In re United Western Bancorp, Inc.

          Appeal from the United States District Court for the District of Colorado (D.C. No. 1:16-CV-02475-WJM)

          Mark E. Haynes (Michael M. Lane, with him on the briefs), Ireland Stapleton Pryor & Pascoe, P.C., Denver, Colorado, appearing for Appellant.

          Joseph Brooks, Counsel (Colleen J. Boles, Assistant General Counsel, Kathryn R. Norcross, Senior Counsel, and Michelle Ognibene, Counsel, on the brief), Federal Deposit Insurance Corporation, Appellate Litigation, Arlington, Virginia, appearing for Appellees.

          Before BRISCOE, SEYMOUR, and HOLMES, Circuit Judges.

          BRISCOE, Circuit Judge.

         This appeal, which arises out of a bankruptcy adversary proceeding, concerns the ownership of a federal tax refund. The tax refund was issued by the Internal Revenue Service (IRS) to United Western Bancorp, Inc. (UWBI), a thrift holding company that had, under the terms of a written "Tax Allocation Agreement, " filed consolidated returns on behalf of itself and several subsidiary corporations. The tax refund was the result, however, of net operating losses incurred by United Western Bank (the Bank), one of UWBI's subsidiaries.

         Simon Rodriguez, in his capacity as the Chapter 7 Trustee for the bankruptcy estate of UWBI, initiated this adversary proceeding against the Federal Deposit Insurance Corporation (FDIC), as receiver for the Bank, alleging that the tax refund was owned by UWBI and was thus part of the bankruptcy estate. The bankruptcy court agreed and entered summary judgment in favor of the Trustee. The FDIC appealed to the district court, which reversed the decision of the bankruptcy court. The Trustee now appeals from the district court's decision.

         Exercising jurisdiction pursuant to 28 U.S.C. § 158(d)(1), we agree with the district court that the tax refund belongs to the FDIC, as receiver for the Bank. Consequently, we affirm the judgment of the district court and remand to the bankruptcy court for further proceedings.

          I

         a)UWBI and its affiliates

         UWBI is a Colorado corporation and a "unitary thrift [or bank] holding company." Aplt. App., Vol. I at 41. UWBI owned several affiliate subsidiaries, including the Bank. The Bank, UWBI's principal subsidiary, was headquartered in Denver and operated a community-based banking network that was comprised of eight banking locations and a loan servicing office.

         b)The Tax Allocation Agreement

         UWBI's affiliate subsidiaries were "members of an affiliated group . . . within the meaning of Section 1504(a) of the Internal Revenue Code of 1986." Id. at 41; see 26 U.S.C. § 1504(a). Beginning in 2004 and continuing thereafter, the affiliated group "file[d] . . . consolidated federal income tax returns." Aplt. App., Vol. I at 41.

         On January 1, 2008, UWBI and its affiliate subsidiaries entered into a Tax Allocation Agreement (the Agreement).^[1] The Agreement's preamble noted that the affiliates had previously filed, and intended to continue to file, "consolidated federal income tax return[s]." Id. The preamble further stated that "UWBI and the Affiliates desire[d] to establish a method for (i) allocating the consolidated tax liability of the Group among its members, (ii) reimbursing UWBI for the payment of such tax liability, and (iii) compensating each member of the Group for the use of its losses by any other member of the Group." Id.

         The Agreement in turn, under Section A, entitled "General Rule - Federal, " outlined how federal tax payments would be made:

1. Except as specifically set forth herein to the contrary, each Affiliate shall pay UWBI an amount equal to the federal income tax liability such Affiliate would have incurred were it to file a separate return (or, if appropriate, a consolidated return with its subsidiary affiliates). If a regulated first-tier Affiliate incurs a net operating loss or excess tax credits, the regulated Affiliate is entitled to a refund equal to the amount that it would have been entitled to receive had it not joined in the filing of a consolidated return with UWBI. Similar treatment is optional at UWBI discretion for nonregulated first-tier Affiliates. Any refund shall generally not exceed the amount claimed or received as a refund resulting from a carryback claim filed by UWBI. However, this shall not prevent UWBI from the ability to make a refund over the amount received or claimed as a refund or carryback, if in its sole discretion it believes such payment is in its best interest. Additionally, if part of [sic] all of an unused consolidated net operating loss, net capital loss, tax credit or similar type item is allocated to an Affiliate pursuant to Regulations Section 1.1502-21, and it is carried back, if utilized, or it is carried forward, whether or not utilized, to a year in which such Affiliate filed a separate income tax return or a consolidated federal income tax return with another group, any refund or reduction in tax liability arising from the carryback or carryforward shall be retained by such Affiliate and such item shall not enter into the calculation of liability to or from UWBI.

2. In essence, this Agreement requires that each first-tier subsidiary be treated as a separate taxpayer with UWBI merely being an intermediary between an Affiliate and the Internal Revenue Service ("IRS").

Id. The Agreement also, in Section C, included "specific policies designed to cover certain factual scenarios" including, for example, "[c]haritable contributions." Id. at 42.

         Section G of the Agreement stated that "[e]ach Affiliate hereby appoints UWBI as its agent, as long as such Affiliate is a member of the UWBI group, for the purpose of filing such consolidated Federal income tax returns for the UWBI group as UWBI may elect to file and making any election, application or taking any action in connection therewith on behalf of the Affiliates." Id. at 44. Each affiliate also, under Section G, "consent[ed] to the filing of any such returns and the making of any such elections and applications." Id.

         Under Section H, entitled "Miscellaneous, " the Agreement contained a provision regarding refunds from the IRS:

In the event of any adjustment to the tax returns of the Group as filed (by reason of an amended return, claim for refund, or an audit by a taxing authority), the liability of the parties to this Agreement shall be re-determined to give effect to any such adjustment as if it had been made as part of the original computation of tax liability, and payments between the appropriate parties shall be made within 10 business days after any such payments are made or refunds are received, or, in the case of contested proceedings, within 10 business days after a final determination of the contest.

Id. (quoting § H.1).

Also under Section H, the Agreement stated, in pertinent part:

The intent of this Agreement is to provide an equitable allocation of the tax liability of the Group among UWBI and the Affiliates. Any ambiguity in the interpretation hereof shall be resolved, with a view to effectuating such intent, in favor of any insured depository institution.

Id. at 45 (quoting § H.4).

         c) UWBI's filing of federal tax returns on behalf of the group

         UWBI proceeded, in accordance with the terms of the Agreement, to file federal income tax returns for the consolidated group. In doing so, "the tax liabilities and tax benefits" were computed "on a separate-entity basis for each Affiliate, " but UWBI ultimately filed one tax return "on a consolidated basis." Id. at 82.

         For the tax year 2008, UWBI filed a federal income tax return for the affiliated group and reported that the Bank generated $34, 397, 709 in taxable income. The return indicated that UWBI itself did not generate taxable income in 2008.

         In 2010, the Bank suffered at least $35, 351, 690 in losses. Based upon the Bank's 2010 net operating losses, UWBI, at some point in 2011, filed on behalf of the affiliated group a tax refund request of $4, 846, 625 to recover a portion of the taxes paid by the Bank on its 2008 taxable income.^[2]

         d) Appointment of the FDIC as ...