A call from the Internal Revenue Service has prompted a Maryland community banking company to revise its 1998 earnings.
Two weeks after announcing it had earned about $1.5 million during the fourth quarter, FCNB Corp. of Frederick said last week that it had actually lost $252,000.
For the year, FCNB is now reporting profits of $8.1 million, down from the $9.9 million previously claimed.
The drop stems from the company's decision to set aside $1.75 million for a potentially hefty tax bill.
The IRS contacted $1.3 billion-asset company last week to dispute accounting decisions made after the January 1996 purchase of Laurel (Md.) Bancorp.
In buying Laurel, a thrift holding company, FCNB inherited about $1.6 million in deferred tax liability. Laurel and other thrifts were allowed to defer the taxes during the thrift crisis of the 1980s. FCNB, commercial banking company, agreed when it acquired the thrift to pay the bill.
But before the bill became due, Congress passed legislation that forgave thrifts any taxes assessed before Dec. 1, 1988. FCNB then assumed that the debt it had bought was absolved, and excluded the tax from its final 1996 returns.
Now, almost three years later, the IRS says it wants the money.
The agency has separate requirements for banks that bought such thrifts and want to take advantage of the tax break, and the sides disagree on whether the Laurel deal satisfied these requirements.
FCNB said it "intends to vigorously contest the additional assessment." However, said Mark A. Severson, senior vice president and chief financial officer, "we felt, to be prudent, we should disclose it."
A Washington accountant who is expert in tax and regulatory affairs said he believes FCNB has a good case.
"One of the reasons Congress passed that law was to make it easier for banks to acquire thrifts," and the IRS action flies in the face of that intent, said the accountant, who asked not to be named.
A spokeswoman for the IRS said it does not comment on investigations.
FCNB is the parent of FCNB Bank, which has 32 branches in seven Maryland counties, Washington, and northern Virginia. On Thursday the company's shares fell 93.75 cents, to to $19.8125, after the earnings were revised. Trading volume was three times its daily average.
At midday Monday the stock was trading at $20.
