- Category: Judge Nugent
- Published on 13 May 2010
- Written by Judge Nugent
SIGNED this 27 day of April, 2010.
ROBERT E. NUGENT
UNITED STATES CHIEF BANKRUPTCY JUDGE
OPINION DESIGNATED FOR ON - LINE PUBLICATION
BUT NOT PRINT PUBLICATION
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
IN RE: )
TEAM FINANCIAL, INC., ) Case No. 09-10925
) Chapter 11
IN RE: )
TEAM FINANCIAL ACQUISITION ) Case No. 09-10926
SUBSIDIARY, INC., ) Chapter 11
IN RE: )
POST BANCORP, INC., ) Case No. 09-10927
) Chapter 11
Case 09-05084 Doc# 53 Filed 04/27/10 Page 1 of 24
TEAM FINANCIAL INC., TEAM FINANCIAL )
ACQUISITION SUBSIDIARY, INC., and POST )
BANCORP, INC., )
vs. ) Adversary No. 09-5084
FEDERAL DEPOSIT INSURANCE )
Defendant Federal Deposit Insurance Corporation (FDIC) moves for summary judgment on
the complaint of the plaintiff-debtor bank holding companies for turnover of property of the
bankruptcy estates claimed by the FDIC as receiver for TeamBank, one of the plaintiffs’ banks
closed by the United States Comptroller of the Currency in March of 2009. The FDIC claims a tax
refund emanating from the plaintiffs’ 2008 consolidated tax return that is payable to the plaintiffs
under a Tax Allocation Agreement entered into on January 8, 2008 by plaintiffs, TeamBank, and
other affiliated entitites. The FDIC contends that the tax refund is not property of the bankruptcy
estates of these debtor bank holding companies, but rather should be paid to the FDIC as receiver
as the separate property of the failed banks.1 The FDIC’s summary judgment motion requires the
Court to interpret the Tax Allocation Agreement at issue here and apply applicable bankruptcy and
tax law to the uncontroverted facts.
1 Adv. Dkt. 37.
Case 09-05084 Doc# 53 Filed 04/27/10 Page 2 of 24
This turnover proceeding is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (E) and
the Court has subject matter jurisdiction under 28 U.S.C. §§ 157(b)(1) and 1334(b).
Summary Judgment Standards
Federal Rule of Civil Procedure 56(c) directs the entry of summary judgment in favor of a
party who “show[s] that there is no genuine issue as to any material fact and that the moving party
is entitled to a judgment as a matter of law.”2 An issue is “genuine” if sufficient evidence exists “so
that a rational trier of fact could resolve the issue either way” and “[a]n issue is ‘material’ if under
the substantive law it is essential to the proper disposition of the claim.”3 When confronted with a
fully briefed motion for summary judgment, the court must ultimately determine “whether there is
the need for a trial – whether, in other words, there are any genuine factual issues that properly can
be resolved only by a finder of fact because they may reasonably be resolved in favor of either
party.”4 In determining whether any genuine issues of material fact exist, the Court must construe
the record in a light most favorable to the party opposing the summary judgment.5 Once the Court
determines which facts are not in dispute, it must then determine whether those uncontroverted facts
establish a sufficient legal basis upon which to grant movant judgment as a matter of law.6
Uncontroverted Material Facts
2 Fed. R. Civ. P. 56(c).
3 Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir.1998).
4 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202
5 McKibben v. Chubb, 840 F.2d 1525, 1528 (10th Cir.1988) (citation omitted).
6 E.E.O. C. v. Lady Baltimore Foods, Inc., 643 F.Supp. 406, 407 (D.Kan.1986) (Even if
there are no genuine issue of material fact, the movant still has the burden to show it is entitled to
judgment as a matter of law.).
Case 09-05084 Doc# 53 Filed 04/27/10 Page 3 of 24
The facts presented by the parties are not in dispute and are brief. The Court summarizes
those facts here for purposes of determining the summary judgment motion.
Plaintiffs Team Financial, Inc. (“Team”), Team Financial Acquisition Subsidiary, Inc.
(“TFAS”) and Post Bancorp, Inc.(“Bancorp”) are bank holding companies, owning all of the stock
in TeamBank N.A. (“TeamBank”) and Colorado National Bank (“CNB”).7 All of these entities are
members of an affiliated group of corporations with Team as the common parent corporation and
constitute a Consolidated Tax Group.8 Plaintiffs, TeamBank and CNB filed a consolidated federal
income tax return for tax year 2008 as they are permitted to do under the Internal Revenue Code,
26 U.S.C. § 1501.9 This Consolidated Tax Group entered into a Tax Allocation Agreement (“TAA”)
on January 2, 2008.
The TAA provides, in part:
. . .
WHEREAS, the parties to this Agreement wish to establish a method for allocating
the consolidated Federal Income Tax Liability of the Group . . . amount [sic] its
Members . . ., reimbursing Team Financial, Inc. [the parent] for payment of such tax
liability, compensating each Member . . . for use of its Net Operating Loss and tax
7 The Court may refer to plaintiffs, TeamBank, CNB and its other affiliated entities
collectively as the “Consolidated Tax Group” from time to time in this opinion. The Court
recognizes that three other affiliated entities are included in the Consolidated Tax Group:
TeamBank, N.A. Asset Corporation, TBNA Holdings, LLC, and TBNA REIT, LLC, but their
presence is not material to the Court’s determination and for ease of reference, the Court
includes them when referencing the Consolidated Tax Group.
