United States Court of Appeals 

for the Federal Circuit ______________________ 

WMI HOLDINGS CORP., FKA WASHINGTON 

MUTUAL INC., AS SUCCESSOR IN INTEREST TO 

H.F. AHMANSON & CO. AND SUBSIDIARIES, 

FEDERAL DEPOSIT INSURANCE CORPORATION, 

AS RECEIVER FOR WASHINGTON MUTUAL 

BANK, A FEDERAL ASSOCIATION, AS 

SUCCESSOR IN INTEREST TO HOME SAVINGS 

OF AMERICA, SAVINGS OF AMERICA, INC., AS 

SUBSTITUTE AGENT FOR H.F. AHMANSON & CO. 

AND SUBSIDIARIES,

Plaintiffs-Appellants

v.

UNITED STATES,

Defendant-Appellee

______________________ 

2017-1944 

______________________ 

Appeal from the United States Court of Federal 

Claims in Nos. 1:08-cv-00211-LKG, 1:08-cv-00321-LKG, 

Judge Lydia Kay Griggsby. 

______________________ 

Decided: June 4, 2018 

______________________ 

 ALAN I. HOROWITZ, Miller & Chevalier Chartered, 

Washington, DC, argued all for plaintiffs-appellants. 
2 WMI HOLDINGS CORP. v. UNITED STATES

Plaintiff-appellant WMI Holdings Corp. also represented 

by MARIA O’TOOLE JONES, STEVEN R. DIXON. 

 TAMARA L. SHEPARD, DLA Piper US LLP, Boston, MA, 

for plaintiff-appellant Federal Deposit Insurance Corporation. 

 THOMAS D. JOHNSTON, Shearman & Sterling LLP, 

Washington, DC, for plaintiff-appellant Savings of America, Inc. Also represented by RICHARD JOHN GAGNON, JR. 

 ANDREW M. WEINER, Tax Division, United States 

Department of Justice, Washington, DC, argued for 

defendant-appellee. Also represented by DAVID A.

HUBBERT, BRUCE R. ELLISEN. 

______________________ 

Before PROST, Chief Judge, DYK and O’MALLEY,

Circuit Judges.

O’MALLEY, Circuit Judge. 

This appeal involves Appellant WMI Holdings Corp.’s 

(“WMI’s”) claim for a refund of federal taxes paid by its 

predecessor.1 WMI contends it is entitled to more than 

$250 million in refunds attributable to losses and deductions that its predecessor should have received for certain 

intangible assets acquired from the federal government in 

the 1980s. 

 

1 WMI, as successor to H.F. Ahmanson & Co. 

(“Ahmanson”) and its subsidiary, Home Savings of America (“Home”), is one of three appellants. The others are the 

Federal Deposit Insurance Corporation, as receiver for 

Home’s successor; and Savings of America, Inc., as substitute agent for Ahmanson. For simplicity, we refer only to 

WMI unless otherwise specified. 
WMI HOLDINGS CORP. v. UNITED STATES 3

The United States Court of Federal Claims (“Claims 

Court”) dismissed WMI’s refund action, finding that WMI 

failed to establish, to a reasonable degree of certainty, a 

cost basis in each of the assets at issue. See Wash. Mut., 

Inc. v. United States, 130 Fed. Cl. 653 (2017) (“Claims 

Court Decision”). The court’s finding is not clearly erroneous, and, accordingly, we affirm. 

BACKGROUND

The parties’ dispute evolved out of transactions originating during the savings-and-loan crisis in the late 

1970s and early 1980s. We begin with a description of 

that crisis and the facts leading up to the disputed transactions. 

I. Savings-and-Loan Crisis 

As their names suggest, savings-and-loan institutions, 

also called “thrifts,” provide two main services. They 

collect customer deposits, which are maintained in interest-bearing savings accounts, and they originate and 

service mortgage loans funded by those deposits. Historically, thrifts were profitable because the interest they 

collected on outstanding loans exceeded the interest they 

paid out to customers. 

That changed, however, in the late 1970s. First, interest rates rose to unprecedented levels, and thrifts, 

which were locked into long-term, fixed-rate mortgages, 

were unable to compensate for this increase by raising the 

interest rate on their mortgage loans. See United States 

v. Winstar Corp., 518 U.S. 839, 845 (1996) (describing 

events precipitating the savings-and-loan crisis). To 

maintain their customers, moreover, thrifts were forced to 

raise the interest rates they paid on deposit accounts, 

causing the thrifts to operate at a loss. Id. Second, the 

industry suffered from “disintermediation,” whereby 

customers withdrew their deposits in favor of alternative 

investments paying higher interest rates. This one-two 
4 WMI HOLDINGS CORP. v. UNITED STATES

punch had a devastating effect on the industry, causing 

many thrifts to become insolvent. Between 1981 and 

1983 alone, some 435 thrifts failed. Id.

Lacking the funds to liquidate the failing thrifts, the 

Federal Savings and Loan Insurance Corporation 

(“FSLIC”), as thrift regulator and insurer of deposits, 

responded to the crisis by encouraging healthy thrifts to 

take over failing ones in what were called “supervisory 

mergers.” Id. at 847. These transactions relieved the 

FSLIC of its deposit insurance liability for the insolvent 

thrifts, and, in exchange, provided a package of non-cash 

incentives to acquiring thrifts. Two of those incentives 

are at issue here: “branching” rights and “RAP”—or 

“regulatory accounting purposes”—rights. 

