Full opinion text
FINDINGS OF FACT AND CONCLUSIONS OF LAW PROPST, District Judge. This cause came on to be heard at a bench trial which concluded on October 22, 1987. THE ISSUE Can a bank which acquires the assets and assumes the liabilities of another going concern bank assign some or all of the price paid in excess of tangible values purchased, to an intangible asset known as “customer deposit base” and capitalize, amortize and deduct the same pursuant to Section 167(a) of the Internal Revenue Code and Treasury Regulation § 1.167(a)? FINDINGS OF FACT The Players AmSouth Bancorporation and Subsidiaries (hereinafter collectively referred to as AmSouth) is a national banking organization, organized and existing under the laws of the State of Delaware, with its principal place of business in Birmingham, Alabama. In February 1979, AmSouth, then named Alabama Bancorporation, acquired the assets and assumed the liabilities of the Bank of East Alabama (BEA), a state-chartered bank located in Opelika, Lee County, Alabama. AmSouth’s total cash payment was $4.8 million. A newly formed corporation continued to operate under the BEA name until 1983 when its name was changed to AmSouth. At the time AmSouth purchased BEA, BEA was one of eight banking institutions in Lee County, Alabama. BEA had more assets than any of the other banks. Lee County was considered to be an attractive, second-tier banking market. Prior to the acquisition of BEA, AmSouth had no operations in Lee County. The Tax Returns AmSouth timely filed federal corporate tax returns for 1978, 1979, and 1980 with the Internal Revenue Service (IRS). The returns reflected depreciation deductions taken by AmSouth, purportedly pursuant to Section 167(a) of the Internal Revenue Code toward the value of the “customer deposit base” AmSouth acquired from BEA. The core deposits of a bank are generally considered in the banking industry to include the demand (checking) and savings accounts of customers and certificates of deposit of less than $100,000.00. The “customer deposit base” is a value assigned to such deposits. The IRS rejected AmSouth’s depreciation deductions and assessed deficiencies against AmSouth. AmSouth timely paid in full the alleged deficiencies. On December 23, 1985, AmSouth filed with the IRS Regional Service Center in Atlanta, Georgia, claims for refunds for the years 1978,1979, and 1980 on Forms 1120-X. AmSouth requested refunds of $81,320.00 and $92,-938.00 for 1978 and 1979, respectively, with no refund due for 1980 due to the carry-back of excess credits reflected in the 1978 return. The IRS never acted on Am-South’s refund request, and this lawsuit followed. BEA’s History Prior To The Sale BEA was the oldest and a well-established bank in Opelika, Lee County, Alabama which began experiencing difficulties because of bad loans and questionable investments made during the early 1970s. These difficulties resulted from the well-publicized, illegal activities of its president since 1969 and Opelika Mayor, Robert McCullough. McCullough resigned as president of BEA effective January 1, 1977 and was imprisoned for a time as a result of these activities. From about 1976 until the time of the AmSouth acquisition, BEA suffered substantial loan losses, many of the loans having been made on the authority of McCullough. On June 16, 1976, after Opelika National Bank had applied to convert to a state chartered bank, the State Superintendent of Banks required, as a condition of approval, inter alia, that the bank increase its capital by one million dollars of which at least $500,000.00 was to be in new common stock. Although the capital increase was stated to be a condition of approval, the bank was given until 90 days after date of conversion to comply. The Superintendent further required, as a condition of approval, that no dividends be paid without the consent of the Superintendent. The Superintendent required that the directors of the bank adopt a resolution “assuring compliance with these conditions,” and stated that “we will then issue a Certificate of Approval and a Permit to Transact Business as a state chartered bank.” The bank resolved to comply. Thereafter the charter, etc. was issued in September 1976. On February 1,1977, the FDIC approved a request of the bank that it be allowed to acquire 1,404 shares of its stock at $850.00 per share as treasury stock, subject to the condition that the bank’s total capital be increased by one million dollars. The capital-to-asset ratio for BEA was 5.5 percent in 1972, 5.7 percent in 1973, 5.9 percent in 1974, 6.1 percent in 1975, 6.6 percent in 1976, 7.5 percent when plaintiff evaluated BEA in mid-autumn of 1977, and 8.0 percent by the end of 1977. The national average capital-to-asset ratio for commercial banks in 1960 was 8.1 percent, 6.6 percent in 1970 and 5.8 percent in 1980. BEA’s ratio of loans to deposits had reached an unacceptably high level of 89 percent in 1976 but had been reduced to 80 percent at the time BEA approached plaintiff in 1977. BEA paid a dividend to its shareholders in each year applicable to this case. Earnings per share rose from $.16 in 1976 to $3.84 in 1977. The Bank’s market share and deposit growth rate declined during the three or four years before the acquisition. This could have been partially explained by an increased number of banks in the county and developing bank holding company influence. There is some room for dispute as to why BEA’s Board of Directors ultimately determined “to sell” the bank. The decision ultimately was influenced by concern about the bank’s loan portfolio, the need to raise capital, a possible deterioration of stock values, etc. There is no reason for the court to speculate on whether the bank could have raised the necessary additional capital if the attempt had been made. Although there was some desire on the part of the bank’s Board to remain independent and some indication of support among directors for raising additional capital, that was not the route taken. A capital deficiency was the bank’s main problem. The Negotiations In August of 1977, the Chairman of the Board of First Alabama Bankshares (First Alabama) approached BEA about its purchasing BEA. Thomas Botsford, acting President of BEA, later contacted the plaintiff. Over the summer and fall of 1977, negotiations ensued with both bank holding companies. These potential purchasers were aware of BEA’s financial condition when making their offers. In November of 1977, First Alabama made its final offer of $45 (plus an additional reserve amount conditioned on future loan losses). A $45 price represented 1.5 times book value. The BEA Board rejected First Alabama’s final offer. BEA’s Board of Directors decided to solicit a purchase offer from AmSouth. The plaintiff’s internal analysis of BEA projected a stock price in the $50 to $60 range. The plaintiff, in valuing BEA, paid particular attention to return on assets. The analysis that Dorothy Thomas prepared for plaintiff’s Chairman John Woods projected a return on assets of 0.76 percent in order to cover a purchase price of $60 per share. The first nine months of the 1977 return on assets for BEA was 0.79 percent. The Thomas analysis projected the return on assets to rise to 0.87 percent in 1978 and 0.97 percent in 1979. Plaintiff’s own return on assets for 1977 was 0.95 percent. In view of this analysis, the plaintiff’s Board of Directors authorized negotiations in the mid-$50 range, or