Norwest Corp. v. Comm'r of Internal Revenue

• Court: United States Tax Court
• Citation: 111 T.C. 105,111 T.C. No. 5
• Docket Number: 3724–95,3725–95.,Nos. 26499–93,3723–95,s. 26499–93
• Parties: NORWEST CORPORATION and Subsidiaries, Successor in Interest to United Banks of Colorado, Inc., and Subsidiaries, et al.,1 Petitioners, v. COMMISSIONER of Internal Revenue, Respondent.
• Decision Date: 10 August 1998

111 T.C. 105
111 T.C. No. 5

NORWEST CORPORATION and Subsidiaries, Successor in Interest to United Banks of Colorado, Inc., and Subsidiaries, et al.,1 Petitioners,
v.
COMMISSIONER of Internal Revenue, Respondent.

Nos. 26499–93

3723–95

3724–95

3725–95.

United States Tax Court.

Aug. 10, 1998.

[111 T.C. 106]

Walter A. Pickhardt, Mark Hager, and Scott G. Husaby for petitioners.

Jack Forsberg, Tracy Martinez, and Robert M. Ratchford, for respondent.

OPINION HALPERN, Judge.

Norwest Corp. (Norwest), a Delaware corporation, is the petitioner in each of these consolidated cases. Norwest is the petitioner by virtue of being the successor in interest to various other corporations. When necessary for clarity, we shall refer by name to Norwest or one or the other of those predecessor corporations. Otherwise, we shall use the term “petitioner” to refer without distinction to Norwest or one or more of the predecessor corporations.

These consolidated cases involve determinations by respondent of deficiencies in petitioner's Federal income taxes and claims by petitioner of overpayments, as follows:

 Norwest Corp. & Subs., Successor in Interest to United Banks ofDocket No. 26499“93 Colorado Inc., & Subs. ------------------------------------------------------------------ Taxable Year Ending Deficiency Overpayment------------- ----------- -----------Dec. 31, 1988 $1,375,108 $1,655,377Dec. 31, 1989 1,220,465 1,073,562Dec. 31, 1990 11,709 641,481Apr. 19, 1991 20,390 200,417 Norwest Corp., Successor in Interest to United Banks ofDocket No. 3723“95 Colorado, Inc., and Subs. ------------------------------------------------------------------ Taxable Year Ending Deficiency Overpayment------------- ----------- -----------Dec. 31, 1977 $ 169,807 $2,266,944Dec. 31, 1978 390,485 3,625,304Dec. 31, 1979 123,996 5,931,559Dec. 31, 1980 2,778 467,598Dec. 31, 1984 648,163 3,374,964Dec. 31, 1985 4,637,602 1,596,738 Norwest Corp., Successor in Interest to Intrawest FinancialDocket No. 3724“95 Corp. and Subs. ------------------------------------------------------------------ Taxable Year Ending Deficiency ------------- ---------- Dec. 31, 1980 $34,413 Apr. 30, 1987 1,010 Norwest Corp., Successor in Interest in Lorin InvestmentDocket No. 3725“95 Co., Inc., and Subs. ------------------------------------------------------------------ Taxable Year Ending Deficiency ------------- ---------- Dec. 31, 1980 $20,491 Dec. 31, 1981 10,371 

[111 T.C. 107]

After concessions by the parties, the issues remaining for decision are (1) whether petitioner may allocate the cost of certain property to the bases of other properties, (2) whether petitioner is entitled to a loss deduction under section 165(a) for the cost of certain property, (3) whether petitioner may disavow the form of a transaction relating to certain property, (4) whether petitioner is entitled to refunds of tax paid pursuant to section 56(a), (5) the applicable recovery period for determining depreciation deductions with respect to certain furniture and fixtures, and (6) the appropriate method for determining that portion of a consolidated net operating

[111 T.C. 108]

loss attributable to the bad debt deductions of the bank members of an affiliated group. Some of the facts have been stipulated and are so found. The stipulations of facts filed by the parties, with accompanying exhibits, are incorporated herein by this reference. The parties have made 150 separate stipulations of fact, occupying more than 40 pages, and there are 174 accompanying exhibits. We shall set forth only those stipulated facts that are necessary to understand our report, along with other facts that we find.

