[Federal Register Volume 79, Number 118 (Thursday, June 19, 2014)]
[Notices]
[Pages 35228-35230]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-14325]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
[Docket ID OCC-2013-0020; Docket No. OP-1474]
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
RIN 7100-AD 87
FEDERAL DEPOSIT INSURANCE CORPORATION
Addendum to the Interagency Policy Statement on Income Tax
Allocation in a Holding Company Structure
AGENCY: Board of Governors of the Federal Reserve System, Federal
Deposit Insurance Corporation, and Office of the Comptroller of the
Currency, Department of the Treasury (Agencies).
ACTION: Final Addendum to Interagency Policy Statement.
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SUMMARY: The Agencies are issuing jointly an Addendum (Addendum) to the
``Interagency Policy Statement on Income Tax Allocation in a Holding
Company Structure'' to ensure that insured depository institutions
(IDIs) in a consolidated group maintain an appropriate relationship
regarding the payment of taxes and treatment of tax refunds. The
Addendum instructs IDIs and their holding companies to review and
revise their tax allocation agreements to ensure that the agreements
expressly acknowledge that the holding company receives a tax refund
from a taxing authority as agent for the IDI and are consistent with
certain of the requirements of sections 23A and 23B of the Federal
Reserve Act. The Addendum includes a sample paragraph that IDIs could
include in their tax allocation agreements to facilitate the Agencies'
instructions.
DATES: The Agencies expect institutions and holding companies to
implement fully the Addendum to the Interagency Policy Statement as
soon as reasonably possible, which the Agencies expect would not be
later than October 31, 2014.
FOR FURTHER INFORMATION CONTACT:
Office of the Comptroller of the Currency: Steven Key, Assistant
Director for Bank Activities and Structure, Bank Activities and
Structure Division, Chief Counsel's Office, 202-649-5594 or
[email protected]; Gary Jeffers, Counsel, Bank Activities and
Structure Division, Chief Counsel's Office, 202-649-6208 or
[email protected], Office of the Comptroller of the Currency,
400 7th Street SW., Washington, DC 20219.
Board of Governors of the Federal Reserve System: Laurie Schaffer,
Associate General Counsel, (202) 452-2272, Benjamin McDonough, Senior
Counsel, (202) 452-2036, Pamela Nardolilli, Senior Counsel, (202) 452-
3289, or Will Giles, Counsel, (202) 452-3351, Legal Division; or
Matthew Kincaid, Sr. Accounting Policy Analyst, (202) 452-2028,
Division of Banking Supervision and Regulation, Board of Governors of
the Federal Reserve System, 20th Street and Constitution Avenue NW.,
Washington, DC 20551. Users of Telecommunication Device for Deaf (TDD)
only, call (202) 263-4869.
Federal Deposit Insurance Corporation: Robert Storch, Chief
Accountant, 202-898-8906 or [email protected]; Mark G. Flanigan,
Counsel, Legal Division, 202-898-7426 or [email protected]; Jeffrey E.
Schmitt, Counsel, Legal Division, 703-562-2429 or [email protected].
SUPPLEMENTARY INFORMATION:
I. Background
In 1998, the Agencies and the Office of Thrift Supervision issued
the ``Interagency Policy Statement on Income Tax Allocation in a
Holding Company Structure'' (Interagency Policy Statement) to provide
guidance to insured depository institutions (IDIs) and their holding
companies and other affiliates (Consolidated Groups) regarding the
payment of taxes on a consolidated basis.\1\ One of the principal goals
of the Interagency Policy Statement is to protect IDIs' ownership
rights in tax refunds, while permitting the Consolidated Group to file
consolidated tax returns. The Interagency Policy Statement states that:
(1) Tax settlements between an IDI and its holding company should be
conducted in a manner that is no less favorable to the IDI than if it
were a separate taxpayer; and (2) a holding company receives a tax
refund from a taxing authority as agent for the IDI.
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\1\ 63 FR 64757 (November 23, 1998).
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Since adoption of the Interagency Policy Statement, there have been
many disputes between holding companies in bankruptcy and failed IDIs
regarding the ownership of tax refunds generated by the IDIs. In these
disputes, some courts have found that tax refunds generated by an IDI
were the property of its holding company based on certain language
contained in their tax allocation agreement that the courts interpreted
as creating a debtor-creditor relationship. Accordingly, the Agencies
are issuing an Addendum to the Interagency Policy Statement (Addendum)
to ensure that IDIs in a
[[Page 35229]]
Consolidated Group maintain an appropriate relationship regarding the
payment of taxes and treatment of tax refunds.
II. Description of Addendum
The Addendum is intended to clarify and supplement the Interagency
Policy Statement to ensure that tax allocation agreements expressly
acknowledge an agency relationship between a holding company and its
subsidiary IDI to protect the IDI's ownership rights in tax refunds.
The Addendum also clarifies how certain of the requirements of sections
23A and 23B of the Federal Reserve Act (FRA) apply to tax allocation
agreements between IDIs and their affiliates.
