996 F. Supp. 2d 1095
W.D. Wash.2014Background
- WaMu, Inc. sues the United States for tax refunds on Home Savings of America’s 1990, 1992, and 1993 tax years based on deductions for the Branching Right and RAP Right.
- Ninth Circuit previously held Home had a cost basis in the Rights, remanding to determine the exact basis.
- The Missouri-Florida supervisory merger (1981) granted Branching Rights and the RAP Right and allowed a tax-free G reorganization, creating significant incentives.
- FIRREA’s 1989 reforms affected regulatory capital and goodwill treatment, relevant to the Rights, and the litigation traces subsequent interpretations.
- District court granted partial summary judgment in favor of the United States, ruling Home lacked a proven cost basis and, separately, that Home did not abandon the Missouri Branching Right; Plaintiff appealed.
- The court ultimately requires a proper FMV-based allocation of the Purchase Price among assets and finds Grabowski’s model unreliable for valuing the Missouri Branching Right.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Plaintiff bears the burden to prove a reliable cost basis | Home’s cost basis is established by the excess of liabilities over assets | Plaintiff double-counted liabilities and cannot establish a separate Basis for the Rights | Plaintiff bears burden; cost basis not proven |
| How to determine the cost basis via Purchase Price allocation | Purchase Price allocation can reflect FMV of Rights within the incentive package | FMV must be established for each asset; without it, pro rata allocation is impossible | FMV must be proven for each asset to allocate Purchase Price |
| Whether the fair market value of the Missouri Branching Right can be established | Grabowski model provides FMV for the Right | Model Unrealistic; relies on flawed inputs and assumptions | Grabowski model unreliable; FMV not proven |
| Whether Home abandoned the Missouri Branching Right | Closing Missouri branches and notices show abandonment | Covenants not-to-compete and flexibility undermine abandonment | Home did not abandon the Right; abandonment not proven |
Key Cases Cited
- In re Lilly, 76 F.3d 568 (4th Cir.1996) (basis concept; cost equals asset cost; rules for basis)
- Coloman v. Comm’r, 540 F.2d 427 (9th Cir.1976) (burden of proof on valuation; Cohan-like estoppel not automatic)
- Norgaard v. Comm’r, 939 F.2d 874 (9th Cir.1991) (avoid unreliable estimation; burden to prove value)
- Better Beverages, Inc. v. United States, 619 F.2d 424 (5th Cir.1980) (burden to prove cost basis; IRS presumption applies if not proven)
- Compton v. United States, 334 F.2d 212 (4th Cir.1964) (tax refund burden to establish correct amount)
- Estate of Marsack v. Comm’r, 288 F.2d 533 (7th Cir.1961) (valuation must be established; not merely showing some deduction owed)