In Uncategorized on 01/07/2015 at 16:14

That’s Judge Lauber’s word to MoneyGram International Inc., and Subsidiaries, leading off T. C. 144, at 144 T. C. 1, filed 1/7/15.

MoneyGram claims it’s a bank. Why, you may ask. Well, there’s about $82 million in deficiencies for four (count ‘em, four) tax years riding on the answer. If MoneyGram’s a bank, their worthless securities write-off against ordinary income stands up; if not, they’re capital losses, and must be written off against capital gains for the appropriate years at issue.

Here’s MoneyGram’s story. “MoneyGram sells money orders and money transfer services to consumers through ‘agents.’ These agents include banks, credit unions, supermarkets, convenience stores, and other retail locations. MoneyGram’s agents range from wellknown businesses such as Wal-Mart (during the years in issue), Albertson’s, and CVS Pharmacy, to thousands of ‘mom and pop’ convenience stores. MoneyGram sells payment processing services directly to banks and other financial institutions.” 144 T. C. 1, at p. 4.

Well, don’t banks do that? Yes, but. Check out Section 581. To be a ”bank”, and get the bank  tax goodies, the entity must be Federally or State regulated as a bank, make loans and receive deposits. Here MoneyGram stumbles out of the starting gate.

“In a typical money transfer, a consumer goes to the location of a MoneyGram agent, completes a form, and pays the agent the money to be transferred (plus a fee). This form explicitly states that the agent is not accepting a ‘deposit.’ 144 T. C. 1, at p. 5.

Moneygram also processes payment of official bank checks for more than 1900 banks, thrifts and credit unions for one of the years at issue.

But MoneyGram is not subject to OTS, FDIC, OCC, or those guys. It is regulated by Treasury pursuant to Art. 31, USC, which is the Circular-230 part, but that other stuff I haven’t read either. American Express Travel Related Services and Ezra Cornell’s brainchild Western Union are also regulated thereunder.

And never has MoneyGram told the SEC or its stockholders, past, present or would-be, that it is a bank.

Judge Lauber has a lot more to say about how “money service businesses” like Moneygram are regulated, both by the Federal Government and the States, so if your Sominex has gone past its pull-date, you can read all about it. I’ll spare you.

Bottom line–Banks are 12 USC, money servicers are 31 USC, and never the twain shall meet.

MoneyGram’s problems resulted from the credit meltdown during what W. H. Auden would have called “a low, dishonest decade”.

Mired in junk paper which rendered its net capital below State law money transmitter standards and therefore threatening its State licensure, MoneyGram recapitalized, and took heavy-duty losses in consequence thereof.

Now there are two classes of junk here: REMIC and non-REMIC. The REMICs are settled; it’s the non-REMICs at issue, but I suspect the result would be the same for both classes of junk.

The non-REMICs are concededly debt backed by a security, so available as only as a capital loss under Section 165(g)(2)(C).

But there’s an exception. Don’t you love exceptions? Section 582 provides that, notwithstanding Section 165(g), banks get Section 166 ordinary write-offs. Nothing like having the most powerful lobby in Washington. But I must remember this is a non-political blog.

But to be a bank, the entity must take deposits, make loans, and be regulated by Federal or State banking regulatory authorities. However, courts look to a “practical, commercial, functional approach” (144 T. C. 1, at p. 20, Footnote 5).

In short, “An entity is not ‘a bank or trust company incorporated and doing business’ under section 581 unless it is a ‘bank or trust company’ within the ordinary meaning of those words.” 144 T. C. 1, at p. 25.

So a bank is like pornography. Echoing Justice Potter Stewart’s celebrated remark, we know it when we see it.

And MoneyGram doesn’t make the cut. The money that it gets from its agents are not deposits from the public. Any advances MoneyGram makes on behalf of agents or the banks whose checks it pays have to be paid up very quickly, and the general public cannot deal directly with MoneyGram, either by depositing money or borrowing.

And whatever MoneyGram claims public policy should be, Congress enacted what it enacted. And Judge Lauber can’t change that.






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