Trustmark Corporation and Subsidiaries v. Commissioner
| Decision Date | 28 April 1994 |
| Docket Number | Docket No. 18372-89. |
| Citation | 67 T.C.M. 2764 |
| Parties | Trustmark Corporation and Subsidiaries v. Commissioner. |
| Court | U.S. Tax Court |
Respondent determined the following deficiencies in petitioner's Federal income taxes:
Tax Year Ended Deficiency
12/31/73 ........................ $ 24,423
12/31/74 ........................ 518,184
In August 1983, Trustmark National Bank entered into an agreement to purchase the assets and liabilities of Canton Exchange Bank. This transaction constituted a taxable asset purchase for Federal income tax purposes.
The issues for decision relate to whether Trustmark National Bank is entitled in 1983 and 1984 to amortization of the core deposit intangible asset it purchased, thus increasing the amount of net operating loss carryback available in taxable years 1973 and 1974. Specifically, the issues are: (1) whether the core deposit intangible has an ascertainable value separate and distinct from goodwill/going concern value and has a limited useful life, the duration of which can be ascertained with reasonable accuracy; (2) if so, whether the values and amortization schedules used by petitioner are reasonable; and (3) whether petitioner may amortize the core deposit intangible on an accelerated basis.
Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.
Some of the facts have been stipulated and are so found. The stipulation of facts, the first supplemental stipulation of facts, the second supplemental stipulation of facts, the third supplemental stipulation of facts, the fourth supplemental stipulation of facts, and the exhibits attached thereto are incorporated herein by this reference.
Trustmark Corporation and its subsidiaries, with the exception of Trustmark National Bank, are Mississippi business corporations with their principal places of business in Jackson, Mississippi. Trustmark National Bank is a national banking association with its principal place of business in Jackson, Mississippi. The principal business of petitioner Trustmark Corporation and its subsidiaries is commercial banking. Petitioner Trustmark Corporation and its subsidiaries prepared consolidated Federal income tax returns on an accrual basis for the taxable years in issue.
Trustmark Corporation is a one-bank holding company, incorporated under the Mississippi Business Corporation Act in 1968 under the name of First Capital Corporation. On March 14, 1990, the name of First Capital Corporation was changed to Trustmark Corporation. The principal asset and major source of revenue of Trustmark Corporation is the stock of Trustmark National Bank. This stock accounts for approximately 95 percent of Trustmark Corporation's operating and net income. Trustmark Corporation owns approximately 99.5 percent of the outstanding stock of Trustmark National Bank. Trustmark Corporation also owns all of the stock of FS Corporation, whose sole activity is developing automobile financing, and of First Building Corporation, which manages and operates an office building in Jackson, Mississippi.
Trustmark Corporation is a bank holding company registered under the Bank Holding Company Act. As such, it is required to file an annual report and provide any other information that the Board of Governors of the Federal Reserve System may require. The Board of Governors of the Federal Reserve System may examine Trustmark Corporation and its subsidiaries. Additionally, every bank holding company must obtain prior approval of the Board of Governors of the Federal Reserve System before it may acquire substantially all of the assets of any bank, or ownership or control or any voting shares of any bank, if, after the acquisition, it would own or control, directly or indirectly, more than 5 percent of the voting shares of the bank.
Trustmark National Bank was originally chartered in 1889 as a State bank in Mississippi under the name of Jackson Bank. Jackson Bank merged with State National Bank, which had received its State charter in 1907 and its national charter in 1913. Jackson Bank then reorganized as a national bank and changed its name to Jackson State National Bank. In 1949, Jackson State National Bank merged with Capital National Bank, forming the First National Bank of Jackson. In September of 1985, the First National Bank of Jackson changed its name to Trustmark National Bank.
