argument appreciate your cooperation with our technology staff and in them working through this and being being here this morning virtually so we're ready for the st case which is money grand international  revenue and we will st hear from the petitioner whenever you're ready mr saint they place the court as a leading case explains banks received favorable tax treatment quote because the circus of banks must be built up for the protection of depositors and quote section five a one represents a policy judgment by congress that if an entity performs the essential functions of banks and if it is regulated by state banking regulators such that it has to hold reserves to back up those deposits and that entity is entitle to deduct its reserve related losses against ordinary income a question presented here is thus not whether muddy graham perfectly mirrors in every respect a state or federal e chartered bank but instead whether money grant satisfies functional statutory criteria that implement the statutory purpose i just mentioned mr slater let me ask you the your client is registered with the department of treasury as a money services business and treasury department regulations say a money services business cannot be a bank so why doesn't that resolve this case because th federal regulations is referencing federal banking law bank is a term of many different meanings throughout the federal code section five hundred and eighty one dollars gives the term bank a specified definition with reference deposits lungs and discounts and not a federally registered bank but a bank regulated are subject to supervision by state or federal regulators now congress could have easily  bank and just that way but it shows not to do so here and that's because it was promoting the policy purpose that i mentioned congress recognize that there were certain economically desirable activities that why did financial institutions to engage in receiving deposits from the general public and making loans and discounts congress understood that if an entity engaged in those activities and it was subject to state baking regulations like money graeme i then it would have to build up a massive amount of reserves in safe liquid assets just as banks are required to do so when the economy crashed in a once in a lifetime financial crisis money graham suffered crushing watts's precisely because it had to comply with the same asset holding requirements the same reserve requirements that banks must comply with everybody graham satisfies the statutes folks know criteria most clearly because it receives deposits there is money order and official checking businesses that are functionally identical to the deposits received by traditional checking accounts and because the money gr makes loans and discounts when it discounts for billions of dollars in commercial paper now course there are a lot of other reasons we believe money gram satisfies the stature both the principal ones i want to focus on today turning to here the deposit requirement i start with the undisputed premise that traditional checking accounts involve deposits i think everyone agrees with that money granting money orders and official checks are indistinguishable of every material respect from the deposits received by traditional checking account as well isn't it mr is a different in that your official check accounts every day they're basically the covering the checks that were issued the following day son no one is really keeping a balance in there let me ask would you consider the money people put in their accounts for told roads people go in with one hundred dollars in their accounts they can not mirror traditional checking accounts and nearly as closely as money graham's official check account still let me unpack that a little bit with reference to the way you practice your question will judge cost and where the money grandma takes the money into the official checking accounts st of all there's a st a settlement and that money is not pre committed in any way nd of all with respect to the money that's deposited to cover the outstanding official checks that have just been issued the previous day that money is now tell to sell safekeeping until those official checks are cleared it could be days it could be weeks and it could be months that's exactly the same as in a traditional checking account it could be the case that in fact if you look at the statements that are in the record here are very much for additional checking accounts there is a fact a balance balance held many tens of thousands of dollars balance because there's a delay between a deposit and a clearing of the account  in addition you have complete discretion on the part of the financial institution deposit or to use that account at any time to pay that financial institutions own bills for anything it wants so i think the whole situation it mirrors a deposit in some respects but the person who puts that in there can use it for tolls it can't use it for anything that's the way money orders and official checks are that it can't generally on a money order someone might just say you can return the money you want to but it's not like if i get a one hundred dollars money order i know we're moving on to money orders now i can go if i have a one hundred on a money order i understand i can pay it for myself right even exchange i was the be just like that going to exchange a shirt i buy at the store but it's my understanding i can't buy a one hundred dollars money order i bought go get thirty dollars out of it or go get sixty dollars out of it or eighty dollars as it's a full exchange or nothing that's right  that's right your honor and i think that point goes to a recurring theme in the commissioner's arguments which is that there are there are differences in the way checking accounts operate which we would call you know the cadillac account or the full bells and whistles account where you can withdraw at any time and the money order course the person who wants to withdraw partially a money order can easily do that or you can just