8 See Dkt. 43-1 (Tax Allocation Agreement).
9 All subsequent statutory references to provisions of the Internal Revenue Code, Title
26, shall be referenced as “IRC § ___.” The purpose of allowing a consolidated tax return was
described in American Standard, Inc. v. United States,, 602 F.2d 256, 261 (Ct. Cl. 1979): “. . . to
permit affiliated corporations, which may be separately incorporated for various business
reasons, to be treated as single entity for income tax purposes as if they were, in fact, one
corporation . . . the tax is computed solely on basis of consolidated taxable income.”
Case 09-05084 Doc# 53 Filed 04/27/10 Page 4 of 24
credits and to in general preserve the economic rights and obligations which would
accrue to each from the filing of separate federal income tax returns, all as
hereinafter set forth.10
. . .
III. Filing of Consolidated Return and Payment of Tax. For each Taxable Year
during the term of this Agreement, Team Financial, Inc. [the parent] shall file a
Consolidated Return . . . on behalf of the Group, all of which shall be filed on a
timely basis. For each Taxable Year during the term of this Agreement, Team
Financial, Inc. shall pay the Federal Income Tax Liability of the Group . . .11
IV. Allocation of Tax Liability. The Members of the Group shall allocate their
Federal Income Tax Liability in the following manner:
(A) (i) . . . the Federal Income Tax Liability of each Member of the Group shall be
calculated as if such Member were filing a separate federal income tax return for the
Taxable Year of such Member included in the Group’s Consolidated Return . . .
(ii) In computing each Member’s Separate Return Liability . . .
(c) The amounts in each taxable income bracket set forth in Section 11(b) of
the Code shall be allocated in any given year to the Members of the Group as Team
Financial, Inc. shall elect provided, however, that the amount allocated to any
Member shall not exceed said Member’s separate taxable income as computed
. . .
(B) Each Member of the Group shall pay to Team Financial, Inc. such amounts as
are equal to its own Estimated Tax computed as if the member had continued to file
separate returns. . . . The excess (if any) of the amount paid by the Members to Team
Financial, Inc. over the amount remitted by Team Financial, Inc. to the depository
bank as an Estimated Tax payment for the Group shall be distributed by Team
Financial, Inc. among those Members anticipating a Net Operating Loss by a method
consistent with Section 4(c)(iii) [sic] hereof, which distribution shall be considered
as a partial advance of their respective income tax benefit for such year.
. . .
(C) (i) Each Member of the Group shall pay to Team Financial, Inc. an amount equal
10 Dkt. 43-1, p. 1 [Emphasis added].
11 Id. at ¶ III., p. 2 [Emphasis added].
Case 09-05084 Doc# 53 Filed 04/27/10 Page 5 of 24
to the excess, if any, of such Member’s separate Return Liability over the amount of
Estimated Tax previously paid by such Member to Team Financial, Inc. with respect
to said Taxable Year.
(ii) Team Financial, Inc. shall pay to each Member of the Group an amount equal to
the sum of:
(a) The excess, if any, of Estimated Tax previously paid by such Member to Team
Financial, Inc. with respect to said Taxable Year over the Member’s Separate Return
(b) The federal income tax refund to which the Member would have been entitled by
reason of any Carryback of consolidated Net Operating Less [sic], . . . if the Member
had been filing separate return.
(iii) Team Financial, Inc. shall pay to each Member with a Net Operating Loss . . .
with respect to a Taxable Year its allocable share of the aggregate amounts paid by
the Member to Team Financial, Inc., with respect to such Taxable Year. . . to the
extent such allocable share is attributable to a Carryback, such payments shall be
made within 30 days of Team Financial, Inc.’s receipt of appropriate federal income
tax refunds due to the Carryback. The allocable share of a Member pursuant to this
Section 4(c)(iii) [sic] shall be determined by Team Financial Inc. pursuant to a
consistent method which reasonably reflects the tax benefit derived by the Group
from the items of Net Operating Less [sic] . . . of such Member.
. . .
(v) . . . payments made under Section 4(c)(ii)(B) [sic] hereof shall be made upon
Team Financial, Inc.’s receipt of appropriate federal income tax refunds due to the
On March 20, 2009, the United States Comptroller of the Currency closed TeamBank and
CNB and the Federal Deposit Insurance Corporation (“FDIC”) was appointed their receiver. On
April 5, 2009 Team, TFAS and Bancorp each filed voluntary chapter 11 petitions. The debtors filed
this adversary complaint on May 22, 2009. The parties agreed to the entry of an order providing for
the deposit of all tax refunds in an escrow account jointly titled in the plaintiffs and the FDIC
pending a determination by the Court regarding the ownership of the refunds.13 As of December
12 Id. at ¶ IV, pp. 2-4.
13 Adv. Dkt. 25.
Case 09-05084 Doc# 53 Filed 04/27/10 Page 6 of 24
21, 2009, plaintiffs had filed their 2008 consolidated federal income tax return but had yet to receive
and deposit any refund from the Internal Revenue Service (“IRS”) in the escrow account.14 At a
status hearing on April 22, 2010, the parties reported that some, but not all of the anticipated refunds
had been received. The receipts are on deposit in the escrow account. According to Team’s CPA
employed in the bankruptcy case, it is anticipated that a significant refund will be due as a result of
a 2008 net operating loss carryback.15 The claims register in these cases show that the FDIC filed
a proof of claim (claim 14) on November 11, 2009 asserting inter alia a right to and ownership of
the tax refunds at issue here. According to the FDIC, its tax refund claim is unliquidated but is in
the approximate amount of $3.3. million.
