Category Archives:Income Tax Allocation Agreements

Guidance on Income Tax Allocation Agreements

Federal banking regulators issued final supplemental guidance on income tax allocation agreements involving holding companies and insured depository institutions. An aim of the guidance is to reduce confusion regarding ownership of tax refunds.

The guidance supplements a 1998 regulators issued interagency policy statement on income tax allocation. The previous statement stated that a holding company that receives a tax refund from a taxing authority obtains these funds as agent for its subsidiary insured depository institutions and other affiliates. The guidance supplements the policy statement by instructing insured depository institutions and their holding companies to review their tax allocation agreements to ensure the agreements expressly acknowledge that the holding company receives any tax refunds as an agent. In addition, all banking organizations are asked to insert specific language in their tax allocation agreements to further clarify tax refund ownership.

The guidance also clarifies how sections 23A and 23B of the Federal Reserve Act, which establish certain restrictions on and requirements for transactions between depository institutions and their affiliates, apply to tax allocation agreements.

Identical to a proposal issued late last year, The federal banking regulators are issuing the guidance in response to disputes between holding companies in bankruptcy and failed depository institutions regarding ownership of tax refunds. Courts have come to differing conclusions regarding the ownership of tax refunds between holding companies and depository institutions based on their interpretation of language in tax allocation agreements.

Institutions and holding companies should implement the guidance as soon as reasonably possible, which the regulators expect would not be later than October 31, 2014.

Interagency Guidance on Income Tax Allocation Agreements