Tax Allocation Agreements

CourtFederal Reserve System,The Comptroller Of The Currency Office,Treasury Department
Citation86 FR 24755
Publication Date10 May 2021
Record Number2021-09047
24755
Federal Register / Vol. 86, No. 88 / Monday, May 10, 2021 / Proposed Rules
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Signing Authority
This document of the Department of
Energy was signed on April 25, 2021 by
Kelly Speakes-Backman, Principal
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Signed in Washington, DC, on May 4, 2021.
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Department of Energy.
[FR Doc. 2021–09723 Filed 5–7–21; 8:45 am]
BILLING CODE 6450–01–P
DEPARTMENT OF TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 30
[Docket ID OCC–2020–0043]
RIN 1557–AF03
FEDERAL RESERVE SYSTEM
12 CFR Part 208
[Docket No. R–1746]
RIN 7100–AG 14
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 364
RIN 3064–AF62
Tax Allocation Agreements
AGENCY
: Office of the Comptroller of the
Currency, Treasury; Board of Governors
of the Federal Reserve System; and
Federal Deposit Insurance Corporation.
ACTION
: Notice of proposed rulemaking
and comment request.
SUMMARY
: The Office of the Comptroller
of the Currency, the Board of Governors
of the Federal Reserve System, and the
Federal Deposit Insurance Corporation
(collectively, the agencies) are inviting
comment on a proposed rule (proposal)
under section 39 of the Federal Deposit
Insurance Act that would establish
requirements for tax allocation
agreements between institutions and
their holding companies in a
consolidated tax filing group. The
proposal would promote safety and
soundness by preserving depository
institutions’ ownership rights in tax
refunds and ensuring equitable
allocation of tax liabilities among
entities in a holding company structure.
Under the proposal, national banks,
state banks, and savings associations
that file tax returns as part of a
consolidated tax filing group would be
required to enter into tax allocation
agreements with their holding
companies and other members of the
consolidated group that join in the filing
of a consolidated group tax return. The
proposal also would describe specific
mandatory provisions in these tax
allocation agreements, including
provisions addressing the ownership of
tax refunds received. If the agencies
were to adopt the proposal as a final
rule, the agencies would rescind the
interagency policy statement on tax
allocation agreements that was issued in
1998 and supplemented in 2014.
DATES
: Comments must be received by
July 9, 2021.
ADDRESSES
: Comments should be
directed to:
OCC: Commenters are encouraged to
submit comments through the Federal
eRulemaking Portal. Please use the title
‘‘Tax Allocation Agreements’’ to
facilitate the organization and
distribution of the comments. You may
submit comments by any of the
following methods:
Federal eRulemaking Portal—
Regulations.gov: Go to https://
regulations.gov/. Enter ‘‘Docket ID OCC–
2020–0043’’ in the Search Box and click
‘‘Search.’’ Public comments can be
submitted via the ‘‘Comment’’ box
below the displayed document
information or by clicking on the
document title and then clicking the
‘‘Comment’’ box on the top-left side of
the screen. For help with submitting
effective comments please click on
‘‘Commenter’s Checklist.’’ For
assistance with the Regulations.gov site,
please call (877) 378–5457 (toll free) or
(703) 454–9859 Monday–Friday, 9 a.m.–
5 p.m. ET or email regulations@
erulemakinghelpdesk.com.
Mail: Chief Counsel’s Office,
Attention: Comment Processing, Office
of the Comptroller of the Currency, 400
7th Street SW, Suite 3E–218,
Washington, DC 20219.
Hand Delivery/Courier: 400 7th
Street SW, Suite 3E–218, Washington,
DC 20219.
Instructions: You must include
‘‘OCC’’ as the agency name and ‘‘Docket
ID OCC–2020–0043’’ in your comment.
In general, the OCC will enter all
comments received into the docket and
publish the comments on the
Regulations.gov website without
change, including any business or
personal information provided such as
name and address information, email
addresses, or phone numbers.
Comments received, including
attachments and other supporting
materials, are part of the public record
and subject to public disclosure. Do not
include any information in your
comment or supporting materials that
you consider confidential or
inappropriate for public disclosure.
You may review comments and other
related materials that pertain to this
action by the following method:
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1
National banks and Federal savings associations,
(OCC); state member banks (Board); and state
nonmember banks and state savings associations
(FDIC).
2
A consolidated group refers to an institution, its
parent, and any affiliates of the institution that join
in the filing of a tax return as a single consolidated,
combined, or unitary group.
