Prior to bankruptcy, Debtor bank holding company, United Western Bancorp, Inc. (the “Debtor”), filed consolidated federal income tax returns for itself and a group of 13 affiliated companies, including United Western Bank (the “Bank”), a failed bank now in a Federal Deposit Insurance Corporation (the “FDIC”) receivership.  Post-petition, the Internal Revenue Service issued a tax refund in excess of $4 million based upon the offset of net operating losses and past income from the operations of the Bank as reported on the consolidated federal income tax returns filed by the Debtor. 

Both the Chapter 7 Trustee (acting on behalf of the Debtor) and the FDIC (acting on behalf of the Bank) claimed entitlement to the tax refund.  The Chapter 7 Trustee brought an adversary proceeding asserting claims under Sections 541 and 542 of the Bankruptcy Code.  The FDIC counterclaimed.  The Chapter 7 Trustee and the FDIC presented cross-motions for summary judgment directed to ownership of the tax refund.  The facts were undisputed.  The parties agreed that ownership of the tax refund should be decided primarily based upon a Tax Allocation Agreement. 

The Court concluded that the Chapter 7 Trustee established a legal interest in the tax refund under the Tax Allocation Agreement, the Internal Revenue Code, and Internal Revenue Service regulations.  Further, the Court determined that the FDIC failed to establish a beneficial interest in the tax refund.  The Court analyzed the Tax Allocation Agreement and decided that it created a debtor-creditor relationship as between the Debtor and the Bank.  Accordingly, the Court ruled in favor of the Chapter 7 Trustee and against the FDIC.