                                                                                               FIL
                                                                                          COURT OF APpPALS
                                                                                             MviSlott
                                                                                    1013 JUL -       AM Q: Q8
    IN THE COURT OF APPEALS OF THE STATE OF W.                                      1 *




                                                                                            kq' "               .
                                            DIVISION II                               By
                                                                                                 U

CASHMERE VALLEY BANK,                                              No. 42514 9 II
                                                                             - -


                                  Appellant,

       V.




STATE OF WASHINGTON DEPARTMENT                                 PUBLISHED OPINION
OF REVENUE,




       PENOYAR J. —         The Washington State Department of Revenue (Department) audited

Cashmere Valley Bank (Cashmere) for the years 2004 through 2007 and assessed additional

business and occupation (B O) for interest income Cashmere had received on investments in
                           & tax

real estate mortgage investment conduits (REMICs) and collateralized mortgage obligations

CMOs).

       Cashmere paid the additional tax and then filed a complaint for refund in superior court,

claiming that the interest income_was deductible         under RCW 82. 4.
                                                                   4292.
                                                                     0                    On summary

judgment, the   trial court denied    Cashmere the deduction. Cashmere appeals, arguing that the

interest income qualifies for the deduction as interest on investments primarily secured by first

mortgages or trust deeds on nontransient residential property. Because Cashmere does not have

any legal recourse to the mortgages and trust deeds underlying its investments, its investments

are not primarily secured by them. Thus, we affirm.




i Unless noted otherwise, RCW 82. 4.refers to the 1980 version of the statute, which was
                              4292
                                0
in force   during   the audit   period. The legislature amended the statute in 2010 and 2012. See
LAWS OF                          ch. 23, §301; LAWS
            2010, 1st Spec. Sess.,                       OF 2012, 2d Spec. Sess.,
                                                                                ch. 6, §102.
42514 9 II
      - -



                                            FACTS


I.      FACTUAL BACKGROUND


        Cashmere operates 11 branch banks in several central Washington cities, a loan

production office in Yakima, and a municipal banking office in Bellevue. Cashmere's business

includes personal and business banking and mortgage, insurance, investment, and leasing

services.




        In 2009, the Department audited Cashmere for the period January 1, 2004, through

December 31, 2007. As a result of the audit, the Department assessed Cashmere for $ 46, 78,
                                                                                  3 1

including interest, in unpaid tax. Cashmere paid this amount in full on June 4, 2009. A large

part of this tax assessment was B O tax on interest income Cashmere received from investments
                                  &

in REMICs and CMOs.

II.      PROCEDURAL BACKGROUND


         In July 2009, Cashmere filed a notice of appeal and complaint for refund in superior

court, claiming that the interest income Cashmere received from the REMICs and CMOs was

deductible under RCW 82. 4.Cashmere sought summary judgment on this issue. The trial
                     4292.
                       0

court denied Cashmere's motion and ruled for the Department: Cashmere timely appeals.

                                          ANALYSIS


         Cashmere challenges the denial of an interest income deduction under RCW 82. 4.
                                                                                  4292
                                                                                    0

for income derived from REMIC and CMO investments. Under RCW 82. 4.
                                                             4292,
                                                               0   interest

income a bank receives from investments primarily secured by first mortgages or trust deeds on

nontransient residential properties is deductible from its B O tax calculations. A bank's
                                                             &

2
    During the audit period, Cashmere received a net amount of $ 7, 37, in interest income
                                                               861
                                                               1 8
from investments in REMICs and CMOs. The Department assessed $
                                                             267, 68 in B O tax on
                                                                5         &
this amount.
                                                2
42514 9 II
      - -




qualifying " ecured"investment must be backed by collateral and the bank must have some
           s

recourse against that collateral.

       REMICs and CMOs are investment instruments of pooled mortgage loans that have been

broken down into the individual principal payments and interest payments associated with each

mortgage. The issuer repackages the principal and interest payments according to their payout

and risk characteristics into "
                              tranches"or slices of the mortgage pool. A bank invests in

REMICs and CMOs by purchasing bonds that correspond to the different classes that the various

tranches represent and that have stated payment terms.