about 1.63 times book value. Plaintiff’s first offer, after reviewing BEA’s books, was $55 per share. BEA’s board rejected this offer. On November 25, 1977, John Woods met with Mr. Bots-ford, and raised plaintiff’s offer to $57 per share. Mr. Botsford informed Mr. Woods that the price was probably insufficient. In a telephone conversation shortly thereafter, Mr. Botsford informed Mr. Woods of BEA Board’s decision to reject the $57 per share offer. Mr. Woods then increased plaintiff’s offer to $60 per share. BEA’s Board of Directors agreed to the $60 per share price and recommended this offer to its shareholders. The Board of BEA accepted. This price, $60 per share, was 1.875 times book value. On December 30, 1977, as a result of negotiations between the parties, the plaintiff and BEA announced that plaintiff would acquire BEA, for a price of $60 per BEA share, subject to shareholder and regulatory approval and certain examinations of BEA. At that time, there were 80,000 shares of BEA stock outstanding. The Agreement and Closing BEA remained in charge of its operations and continued to function as an independent bank until the acquisition was completed on February 28, 1979. On June 12, 1978, BEA signed a Merger Agreement with the plaintiff. The Merger Agreement reflected the $60 per share price, but included no allocation of the price to specific assets or liabilities, i.e., no separately assigned value to any “customer deposit base.” There were no early discussions or negotiations concerning the value of the customer deposit base (or “core deposits intangibles”). There is no evidence that plaintiff specifically considered the value of the customer deposit base as a separate item until July 12, 1978, when the plaintiffs senior accountant (Harvey Campbell) sent a memorandum on the matter to Mi*. Woods, referring to the tax advantage of such an approach. On August 25, 1978, the plaintiff and BEA executed an Agreement of Purchase and Assumption. Pursuant to the terms of that Agreement, the plaintiff would pay BEA the sum of $4.8 million (that is, $60 for each of 80,000 shares), and assume all liabilities of BEA, in return for the acquisition of all assets of BEA. The Agreement also provided that the purchaser would reemploy all of the employees of BEA. The Agreement provided a preliminary allocation of the purchase price among BEA’s assets as follows: Bank Premises & Equipment $ 1,800,000.00 Customer Deposit Base 1,700,000.00 Loan Portfolio 25,793,000.00 Investment Portfolio 3,489,000.00 Cash & Other Assets $ 7,745,000.00 Total Assets $40,527,000.00 Less: Liabilities Assumed ($35,727,000.00) Total Purchase Price $ 4,800,000.00 This allocation was developed by AmSouth with little or no input by BEA. The net cash payment was the same as agreed upon earlier before customer deposit base had been specifically discussed and considered. The plaintiff and BEA did not realistically negotiate an allocation to the value of customer deposit base. The plaintiff determined the categories and values as assigned in the contract documents. BEA’s primary concerns were first to negotiate the best price per share and, secondarily, to protect its employees. The Agreement tentatively allocated the purchase price to various assets and liabilities, including $1.7 million to “Customer Base,” but provided that the purchase price could be reallocated at the time of actual closing. This price allocation by the plaintiff had no adverse tax impact upon BEA or its shareholders. After various AmSouth personnel evaluated certain aspects of BEA, and after each asset had been appraised or otherwise evaluated, AmSouth and BEA executed an Amendment to the Purchase and Assumption Agreement on February 28, 1979, the day before the acquisition closed. The Amendment to the Purchase and Assumption Agreement recorded the following revised allocations of the purchase price among the various assets purchased. (The closing was on this basis). Bank Premises & Equipment $ 2,026,788.12 Customer Deposit Base 1,679,045.19 Loan Portfolio $ 27,630,537.16 Investment Portfolio 3,134,305.00 Cash & Other Assets 5,382,143.67 Total Assets $39,852,819.14 Less: Liabilities Assumed ($35,052.819.14) Total Purchase Price $4.800.000.00 The customer deposit base was based on the evaluations of “outside” parties as suggested in Campbell’s memorandum of July 12, 1978. No amount was allocated to goodwill or going-concern value. At the time of the acquisition, AmSouth was the largest bank holding company in Alabama and BEA was the largest of eight banks in Lee County and, of course, the largest of three banks in Opelika. At the time, the BEA purchase was the plaintiff’s largest purchase of a separate bank. There may be an inference that the regulatory authorities approved the transaction because of some perceived weakness in BEA’s financial status and plaintiff’s willingness to inject $500,000.00 additional capital notwithstanding normal antitrust considerations. Subsequent to this acquisition, the plaintiff continued operations in Opelika, at the same locations, with substantially the same personnel, under the same name, with the same Board of Directors and managed by the same officers. A customer entering the bank on March 1, 1979, the day after the closing, would have likely noticed no substantial difference in the operations. Plaintiff continued to use the name, “Bank of East Alabama,” until 1983, when all its operations statewide adopted the name “AmSouth.” The plaintiff, operating through the successor BEA, did not segregate or maintain the demand and savings accounts on deposit at BEA on February 27, 1979 (the day before the closing), separate and apart from the demand and savings accounts opened at BEA subsequent to that date. For its income tax reporting purpose, plaintiff claimed that the “customer base” price of $1,679,045, which represented the residual, unallocated premium paid for the BEA assets, was a depreciable asset, and claimed depreciation deductions based on an amortization schedule of 40 years. The Internal Revenue Service, upon examination of the income tax returns of plaintiff, disallowed the depreciation deductions claimed for such “customer base.” Thereafter, the plaintiff paid those income taxes assessed against it, together with appropriate interest, and filed claims for refund for various tax years seeking to recover those income taxes paid “resulting from the dis-allowance of amortization of a core deposit intangible.” Court’s Summary of BEA’s Condition At Time Of Acquisition The court was, of course, inundated with various financial reports, letters, minutes, etc. Apparently, the plaintiff senses that if it can establish that BEA had no goodwill or was on the brink of failure or otherwise debilitated, its case in this relatively new area is somewhat strengthened. The defendant, whether necessary or not under the circumstances, of course reacts and suggests that BEA was not nearly as decrepit as plaintiff would have the court believe. To the extent that this issue is greatly significant, one way or the other, it can be reduced to a much less complicated essence than has been suggested. Basically, the oldest and largest bank in Lee County (chartered in 1869 as a private bank) was victimized, over a relatively brief span, by a president who used the bank for his own benefit and for the benefit of the Gregorys and perhaps others of similar stripe. By the time the other officers and directors, none