What is not apparent in the record is whether the anticipated tax refund expected to be
generated by the net operating loss carry back is attributable to TeamBank’s and/or CNB’s losses
against their prior income and the amount of such losses. The parties do not identify which entities
in the Consolidated Tax Group were operating entities, although presumably TeamBank and CNB
were. This begs the question whether any of the other affiliated entities are operating entities that
would have generated income or losses. Nor is it apparent from the record before the Court the
amount of the Consolidated Tax Group’s taxable income or tax liability for any year or the amount
of tax liability paid by the members of the Consolidated Tax Group in those years.
14 The 2008 consolidated tax return is not a part of the record before the Court.
15 In general, the 2008 operating loss of the Consolidated Tax Group will be carried back
and offset against the taxes paid by the Consolidated Tax Group in prior years on prior years’
income, thus generating a refund. CPA John Goss, was hired to prepare Form 1139 to show the
2008 net operating loss carry back. According to Mr. Goss’ affidavit attached in support of the
plaintiff’s response, Form 1139 was to be filed by December 31, 2009; there is no indication if
Form 1139 has been completed and filed and it is not part of the summary judgment record.
Case 09-05084 Doc# 53 Filed 04/27/10 Page 7 of 24
Summary of the Parties’ Arguments
The FDIC contends that any consolidated federal income tax refunds that the plaintiff bank
holding companies receive are held by them as agents or trustees for TeamBank and CNB because
the refunds are attributable to the closed banks’ earnings. Therefore, the tax refunds are property
of TeamBank and CNB, and are not property of the holding companies’ bankruptcy estates. The
FDIC bases its position on case law, Treasury Regulation § 1.1502-77, Bankruptcy Code § 541(d),
its interpretation of the TAA, and banking law and policy.
Plaintiffs deny the existence of an agency or trust relationship and contend that the TAA is
nothing more than an agreement or contract concerning how the Consolidated Tax Group would deal
with tax liability and refunds. Team claims that it owns the tax refund, that it is property of the
bankruptcy estate, and that the closed banks and their receiver are merely Team’s creditors.
Plaintiffs also rely on case law and interpretation of the TAA.
11 U.S.C. § 541 broadly defines what interests constitute property of the bankruptcy estate.16
That section provides, in part:
(a) . . . Such estate is comprised of all the following property, wherever located and
by whomever held:
(1) . . . all legal or equitable interests of the debtor in property as of the
commencement of the case.17
In bankruptcy proceedings, the nature and substance of interests in property are determined by
16 United States v. Whiting Pools, Inc., 462 U.S. 198, 204, 76 L.Ed. 2d 515, 103 S. Ct.
2309 (1983) (The congressional goal of encouraging reorganizations and statutory language
suggests that Congress intended that “a broad range of property” be included in the estate and the
debtor need not have a possessory interest at the time of bankruptcy filing).
17 Section 541(a)(1).
Case 09-05084 Doc# 53 Filed 04/27/10 Page 8 of 24
reference to state law; thus, the debtors’ interest in the subject tax refunds must be determined under
Kansas law.18 Here the TAA expressly provides that it will be governed by Kansas law.19
Does the Tax Allocation Agreement [TAA] Create an Express Trust with
Respect to Tax Refunds and Team’s Handling as a Trustee?
The Court first examines Team’s interest in the tax refunds under the TAA. Specifically, the
Court considers the TAA to determine if under it Team is to hold any tax refunds in trust for the
Consolidated Tax Group. In other words, does the TAA create a trust that settles the tax refunds on
Team for the benefit of the other affiliated entities? As discussed below, the Court concludes that
it does not.
Under Kansas law, the three features of an express trust are: (i) an explicit declaration and
intention to create a trust; (ii) definite property or subject matter of the trust; and (iii) the acceptance
and handling of the subject matter by the trustee as a trust.20 Kansas case law uniformly holds that
separation of the legal and equitable interests in the property is fundamental to the existence of any
There is no language within the four corners of the TAA that evidences either an intent or
declaration of a trust with respect to the Consolidated Tax Group’s tax refunds. No language
expressly identifies either Team or any other member of the Consolidated Tax Group as a trustee
charged with holding property for other members of the Consolidated Tax Group. Nor does the
18 Butner v. United States, 440 U.S. 48, 54-55, 99 S.Ct. 914, 59 L.Ed. 2d 136 (1979).
19 See Dkt. 43-1, Section XI (A).
20 Taliaferro v. Taliaferro, 260 Kan. 573, 578-79, 921 P.2d 803 (1996). See also, KAN.
STAT. ANN. §§ 58a-401(2) and 58a-402 (2005)
21 Id. at 580.
Case 09-05084 Doc# 53 Filed 04/27/10 Page 9 of 24
TAA identify any property that constitutes the trust res. Nowhere in the TAA does Team agree to
accept and handle tax refunds as a trustee of the Consolidated Tax Group. Thus, the Court finds
none of the three elements that Kansas law requires to create an express trust in its study of the
TAA. Instead, Team and the other members of the Consolidated Tax Group have entered into a
contract that allocates among the parties certain obligations for paying the group’s tax liability and
distributing any overpayments that may be attributed to loss carrybacks. The TAA falls far short
of creating an express trust.
