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WMI believes that, in total, the Tax Group is entitled to federal and state Tax Refunds,
net of tax payments estimated to be owed to taxing authorities, of approximately $5.5 to $5.8 billion in
taxes in the aggregate, including interest through a projected future date of receipt. Over 90% of this
amount reflects the federal income tax refunds already received, with certain unrelated federal tax refund
litigation still pending.49 On August 27, 2010, the Bankruptcy Court approved a Stipulation Regarding
Establishment of Segregated Account for Tax-Related Payments, among the Debtors, the FDIC Receiver
and JPMC, pursuant to which the parties agreed to a protocol for the deposit and retention of the Tax
Refunds, as they are received, in a segregated interest bearing account, pending approval and
consummation of the Global Settlement Agreement. This account has been established and all Tax
Refunds received since the execution of the Global Settlement Agreement have been deposited therein.
This includes federal Tax Refunds (approximately $5.278 billion in amount),50 and state Tax Refunds
totaling approximately $4.3 million.
Allocation of the Tax Refunds. The ownership of the Tax Refunds is in dispute.
Pursuant to the Global Settlement Agreement, the parties thereto have agreed to share the Tax Refunds as
follows:
The First Portion. The amount of net Tax Refunds (including state and local income
taxes) that are received, and would have been receivable absent the Worker, Homeownership, and
Business Assistance Act of 2009’s extension of the federal net operating loss (“NOL”) carryback period
(the “First Portion”) will be allocated as follows: 20% of such refunds allocated to the Debtors and the
remaining 80% of such refunds to JPMC. The Debtors currently estimate that the First Portion of the Tax
Refunds will be approximately $2.7 to $3.0 billion in the aggregate, approximately $540 to $600 million
of which will be allocated to the Debtors’ estates.
The Second Portion. Any additional net Tax Refunds, attributable to the Worker,
Homeownership, and Business Assistance Act of 2009, will be allocated as follows: 69.643% of such
refunds will be allocated to WMI and 30.357% of such refunds will be allocated to the FDIC Receiver.
49 Certain of the pending federal tax refund litigations relate to claimed deductions for the amortization and
abandonment of certain assets in certain tax years of a predecessor company in the time period 1991 through 1998.
These assets were acquired by the predecessor company in exchange for its acquisition of certain failed institutions
in the early 1980’s. The first of these refund claims was filed in the U.S. District Court of Western Washington at
Seattle (“District Court”). In this case, the Debtors and the Government each filed a Motion for Summary Judgment
seeking a determination as to whether the Tax Group was entitled to a tax basis in the specified assets. The District
Court ruled in favor of the Government. Washington Mutual, Inc. v. United States, No. C06-1550-JCC (W.D.
Wash. August 12, 2008). The Debtors appealed this decision to the U.S. Court of Appeals for the Ninth Circuit
(“Ninth Circuit”), which reversed the decision of the District Court. Washington Mutual, Inc. v. U.S., 636 F.3d 1207
(9th Cir. March 3, 2011). The Ninth Circuit remanded the case to the District Court to determine the amount of tax
basis and the corresponding amount of tax refunds. The government did not appeal the Ninth Circuit decision to the
United States Supreme Court. A trial to determine the amount of tax basis and refund is scheduled to commence on
March 26, 2012 in the District Court.
50 The Debtors estimate that, in the aggregate, another $200 million to $500 million of net Tax Refunds could be
recovered through ongoing tax litigation and negotiation. Because such refunds are part of the First Portion (as
defined below), WMI’s portion of these refunds would be 20% of the total received.
As described more fully in Sections III.B.6.b and V.B.5.g(i) hereof, pursuant to the terms of the Seventh
Amended Plan, a certain portion of WMI’s share of such refunds will be distributed to certain holders of
WMB Senior Notes, in the aggregate amount of Three Hundred Thirty-Five Million Dollars ($335
million). The Debtors have received the Second Portion of the Tax Refunds in the amount of $2.779
billion, approximately $1.94 billion of which would be allocated to the Debtors’ estates, including any
distribution that may be payable to holders of WMB Senior Notes.
Per the Global Settlement Agreement, the Debtors currently estimate that their share of
the total estimated Tax Refunds will be approximately $2.17 billion, after the distribution that may be
payable to holders of WMB Senior Notes.
(iii)