of whom are implicated in any negative way by the evidence, awoke, the bank was in relatively bad financial shape because of bad loans, excessive expenses and some high interest rate deposits acquired in a deregulating market. This status was not wholly unusual for the times. The bank was also somewhat victimized by the adverse publicity generated by the associated criminal charges against the same president. While such publicity is obviously not to be desired, there is no substantial evidence that the publicity itself adversely affected the bank’s financial status or goodwill. There was no deposit “runoff,” silent or otherwise, and the leveling of deposit growth rate could be reasonably attributed to the increase in the number of banks in the county and the expanding of statewide bank holding company influence in the market. There is little question that the bank’s financial status had been impaired, primarily because of bad loans, and that it required additional capital injection. While BEA’s capital position worsened, there is no real evidence that its goodwill had subsided. Plaintiff has tended to overemphasize the influence of the publicity concerning the president. The bad loans caused the problem. FDIC noted in its November 1976 report that earnings had not kept pace with deposit growth. The primary problem was such McCullough allowed borrowings as the Scottsboro bonds and the Gregory loan(s). The reputation of the new president Botsford and the other officers and directors helped offset most of the bad publicity. After McCullough resigned in December 1976, BEA began to show some improvement because of better management. It would have likely required additional capital, however, to have profitably survived. Its somewhat improved condition was indicated by the escalating per share offers of First Alabama and plaintiff. In August 1977, the FDIC noted that the financial condition was still not good but better. The various offers of First Alabama and plaintiff were more geared to the Gregory line and other loan values than to goodwill. In late 1977, BEA’s directors recognized that BEA had to have additional capital. They further recognized that a public sale of stock and/or debentures was inappropriate under the circumstances. While some of the directors were willing to further invest substantial sums, approximating one-half of the anticipated needs, some were not. The directors opted for a sale to plaintiff. After negotiations during which the plaintiffs offer was raised to a level acceptable to BEA’s directors, the bargain was struck without any prior indication of a consideration by plaintiff of capitalizing and amortizing a core deposit base. The basic result was to continue the bank as it was, except for $500,000.00 additional capital to offset loan losses. Lee County was recognized by plaintiff to be a highly desirable market. Plaintiffs witness, Dr. Morgan, perhaps was correct when he stated that the bank was in a somewhat “distressed” condition, but not failed. Former BEA Vice President Walter Parrent referred to the bank as “troubled,” but not failed. Former BEA Acting President Botsford testified that the bank was not failing. He also testified that BEA had a broader customer base in numbers than its competing banks, that there was no deposit runoff and that he was satisfied with the price per share paid by plaintiff. The Customer Deposit Base By acquiring BEA’s assets, including its customer relationships, AmSouth was able to forego the substantial marketing expense and business development normally needed initially to obtain deposit relationships. In the commercial banking industry, deposit relationships represent the most favorable source of funds and are one of the most important factors with respect to the profitability of a commercial bank. Deposit relationships tend to be the focal point for other bank customer relationships. Since the ability of a bank to attract and retain core deposits is the main factor in the size and scope of its business, most banking services are designed to keep and develop those deposit relationships. Once a deposit relationship is established, it generally will be retained, all things being equal, for a period of time with little, if any, need for the bank to engage in further direct marketing efforts. At some point, deposit relationships with specific customers eventually terminate because the circumstances of a bank’s customers change with time. They are also regenerated via family members and business successors, new business, etc. AmSouth employed the accounting firm of Ernst & Ernst and the bank consulting firm of Golembe & Associates, Inc. to determine the value and useful life of the customer deposit base to be acquired from BEA. The firms conducted their evaluations in the fall of 1978. Each firm developed separate approaches to determine the value and longevity of the customer deposit base. The Golembe report assigned a value of $3 million to the BEA customer deposit base to be acquired by AmSouth. The Ernst & Ernst report assigned the BEA deposit base a value of $3.1 million. AmSouth adopted the Ernst & Ernst approach to amortizing the intangible asset over a forty year period for business accounts and a twenty-five year period for individual accounts using an accelerated method. The Ernst & Ernst report determined the present value of the customer deposit base by calculating the differential in the incremental borrowing rate of AmSouth and the alternative funds rate (based on BEA’s cost of funds and the cost of AmSouth’s equity investment in BEA), multiplied by the projected average balances of the customer deposit base for the estimated useful life of that deposit base. The Golembe report defined the value of the deposit base as the discounted present value of the projected net income to be obtained from that part of the acquired deposit base that remains in each successive year over its useful life. The Ernst & Ernst and Golembe reports attempted to determine the useful life of the customer deposit base by evaluating BEA’s history of closed accounts to develop an annual closing rate. The reports also utilized mortality rates and relocation rates in attempting to determine the customer deposit base’s useful life. While specific customer deposit relationships obviously have some limited life, the court cannot find that there is any scientifically accurate way to measure such life span. The estimates of the two evaluators may be reasonable. The customer deposit base, or the core deposit intangible, is, at best, an imprecise concept. The court was presented with several definitions and evaluation approaches. There appears to be an agreement that customer deposit base, or core deposits, should have three basic features. Core deposits should be a relatively low-cost source of funds to the bank, reasonably stable over time and relatively insensitive to interest-rate changes. Not all deposits at a financial institution are core deposits. During the time period 1977 through 1979, the type of account that most clearly meets the three features set out above would be the checking account, which paid no interest and was ongoing in nature. On the other end of the spectrum would have been large amount certificates of deposit: these accounts paid near money market rates, were for a set period of time and were highly sensitive to interest-rate changes. Even smaller amount certificates of deposits are