go refund the entire amount of but the additional amount that he doesn't want back on the money orders so there's no problem with doing that but i think it's also important point out that there are two things even with traditional checking accounts there are often withdrawal restrictions there are often minimal minimum balance requirements that  foster from going in and doing exactly what he wants to do with that money and any time that he wants to do it and the nd point is that this court has defined what a deposit is it's defined it quite carefully and  on demand or at a fixed time these funds are subject to the control of the deposit or from the time the person purchases the money order to the time that they are the money order is presented for payment the person who may either go to cash in on either you order for himself get a refund or you can direct anywhere in the world that money order goes at any time that that person wants to answers just one question on gun control question so i'm not exactly you're either in the stipulated facts if the money order when i say presented for payment i mean the payee has presented that money order for payment to the interbank checking system and so essentially you have a deposit that official check is issued or the money order is bought from that time forward the money is treated by money gram exactly the same as a commercial bank with free checking deposits it must  invest that money in safe liquid assets it must stand ready for days weeks or months to satisfy all outstanding obligations and again at any time the customer has complete control over where to direct that money order so we don't see any material difference between these official checks and money orders every piece of via the traditional checking account this isn't a dime the checking account people use for checks but they also use to save keep money so people get their their salary their their paycheck deposited into a checking account sure they then pay some of that out with personal checks but no one is anyone using money orders money orders money orders have been referred to as a one shot checking account where the poor man is just that it's only wanted a time situation now the reason you have checking accounts as your honor said is checks the very function of a checking account is to write checks on that account money orders there are exactly the same difference that your ira pointed out of big boils down to at most a difference of duration you may have money that sits in a checking account for a little bit longer but again money orders up can sit in there for weeks or months and they remain subject to the complete discretion of the deposit or and the key point on safekeeping i think is why is the deposit or handing over his money to money gram anything handing over the money gram we know from customer surveys because money gram keeps that money secure it's not just that money game keeps the money secure but it's transferring it it's that it keeps the money secure from the time that it's deposited from the time that the check is presented for payment and that's precisely the same as with the checking account the th circuit said in the value morris plan case that the thr certificates that were purchased in that case were purchased for safekeeping because the customer trusted in the security of the threat to make notes of those funds even though those funds were later possibly going to be reassigned to a rd party or possibly returned to the person who deposited if i could def we want to get any more questions on loans or not deposits but if i could quickly turn to loans and discounts here for just a brief break a few minutes  i think the quickest way to resolve the loads and discounts issue here is to look at the commercial pay for that money gram purchased directly from the issuers that was six billion dollars the tax court held that court can just look at that and say this is an undisputed issue and six billion dollars of purchases that are necessary to maintain their legally required reserve regulations is a substantial part of money grubbers bank which our prior decision says turns on deposits and won't what your argument for why we should treat the discounts as loans for purposes of back definition since you're the statutes treating loans and discounts as separate things substantiality question but the st question is is it a bend and arkwright opinion says it's a bank if it makes deposits and then we explain what the positive means and if it makes loans no mention of discount and in proving that the bank mates loans correct me if i'm wrong but i think you're trying to say in showing that the bank makes loans which would meet the definition of a bank we can consider the discounts and i'm saying why should we consider the discounts that the statute itself seems to treat loans and discounts as separate items you do correctly understand my position your honor and that is that the discounts are by definition loans and i don't take that back to this quarter separately use the term loans it does not necessarily mean that the card loads cannot be encompassed in the statutory term discount and i think we've shown that i was approaching the opposite and it's not how we'd use of congress in the statute says loans in discount so why doesn't that mean there are distinct things given that congress elementary banking treatise which was contemporaneous with the an act of statute loans and discounts i've always been treated to mean the same bank loans are a subset of discounts i should say discounts are subset of loans and supreme court distributed that way we cite those cases of in our reply brief and in our opening brief so i think i position is very much as your articulated that the commercial paper purchases both from the issuer and from the age are both loans and discounts now the issuer purchases are clearly loans right that's just somebody coming in and saying please give me nine hundred and ninety dollars now and i'll give you a one thousand and thirty dollars days that's  demonstrate that back