Income tax allocation agreements

The Federal Deposit Insurance Corporation (FIDOC) recently issued an addendum to Policy Statement FIL-30-2014, Policy Statement on Income Tax Allocation in a Holding Company Structure (Interagency Policy Statement). The addendum pertains to intercompany tax allocation agreements and ensures that insured depository institutions (IDIs) in a consolidated group maintain an appropriate relationship regarding the payment of taxes and treatment of tax refunds.

An intercompany tax allocation agreement is a contractual legal agreement pertaining to the computation of income taxes (current and deferred), payment of income taxes, and reimbursements to an institution when it has a loss for tax purposes.  A holding company and its subsidiary institution(s) are encouraged to enter into a written, comprehensive tax allocation agreement tailored to their specific circumstances.  The agreement should be approved by the respective boards of directors and periodically reviewed and updated by corporate legal counsel.

FIL-30-2014 is intended to ensure that tax allocation agreements explicitly acknowledge that an agency relationship exists between a holding company and its subsidiary institution(s) with respect to tax refunds attributable to the institution.  It also includes a sample paragraph for institutions and their holding companies to use in their tax allocation agreements.

The federal banking agencies expect institutions and holding companies to implement fully the addendum as soon as reasonably possible, which the agencies expect would not be later than October 31, 2014.  You can read the text of the addendum by clicking here.

Additional information can be found at the Board of Governors of the Federal Reserve System website.

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