Branching rights permitted acquiring thrifts to open 

and operate branches in states other than their home 

states, which, prior to 1981, was generally prohibited. See 

12 C.F.R. § 556.5(a)(3) (1981). This prohibition was 

eliminated for thrifts entering into supervisory mergers 

across state lines. See id. § 556.5(a)(3)(ii)(A) (1982). RAP 

rights, by contrast, affected regulatory accounting treatment for business combinations. At the time, regulations 

mandated, in relevant part, that each thrift maintain a 

minimum capital of at least 3% of its liabilities. See id.

§ 563.13(a)(2), (b)(2) (1983); Winstar, 518 U.S. at 845–46. 

This requirement presented an obstacle for healthy thrifts 

seeking to acquire failing ones because, by definition, 

failing thrifts’ liabilities exceeded their assets. Regulators 

eliminated this obstacle by permitting acquiring thrifts to 

use Generally Accepted Accounting Principles (“GAAP”). 

In essence, GAAP allowed acquiring thrifts to treat failing 

thrifts’ excess liabilities as an asset called “supervisory 

goodwill,” which, in turn, could be counted toward the 

acquiring thrifts’ minimum regulatory capital requirement and amortized over a forty-year period (later re-
WMI HOLDINGS CORP. v. UNITED STATES 5

duced to twenty-five years).2 Winstar, 518 U.S. at 850–51. 

The RAP rights provided by FSLIC guaranteed such 

treatment, regardless of future regulatory changes.

The combination of branching and RAP rights induced 

healthy thrifts to enter into supervisory mergers throughout the 1980s. 

II. The Transactions at Issue 

One such thrift was Home Savings of America 

(“Home”), a subsidiary of WMI’s predecessor. Originally 

based in Los Angeles, Home grew to become one of the 

largest thrifts in the United States. Home took part in 

two categories of transactions in the 1980s that are relevant here. 

First, between 1981 and 1985, Home entered into four 

supervisory mergers in six states—Missouri, Florida, 

Texas, Illinois, New York, and Ohio—thereby assuming 

the acquired thrifts’ liabilities in exchange for branching 

and RAP rights. Home would later sell off those branches 

in the 1990s in an effort to focus on its California presence. 

Second, in 1988, Home acquired Bowery Savings 

Bank (“Bowery”), a federally chartered mutual savings 

bank headquartered in New York. Prior to the acquisition, the Federal Deposit Insurance Corporation (“FDIC”) 

had been providing Bowery with assistance, including a 

RAP right, pursuant to a 1985 government-assisted 

merger. In connection with Home’s 1988 acquisition, 

however, Bowery negotiated a new assistance package, 

which, among other things, replaced the 1985 RAP right 

 

2 Amortization reflects an intangible asset’s depreciation over time, and, accordingly, requires a business to 

“‘write down’ the value of the asset each year to reflect its 

waning worth.” Winstar, 518 U.S. at 851 & n.7. 
6 WMI HOLDINGS CORP. v. UNITED STATES

with a new one. Like the supervisory RAP right, the 1988 

Bowery RAP right allowed Bowery to count the goodwill 

arising out of the acquisition toward regulatory capital. 

Unlike the supervisory RAP right, however, the 1988 

Bowery RAP right established an amortization period of 

twenty years as opposed to forty years. This represented 

an increase from the fourteen-year period established by 

the 1985 Bowery RAP right. 

Home’s branching and RAP rights are considered intangible assets for tax purposes, and, as such, are generally subject to abandonment loss deductions under I.R.C. 

§ 165, and amortization deductions under I.R.C. § 167(a), 

respectively. 

III. Procedural History 

Home’s consolidated parent, H.F. Ahmanson & Co. 

(“Ahmanson”), filed income tax returns on behalf of Home, 

claiming deductions based on the transactions described 

above. Those claims spawned the litigation at issue here, 

as well as a related proceeding in the Ninth Circuit. 

A. The Ninth Circuit’s Ruling 

In 2008, WMI—then known as Washington Mutual, 

Inc.—brought suit against the United States in the U.S. 

District Court for the Western District of Washington, 

seeking a refund for tax years 1990, 1992, and 1993 based 

on the amortization of the RAP rights obtained in one of 

the supervisory mergers, as well as the abandonment of 

Home’s Missouri branching rights. To support its claims, 

WMI proffered a valuation report and testimony from its 

expert, Roger Grabowski, who used an income-based 

approach to determine the fair market value of the rights 

at issue. The district court granted judgment in favor of 

the government, rejecting WMI’s refund claims because 

WMI did “not prove[], to a reasonable degree of certainty, 
WMI HOLDINGS CORP. v. UNITED STATES 7

Home’s cost basis in the Branching and RAP rights.”3 

Wash. Mut., Inc. v. United States, 996 F. Supp. 2d 1095, 

1097 (W.D. Wash. 2014) (“WaMu I”). 

In an opinion issued several months after the Claims 

Court issued its opinion in this case, the Ninth Circuit 

affirmed. See Wash. Mut., Inc. v. United States, 856 F.3d 

711, 714 (9th Cir. 2017) (“WaMu II”). The court rejected 

WMI’s argument that the district court required an 

unprecedented level of precision and held that the district 

court did not err in determining that the “cumulative 

flaws underlying the Grabowski Model rendered it incapable of producing a reliable value for the Branching 

Right.” Id. at 722–25. 

