Metrocorp, Inc. - Page 9




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               If Metrobank did not pay its annual FDIC insurance premiums            
          after the transaction, the FDIC could commence administrative               
          proceedings to terminate involuntarily Metrobank's FDIC                     
          insurance.  Metrobank could also in certain circumstances                   
          voluntarily terminate its FDIC insurance.  Metrobank would not              
          have been entitled to a refund for the exit or entrance fee which           
          it paid to the FDIC incident to the transaction if it terminated            
          its FDIC insurance after the transaction either voluntarily or              
          involuntarily.                                                              
               At the end of 1990, the approximate rates for depository               
          insurance under the BIF and the SAIF were .12 percent (.0012) and           
          .208 percent (.00208), respectively.  As of the same time, SAIF             
          rates were set to exceed BIF rates until 1998.                              
               Respondent determined that petitioner could not deduct                 
          either fee that Metrobank paid to the FDIC incident to the                  
          conversion transaction and disallowed petitioner’s deductions for           
          those payments.  According to the notice of deficiency:                     
               It has been determined that your deductions for the                    
               entrance and exit fee paid to the Federal Deposit                      
               Insurance Corporation for the transfer of your insured                 
               deposits from one depository insurance to another                      
               depository insurance fund is a non-deductible capital                  
               expenditure that is not subject to depreciation or                     
               amortization.[4]                                                       


               4 The notice of deficiency indicates that the deposits were            
          actually transferred from the SAIF to the BIF.  This is not true.           
          As explained herein, the BIF and the SAIF do not hold a financial           
          institution’s deposits but merely insure the deposits held by the           
                                                             (continued...)           





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