       If a payment default occurs on a bond,the bank's recourse is against the issuer and, to

some extent, the class collateral or tranche for the bond. But the bank has no recourse against the

original mortgages or trust deeds underlying the tranchesthe bank cannot for example,
                                                          —

foreclose any of those mortgages. The bank's investments are not secured by these mortgages or

trust deeds. Accordingly, Cashmere's investments in REMICs and CMOs are not primarily

secured by first mortgages or deeds of trust, and Cashmere cannot take the deduction for interest

income received from these investments.

I.      STANDARD OF REVIEW


        We review summary judgment de novo. American Best Food, Inc. v. Alea London, Ltd.,

168 Wn. d 398, 404, 229 P. d 693 (2010).We also review statutory interpretation, which is a
      2                  3

question of law, de novo. HomeStreet, Inc. v. Dep't of Revenue, 166 Wn. d 444, 451, 210 P. d
                                                                      2                  3

297 (2009).

II.     THE B O TAX DEDUCTION
              &


        Washington State imposes a B O tax on a business's gross income "for the act or
                                     &

privilege of engaging in business activities." RCW 82. 4. A business may be able to
                                                   220(
                                                      1
                                                      0 ).
                                                 3
42514 9 II
      - -



deduct certain income. from its gross income when calculating its B O tax, but the business has
                                                                    &

the burden of   showing   that it   qualifies   for those deductions it claims.   See HomeStreet, 166

Wn. d at 455. Importantly, courts construe statutes granting tax deductions strictly, but fairly,
  2

against the taxpayer. Activate, Inc. v. Dep't of Revenue, 150 Wn. App. 807, 813, 209 P. d 524
                                                                                      3

2009).

       The B O tax deduction at issue is found at RCW 82. 4. In computing tax there
             &                                        4292: "
                                                        0

may be deducted from the measure of tax by those engaged in banking, loan, security or other

financial businesses, amounts derived from interest received on investments or loans primarily

secured by first mortgages or trust deeds on nontransient residential properties."

       In HomeStreet, our Supreme Court analyzed this deduction as having five essential

elements:


       1. The person is engaged in banking, loan, security, or other financial business;
       2. The amount deducted was derived from interest received;
       3. The amount deducted was received because of a loan or investment;
       4.    The loan or investment is primarily secured by a first mortgage or deed of
       trust; and
       5. The first mortgage or deed of trust is on nontransient residential real property. .

166 Wn. d at 449. In that case, HomeStreet had originated mortgage loans that it then sold to
      2

secondary market lenders like the Federal National Mortgage Association (Fannie Mae),
                                                                                    the

Government National Mortgage Association ( Ginnie Mae), and the Federal Home Loan

Mortgage Corporation (Freddie Mac).HomeStreet, 166 Wn. d at 447 48. Some of these loans
                                                     2          -
HomeStreet sold in their entirety, but some loans HomeStreet sold only in part, retaining rights

to service the loans and receive a portion of the interest due on the loans as servicing fees.

HomeStreet, 166 Wn. d
                  2       at 447 48.
                                 -
42514 9 II
      - -



         The court underscored in HomeStreet that the only element of RCW 82. 4. in
                                                                          4292
                                                                            0

question    was   the second —whether      the servicing fees HomeStreet received on the loans it

partially   retained   were   derived from interest received. 166 Wn. d at 449. The court held that
                                                                    2


these fees were derived from interest and that HomeStreet was therefore entitled to deduct them


from its B O tax. HomeStreet, 166 Wn. d at 455 56.
           &                        2          -

         But the second element is not in question here. As Cashmere correctly points out, the

only   element in      question    here is the fourth —whether the investments Cashmere made in


REMICs and CMOs were primarily secured by first mortgages or deeds of trust. This inquiry
requires understanding the nature of mortgage-
                                             backed securities generally, and REMICs and

CMOs specifically as a type of mortgage-
                                       backed security.

III.     MORTGAGE -BACKED SECURITIES


         Understanding REMICs and CMOs requires a basic understanding of how mortgages are

converted into different kinds of mortgage-
                                          backed securities. This process begins when a person

borrows money from            a   lenderlike
                                         —     a   bank   or   mortgage lenderto purchase   a   home.   As


security for this loan, the borrower gives the lender a mortgage on the home. If the borrower

fails to pay the loan's principal and interest on the terms to which the borrower and lender

agreed, the lender may foreclose on the home and sell it to recover the money it lent to the
borrower.




