementing this provision
or whether each individual corporation should be seen as a
“taxpayer.”
There is no obvious answer to this question. On the one
hand, it is generally accepted that the rationale behind the
consolidated return regulations is to allow affiliated cor-
porations that are run as a single entity to elect to be treated
for tax purposes as a single entity. See, e. g., Brief for Peti-
tioner 17–19 (collecting sources in which the Internal Reve-
nue Service so stated). On the other hand, it is quite clear
that each corporation in such a group remains in both a legal
and a literal sense a “taxpayer,” a status that has important
consequences. See Woolford Realty Co. v. Rose, 286 U. S.
319, 328 (1932) (“The fact is not to be ignored that each of
two or more corporations joining . . . in a consolidated re-
turn is none the less a taxpayer”); 26 U. S. C. § 7701(a)(14)
(defining a “taxpayer” as “any person subject to any internal
revenue tax,” where a related provision defines “person”
to include corporations). As both the group and the indi-
vidual corporations are considered “taxpayers” in different
contexts, the statute presents a genuine ambiguity.
When a provision of the Internal Revenue Code pre-
sents a patent ambiguity, Congress, the courts, and the IRS
share a preference for resolving the ambiguity via execu-
tive action. See, e. g., National Muffler Dealers Assn., Inc.
v. United States, 440 U. S. 472, 477 (1979). This is best
319 U. S. 590, 593 (1943); Deputy, Administratrix v. Du Pont, 308 U. S.
488, 493 (1940); New Colonial Ice Co. v. Helvering, 292 U. S. 435, 440
(1934); Woolford Realty Co. v. Rose, 286 U. S. 319, 326 (1932).

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841 Cite as: 532 U. S. 822 (2001)
Stevens, J., dissenting
achieved by the issuing of a Treasury Regulation resolving
the ambiguity. Ibid. In this instance, however, the Secre-
tary of the Treasury issued no such regulation. In the ab-
sence of such a regulation, the majority has scoured tan-
gentially related regulations, looking for clues to what the
Secretary might intend. For want of a more precise basis
for resolving this case, that approach is sound.
It is at this point, however, that I part company with the
majority’s analysis. The fact that the regulations forward
a particular method for calculating a consolidated “net op-
erating loss” (NOL) for a group of affiliated companies, see
Treas. Reg. § 1.1502–21(f), tells us how the Secretary wants
the NOL to be calculated whenever it is necessary to deter-
mine a consolidated NOL, but it does not tell us what pro-
visions of the Code require the calculation of a consolidated
NOL. That is a separate and prior question. Even if we
were to draw some mild significance from the presence of
such a regulation (and the absence, at the time these re-
turns were filed, of a similar regulation for the calculation
of corporation-specific NOL’s), the power of that inference
is counterbalanced by the fact that the regulations listing
deductions that must be reported at the consolidated level
makes no mention of product liability expenses. See Treas.
Reg. § 1.1502–12; see also H. Enterprises Int’l, Inc. v. Com-
misioner, 105 T. C. 71, 85 (1995) (construing Treas. Reg.
§ 1.1502–80(a) to provide “[w]here the consolidated return
regulations do not require that corporations filing such re-
turns be treated differently from the way separate entities
would be treated, those corporations shall be treated as
separate entities when applying provisions of the Code”).
In addition, the subsequent promulgation of a method for
calculating a corporation-specific NOL (albeit for a differ-
ent purpose), see § 1.1502–79(a)(3) (defining “separate net
operating loss”), demonstrates that there are no inherent
problems implicit in undertaking such a calculation.

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842 UNITED DOMINION INDUSTRIES, INC. v.
UNITED STATES
Stevens, J., dissenting
In short, I find no answer to this case in the text of the
statute or in any Treasury Regulation.2 However, the Gov-
ernment does forward a valid policy concern that militates
against petitioner’s construction of the statute: the fear of
tax abuse. See Brief for United States 40–42. Put simply,
the Government fears that currently unprofitable but pre-
viously profitable corporations might receive a substantial
windfall simply by acquiring a corporation with significant
product liability expenses but no product liability losses.
See id., at 40. On a subjective level, I find these concerns
troubling. Cf. Woolford Realty Co., 286 U. S., at 330 (reject-
ing “the notion that Congress in permitting a consolidated
return was willing to foster an opportunity for juggling so
facile and so obvious”). More importantly, however, I credit
the Secretary of the Treasury’s concerns about the potential
scope of abuse. Perhaps the Court is correct in suggesting
that these concerns can be alleviated through applications
of other anti-abuse provisions of the Tax Code, see ante,
at 838, but I am not persuaded of my own ability to make
that judgment. When we deal “with a subject that is highly
specialized and so complex as to be the despair of judges,”
Dobson v. Commissioner, 320 U. S. 489, 498 (1943), an ounce
of deference is appropriate.
I respectfully dissent.3
2 I am also in full agreement with the Court’s rejection of the Govern-
ment’s double-deduction argument. See ante, at 834–835.
3 Because I agree with the majority that the calculation contemplated
by Treas. Reg. § 1.1502–79(a)(3) better approximates the NOL that each
company would have had reported if filing individually than the alterna-
tive forwarded by the Government, see ante, at 833, I agree with the
Court of Appeals’ decision to adopt that measure and would affirm the
decision below in its entirety.