Second Circuit - Bad debt deduction related to thrift savings seized by RTC 

September 9: The U.S. Court of Appeals for the Second Circuit today affirmed in part and vacated and reversed in part a decision of the federal district court with respect to a taxpayer’s refund claim based on its proposal to increase, for tax year 1992, a bad debt deduction on behalf of its affiliate (a thrift savings) that was seized by the Resolution Trust Corporation in 1992. Ambase Corp. v. United States, 12-3563-cv (2d Cir. September 9, 2013)

Read the Second Circuit’s decision [PDF 140 KB]


The taxpayer appealed a federal district court decision, granting in part and denying in part a refund claim for the 1989 tax year. The taxpayer’s refund claim was based on a proposed amendment to its consolidated return for the 1992 tax year.

The taxpayer sought to increase a bad debt deduction claimed on behalf of its affiliate (a thrift savings entity) that had calculated its bad debt deduction under the reserve method under sections 585 and 593 and that, in 1992, had been seized by the Resolution Trust Corporation (RTC).

The district court granted the taxpayer’s refund claim to the extent that the claimed deduction offset the thrift saving entity’s post-RTC-seizure additional income in tax year 1992, but denied the refund claim in all other respects.

On appeal, the Second Circuit affirmed that the district court had subject matter jurisdiction and affirmed its grant of the taxpayer’s claimed deduction to the extent that it offset the thrift saving’s post-RTC-seizure income for the 1992 tax year.

However, the Second Circuit vacated and remanded the part of the district court’s decision not granting the taxpayer’s claimed deduction to the extent that the amount was derived from the thrift savings’ post-RTC-seizure bad debts for the 1992 tax year.

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