Viewing Comments Electronically—
Regulations.gov: Go to https://
regulations.gov/. Enter ‘‘Docket ID OCC–
2020–0043’’ in the Search Box and click
‘‘Search.’’ Click on the ‘‘Documents’’ tab
and then the document’s title. After
clicking the document’s title, click the
‘‘Browse Comments’’ tab. Comments can
be viewed and filtered by clicking on
the ‘‘Sort By’’ drop-down on the right
side of the screen or the ‘‘Refine
Results’’ options on the left side of the
screen. Supporting materials can be
viewed by clicking on the ‘‘Documents’’
tab and filtered by clicking on the ‘‘Sort
By’’ drop-down on the right side of the
screen or the ‘‘Refine Documents
Results’’ options on the left side of the
screen.’’ For assistance with the
Regulations.gov site, please call (877)
378–5457 (toll free) or (703) 454–9859
Monday–Friday, 9 a.m.–5 p.m. ET or
email regulations@
erulemakinghelpdesk.com.
The docket may be viewed after the
close of the comment period in the same
manner as during the comment period.
Board: When submitting comments,
please consider submitting your
comments by email or fax because paper
mail in the Washington, DC, area and at
the Board may be subject to delay.
You may submit comments, identified
by Docket No. R–1746; RIN 7100–AG
14, by any of the following method:
Agency Website: http://
www.federalreserve.gov. Follow the
instructions for submitting comments at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
Email: regs.comments@
federalreserve.gov. Include docket and
RIN numbers in the subject line of the
message.
Fax: (202) 452–3819 or (202) 452–
3102.
Mail: Ann E. Misback, Secretary,
Board of Governors of the Federal
Reserve System, 20th Street and
Constitution Avenue NW, Washington,
DC 20551.
All public comments will be made
available on the Board’s website at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical
reasons. Accordingly, comments will
not be edited to remove any identifying
or contact information unless
specifically requested by the
commenter. Public comments may also
be viewed in paper in Room 146, 1709
New York Avenue NW, Washington, DC
20006, between 9:00 a.m. and 5:00 p.m.
on weekdays. For security reasons, the
Board requires that visitors make an
appointment to inspect comments. You
may do so by calling (202) 452–3684.
FDIC: You may submit comments,
identified by FDIC RIN 3064–AF62, by
any of the following methods:
Agency Website: https://
www.fdic.gov/regulations/laws/federal/.
Follow instructions for submitting
comments on the Agency website.
Mail: James P. Sheesley, Assistant
Executive Secretary, Attention:
Comments—RIN 3064–AF62/Legal ESS,
Federal Deposit Insurance Corporation,
550 17th Street NW, Washington, DC
20429.
Hand Delivery/Courier: Comments
may be hand-delivered to the guard
station at the rear of the 550 17th Street
NW building (located on F Street) on
business days between 7:00 a.m. and
5:00 p.m.
Email: comments@FDIC.gov.
Comments submitted must include
‘‘FDIC RIN 3064–AF62’’ on the subject
line of the message.
Public Inspection: All comments
received must include ‘‘FDIC RIN 3064–
AF62’’ for this rulemaking. All
comments received will be posted
without change to https://www.fdic.gov/
regulations/laws/federal/, including any
personal information provided. Paper
copies of public comments may be
requested from the FDIC Public
Information Center, or by telephone at
(877) 275–3342 or (703) 562–2200.
FOR FURTHER INFORMATION CONTACT
:
OCC: Carol Raskin, Senior Policy
Accountant, or Mary Katherine Kearney,
Professional Accounting Fellow, Office
of the Chief Accountant, 202–649–6280;
Kevin Korzeniewski, Counsel, or Joanne
Phillips, Counsel, Chief Counsel’s
Office, (202) 649–5490.
Board: Lara Lylozian, Chief
Accountant, (202) 475–6656; Juan
Climent, Assistant Director, (202) 872–
7526; Kathryn Ballintine, Manager,
(202) 452–2555; Michael Ofori-Kuragu,
Senior Financial Institution Policy
Analyst II, (202) 475–6623, Sasha
Pechenik, Senior Accounting Policy
Analyst, (202) 452–3608, Division of
Supervision and Regulation; Benjamin
W. McDonough, Associate General
Counsel, (202) 452–2036; Asad Kudiya,
Senior Counsel, (202) 475–6358; Lucy
Chang, Senior Counsel, (202) 475–6331;
Joshua Strazanac, Senior Attorney, (202)
452–2457; David Imhoff, Attorney, (202)
452–2249, Legal Division, Board of
Governors of the Federal Reserve
System, 20th and C Streets NW,
Washington, DC 20551. For the hearing
impaired only, Telecommunication
Device for the Deaf (TDD), (202) 263–
4869.
