December 19, 2013

Federal Banking Regulators Seek Comment on Joint Supplemental Guidance on Income Tax Allocation Agreements

The Federal Reserve, FDIC and OCC (collectively, the "federal banking regulators") have submitted for comment a proposed joint supplemental guidance on income tax allocation agreements involving holding companies and insured depository institutions ("IDIs"). The proposed guidance is intended to supplement an interagency policy statement on income tax allocation issued by the federal banking regulators in 1998, which provided that a holding company receiving a tax refund from a taxing authority obtain such funds as agent for its subsidiary IDIs and affiliates. The proposed guidance would supplement the 1998 interagency policy statement by instructing IDIs and their holding companies to review their tax allocation agreements to ensure that the agreements expressly acknowledge any tax refunds that the holding company receives as an agent. In addition, the proposed guidance would require banking organizations to insert specific language, a sample of which is provided in the proposal, in their tax allocation agreements to further clarify tax refund ownership.

The proposed guidance would also clarify that all tax allocation agreements are subject to the requirements of section 23B of the Federal Reserve Act ("FRA"), and that those tax allocation agreements which do not clearly acknowledge that an agency relationship exists may be subject to additional requirements under section 23A of the FRA. It would also clarify that section 23B requires a holding company to promptly transmit tax refunds received from a taxing authority to its subsidiary IDI.

Comments on the proposed guidance must be received on or before January 21, 2014.

See: Proposed Addendum to the Interagency Policy Statement on Income Tax Allocation in a Holding Company Structure; FDIC Press Release.See also: 1998 Interagency Policy Statement on Income Tax Allocation (Fed. Reg.). See generally: Quick Guide to Federal Reserve Act Section 23A for Broker-Dealers (accessible to Cabinet subscribers only).

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