Federal Home Loan Mortgage Corporation - Page 18

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          banks expect to retain for extensive lengths of time.”                      
          Respondent contends that “Petitioner has nothing comparable to a            
          core group of depositors who, through their inertia and their               
          focus on savings accumulation instead of market-based returns,              
          are willing to leave funds on deposit at below-market rates for             
          extended periods of time.”                                                  
               We agree with respondent that deposit base involves what we            
          might term a “customer-based intangible”.  See, e.g., sec.                  
          197(d)(2)(B).  However, we cannot agree that this effectively               
          distinguishes the above cases.  Indeed, the customer                        
          relationships in the cases involving core deposits formed the               
          basis for the Commissioner’s objections to the taxpayer’s                   
          amortization deductions for deposit base.  However, apart from a            
          customer-based relationship, deposit base, like the favorable               
          financing in the instant cases, involves a debtor-creditor                  
          relationship.  Also, like petitioner’s favorable financing, core            
          deposits represent a relatively low-cost source of funds, see               
          Citizens & S. Corp. v. Commissioner, 91 T.C. at 465, which carry            
          below-market interest rates, and which support the obligor’s                
          financing of its profit-making activities.  Also, in the same               
          manner that an acquirer of a bank with an established deposit               
          base would pay a premium for deposit base of the target bank, we            
          believe that the hypothetical buyer would pay a premium for the             
          acquisition of a company with below-market indebtedness.                    






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