Death of a Loophole: Do Recent Decisions Portend Doom for Ninth Circuit's Rationale in Boise Cascade?

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Under Section 404(k), a corporation can deduct certain dividend payments to its employee stock ownership plan (ESOP). Section 162(k), with some limited exceptions, disallows a deduction for costs incurred by a corporation "in connection with the reacquisition of its stock." In 2003, the Ninth Circuit in Boise Cascade Corp upheld a Section 404(k) deduction for a dividend payment that was derived from the taxpayer's redemption of stock from its ESOP. Fundamentally, the key issue addressed by the Ninth Circuit was whether Section 162(k) precluded a deduction under Section 404(k) for the redemptive dividend paid to its ESOP. The Ninth Circuit was the first appellate court to address the applicability of the Section 162(k) disallowance to the Section 404(k) deduction. This article analyzes the continued relevance of the Ninth Circuit's decision in Boise Cascade in light of the universal rejection of that decision in other judicial venues.

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