Deductibility of exit and entrance fees paid to the FDIC.

• Jurisdiction: United States
• Author: Ossen, Carolyn
• Date: 01 June 2002

In a divisive decision, the Tax Court concluded in Metrocorp, Inc., 116 TC 211 (2001), that exit and entrance fees paid to the Federal Deposit Insurance Corporation (FDIC) were currently deductible under Sec. 162. The FDIC administers and maintains the Savings Association Insurance Fund (SAIF) and the Bank Insurance Fund (BIF), to which a taxpayer paid exit and entrance fees, respectively, as part of its acquisition of a failed savings and loan, which the taxpayer then converted from a savings association into a bank.

Future-Benefit Test

This decision reflects a narrowing of the significant-future-benefit test of INDOPCO, Inc., 503 US 79 (1992). In Metrocorp, the court clearly differentiated between significant benefits and incidental (and thus insignificant) benefits. The IRS argued that the taxpayer reaped incidental benefits, demonstrated by the ability to subject itself to one regulatory scheme and continue its association with the BIF (which was more stable than the SAIF). According to the Tax Court, any alleged advantages flowing from the benefits of these associations were incidental, allowing the fees to be deductible...