Miller & Chevalier Wins Reversal in Ninth Circuit for Washington Mutual Tax Refund Action


Washington, D.C., March 3, 2011 — Today, the Ninth Circuit Court of Appeals ruled unanimously in Washington Mutual Inc. v. United States (No. 09-36109), reversing the district court's award of summary judgment to the government and finding that Washington Mutual had cost basis in intangible assets acquired from the federal government during the savings and loan crisis of the early 1980s. The Ninth Circuit remanded the case to the district court to enter summary judgment for Washington Mutual on the basis issue and determine the amount of Washington Mutual’s cost basis in the intangible assets in dispute.

The refund claims in the action stem from an acquisition by Washington Mutual’s predecessor, Home Savings, of three failing thrifts from the Federal Savings and Loan Insurance Corporation (FSLIC) in December 1981. Those thrifts had deposit liabilities that exceeded the value of the thrifts’ assets. As the thrifts’ insurer, FSLIC sought to have Home Savings take over the thrifts so that FSLIC did not have to liquidate the thrifts and pay off depositors. So FSLIC offered Home Savings some regulatory incentives to induce Home Savings to acquire the three underwater thrifts in what is known as a "supervisory merger."

Washington Mutual argued that Home Savings had a cost basis in the regulatory rights received from FSLIC in exchange for taking over failing thrifts with liabilities that exceeded assets. In the alternative Washington Mutual argued that Home Savings took a fair market value basis in the rights under a then-effective statute that excluded from income any "money or other property" received from FSLIC in supervisory mergers. The government argued that Home Savings did not have a basis in the rights under either theory.

In reversing the district court, the Ninth Circuit emphasized the "economic realities" of the supervisory merger. The majority’s opinion held that Home Savings acquired the underwater thrifts in exchange for the rights and that "basic tax principles regarding basis" apply to the transaction, meaning that Home Savings had a cost basis in the rights. And while the majority opinion did not address Washington Mutual’s alternative theory, Judge Fernandez’s concurrence rejected the government’s arguments on that theory. The concurrence scoffed at the government’s arguments that the rights were not received from FSLIC and were not "property" under the statute.

Alan Horowitz, Maria Jones, and Steven Dixon of Miller & Chevalier represented Washington Mutual in the appeal. Tom Johnston of Shearman & Sterling was co-counsel in the case.

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Founded in 1920, Miller & Chevalier is a Washington, D.C. law firm with a global perspective and leading practices in tax; employee benefits, including ERISA; international law and business; complex litigation; and government affairs. For more information on the firm, visit  


Alan Horowitz, Member, Tax Department, Miller & Chevalier, 202-626-5839
Maria Jones, Member, Tax Department, Miller & Chevalier, 202-626-6057
Laura Miller, Media Relations, Greentarget, 312-252-4104

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