In Uncategorized on 02/15/2017 at 17:48

If You Make Discounts

Those among my readers with exceptionally long memories may remember that Moneygram International, Incorporated and Subsidiaries were classed as unbanked back in 2015. If you don’t, see my blogpost “Don’t Bank On It,” 1/7/15.

This dogfight involved $82 million in deficiencies, since the capital-loss-against-ordinary-income largesse of Section 581 was the lynchpin of Moneygram’s case. Hence, the Fifth Circuit’s aid was invoked.

Well, back in November, a per cur. from the Fifth bounced the case back to Tax Court. Today the remand landed in Judge Lauber’s lap, to reconsider the full-dress T.C. It’s Moneygram International, Incorporated and Subsidiaries, Case No. 15-60527, decided 11/15/16.

In the first place, the Fifth said that Tax Court went outside the statute by defining deposits as those held for an extended period. Nope, said Fifth Circuit, the statute doesn’t say that. A deposit can be repayable on demand.

Likewise, Tax Court’s insistence that a bank make loans whose duration is an extended period of time stretches the common definition. A bank can make loans as short as it likes, provided that there is an advance and an intention that the sum advanced shall be repaid. Interest is an indicium of a loan, but is only one of seven common factors, to which I’ve referred in numerous blogposts.

“Additionally, we note that § 581 provides that a substantial part of the taxpayers business must consist of ‘making loans and discounts.’ 26 U.S.C. § 581 (emphasis added). The statute’s use of the conjunctive ‘and’ rather than the disjunctive ‘or’ in this phrase indicates that ‘discounts’ is a required element. See A. Scalia & B. Garner, Reading Law: The Interpretation of Legal Texts 116–17 (2012) (observing that the conjunctive use of the word ‘and’ indicates that each aspect must be satisfied). The Tax Court did not address whether MoneyGram makes ‘discounts,’ and neither party has presented argument regarding this requirement on appeal. On remand, the Tax Court is directed to consider whether MoneyGram satisfies this component of § 581.” Decision, at p. 12.

The dissent argues that Moneygram isn’t a bank by any stretch of the term, so making discounts is irrelevant.

And no, “discounts” by a bank doesn’t mean there are special friends of Rick’s. A bank discounts commercial paper when it pays for the paper at less than face, the amount paid including upfront interest. If you buy US savings bonds, you pay less than face but collect face at maturity. You’ve made a discount.



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