B. The Claims Court’s Decision 

Meanwhile, WMI also filed suit in the Claims Court 

against the United States, seeking a refund of more than 

$250 million for tax years 1991, 1994, 1995, and 1998. 

WMI claimed it was entitled to a refund based on the 

amortization of the RAP rights obtained in the supervisory mergers and the Bowery acquisition, as well as the 

abandonment of Home’s Florida, Illinois, New York, and 

Ohio branching rights.

WMI offered a valuation report from Grabowski that 

was nearly identical to the report he presented in the 

Washington case.4 And, like the Washington district 

 

3 “[T]he term ‘basis’ refers to a taxpayer’s capital 

stake in property and is used to determine the gain or loss 

on the sale or exchange of property and the amount of 

depreciation allowances.” In re Lilly, 76 F.3d 568, 572 

(4th Cir. 1996) (internal quotation marks omitted). The 

basis of an asset is typically its cost, also known as its 

“cost basis.” I.R.C. § 1012(a). 

4 WMI asserts that Grabowski’s analysis in this 

case differs from that presented in the Washington case. 
8 WMI HOLDINGS CORP. v. UNITED STATES

court, the Claims Court rejected Home’s tax refund 

claims, finding that WMI had failed to prove Home’s cost 

basis in each of the branching rights, RAP rights, and 

Bowery government assistance rights. Claims Court 

Decision, 130 Fed. Cl. at 688–704. 

WMI timely appealed the Claims Court’s ruling to 

this court. We have jurisdiction under 28 U.S.C. 

§ 1295(a)(3). 

DISCUSSION

There is no dispute that Home has some cost basis in 

its RAP and branching rights collectively, and that WMI 

is entitled to a tax refund if it can allocate the cost basis 

to each of those rights individually. There is also no 

dispute that WMI bears the burden of proving it is entitled to a refund. Before addressing whether WMI satisfied that burden, we first address WMI’s contention that 

the Claims Court applied an incorrect legal framework. 

That issue is a legal one that we review de novo. See Kan. 

Gas & Elec. Co. v. United States, 685 F.3d 1361, 1366 

(Fed. Cir. 2012); Okerlund v. United States, 365 F.3d 

1044, 1049 (Fed. Cir. 2004). 

I. Legal Framework 

It is well established that, “[i]n a tax refund case, the 

ruling of the Commissioner of Internal Revenue is presumed correct.” Bubble Room, Inc. v. United States, 159 

F.3d 553, 561 (Fed. Cir. 1998). To rebut that presumption 

 

See Reply 11. When pressed at oral argument before this 

court, however, WMI was unable to identify any differences, and conceded that “the general approach was 

similar.” See Oral Arg. at 14:47–15:10, WMI Holdings 

Corp. v. United States (No. 2017-1944), 

http://oralarguments.cafc.uscourts.gov/ 

default.aspx?fl=2017-1944.mp3. 
WMI HOLDINGS CORP. v. UNITED STATES 9

of correctness, “[i]t is not enough” for a taxpayer “to 

demonstrate that the assessment of the tax for which 

refund is sought was erroneous in some respects.” United 

States v. Janis, 428 U.S. 433, 440 (1976). Instead, the 

taxpayer must also prove the amount of the refund due. 

Id.; Bubble Room, 159 F.3d at 561 (“To rebut this presumption of correctness, the taxpayer must come forward 

with enough evidence to support a finding contrary to the 

Commissioner’s determination. In addition, the taxpayer 

has the burden of establishing entitlement to the specific 

refund amount claimed.” (citation omitted)). 

Thus, “if insufficient evidence is adduced upon which 

to determine the amount of the refund due, the Commissioner’s determination of the amount of tax liability is 

regarded as correct.” WaMu II, 856 F.3d at 721 (internal 

quotation marks omitted); see Charron v. United States, 

200 F.3d 785, 792 (Fed. Cir. 1999) (affirming the trial 

court’s finding that the taxpayers had not substantiated 

their claims regarding the amount of income excluded 

from their taxable income); Danville Plywood Corp. v. 

United States, 899 F.2d 3, 7–8 (Fed. Cir. 1990) (stating 

that the taxpayer “must come forward with enough evidence to support a finding contrary to the Commissioner’s 

determination,” and must thereafter “carry the ultimate 

burden of proof”); Better Beverages, Inc. v. United States, 

619 F.2d 424, 428 n.4 (5th Cir. 1980) (“Where the taxpayer fails to carry this burden to prove a cost basis in the 

item in question, the basis utilized by IRS, which enjoys a 

presumption of correctness, must be accepted even where, 

as here, the IRS has accorded the item a zero basis.”). 

The Claims Court here recognized that Home had 

some cost basis in the branching and RAP rights acquired 

in each of the supervisory mergers. The “central issue” 

was whether WMI could establish the portion of each 

merger’s purchase price that should be allocated to each 

constituent right so as to enable the court to determine 

Home’s cost basis therein. See Claims Court Decision, 130 
10 WMI HOLDINGS CORP. v. UNITED STATES

Fed. Cl. at 690. In particular, because WMI paid a lumpsum purchase price for the rights in each transaction, it 

was required to allocate “the purchase price among the 

assets according to each asset’s relative fair market value 

at the time of the acquisition.” WaMu II, 996 F. Supp. 2d 

at 1104; see Bixby v. Comm’r, 58 T.C. 757, 785 (1972) 

(“[W]hen a taxpayer buys a mixed group of assets for a 

lump sum, the purchase price will be allocated among the 

assets in accordance with the relative value that each 

item bears to the total value of the group of assets purchased.”). 

