Printer Friendly

National Bank's core deposit amortization upheld by Tenth Circuit.

The Tenth Circuit has upheld the Tax Court's allowance of a bank's amortization deduction for the core deposit intangibles (CDIs) acquired (Colorado National Bankshares, Inc. (CNB), 10th Cir., 1/25/93, aff'g TC Memo 1990-495).

CNB acquired seven banks in 1981 and 1982, and allocated basis to and amortized CDIs. The Tax Court upheld the allowance of amortization deductions, relying heavily on its earlier decision in Citizens and Southern Corp., 91 TC 463 (1988), aff'd without opinion, 900 F2d 266 (11th Cir. 1990).

On appeal, the IRS did not challenge the taxpayer's estimates of the predicted life and value of the CDI. Instead, the Service argued, relying on Newark Morning Ledger, 945 F2d 555 (3d Cir. 1991), rev'd, Sup. Ct., 4/20/93, that the CDI was part of goodwill and, accordingly, nonamortizable.

The Tenth Circuit seemed irritated that the IRS, the Treasury and Congress had not promulgated "a specific and uniform definition of goodwill. Although case law established that goodwill constitutes 'the expectancy of continued patronage, or whatever reason,' this amorphous and general definition provides little practical guidance to taxpayers and courts asked to define parameters of the amortization deduction." Seven important reasons were cited by the court in deciding not to adopt the Service's absolute prohibition on CDI amortization. 1. Sufficient evidence demonstrating that these core deposits have a life expectancy that can be determined with reasonable accuracy. 2. The Tax Court's factual determination that these core deposits were not self-regenerating. 3. The reasonableness of the Tax Court's consistent pronouncements on this very question. 4. The lack of a workable and useful definition of goodwill. 5. The adequacy of the residual method of calculating goodwill. 6. The necessity of substantial additional time, effort and expense to produce income from the core deposits. 7. The fact that the core deposits could have been severed and transferred apart from the goodwill of the banks in question.

The appeals court also cited the substantial evidence" presented to the Tax Court by CNB in establishing the existence of an asset separate and distinct from goodwill, and alluded favorably to recognition by the Financial Accounting Standards Board, the Securities and Exchange Commission and the Office of the Comptroller of the Currency of the existence of an asset separate from goodwill.
COPYRIGHT 1993 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Author:Haugh, James W.
Publication:The Tax Adviser
Date:Jun 1, 1993
Words:377
Previous Article:IRS will allow lenders to defer sec. 461(g)(2) points as OID.
Next Article:Certain foreign nationals may avoid penalties for underpayment of estimated tax by relying on 100% of prior year tax shown on dual status return.
Topics:


Related Articles
Deducting the cost of intangibles.
Minimizing financial institution taxes.
10th Circuit spurns Newark Morning Ledger.
Supreme Court defines "property" for excess percentage depletion AMT.
The amortization of purchased intangible assets.
Ninth Circuit upholds tenets of Brady Act.
City National Reports Third Consecutive Year of Record Earnings; Results for 1998 Up 20 Percent.
Third Circuit applies narrow interpretation of INDOPCO.
Responsible person.
TENTH CIRCUIT UPHOLDS FCC-FTC "DO NOT CALL" LIST.

Terms of use | Copyright © 2017 Farlex, Inc. | Feedback | For webmasters