University of Miami Business Law Review


Philip G. Cohen

Document Type



In Pilgrim’s Pride Corp. v. Commissioner, the Fifth Circuit reversed the Tax Court and held that the taxpayer was entitled to an ordinary loss deduction from its abandonment of securities. While the conclusion reached by the Fifth Circuit has been overshadowed by the promulgation of Treasury Regulation section 1.165-5(i) that effectively treats an abandoned security as worthless and thus characterizes the loss as capital, the case remains noteworthy because it provides an opportunity to examine the statutory interpretation of two distinct Internal Revenue Code sections, section 165(g)(1) and section 1234A. The article focuses on what methods of statutory construction should have been utilized to determine the application of these sections to the Pilgrim’s Pride fact-pattern.

Ordinary loss treatment for an abandoned security seems conceptually incorrect when both a worthless security and a sale of the security for a de minimis amount would generally result in a capital loss. The article analyzes whether, and if so, under what theory did the courts deciding Pilgrim’s Pride possess the statutory authority to treat the abandonment as a capital loss. Furthermore, assuming the courts had such authority, the article considers whether it was proper to do so under the particular factual circumstances surrounding this case.

There are a variety of statutory construction methodologies each with erudite proponents making very persuasive contentions. Applying an Internal Revenue Code section to a particular fact-pattern, however, it can often be wiser not to be wedded to one approach, e.g., textualism. Instead, it is submitted that employing disparate methodologies depending on the particular circumstances may be sounder. Pilgrim’s Pride provides a focal point for examining statutory interpretation methodologies and illustrating the foregoing. As such, reflecting on the case has continuing relevance despite the widespread application of Treasury Regulation section 1.165-5(i) to the abandonment of securities.

As demonstrated by the different approaches that I believe were proper here for considering the applicability of sections 165(g)(1) and 1234A to Pilgrim’s Pride, distinct circumstances require discrete approaches to applying a statutory provision to a case. Our democratic institutions are not put at risk, by foregoing dogmatic textualism where this would lead to a result wherein “no conceivable tax policy . . . supports this interpretation” or deeming, in the case of section 165(g)(1), an abandoned security to be per se worthless. Restraint, however, from deviating from the clear language of the text, such as applying section 1234A to inherent rights, may be in order where there are no overriding reasons not to do so.