The Addendum states that, to further the goals of the Interagency
Policy Statement, IDIs and their holding companies should review and
revise their tax allocation agreements to ensure their tax allocation
agreements explicitly acknowledge that an agency relationship exists
between the holding company and its subsidiary IDIs with respect to tax
refunds and do not contain other language to suggest a contrary intent.
The Addendum includes a sample paragraph for IDIs and their holding
companies to use in their tax allocation agreements, which the Agencies
generally would deem to adequately acknowledge that an agency
relationship exists for purposes of the Interagency Policy Statement,
the Addendum, and sections 23A and 23B of the FRA.
The Addendum also clarifies that all tax allocation agreements are
subject to the requirements of section 23B of the FRA, and tax
allocation agreements that do not clearly acknowledge that an agency
relationship exists may be subject to additional requirements under
section 23A of the FRA. Moreover, the Addendum clarifies that section
23B of the FRA requires a holding company to promptly transmit tax
refunds received from a taxing authority to its subsidiary IDI. The
sample paragraph in the Addendum incorporates this expectation.
III. Summary of Comments
The Agencies issued the Addendum in proposed form with a request
for comment (Proposed Addendum) on December 19, 2013.\2\ The comment
period closed on January 21, 2014. The Agencies received two comment
letters on the Proposed Addendum--one from an individual who viewed the
Proposed Addendum favorably and did not suggest any modifications, and
another from a financial institution trade association, which also did
not suggest any modifications to the Proposed Addendum. However, this
trade association requested that the Agencies provide institutions
until the end of calendar year 2014 to amend their tax allocation
agreements, as necessary, to ensure consistency with the Proposed
Addendum. This commenter also suggested that this time period is
appropriate because the Proposed Addendum will require reviews of
existing tax allocation agreements and may require institutions and
holding companies to receive board of directors' approvals to amend
both their agreements and internal tax processes. The Agencies
understand that institutions and holding companies require time to
revise their tax allocation agreements, that some institutions and
holding companies may wish to consult with tax counsel, and that more
complex banking organizations with multiple subsidiaries and affiliates
may require additional time to obtain all required approvals of the
members of the Consolidated Group. Accordingly, the Agencies encourage
institutions and holding companies to begin promptly the efforts to
review and revise their tax allocation agreements. In this regard, the
Agencies expect institutions and holding companies to implement fully
the Addendum to the Interagency Policy Statement as soon as reasonably
possible, which the Agencies expect would not be later than October 31,
2014.
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\2\ 78 FR 76889 (December 19, 2013).
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The Agencies also received some informal inquiries regarding the
applicability of the Addendum to holding companies that have elected S
corporation status for federal income tax purposes.\3\ The Addendum and
Interagency Policy Statement concern tax allocation agreements between
an IDI, its parent company, and its affiliates. Accordingly, the
Addendum and Interagency Policy Statement does not apply to an IDI, its
holding company, or other affiliates if the holding company is not
subject to corporate income taxes at the federal or state level.
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\3\ S corporations are corporations that elect to pass corporate
income, losses, deductions, and credits through to their
shareholders for federal tax purposes.
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IV. Administrative Law Matters
Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3506; 5 CFR part 1320, Appendix A.1), the Agencies reviewed the
Addendum guidance for any collection of information. The Agencies may
not conduct or sponsor, and an organization is not required to respond
to, an information collection unless the information collection
displays a currently valid Office of Management and Budget control
number. There is no collection of information contained in the
Addendum.
V. Text of the Addendum
The text of the Addendum follows:
Addendum to Interagency Policy Statement on Income Tax Allocation in a
Holding Company Structure
In 1998, the Board of Governors of the Federal Reserve System
(Board), the Federal Deposit Insurance Corporation (FDIC), the Office
of the Comptroller of the Currency (OCC) (collectively, the Agencies),
and the Office of Thrift Supervision (OTS) issued the ``Interagency
Policy Statement on Income Tax Allocation in a Holding Company
Structure'' (the ``Interagency Policy Statement'').\4\ Under the
Interagency Policy Statement, members of a consolidated group,
comprised of one or more insured depository institutions (IDIs) and
their holding company and affiliates (the Consolidated Group), may
prepare and file their federal and state income tax returns as a group
so long as the act of filing as a group does not prejudice the
interests of any one of the IDIs. That is, the Interagency Policy
Statement affirms that intercorporate tax settlements between an IDI
and its parent company should be conducted in a manner that is no less
favorable to the IDI than if it were a separate taxpayer and that any
practice that is not consistent with the policy statement may be viewed
as an unsafe and unsound practice prompting either informal or formal
corrective action.
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\4\ 63 FR 64757 (Nov. 23, 1998). Responsibilities of the OTS
were transferred to the Board, FDIC, and OCC pursuant to Title III
of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
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The Interagency Policy Statement also addresses the nature of the
relationship between an IDI and its parent company. It states in
relevant part that:
``[A] parent company that receives a tax refund from a
taxing authority obtains these funds as agent for the consolidated
group on behalf of the group members,'' and
A Consolidated Group's tax allocation agreement should not
``characterize refunds attributable to a subsidiary depository
institution that the parent receives from a taxing authority as the
property of the parent.''
