  United States Court of Appeals
      for the Federal Circuit
               ______________________

  WMI HOLDINGS CORP., FKA WASHINGTON
MUTUAL INC., AS SUCCESSOR IN INTEREST TO
  H.F. AHMANSON & CO. AND SUBSIDIARIES,
FEDERAL DEPOSIT INSURANCE CORPORATION,
  AS RECEIVER FOR WASHINGTON MUTUAL
     BANK, A FEDERAL ASSOCIATION, AS
 SUCCESSOR IN INTEREST TO HOME SAVINGS
 OF AMERICA, SAVINGS OF AMERICA, INC., AS
SUBSTITUTE AGENT FOR H.F. AHMANSON & CO.
            AND SUBSIDIARIES,
              Plaintiffs-Appellants

                         v.

                 UNITED STATES,
                 Defendant-Appellee
               ______________________

                     2017-1944
               ______________________

    Appeal from the United States Court of Federal
Claims in Nos. 1:08-cv-00211-LKG, 1:08-cv-00321-LKG,
Judge Lydia Kay Griggsby.
                ______________________

                Decided: June 4, 2018
               ______________________

   ALAN I. HOROWITZ, Miller & Chevalier Chartered,
Washington, DC, argued all for plaintiffs-appellants.
2                      WMI HOLDINGS CORP.   v. UNITED STATES



Plaintiff-appellant WMI Holdings Corp. also represented
by MARIA O’TOOLE JONES, STEVEN R. DIXON.

    TAMARA L. SHEPARD, DLA Piper US LLP, Boston, MA,
for plaintiff-appellant Federal Deposit Insurance Corpora-
tion.

     THOMAS D. JOHNSTON, Shearman & Sterling LLP,
Washington, DC, for plaintiff-appellant Savings of Ameri-
ca, Inc. Also represented by RICHARD JOHN GAGNON, JR.

    ANDREW M. WEINER, Tax Division, United States
Department of Justice, Washington, DC, argued for
defendant-appellee.   Also represented by DAVID A.
HUBBERT, BRUCE R. ELLISEN.
                ______________________

        Before PROST, Chief Judge, DYK and O’MALLEY,
                       Circuit Judges.
O’MALLEY, Circuit Judge.
    This appeal involves Appellant WMI Holdings Corp.’s
(“WMI’s”) claim for a refund of federal taxes paid by its
predecessor.1 WMI contends it is entitled to more than
$250 million in refunds attributable to losses and deduc-
tions that its predecessor should have received for certain
intangible assets acquired from the federal government in
the 1980s.



    1   WMI, as successor to H.F. Ahmanson & Co.
(“Ahmanson”) and its subsidiary, Home Savings of Ameri-
ca (“Home”), is one of three appellants. The others are the
Federal Deposit Insurance Corporation, as receiver for
Home’s successor; and Savings of America, Inc., as substi-
tute agent for Ahmanson. For simplicity, we refer only to
WMI unless otherwise specified.
WMI HOLDINGS CORP.   v. UNITED STATES                    3



     The United States Court of Federal Claims (“Claims
Court”) dismissed WMI’s refund action, finding that WMI
failed to establish, to a reasonable degree of certainty, a
cost basis in each of the assets at issue. See Wash. Mut.,
Inc. v. United States, 130 Fed. Cl. 653 (2017) (“Claims
Court Decision”). The court’s finding is not clearly erro-
neous, and, accordingly, we affirm.
                       BACKGROUND
    The parties’ dispute evolved out of transactions origi-
nating during the savings-and-loan crisis in the late
1970s and early 1980s. We begin with a description of
that crisis and the facts leading up to the disputed trans-
actions.
               I. Savings-and-Loan Crisis
    As their names suggest, savings-and-loan institutions,
also called “thrifts,” provide two main services. They
collect customer deposits, which are maintained in inter-
est-bearing savings accounts, and they originate and
service mortgage loans funded by those deposits. Histori-
cally, thrifts were profitable because the interest they
collected on outstanding loans exceeded the interest they
paid out to customers.
    That changed, however, in the late 1970s. First, in-
terest rates rose to unprecedented levels, and thrifts,
which were locked into long-term, fixed-rate mortgages,
were unable to compensate for this increase by raising the
interest rate on their mortgage loans. See United States
v. Winstar Corp., 518 U.S. 839, 845 (1996) (describing
events precipitating the savings-and-loan crisis). To
maintain their customers, moreover, thrifts were forced to
raise the interest rates they paid on deposit accounts,
causing the thrifts to operate at a loss. Id. Second, the
industry suffered from “disintermediation,” whereby
customers withdrew their deposits in favor of alternative
investments paying higher interest rates. This one-two
4                       WMI HOLDINGS CORP.   v. UNITED STATES