To meet this burden, WMI was not, of course, required 

to allocate the purchase prices with absolute precision. 

See Miami Valley Broad. Corp. v. United States, 204 Ct. 

Cl. 582, 601 (1974) (“Mathematical precision is impossible, and the broadest kind of estimates must be made.”). 

But, as the Claims Court noted, WMI was required to 

establish the values of the rights to a “reasonable degree 

of certainty.” Claims Court Decision, 130 Fed. Cl. at 687 

(quoting WaMu I, 996 F. Supp. 2d at 1102). Ultimately, 

the court determined that WMI failed to meet that burden, finding that it did not put forward “sufficient evidence for the Court to make a ‘reasonable and rational 

approximation’ of the value of those assets.” Id. at 690. 

The court’s statements are consistent with the legal 

principles articulated above and demonstrate that the 

court applied the correct legal framework. 

WMI argues that, if the court disagreed with WMI’s 

valuation, it should have made its best guess as to what 

the correct cost basis should be. We disagree. While we 

recognize the difficulty a taxpayer faces when trying to 

allocate cost basis in connection with these types of decades-old transactions, a trial court is not required to 

undertake an independent analysis when, as here, the 

taxpayer’s own evidence is insufficient to allow the court 

to do so. See Trigon Ins. Co. v. United States, 234 F. 

Supp. 2d 581, 591 (E.D. Va. 2002) (“The sophisticated 
WMI HOLDINGS CORP. v. UNITED STATES 11

valuation techniques here can only be employed reliably 

by an expert in the field. That exercise is beyond the 

reach, and outside the province, of a district judge.”). A 

contrary rule effectively would shift the burden of proof 

from the taxpayer to the court. While it is true that a 

court “has discretion in choosing a method of evaluation 

and some leeway in determining the amount of fair market value,” it “has no discretion to make a finding of the 

value of an asset where there is no evidence to support it.” 

Krapf v. United States, 977 F.2d 1454, 1463 (Fed. Cir. 

1992); see Trigon, 234 F. Supp. 2d at 587 (rejecting the 

argument that “the taxpayer need not prove that its 

proffered valuation is correct, but only that the correct 

refund amount is something higher than that advocated 

by the United States”). Thus, “[i]f the court is not satisfied that [a] taxpayer has properly allocated a value to an 

identified severable intangible asset, it is not a fortiori the 

duty of the court to determine that value[.]” Kraft, Inc. v. 

United States, 30 Fed. Cl. 739, 765 (1994).5

Relying on Capital Blue Cross v. Commissioner, 431 

F.3d 117 (3d Cir. 2005), WMI nevertheless contends that, 

notwithstanding minor flaws in the taxpayer’s proffered 

valuation, the court “must do its best to calculate a reasonable and correct basis.” Appellants Br. 25 (quoting 

Capital Blue, 431 F.3d at 120). In that case, the Third 

Circuit reversed the Tax Court’s zero cost basis determination in hundreds of insurance contracts, despite “several flaws” in the taxpayer’s valuation of those contracts. 

Capital Blue, 431 F.3d at 119–20. But Capital Blue does 

not stand for the broad proposition that a court must

undertake its own analysis or that a zero cost basis determination can never be appropriate. In fact, the Third 

 

5 The court may make such a determination, but 

only “if the value can be determined from a review of the 

record in its entirety.” Kraft, 30 Fed. Cl. at 765. 
12 WMI HOLDINGS CORP. v. UNITED STATES

Circuit remanded for the Tax Court to determine “whether the Commissioner is correct about [certain additional] 

flaws in Capital’s data and methodology” that the Commissioner identified on appeal, and “the extent to which 

those flaws invalidate [the expert’s] ultimate valuation.” 

Id. at 140. 

Instead, Capital Blue stands for the more limited 

proposition that it is unreasonable to reject a taxpayer’s 

valuation simply because the government identified 

“minor flaws” in the valuation. Id. at 130 (“[I]t will not, in 

our view, be reasonable for a court to reject the taxpayer’s 

valuation out of hand simply because the Commissioner 

has identified minor flaws in the valuation.”). As described below, the flaws that the Claims Court identified 

here are major and systemic, which distinguishes this 

case from Capital Blue. Finally, the Third Circuit noted 

in Capital Blue that the taxpayer bears a “heavy burden” 

to prove that its intangible assets may be valued separately and with “reasonable precision,” and this burden 

“will often prove too great to bear.” Id. at 129–30 (internal quotation marks omitted). Thus, notwithstanding its 

holding, the Capital Blue court applied a standard similar 

to the standard that WMI argues the Claims Court incorrectly applied here. 

WMI also relies on Cohan v. Commissioner, 39 F.2d 

540 (2d Cir. 1930), for the proposition that a court should 

“make as close an approximation as it can.” Appellants 

Br. 47 (citing Cohan, 39 F.2d at 543–44). In that case, the 

Second Circuit reversed the Tax Court’s predecessor’s 

disallowance of deductions for business entertainment 

expenses on the basis that the taxpayer failed to keep 

adequate business records. Cohan, 39 F.2d at 543–44. 

We have noted, however, that the Cohan rule does not 

apply where a taxpayer fails to provide evidence that 

would permit an informed estimate of the amount of 

deduction in the first place. See, e.g., Charron, 200 F.3d 

at 794 (stating that Cohan “does not require the conclu-
WMI HOLDINGS CORP. v. UNITED STATES 13

sion” that “vague and unpersuasive” testimony is “sufficient to establish . . . entitlement to . . . claimed deductions”). 