Since the issuance of the Interagency Policy Statement, courts have
reached
[[Page 35230]]
varying conclusions regarding whether tax allocation agreements create
a debtor-creditor relationship between a holding company and its
IDI.\5\ Some courts have found that the tax refunds in question were
the property of the holding company in bankruptcy (rather than property
of the subsidiary IDI) and held by the holding company as the IDI's
debtor.\6\ The Agencies are issuing this addendum to the Interagency
Policy Statement (Addendum) to explain that Consolidated Groups should
review their tax allocation agreements to ensure the agreements achieve
the objectives of the Interagency Policy Statement. This Addendum also
clarifies how certain of the requirements of sections 23A and 23B of
the Federal Reserve Act (FRA) apply to tax allocation agreements
between IDIs and their affiliates.
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\5\ Case law on this issue is mixed. Compare Zucker v. FDIC, as
Receiver for BankUnited, 727 F.3d 1100, 1108-09 (11th Cir. Aug. 15,
2013) (``The relationship between the Holding Company and the Bank
is not a debtor-creditor relationship. When the Holding Company
received the tax refunds it held the funds intact--as if in escrow--
for the benefit of the Bank and thus the remaining members of the
Consolidated Group.'') with F.D.I.C. v. Siegel (In re IndyMac
Bancorp, Inc.), ---- F. App'x ----, 2014 WL 1568759, *2 (9th Cir.
Apr. 21, 2014) (per curiam) (``The TSA does not create a trust
relationship. The absence of language creating a trust relationship
is explicitly an indication of a debtor-creditor relationship in
California'').
\6\ See e.g., F.D.I.C. v. Siegel (In re IndyMac Bancorp, Inc.),
---- F. App'x ----, 2014 WL 1568759 (9th Cir. Apr. 21, 2014) (per
curiam).
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In reviewing their tax allocation agreements, Consolidated Groups
should ensure the agreements: (1) Clearly acknowledge that an agency
relationship exists between the holding company and its subsidiary IDIs
with respect to tax refunds, and (2) do not contain other language to
suggest a contrary intent.\7\ In addition, all Consolidated Groups
should amend their tax allocation agreements to include the following
paragraph or substantially similar language:
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\7\ This Addendum clarifies and supplements but does not replace
the Interagency Policy Statement.
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The [holding company] is an agent for the [IDI and its
subsidiaries] (the ``Institution'') with respect to all matters related
to consolidated tax returns and refund claims, and nothing in this
agreement shall be construed to alter or modify this agency
relationship. If the [holding company] receives a tax refund from a
taxing authority, these funds are obtained as agent for the
Institution. Any tax refund attributable to income earned, taxes paid,
and losses incurred by the Institution is the property of and owned by
the Institution, and shall be held in trust by the [holding company]
for the benefit of the Institution. The [holding company] shall forward
promptly the amounts held in trust to the Institution. Nothing in this
agreement is intended to be or should be construed to provide the
[holding company] with an ownership interest in a tax refund that is
attributable to income earned, taxes paid, and losses incurred by the
Institution. The [holding company] hereby agrees that this tax sharing
agreement does not give it an ownership interest in a tax refund
generated by the tax attributes of the Institution.
Going forward, the Agencies generally will deem tax allocation
agreements that contain this or similar language to acknowledge that an
agency relationship exists for purposes of the Interagency Policy
Statement, this Addendum, and sections 23A and 23B of the FRA.
All tax allocation agreements are subject to the requirements of
section 23B of the FRA, and tax allocation agreements that do not
clearly acknowledge that an agency relationship exists may be subject
to additional requirements under section 23A of the FRA.\8\ In general,
section 23B requires affiliate transactions to be made on terms and
under circumstances that are substantially the same, or at least as
favorable to the IDI, as comparable transactions involving
nonaffiliated companies or, in the absence of comparable transactions,
on terms and circumstances that would in good faith be offered to non-
affiliated companies.\9\ Tax allocation agreements should require the
holding company to forward promptly any payment due the IDI under the
tax allocation agreement and specify the timing of such payment.
Agreements that allow a holding company to hold and not promptly
transmit tax refunds received from the taxing authority and owed to an
IDI are inconsistent with the requirements of section 23B and subject
to supervisory action. However, an Agency's determination of whether
such provision, or the tax allocation agreement in total, is consistent
with section 23B will be based on the facts and circumstances of the
particular tax allocation agreement and any associated refund.
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\8\ Section 23A requires, among other things, that loans and
extensions of credit from a bank to its affiliates be properly
collateralized. 12 U.S.C. 371c(c).
\9\ 12 U.S.C. 371c-1(a). Transactions subject to section 23B
include the payment of money by a bank to an affiliate under
contract, lease, or otherwise and transactions in which the
affiliate acts as agent of the bank. Id. at Sec. 371c-1(a)(2) &
(a)(4).
Dated: May 15, 2014.
Thomas J. Curry,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System, June 12, 2014.
Robert deV. Frierson,
Secretary of the Board.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Dated at Washington, DC, this 23rd day of May 2014.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2014-14325 Filed 6-18-14; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P