Court Opinion

ID: 4486174
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:34:14.499726+00
Date Added: 2024-06-11T15:03:48.814574
License: Public Domain

CHABOT, J., dissenting: The majority conclude that petitioner acquired an asset called “deposit base”, and permit petitioner to depreciate the cost of this asset. The majority describe this asset as follows (majority opinion at 465): Petitioner uses the term “deposit base” to describe the intangible asset that arises in a purchase transaction representing the present value of the future stream of income to be derived from employing the purchased core deposits of a bank. Petitioner uses the term “core deposits” principally to refer to deposit transaction accounts (DTA accounts), regular savings accounts, and time deposit open accounts (TDOA accounts). * * * The majority apparently accept petitioner’s artful set of definitions and the label “asset”. I would hold that there is no such separate asset, and so I respectfully dissent. By petitioner’s admission, the so-called “core deposits” are not customers’ deposits (i.e., the cash and other assets that the customers deposited). Instead the core deposits are the customers’ accounts, which are petitioner’s obligations to repay its customers under the terms applicable to those accounts. Thus the “core deposits” are liabilities, and not assets. For reasons rooted in economics, governmental regulations, and mass psychology, many bank customers maintain accounts at banks at interest rates below the market rates of earnings that those customers could have obtained by making different investments. Realistically, such liabilities are worth less than face. Petitioner (and evidently the banking community generally) recognizes this phenomenon and has developed an approach to quantify it. When petitioner bought the Acquired Banks, it did so in transactions that amounted to taxable asset purchases. Petitioner also assumed liabilities of the Acquired Banks. (Majority opinion at 468.) Evidently, petitioner valued the Acquired Banks’ assets, including goodwill, and offset this by the liabilities that petitioner was agreeing to assume. The result of petitioner’s analysis as described in the Findings of Fact is that petitioner agreed that the value of the Acquired Banks’ assets should not be offset by the face of the liabilities, but rather by a lesser amount — an amount which is in effect the then-current fair market value of the liabilities. As a result, petitioner paid a premium. That premium should be allocated among the assets whose earning power has been enhanced because the offsetting liabilities are worth less than face. This would account for the reality that petitioner paid a premium, that the premium was for assets with earning power,1 and that the statute we purport to apply2 allows depreciation deductions as to “property”. Respectfully, I suggest that a taxpayer’s liability to its customers is not that taxpayer’s “property” within the meaning of section 167(a).