The Ninth Circuit has cautioned, moreover, that liberal application of the Cohan rule “would be in essence to 

condone the use of that doctrine as a substitute for burden 

of proof.” Coloman v. Comm’r, 540 F.2d 427, 431–32 (9th 

Cir. 1976); see Trigon, 234 F. Supp. 2d at 591 (refusing to 

apply Cohan to complex valuation cases where “the basic 

evidentiary predicate for valuation has been found wanting in so many ways” because, “to do so would offend 

fundamental precepts respecting the nature and importance of the burden of proof”). We agree with the 

Ninth Circuit that, on these facts, “such a proposition 

would essentially do away with the taxpayer’s burden” 

altogether. WaMu II, 856 F.3d at 727. 

Finally, WMI’s reliance on Meredith Broadcasting Co. 

v. United States, 186 Ct. Cl. 1 (1968), is similarly misplaced. There, the Court of Claims found that the value of 

various television network affiliation contracts “was 

created largely by plaintiff’s vendor having combined 

them in one ownership, and would all alike have been 

destroyed by being severed.” Id. at 24. Because of the 

unique nature of the contracts, the court determined that 

“an accurate allocation of value among the several classes 

of intangibles is impossible,” and that the court must 

therefore “make the broadest kind of estimate.” Id. Here, 

however, there is no allegation that the rights at issue 

cannot be severed and valued independently. Indeed, 

while the Claims Court did not reach the issue, the parties agree that a tax deduction for the branching rights 

required, as a prerequisite, that those rights had been 

abandoned. The RAP rights have no such prerequisite. 

Thus, unlike the rights in Meredith Broadcasting, the 

rights here are clearly severable, even if calculating the 

impact of that severance is difficult. 
14 WMI HOLDINGS CORP. v. UNITED STATES

We therefore conclude that the Claims Court did not 

apply an incorrect legal framework. Notably, our conclusion is consistent with that reached by the Ninth Circuit 

on virtually identical facts. See WaMu II, 856 F.3d at 

725–27. 

We next address whether the flaws in Grabowski’s 

valuation were so deficient as to justify a zero cost basis 

determination for the supervisory mergers and Bowery 

acquisition. 

II. Supervisory Mergers 

As described above, the Claims Court found that WMI 

failed to meet its burden of establishing a cost basis in 

each of the RAP and branching rights that Home acquired 

in the supervisory mergers. We review the trial court’s 

factual findings, including its determination of the assets’ 

fair market values, for clear error. See Ark. Game & Fish 

Comm’n v. United States, 736 F.3d 1364, 1379–80 (Fed. 

Cir. 2013); Kan. Gas & Elec., 685 F.3d at 1366; Okerlund, 

365 F.3d at 1049. 

A. RAP Rights 

The Claims Court found that it could not assess the 

value of Home’s RAP rights because WMI had mischaracterized the nature of those rights. Claims Court Decision, 

130 Fed. Cl. at 691–95. As explained below, the court’s 

findings are not clearly erroneous. 

Grabowski valued each RAP right as “a contract[ual] 

right conveyed to Home by FSLIC” that “allowed Home to 

treat the goodwill recorded in the transaction as an asset 

(on a diminishing basis over 40 years) for purposes of 

meeting regulatory capital requirements.” J.A. 7148. 

Specifically, he estimated the cost associated with raising 

and maintaining replacement capital to maintain the 

hypothetical willing buyer’s pre-merger capital level. In 

other words, Grabowski assumed that Home needed the 

approval of government regulators to treat the goodwill 
WMI HOLDINGS CORP. v. UNITED STATES 15

created by these transactions as an asset subject to amortization over a period of up to forty years. This assumption, however, is flawed. 

The Claims Court noted that it “is without dispute 

that the accounting regulations in place at the time of 

the” supervisory mergers “required that Home use the 

purchase method of accounting,” which provided for the 

treatment of goodwill as an asset. Claims Court Decision, 

130 Fed. Cl. at 692. The court pointed out, for example, 

that the Federal Home Loan Bank Board’s September 

1981 Memorandum R-31b mandated that acquiring 

thrifts account for the goodwill created by the merger in 

accordance with GAAP, which, in turn, required thrifts to 

use the purchase method of accounting to account for 

supervisory mergers. Id. That method allowed companies to treat goodwill as an asset, and to amortize that 

goodwill over a period of up to forty years.

Thus, as the Claims Court properly found, the RAP 

rights Home acquired as part of the supervisory mergers 

were in the nature of “a guarantee”—i.e., “the right to 

continue to amortize the goodwill created by these mergers over a period of forty years if the regulations governing the amortization period for goodwill changed in the 

future.” Id. at 692–93. Grabowski’s valuation of the 

rights as creating a contractual approval to treat goodwill 

as an asset was therefore predicated on an incorrect 

interpretation of the nature of those rights, and caused 

Grabowski to overvalue them. 

WMI objects to the Claims Court’s interpretation of 

Memorandum R-31b as having given Home the right to 

use the purchase method of accounting and to amortize 

supervisory goodwill. WMI argues that the memorandum 

simply authorized regulators to approve such amortization upon application by an acquiring thrift. To support 

that argument, WMI points to the memorandum’s reference to an “application from an association requesting 
16 WMI HOLDINGS CORP. v. UNITED STATES

approval for a business combination to be accounted for 

by the purchase method of accounting.” Appellants Br. 42 

(quoting J.A. 4361). We disagree. The memorandum 

provides that accounting for goodwill in accordance with 

GAAP is acceptable for regulatory purposes. See J.A. 