Trustmark National Bank is the second largest bank in Mississippi. As of December 31, 1982, Trustmark National Bank had total assets of approximately $1,437,861,000 and deposits of approximately $1,146,038,000. Trustmark National Bank provides a full range of consumer banking services, including checking accounts, negotiable order of withdrawal (NOW) accounts, savings programs, personal and business loans, money transfers, safe deposit facilities, as well as other interest-bearing time accounts. Trustmark National Bank also offers its customers MasterCharge and VISA credit cards.
Trustmark National Bank is a full-service commercial bank. Its corporate banking department provides a variety of financial services to businesses, including commercial and industrial loans, equipment financing, mortgage financing, term loans, small business loans, and letters of credit. Trustmark National Bank provides an outlet for data processing services, including automated payroll services, check reconciliations, and correspondent banking services.
Trustmark National Bank's trust department provides personal trust and agency services, custody of securities, investment management services, self-employed retirement plans, and corporate pension and profit-sharing trusts. Trustmark National Bank competes with other financial institutions, including national and state banking and savings and loan associations, personal loan companies, and credit unions in its service area for all types of deposits, loans, trust, and other financial services.
At the time of the acquisition in August 1983, Trustmark National Bank had 48 offices in the following cities and towns in Mississippi: Jackson, Clinton, Pearl, Brandon, Ridgeland, Columbia, Gloster, Liberty, Greenville, Leland, Greenwood, Hattiesburg, Petal, and McComb. The branch offices of Trustmark National Bank were located within a 100-mile radius of its home office in Jackson, Mississippi, the State capital of Mississippi and the county seat of Hinds County. As of December 31, 1982, Trustmark National Bank had approximately 1,147 employees and approximately 3,621 shareholders.
Hereinafter the term petitioner will refer to the First National Bank of Jackson as it was known at the time of the acquisition in 1983, or Trustmark National Bank as it is now known.
Northeast Jackson was one of the city's major growth areas in 1982 and 1983. Towns in south Madison County, which is just north of Hinds County, and particularly the towns of Ridgeland and Madison immediately to the north of Jackson's city limits, were growing rapidly in the early 1980s. They had become bedroom communities for many people who worked in Jackson, including many of petitioner's existing customers.
Petitioner had already opened a branch in Ridgeland and was aggressively pursuing new Madison County deposits. Petitioner viewed the acquisition of an existing bank with a high level of customer deposits as an expeditious means of achieving its goals. The Canton Exchange Bank in Madison County was such a bank. It was highly regarded and had good, stable deposits. The Canton Exchange Bank had good customer relationships throughout the whole county. For these reasons, petitioner was interested in that bank and wanted to acquire it.
On August 30, 1983, petitioner entered into an agreement with the Canton Exchange Bank (hereinafter the Acquired Bank) to purchase the assets and assume the liabilities of the Acquired Bank. Petitioner had actively considered the purchase of the Acquired Bank for at least 3 months before August 30th. At the time petitioner made its offer, the Acquired Bank was also considering an offer from Deposit Guaranty National Bank in Jackson, Mississippi.
Frank Day (Day) was the chairman of the board and chief executive officer of petitioner at the time of the acquisition. As such, he exercised the greatest authority in determining the offering price, subject only to the approval of petitioner's board of directors. Clyde Edwards (Edwards) was an executive vice president of petitioner at the time of the acquisition, and he was particularly knowledgable about the Madison County banking community. Edwards advised Day as to the offering price that was likely to be acceptable to the Acquired Bank.
John Tullos (Tullos) was an executive vice president and cashier of petitioner at the time of the acquisition. His primary responsibility in the acquisition of the Acquired Bank was the preparation of the application to the Office of the Comptroller of the Currency (OCC).
David R. Carter (Carter) is currently petitioner's chief financial officer and secretary/treasurer of Trustmark Corporation. In 1983 he was a vice president and comptroller of petitioner. Carter, along with others, determined the price to pay for the Acquired Bank. He used a computerized model to determine petitioner's earnings potential at various purchase prices. He was ultimately responsible for allocating or causing to be allocated to the core deposit intangible asset the amount claimed on petitioner's tax...
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