punch had a devastating effect on the industry, causing
many thrifts to become insolvent. Between 1981 and
1983 alone, some 435 thrifts failed. Id.
    Lacking the funds to liquidate the failing thrifts, the
Federal Savings and Loan Insurance Corporation
(“FSLIC”), as thrift regulator and insurer of deposits,
responded to the crisis by encouraging healthy thrifts to
take over failing ones in what were called “supervisory
mergers.” Id. at 847. These transactions relieved the
FSLIC of its deposit insurance liability for the insolvent
thrifts, and, in exchange, provided a package of non-cash
incentives to acquiring thrifts. Two of those incentives
are at issue here: “branching” rights and “RAP”—or
“regulatory accounting purposes”—rights.
     Branching rights permitted acquiring thrifts to open
and operate branches in states other than their home
states, which, prior to 1981, was generally prohibited. See
12 C.F.R. § 556.5(a)(3) (1981). This prohibition was
eliminated for thrifts entering into supervisory mergers
across state lines. See id. § 556.5(a)(3)(ii)(A) (1982). RAP
rights, by contrast, affected regulatory accounting treat-
ment for business combinations. At the time, regulations
mandated, in relevant part, that each thrift maintain a
minimum capital of at least 3% of its liabilities. See id.
§ 563.13(a)(2), (b)(2) (1983); Winstar, 518 U.S. at 845–46.
This requirement presented an obstacle for healthy thrifts
seeking to acquire failing ones because, by definition,
failing thrifts’ liabilities exceeded their assets. Regulators
eliminated this obstacle by permitting acquiring thrifts to
use Generally Accepted Accounting Principles (“GAAP”).
In essence, GAAP allowed acquiring thrifts to treat failing
thrifts’ excess liabilities as an asset called “supervisory
goodwill,” which, in turn, could be counted toward the
acquiring thrifts’ minimum regulatory capital require-
ment and amortized over a forty-year period (later re-
WMI HOLDINGS CORP.   v. UNITED STATES                      5



duced to twenty-five years).2 Winstar, 518 U.S. at 850–51.
The RAP rights provided by FSLIC guaranteed such
treatment, regardless of future regulatory changes.
    The combination of branching and RAP rights induced
healthy thrifts to enter into supervisory mergers through-
out the 1980s.
               II. The Transactions at Issue
    One such thrift was Home Savings of America
(“Home”), a subsidiary of WMI’s predecessor. Originally
based in Los Angeles, Home grew to become one of the
largest thrifts in the United States. Home took part in
two categories of transactions in the 1980s that are rele-
vant here.
    First, between 1981 and 1985, Home entered into four
supervisory mergers in six states—Missouri, Florida,
Texas, Illinois, New York, and Ohio—thereby assuming
the acquired thrifts’ liabilities in exchange for branching
and RAP rights. Home would later sell off those branches
in the 1990s in an effort to focus on its California pres-
ence.
    Second, in 1988, Home acquired Bowery Savings
Bank (“Bowery”), a federally chartered mutual savings
bank headquartered in New York. Prior to the acquisi-
tion, the Federal Deposit Insurance Corporation (“FDIC”)
had been providing Bowery with assistance, including a
RAP right, pursuant to a 1985 government-assisted
merger. In connection with Home’s 1988 acquisition,
however, Bowery negotiated a new assistance package,
which, among other things, replaced the 1985 RAP right



    2   Amortization reflects an intangible asset’s depre-
ciation over time, and, accordingly, requires a business to
“‘write down’ the value of the asset each year to reflect its
waning worth.” Winstar, 518 U.S. at 851 & n.7.
6                     WMI HOLDINGS CORP.   v. UNITED STATES



with a new one. Like the supervisory RAP right, the 1988
Bowery RAP right allowed Bowery to count the goodwill
arising out of the acquisition toward regulatory capital.
Unlike the supervisory RAP right, however, the 1988
Bowery RAP right established an amortization period of
twenty years as opposed to forty years. This represented
an increase from the fourteen-year period established by
the 1985 Bowery RAP right.
    Home’s branching and RAP rights are considered in-
tangible assets for tax purposes, and, as such, are gener-
ally subject to abandonment loss deductions under I.R.C.
§ 165, and amortization deductions under I.R.C. § 167(a),
respectively.
                 III. Procedural History
    Home’s consolidated parent, H.F. Ahmanson & Co.
(“Ahmanson”), filed income tax returns on behalf of Home,
claiming deductions based on the transactions described
above. Those claims spawned the litigation at issue here,
as well as a related proceeding in the Ninth Circuit.
              A. The Ninth Circuit’s Ruling
    In 2008, WMI—then known as Washington Mutual,
Inc.—brought suit against the United States in the U.S.
District Court for the Western District of Washington,
seeking a refund for tax years 1990, 1992, and 1993 based
on the amortization of the RAP rights obtained in one of
the supervisory mergers, as well as the abandonment of
Home’s Missouri branching rights. To support its claims,
WMI proffered a valuation report and testimony from its
expert, Roger Grabowski, who used an income-based
approach to determine the fair market value of the rights
at issue. The district court granted judgment in favor of
the government, rejecting WMI’s refund claims because
WMI did “not prove[], to a reasonable degree of certainty,
WMI HOLDINGS CORP.   v. UNITED STATES                    7



Home’s cost basis in the Branching and RAP rights.”3
Wash. Mut., Inc. v. United States, 996 F. Supp. 2d 1095,
1097 (W.D. Wash. 2014) (“WaMu I”).
     In an opinion issued several months after the Claims
Court issued its opinion in this case, the Ninth Circuit
affirmed. See Wash. Mut., Inc. v. United States, 856 F.3d
711, 714 (9th Cir. 2017) (“WaMu II”). The court rejected
WMI’s argument that the district court required an
unprecedented level of precision and held that the district
court did not err in determining that the “cumulative
flaws underlying the Grabowski Model rendered it inca-
pable of producing a reliable value for the Branching
Right.” Id. at 722–25.
             B. The Claims Court’s Decision
   Meanwhile, WMI also filed suit in the Claims Court
against the United States, seeking a refund of more than
$250 million for tax years 1991, 1994, 1995, and 1998.
WMI claimed it was entitled to a refund based on the
amortization of the RAP rights obtained in the superviso-
ry mergers and the Bowery acquisition, as well as the
abandonment of Home’s Florida, Illinois, New York, and
Ohio branching rights.
   WMI offered a valuation report from Grabowski that
was nearly identical to the report he presented in the
Washington case.4 And, like the Washington district