FDIC: John Rieger, Chief Accountant,
(202) 898–3602, jrieger@fdic.gov;
Andrew Overton, Senior Examination
Specialist, (202) 898–8922, aoverton@
fdic.gov, Accounting and Securities
Disclosure Section, Division of Risk
Management Supervision; Jeffrey
Schmitt, Counsel, (703) 562–2429,
jschmitt@fdic.gov; Joyce M. Raidle,
Counsel, (202) 898–6763, jraidle@
fdic.gov; Francis Kuo, Counsel, (202)
898–6654, fkuo@fdic.gov, Legal
Division.
SUPPLEMENTARY INFORMATION
:
Table of Contents
I. Introduction
A. Summary of Proposal
B. Background
II. Description of the Proposal
A. Scope of Application
B. Tax Allocation in a Holding Company
Structure
C. Tax Allocation Agreements and Key
Terms
D. Regulatory Reporting
III. Incorporation of the Proposal as an
Appendix to the Agencies’ Safety and
Soundness Rules
IV. Impact Analysis
V. Administrative Law Matters
A. Paperwork Reduction Act
B. Regulatory Flexibility Act
C. Plain Language
D. Riegle Community Development and
Regulatory Improvement Act of 1994
E. OCC Unfunded Mandates Reform Act of
1995
I. Introduction
A. Summary of Proposal
The Office of the Comptroller of the
Currency (OCC), the Board of Governors
of the Federal Reserve System (Board),
and the Federal Deposit Insurance
Corporation (FDIC) (collectively, the
agencies) are inviting comment on a
proposed rule (proposal) that would
prescribe requirements for tax allocation
agreements that involve insured
depository institutions and OCC
chartered uninsured institutions
supervised by the agencies (collectively,
institutions).
1
Under the proposal,
institutions in a consolidated tax filing
group (consolidated group
2
) would be
required to enter into tax allocation
agreements with their holding
companies and other members of the
consolidated group that join in the filing
of a consolidated group tax return. The
proposal would establish a methodology
for tax payment obligations between an
institution and its parent holding
company within a consolidated group
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12 U.S.C. 1831p–1.
4
12 CFR part 30 (OCC); 12 CFR part 208 (Board);
12 CFR part 364 (FDIC).
5
The functions of the Office of Thrift Supervision
were transferred to the OCC and FDIC in
accordance with Title III of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, Public
Law 111–203, enacted July 21, 2010.
6
63 FR 64757 (Nov. 23, 1998).
7
79 FR 35228 (June 19, 2014).
8
12 U.S.C. 371c–1.
9
12 U.S.C. 371c. Section 23A requires, among
other things, that loans and other extensions of
credit from an insured depository institution to its
affiliate be collateralized properly by a specified
amount and subject to certain quantitative limits.
Issues concerning compliance with section 23A
could arise from instances whereby a tax allocation
agreement does not (i) acknowledge that a holding
company in a consolidated group serves as agent for
its subsidiary insured depository institution with
respect to tax refunds generated by the subsidiary
insured depository institution, or (ii) require a
holding company in a consolidated group to
transmit promptly the appropriate portion of a
consolidated group’s tax refund to the subsidiary
insured depository institution. In such
circumstances, the failure of a holding company to
acknowledge an agency relationship with respect to
tax refunds or to pay promptly the subsidiary
insured depository institution its appropriate
portion of tax refunds could result in an extension
of credit from the insured depository institution to
its affiliated holding company in the consolidated
group that would be subject to the requirements of
section 23A.
10
Sections 23A and 23B and 12 CFR part 223
apply by their terms to ‘‘member banks’’, that is,
any national bank, State bank, trust company, or
other institution that is a member of the Federal
Reserve System. In addition, the Federal Deposit
Insurance Act (12 U.S.C. 1828(j)) applies sections
23A and 23B to insured State nonmember banks in
the same manner and to the same extent as if they
were member banks. The Home Owners’ Loan Act
(12 U.S.C. 1468(a)) also applies sections 23A and
23B to insured savings associations in the same
manner and to the same extent as if they were
member banks.
and would address how the institution
should be compensated for the use of its
tax assets (such as net operating losses
and tax credits). The proposal would be
adopted primarily under Section 39 of
the Federal Deposit Insurance Act (FDI
Act)
3
and codified within the agencies’
safety and soundness regulations.
