Metrocorp, Inc. - Page 1

                                   116 T.C. No. 18                                    

                               UNITED STATES TAX COURT                                

                         METROCORP, INC., Petitioner v.                               
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

          Docket No. 19780-98.               Filed April 13, 2001.                    

                    M, a State bank, acquired a portion of the assets                 
               and assumed a portion of the deposit liabilities of C,                 
               a failed Federal savings association.  Before the                      
               transaction, the deposit liabilities of M and C were                   
               insured by different funds (B and S, respectively)                     
               administered by the Federal Deposit Insurance                          
               Corporation.  The transaction was a “conversion                        
               transaction” under 12 U.S.C. sec. 1815(d)(2)(B) (1994),                
               because M and C each participated in a different fund,                 
               and M assumed C’s deposit liabilities.  R determined                   
               that the exit and entrance fees related to the                         
               transaction which M paid to S and B, respectively,                     
               under 12 U.S.C. sec. 1815(d)(2)(E) (1994), were non-                   
               deductible capital expenditures.  The fees were                        
               capitalizable, R asserts, because they produced                        
               significant future benefits to M in that M, following                  
               the assumption, insured all of its deposit liabilities                 
               through B.  M’s use of B to insure all of its deposit                  
               liabilities meant that M’s future costs for compliance                 
               and insurance premiums would be lower than if M had                    

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