   3    “[T]he term ‘basis’ refers to a taxpayer’s capital
stake in property and is used to determine the gain or loss
on the sale or exchange of property and the amount of
depreciation allowances.” In re Lilly, 76 F.3d 568, 572
(4th Cir. 1996) (internal quotation marks omitted). The
basis of an asset is typically its cost, also known as its
“cost basis.” I.R.C. § 1012(a).
    4   WMI asserts that Grabowski’s analysis in this
case differs from that presented in the Washington case.
8                      WMI HOLDINGS CORP.   v. UNITED STATES



court, the Claims Court rejected Home’s tax refund
claims, finding that WMI had failed to prove Home’s cost
basis in each of the branching rights, RAP rights, and
Bowery government assistance rights. Claims Court
Decision, 130 Fed. Cl. at 688–704.
    WMI timely appealed the Claims Court’s ruling to
this court.   We have jurisdiction under 28 U.S.C.
§ 1295(a)(3).
                        DISCUSSION
    There is no dispute that Home has some cost basis in
its RAP and branching rights collectively, and that WMI
is entitled to a tax refund if it can allocate the cost basis
to each of those rights individually. There is also no
dispute that WMI bears the burden of proving it is enti-
tled to a refund. Before addressing whether WMI satis-
fied that burden, we first address WMI’s contention that
the Claims Court applied an incorrect legal framework.
That issue is a legal one that we review de novo. See Kan.
Gas & Elec. Co. v. United States, 685 F.3d 1361, 1366
(Fed. Cir. 2012); Okerlund v. United States, 365 F.3d
1044, 1049 (Fed. Cir. 2004).
                   I. Legal Framework
    It is well established that, “[i]n a tax refund case, the
ruling of the Commissioner of Internal Revenue is pre-
sumed correct.” Bubble Room, Inc. v. United States, 159
F.3d 553, 561 (Fed. Cir. 1998). To rebut that presumption



See Reply 11. When pressed at oral argument before this
court, however, WMI was unable to identify any differ-
ences, and conceded that “the general approach was
similar.” See Oral Arg. at 14:47–15:10, WMI Holdings
Corp.      v.   United     States     (No. 2017-1944),
http://oralarguments.cafc.uscourts.gov/
default.aspx?fl=2017-1944.mp3.
WMI HOLDINGS CORP.   v. UNITED STATES                    9



of correctness, “[i]t is not enough” for a taxpayer “to
demonstrate that the assessment of the tax for which
refund is sought was erroneous in some respects.” United
States v. Janis, 428 U.S. 433, 440 (1976). Instead, the
taxpayer must also prove the amount of the refund due.
Id.; Bubble Room, 159 F.3d at 561 (“To rebut this pre-
sumption of correctness, the taxpayer must come forward
with enough evidence to support a finding contrary to the
Commissioner’s determination. In addition, the taxpayer
has the burden of establishing entitlement to the specific
refund amount claimed.” (citation omitted)).
    Thus, “if insufficient evidence is adduced upon which
to determine the amount of the refund due, the Commis-
sioner’s determination of the amount of tax liability is
regarded as correct.” WaMu II, 856 F.3d at 721 (internal
quotation marks omitted); see Charron v. United States,
200 F.3d 785, 792 (Fed. Cir. 1999) (affirming the trial
court’s finding that the taxpayers had not substantiated
their claims regarding the amount of income excluded
from their taxable income); Danville Plywood Corp. v.
United States, 899 F.2d 3, 7–8 (Fed. Cir. 1990) (stating
that the taxpayer “must come forward with enough evi-
dence to support a finding contrary to the Commissioner’s
determination,” and must thereafter “carry the ultimate
burden of proof”); Better Beverages, Inc. v. United States,
619 F.2d 424, 428 n.4 (5th Cir. 1980) (“Where the taxpay-
er fails to carry this burden to prove a cost basis in the
item in question, the basis utilized by IRS, which enjoys a
presumption of correctness, must be accepted even where,
as here, the IRS has accorded the item a zero basis.”).
    The Claims Court here recognized that Home had
some cost basis in the branching and RAP rights acquired
in each of the supervisory mergers. The “central issue”
was whether WMI could establish the portion of each
merger’s purchase price that should be allocated to each
constituent right so as to enable the court to determine
Home’s cost basis therein. See Claims Court Decision, 130
10                    WMI HOLDINGS CORP.   v. UNITED STATES



