April 26, 2021

Banking Agencies Propose Rule concerning Income Tax Allocation Agreements

The OCC, Treasury, Federal Reserve Board and FDIC (collectively, the "Agencies") proposed a joint rulemaking to establish requirements for tax allocation agreements between institutions and their holding companies in a consolidated tax filing group (or "consolidated group"). Under the proposal, institutions within a consolidated group would be required to enter into tax allocation agreements with their holding companies and members of the group that participate in the filing of a consolidated group tax return.

The proposed rule would, among other things:

  • create a procedure for tax payment requirements between an institution and its parent holding company within a consolidated group that would outline how an institution should be compensated for its tax assets use (i.e., net operating losses and tax credits);
  • outline the regulatory reporting treatment of an institution's deferred tax assets; and
  • mandate that institutions include certain universal provisions in their tax allocation agreements, including (i) the timing and amounts of payments made to taxing authorities for taxes that are due, (ii) affirmation of the agency relationship between the institutions and the holding companies in a consolidated group with regard to any tax refunds received and (iii) a requirement that documents, such as returns, concerning consolidated or combined federal, state or local income tax filings are made available during regular business hours to an institution or any of its successors.

The proposed rule would be adopted mainly under Section 39 of the Federal Deposit Insurance Act and codified under the Agencies' safety and soundness regulations. If adopted, the proposed rule would rescind the Agencies' interagency policy statement on tax allocation agreements that was initially issued in 1998 and supplemented in 2014.

Comments on the proposal must be submitted within 60 days of its publication in the Federal Register.