4359 (“Accounting for business combinations involving 

insured institutions should be in accordance with generally accepted accounting principles (GAAP).”); see also Am. 

Fed. Bank, FSB v. United States, 62 Fed. Cl. 185, 187 

(2004) (noting that Memorandum R-31b “allowed acquiring thrifts to apply the purchase method to account for 

mergers, such that any excess amount paid by the acquiror over the net fair market value of the assets acquired and liabilities assumed was assigned to ‘goodwill’ 

considered as an intangible asset for purposes of regulatory capital”). The “application” referenced in Memorandum R-31b, therefore, reflects the fact that all business 

combinations were required to obtain regulatory approval, 

regardless of whether they intended to use the purchase 

method of accounting or a different method. Claims Court 

Decision, 130 Fed. Cl. at 693 n.33. “Application” does not 

refer, as WMI contends, to regulatory approval to use the 

purchase method of accounting. 

In sum, the Claims Court found that Grabowski’s 

misplaced assumptions about the nature of the RAP 

rights undermined WMI’s fair market value determinations for those rights. Because the court’s findings are not 

clearly erroneous, we affirm the court’s ruling. 

B. Branching Rights 

The Claims Court also found that it could not assess 

the value of Home’s branching rights because Grabowski’s 

valuation was “unreasonable,” “unsupported,” and “unreliable.” Id. at 695–96. While perhaps phrased more 

harshly than necessary, the court’s findings are not 

clearly erroneous. 
WMI HOLDINGS CORP. v. UNITED STATES 17

To value the branching rights, Grabowski used an income-based approach in which he forecast the cash flow 

that a hypothetical willing buyer would have expected to 

generate as a result of having a right to operate in a state 

other than the thrift’s home state. The “main assumptions” he made in his analysis “were the number of new 

branches, the growth of deposits in new and acquired 

branches, and the income the willing buyer would earn on 

new mortgage loans made with those deposits.” J.A. 

7140. 

With respect to the number of new branches, 

Grabowski based his projection in part on Home’s own 

expansion into Northern California. In 1970, Home 

entered Northern California by acquiring four branches in 

the San Francisco area with $36.4 million in deposits, or 

$9.1 million per branch, representing 0.6% of the market. 

Over the next ten years, Home expanded to forty Northern California branches and increased its total inflationadjusted deposits to $760.1 million, or $19 million per 

branch, representing 6.1% of the market. By 1981, 

Home’s California deposits per branch were nearly double 

the average in the state. Grabowski asserted that a 

hypothetical buyer would “expect[] to be able to replicate 

this level of branch network growth in other markets, 

assuming the markets had similar levels of depositor 

concentration (i.e., population density).” J.A. 7139. 

With respect to the growth of deposits, Grabowski estimated that it took Home five years to “ramp up” deposits in Northern California branches, and “considered this 

rate of individual branch ramp up to be representative of 

what any willing buyer would have expected.” J.A. 7140. 

Finally, with respect to loan demand, Grabowski asserted 

that a hypothetical buyer would expect to be able to turn 

all new deposits into new loans because, historically, that 

had been Home’s experience. Grabowski “assumed that a 

willing buyer would have expected the same.” J.A. 7143. 
18 WMI HOLDINGS CORP. v. UNITED STATES

The central problem with this analysis, however, is 

that Grabowski’s assumptions were based on outdated 

market data and were inconsistent with the actual market conditions facing thrifts when the branching and RAP 

rights were actually acquired. The conditions during the 

acquisition period included an unprecedentedly high 

interest rate and pervasive disintermediation. As the 

Claims Court noted, “Grabowski’s assumption that the 

hypothetical willing buyer would achieve significant 

deposit growth in the high interest rate environment of 

the early 1980s is belied by the undisputed evidence 

regarding the dire economic and industry-specific conditions at the time.” Claims Court Decision, 130 Fed. Cl. at 

696. Indeed, it was the unusually dire market conditions 

that persisted at the time that prompted the FSLIC to 

offer RAP and branching rights to healthy thrifts as an 

enticement to purchase unhealthy ones. 

As the court also accurately observed, to obtain the 

significant deposit growth projected by Grabowski, “a 

hypothetical willing buyer would need to not only avoid 

the well-documented adverse impact of disintermediation, 

but also to persuade a significant number of the depositors who were still willing to deposit their funds into a 

savings and loan institution to deposit these funds in a 

new thrift.” Id. at 697. The court found that the evidence 

did not support such assumptions, which the court characterized as “unreasonable” and “at odds with the economic and industry-specific realities at the time.” Id. at 

695–96. The court was entitled—and, in fact, required—

to review the record “with the understanding that the tax 

consequences of any particular transaction must be based 

upon economic realities.” Kraft, 30 Fed. Cl. at 766. 

Home’s experience expanding into Northern California in the 1970s, moreover, is substantially different from 

the inter-state expansion effectuated by its supervisory 

mergers in the 1980s. And, as the Claims Court found, 

WMI “fail[ed] to adequately account for the regulatory 
WMI HOLDINGS CORP. v. UNITED STATES 19

hurdles that a hypothetical willing buyer would have 

encountered in opening de novo branches in projecting 

deposit growth.” Claims Court Decision, 130 Fed. Cl. at 

698. In particular, the court found it unlikely that a 

hypothetical buyer would be able to open new branches at 

the rate projected by Grabowski given that the timeline 

for regulatory approval of a new branch was typically a 

year or longer. Id. The court’s findings are not clearly 

erroneous. 

