Opinion ID: 159747
Heading Depth: 2
Heading Rank: 1

Heading: Security Bank Minnesota v. Commissioner

Text: 8 The facts of Security Bank Minnesota are analogous to this case. In Security Bank Minnesota a small commercial bank serving a rural, agricultural community, gained much of its business from providing operating loans to farmers. Security Bank Minn., 994 F.2d at 433. Included in its loan portfolio were loans documented by notes with a maturity date falling on the first anniversary of the note, as well as loans with maturity dates of less than one year. Id. The bank used the cash method of accounting, and therefore did not report interest income accrued, but not received, from these loans for tax purposes. Id. The Internal Revenue Service argued the bank was required to report the accrued interest as income, the bank petitioned the tax court, which held in the bank's favor, and the Commissioner subsequently appealed to the Eighth Circuit. Id. at 434. 9 The Eighth Circuit began its analysis with an exhaustive look at the text and background of 1281. After holding the language of the statute was ambiguous, the court turned to the legislative history and determined the primary scope and purpose of the legislation was to apply the discount accrual rules to cash basis taxpayers that purchased short-term discount obligations pursuant to a leveraged purchase arrangement. Id. at 439. The court concluded 1281(a)(2) did not apply to banks making loans in the ordinary course of business. Id. at 441. We find the Eighth Circuit's reasoning persuasive, and apply it to our own analysis.