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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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