sensitive to interest changes. The plaintiffs treatment of the alleged asset failed to comply with generally accepted accounting principles (GAAP) in several respects. Under Accounting Principles Board Opinions Nos. 16 and 17, other tangible assets should have been proportionately reduced to eliminate negative goodwill caused by the 3.1 million dollar estimate of the core deposit base value over and above the purchase premium of $1,679,054. Plaintiff failed to do this. Financial Accounting Standards Board Statement No. 72 requires periodic updates of the estimation of the intangible value. Plaintiff failed to do any follow-up studies of closing rates, average balances or of any other type. Finally, the loan portfolio was not independently appraised, as required by GAAP, but was assumed to have a fair market value equal to face value. Ernst, as well as Golembe, used a “snapshot” approach. This approach assumes that all deposit accounts at BEA on a specific day will never experience any material growth, and eventually will decrease and be closed out. The “snapshot” approach does not specifically allow for additional deposit growth in existing accounts or existing customers opening new types of accounts at the bank. This “snapshot” approach also places no value on the ability of the bank to draw in and acquire new customer relationships. The “snapshot approach” also used the date of December 31, 1978, as the baseline for the total deposits at BEA, but provided no justification for the use of that date, rather than the date the parties agreed to close the sale. Total deposits at BEA varied by some $5 million over the course of 1978. The Ernst and Golembe Reports made no attempt to measure the value of the loan business or to determine how the two components of the business interact and affect the value of each other. Accounting Principles & Regulatory Requirements There are substantial differences between Generally Accepted Accounting Principles (GAAP), regulatory accounting principles and accounting for income taxes, because each has a separate purpose. Accounting and accounting principles vary according to the purpose to be served. Accounting data may be reported to provide financial information to the public, to serve management, to meet regulatory authority requirements, or to satisfy taxing authority requirements. APB 16 and 17 are basically premised on the thought that we can give more information if we attempt to break intangible assets into more categories whether entirely separable from goodwill or not. The attempt is made even though there may he an overlap. Regulatory accounting is generally akin to financial accounting with a view toward conservatism, not taxation. The trend of the regulatory authorities has been from not allowing goodwill to be capitalized at all to allowing capitalization with an early write-off. Such capitalization may help a problem institution look more favorable for a period of time. GAAP requires that intangible assets be identified, quantified and amortized whenever possible. Not only core deposit base, but also goodwill itself is capitalized and amortized under GAAP and allowed by federal agencies other than IRS. State of Financial Accounting Standards No. 72 states, inter alia: “The fair values of such assets that relate to depositor or borrower relationships shall be based on the estimated benefits attributable to the relationships that exist at the date of acquisition without regard to new depositors or borrowers that may replace them.” (Emphasis added). While this premise may be acceptable as an accounting principle, it is not so clear that it is consistent with the requirements of Section 167(a). In 1982, core deposit base amounts were made amortizable over a ten year period, for all bank regulatory purposes, on a case-by-case basis. In 1985, core deposit treatment was changed once again; the amortization period was lengthened, and the core deposit intangible was no longer used to calculate capital sufficiency which was the major concern of bank regulators. The rules of income tax accounting never permit the depreciation of goodwill, and any other intangible asset may be depreciated only if it can be shown that the asset is “separate and distinct” from goodwill and if it has a limited useful life, the duration of which may be ascertained with reasonable accuracy. This court is not greatly influenced, as to the pertinent issue, by the allowance of the capitalization and amortization of a customer deposit base by either GAAP or regulatory authorities. This recognition had been on a “case-by-case” basis and has been accompanied by the allowance of an amortization of goodwill itself over a longer term. The FDIC itself has had concerns with the concept. There is no indication that these other federal agencies have been concerned about the tax ramifications of any such procedure. Plaintiff’s Exhibit 65 is an article which suggests that the value assigned may affect the regulatory approval of acquisitions. Anderson, Valuing the Core Deposits of Financial Institution: A Statistical Analysis, Journal of Bank Research, Spring 1986. In the same article, it is stated that “[t]he OCC analysis assumes that an acquired core deposit base is comprised of both goodwill and a wasting tangible asset.” (Emphasis added). Further, that, “Hence, while the SEC, OCC and FDIC regulations allow asset value to be reduced through time based on actual experience of loss of accounts, tax amortization must be based upon ex ante forecasts of the prospective decline in asset value.” The article does suggest a method of evaluating a core deposit base. The regulatory authorities have generally followed accounting “principles,” not tax regulations, as a guide. The allowance by GAAP and other regulatory agencies of a recognition of a customer deposit base as an “identifiable” part of goodwill, is not necessarily the same as suggesting that it is “separate and distinct” from goodwill. Something may be reasonably “identifiable,” as part of a whole, yet not separate and distinct from the whole. Further Observations As To Customer Deposit Base Attached hereto as an addendum is a brief summary of the reports and opinions of the experts who testified at the trial. The court also notes the various statements in Sinkey, Commercial Bank Financial Management in the Financial Services Industry, (2d ed 1986) (particularly, see pages 695-99, 702-03). The court has noted the statements concerning the rationale of the regulatory authorities, particularly FDIC, in allowing the capitalization and amortization of goodwill and other intangible assets. There is a suggestion, not likely totally apochryphal, that “the concern with appearances enables regulators to tell watchdog Congressmen that bank capital positions have been shored up and that the banking system is safe and sound.” And a further suggestion that “this thinking was especially prevalent in the situation where a viable bank had taken over, via a deposit assumption, a failed bank or participated in the emergency merger of a failing institution.” Id. at 702. Sinkey adds, “The phony accounting acceptable to regulators should have no standing in financial or tax matters.” Id. at 703. (Emphasis added). Plaintiff's witness, Dr. Morgan, cited an example (Sears Savings Bank) where deposit liabilities alone were “purchased.” While, arguably, such liabilities may be “purchased” and create an intangible asset if