MoneyGram Can't Take an Ordinary Loss on Worthless Securities

(Parker Tax Publishing January 2020)

The Tax Court held that a corporation that provided consumers and financial institutions with payment services was not a bank, as defined in Code Sec. 581, and thus was not entitled to an ordinary loss deduction on its write off of partially or wholly worthless asset-backed securities. According to the court, the corporation did not qualify as a bank because it did not display the essential characteristics of a bank as that term is commonly understood and because a substantial part of its business did not consist of receiving deposits and making loans and discounts. MoneyGram International, Inc. and Subs v. Comm'r, 153 T.C. No. 9 (2019).

MoneyGram International, Inc., is the parent of a group of companies that operate a global payment services business. This business is conducted chiefly through MoneyGram Payment Systems, Inc., a wholly owned subsidiary incorporated in Delaware. MoneyGram has been in business since 1940. Its core purpose is to provide consumers and financial institutions with payment services that are affordable, reliable, and convenient. MoneyGram's business involves the movement of money through three main channels: money transfers, money orders, and payment processing services, including "official check" services for financial institutions.

During 2007 and 2008, MoneyGram undertook a recapitalization that included writing down or writing off a substantial volume of partially or wholly worthless asset-backed securities. MoneyGram claimed ordinary loss deductions under Code Sec. 582 on the disposition of certain of these securities, a treatment available only to banks. The IRS disallowed the ordinary loss deductions on the ground that MoneyGram did not qualify as a "bank" under Code Sec. 581.

To qualify as a "bank" under Code Sec. 581, a taxpayer must meet three distinct requirements. First, it must be "a bank or trust company incorporated and doing business" under federal or state law. Second, a substantial part of its business must consist of receiving deposits and making loans and discounts. Third, it must be subject by law to supervision and examination by federal or state authorities having supervision over banking institutions.

The Tax Court held that, during 2007 and 2008, MoneyGram did not qualify as a "bank" within the meaning of Code Sec. 581 because it did not display the essential characteristics of a bank as that term is commonly understood and because a substantial part of its business did not consist of receiving deposits and making loans and discounts. The court noted that essential elements of a banking business include the placement of funds for safekeeping and the receipt of bank deposits from the general public. The Tax Court concluded that because MoneyGram was not a "bank" within the meaning of Code Sec. 581, it was ineligible to claim ordinary loss deductions on account of the worthlessness of its securities under Code Sec. 582.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com

We hope you find our professional tax research articles comprehensive and informative. Parker Tax Pro Library gives you unlimited online access all of our past Biweekly Tax Bulletins, 22 volumes of expert analysis, 250 Client Letters, Bob Jennings Practice Aids, time saving election statements and our comprehensive, fully updated primary source library.

Try Our Easy, Powerful Search Engine

A Professional Tax Research Solution that gives you instant access to 22 volumes of expert analysis and 185,000 authoritative source documents. But having access won’t help if you can’t quickly and easily find the materials that answer your questions. That’s where Parker’s search engine – and it’s uncanny knack for finding the right documents – comes into play

Things that take half a dozen steps in other products take two steps in ours. Search results come up instantly and browsing them is a cinch. So is linking from Parker’s analysis to practice aids and cited primary source documents. Parker’s powerful, user-friendly search engine ensures that you quickly find what you need every time you visit Our Tax Research Library.

Dear Tax Professional,

My name is James Levey, and a few years back I founded a company named Kleinrock Publishing. I started Kleinrock out of frustration with the prohibitively high prices and difficult search engines of BNA, CCH, and RIA tax research products ... kind of reminiscent of the situation practitioners face today.

Now that Kleinrock has disappeared into CCH, prices are soaring again and ease-of-use has fallen by the wayside. The needs of smaller firms and sole practitioners are simply not being met.

To address the problem, I’ve partnered with a group of highly talented tax writers to create Parker Tax Publishing ... a company dedicated to the idea that comprehensive, authoritative tax information service can be both easy-to-use and highly affordable.

Our product, the Parker Tax Pro Library, is breathtaking in its scope. Check out the contents listing to the left to get a sense of all the valuable material you'll have access to when you subscribe.

Or better yet, take a minute to sign yourself up for a free trial, so you can experience first-hand just how easy it is to get results with the Pro Library!

Sincerely,

James Levey

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com