3 The first three elements are not in dispute, nor is the fifth. With respect to the fifth element, the
mortgages or deeds of trusts underlying Cashmere's investments in REMICs and CMOs at issue
here were in fact on non -
                         transient residential real property.
4
    For purposes of this explanation, mortgages"entails both mortgages and deeds of trust.
                                      "
                                                          5
42514 9 II
      - -



       The lender, however, will not always retain the mortgage. Often, the lender will sell the

mortgage   to   a   buyer   on   the   secondary   market.   This buyer, usually a large private firm or

government -affiliated agency, acquires the right to receive the borrower's principal and interest

payments on the home loan, and also the right to foreclose on the home if the borrower does not

timely make those payments.

       A secondary-
                  market buyer "securitizes"the mortgages it purchases from various lenders

by first pooling the mortgages and then issuing interests based on those pools to investors. These

intereststhat is, these mortgaged-
          —                      backed securities vary,however, with respect to how they
                                                   =

are structured and what kind of interest the investors receive.


       Two types of mortgage -backed securities are mortgage participation certificates and

mortgage pass -through securities.           Mortgage participation certificates appeared early in the

                   backed securities. The certificate consists of.one party selling a pool of
history of mortgage-

whole loans to another party. The seller warrants that it will repurchase any loan in the pool that

does not conform to its representations and warranties. The buyer fully owns the loans, however,

and has recourse only against the original borrower for losses on conforming loans. Investors'

desires for greater security led to the development of mortgage pass -through securities.

       Mortgage pass -through securities are a form of mortgage-
                                                               backed securities represented

by share certificates that grant the certificate holder a proportionate ownership interest in a pool
of mortgages held in trust.            The certificate holder receives cash flow from the underlying

mortgages as borrowers make their principal and interest payments to the holding trustthat is,

5
 The borrower, however, may not be aware that the lender sold the mortgage the lender may
                                                                              —
have contracted with the buyer to continue servicing the mortgage vis a vis the borrower. The
                                                                      - -
lender, then, may be receiving the borrower's payments and passing them along to the buyer for
a fee. Or, in the event of the borrower's default, the lender may foreclose on the property and
pass along the proceeds of the foreclosure sale, less the lender's fee or share, to the buyer.
                                                        6
42514 9 II
      - -



the trust passes the proportionate interest in the underlying payments to the certificate holder.

The return an investor in this security receives thus mirrors the payments borrowers make on the

mortgages in the pool.

         Under both participation certificates and pass -through securities, the investor owns a

share of the borrowers' mortgage obligations and receives whatever payments the borrowers

make.     The Department has.concluded that such mortgage-
                                                         backed securities are primarily

secured by first mortgages or trust deeds because "[ efault by any borrower in the repayment of .
                                                  d]

an underlying loan will give the security holder [the investor] the rights to the proceeds of sale of .

the property in foreclosure."    Clerk's Papers (CP) at 877 (quoting Wash. Dep't of Revenue,

Determination No. 90 288, 10 Wash. Tax Dec. 314, 317 (1990)). first mortgages or trust
                     -                                      The

deeds remain the first level of recourse for investors in such securities even if the issuer of the

securities has given a guaranty of repayment because "guarantors are only secondarily liable in

the event foreclosure proceeds are insufficient to repay the defaulted loans."CP at 877 (quoting

Revenue Determination No. 90 288, 10 Wash. Tax Dec. at 317) .
                             -

         REMICs and CMOs represent a further step in this process of mortgage securitization,

but remove investor rights in the underlying mortgages. With mortgage participation certificates

and mortgage pass -through securities, the mortgages underlying these securities remain largely

intact; any division of interest between parties is accomplished through warranties on or

6
    Cashmere alleges that if we hold that investments in REMICs and CMOs do not qualify for the
deduction, we will have effectively read "investments" out of RCW 82. 4. While we do
                                                                         4292.0
not address in this opinion whether the Department's above cited ruling allowing the deduction .
                                                               -
for mortgage-  backed securities like participation certificates and pass -through securities is
correct, even if investments in such mortgage-     backed securities may qualify for the deduction,
Cashmere's argument here under different circumstances fails.

