5th Circuit rules MoneyGram not a bank - Reuters

The MoneyGram brand is seen on a kiosk in New York, U.S. January 3, 2018. REUTERS/Shannon Stapleton
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(Reuters) - A federal appeals court docket has dominated that MoneyGram Worldwide shouldn't be a financial institution beneath U.S. tax regulation, a ruling that might require the cash transmitter to pay greater than $38 million in unpaid taxes.
The fifth U.S. Circuit Courtroom of Appeals held that promoting clients' cash orders shouldn't be the identical as taking deposits, a key side of what defines a financial institution beneath the U.S. Inner Income Code.
"As a result of clients don't give MoneyGram cash for safekeeping, probably the most primary function of a financial institution is lacking," Circuit Choose Gregg Costa wrote for the panel.
The choice upheld a 2019 ruling by the U.S. Tax Courtroom in Washington, D.C.
Aaron Streett of Baker Botts, who represents the corporate, didn't instantly reply to requests for touch upon Wednesday.
The choice is the newest setback for MoneyGram in its long-running try and deal with multi-billion greenback losses on mortgage-backed securities through the 2008 monetary disaster as odd losses, reasonably than capital losses, for tax functions.
As a result of banks should maintain belongings in opposition to potential mortgage losses, the tax code permits them to deduct sure nugatory securities as odd losses. Bizarre traders holding such securities should e-book nugatory securities as capital losses.
Whereas the fifth Circuit's opinion mentioned the definition of a financial institution within the tax context, some attorneys stated it could have broader relevance to authorized battles involving fintech firms which have expanded into some conventional banking actions.
In a single case earlier than the 2nd Circuit U.S. Courtroom of Appeals, New York's Division of Monetary Providers and the U.S. Treasury Division's Workplace of the Comptroller of the Forex have supplied competing views on whether or not a financial institution should, by definition, take deposits.
The query is central to a dispute over whether or not authority to control fintech firms lies with the states or the federal authorities.
Robin Nunn, a accomplice at Morgan Lewis who shouldn't be concerned within the circumstances, stated on Wednesday that the ruling has implications exterior of tax regulation, as questions come up about find out how to classify fintech firms.
"This squarely places a fintech within the bucket of 'not a financial institution,'" Nunn stated.
On Tuesday, Costa together with Circuit Judges Patrick Higginbotham and Stephen Oldham rejected MoneyGram's arguments for why it took deposits and was due to this fact a financial institution.
Whereas MoneyGram receives money from the purchasers of cashier's checks, it isn't preserving that cash secure for the shopper, however reasonably promoting a product, the court docket held.
"Shopping for a product shouldn't be depositing cash for safekeeping," Costa wrote. "Clients shopping for a product are doing the other of preserving their cash; they're spending it."
The case is MoneyGram Worldwide v. Commissioner of Inner Income, fifth U.S. Circuit Courtroom of Appeals, No. 20-60146.
For MoneyGram: Aaron Streett of Baker Botts
For the IRS: Isaac Rosenberg
Jody Godoy experiences on banking and securities regulation. Attain her at jody.godoy@thomsonreuters.com
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