Fed. Cl. at 690. In particular, because WMI paid a lump-
sum purchase price for the rights in each transaction, it
was required to allocate “the purchase price among the
assets according to each asset’s relative fair market value
at the time of the acquisition.” WaMu II, 996 F. Supp. 2d
at 1104; see Bixby v. Comm’r, 58 T.C. 757, 785 (1972)
(“[W]hen a taxpayer buys a mixed group of assets for a
lump sum, the purchase price will be allocated among the
assets in accordance with the relative value that each
item bears to the total value of the group of assets pur-
chased.”).
    To meet this burden, WMI was not, of course, required
to allocate the purchase prices with absolute precision.
See Miami Valley Broad. Corp. v. United States, 204 Ct.
Cl. 582, 601 (1974) (“Mathematical precision is impossi-
ble, and the broadest kind of estimates must be made.”).
But, as the Claims Court noted, WMI was required to
establish the values of the rights to a “reasonable degree
of certainty.” Claims Court Decision, 130 Fed. Cl. at 687
(quoting WaMu I, 996 F. Supp. 2d at 1102). Ultimately,
the court determined that WMI failed to meet that bur-
den, finding that it did not put forward “sufficient evi-
dence for the Court to make a ‘reasonable and rational
approximation’ of the value of those assets.” Id. at 690.
The court’s statements are consistent with the legal
principles articulated above and demonstrate that the
court applied the correct legal framework.
    WMI argues that, if the court disagreed with WMI’s
valuation, it should have made its best guess as to what
the correct cost basis should be. We disagree. While we
recognize the difficulty a taxpayer faces when trying to
allocate cost basis in connection with these types of dec-
ades-old transactions, a trial court is not required to
undertake an independent analysis when, as here, the
taxpayer’s own evidence is insufficient to allow the court
to do so. See Trigon Ins. Co. v. United States, 234 F.
Supp. 2d 581, 591 (E.D. Va. 2002) (“The sophisticated
WMI HOLDINGS CORP.   v. UNITED STATES                       11



valuation techniques here can only be employed reliably
by an expert in the field. That exercise is beyond the
reach, and outside the province, of a district judge.”). A
contrary rule effectively would shift the burden of proof
from the taxpayer to the court. While it is true that a
court “has discretion in choosing a method of evaluation
and some leeway in determining the amount of fair mar-
ket value,” it “has no discretion to make a finding of the
value of an asset where there is no evidence to support it.”
Krapf v. United States, 977 F.2d 1454, 1463 (Fed. Cir.
1992); see Trigon, 234 F. Supp. 2d at 587 (rejecting the
argument that “the taxpayer need not prove that its
proffered valuation is correct, but only that the correct
refund amount is something higher than that advocated
by the United States”). Thus, “[i]f the court is not satis-
fied that [a] taxpayer has properly allocated a value to an
identified severable intangible asset, it is not a fortiori the
duty of the court to determine that value[.]” Kraft, Inc. v.
United States, 30 Fed. Cl. 739, 765 (1994).5
    Relying on Capital Blue Cross v. Commissioner, 431
F.3d 117 (3d Cir. 2005), WMI nevertheless contends that,
notwithstanding minor flaws in the taxpayer’s proffered
valuation, the court “must do its best to calculate a rea-
sonable and correct basis.” Appellants Br. 25 (quoting
Capital Blue, 431 F.3d at 120). In that case, the Third
Circuit reversed the Tax Court’s zero cost basis determi-
nation in hundreds of insurance contracts, despite “sever-
al flaws” in the taxpayer’s valuation of those contracts.
Capital Blue, 431 F.3d at 119–20. But Capital Blue does
not stand for the broad proposition that a court must
undertake its own analysis or that a zero cost basis de-
termination can never be appropriate. In fact, the Third



    5    The court may make such a determination, but
only “if the value can be determined from a review of the
record in its entirety.” Kraft, 30 Fed. Cl. at 765.
12                      WMI HOLDINGS CORP.   v. UNITED STATES



Circuit remanded for the Tax Court to determine “wheth-
er the Commissioner is correct about [certain additional]
flaws in Capital’s data and methodology” that the Com-
missioner identified on appeal, and “the extent to which
those flaws invalidate [the expert’s] ultimate valuation.”
Id. at 140.
    Instead, Capital Blue stands for the more limited
proposition that it is unreasonable to reject a taxpayer’s
valuation simply because the government identified
“minor flaws” in the valuation. Id. at 130 (“[I]t will not, in
our view, be reasonable for a court to reject the taxpayer’s
valuation out of hand simply because the Commissioner
has identified minor flaws in the valuation.”). As de-
scribed below, the flaws that the Claims Court identified
here are major and systemic, which distinguishes this
case from Capital Blue. Finally, the Third Circuit noted
in Capital Blue that the taxpayer bears a “heavy burden”
to prove that its intangible assets may be valued sepa-
rately and with “reasonable precision,” and this burden
“will often prove too great to bear.” Id. at 129–30 (inter-
nal quotation marks omitted). Thus, notwithstanding its
holding, the Capital Blue court applied a standard similar
to the standard that WMI argues the Claims Court incor-
rectly applied here.
    WMI also relies on Cohan v. Commissioner, 39 F.2d
540 (2d Cir. 1930), for the proposition that a court should
“make as close an approximation as it can.” Appellants
Br. 47 (citing Cohan, 39 F.2d at 543–44). In that case, the
Second Circuit reversed the Tax Court’s predecessor’s
disallowance of deductions for business entertainment
expenses on the basis that the taxpayer failed to keep
adequate business records. Cohan, 39 F.2d at 543–44.
We have noted, however, that the Cohan rule does not
apply where a taxpayer fails to provide evidence that
would permit an informed estimate of the amount of
deduction in the first place. See, e.g., Charron, 200 F.3d
at 794 (stating that Cohan “does not require the conclu-
WMI HOLDINGS CORP.   v. UNITED STATES                    13