very clearly because it says the agents are just agents of the issuer they're just somebody retained by the issuer to place the commercial paper it's no economically different from purchasing directly from the issuer of say my time  gram has to convince the court that it satisfies each and every element of the term bank under section five hundred and eighty one dollars then it doesn't principally for two reasons st money gram does not accept  posits and nd money gram does not use deposited funds to make secure loans money graham's position is extreme and it strips the terms bank deposits and loans of their essential see that the bulk of the conversation focused on the posits and i'm also going to focus on deposits because the other elements of banking depend on the accepting of deposits but rather than start with official checks i'm going to start with money orders because i think if the court understands how money gram sells money orders and treats those proceeds it will reveal a lot in consistencies and fallacies in money graham's position on the official check business safe keeping funds is really the choice between putting money in your mattress and putting your money in a bank now banks also offer an additional privilege to account holders some account holders to write checks and to pay rd parties but there is a distinct and essential safekeeping function for all deposit accounts money gram recognizes this distinction between safekeeping and transmitting funds right this is on page pages twenty dollars to thirty dollars of the blue brief but on page thirty two dollars of the blue brief they say that a money order basically collapses the safety pin function and the payment function in reality a purchase of a money order skips safe keeping all together so for example if i give my friend a twenty dollars bill to write a twenty dollars personal check to pay my landlord you would never say that i gave my friend a twenty dollars bill for safekeeping that's essentially what a money gram money order purchaser does they give money gram money so that money gram will pay a rd party with money grams fun money orders are drawn by money gram on money gram so the funds that are paid on a money order are money becomes funds and money gram is liable on that instrument once a person buys a money order money gram doesn't owe them anything unless they write the instrument out to themselves and then they're just stepping into the shoes of a payee in the payee of a money order is no different than the payee of a personal check they're not a depositor of the institution that those than whatever one thousand dollars in cash on it strikes me that at least in the common understanding the money is safe in that sense and well the person who buys a money order expects money gram to honor the instrument but that is not equivalent to safety paying because if that were all it took to render the acceptance of funds the safekeeping of funds then money graham's money transfer business would also involve safekeeping because functionally other than the piece of paper that looks like a check there's no difference between their money transfer business and their sales of money orders now money gram is very clear they don't consider their money transfer business to involve deposits and therefore does not involve safekeeping but yet they they contend that their sale of money orders does the only real difference is again the piece of paper not a risk free proposition and when you deposit funds in the bank those funds are safe kept for you there's no risk that you know or rather even if for instance a bank went under at least you have f d i c insurance and but what money gram wants is to take advantage of a special privilege that if that only applies to banks when in every other aspect of its business it shines the burdens financial and regulatory that go along with being a  bank again the fact that money order purchasers trust that money bramwell will honor the instruments when the presented reflects i think what one of them sometimes refers to as safeguarding but it's not equal to sa keeping in the traditional banking sense and perhaps you know a little bit of history might be helpful the money transfer and money order industry has existed for over one hundred years and i'm unaware of any case  statute so this is an unprecedented expansion of prior case law it is not consistent with the traditional understanding of bank safekeeping but again that's only one element and then money gram till the years it wanted to claim these investments as deductions it listed itself on its act returns as a non depository institution insistently that is correct and even in the tax returns where i elements of deposit status and money orders don't satisfy the threshold safeguarding element the nd element is whether the deposit or can exercise control over the funds right withdraw them on demand and the person who buys a money order once they pay for the money or has no control over the funds they simply have control of the piece of paper so money gram emphasizes and their briefs well the purchaser of a money order can decide when to give it to the payee and so that's like deciding when to withdraw funds from your account but even when they hand over the piece of paper they don't have control over the funds they can't go to money gram and get the money back  creditor relationship between the a positive and the bank now the person who buys a money grubber money order is not a deposit or because they're not entitled to the funds once they've once they've given their cash over the money gram only if the pay is entitled to enforce the instrument so you have a breakdown between the person who is the putative depositor in the money were purchased and the putative back because there is no reciprocal relationship better part of the relationship gram and the purchaser of a money order and i think the court recognized in its prior pinion and this is also borne out in the morris plan bank of new hampshire case that the creation of the debtor creditor relationship is