purchased separately, it does not necessarily follow that when deposit liabilities are assumed as a part of a going concern that they can always be separated from goodwill. The court does not agree with Dr. Morgan that it is irrelevant whether old management stays in place after the acquisition. Personnel, location, age of business, etc. are all goodwill factors which must be considered if the bank is sold as a going concern. Furthermore, it is well known in the banking industry that loans are often made to attract deposits. While some deposits may remain by inertia in the absence of loan capacity, many would not. Furthermore, deposit retention is particularly subject to interest rate fluctuations and the ability to meet the competition. The regulatory authorities’ recognition of the customer deposit base has been somewhat diluted. In 50 Fed.Reg. 11131-32 (Mar. 19, 1985) the FDIC commented, inter alia, The FDIC has long been opposed to the inclusion of intangible values in its determination of a bank’s equity capital as a matter of general policy. The FDIC Statement of Policy on Capital Adequacy which was adopted by the Board of Directors on December 17, 1981 continued a long-standing practice of excluding intangible assets as a component of equity capital. Prior to the adoption of this statement of policy, and for a short time thereafter, the FDIC generally even required that intangible assets held by banks be charged off and not be reflected on the bank’s books. The FDIC later permitted banks to record intangible assets on their books; however, it has continued to deduct such assets from equity capital when assessing capital adequacy. ****** Intangible assets may be characterized according to the manner in which they are acquired, their separability from an entire banking organization, their marketability, and the certainty of the future cash flows or income stream they represent. The intangibles encountered in banks are typically acquired in a purchase of all or part of another business enterprise although mortgage servicing rights can also be acquired by themselves as a single asset. Along a similar vein, intangibles such as goodwill and core deposit intangibles cannot be separated from the remainder of a bank’s assets and sold or otherwise disposed of apart from the bank as a whole or a substantial part of it whereas such a separation is possible with mortgage servicing rights. Due in part to this separability, there is a fairly active market for these servicing rights which in turn adds a degree of liquidity to this class of intangibles. The estimated future cash flows or income streams associated with the rights or values underlying intangible assets vary considerably with respect to their certainty and predictability. Interest rate deregulation has been undermining the concept of the low cost core deposit base and assumptions about the average remaining lives of such deposits when acquired and the interest rate spread's projected over these lives have made the valuation of purchased core deposit intangibles increasingly subjective. As for goodwill, the future income stream it purports to represent is even less quantifiable and the value assigned to, this intangible may be associated more with what a bank is willing to pay to expand into new markets or to increase market penetration. On the other hand, mortgage servicing rights are derived from known servicing fee rates on a specified group of mortgages with contractual repayment terms and reasonably predictable prepayment characteristics. Id. (Emphasis added). Similar comments had previously been made by the Comptroller of the Currency as well. 50 Fed.Reg. at 10212-13 (Mar. 14, 1985). Both comments suggest that, unlike intangible mortgage servicing rights, core deposit intangibles cannot be sold separately by an institution. CONCLUSIONS OF LAW Two cases shed considerable light on the legal issues in this case. The first is Houston Chronicle Publishing Co. v. United States, 481 F.2d 1240 (5th Cir.1973), cert. denied, 414 U.S. 1129, 94 S.Ct. 867, 38 L.Ed.2d 754 (1974) because its stated principles are generally apt and, except for factual differences, controlling. The second is General Television, Inc. v. United States, 449 F.Supp. 609 (D.Minn.1978), aff'd 598 F.2d 1148 (8th Cir.1979) (based on the district court’s “well-reasoned opinion”) because it so succinctly and adequately outlines the applicable principles. Since, however, this court, in this instance, has perhaps too much tendency toward prolixity, it will consider other cases. Effect of Accounting Principles and Regulatory Authority While the “recognition” of the core deposit base concept in generally accepted accounting principles and, to a degree, by regulatory authorities serves to separate the concept from being merely phantasmal or factitious or simply ingenious, it does not serve as an answer in and of itself. It is well recognized that methods of financial accounting imposed or authorized by regulatory agencies or generally accepted accounting principles, while they may be of some significance, are not controlling as to tax accounting or tax law. See City Gas Co. v. Commissioner, 689 F.2d 943, 949 (11th Cir.1982). In Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 99 S.Ct. 773, 58 L.Ed.2d 785 (1979), the Court said, inter alia: “[T]o say that in performing the function of business accounting the method employed by the Association ‘is in accord with generally accepted commercial accounting principles and practices,’ ” the Court concluded, “is not to hold that for income tax purposes it so clearly reflects income as to be binding on the Treasury,” Id., [American Auto Assn. v. U.S., 367 U.S. 687] at 693. [81 S.Ct. 1727, 1730, 6 L.Ed.2d 66] “[W]e are mindful that the characterization of a transaction for financial accounting purposes, on one hand, and for tax purposes, on the other, need not necessarily be the same.” Frank Lyon Co. v. United States, 435 U.S. 561, 577, [98 S.Ct. 1291, 1300, 55 L.Ed.2d 550] (1978). See Commissioner v. Idaho Power Co., 418 U.S. 1, 15 [94 S.Ct. 2757, 2765-66, 41 L.Ed.2d 535] (1974). Indeed, the Court’s cases demonstrate the divergence between tax and financial accounting is especially common when a taxpayer seeks a current deduction for estimated future expenses or losses. E.g., Commissioner v. Hansen, 360 U.S. 446 [79 S.Ct. 1270, 3 L.Ed.2d 1360] (1959) (reserve to cover contingent liability in event of nonperformance of guarantee); Brown v. Helvering, 291 U.S. 193 [54 S.Ct. 356, 78 L.Ed. 725] (1934) (reserve to cover expected liability for unearned commissions on anticipated insurance policy cancellations); Lucas v. American Code Co., supra (reserve to cover expected liability on contested lawsuit). 