Unless otherwise noted, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

CONTENTS

 I. Background ............................................................ 7 II. Atrium Issues ......................................................... 8 A. Findings of Fact ................................................... 8 1. Background ................................................... 8 2. Events Preceding the 1981 Transactions ....................... 11 a. Introduction ............................................ 11 b. The Committee Meeting of August 24, 1979 ................ 12 c. The Harrison Price Report ............................... 13 d. The Planning Dynamics Report ............................ 14 e. The Committee Meeting of August 25, 1980 ................ 15 f. Approval of the Facilities Master Plan .................. 16 3. The 1981 Transactions ........................................ 16 a. The 1700 Partnership .................................... 16 b. The Ground Lease ........................................ 16 c. The Atrium Project Agreement ............................ 17 d. The Skyway Agreement, the 1981 Easement Agreement, and the Space Lease ....................................... 18 4. The Ross and Eastdil Reports ................................. 19 5. The Committee Meeting of October 24, 1984 .................... 22 6. Construction and Operation of the Atrium ..................... 22 7. The Atrium Assets: Cost Bases and Depreciation ............... 24 8. The 2UBC Transaction ......................................... 26 a. The Various Agreements .................................. 26 b. Tax Treatment of the 2UBC Transaction ................... 27 9. The 3UBC Transaction ......................................... 28 a. The Various Agreements .................................. 28 b. Tax Treatment of the 3UBC Transaction ................... 30 10. The LUBC Land Transaction .................................... 30 11. The 1988 Atrium Transaction .................................. 31 a. Background .............................................. 31 b. The Atrium Sale Agreement ............................... 31 c. Tax Treatment by UBC of the 1988 Atrium Transaction ..... 33 d. UBC's Financial Statements .............................. 34 e. Petitioner's Responses to Information Document Requests Regarding the Atrium .................................. 34 B. The Atrium Assets: Allocation of the Costs ......................... 35 1. Issue ........................................................ 35 2. Arguments of the Parties ..................................... 36 3. Analysis ..................................................... 38 a. Developer Line of Cases ................................. 38 b. The Principles of the Developer Line of Cases ........... 42 c. Application of the Basic Purpose Test ................... 44 4. Conclusion ................................................... 49 C. The Atrium Assets: Loss Deduction Under Section 165(a) ............. 51 D. The 1988 Atrium Transaction: Disavowal of Form ..................... 52 1. Issue ........................................................ 52 2. Arguments of the Parties ..................................... 52 3. Analysis ..................................................... 53 a. Introduction ............................................ 53 b. The Danielson Rule Does Not Apply ....................... 54 c. Respondent's Weinert Rule ............................... 55 d. Estate of Durkin v. Commissioner ........................ 58 e. Petitioner May Not Disavow the Form of the 1988 Atrium Transaction ........................................... 59 4. Conclusion ................................................... 62III. Corporate Minimum Tax Issue ........................................... 62 A. Introduction ....................................................... 62 B. The Corporate Minimum Tax Provisions ............................... 63 C. The Two Methods .................................................... 64 1. UBC's Method ................................................. 64 2. Petitioner's Method .......................................... 64 D. Analysis ........................................................... 67 1. Issue ........................................................ 67 2. Arguments of the Parties ..................................... 67 3. Discussion ................................................... 69 E. Conclusion ......................................................... 75 IV. Furniture and Fixtures Recovery Period Issue .......................... 75 A. Introduction ....................................................... 75 B. Applicable Recovery Period; Class Life ............................. 78 C. Arguments of the Parties ........................................... 80 D. Discussion ......................................................... 81 E. Conclusion ......................................................... 87 V. Net Operating Loss Issue .............................................. 87 A. Introduction ....................................................... 87 B. Facts .............................................................. 89 C. Petitioner's Position .............................................. 93 D. Discussion ......................................................... 94 E. Conclusion ......................................................... 97

[111 T.C. 110]

I. Background

On the date that the petition in each of these cases was filed, Norwest's principal place of business was in Minneapolis, Minnesota. Norwest is a bank holding company whose affiliates provide banking and other financial services.

On April 19, 1991, United Banks of Colorado, Inc. (UBC), a Colorado corporation, was merged with and into Norwest pursuant to section 368(a)(1)(A). At all relevant times prior to its merger with Norwest, UBC was the common parent corporation of an affiliated group of corporations making a consolidated return of income (the UBC affiliated group). UBC was a calendar-year taxpayer. Petitioner is the successor in interest to the UBC affiliated group as it existed during the years in issue.

On May 1, 1987, Intrawest...