an automatic it arises and mediately upon the payment of funds there is no automatic and reciprocal debtor creditor relationship between the purchaser of a money order and  money and importantly if for instance money gram went bankrupt the mere purchaser of a money order could assert no claims of bankruptcy what would their claim be the only person who might be able to assert a claim against money gram and bankruptcy would be the person who's entitled to force the instrument which is in this instance the payee and again just like the payee if a personal check is not a positive the bank on which the kid the check is drawn the pay to ease of money or money orders are also not  so if the court doesn't have any questions on money orders i would now pivot to explaining why the official check business does not involve deposits either  so with the exception the st day settlement funds monograms official check business parallels their money order business the retail money order business you have an entity that is selling the joint stipulation money gram when an official check customer sells and money gram instrument it's selling an instrument on which money gram is liable just like the retail agent who sells a money order selling a draft on which one dollar it is liable the customer bank takes and the funds just like to be challenging takes in the funds and then has an obligation to to give money grubbers money to money gra at no point really are the funds that an official check customer remits to money gram funds belonging to the customer bank and again another inconsistency and money graham's theory is that they're very adamant that the retail agent the convenience store the supermarket that sells a money gram money order is not money grubbers deposit or but in the same breath they say that the customer bank that sells an official check is mon or agreeing to enter into a trade relationship with a vendor and you know the way that you can tell that is number one  rather the official check customers don't have a choice as to whether or not to tender those funds they're required to do it in the same way that a landlord would require you to provide a security deposit secular address that the landlord is going to see if the security because the custom bank wants to safety their funds even though those funds may be held as security so to the extent there's any safe keeping involved it is not the principal purpose and it is incidental to the real purpose which is to provide money gram security  exert no control over the funds once monicker has it they have no discretion to decide when to tender the funds how much can they provide more can they take some out those funds are off limits for the entire duration of the relationship  record on appeal it's an affidavit that money gram submitted in connection with summary judgment acknowledging that you know when it's required or maybe required meaning it's not always required so the fact that it's really up to money gram to and then beyond that you know money gram does pay interest on the st as someone funds but that interest is again incidental to the principal purpose which is to provide money and security and just in the same way that you can earn interest on a security deposit that you're required to provide to a landlord or to a utility company and you can get interest on your security deposit but i don't think if given the choice these customer banks would ever choose to provide the security or the collateral to money gram because the interest that they earned on that was based on the federal funds rate but money gram makes money on these deposits  so why can't the banks you know why would the banks choose to make that same great return by investing the st a settlement funds themselves and the reason is because they don't have a choice it's compulsory and it's for money gram security in the event that the customer bank does not pay money gram back within twenty four hours for the checks that they sold on which money becomes liable so the st day settlement funds again as we stayed in our brief are clearly for money and security they are in the nature of a security deposit that is categorically inconsistent with a safe kept or safe keeping relationship and then with respect to the daily remittances those are reimbursements in the same way that if my friend you know lets me write checks out of her her checkbook and requires me to pay her back the next day the money that i pay my friend back is not paid for safekeeping it's paid as a reimbursement because again money gram is liable on these official checks and the funds that the retail or brother that the customer bank is tendering to money gram are strictly reimbursements so you know money gram keeps likening the official check business and the money order purchases to checking accounts not only do you have at least on the money order contacts the complete absence of  safekeeping you also have an order of operations problem because there has to be some preliminary safe keeping function however brief before you have this additional function of making funds available the money order purchases erase the safe distinguishes two different concepts it distinguishes deposits made for safekeeping and posits need for transmission to another but it's both are deposits and i'm curious how much we get out of the distinction sort of the purpose of but again angle does wrecking again there is an essential preliminary safekeeping period right there has to be some period of actual safety being before this additional step of making money available and unlike with a traditional bank or traditional bank account every single dollar that money gram except from its customers it already knows is totally completely in immediately obligated for the payment of rd parties so when money gram what monogrammed calls collapsing safekeeping in transmission again it that erases the question about whether the discounts can satisfy the loan the loan element for the definite the traditional concept of bank our position is no it can't because again what