439 U.S. at 541, 99 S.Ct. at 785. * # * # * * The primary goal of financial accounting is to provide useful information to management, shareholders, creditors, and others properly interested; the major responsibility of the accountant is to protect these parties from being misled. The primary goal of the income tax system, in contrast, is the equitable collection of revenue; the major responsibility of the Internal Revenue Service is to protect the public fisc. Consistently with its goals and responsibilities, financial accounting has as its foundation the principle of conservatism, with its corollary that “possible errors in measurement [should] be in the direction of understatement rather than overstatement of net income and net assets.” In view of the Treasury’s markedly different goals and responsibilities, understatement of income is not destined to be its guiding light. Given this diversity, even contrariety, of objectives, any presumptive equivalency between tax and financial accounting would be unacceptable. This difference in objectives mirrored in numerous differences of treatment. Where the tax law requires that a deduction be deferred until “all the events: have occurred that will make it fixed and certain,” United States v. Anderson, 269 U.S. 422, 441 [46 S.Ct. 131, 134, 70 L.Ed. 347] (1926), accounting principles typically require that a liability be accrued as soon as it can reasonably be estimated. Conversely, where the tax law requires that income be recognized currently under “claim of right,” “ability to pay,” and “control” rationales, accounting principles may defer accrual until a later year so that revenues and expenses may be better matched. Financial accounting, in short, is hospitable to estimates, probabilities, and reasonable certainties; the tax law, with its mandate to preserve the revenue, can give no quarter to uncertainty. This is as it should be. Reasonable estimates may be useful, even essential, in giving shareholders and creditors an accurate picture of a firm’s overall financial health; but the accountant’s conservatism cannot bind the Commissioner in his efforts to collect taxes. “Only a few reserves voluntarily established as a matter of conservative accounting.” Mr. Justice Brandéis wrote for the Court, “are authorized by the revenue Acts.” Brown v. Helvering, 291 U.S. at 201-202 [54 S.Ct. at 360]. Finally, a presumptive equivalency between tax and financial accounting would create insurmountable difficulties of tax administration. Accountants long have recognized that “generally accepted accounting principles:” are far from being a canoical set of rules that will ensure identical accounting treatment of identical transactions. “Generally accepted accounting principles, ” rather, tolerate a range of “reasonable” treatments, leaving the choice among alternatives to management. Such, indeed, is precisely the case here. Variances of this sort may be tolerable in financial reporting, but they are questionable in a tax system designed to ensure as far as possible that similarly situated taxpayers pay the same tax. If management's election among “acceptable” options were dispositive for tax purposes, a firm, indeed could decide unilaterally — within limits dictated only by its accountants— the tax it wished to pay. Such unilateral decisions would not just make the Code inequitable; they would make it unenforceable. 439 U.S. at 542-44, 99 S.Ct. at 786-87. (Emphasis added). (Footnotes omitted). The court notes that while the positions of the regulatory authorities, to the extent that they are pertinent, are perhaps entitled to more weight than “generally accepted accounting principles,” their respective “principles of conservatism” may be akin. The mere fact that “somebody has tried it” does not work an amendment to the revenue laws and regulations. Here, the attempt has resulted from a recognition by plaintiff’s accountants, after the purchase had been agreed upon, that, “somebody has tried it.” See also Commissioner v. Idaho Power Co., 418 U.S. 1, 15, 94 S.Ct. 2757, 2765-66, 41 L.Ed.2d 535 (1974); Commissioner v. Lincoln Savings & Loan Assn., 403 U.S. 345, 359, 91 S.Ct. 1893, 1901-02, 29 L.Ed.2d 519 (1971); American Automobile Assn. v. United States, 367 U.S. 687, 693, 81 S.Ct. 1727, 1730, 6 L.Ed.2d 1109, reh’g denied, 368 U.S. 870, 82 S.Ct. 24, 7 L.Ed. 70 (1961). The Applicable Tax Law The basic statutory provisions here applicable are found at Section 167(a) of the Internal Revenue Code, which provides as follows: (a) General Rule. — There shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence)— (1) of property used in the trade or business, or (2) of property held for the production of income. * * * * * * The related Treasury Regulation Section 1.167(a)-3, states: Intangibles. (TD 6182, filed 6-11-56, amended by TD 6452, filed 2-3-60, republished in TD 6500, filed 11-25-60.) If an intangible asset is known from experience or other factors to be of use in the business or in the production of income for only a limited period, the length of which can be estimated with reasonable accuracy, such an intangible asset may be the subject of a depreciation allowance. Examples are patents and copyrights. An intangible asset, the useful life of which is not limited, is not subject to the allowance for depreciation. No allowance will be permitted merely because, in the unsupported opinion of the taxpayer, the intangible asset has a limited useful life. No deduction for depreciation is allowable with respect to good will. For rules with respect to organizational expenditures, see section 248 and the regulations thereunder. For rules with respect to trademark and trade name expenditures, see section 177 and the regulations thereunder. The applicable law has been summarized in Houston Chronicle v. United States, 481 F.2d 1240 (5th Cir.1973), as follows: “[I]ntangible capital assets ... may be depreciated for tax purposes if taxpayer sustains his burden of proving that the [alleged assets] (1) have an ascertainable value separate and distinct from goodwill, and (2) have a limited useful life, the duration of which can be ascertained with reasonable accuracy.” 481 F.2d at 1251 (emphasis added). An initial inquiry thus must be, “what is goodwill?” That issue is summarized in Houston Chronicle. “[T]he nature of goodwill is the expectancy that ‘the old customers will resort to the old place,’....” ****** “[T]he essence of goodwill is the expectancy of continued patronage, for whatever reason.” (Emphasis added). ****** “[T]o the extent [a given item or asset] contributes to the expectancy that the old customers will resort to the old place it is an element of goodwill.” “This Court has held that ... goodwill is acquired by the purchaser of a going concern where the ‘transfer enables the purchaser to step into the shoes of the seller;’ ” ****** “We have also said that goodwill is transferred where, as here, the buyer continues the seller’s business uninterrupted, using primarily the seller’s employees, and utilizing the seller’s name.... It is immaterial that the agreement did not use the term ‘goodwill,’ for ‘[t]he use of these words is, of course, not necessary if in fact what is transferred does give to the purchaser everything that can effectively aid him to step into the shoes of the seller.’ ” 481 F.2d at 1247. In a later reference to another case, the court stated, “What taxpayer had obtained was the ongoing expectation that customers would utilize its services in the future, the archtypical element of goodwill.” 481 F.2d at 1248. Houston Chronicle also notes that, as a matter of conclusive presumption and law, goodwill is not depreciable, 481 F.2d at 1247-48 and that the taxpayer “bears all burdens in regard to establishing its right to claim a § 167(a) deduction.” 