U.S. Bank has filed a federal suit in Washington against the Federal Deposit Insurance Corp., alleging that the failed bank for which the FDIC was acting as receiver gave U.S. Bank bad tax advice that cost it millions in IRS penalties.
From 2005 to 2010, U.S. Bank acted as trustee for R-G Crown Mortgage Loan Trust and made regular payments to R-G Premier International Bank, a division of R-G Premier Bank of Puerto Rico, from the proceeds of recoveries from a portfolio of mortgage assets.
According to U.S. Bank’s complaint, filed on Dec. 28 in the U.S. District Court for the District of Columbia, R-G Premier directed the trust not to withhold taxes from its payments, saying that the distributions were not subject to withholding or income taxation based on the “portfolio interest” exemption under the IRS code.
But on Feb. 17, the trust received a notice from the IRS that it had failed to withhold 30% of the payments as required by law. The IRS told the trust that it owed tax liabilities of $860,000 for 2006 and $764,000 for 2007.
According to the complaint, under the terms of the trust the trustee cannot be held personally liable for “any action taken or omitted to be taken by it in accordance with the instructions of any certificate holder.”
The complaint also argues that the trust cannot be held liable for actions taken or not taken in accordance with the advice of counsel. As part of the trust transaction, the complaint said, R-G Premier provided a legal opinion that supported the idea that the trust was not required to withhold taxes from the payments it made to Premier.
The complaint is signed by William Davis III of Bethesda, Md.-based Offit Kurman and Jonathan Parritz of Minneapolis-based Maslon Edelman Borman & Brand.
In April, the R-G Premier was closed by the Office of the Commissioner of Financial Institutions of Puerto Rico, and the FDIC was named receiver.
In August, U.S. Bank filed a claim with the FDIC, asserting that the bank regulator is liable for the tax penalties and legal fees that U.S. Bank generated in the defense against the IRS demand.
On Nov. 2, the FDIC denied that claim.
U.S. Bank has asked that a judge hold the FDIC liable for the tax penalties and other costs. The complaint also alleges that U.S. Bank is entitled to set-off against any amount owed to the FDIC as receiver “any and all amounts arising from or in any way related to any taxes, penalties or interest accrued upon any amounts previously distributed to premier. U.S. Bank is also seeking attorneys’ fees.
No lawyers have entered an appearance for the FDIC yet.
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