The FDIC does not point to any language in the TAA that creates an express trust. It
concedes the absence of language in the TAA that speaks to Team’s status as an agent or trustee.
Instead, the FDIC suggests that the agent-trustee relationship is a “default” condition whose
existence in this case can be negatively implied from the TAA.
Nothing in the [TAA] in this case states that the Debtors shall not be agent-
trustees with respect to tax refunds paid to them by the Internal Revenue Service.22
This argument hinges not upon the language of the TAA, but upon the FDIC’s interpretation of
Treas. Reg. § 1.1502-77, which the FDIC contends makes all holding companies the agent-trustee
for their respective consolidated tax groups with respect to tax refunds. It reasons that by omitting
any mention of the trust relationship, the parties to the TAA did not intend to alter it. The Court
observes that the only language in the TAA that explicitly speaks to an agency relationship is found
in Section I(H): “For purposes of intercompany tax payments, as well as payments to the Service,
Team Financial, Inc. may designate any member of the Group as its agent.”23 This language plainly
22 Dkt. 37, p. 18.
23 Dkt. 43-1, p. 2.
Case 09-05084 Doc# 53 Filed 04/27/10 Page 10 of 24
does not impose agency duties on Team for the benefit of the Group and, apart from this language,
there is no other mention of an agency or trust relationship in the TAA. The Court therefore
concludes that while Team may have contractual obligations under the TAA in its handling or
distribution of the tax refund, nothing in the TAA operates to elevate those duties to the level of an
express trust nor designates Team or the debtors as trustees or agents for the affiliated entities in the
Consolidated Tax Group.
As a Matter of Law, Does Treas. Reg. § 1.1502-77 make Team an Agent or
Trustee for the Consolidated Tax Group with Respect to Tax Refunds?
Having determined that the TAA fails to establish an express trust with respect to the
Consolidated Tax Group’s tax refunds, the Court turns to Treas. Reg. § 1.1502-77 (eff. July 23,
2007). The FDIC contends that this regulation mandates that debtors hold any tax refunds received
from the IRS in trust for or as the agent of the members of the Consolidated Tax Group. The FDIC
relies heavily upon this regulation as creating an agency or trust relationship between Team and the
members of the Consolidated Tax Group. Presumably, the FDIC seeks to use this regulation to
demonstrate that Team, as an agent for the members of the Consolidated Tax Group, holds bare legal
title to the tax refund and therefore, the tax refund is not property of the debtors’ bankruptcy estates
under 11 U.S.C. § 541(d).24
Treas. Reg. § 1.1502-77 provides:
Except as provided in paragraphs (a)(3) and (6) of this section, the common parent
. . . for a consolidated return year is the sole agent (agent for the group) that is
24 Section 541(d) states that “[p]roperty in which the debtor holds, as of the
commencement of the case, only legal title and not an equitable interest, . . . becomes property of
the estate under subsection (a)(1) or (2) of this section only to the extent of the debtor’s legal
title to such property, but not to the extent of any equitable interest in such property that the
debtor does not hold.”
Case 09-05084 Doc# 53 Filed 04/27/10 Page 11 of 24
authorized to act in its own name with respect to all matters relating to the tax
liability for that consolidated return year, for – (A) Each member in the group; and
(B) Any successor (see paragraph (a)(1)(iii) of this section) of a member.25
Subsection (a)(2) of the regulation gives examples of matters for which the common parent acts as
agent for the members of the consolidated tax group. Some examples include: elections available
to a subsidiary in computing its separate taxable income; correspondence concerning the income tax
liability for the consolidated return year; extensions of time; offers in compromise; notices of claim
disallowance; notices of deficiencies; petitions before the United States Tax Court; assessment of
tax; and notice and demand for payment of taxes.26 The common parent also acts as an agent when
it files “claims for refund, and any refund is made directly to and in the name of the common parent
and discharges any liability of the Government to any member with respect to such refund.”27 The
regulation does not purport to decree who “owns” the refund as between the parent and the members
of the group.
The Court reads § 1.1502-77 to make the common parent of the affiliated entities “the
spokesman” for the group and ensure that the IRS can efficiently deal with only one member of the
Consolidated Tax Group without incurring liability to other members of the Consolidated Tax Group
or having to deal with each and every member of the group and be subjected to differing or
conflicting authority. It makes the administration of consolidated tax returns more efficient. Section
1.1502-77(a)(3) specifies those matters for which a member’s authority to act for or to represent
itself is reserved.
25 Treas. Reg. § 1.1502-77(a)(1)(i).
26 See Treas. Reg. § 1.1502-77(a)(2)(i)-(iv), (vii)-(xii).
27 Id. at § 1.1502-77(a)(2)(v).
Case 09-05084 Doc# 53 Filed 04/27/10 Page 12 of 24
This interpretation of Treas. Reg. § 1.1502-77 is consistent with that of a number of courts
that have considered the nature of the common parent’s “agency” under the regulation. In the
seminal Bob Richards case, the Ninth Circuit Court of Appeals said this about the regulation then
The only reason for the tax refunds not being paid directly to the subsidiary
is because income tax regulations require that the parent act as the sole agent, when
duly authorized by the subsidiary, to handle all matters relating to the tax return.