sion” that “vague and unpersuasive” testimony is “suffi-
cient to establish . . . entitlement to . . . claimed deduc-
tions”).
    The Ninth Circuit has cautioned, moreover, that lib-
eral application of the Cohan rule “would be in essence to
condone the use of that doctrine as a substitute for burden
of proof.” Coloman v. Comm’r, 540 F.2d 427, 431–32 (9th
Cir. 1976); see Trigon, 234 F. Supp. 2d at 591 (refusing to
apply Cohan to complex valuation cases where “the basic
evidentiary predicate for valuation has been found want-
ing in so many ways” because, “to do so would offend
fundamental precepts respecting the nature and im-
portance of the burden of proof”). We agree with the
Ninth Circuit that, on these facts, “such a proposition
would essentially do away with the taxpayer’s burden”
altogether. WaMu II, 856 F.3d at 727.
    Finally, WMI’s reliance on Meredith Broadcasting Co.
v. United States, 186 Ct. Cl. 1 (1968), is similarly mis-
placed. There, the Court of Claims found that the value of
various television network affiliation contracts “was
created largely by plaintiff’s vendor having combined
them in one ownership, and would all alike have been
destroyed by being severed.” Id. at 24. Because of the
unique nature of the contracts, the court determined that
“an accurate allocation of value among the several classes
of intangibles is impossible,” and that the court must
therefore “make the broadest kind of estimate.” Id. Here,
however, there is no allegation that the rights at issue
cannot be severed and valued independently. Indeed,
while the Claims Court did not reach the issue, the par-
ties agree that a tax deduction for the branching rights
required, as a prerequisite, that those rights had been
abandoned. The RAP rights have no such prerequisite.
Thus, unlike the rights in Meredith Broadcasting, the
rights here are clearly severable, even if calculating the
impact of that severance is difficult.
14                     WMI HOLDINGS CORP.   v. UNITED STATES



    We therefore conclude that the Claims Court did not
apply an incorrect legal framework. Notably, our conclu-
sion is consistent with that reached by the Ninth Circuit
on virtually identical facts. See WaMu II, 856 F.3d at
725–27.
    We next address whether the flaws in Grabowski’s
valuation were so deficient as to justify a zero cost basis
determination for the supervisory mergers and Bowery
acquisition.
                 II. Supervisory Mergers
     As described above, the Claims Court found that WMI
failed to meet its burden of establishing a cost basis in
each of the RAP and branching rights that Home acquired
in the supervisory mergers. We review the trial court’s
factual findings, including its determination of the assets’
fair market values, for clear error. See Ark. Game & Fish
Comm’n v. United States, 736 F.3d 1364, 1379–80 (Fed.
Cir. 2013); Kan. Gas & Elec., 685 F.3d at 1366; Okerlund,
365 F.3d at 1049.
                      A. RAP Rights
    The Claims Court found that it could not assess the
value of Home’s RAP rights because WMI had mischarac-
terized the nature of those rights. Claims Court Decision,
130 Fed. Cl. at 691–95. As explained below, the court’s
findings are not clearly erroneous.
    Grabowski valued each RAP right as “a contract[ual]
right conveyed to Home by FSLIC” that “allowed Home to
treat the goodwill recorded in the transaction as an asset
(on a diminishing basis over 40 years) for purposes of
meeting regulatory capital requirements.” J.A. 7148.
Specifically, he estimated the cost associated with raising
and maintaining replacement capital to maintain the
hypothetical willing buyer’s pre-merger capital level. In
other words, Grabowski assumed that Home needed the
approval of government regulators to treat the goodwill
WMI HOLDINGS CORP.   v. UNITED STATES                    15



created by these transactions as an asset subject to amor-
tization over a period of up to forty years. This assump-
tion, however, is flawed.
    The Claims Court noted that it “is without dispute
that the accounting regulations in place at the time of
the” supervisory mergers “required that Home use the
purchase method of accounting,” which provided for the
treatment of goodwill as an asset. Claims Court Decision,
130 Fed. Cl. at 692. The court pointed out, for example,
that the Federal Home Loan Bank Board’s September
1981 Memorandum R-31b mandated that acquiring
thrifts account for the goodwill created by the merger in
accordance with GAAP, which, in turn, required thrifts to
use the purchase method of accounting to account for
supervisory mergers. Id. That method allowed compa-
nies to treat goodwill as an asset, and to amortize that
goodwill over a period of up to forty years.
    Thus, as the Claims Court properly found, the RAP
rights Home acquired as part of the supervisory mergers
were in the nature of “a guarantee”—i.e., “the right to
continue to amortize the goodwill created by these mer-
gers over a period of forty years if the regulations govern-
ing the amortization period for goodwill changed in the
future.” Id. at 692–93. Grabowski’s valuation of the
rights as creating a contractual approval to treat goodwill
as an asset was therefore predicated on an incorrect
interpretation of the nature of those rights, and caused
Grabowski to overvalue them.
    WMI objects to the Claims Court’s interpretation of
Memorandum R-31b as having given Home the right to
use the purchase method of accounting and to amortize
supervisory goodwill. WMI argues that the memorandum
simply authorized regulators to approve such amortiza-
tion upon application by an acquiring thrift. To support
that argument, WMI points to the memorandum’s refer-
ence to an “application from an association requesting
16                     WMI HOLDINGS CORP.   v. UNITED STATES



