Proposed Guidance Updates for Tax Sharing Agreements

In 1998, the Board, FDIC and OCC adopted an Interagency Policy Statement on Income Tax Allocation agreements (also known as tax sharing agreements) that are used by U.S. corporations with a U.S. parent corporation and its wholly owned U.S. subsidiaries. It was updated in 2014 with another policy statement that clarified financial institutions’ ownership rights in tax refunds when the group elects to file a consolidated tax return. However, the policy statement is not enforceable.

An interagency proposal introduced in May aims to update and codify the principles in the policy statement. For example, supervisory activities revealed some tax allocation agreements do not require a holding company to promptly transmit the apportioned amount of a consolidated group's tax refund to its subsidiary institutions; delayed access to the funds could weaken an institution's liquidity profile. Lack of comprehensive agreements have also resulted in significant tax refunds becoming trapped at holding companies connected to a bank failure.

The proposal also establishes safety and soundness requirements for affected national banks, state banks and savings associations by requiring the institution be compensated for the use of its tax assets (such as net operating losses and tax credits), preserving its ownership rights in tax refunds and ensuring equitable allocation of tax liabilities among entities in a holding company structure. The proposal also requires tax sharing agreements include mandatory provisions related to a methodology for tax payment obligations that would be subject to regulatory reporting requirements.

If approved, the existing policy statement would be rescinded and the changes would be adopted under Section 39 of the Federal Deposit Insurance Act and codified within the agencies' safety and soundness regulations.

Comments must be received by July 9, 2021.

Read the proposal

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