7 In essence, REMICs and CMOs are the same type of investment instrument; REMICs are more
recent, as they enjoy certain federal tax benefits.
                                                  7
42514 9 II
      - -




proportionate ownership of those whole loans. In contrast, the mortgages in the pools underlying
REMICs and       CMOs are divided into the individual principal payments and interest payments

due under each mortgage. The issuer of the REMIC or CMO then reconfigures these payments
into   new   combinations of     principal    and interest called " tranches." Each tranche, or class,


represents   a   new   security that   can   be traded   separately   on,the   secondary market. Investors

purchase fractional shares in the different classes. But rather than representing a proportionate

ownership in pools of mortgages, these fractional shares take the form of different classes of
bonds issued against and corresponding to the reconfigured mortgage payments that constitute

each tranche of the REMIC or CMO.

IV.     INVESTMENTS " RIMARILY SECURED"BY FIRST MORTGAGES OR TRUST DEEDS
                    P

        Cashmere asserts that the interest income it received during the audit period from its

investments in REMICs and CMOs should be deductible from its B O tax because these
                                                               &


8 The assets underlying REMICs and CMOs can be whole mortgage loans or, to make matters
even more complicated, other mortgage-
                                     backed securities.
9
 For example,. 30 year fixed rate mortgage requiring monthly principal and interest payments
               a -            -
would consist of 720 individual payments 360 principal payments and 360 interest payments.
                                         -
A pool with 1,00 of these kinds of mortgages would thus have 720, 00 separate payments of
             0                                                  0
principal and interest.

10 Issuers may designate investments in REMIC classes as representing beneficial ownership
interests in the trust holding the underlying mortgages. But such a designation does not change
the nature of investments in REMICs and CMOs as essentially interests in bonds (debt),      not
ownership (equity); issuer is still the owner of the respective mortgage notes. See, e. ., at
                  the                                                                 g CP.
845 ( "Fannie     Mae is at all times the owner of the mortgage note, whether the note is in our
portfolio or whether we own it as trustee for [a mortgage-
                                                         backed security] trust. ").

11 To illustrate, consider a theoretical REMIC with four tranches: A,B, C, and Z. Each tranche
represents   a   different level of risk and    a   different payout   period. If an investor, based on its
investment preferences, purchased Z class bonds, those bonds would be issued against tranche Z,
                                    -
which would comprise those reconfigured mortgage payments that corresponded to the risk and
return associated with investment in the Z tranche. Tranche Z, for example, could comprise the
principal and interest payments due in the last five years of the mortgages involved.
                                                         8
42514 9 II
      - -



investments were, in the plain language of RCW 82. 4. primarily secured by first
                                               4292, "
                                                 0

mortgages    or   trust deeds."   To support this position, Cashmere points out that the mortgages

underlying these investment instruments were primarily secured by first mortgages or deeds of
trust and that the interest income Cashmere received was traceable to the interest payments

borrowers made on these mortgages. Cashmere's observations are correct, but the conclusion it

reaches from those observations is not—
                                      Cashmere incorrectly conflates the mortgages

underlying   its investments with the investments themselves.        Equating investments with the

mortgages underlying them may work for some mortgage-
                                                    backed securities for purposes of

taking the deduction at issue here, but not for REMICs and CMOs.

       Whereas the mortgages underlying investments in REMICs and CMOs may in some

economic sense serve to secure those investments, from a legal standpoint the investor in

REMICs and CMOs has no recourse to those underlying mortgages as security for the

investment. To the extent investments in REMICs and CMOs are secured in a legal sense by any

collateral, that collateral is the tranches or classes that an issuer can separately trade as securities

in fulfillment of its financial obligations to an investor.

        To analyze Cashmere's claim, we must first return to the statutory language granting the

deduction: "In computing tax there may be deducted from the measure of tax by those engaged

in banking, loan, security or other financial businesses, amounts derived from interest received

on investments or loans primarily secured by first mortgages or trust deeds on nontransient

residential properties." RCW 82. 4. Again, the only issue here is whether the income for
                             4292.
                               0
which Cashmere is claiming the deduction consisted of amounts derived from interest received
                                                      "

on investments or loans primarily secured by first mortgages or trust deeds."