WMI argues that, even if the Claims Court’s objections to Grabowski’s assumptions were warranted, the 

court erred by disregarding the valuation in toto. According to WMI, the court should have modified the inputs to 

Grabowski’s model to account for the perceived flaws in 

his assumptions. To support this argument, WMI points 

to Grabowski’s “sensitivity analyses,” in which he valued 

branching rights under the alternative assumptions that 

deposit growth for the first two years in a new market 

would be 50% less than what he projected, or that only 

half of the deposits would be used to fund loans for the 

first two years while the other half were invested in 

Treasury bills. WMI contends that these sensitivity 

analyses demonstrate the flexibility of Grabowski’s approach. In particular, WMI argues that, because 

Grabowski’s methodology was not flawed, the court should 

have just disregarded his flawed assumptions and injected new ones into the methodology. See Oral Arg. at 

12:05–13:35 (“Q. Is it your position that . . . the court 

then has the obligation to readjust the assumptions and 

do the economic valuation? A. Yes, absolutely.”). 

The Claims Court, however, did not find Grabowski’s 

sensitivity analyses helpful, questioning, among other 

things, why Grabowski limited his adjustments to only 

two years, when high interest rates were expected to 

endure much longer. Id. at 697 & n.37. Grabowski also 

failed to explain why he reduced deposit growth and loan 

demand by 50% rather than by some other percentage. 
20 WMI HOLDINGS CORP. v. UNITED STATES

Id. In any event, even if these adjustments were intended 

to be merely demonstrative, WMI does not explain which 

adjustments the Claims Court purportedly should have 

made. See WaMu II, 856 F.3d at 727 (“Appellant’s argument that the court was required to sua sponte estimate 

some value for the Rights is foreclosed. On these facts, 

such a proposition would essentially do away with the 

taxpayer’s burden.”). 

Given the lack of guidance as to how the Claims Court 

could have modified Grabowski’s model, the court’s conclusion that it could not have done so, without doing so 

arbitrarily, is not unreasonable. Compare Trigon Ins. Co. 

v. United States, 215 F. Supp. 2d 687, 738–39 (E.D. Va. 

2002) (finding that “it was of critical, outcome determinative importance that the inputs used to arrive at the 

valuation were accurate and reliable,” and that the critical inputs “simply do not square with the facts of record” 

and therefore cannot be used to derive a more accurate 

valuation), with Deseret Mgmt. Corp. v. United States, 112 

Fed. Cl. 438, 456 (2013) (modifying plaintiff’s expert’s 

discount rate where literature describing the appropriate 

modification was available in the record). 

Finally, WMI argues that it was improper for the 

court to treat Grabowski’s shortcomings with respect to 

the RAP rights as an independent basis for holding that 

WMI had not established any cost basis in the branching 

rights. According to WMI, if the court determined that 

Grabowski allocated too much basis to the RAP rights, the 

court should have found that he allocated too little basis 

to the branching rights. Again, we disagree. 

As an initial matter, the Claims Court did not reject 

WMI’s branching rights claims solely because it had 

already rejected its RAP rights claims. Rather, the court 

noted that, because WMI’s allocation of cost basis to the 

RAP rights was flawed, its allocation to the branching 

rights must also be “call[ed] into doubt.” Claims Court 
WMI HOLDINGS CORP. v. UNITED STATES 21

Decision, 130 Fed. Cl. at 695. The court then proceeded to 

give reasons why WMI’s cost basis allocation for the 

branching rights was independently flawed. Indeed, the 

court stated that, notwithstanding WMI’s deficient RAP 

right valuation, “the evidence also shows plaintiffs have 

not established Home’s cost basis in the Branching Rights 

because their fair market value determinations for this 

asset do not constitute a ‘reasonable or rational approximation’ of the value of these assets.” Id. 

More importantly, WMI’s argument has merit only to 

the extent the branching rights and RAP rights were the 

only assets acquired in the supervisory mergers to which 

the cost basis must be allocated. WMI has not shown this 

to be the case. And, as the government points out, the 

failing thrifts’ traditional goodwill could also absorb some 

of the cost basis, even if such goodwill would have been of 

low value during the savings-and-loan crisis. See Deseret 

Mgmt., 112 Fed. Cl. at 450–51 (noting that even unprofitable companies possess goodwill). 

Grabowski’s methodology is only as good as his assumptions, which, as the Claims Court found, were inconsistent with market realities and, at times, unsupported. 

Because the court’s findings are not clearly erroneous, we 

affirm the court’s ruling.6

III. Bowery Transaction 

Finally, as discussed above, Bowery obtained assistance from the FDIC in 1988 to replace the assistance it 

 

6 The government also argued before the Claims 

Court that Home did not, in fact, abandon its branching 

rights, and that WMI therefore could not claim deductions 

for those rights. We need not reach that argument because, even assuming that Home abandoned the rights, 

we conclude that WMI failed to establish a cost basis in 

each of those rights. 
22 WMI HOLDINGS CORP. v. UNITED STATES

had been receiving pursuant to a 1985 merger. WMI 

argues that it should have received amortization deductions for the 1985 rights, which did not materially change 

in 1988. The Claims Court disagreed, finding that the 

deductions should be based on the “new” assets that 

Home acquired in the 1988 Bowery acquisition. Claims 

Court Decision, 130 Fed. Cl. at 701–02. “We review the 

characterization of transactions for tax purposes de novo, 

based on underlying findings of fact, which we review for 

clear error.” Wells Fargo & Co. v. United States, 641 F.3d 

1319, 1325 (Fed. Cir. 2011). 

