Bank Of America Appeals IRS Win In $163 Million Tax Dispute Over Bank Merger

Bank Of America Appeals IRS Win In $163 Million Tax Dispute Over Bank Merger

Bank of America has requested that a U.S. appeals court revive its lawsuit seeking over $163 million in interest from the Internal Revenue Service (IRS) related to tax liabilities from various mergers, including its 2013 merger with Merrill Lynch.

In a court filing on Monday night, Bank of America argued to the 4th U.S. Circuit Court of Appeals in Richmond, Virginia, that a judge had “rewritten” a crucial federal tax provision by substantially rejecting the case last year. The bank described the decision as “unfair to taxpayers.” The lawsuit, originally filed in 2017 in North Carolina federal court, claims that the bank is owed tax-related interest arising from a series of mergers.

The central issue in the case is whether Bank of America qualifies as the “same” taxpayer for interest netting purposes following the mergers. Federal law permits taxpayers to "net" interest owed on both tax underpayments and overpayments. The bank’s argument hinges on whether this provision applies to them after the mergers.

Bank of America has declined to comment further, and the Justice Department has not yet responded to requests for comment.

In his 2023 ruling, U.S. District Judge Robert Conrad stated that since “two corporations are separate taxpayers before they merge, their pre-merger underpayments and overpayments were not made by the same taxpayer.” However, Conrad allowed Bank of America to pursue an immediate appeal, noting that “there is substantial ground for difference of opinion on the interest-netting issue.”

In appeal, Bank of America contends that Conrad “overlooked” a key aspect of state merger law, which considers the surviving company in a merger as the “same taxpayer” as the merged entities. The bank asserts that under relevant state law, the surviving company is responsible for the assets and liabilities of the merged companies, including any tax overpayments and underpayments.

The bank argued that under applicable state law, the surviving company in a corporate merger is responsible for all assets and liabilities of the merged entities. This includes tax overpayments and underpayments.

Bank of America contended that, as the surviving entity, it should have been allowed to net the interest from Merrill Lynch's pre-merger tax overpayments against its own underpayment.

“The overpayments and underpayments at issue were ‘by the same taxpayer,’” Bank of America told the appeals court. “Bank of America is the taxpayer."