Accordingly, the refund is made payable to the parent and the acceptance of the
refund by the parent discharges any liability of the government to any subsidiary.
But these regulations are basically procedural in purpose and were adopted solely
for the convenience and protection of the federal government.28
Other cases are in accord.29 In addition, several courts have concluded that the Internal Revenue
Code does not address which entity in a consolidated tax group is ultimately entitled to receive the
consolidated tax refund.30 As stated in Bob Richards:
The Internal Revenue Service is not concerned with the subsequent disposition of tax
refunds and none of its regulations can be construed to govern this issue [entitlement
to the refund].31
28 Emphasis added. In re Bob Richards Chrysler-Plymouth Corp., Inc. 473 F.2d 262,
265 (9th Cir. 1973), cert. den. sub nom. Western Dealer Management v. England, 412 U.S. 919
29 See e.g., In re Prudential Lines, Inc., 928 F.2d 565, 571 (2d Cir. 1991) (citing Bob
Richards); Jump v. Manchester Life & Cas. Management Corp., 579 F.2d 449, 452 (8th Cir.
1978) (parent’s agency relationship with members in affiliated group “is for the convenience and
protection of IRS only and does not extend further.”); In re Franklin Sav. Corp., 159 B.R. 9, 29
(Bankr. D. Kan. 1993), aff’d 182 B.R. 859 (D. Kan. 1995) (Treas. Reg. § 1.1502-77(a) confers
no substantive rights); In re First Cent. Financial Corp., 269 B.R. 481, 489 (Bankr. E.D. N.Y.
2001), aff’d 377 F.3d 209 (2d Cir. 2004) (the agency under § 1.1502-77(a) is “purely procedural
in nature, and does not affect the entitlement as among the members of the Group to any refund
paid by the I.R.S.”).
30 Jump, supra at 452; Capital Bancshares, Inc. v. Federal Deposit Ins. Corp., 957 F.2d
203, 206 (5th Cir. 1992); In re First Cent. Financial Corp., supra at 489.
31 Bob Richards, supra at 265.
Case 09-05084 Doc# 53 Filed 04/27/10 Page 13 of 24
The Court’s conclusion as to the effect of § 1.1502-77(a) is buttressed by its reading of
another similar regulation that specifically applies to financial institutions and that neither of the
parties to this motion mentions. Treas. Reg. § 301.6402-7(a) provides:
(1) Overview. Section 6402(i) authorizes the Secretary to issue regulations
providing for the payment of a refund directly to the statutory or court-appointed
fiduciary of an insolvent corporation that was a subsidiary in a consolidated group,
to the extent the Secretary determines that the refund is attributable to losses or
credits of the insolvent corporation. This section provides rules for the payment of
refunds and tentative carryback adjustments to the fiduciary of an insolvent financial
institution that was a subsidiary in a consolidated group.
(2) Notice. This section provides notice to the common parent of a consolidated
group of which an insolvent financial institution is or was a member that – (i) The
fiduciary for the institution may, in addition to the common parent, act as agent for
the group in certain matters relating to the tax liability of the group in the year in
which a loss arose and for the year to which a claim for refund or application for
tentative carryback adjustment relates; and (ii) The Internal Revenue Service may
deal directly with the common parent or the fiduciary (or both) as agent for the group
to the extent provided in this section.32
Section 301.6402-7(c) further provides that:
Notwithstanding the general treatment of a common parent as the agent of a group
under §§ 1.1502-77 and 1.1502-78 of this chapter, if the fiduciary satisfies the notice
requirements of paragraph (d)(1) of this section, the fiduciary may also be deemed
to be an agent under §§ 1.1502-77 and 1.1502-78 of this chapter . . . (ii) of the
carryback year group for purposes of filing a claim for refund or an application for
a tentative carryback adjustment for the consolidated carryback year under paragraph
(e) of this section and receiving payments of any refund or tentative carryback
adjustment under paragraph (g) of this section . . .
Finally, § 301.6402-7(j) makes clear that the agency status conferred upon the FDIC or the common
parent does not determine the ownership of the refund. It states:
This section determines the party to whom a refund or tentative carryback adjustment
32 Emphasis added. Note that Section 301.6402-7(b)(3) defines the FDIC as a fiduciary.
Section 301.6402-7(b)(4) defines an insolvent financial institution as a bank for which the FDIC
is authorized to act as a receiver or conservator.
Case 09-05084 Doc# 53 Filed 04/27/10 Page 14 of 24
will be paid but is not determinative of ownership of any such amount among current
or former members of a consolidated group (including the institution).33
In short, Treas. Reg. § 301.6402-7 confers agency status upon the FDIC for the purpose of
administrative convenience in dealing with consolidated group tax refunds and loss carrybacks
involving insolvent financial institutions in the same manner as does Treas. Reg. § 1.1502-77
generally. But, like Treas. Reg. § 1.1502-77, it does not determine the ownership of any
overpayment or refund.