approval for a business combination to be accounted for
by the purchase method of accounting.” Appellants Br. 42
(quoting J.A. 4361). We disagree. The memorandum
provides that accounting for goodwill in accordance with
GAAP is acceptable for regulatory purposes. See J.A.
4359 (“Accounting for business combinations involving
insured institutions should be in accordance with general-
ly accepted accounting principles (GAAP).”); see also Am.
Fed. Bank, FSB v. United States, 62 Fed. Cl. 185, 187
(2004) (noting that Memorandum R-31b “allowed acquir-
ing thrifts to apply the purchase method to account for
mergers, such that any excess amount paid by the ac-
quiror over the net fair market value of the assets ac-
quired and liabilities assumed was assigned to ‘goodwill’
considered as an intangible asset for purposes of regulato-
ry capital”). The “application” referenced in Memoran-
dum R-31b, therefore, reflects the fact that all business
combinations were required to obtain regulatory approval,
regardless of whether they intended to use the purchase
method of accounting or a different method. Claims Court
Decision, 130 Fed. Cl. at 693 n.33. “Application” does not
refer, as WMI contends, to regulatory approval to use the
purchase method of accounting.
    In sum, the Claims Court found that Grabowski’s
misplaced assumptions about the nature of the RAP
rights undermined WMI’s fair market value determina-
tions for those rights. Because the court’s findings are not
clearly erroneous, we affirm the court’s ruling.
                   B. Branching Rights
    The Claims Court also found that it could not assess
the value of Home’s branching rights because Grabowski’s
valuation was “unreasonable,” “unsupported,” and “unre-
liable.” Id. at 695–96. While perhaps phrased more
harshly than necessary, the court’s findings are not
clearly erroneous.
WMI HOLDINGS CORP.   v. UNITED STATES                    17



    To value the branching rights, Grabowski used an in-
come-based approach in which he forecast the cash flow
that a hypothetical willing buyer would have expected to
generate as a result of having a right to operate in a state
other than the thrift’s home state. The “main assump-
tions” he made in his analysis “were the number of new
branches, the growth of deposits in new and acquired
branches, and the income the willing buyer would earn on
new mortgage loans made with those deposits.” J.A.
7140.
    With respect to the number of new branches,
Grabowski based his projection in part on Home’s own
expansion into Northern California. In 1970, Home
entered Northern California by acquiring four branches in
the San Francisco area with $36.4 million in deposits, or
$9.1 million per branch, representing 0.6% of the market.
Over the next ten years, Home expanded to forty North-
ern California branches and increased its total inflation-
adjusted deposits to $760.1 million, or $19 million per
branch, representing 6.1% of the market. By 1981,
Home’s California deposits per branch were nearly double
the average in the state. Grabowski asserted that a
hypothetical buyer would “expect[] to be able to replicate
this level of branch network growth in other markets,
assuming the markets had similar levels of depositor
concentration (i.e., population density).” J.A. 7139.
     With respect to the growth of deposits, Grabowski es-
timated that it took Home five years to “ramp up” depos-
its in Northern California branches, and “considered this
rate of individual branch ramp up to be representative of
what any willing buyer would have expected.” J.A. 7140.
Finally, with respect to loan demand, Grabowski asserted
that a hypothetical buyer would expect to be able to turn
all new deposits into new loans because, historically, that
had been Home’s experience. Grabowski “assumed that a
willing buyer would have expected the same.” J.A. 7143.
18                    WMI HOLDINGS CORP.   v. UNITED STATES



    The central problem with this analysis, however, is
that Grabowski’s assumptions were based on outdated
market data and were inconsistent with the actual mar-
ket conditions facing thrifts when the branching and RAP
rights were actually acquired. The conditions during the
acquisition period included an unprecedentedly high
interest rate and pervasive disintermediation. As the
Claims Court noted, “Grabowski’s assumption that the
hypothetical willing buyer would achieve significant
deposit growth in the high interest rate environment of
the early 1980s is belied by the undisputed evidence
regarding the dire economic and industry-specific condi-
tions at the time.” Claims Court Decision, 130 Fed. Cl. at
696. Indeed, it was the unusually dire market conditions
that persisted at the time that prompted the FSLIC to
offer RAP and branching rights to healthy thrifts as an
enticement to purchase unhealthy ones.
    As the court also accurately observed, to obtain the
significant deposit growth projected by Grabowski, “a
hypothetical willing buyer would need to not only avoid
the well-documented adverse impact of disintermediation,
but also to persuade a significant number of the deposi-
tors who were still willing to deposit their funds into a
savings and loan institution to deposit these funds in a
new thrift.” Id. at 697. The court found that the evidence
did not support such assumptions, which the court char-
acterized as “unreasonable” and “at odds with the eco-
nomic and industry-specific realities at the time.” Id. at
695–96. The court was entitled—and, in fact, required—
to review the record “with the understanding that the tax
consequences of any particular transaction must be based
upon economic realities.” Kraft, 30 Fed. Cl. at 766.
    Home’s experience expanding into Northern Califor-
nia in the 1970s, moreover, is substantially different from
the inter-state expansion effectuated by its supervisory
mergers in the 1980s. And, as the Claims Court found,
WMI “fail[ed] to adequately account for the regulatory
WMI HOLDINGS CORP.   v. UNITED STATES                  19



