FDIC seeking failed Henderson bank’s $8 million tax refund

By Steve Green

Friday, Dec. 24, 2010 | 2:05 a.m.

With tens of millions of dollars at stake, the Federal Deposit Insurance Corp. is doing legal battle with creditors and the bankruptcy trustee for the failed Silver State Bank of Henderson.

With inadequate capital backing $2 billion in loans and other assets, the failure of Silver State Bank in September 2008 was expected to cost the FDIC’s deposit insurance fund between $450 million and $550 million and leave some depositors unpaid as their deposits exceeded insurance limits.

On Thursday, in hopes of recovering some of that money, the FDIC filed a lawsuit in U.S. Bankruptcy Court in Las Vegas against the Silver State holding company’s bankruptcy trustee and certain creditors that last year received $8 million in payments from an $8.3 million income tax refund to Silver State for tax year 2006.

The tax refund was made possible by losses the bank sustained that carried back to the 2006 tax year and the use of Silver State’s 2008 tax credits against taxes previously paid.

Court records show payments were approved last year for creditors including:

• Wilmington Trust Co., trustee for bondholders, $4.3 million.

• Bank of America, $3.4 million.

• A company called Sunset Jones LLC, $121,000.

• Lesser amounts to RSM McGladrey Inc., Kolesar & Leatham Chtd., attorney Donald Simone and a company called Parcel 33 Retail LLC.

Also, Silver State’s Chapter 7 Trustee, James Lisowski Sr., was paid $263,000 thanks to a commission structure in bankruptcy law in which trustees can earn commissions based on what they recover for creditors.

“The trustee successfully obtained the 2006 tax refund against competition from the FDIC,” attorneys for Lisowski wrote in his November 2009 application for payment to himself and the creditors. “The distribution of these funds to the creditors, particularly Bank of America and Wilmington Trust Co., not only benefits these creditors but the public as well as both of these financial institutions are insured by the FDIC. In particular Bank of America received emergency federal funding to keep its doors open, which effects all taxpayers of this country.”

The FDIC demanded in Thursday’s lawsuit that all of the $8 million be repaid to the FDIC, saying the $8.3 million tax refund belonged to the FDIC.

The FDIC also claims to own another refund Lisowski recently obtained for the Silver State estate for $16.3 million for tax year 2007. Lisowski is proposing to distribute that money, as well.

From that $16.3 million, creditors would receive another $15.8 million, including $8.6 million for Wilmington Trust and $6.8 million for Bank of America. Lisowski would receive a commission payment of $474,000.

On top of that, Lisowski is seeking for the bankruptcy estate a $6 million refund for tax year 2008.

FDIC attorneys argue that since the FDIC was appointed receiver of Silver State when it failed, any tax refunds due Silver State are the property of the FDIC.

The entity in Chapter 7 bankruptcy liquidation is the bank’s parent company Silver State Bancorp.

Attorneys for the FDIC with the Las Vegas law firm Sylvester & Polednak Ltd. argue the tax refunds are based on taxes paid by Silver State Bank.

“The debtor (Silver State Bancorp) is holding the 2007 federal income tax refund as agent, or trustee, for the bank,” the FDIC attorneys argued in an objection to plans by Lisowski to distribute the $16.3 million from the 2007 refund to the creditors and himself as a commission.

But attorneys for Lisowski argued tax refunds based on earnings or losses prior to the filing of the bankruptcy petition are part of the bankruptcy estate and “the agency relationship that the FDIC argues is determinative of the ownership of the 2007 tax refund simply does not exist.”

“The filing of a tax return on behalf of a consolidated group does not create any manifest intention to create a trust or any other type of relationship. FDIC offers no facts by which to evidence a manifest intent on behalf of either the debtor (Silver State Bancorp) or bank to create a trust with the refunds, which are property of the debtor’s estate,” said a filing by Lisowski’s attorneys with the Las Vegas law firm Anthony A. Zmaila Ltd. PLLC.

Resolution of the tax refund dispute in the Silver State case and other similar cases around the country may affect another Nevada bankruptcy case involving the failed Community Bank of Nevada.

Its parent company, Community Bancorp, is also in liquidation and some $27 million in federal income tax refunds may be at stake in that case.

A Community Bancorp creditor, Pacific Coast Bankers’ Bank, last month signaled it wants a piece of the tax refund.

Pacific Coast Bankers Bank says it is owed more than $5 million by Community Bancorp.

But as in the Silver State case, the FDIC claims ownership of any tax returns related to Community Bank of Nevada and its sister failed bank Community Bank of Arizona.

The failure of Community Bank of Nevada in August 2009 also involved millions of dollars in potentially uninsured deposits and losses to the FDIC deposit insurance fund estimated at $781.5 million.