4
The proposal would require
institutions to include certain
provisions in all tax allocation
agreements, such as: The timing and
amounts of any payments for taxes due
to taxing authorities; the
acknowledgment of an agency
relationship between institutions and
their holding companies in a
consolidated group with respect to tax
refunds received; and a provision
stating that documents, including
returns, relating to consolidated or
combined federal, state, or local income
tax filings must be made available to an
institution or any successor during
regular business hours. The proposal
further addresses the regulatory
reporting treatment of an institution’s
deferred tax assets (DTAs).
B. Background
In 1998, the agencies and the Office
of Thrift Supervision
5
adopted the
Interagency Policy Statement on Income
Tax Allocation in a Holding Company
Structure
6
(Interagency Policy
Statement) to provide guidance to
insured depository institutions, their
holding companies, and other affiliates
regarding the allocation and payment of
taxes when these entities file income tax
returns on a consolidated basis. One of
the principal goals of the Interagency
Policy Statement is to clarify insured
depository institutions’ ownership
rights in tax refunds when the
consolidated group elects to file a
consolidated tax return. The Interagency
Policy Statement states that tax
settlements between an insured
depository institution and its holding
company should be conducted in a
manner that is no less favorable to the
insured depository institution than if it
were a separate taxpayer, and that
whenever a holding company receives a
tax refund from any taxing authority,
and the refund is one that is attributable
to its subsidiary insured depository
institution, the holding company is
acting purely as an agent for the insured
depository institution.
In 2014, the agencies issued an
addendum to the Interagency Policy
Statement to emphasize that tax
allocation agreements should expressly
acknowledge an agency relationship
between a holding company and its
subsidiary insured depository
institution to protect the insured
depository institution’s ownership
rights in tax refunds (2014 Addendum).
7
The 2014 Addendum also clarifies that
all tax allocation agreements are subject
to section 23B of the Federal Reserve
Act (section 23B).
8
In addition, the 2014
Addendum provides that tax allocation
agreements that do not clearly
acknowledge the presence of an agency
relationship between the holding
company and the subsidiary insured
depository institution may be subject to
requirements under section 23A of the
Federal Reserve Act (section 23A).
9
Moreover, the 2014 Addendum clarifies
that section 23B requires a holding
company to transmit promptly to its
subsidiary insured depository
institution any tax refunds received
from a taxing authority that are
attributable to the insured depository
institution. Sections 23A and 23B apply
to institutions supervised by the
agencies.
10
In their supervision of institutions,
the agencies have observed that some
institutions in consolidated groups
either lack tax allocation agreements
with their holding companies or have
agreements that do not have language
conforming with section 23A or 23B. In
particular, the agencies have reviewed
tax allocation agreements that do not
require a holding company in a
consolidated group to transmit promptly
the appropriate portion of a
consolidated group’s tax refund to its
subsidiary institution, resulting in the
holding company failing to do so in
some instances. Such inaction could
adversely affect the safety and
soundness of the subsidiary institutions
because delayed access to funds could
weaken an institution’s liquidity profile.
Further, in its capacity as receiver for
failed insured depository institutions,
the FDIC has engaged in legal disputes
regarding the ownership of tax refunds
claimed by holding companies based on
losses incurred by insured depository
institutions in a consolidated group
because the tax allocation agreements
did not clearly acknowledge an agency
relationship between an insured
depository institution and its holding
company. These disputes can reduce or
prevent recoveries by the FDIC on
behalf of failed insured depository
institutions, consequently increase costs
to the Deposit Insurance Fund, and thus
could lead to higher FDIC deposit
insurance premiums charged to solvent
insured depository institutions.
II. Description of the Proposal
A. Scope of Application
The proposal would apply to all
institutions that file federal and state
income taxes in a consolidated group in
which one or more of the institutions in
the consolidated group is supervised by
any of the agencies. A consolidated
group refers to an institution, its parent,
and any affiliates of the institution that
join in the filing of a tax return as a
single consolidated, combined, or
unitary group. While the Interagency
Policy Statement and 2014 Addendum
only apply to insured depository
institutions, the OCC has observed
similar problematic tax practices at
uninsured institutions it supervises.
Therefore, the OCC proposes to apply
relevant provisions of the proposal to
uninsured institutions as well.