The Court concludes that the“agency” status conferred on Team by the Treasury Regulations
does not determine the ownership of a tax refund resulting from a NOL carryback and that Team
does not hold a tax refund received from the IRS in trust for the members of the Consolidated Tax
Group. Neither the Internal Revenue Code nor the regulations determine who owns a tax refund as
among the members of the Consolidated Tax Group. Accordingly, the Court cannot conclude as
a matter of law that Team owns only a legal interest in the tax refund based solely upon its agency
described by Treas. Reg. § 1.1502-77.
III. Is the TAA Permitted by Law and Enforceable?
Having concluded that neither the TAA nor Treas. Reg. § 1.1502-77 creates a trust or agency
relationship requiring Team to hold the tax refund for the benefit of the members of the Consolidated
Tax Group, the Court next considers what effect should be given to the TAA in determining
ownership of the tax refund. The Bob Richards case states the general rule regarding the rights of
group members to a consolidated tax refund as follows:
. . . [I]n the instant case the parties made no agreement concerning the ultimate
disposition of the tax refund. Absent any differing agreement we feel that a tax
33 Emphasis added.
Case 09-05084 Doc# 53 Filed 04/27/10 Page 15 of 24
refund resulting solely from offsetting the losses of one member of a consolidated
filing group against the income of that same member in a prior or subsequent year
should inure to the benefit of that member. Allowing the parent to keep any refunds
arising solely from a subsidiary’s losses simply because the parent and subsidiary
chose a procedural device to facilitate their income tax reporting unjustly enriches
The parties to the TAA in this case made a “differing agreement,” taking this case out of the Bob
Richards general rule. As the Bob Richards court noted, parties in a consolidated group “are free
to adjust among themselves” by an explicit agreement, the ultimate disposition of a tax refund.35
The Team tax group did exactly that.
The question then becomes whether there is any reason by which the TAA is unenforceable.
The FDIC cited no provision in either the Internal Revenue Code or treasury regulations that would
prohibit members in a consolidated tax group from entering into a TAA. As noted previously,
neither the Internal Revenue Code nor the regulations mandate how a consolidated tax refund is to
be allocated among and disbursed to the members of a consolidated tax group or determine which
entity in a consolidated tax group owns the refund.
A. The Interagency Policy Statement
The FDIC points instead to an interagency policy statement on income tax allocation issued
in November of 1998.36 Not even the FDIC asserts that this policy statement has the force of law.
On its face, the policy statement’s purpose is to develop a uniform and consistent policy among the
FDIC, the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Reserve
34 Emphasis added. Bob Richards, 473 F.2d at 265.
35 See In re First Central Financial Corp., 269 B.R. 481, 488-89 (Bankr. E.D. N.Y.
2001) explaining NOL carryback as a form of income averaging and income tax refunds
generated thereby for the consolidated tax group.
36 63 Fed. Reg. 64757-01, 1998 WL 804364 (Nov. 23, 1998)
Case 09-05084 Doc# 53 Filed 04/27/10 Page 16 of 24
System regarding intercorporate tax allocation in a holding company structure.37 In seeking to set
ground rules for tax allocation practices, the policy statement “reaffirms that intercorporate tax
settlements between an institution and the consolidated group should result in no less favorable
treatment to the institution than if it had filed its income tax return as a separate entity.”38 Indeed,
as Team points out, the combined agencies expressly encourage institutions to enter into tax
Tax Sharing Agreements
A holding company and its subsidiary institutions are encouraged to enter into a
written, comprehensive tax allocation agreement tailored to their specific
circumstances. . . . Although each agreement will be different, tax allocation
agreements usually address certain issues common to consolidated groups.
Therefore, such an agreement should: . . .
- Discuss the amount and timing of the institution’s payments for current tax
expense, including estimated tax payments;
-Discuss reimbursements to an institution when it has a loss for tax purposes; . . .39
Tax Refunds From the Parent Company
An institution incurring a loss for tax purposes should record a current income tax
benefit and receive a refund from its parent in an amount no less than the amount the
institution would have been entitled to receive as a separate entity. . . . If a refund is
not made to the institution within this period, the institution’s primary federal
regulator may consider the receivable as either an extension of credit or a dividend
from the subsidiary to the parent. A parent company may reimburse an institution
more than the refund amount it is due on a separate entity basis. . . .40
Moreover, the policy statement’s reference to the parent’s agency status for receiving tax refunds
on behalf of the consolidated group cites to Treas. Reg. § 1.1502-77(a), the effect of which this
37 See American Min. Congress v. Marshall, 671 F.2d 1251, 1263 (10th Cir. 1982) (An
agency cannot rely upon a general statement of policy as law because a general statement of
policy only announces what the agency seeks to establish as policy.)
38 63 Fed. Reg. at *64757.
39 Emphasis added. 63 Fed. Reg. at *64758
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Court has previously addressed. The Court concludes that the interagency policy statement relied
upon by the FDIC neither prohibits tax allocation agreements nor renders a tax allocation agreement
such as that employed here unenforceable. In fact, it encourages these agreements. The FDIC has
not demonstrated on this record that the TAA entered into by the Team Consolidated Tax Group
contravenes the stated policy that a group member not receive less favorable treatment than if it had
filed its income tax return as a separate entity.
