Downey Financial Chapter 7 trustee asks court to void FDIC tax form to allow $314 million refund

By Caroline Salls

Pittsburgh, Jan. 6 - Downey Financial Corp.'s Chapter 7 trustee has asked the U.S. Bankruptcy Court for the District of Delaware to rule that Downey Savings & Loan receiver the Federal Deposit Insurance Corp. violated the automatic stay by filing a tax form that prevented the trustee from collecting a tax refund for the company, according to a Tuesday court filing.

Because of a recent change in tax law, Chapter 7 trustee Montague S. Claybrook said the refund in question has now increased to more than $314 million from $145 million.

The refund results from the company's net operating losses, according to the motion.

As a result of the FDIC filing a Form 56-F1 on Nov. 28, 2008, the trustee said the Internal Revenue Service informed him that it can't process his tentative carryback claim for refund.

Claybrook said he is asking the court to strike the IRS form as void and filed in violation of the automatic stay imposed by the company's bankruptcy filing so he can bring a more than $314 million tax refund into the estate.

A hearing is scheduled for Jan. 21.

Newport Beach, Calif.-based Downey Financial filed for bankruptcy on Nov. 26, 2008. Its Chapter 7 case number is 08-13041.

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