We agree with the Claims Court that the 1988 exchange of rights constituted a realization event that 

triggered Home’s tax obligations. Section 1001(a) of the 

Internal Revenue Code provides that “[t]he gain [or loss] 

from the sale or other disposition of property” is the 

difference between “the amount realized” from the disposition of the property and its “adjusted basis.” I.R.C. 

§ 1001(a). A disposition of property for this purpose 

includes “the exchange of property for other property 

differing materially either in kind or in extent.” Treas. 

Reg. § 1.1001-1(a). In other words, an exchange of property “gives rise to a realization event so long as the exchanged properties are ‘materially different’—that is, so 

long as they embody legally distinct entitlements.” Cottage Sav. Ass’n v. Comm’r, 499 U.S. 554, 566 (1991). 

Here, the Claims Court correctly determined that the 

government assistance provided to Bowery in 1988 was 

materially different from that provided in 1985. As the 

court noted, the 1988 assistance, among other things, 

eliminated an income maintenance agreement—which 

was intended to reduce Bowery’s interest rate risk for a 

defined asset base for up to fifteen years—and decreased 

the amount of assets covered by credit protection. Claims 

Court Decision, 130 Fed. Cl. at 670, 701. Additionally, the 

1988 assistance eliminated the 1985 RAP right, which 

allowed Bowery to reverse its purchase accounting ad-
WMI HOLDINGS CORP. v. UNITED STATES 23

justments for the purpose of calculating capital for regulatory purposes. It replaced that right with a new one that 

allowed Bowery to count goodwill arising out of the Bowery acquisition toward regulatory capital. Id. Finally, the 

1988 right increased the amortization period from fourteen years to twenty years. Id.

As the Claims Court noted, these differences demonstrate that the assistance packages “embody legally 

distinct entitlements and that a realization event occurred when the Bowery entered into the 1988 Bowery 

Assistance Agreement.” Id. at 702 (quoting Cottage Sav., 

499 U.S. at 566). The 1988 RAP right did not merely 

change the mechanics of the 1985 RAP right, as WMI 

contends; it provided a new methodology by which goodwill is defined. Indeed, as WMI concedes, the two RAP 

rights could lead to different legal consequences based on 

the same facts. See Reply 26–27. These different legal 

consequences imply different legal entitlements. See 

Cottage Sav., 499 U.S. at 566 (holding that a transaction 

in which a company exchanged its interests in one group 

of residential mortgage loans for another lender’s interests in a different group of loans was a realizable transaction); Phila. Park Amusement Co. v. United States, 130 Ct. 

Cl. 166, 168–70 (1954) (holding that an amendment of a 

taxpayer’s railway franchise to extend the term by ten 

years and transfer away ownership of a bridge constituted 

an exchange for tax purposes). The Claims Court therefore correctly determined that the 1988 exchange gave 

rise to a realization event. 

WMI asserts that, even if, in certain respects, the 

1988 RAP right is different from the 1985 RAP right, the 

exchange nevertheless qualifies as a “like-kind exchange,” 

which would allow Bowery to defer recognition of a gain 

or loss. See Deseret Mgmt., 112 Fed. Cl. at 447 (“Such an 

exchange allows the exchanger to delay recognizing gain 

on the exchanged property, as the tax basis of that property carries forward to the newly-acquired property.”). 
24 WMI HOLDINGS CORP. v. UNITED STATES

But this, too, is incorrect and was properly rejected by the 

Claims Court. 

Section 1031(a) of the Code operates as an exception 

to § 1001(a), allowing a taxpayer to defer recognition of 

gain or loss from qualifying exchanges of “like kind” 

property. I.R.C. § 1031(a)(1). The phrase “like kind” 

refers “to the nature or character of the property.” Treas. 

Reg. § 1.1031(a)-1(b). The exception applies when “the 

taxpayer’s economic situation after the exchange is fundamentally the same.” VIP’s Indus. Inc. v. Comm’r, 105 

T.C.M. (CCH) 1890, 2013 WL 3184624, at *3 (T.C. 2013); 

see Snowa v. Comm’r, 123 F.3d 190, 193 n.5 (4th Cir. 

1997). That is not the case here. As the Claims Court 

pointed out—and as described above—the nature and 

character of Bowery’s RAP right fundamentally changed 

because, among other things, it allowed Bowery to account for the goodwill arising out of Home’s acquisition as 

an asset as opposed to reversing the write-down on Bowery’s loans. Claims Court Decision, 130 Fed. Cl. at 703. 

We agree with the Claims Court that Bowery’s 1988 

receipt of an assistance package was a realization event, 

and we therefore affirm the court’s ruling. 

CONCLUSION

While we recognize that WMI may have been entitled 

to some deduction, our holding inevitably flows from the 

fact that the burden to value the basis for the assets at 

issue was squarely upon WMI, which failed to satisfy that 

burden. For these reasons, we affirm the Claims Court’s 

dismissal of WMI’s tax refund claims. 

AFFIRMED 

COSTS

No costs.