Bank of America is urging a U.S. appeals court to breathe new life into its lawsuit aimed at securing over USD 163 million in interest from the Internal Revenue Service (IRS) concerning a tax dispute stemming from various mergers, notably its 2013 union with Merrill Lynch.
In a recent filing with the Richmond-based 4th U.S. Circuit Court of Appeals, Bank of America argued that a pivotal federal tax provision was essentially "rewritten" by a judge who largely dismissed the case last year. The bank asserted that this decision was unjust to taxpayers.
The legal battle dates back to 2017 when Bank of America initiated a lawsuit against the IRS in a North Carolina federal court, asserting its entitlement to tax-related interest related to a string of mergers.
Under federal law, taxpayers are allowed to offset interest owed on both underpayments and overpayments of taxes. The crux of Bank of America's case revolves around whether it constituted the "same" taxpayer post-mergers, thereby qualifying for "interest netting."
U.S. District Judge Robert Conrad, in his 2023 ruling, argued that since two corporations are distinct taxpayers before merging, their pre-merger underpayments and overpayments could not be attributed to the same taxpayer.
Conrad's ruling permitted Bank of America to pursue an immediate appeal, citing significant differences of opinion on the interest-netting issue.
In its appeal, Bank of America contended that Conrad failed to consider a fundamental aspect of state merger law, which stipulates that the surviving entity after a merger is deemed to be the "same taxpayer" as the merged entities.
According to the bank, under applicable state law, the surviving company assumes all assets and liabilities of the merged entities, including tax liabilities and overpayments.
Bank of America argued that as the "surviving" entity, it should have been permitted to offset the interest on pre-merger tax overpayments by Merrill Lynch against an underpayment by Bank of America itself.
"The overpayments and underpayments in question were made 'by the same taxpayer,'" Bank of America emphasized to the appeals court, asserting its status as the rightful "taxpayer."
Bank of America declined to offer further comment, while the Justice Department did not immediately respond to requests for comment.
