Moneygram Int'l, Inc. v. Comm'r
| Decision Date | 15 November 2016 |
| Docket Number | No. 15-60527,15-60527 |
| Parties | MONEYGRAM INTERNATIONAL, INCORPORATED AND SUBSIDIARIES, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Appeals from the Decision of the United States Tax Court
Before WIENER, PRADO, and OWEN, Circuit Judges.
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Ordinarily, a corporation may only deduct its capital losses from its capital gains. The Tax Code, however, provides an exception for banks, which are permitted to deduct capital losses against ordinary income. On its 2007 and 2008 tax returns, Petitioner-Appellant MoneyGram International, Inc. and itssubsidiaries (collectively, "MoneyGram") deducted its capital losses against its ordinary income under this exception. Respondent-Appellee Commissioner of Internal Revenue ("Commissioner" or "IRS") disagreed as to whether MoneyGram was a "bank" and issued deficiency notices for the relevant tax years. MoneyGram petitioned the United States Tax Court for a redetermination of its tax liabilities, and at summary judgment, the Tax Court held that MoneyGram was not a "bank" as defined by 26 U.S.C. § 581 and thus could not offset its capital losses against ordinary income under 26 U.S.C. § 582. Because we hold that the Tax Court applied incorrect definitions of "deposits" and "loans" in analyzing whether MoneyGram was a bank under § 581, we vacate its order and remand for reconsideration consistent with this opinion.
The material issue on appeal is whether MoneyGram is a "bank" as defined by 26 U.S.C. § 581. This provision defines "bank" in relevant part as follows:
At summary judgment, the Tax Court held that MoneyGram did not meet this definition for several reasons. First, the Tax Court stated that § 581 requires an entity to be a "bank" within the common meaning of that term. The Tax Court then held that MoneyGram did not meet the common meaning of this term, which it defined to include "(1) the receipt of deposits from thegeneral public, repayable to the depositors on demand or at a fixed time, (2) the use of deposit funds for secured loans, and (3) the relationship of debtor and creditor between the bank and the depositor."
The Tax Court also held that MoneyGram did not satisfy § 581 because "receiving deposits and making loans do not constitute any meaningful part of MoneyGram's business, much less 'a substantial part.'" Because § 581 does not define "deposits" or "loans" the Tax Court drew its own definitions. As for "deposits," the Tax Court held that in the context of § 581, this term means "funds that customers place in a bank for the purpose of safekeeping," that are "repayable to the depositor on demand or at a fixed time," and which are held "for extended periods of time." The Tax Court held that money received by MoneyGram as part of its money order and financial services segments did not meet this definition because MoneyGram does not hold these funds for safekeeping or for an extended period of time.
With regard to "loans," the Tax Court held that this term means an agreement, "memorialized by a loan instrument" that "is repayable with interest," and that "generally has a fixed (and often lengthy) repayment period." The Tax Court held that the Master Trust Agreements entered into between MoneyGram and its agents do not meet this definition and are therefore not loans. Specifically, the Tax Court focused on the fact that the instrument used to memorialize this agreement is facially a trust agreement and not a loan agreement, and does not charge interest.
We review the decision of the Tax Court "in the same manner . . . as decisions of the district courts." Whitehouse Hotel Ltd. P'ship v. C.I.R., 615 F.3d 321, 330 (5th Cir. 2010) (quoting 26 U.S.C § 7482(a)). "We therefore examine this decision [de novo] as we do other summary judgment decisions." Deaton v. C.I.R., 440 F.3d 223, 226 (5th Cir. 2006) (quoting San Antonio Sav. Ass'n v.C.I.R., 887 F.2d 577, 581 (5th Cir. 1989)). Questions of statutory interpretation are issues of law and are reviewed without deference to the Tax Court. Howard Hughes Co., v. C.I.R., 805 F.3d 175, 180 (5th Cir. 2015).