481 F.2d at 1245. Applying the general principles enunciated in Houston Chronicle, this court initially tends toward the conclusion from the facts stated above that the core deposit base which plaintiff has attempted to establish is not “separate and distinct from goodwill.” The court notes that the deposit relationships are associated with continuing favorable customer partronage. The economic value of the asset derivative of these deposit relationships may “fluctuate but does not necessarily diminish.” General Television, 449 F.Supp. at 611. The Facts In Other Cases While the general principles enunciated in Houston Chronicle and General Television appear to provide the answer, the court feels compelled to consider other cases because, as is stated in Houston Chronicle, “[e]ach [§ 167(a) ] case seems to revolve on the precise nuances of its facts, and we must thus begin our analysis with an in-depth look at the facts before us.” 481 F.2d at 1243. The facts in Houston Chronicle itself are distinguishable from those here in substance as well as in form. There are two notable distinctions. (1) In Houston Chronicle, the taxpayer did not “step into the shoes of the seller.” To the contrary, it did not intend to continue to publish a newspaper under the seller’s name and “did not consider the subscription lists to be self-regenerating assets and considered them valuable only to the extent they furnished names and addresses of prospective subscribers to The Houston Chronicle.” 481 F.2d at 1244. (2) Value was computed based, not on further earnings or savings, but on the cost of obtaining subscribers. The amount was not in dispute and a much larger amount (over ten times) was allocated to goodwill. The court also, at least partially, based its decision on the premise that subscription “lists are bartered and sold as discrete vendible assets.” 481 F.2d 1263. There is no substantial evidence that there is such a common practice with regard to deposit relationships. In any event, there was no discrete sale here. Plaintiff has strongly emphasized Midlantic National Bank/Merchants, Tax Ct. Mem. Dec. (P.H.) p 83, 581 (Sept. 21, 1983) because it is the only reported case which recognizes some intangible asset in bank deposit relationships. The case is, however, more revealing in its differences with the facts of this case than in its similarities. Among these differences are: (1) The Eaton National Bank (ENB) whose deposits were “acquired,” by Mid-lantic had been declared insolvent and closed by the Comptroller of the Currency. (2) The court considered ENB to have been a bank “failure.” (3) The FDIC even decided that a purchase and assumption transaction was impracticable because of the circumstances. (4) Midlantic Bank was only allowed to solicit depositors who had previously been paid off by FDIC. (5) ENB was, in no fashion, acquired as a going concern. (6) The deposits were apparently valued based upon the cost of acquiring similar deposits in the market. (7) The bank successfully solicited only $2.5 million of some $16 million deposits of ENB after initially projecting the ability to acquire $8-10 million. The depositors had to apply to open a new account with Mid-lantic. (8) Midlantic stressed and emphasized to the depositors that it was an entirely different bank and removed all references to ENB’s name. (9) The court concluded that Midlantic acquired no goodwill of going concern value, that “it no longer existed” and had “no remaining goodwill to be acquired” and that the location acquired created a potentially negative influence because they experienced the trauma of the bank’s failure and having to be paid by the FDIC. (10) The court looked upon the right acquired as being one of the opportunity to “attract” customers, not to retain the continued patronage of customers. In brief, plaintiff argues, “BEA’s failing condition and declining market share, coupled with the widely publicized defalcation and imprisonment of BEA’s president (and Opelika’s mayor) for activities he undertook involving BEA had damaged BEA’s reputation in the community to the extent that goodwill was severely damaged.” Further, that “[without question, BEA was not growing as were other local banks because it had no goodwill in the community.” These are ipse dixit arguments with no substantial support in the evidence. There is no reasonable inference that the goodwill of BEA was severely injured, certainly not that it had none. If plaintiff's case depends on these arguments, it falls of its own weight. Midlantic does tend to suggest that the life of a separately acquired deposit base may be ascertained with some degree of accuracy. It also indicates, however, that when deposit relationships are separated from a going concern, the deposits tend to diminish even with the opportunity to reestablish the relationship with another going concern. Plaintiff has also emphasized the case of Richard S. Miller & Sons, Inc. v. United States, 537 F.2d 446, 210 Ct.Cl. 431 (1976). That case notes; Cases that have recognized a depreciation deduction for insurance expirations generally have found no goodwill to be present in the sale, i.e., where the seller had “run-down” the agency, ruined its reputation, and no goodwill was left; where the seller had gone out of the fire and casualty business but remained in other insurance business and did not sell goodwill; or where the seller’s insurance business was primarily walk-in trade acquired as an incidental sideline to other activities. 537 F.2d at 452. The case is distinguishable, inter alia, because of the following quotes: Breman, Indiana, is a rural community with a population of 2,700 persons at the time of the sale and a trading population, within a 15 mile radius accessible to both agencies, of approximately 6,000 persons. Richard Miller, the founder and principal solicitor of Miller & Sons, knew by sight approximately 85 percent of the population of Bremen, and the principal method of selling insurance in the marketing area was through face-to-face contacts. The Arch Insurance Agency had been active in Bremen since the early 1930’s and had competed with Miller & Sons after that agency was founded in 1961. 537 F.2d at 453. # »ft * * # * Although goodwill was a substantial element in the sale, the transfer of an ongoing business was not the primary objective sought by Miller & Sons. The transfer of goodwill, during the negotiations, was not bargained for specifically. After the sale, Miller & Sons did not use the Arch name, its location, its sales personnel, or office procedures. The sales contract did not include office equipment, furniture, motor vehicles, or chattel personal property, nor did it include intangibles such as cash, notes, accounts receivable, or uncollected premiums. 537 F.2d at 454. * * * * # * In the Bremen marketing area, Miller & Sons did not need to purchase the Arch expirations in order to gain an entree into the market, nor did it need the expi-rations to identify Arch clients. Acquisition of the body of information that was contained in the expirations permitted Miller & Sons to incorporate in its files information that otherwise could have been acquired by internal growth. 537 F.2d at 454. * * # * # * The value of the Arch expirations is measured by the costs Miller & Sons would have incurred to develop an equivalent quantity of new business. This requires information on three factors: (1) the number of new policies written; (2) the total expenses incurred by insurance operations; and (3) the proportion of total insurance operating expenses that are used to develop new business. 