hurdles that a hypothetical willing buyer would have
encountered in opening de novo branches in projecting
deposit growth.” Claims Court Decision, 130 Fed. Cl. at
698. In particular, the court found it unlikely that a
hypothetical buyer would be able to open new branches at
the rate projected by Grabowski given that the timeline
for regulatory approval of a new branch was typically a
year or longer. Id. The court’s findings are not clearly
erroneous.
     WMI argues that, even if the Claims Court’s objec-
tions to Grabowski’s assumptions were warranted, the
court erred by disregarding the valuation in toto. Accord-
ing to WMI, the court should have modified the inputs to
Grabowski’s model to account for the perceived flaws in
his assumptions. To support this argument, WMI points
to Grabowski’s “sensitivity analyses,” in which he valued
branching rights under the alternative assumptions that
deposit growth for the first two years in a new market
would be 50% less than what he projected, or that only
half of the deposits would be used to fund loans for the
first two years while the other half were invested in
Treasury bills. WMI contends that these sensitivity
analyses demonstrate the flexibility of Grabowski’s ap-
proach.    In particular, WMI argues that, because
Grabowski’s methodology was not flawed, the court should
have just disregarded his flawed assumptions and inject-
ed new ones into the methodology. See Oral Arg. at
12:05–13:35 (“Q. Is it your position that . . . the court
then has the obligation to readjust the assumptions and
do the economic valuation? A. Yes, absolutely.”).
     The Claims Court, however, did not find Grabowski’s
sensitivity analyses helpful, questioning, among other
things, why Grabowski limited his adjustments to only
two years, when high interest rates were expected to
endure much longer. Id. at 697 & n.37. Grabowski also
failed to explain why he reduced deposit growth and loan
demand by 50% rather than by some other percentage.
20                    WMI HOLDINGS CORP.   v. UNITED STATES



Id. In any event, even if these adjustments were intended
to be merely demonstrative, WMI does not explain which
adjustments the Claims Court purportedly should have
made. See WaMu II, 856 F.3d at 727 (“Appellant’s argu-
ment that the court was required to sua sponte estimate
some value for the Rights is foreclosed. On these facts,
such a proposition would essentially do away with the
taxpayer’s burden.”).
    Given the lack of guidance as to how the Claims Court
could have modified Grabowski’s model, the court’s con-
clusion that it could not have done so, without doing so
arbitrarily, is not unreasonable. Compare Trigon Ins. Co.
v. United States, 215 F. Supp. 2d 687, 738–39 (E.D. Va.
2002) (finding that “it was of critical, outcome determina-
tive importance that the inputs used to arrive at the
valuation were accurate and reliable,” and that the criti-
cal inputs “simply do not square with the facts of record”
and therefore cannot be used to derive a more accurate
valuation), with Deseret Mgmt. Corp. v. United States, 112
Fed. Cl. 438, 456 (2013) (modifying plaintiff’s expert’s
discount rate where literature describing the appropriate
modification was available in the record).
    Finally, WMI argues that it was improper for the
court to treat Grabowski’s shortcomings with respect to
the RAP rights as an independent basis for holding that
WMI had not established any cost basis in the branching
rights. According to WMI, if the court determined that
Grabowski allocated too much basis to the RAP rights, the
court should have found that he allocated too little basis
to the branching rights. Again, we disagree.
    As an initial matter, the Claims Court did not reject
WMI’s branching rights claims solely because it had
already rejected its RAP rights claims. Rather, the court
noted that, because WMI’s allocation of cost basis to the
RAP rights was flawed, its allocation to the branching
rights must also be “call[ed] into doubt.” Claims Court
WMI HOLDINGS CORP.   v. UNITED STATES                    21



Decision, 130 Fed. Cl. at 695. The court then proceeded to
give reasons why WMI’s cost basis allocation for the
branching rights was independently flawed. Indeed, the
court stated that, notwithstanding WMI’s deficient RAP
right valuation, “the evidence also shows plaintiffs have
not established Home’s cost basis in the Branching Rights
because their fair market value determinations for this
asset do not constitute a ‘reasonable or rational approxi-
mation’ of the value of these assets.” Id.
     More importantly, WMI’s argument has merit only to
the extent the branching rights and RAP rights were the
only assets acquired in the supervisory mergers to which
the cost basis must be allocated. WMI has not shown this
to be the case. And, as the government points out, the
failing thrifts’ traditional goodwill could also absorb some
of the cost basis, even if such goodwill would have been of
low value during the savings-and-loan crisis. See Deseret
Mgmt., 112 Fed. Cl. at 450–51 (noting that even unprofit-
able companies possess goodwill).
     Grabowski’s methodology is only as good as his as-
sumptions, which, as the Claims Court found, were incon-
sistent with market realities and, at times, unsupported.
Because the court’s findings are not clearly erroneous, we
affirm the court’s ruling.6
                 III. Bowery Transaction
    Finally, as discussed above, Bowery obtained assis-
tance from the FDIC in 1988 to replace the assistance it


