Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

AmBase Corp. v. United States

United States Court of Appeals, Second Circuit

September 9, 2013

AMBASE CORP., Plaintiff-Appellant,
v.
UNITED STATES of America, Defendant-Appellee.

Argued: June 10, 2013.

Page 110

[Copyrighted Material Omitted]

Page 111

[Copyrighted Material Omitted]

Page 112

[Copyrighted Material Omitted]

Page 113

Peter H. Winslow (Samuel A. Mitchell, Gregory K. Oyler, on the brief), Scribner, Hall & Thompson, LLP, Washington, DC, for Plaintiff-Appellant.

Jennifer M. Rubin, Attorney, Tax Division (David Fein, United States Attorney for the District of Connecticut, Kathryn Keneally, Assistant Attorney General, Tax Division, Jonathan S. Cohen, Attorney, Tax Division), Department of Justice, Washington, DC, for Defendant-Appellee.

Before: POOLER, CARNEY, Circuit Judges, and KORMAN,[*] District Judge.

POOLER, Circuit Judge:

Plaintiff-Appellant AmBase Corp. (" AmBase" ) brought a refund claim for tax year 1989 based on a carryback [1] generated from a proposed amendment to its consolidated federal income tax return for the 1992 tax year. The proposed amendment seeks to increase the bad debt deduction claimed on the return by AmBase's affiliate, Carteret Savings Bank F.A. (" Carteret" ). Carteret, a " thrift" [2] which calculates its bad debt deduction under the reserve method, see I.R.C. §§ 585, 593, was seized by the Resolution Trust Corporation (" RTC" ) on December 4, 1992. The United States District Court for the District of Connecticut (Warren W. Eginton, J. ), through its November 30, 2011 memorandum of decision, AmBase Corp. v. United States, 834 F.Supp.2d 71 (D.Conn.2011), May 23, 2012 memorandum of decision, AmBase Corp. v. United States, No. 3:08-cv-651-WWE, 2012 WL 1884874 (D.Conn. May 23, 2013), and July 5, 2012 final judgment and order, granted AmBase's claim to the extent that the bad debt deduction offset Carteret's additional post-seizure income in tax year 1992 but denied the claim in all other respects. On appeal, we hold that the district court had subject-matter jurisdiction and affirm its grant of AmBase's claimed deduction to the extent that it offsets Carteret's post-seizure income for the 1992 tax year. We further hold that the district court should grant AmBase's claimed deduction to the extent that it derives from Carteret's post-seizure bad debts for the 1992 tax year. Accordingly, we AFFIRM in part and VACATE in part the judgment of the district court and REMAND the case for further proceedings consistent with this opinion.

BACKGROUND

I. Factual Background

In August 1988, AmBase, the successor corporation to The Home Group, Inc., purchased

Page 114

Carteret, a federally chartered stock savings bank or thrift. After acquisition, AmBase filed consolidated federal income tax returns with Carteret. On December 4, 1992, the Office of Thrift Supervision seized Carteret and put it into the conservatorship of the RTC due to Carteret's failure to satisfy capital requirements under the Financial Institutions Reform, Recovery, and Enforcement Act. In 1996, the RTC transferred receivership to the Federal Deposit Insurance Company (" FDIC" ).

The dispute in this appeal relates to AmBase's 1992 consolidated federal income tax return, filed on August 30, 1993. On its return, AmBase reported Carteret's tax items from January 1, 1992 through December 4, 1992. It did not, however, include Carteret's post-seizure tax items, as AmBase did not control Carteret post-seizure, and the RTC had not provided AmBase with the relevant records.[3] At the time of filing, proposed regulations under I.R.C. § 597 allowed a consolidated group to elect irrevocably to disaffiliate from an institution in its affiliated group that had been placed in receivership. See Treatment of Acquisition of Certain Financial Institutions; Certain Tax Consequences of Federal Financial Assistance to Financial Institutions, 57 Fed.Reg. 14,804, 14,812-814 (proposed April 23, 1992). However, such an election could not become binding until the regulations had been finalized, see id. at 14,817-818, which did not occur until December 1995, T.D. 8641, 1996-6 I.R.B. 4, 60 Fed.Reg. 66,091; see also Treas. Reg. § 1.597-4 (the final regulation). On its original 1992 return, AmBase included a statement electing to disaffiliate from Carteret. On April 28, 1997, after having received an extension of time, AmBase timely notified the Commissioner of Internal Revenue (the " Commissioner" ) of its decision to reverse its previous decision to disaffiliate from Carteret.

On March 14, 2000, AmBase filed an amended consolidated federal return for 1992 in which it sought to amend its 1992 consolidated federal income tax return to increase Carteret's claimed bad debt deduction, calculated under the reserve method, and generate a net operating loss. On that same date, AmBase also filed an amended consolidated federal income tax return for 1989, on which it sought to apply the 1992 net operating loss and create a refund. The IRS denied the refund claim, and, on April 29, 2008, AmBase filed a complaint in the district court against the United States (the " Government" ).

Consideration of AmBase's refund claim requires an understanding of the reserve method for calculating bad debt deductions. We turn now to a description of the applicable law.

II. Bad Debt Deductions and the Reserve Method

The Internal Revenue Code allows taxpayers to take a deduction relating to worthless or " bad" debts. I.R.C. §§ 166, 585, 593. Two methods exist for calculating this deduction: the specific charge-off method and the reserve method. The specific charge-off method allows taxpayers to deduct the basis of a bad debt in the year in which the debt becomes worthless. I.R.C. § 166. The reserve method allows taxpayers to create a " reserve" of funds in anticipation of bad debts, and ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.