the  stanton said was that you have to use deposited funds to make secured loans discounts generally don't involve secured loans commercial paper by definition is unsecured so focused on commercial paper is completely unhelpful to resolving that elementary issue on the st element of thanks that us under five hundred and eighty one dollars and if it were so obvious that the purchase of debt securities was lending in the traditional banking sense it that money gram from its petition original petition in the tax court all the way through litigation in this court and the remained never said that it made loans because it bought debt securities they focused on the you know the putative loans to the retail agents and so the court should view that theory with some skepticism but again buying a debt security that is you know for the purpose of investment is not traditional banking and real banks don't confuse the purchase of debt securities with lending and what i mean by that is just look at the balance sheet excerpted in the magruder opinion which distinguishes of all that means is that it's not an f b i cia insured federally chartered bank and as i mentioned in my opening congress could have required that but instead it looked at the function of what institution does and critically here it looked at whether money gram was regulated by state or federal regulations subject to supervision by state or federal banking authorities money gram is subject to regulation by the state banking authorities and subject to supervision and examination of their books so one thing the f b i see does is goes in and examines the safety and soundness of the assets that's exactly what the state regulators do with respect to money gram and so money gram satisfies all of the functional purposes that that motivated congress to give this d favorable tax treatment in the cases also bear this out  value morris case from the th circuit another valley horse case from the nd circuit and the stockton case none of those cases were federally or state chartered banks and both are valid morris cases they were prohibited by law f receiving deposits in a script banking sense of the word and those court said nonetheless those are banks for section five anyone purposes because what they receive is functionally equivalent to deposits because it's given it's motivated by the security and care act and the deposit and it can be directed to any rd party or back to the deposit or they were herself you pointed out that i think my my friend on the other side pointed  that one hundred years money grammar no other company has climbed this well this is only happened twice the great depression in the great recession these are safe liquid assets they don't just plummeted in value of every year and so that explains why this is not some opportunistic attempt to take advantage of something that is just you know come over the transom disarray because of the great recession and money graham says we fulfil the same functions as a bank were regulated  like a bank for purposes of the state bank regulators on official tracks i want to start there because i think that it's you know in a way the weaker argument for the commissioner and st of all the commissioner twice and it's brief and it's understood by the stipulated back that banks quote outsource their official check services to body gram how can something not be a banking function if it was performed by a bank and outsourced the money gram these are individual accounts held in the name of the financial institution so remember that one of viruses complains about money or you don't have an individual account with your name on all these financial institutions that individual accounts that are interest bearing and when they close that account the money comes right back to the individual account holders what you are on to their argument is as i take it is that safekeeping requires a voluntary element you know i have twenty dollars in my wallet i can put on the mattress i can go by l or i can keep it in the bank and they're saying this official business those are contractual obligations that require to give your client the money so that's why it's not for safekeeping what's your response to that i'm sort of color but there's a voluntariness element to safe while they may contract i withdraw fees that prevent them from withdrawing money and the fact that they're contractually required to deposit money sort of on a routine basis i would urge the court to look at the morris plan bank case from the nd circuit page four forty the commissioner made this precise argument in the same words it said these depositors have quote a contractual obligation to transmit the funds and the nd circuit said it it doesn't matter because they are making a deposit for purposes of safekeeping and they control those funds this i think the similar are that they made is that there's an order of operations problem but there is no order of operations problem these bills that need to be paid money that must keep that money safe sometimes for days weeks or months until those clear they're not already you know just instantly going to be paid and in any case that's no different than what we do every month we deposit money in our county know that money's already pretty committed going out the door by the end of the funds and the iras his answer was those are just like security deposits well they're not like security deposits because the security deposit goes for the purpose of protecting the landlord st of this deposit is for the purpose of paying those st days work checks and it's for it's for the purpose of protecting the deposit or as well it gives balance in the account and there is no restriction on what the official check customers do with that money as we point out the stipulated back say these financial institutions often use this money withdraw this money to pay their own bills to write official checks to pay their own bills that's no different than an official checking account for the past that the court would reverse all right thanks to both