Capital One Financial Corp. v. C.I.R., No. 10-17887

Decided: Oct. 21, 2011

Capital One sought to retroactively amend its tax obligations for credit card late fees and air miles under the Taxpayer Relief Act of 1997 (Act). The tax court denied Capital One’s requests and granted summary judgment for the IRS. First, it held that changing accounting methods retroactively for the late fees required prior permission from the Secretary which was not given in this case. Also, the court rejected Capital One’s attempt to deduct the miles costs from its tax obligation because the program served as a loan, not a sale as required by the Act.

The Fourth Circuit affirmed. The court noted that even in light of the “automatic consent” provision of the Act, necessary filing procedures must still be followed to take advantage of the Act. Moreover, trying to redefine these miles loans as a sale of credit for the purpose of accelerating a deduction would lead to uncertainty and inconsistency in contravention of the Code’s goals.

Full Opinion

-C. Alexander Cable

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