537 F.2d at 456. The court may have, contrary to other holdings, allowed deductions based on hindsight. Banc One Corp. v. Commissioner, 84 T.C. 476 (1985) effectively “punted” on the core deposit issue, holding that the taxpayer had not established a proper method for depreciating the deposits because of a “hindsighting” approach. There is a general discussion of deposits which includes the statement that “the economic value of core deposits rest upon their ability to generate a stream of earnings over a period of time.” 84 T.C. at 490. The case does not address the issue of whether any such value is separate and distinct from goodwill. The court will briefly allude to other cases cited by plaintiff. In Holden Fuel Oil Co. v. Commissioner, 479 F.2d 613 (6th Cir.1973), the seller sold customer lists only to a taxpayer who was already doing business in the market area. In Commissioner v. Seaboard Finance Co., 367 F.2d 646, 651 n. 6 (9th Cir.1966), the court stated: In making its premium allocation, the Tax Court noted that several of the usual good will characteristics were missing in this case — interest in sellers’ personnel, interest in sellers’ locations, and intention to utilize sellers’ names. The Tax Court, however, did not hold that, because these elements of good will value are absent in this case, the premium or any part of it therefore represents value other than good will. The court was merely engaged in a process of reviewing the customary elements of good will, rejecting those which are inapplicable and accepting those which are applicable. This was appropriate procedure. As the District of Columbia Circuit said in Burke v. Canfield, et al, 74 App.D.C. 6, 121 F.2d 877, 880 "... good will must be dealt with legally in connection with the business of which it has been said to be parasitic.” Furthermore, a definite cost was assigned to each contract purchased. In Laird v. United States, 556 F.2d 1224 (5th Cir.1977) cert. denied, 434 U.S. 1014, 98 S.Ct. 729, 54 L.Ed.2d 758 (1978), the limited useful life of the player contracts was apparently established with relative ease and was not contested by the Government. Apparently, the Atlanta Falcons football team started from scratch in Atlanta. It did not “step into” a business. Separation from a “bundle” of assets, was the apparent issue. The court did state that the franchise obtained from the NFL “has the same significance as goodwill had in Houston Chronicle.” 556 F.2d at 1233. In Laird, the $50,000.00 franchise fee was paid to the NFL; the player purchase payments to the NFL Commissioner as trustee for NFL member clubs. The case does not make it clear how the contract purchase price was apportioned among the various clubs. This court cannot equate the contracts in Laird with deposit relationships. In addition, the trial court and the circuit court reduced the claimed allocation to contract rights of $7,722,914.02 to $3,035,000.00. Here, other than by some totally arbitrary means, there is no such basis for this court to reallocate the amounts suggested by plaintiff, when plaintiff has allocated nothing to goodwill. Donrey, Inc. v. United States, 809 F.2d 534 (8th Cir.1987) perhaps unduly relies on Houston Chronicle without recognizing the fact in that case the newspaper did not continue under the same name. Furthermore, the court noted that One of Donrey’s experts testified that the value of the subscription list is related to this revenue enhancement — it is the present value of the difference in advertising revenues generated by the subscription list as compared to the revenues of an equivalent paper without a subscription list. This value was thus characterized as being separate and apart from goodwill. 809 F.2d at 536. First Hawaiian, Inc. v. United States No. CV84-0246 (D.Haw. Jan. 28, 1986), aff'd, 833 F.2d 1016 (9th Cir.1987) is not a deposit case. It made an arbitrary allocation between goodwill and a loan portfolio “intangible” which is recognized by FDIC to have a more distinguishable value than deposits. Furthermore, there was a $17. million dollar run on deposits in a one month period, indicating a lack of goodwill. There would appear to be a significant difference between increasing the value of an established asset above its “book” value and “recognizing” an asset which does not otherwise appear on the books of a going concern. While the latter may not be a mere chimera, it is subject to more analysis. First Hawaiian was recently affirmed by the Ninth Circuit in an unpublished opinion — First Hawaiian, Inc. v. United States, Nos. 86-2672, 86-2777 (9th Cir. Nov. 25, 1987) (see table 833 F.2d 1016). The Ninth Circuit noted that the issue was primarily one of the appraisal value of a clearly recognized asset (loans receivable), as opposed to the creation of an asset. As clearly distinguishable as was the seller Hawaii Thrift and Loan’s situation from that of BEA (the institution had suffered “a run on its assets”), the Ninth Circuit still stated, FHI cross appeals the district court’s finding that part of the $2.16 million was paid for goodwill and going concern value. It first contends that the adverse publicity and run on HTL’s reserves eliminated all of HTL’s goodwill. But the evidence indicates that FHI continued to expect patronage from many of HTL’s existing customers. For example, FHI’s own evaluation of the assets says “the current customer lists are expected to provide recurring relationships as well as provide prospective customers.” Additionally, the government’s expert testified that such adverse publicity does not necessarily extinguish all goodwill. FHI also contends that HTL had no going concern value because FHI found it necessary to close and move branch offices and to fire employees, and found that HTL’s existing business structure was more of a liability than an asset. There is, however, ample evidence to indicate that HTL had considerable going concern value, notwithstanding the need for substantial modifications. HTL had eleven functioning offices, employees, equipment, customers, a name that had been in the ILC business since 1952, and a substantial share of the ILC market. FHI thus acquired a fully operational ILC business that it would begin to operate immediately, after having been repeatedly rebuffed in its previous efforts to get into that market. Accordingly, the district court’s determination that some of the $2.16 million was properly allocable to goodwill and going concern value is not clearly erroneous. The Ninth Circuit recognized that the trial court’s allocation of values was somewhat arbitrary, but still approved it. Here, there is no evidence which would allow this court to allocate a portion but not all to goodwill even assuming (the court does not so find) that some part is separate and distinct. In Business Service Indus., Inc. v. Commissioner, 51 (CCH) 539 (1986), there is a discussion of depreciable tangible asset(s) but no real analysis of goodwill factors or continued existence. In Securities-Intermountain, Inc. v. United States, 460 F.2d 261 (9th Cir.1972), the seller remained in business and in competition with the taxpayer. Taxpayer merely acquired a single insurance company’s mortgage loan portfolio. The court found that no goodwill was transferred. Plaintiff also relies upon L.A. Central Animal Hospital v. Commissioner, 68 T.C. 269 (1977). There the court stated, inter alia, These records are further differentiated from goodwill in that their value to the petitioner is as a body of factual information to be used in the treatment of patients. As such, these records are similar to the credit records, which we held to be depreciable in