IRS Dispute With S&Ls; to Be Heard : Supreme Court: The justices will decide on tax deductions for ‘reciprocal sales’ of mortgage loans.

The Supreme Court today agreed to decide whether savings and loan associations and other financial institutions may claim tax deductions for “reciprocal sales” of mortgage loans.

With a reported $419-million-plus interest at stake, the court said it will hear Internal Revenue Service arguments against allowing such deductions.

Two federal appeals courts have ruled against the IRS and one has ruled for the tax agency. The justices’ decision, expected by July, will resolve the conflicting rulings.

An IRS victory would mean more bad news for some struggling S&Ls.;

In the lead case granted review today, Centennial Savings Bank of Greenville, Tex., a savings and loan, challenged an IRS refusal to treat the sale of its old mortgage loans to another S&L; as a transaction that generated a loss for tax purposes.

After the IRS ruled that Centennial could not claim a tax deduction for the transaction, the savings and loan paid its assessed taxes and sued for a refund. A federal judge ruled for the government, but the New Orleans-based U.S. 5th Circuit Court of Appeals last November reversed the judge’s ruling.

In other action today, the court:

* Left intact a ruling that USX Corp. illegally discriminated against blacks at a Fairless Hills, Pa., steel mill.

The justices, without comment, rejected arguments that a federal appeals court “flagrantly disregarded” a 1989 Supreme Court decision in ruling against the giant manufacturer.

The Philadelphia-based U.S. 3rd Circuit Court of Appeals ruled that USX, formerly known as U.S. Steel Corp., discriminated against blacks who applied for non-skilled production and maintenance jobs at the steel mill.

* Agreed to resolve a dispute from Arkansas over the power of states to tax cable television companies and subscribers.

The court said it will review a ruling that Arkansas may tax cable TV as long as it also imposes the levy on similar communication services, such as the unscrambling of satellite signals.

With millions of dollars in tax revenue at stake, the ruling was challenged in separate appeals by both the state and cable operators and subscribers.

* Said it will decide whether Oklahoma may collect a sales tax on cigarettes and other items sold at a Shawnee convenience store owned and run by an Indian tribe.

The justices said they will review a ruling that would bar the imposition of such a tax.

Asked for its views, the Bush Administration advised the justices to send the case back to a federal appeals court for further study. The justices ignored that advice.

* Agreed to use a dispute over the settlement of a strike by Continental Airlines pilots to set new guidelines on the duties of unions to represent their members.

The court said it will consider killing a lawsuit against the Air Line Pilots Assn. by striking pilots who said the union denied them fair representation.