B. Unfairness, Overreaching or Unconscionable Conduct
Another legal theory could support the FDIC’s assault on the TAA. Some states impose a
fiduciary duty of fair dealing on a parent corporation in dealing with its subsidiary, similar to the
duty of a controlling shareholder toward a minority shareholder of a closely held corporation.41
Thus, notwithstanding the existence of a written agreement between members of a consolidated tax
group for allocating tax liabilities, if a parent acts unfairly or unconscionably, or overreaches
through a tax allocation agreement and gains an unfair advantage or benefit over a subsidiary, the
courts may intervene and exercise their equitable powers to prevent its enforcement or award the
tax refund under a constructive trust theory.42
Assuming that the above principles are applicable under Kansas law, the Court cannot
conclude on summary judgment that Team or the debtors have implemented the TAA by engaging
in unfairness, overreaching or unconscionable conduct that would preclude its enforcement. There
are no controverted or uncontroverted facts concerning the amount of tax liability paid respectively
41 In re Franklin Savings Corp., 159 B.R. 9, 29 (Bankr. D. Kan. 1993), aff’d 182 B.R.
859 (D. Kan. 1995).
42 Id. at 30. See also In re First Central Financial Corp., 269 B.R. 481, 489-90 (Bankr.
E.D. N.Y. 2001).
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by TeamBank, CNB and the debtors or whether the amount of tax liability paid by TeamBank and
CNB exceeds the amount of tax they would have paid if calculated as their separate tax liability.
There are no facts in the current record concerning (i) the amount of the tax group members’
separate taxable income and separate tax liability; (ii) the amount of NOL generated by TeamBank
and CNB which resulted in the tax refund; (iii) the amount of NOL, if any, generated by debtors
which resulted in a tax refund, (iv) the amount of the tax refund; or (v) any other figures that would
demonstrate that, as a matter of law, the application of the TAA unfairly advantaged Team.43 The
FDIC points to no offending provision in the TAA, that when implemented, confers an unfair benefit
upon Team or debtors. Indeed, the introductory recital of the TAA signals the parties’ intent to
“preserve the economic rights and obligations which would accrue to each from the filing of separate
federal income tax returns.”44 Subsequent substantive provisions of the TAA appear to the Court
to do exactly that, by tying a member’s tax obligations to its “Separate Return Liability.”45 In short,
there is nothing contained in this summary judgment record that forms a factual predicate upon
which the Court could conclude that the debtors acted unfairly or unconscionably in creating and
implementing the TAA.
C. Violation of Banking Law, 12 U.S.C. § 371c
The FDIC also suggests that if enforced, the TAA would violate the limits on certain
transactions with an affiliate. 12 U.S.C. § 371c(a)(1) limits a member bank’s “covered transactions”
43 Cf. In re Franklin Savings Corp., 159 B.R. at 12-14 (The bankruptcy court was
presented extensive stipulations of fact by the parties with regard to the amount and timing of tax
payments and refunds and in addition, received evidence and testimony at trial of the adversary
44 Dkt. 43-1, p. 1.
45 See e.g., Dkt. 43-1, ¶ IV.(A)(i), (B), and (C)(i) and (ii).
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with an affiliate to an amount tied to certain percentages of the member bank’s capital stock and
surplus.46 A covered transaction with respect to an affiliate of a member bank includes a loan or
extension of credit to the affiliate.47 Certain transactions are exempted from the restrictions.48
Even if the TAA triggers these loan restrictions, there is nothing in the summary judgment
record before the Court from which it can determine that the TAA violates the restrictions. At this
point in the proceedings, the Court cannot even ascertain the dollar amount of a “covered
IV. The Tax Refunds are Estate Property
Having concluded that the TAA does not create a trust relationship wherein Team holds any
tax refund it receives from the IRS for the benefit of TeamBank or CNB, the Court concludes that
Team owns the tax refund and it is property of the bankruptcy estate. This conclusion is supported
by certain provisions and language of the TAA as well as In re Franklin Sav. Corp.49 and In re First
Central Financial Corporation.50
The bankruptcy court in Franklin Savings focused on the terminology employed in the Tax
Reimbursement Agreement at issue in that case. It found that the use of “reimbursement” language
in the agreement whereby the holding company would reimburse the subsidiary for “taxes which
46 An affiliate is defined for purposes of § 371c as a company that controls the member
bank. 12 U.S.C. § 371c(b)(1)(A).
47 See 12 U.S.C. § 371c(b)(7)(A).
48 See 12 U.S.C. § 371c(d)(1)(A) (a transaction with a bank that controls 80% or more of
the voting shares of the member bank) and (d)(2) (deposits in an affiliated bank in the ordinary
course of correspondent business).
49 159 B.R. 9 (Bankr. D. Kan. 1993), aff’d 182 B.R. 859 (D. Kan. 1995).
50 269 B.R. 481 (Bankr. E.D. N.Y. 2001).
Case 09-05084 Doc# 53 Filed 04/27/10 Page 20 of 24
would otherwise have been paid by Franklin [subsidiary] had it not been a member of the
Consolidated Group”51 to be inconsistent with the subsidiary owning the refund. The subsidiary was
obligated to pay the holding company the amount of tax computed as a separate tax liability. In the
event of a NOL, the subsidiary became “entitled to . . . reimbursement by Parent . . . to the extent
of amounts previously paid to Parent . . .”52 Instead, the bankruptcy court concluded that
reimbursement was more consistent with a “debt” or “receivable,” and not ownership. If the refund
was intended to be the subsidiary’s property, the agreement would have provided for “return” of the
refund to the subsidiary. The bankruptcy court thus concluded that the parties intended to create an
obligation to the subsidiary in the nature of a receivable.53 The district court agreed, holding that
the tax agreements were unambiguous and addressed the conditions under which the subsidiary was
entitled to reimbursement of the tax refunds.54 The fact that the tax reimbursement agreement did
not mention the term “ownership” did not create ambiguity.
