Washington Mutual v. United States, No. 14-35289 (9th Cir. 2017)
Annotate this CaseThe parties' dispute arose out of transactions originating from the savings and loan crisis during the 1970's and 1980's. Washington Mutual appealed a judgment entered in favor of the Government after a bench trial in a tax refund action. The Ninth Circuit affirmed, holding that Washington Mutual did not meet its burden of establishing a cost basis for its intangible assets. The panel concluded that the district court held Washington Mutual to the correct burden; did not make any clearly erroneous factual findings; permissibly determined that the cumulative fundamental flaws underlying the Grabowski Model rendered it incapable of producing a reliable value for the Missouri Branching Right; and was thus not required to sua sponte assign a value to that Right. Even assuming the Missouri Branching Right could be valued, Washington Mutual nonetheless failed to show reversible error as to the denial of its abandonment deduction.
Court Description: Tax. The panel affirmed the district court’s judgment, in a tax refund action, finding that taxpayer had failed to establish a reliable cost basis in certain rights for which it sought tax deductions and losses, in connection with taxpayer’s acquisition of certain failed savings and loan associations during the 1970s and 1980s. In 1981, Home Savings of America, FSB (Home Savings), agreed to acquire three failing savings and loan associations (thrifts) in exchange for a package of incentives from the Federal Savings and Loan Insurance Corporation. The incentives included the right to maintain branches in other states (branching rights) and the right to use the purchase method of accounting, which focused on Regulatory Accounting Principles (RAP rights). Washington Mutual Inc., as successor in interest to Home Savings, initially appealed the district court’s judgment that Home Savings had no cost basis in its RAP right to amortization deductions, and its abandonment loss deduction for branching rights in Missouri. In a previously published opinion, this court held that Home Savings had a cost basis in both sets of rights equal to some part of the excess of the acquired thrifts’ liabilities over the value of their assets, and remanded for determination of that cost basis. On remand, the district court determined that Washington Mutual had not met its burden of proving Home Savings’s cost basis in the rights at issue. WASHINGTON MUTUAL V. UNITED STATES 3 In this subsequent appeal, the panel held that the district court permissibly concluded that taxpayer did not meet its burden of establishing a cost basis for its intangible assets. The panel first held that the district court applied the proper legal standards, did not clearly err in determining that the evidence was insufficient to reliably value the Missouri branching right, and was not required to sua sponte assign a value to that right. The panel also held that taxpayer had failed to establish that Home Savings had permanently abandoned its right to operate in Missouri for purposes of an abandonment loss deduction.
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