                                                    0
42514 9 II
      - -




       In addressing this issue, we first look to the statute's plain language. HomeStreet, 166

Wn. d at 451. If the statute is subject to multiple reasonable interpretations, it is ambiguous.
  2

HomeStreet, 166 Wn. d
                  2       at   452.   And if the statute is ambiguous, we may resort to statutory

construction, which includes considering statutory context and legislative history, to resolve the

ambiguity. Dep't of Revenue v. Bi Mor, Inc.,171 Wn. App. 197, 203, 286 P. d 417 (2012),
                                  -                                     3

review denied, 177 Wn. d 1002 (2013));
                     2              Wells Fargo Bank, N. . v. Dep't ofRevenue, 166 Wn.
                                                       A

App. 342, 350 51,271 P. d 268, review denied, 175 Wn: d 1009 (2012).
              -       3                             2

       The first question is whether the "investments or loans" the statute mentions refer to

transactions entered into by the taxpayer, or to investments or loans to which the taxpayer might

not have been a party but from which the taxpayer has derived earnings from interest. At oral

argument, Cashmere affirmed its position that an amount earned on any transaction is deductible
under RCW 82. 4.if the amount's origin can be traced back to interest payments on
          4292
            0

residential home loans. Thus, amounts earned on an investment in the last car of a long " tranche

train" of reconfigured and resold interests is deductible if the engine driving the train is

homeowners' interest payments on their respective home loans. The Department maintains that

the deduction is available only to taxpayers who have an ownership interest in the investments or

loans themselves.


       The legislature's use of the phrase "amounts derived from interest" instead of just the

word "interest" appears to favor Cashmere's tranche train argument. The phrase implies that
                                                    -

earnings that flow to a taxpayer from interest on investments or loans are deductible even if the

taxpayer was not a party to the investment or loan transactions. Because we cannot interpret the




                                                  10
42514 9 II
      - -



                                                         12
phrase "amounts   derived from"right out of the statute,      this phrase would appear to allow us to

interpret "investments or loans" as referring to those in which the taxpayer may not have been

involved as a party and, consequently, in which the taxpayer may not have acquired any

ownership interest.

       While we acknowledge that the above interpretation of "
                                                             investments or loans" is a

reasonable one, the statute's language alone allows for another reasonable interpretation of

investments or.loans" as referring rather to transactions into which the taxpayer itself has

entered.   Because these two reasonable interpretations render the statute ambiguous, we look

beyond the statute's language and note that chapter 82. 4 RCW is tax code that not only assesses
                                                      0

tax on certain business activities but also guides a business in knowing which of its activities are

taxable and which are deductible.     In this context, RCW 82. 4.would appear to speak
                                                           4292
                                                             0

directly to Cashmerethe taxpayerand its activities, namely, the investment or loan
                    —           —

transactions into which it has entered and from which it is generating earnings from interest

income.




12 We are to give each word in a statute meaning and significance. HomeStreet, 166 Wn. d at
                                                                                     2
452.
                                                 11
42514 9 II
      - -



         We are further persuaded that this second interpretation is the right one because the

legislature removed the phrase "amounts derived from"from RCW 82. 4.in 2010. LAWS
                                                              4292
                                                                0
OF   2010, 1st Spec. Sess.,ch. 23, § 301. Removing this phrase indicates to us that the legislature

intends "investments or loans" to refer to the taxpayer's investments or loans, and not to

investments or loans from which a taxpayer farther down the tranche train is deriving earnings

sourced from interest payments. Especially taken in light of the judicial precedent of construing .

statutes granting tax deductions strictly but fairly against the taxpayer, this statutory context and

legislative history lead us to conclude that "investments or loans"refer to those entered into by

the taxpayer.

         Because " investments or loans" in RCW 82. 4. refer to Cashmere's own
                                                4292
                                                  0

investments in REMICs and CMOs, Cashmere cannot, in taking the deduction, rely on the nature

of the original home loans that underlie its investments as being "primarily secured" by first

mortgages or trust deeds. Instead, Cashmere, if it is to take the deduction, must show that its

investments    are   themselves "primarily secured" by first mortgages         or   trust deeds.   Analyzing

whether these investments are secured in this way first requires an understanding of what

secured"means here.




13
     This amendment followed the           Supreme   Court's   ruling in HomeStreet. In that case, a bank
partially sold mortgage loans it had originated to secondary-
                                                            market buyers, but retained rights to
service the loans; as a servicing fee, the bank kept a portion of the interest payments borrowers
made   on their loans. 166 Wn. d at 448. In determining whether the bank was entitled to the
                                2
deduction at RCW 82. 4.the court analyzed the phrase "amounts derived from interest,"
                     4292,0
concluding that it permitted the bank to take the deduction because "[ he revenue at issue here is
                                                                    t]
received from        a   source, and the   source   is interest.   The revenue is therefore `derived from
interest' because it is taken from.the interest the borrowers pay on their loans." 166 Wn. d at
                                                                                         2
454. The court further concluded that "[ nder the statute it is not essential to determine why the
                                      u]
money is received or taken from a source."166 Wn. d at 454.
                                                2
                                                         12
42514 9 II
      - -



        The statute does not define "secured,        and neither party offers a definition of the term.