Section 581 begins: "For purposes of sections 582 and 584, the term 'bank' means a bank or trust company incorporated and doing business under the laws of the United States (including laws relating to the District of Columbia) or of any State . . . ." 26 U.S.C. § 581. The Tax Court held that this imposes the requirement that an entity seeking classification as a "bank" must "be incorporated and must be a bank or trust company within the common understanding of those terms." Quoting the Fourth Circuit in Staunton Industrial Loan Corp. v. Commissioner, 120 F.2d 930 (4th Cir. 1941), the Tax Court next held that the common meaning of "bank" includes the "bare requisites" of "(1) the receipt of deposits from the general public, repayable to the depositors on demand or at a fixed time, (2) the use of deposit funds for secured loans, and (3) the relationship of debtor and creditor between the bank and the depositor."
MoneyGram challenges both the Tax Court's interpretation of § 581 as imposing the requirement that an entity be a bank within the common meaning of that term and its articulation of that common meaning. Specifically, MoneyGram argues that the Tax Court's interpretation impermissibly imposes an "ill-defined extra-statutory requirement that is inconsistent with the language and purpose of Section 581." Rather, MoneyGram argues that the beginning of § 581 only requires that the entity be "incorporated and operating legally."
To be sure, § 581 is not a model of statutory clarity. Its construction and circular use of the term "bank" are inherently ambiguous. Having carefullyconsidered this question, however, we concluded that the most consistent and harmonious reading of this section supports the Tax Court's conclusion that being a "bank" within the commonly understood meaning of that term is an independent requirement.
Both parties argue that the canon of interpretation against surplusage supports its position. The canon disfavoring surplusage is "one of the most basic interpretive canons." Corley v. United States, 556 U.S. 303, 314 (2009). Pursuant to this principle, "[a] statute should be construed so that effect is given to all its provisions, so that no part will be inoperative or superfluous, void or insignificant." Id. at 315 (alteration in original) (quoting Hibbs v. Winn, 542 U.S. 88, 101 (2004)). Accordingly, "[i]n construing a statute we are obliged to give effect, if possible, to every word Congress used." Reiter v. Sonotone Corp., 442 U.S. 330, 339 (1979).
MoneyGram contends that the Tax Court's interpretation renders § 581's requirement that a substantial part of the taxpayer's business consist of "receiving deposits and making loans and discounts" superfluous because the Tax Court's definition of the common meaning of bank also includes the receipt of deposits and the making of loans. Conversely, the IRS argues that MoneyGram's interpretation reads "bank or trust company" out of § 581.
MoneyGram's reading of § 581, in which the opening sentence only requires that an entity be "incorporated and operating legally," violates the canon against surplusage. In essence, MoneyGram reads the first portion of § 581 as follows: "For purposes of sections 582 and 584, the term 'bank' means a . . . company incorporated and doing business under the laws of the United States (including laws relating to the District of Columbia) or of any State." Such an interpretation must be disfavored.
We also find MoneyGram's argument that incorporating the common meaning of bank into the statute would render other portions of § 581superfluous unavailing. While it is true that the common meaning of bank adopted by the Tax Court is similar to § 581's requirement that "a substantial part of the [taxpayer's] business . . . consists of receiving deposits and making loans and discounts," these components are not completely duplicative. For instance, an entity could be a bank within the common meaning of the term but still fail to satisfy § 581's requirement that receiving deposits and making loans amount to "a substantial part of [its] business." In fact, nearly this exact situation arose in Magruder v. Safe Deposit & Trust Co. of Baltimore, 121 F.2d 981 (4th Cir. 1941). There, the Fourth Circuit considered whether the taxpayer was a "bank" under § 177(d) of the Revenue Act of 1934. Id. at 982. While § 177(d) limited the amount of capital losses that could be claimed, this limitation did not apply to taxpayers that were "a bank or trust company incorporated under the laws of the United States or of any State or Territory, a substantial part of whose business is the receipt of deposits." Id. (quoting 26 U.S.C. § 177(d)). The court treated each of these components as separate elements, noting that while it "entertain[ed] no doubt that the taxpayer is a 'trust company incorporated under the laws' of Maryland . . . we do not think it can qualify under the second and equally essential clause of the exempting statute: 'a substantial part of whose business is the receipt of deposits.'" Id. (quoting 26 U.S.C. § 177(d)).
Put another way, the Tax Court's interpretation that "bank" must be given its common meaning, which is in essence the receipt of deposits and making of loans,...
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