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Discussion
The nature of the transactions leading to the dispute in
these cases is described by petitioner as follows:
The acquisitions of United First Federal and Home
Federal were undertaken pursuant to Barnett’s strategic
plan to expand its market share of deposits and real
estate lending in the State of Florida. Barnett would
have preferred to acquire these two thrifts pursuant to
their existing charters and continue to conduct their
business without modification. However, a misguided
Federal Reserve Board policy effective at the time of
the acquisitions (but subsequently withdrawn) precluded
a bank holding company from owning an entity chartered
as a stock savings and loan association unless the
entity was failing. Therefore, Barnett was precluded
from directly acquiring the stock of United First
Federal and Home Federal. In order to obtain the
Federal Reserve Board’s approval of the acquisitions,
United First Federal and Home Federal were required to
convert to state banking corporations. United First
Federal was immediately merged with a newly organized
subsidiary of Barnett that was chartered as a bank
under Florida law and continued its residential lending
business in Florida as Southwest. Similarly, Home
Federal was immediately merged with a newly organized
subsidiary of Barnett that was chartered as a bank
under Florida law and continued its residential lending
business in Florida as Pinellas. [Citations omitted.]
The question presented is whether, in carrying out its strategic
plan to acquire Southwest and Pinellas, Barnett gave up the
favorable tax treatment of accounting for bad debt reserves under
section 593 that was previously enjoyed by the two acquired
entities.
Simply stated, respondent’s position is that Southwest and
Pinellas lost qualification to use the reserve method of section
593 when they obtained bank charters and relinquished their
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