Lincoln Savings and Loan Association v. Commissioner of Internal Revenue

422 F.2d 90 70-1 USTC P 9229 LINCOLN SAVINGS AND LOAN ASSOCIATION, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee. No. 23923. United States Court of Appeals, Ninth Circuit. Feb. 3, 1970, Rehearing Denied March 18, 1970. Adam Y. Bennion (argued), of MacKay McGregor & Bennion, Los Angeles, Cal., for appellant. David E. Carmack (argued), Atty., Dept. of Justice, Johnnie M. Walters, Asst. Atty. Gen., Tax Div., Dept. of Justice, K. Martin Worthy, Chief Counsel, IRS, Washington, D.C., for appellee. Before ELY and HUFSTEDLER, Circuit Judges, and THOMPSON, * District judge. THOMPSON, District Judge: We are asked to review a determination by the Tax Court. A deduction of $882,636.86 from Appellant's gross income for 1963 was contested. The Tax Court held that Appellant's payment, made for inclusion in the Secondary Reserve Account of the Federal Savings and Loan Insurance Corporation (FSLIC) resulted in the acquisition of a capital asset rather than constituting an ordinary and necessary business expense deductible in the year paid as contemplated by 26 U.S.C. 162(a). Jurisdiction and scope of review are governed by 26 U.S.C. 7482. The Tax Court, in its published opinion,…

We are asked to review a determination by the Tax Court. A deduction of $882,636.86 from Appellant’s gross income for 1963 was contested. The Tax Court held that Appellant’s payment, made for inclusion in the Secondary Reserve Account of the Federal Savings and Loan Insurance Corporation (FSLIC) resulted in the acquisition of a capital asset rather than constituting an ordinary and necessary business expense deductible in the year paid as contemplated by 26 U.S.C. § 162 (a).

Jurisdiction and scope of review are governed by 26 U.S.C. § 7482 .

The Tax Court, in its published opinion, Lincoln Savings and Loan Association, Petitioner, v. Commissioner of Internal Revenue, Respondent, Docket No. 325-67, 51 T.C. 82 , made a comprehensive and accurate statement of the facts. Also in that opinion, as well as in First Federal Savings and Loan Association of St. Joseph v. United States, 288 F.Supp. 477 (W.D.Mo.1968), and in Washington Federal Savings and Loan Association of Miami Beach v. United States, 304 F.Supp. 1072 (S.D.Fla.1969), we find extensive expositions of the applicable statutes and legislative history. Whatever may be said in favor of the proliferation of the printed legal…

I respectfully dissent. There is nothing in the record to support the majority’s statement that the payments are a “recurring annual expense.” To the con *95 trary, the Tax Court found that in all likelihood the section 1727(d) payments would be required for a duration of only a few years (until approximately 1971) and that thereafter the suspension provisions of 1727(g) would be in effect. The taxpayer’s prorata share of the Secondary Reserve would then be used to discharge its premium obligations under section 1727(b). “[F]or all practical purposes, [the section 1727(d)] payments will definitely be used to discharge the obligation of the insured institution to pay regular annual premiums in future years, assuming it has not previously transferred its pro rata share of the Secondary Reserve or received a cash payment in respect thereof from the FSLIC.” (51 T.C. at 102.)

For this and the other reasons expressed by the unanimous Tax Court, I would affirm on the ground that the payments are “in the nature of a prepayment with respect to future premiums,” and are not therefore deductible as an ordinary and necessary business expense in the year made.