The FDIC complains at length that Franklin Savings was incorrectly decided and should not
be relied upon. Franklin Savings was decided not on summary judgment, but following a two-day
trial, extensive stipulations, and lengthy and detailed findings of fact made by the bankruptcy court.
The FDIC’s summary judgment memorandum in this case advances several of the same arguments
made unsuccessfully by the Resolution Trust Corporation in Franklin Savings regarding its claimed
51 159 B.R. at 14.
52 Id. at 15.
53 Id. at 29.
54 182 B.R. at 863.
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ownership of the tax refunds.55 While neither decision in Franklin Savings binds this Court as
precedent, each is persuasive and merits this Court’s consideration.
Also instructive on these issues is the opinion in In re First Central Financial Corporation,
supra. There the court dealt with a consolidated tax group consisting of a debtor holding company
that owned all of the shares of a subsidiary insurance company. The state insurance official
liquidating the insurance company claimed ownership of a $2.5 million federal income tax refund
generated by a NOL carryback as against the bankruptcy trustee of the debtor holding company.
The holding company and subsidiary had entered into a tax allocation agreement. The bankruptcy
court there concluded that a debtor-creditor relationship existed, not a trust. If the parent and
subsidiary stood in a debtor-creditor relationship with respect to the tax refund payment due and
owing from the parent under the tax allocation agreement, the beneficial interest in the refund was
property of the estate.56 It noted the absence in the tax allocation agreement of any requirement that
the parent segregate the tax refund from other funds and there were no restrictions on the parent’s
use of the funds.57 Finally, the tax allocation agreement provided for “payment” by the parent to
the subsidiary of its portion of the tax refund under the tax allocation agreement, also indicative of
a debtor-creditor relationship.58
. . . not only is the Agreement devoid of any language purporting to create a trust or
agency relationship, it contains language which shows an intent to create ordinary
55 See 182 B.R. at 862.
56 269 B.R. 481, 495.
57 Id. at 496.
58 Id. at 497.
Case 09-05084 Doc# 53 Filed 04/27/10 Page 22 of 24
contractual obligations between the parties, not a fiduciary relationship.59
This Court is convinced that the unambiguous language of the TAA at issue here is as
compelling as the language employed in the tax agreements in Franklin Savings and First Central
Financial Corp. and a similar conclusion should obtain. The “whereas” clause announces the
purpose of the TAA as “compensating each Member . . . for use of its Net Operating Loss . . .”60
Paragraph IV.(C)(ii) imposes a contractual obligation upon Team to pay to members of the
Consolidated Tax Group certain amounts to be calculated pursuant to the TAA:
Team Financial, Inc. shall pay to each Member of the Group an amount equal to the
sum of: (a) The excess, if any, of Estimated Tax previously paid by such Member to
Team Financial, Inc. with respect to said Taxable Year over the Member’s Separate
Return liability [overpayments]; plus (b) The federal income tax refund to which the
Member would have been entitled by reason of any Carryback of consolidated Net
Operating Less [sic], unused credit or similar available Carryback items, if the
Member had been filing separate return.
Paragraph IV.(C)(iii) similarly requires Team to “pay” members of the Consolidated Tax Group with
NOL carrybacks their allocable share of the taxes paid by the Member to Team. The members of
the Consolidated Tax Group likewise have a mutual obligation to pay Team for their share of the
tax liability. Paragraph IV.(B) provides that “[e]ach Member of the Group shall pay to Team
Financial, Inc. such amounts as are equal to its own Estimated Tax computed as if the member had
continued to file separate returns. Said amounts shall be payable on the same date as Team
Financial, Inc. pays the Estimated Tax installment for the Group.” Nothing in the TAA creates a
trust or agency relationship with respect to federal income tax refunds received by Team from the
IRS. Nothing in the TAA requires Team to segregate the tax refund, to hold the tax refund in trust
59 Id. at 498.
60 Dkt. 43-1, p. 1.
Case 09-05084 Doc# 53 Filed 04/27/10 Page 23 of 24
for the members of the Consolidated Tax Group, or prohibits Team from using the tax refund. In
short, the TAA creates “ordinary contractual obligations” between Team and the members with
respect to tax liability and tax refunds. Team is indebted to members of the group with respect to
tax overpayments and tax refunds in those amounts specified under the TAA. As such, the
relationship between Team and its members with respect to the tax refund is that of debtor and
creditor. TeamBank and CNB may assert a claim against the estate for Team’s payment obligation
under the TAA, but the tax refund is property of the estate.
Because the FDIC is not entitled to judgment as a matter of law, its motion for summary
judgment is DENIED. The factual findings made in this Order are deemed established for the
purposes of this adversary proceeding as provided by Fed. R. Civ. P. 56(d)(1) and Fed. R. Bankr.
P. 7056. The Clerk will schedule a status conference as soon as practicable in this adversary
# # #
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