Free Amended Document - District Court of Federal Claims - federal

Case 1:94-cv-00522-MCW

Document 338

Filed 03/08/2007

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS

FIRST ANNAPOLIS BANCORP, INC., Plaintiff, v. THE UNITED STATES, Defendant.

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No. 94-522C (Judge Williams)

DEFENDANT'S FIRST AMENDMENT TO ITS CONTENTIONS OF FACT AND LAW Pursuant to the Court's order dated March 1, 2007, defendant, the United States, respectfully submits the following amendments to its contentions of fact and law in response to plaintiff's tax gross-up claim. Contentions Of Fact The following contentions of fact are in addition to those filed with the Court on February 23, 2007: XVII. Bancorp's Tax Gross-Up Claim Is Unfounded 169. According to Bancorp's alleged tax returns, it paid no Federal income taxes for

tax years 1990, 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998, 1999, 2000, 2001, 2003, 2004 and 2005. DXs 2481-2496. 170 As of December 31, 2005, Bancorp had available to it unused net operating loss

carry-forwards ("NOLs") in the amount of $59,064,956. DX 2496. 171. A monetary recovery based upon a restitution theory is not includible in gross

income, for Federal income tax purposes, because there is no economic gain. DX 2503 at 2.

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172.

When a monetary recovery based upon a lawsuit is treated as a replacement of

capital, the damages received from the lawsuit are treated as a return of capital, and are not taxable as income. DX 2503 at 2. Contentions of Law The following contention of law is intended to replace paragraph 51 of the contentions of law filed with the Court on February 23, 2007: 51. The evidence will show that Bancorp's claimed tax gross-up rate of 38.62% is

subject to numerous uncertainties. First, Bancorp fails to meet its burden of proof by relying upon the testimony of G. Thomas Daugherty, who did not consider the impact of Bancorp's available Net Operating Loss ("NOL") carryforwards when calculating the 38.62% rate. Deposition of G. Thomas Daugherty at 34. Second, Bancorp reports in its 2005 federal income tax return that it had at its disposal $59,064,956 in available NOL carryforwards. Id.; DX 2496. Pursuant to applicable authority, $59,064,394 of these NOL carryforwards would still be available as of December 31, 2006, after accounting for the $526 NOL claimed by Bancorp on its 2005 federal tax return. Id at 1, 3; See 26 U.S.C. § 172(b)(1); 26 C.F.R. § 1.172-1(e)(3). This amount not only exceeds Bancorp's claimed damages, but would also reduce dollar for dollar any taxable income that could result from this action. Finally, future tax law changes and additional tax benefits could further lower Bancorp's taxable income and marginal rate. Exhibits The attached list of exhibits are relevant to our defense to plaintiff's tax gross-up claim, and are in addition to the list of exhibits filed with the Court on February 23, 2007.

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Respectfully submitted, MICHAEL HERTZ Deputy Assistant Attorney General s/Jeanne E. Davidson JEANNE E. DAVIDSON Director s/Richard B. Evans OF COUNSEL: TIMOTHY ABRAHAM MELINDA HART MARK PITTMAN DELISA M. SANCHEZ Trial Attorneys RICHARD B. EVANS Trial Attorney Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit, 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Telephone: (202) 353-7760 Facsimile: (202) 305-7644 Attorneys for Defendant

March 8, 2007

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CERTIFICATE OF FILING I hereby certify that on March 8, 2007, a copy of the foregoing "DEFENDANT'S FIRST AMENDMENT TO ITS CONTENTIONS OF FACT AND LAW" was filed electronically. I understand that notice of this filing will be sent to all parties by operation of the Court's electronic filing system. Parties may access this filing through the Court's system.

s/Richard B. Evans