We note, however, that "
                       secured" is a familiar legal term, and "[
                                                              a] familiar legal term used in a

statute is given its familiar legal meaning."Rasor v. Retail Credit Co., Wn. d 516, 530, 554
                                                                       87  2

P. d 1041 (1976).When referring to a debt or obligation, as is the case here, secured"means
 2                                                                            "

supported or backed by security or collateral."BLACK's LAW DICTIONARY 1475 (9th ed. 2009).

Security,"in turn, means "[collateral given or pledged to guarantee the fulfillment of an
                            ]

obligation." BLACK's        LAW DICTIONARY 1475 (         9th   ed.   2009). A party with a "secured"

investment is therefore a " secured" party " protected by a pledge, mortgage, or other

encumbrance of property that helps ensure financial soundness and confidence" with respect to

the party's investment. BLACK'S LAW DICTIONARY 1475 (9th ed. 2009).Thus a "secured"party

necessarily has some recourse to collateral securing its investment. In the context of real estate

transactions, a secured party has the right, for example, to foreclose on the collateral (such as

with a mortgage or real estate contract) or to require another to foreclose for them ( uch as with a
                                                                                     s

deed of trust)if payment obligations are not met.

        We accept that homeowners' payments on their mortgages and trust deeds are the source

of the REMIC and CMO trustees' payments to Cashmere for the bonds it has purchased. And

we acknowledge that in an overall economic sense the homeowners' payments may be

considered the primary underlying security for the return Cashmere receives on its investments.
But   our   analysis   and review   are   legal, not economic. From this legal position, Cashmere's

investmentsand Cashmere itselfare not secured at all, much less primarily secured, by the
           —                  —

mortgages and trust deeds underlying those investments because Cashmere has no recourse

against those mortgages      and trust deeds.     Cashmere has no right to proceed directly against

homeowners who fail to make payments under the              mortgages     or   trust deeds.   And Cashmere

                                                     13
42514 9 II
      - -




does not have a right to require the respective trustees of its investments to proceed against

homeowners to satisfy the trustees' financial obligations to Cashmere.

       Cashmere has rights against the trustees that issued bonds to Cashmere, but these rights

do not extend to actions on the underlying mortgages or trust deeds. In the event of a trustee's

default (perhaps because of homeowners' defaults under their mortgages or trust deeds),

Cashmere may be able to replace the trustee, but the successor trustee still takes legal title to the

underlying mortgages      and trust deeds.   And, as the Department observed in a 1990 ruling,

Cashmere may have the right to require a trustee to sell tranches or classes to satisfy its

obligation to Cashmere, but Cashmere does not have the right to require the sale of the

underlying mortgages or trust deeds:

                T] e bond issuer secures its obligation by pledging readily tradeable
                    h
       securities in trust for the benefit of the bondholder. Upon default of the bonds,
       the bondholder's sole right is to require the trustee to sell the mortgage-backed
       security itself. The occurrence of an event of default under the terms of the trust
       indenture does not give the bond holder rights of foreclosure against the property
       securing the mortgage-
                            backed security.

CP at 878 (quoting Revenue Determination No.90-
                                              288, 10 Wash. Tax Dec. at 318.)

       If Cashmere's investments in REMICs and CMOs were primarily secured by any

collateral, that collateral would be the separately traded mortgage-
                                                                   backed securities represented

by tranches   or   classes.   But to simply argue that Cashmere's ultimate source of returnthe
                                                                                            —

underlying mortgages and trust deeds is its primary source of security ignores the fact that
                                     —

Cashmere has no recourse to that ultimate source of payments. Because Cashmere does not have
                         -

such recourse, Cashmere cannot show that its investments were primarily secured by first

mortgages or trust deeds, and thus Cashmere cannot take the deduction.




                                                 14
11-
42514-
     9



      We affirm.




We concur:



      1
               j , i   s




      Van Deren,.
          P.   T.
               J.




      4r; ick, CJ
        w




                           15