   6    The government also argued before the Claims
Court that Home did not, in fact, abandon its branching
rights, and that WMI therefore could not claim deductions
for those rights. We need not reach that argument be-
cause, even assuming that Home abandoned the rights,
we conclude that WMI failed to establish a cost basis in
each of those rights.
22                    WMI HOLDINGS CORP.   v. UNITED STATES



had been receiving pursuant to a 1985 merger. WMI
argues that it should have received amortization deduc-
tions for the 1985 rights, which did not materially change
in 1988. The Claims Court disagreed, finding that the
deductions should be based on the “new” assets that
Home acquired in the 1988 Bowery acquisition. Claims
Court Decision, 130 Fed. Cl. at 701–02. “We review the
characterization of transactions for tax purposes de novo,
based on underlying findings of fact, which we review for
clear error.” Wells Fargo & Co. v. United States, 641 F.3d
1319, 1325 (Fed. Cir. 2011).
     We agree with the Claims Court that the 1988 ex-
change of rights constituted a realization event that
triggered Home’s tax obligations. Section 1001(a) of the
Internal Revenue Code provides that “[t]he gain [or loss]
from the sale or other disposition of property” is the
difference between “the amount realized” from the dispo-
sition of the property and its “adjusted basis.” I.R.C.
§ 1001(a). A disposition of property for this purpose
includes “the exchange of property for other property
differing materially either in kind or in extent.” Treas.
Reg. § 1.1001-1(a). In other words, an exchange of proper-
ty “gives rise to a realization event so long as the ex-
changed properties are ‘materially different’—that is, so
long as they embody legally distinct entitlements.” Cot-
tage Sav. Ass’n v. Comm’r, 499 U.S. 554, 566 (1991).
    Here, the Claims Court correctly determined that the
government assistance provided to Bowery in 1988 was
materially different from that provided in 1985. As the
court noted, the 1988 assistance, among other things,
eliminated an income maintenance agreement—which
was intended to reduce Bowery’s interest rate risk for a
defined asset base for up to fifteen years—and decreased
the amount of assets covered by credit protection. Claims
Court Decision, 130 Fed. Cl. at 670, 701. Additionally, the
1988 assistance eliminated the 1985 RAP right, which
allowed Bowery to reverse its purchase accounting ad-
WMI HOLDINGS CORP.   v. UNITED STATES                    23



justments for the purpose of calculating capital for regula-
tory purposes. It replaced that right with a new one that
allowed Bowery to count goodwill arising out of the Bow-
ery acquisition toward regulatory capital. Id. Finally, the
1988 right increased the amortization period from four-
teen years to twenty years. Id.
    As the Claims Court noted, these differences demon-
strate that the assistance packages “embody legally
distinct entitlements and that a realization event oc-
curred when the Bowery entered into the 1988 Bowery
Assistance Agreement.” Id. at 702 (quoting Cottage Sav.,
499 U.S. at 566). The 1988 RAP right did not merely
change the mechanics of the 1985 RAP right, as WMI
contends; it provided a new methodology by which good-
will is defined. Indeed, as WMI concedes, the two RAP
rights could lead to different legal consequences based on
the same facts. See Reply 26–27. These different legal
consequences imply different legal entitlements. See
Cottage Sav., 499 U.S. at 566 (holding that a transaction
in which a company exchanged its interests in one group
of residential mortgage loans for another lender’s inter-
ests in a different group of loans was a realizable transac-
tion); Phila. Park Amusement Co. v. United States, 130 Ct.
Cl. 166, 168–70 (1954) (holding that an amendment of a
taxpayer’s railway franchise to extend the term by ten
years and transfer away ownership of a bridge constituted
an exchange for tax purposes). The Claims Court there-
fore correctly determined that the 1988 exchange gave
rise to a realization event.
    WMI asserts that, even if, in certain respects, the
1988 RAP right is different from the 1985 RAP right, the
exchange nevertheless qualifies as a “like-kind exchange,”
which would allow Bowery to defer recognition of a gain
or loss. See Deseret Mgmt., 112 Fed. Cl. at 447 (“Such an
exchange allows the exchanger to delay recognizing gain
on the exchanged property, as the tax basis of that prop-
erty carries forward to the newly-acquired property.”).
24                     WMI HOLDINGS CORP.   v. UNITED STATES



But this, too, is incorrect and was properly rejected by the
Claims Court.
    Section 1031(a) of the Code operates as an exception
to § 1001(a), allowing a taxpayer to defer recognition of
gain or loss from qualifying exchanges of “like kind”
property. I.R.C. § 1031(a)(1). The phrase “like kind”
refers “to the nature or character of the property.” Treas.
Reg. § 1.1031(a)-1(b). The exception applies when “the
taxpayer’s economic situation after the exchange is fun-
damentally the same.” VIP’s Indus. Inc. v. Comm’r, 105
T.C.M. (CCH) 1890, 2013 WL 3184624, at *3 (T.C. 2013);
see Snowa v. Comm’r, 123 F.3d 190, 193 n.5 (4th Cir.
1997). That is not the case here. As the Claims Court
pointed out—and as described above—the nature and
character of Bowery’s RAP right fundamentally changed
because, among other things, it allowed Bowery to ac-
count for the goodwill arising out of Home’s acquisition as
an asset as opposed to reversing the write-down on Bow-
ery’s loans. Claims Court Decision, 130 Fed. Cl. at 703.
    We agree with the Claims Court that Bowery’s 1988
receipt of an assistance package was a realization event,
and we therefore affirm the court’s ruling.
                       CONCLUSION
    While we recognize that WMI may have been entitled
to some deduction, our holding inevitably flows from the
fact that the burden to value the basis for the assets at
issue was squarely upon WMI, which failed to satisfy that
burden. For these reasons, we affirm the Claims Court’s
dismissal of WMI’s tax refund claims.
                       AFFIRMED
                          COSTS
     No costs.