In contrast, institutions that do not
file federal and state income taxes as
members of a consolidated group file
separately and account for taxes on a
separate entity basis. Therefore, an
institution that files on a separate entity
basis or in a group consisting solely of
the institution and its subsidiaries
would not be subject to the proposal.
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S-corporations are corporations that elect to
pass corporate income, losses, deductions, and
credits through to their shareholders for federal tax
purposes under Subchapter S of the Internal
Revenue Code. See 26 U.S.C. 1361 et seq.
12
If an overpayment of tax is applied as a credit
toward estimated tax or other payments due, the tax
refund would be considered received by the
holding company when it files the return electing
to apply the refund as a credit.
13
See, e.g., In re IndyMac Bancorp, Inc., 2012 WL
1037481 (Bankr. C.D. Cal. Mar. 29, 2012); In re
Downey Financial Corp., 593 F. App’x 123 (3d Cir.
2015).
14
The Deposit Insurance Fund is funded
primarily from deposit insurance assessments
collected by the FDIC from insured depository
institutions.
The proposal also would not apply to an
institution if the institution or its
holding company is not subject to
corporate income taxes at either the
federal or state level, such as those that
have elected S-Corporation status and
do not have an obligation to pay
corporate income taxes.
11
Question [1]: Is the scope of
application of the proposal appropriate,
and what are the advantages and
disadvantages of this scope?
B. Tax Allocation in a Holding
Company Structure
As noted, a holding company and its
bank subsidiaries have the ability to file
a consolidated group income tax return.
However, each depository institution is
viewed as, and reports as, a separate
legal and accounting entity for certain
regulatory purposes, including for
regulatory capital requirements. When a
depository institution has subsidiaries
of its own, the institution’s applicable
income taxes on a separate entity basis
include the taxes of the subsidiaries of
the institution itself that are included
with the institution in the consolidated
group return. Accordingly, each
depository institution’s applicable
income taxes, reflecting either an
expense or benefit, should be recorded
in its books and records and reflected in
the institution’s regulatory reports as if
the institution had filed on a separate
entity basis. Throughout this notice, the
terms ‘‘separate entity’’ and ‘‘separate
taxpayer’’ are used synonymously.
Furthermore, the amount and timing of
payments or refunds should not be in
any case less favorable to the institution
than if the institution were a separate
taxpayer. Any practice that is not
consistent with this principle may be
viewed as an unsafe or unsound
practice.
C. Tax Allocation Agreements and Key
Terms
The proposal would require that all
institutions that are subject to Federal or
State tax and file tax returns as part of
a consolidated group execute a tax
allocation agreement that applies to and
binds each member of the consolidated
group. The proposal also would require
that the tax allocation agreement be
approved by the boards of directors of
an institution subject to that tax
allocation agreement and its holding
company to ensure the agreement’s
enforceability by and among the
institutions in the consolidated group.
Section 23A and 23B generally govern
extensions of credit and certain other
transactions between institutions and
their affiliates, which include their
holding companies. Section 23A places
quantitative limits on covered
transactions between an institution and
its affiliates and imposes collateral
requirements on certain covered
transactions. Section 23B requires that
transactions between an institution and
its affiliates be made on terms and
under circumstances that are
substantially the same, or at least as
favorable to the institution, as
comparable transactions involving
nonaffiliated companies or, in the
absence of the comparable transactions,
on terms and circumstances that would
in good faith be offered to nonaffiliated
companies. The tax allocation
agreement requirements in the proposal
are intended to be consistent with
sections 23A and 23B.
As mentioned above, one of the
principles of the Interagency Policy
Statement is that a tax allocation
agreement cannot result in terms less
favorable to an institution than if the
institution filed its income tax return on
a separate entity basis (that is, not as
part of a consolidated group). To
achieve this result, tax allocation
agreements subject to the proposal
would be required to establish certain
rights and obligations among
institutions in the consolidated group.
Adjustments for statutory tax
considerations that may arise on a
consolidated tax return are permitted as
long as the adjustments are made on a
basis that is equitable and consistently
applied among the holding company
and other affiliates. Certain proposed
key terms that would be required under
the proposal for tax allocation
agreements are explained below.
The proposal clarifies that, in terms of
timing, an institution must be
compensated for the use of its tax assets
by the parent or other members of the
consolidated group at the time the
relevant tax asset is absorbed by the
consolidated group. The proposal also
clarifies that an institution must be
promptly remitted any tax refund
received (by the holding company) from
a taxing authority that is based on the
institution’s tax attributes.
12
This is a
common approach taken in tax sharing
agreements, would promote safety and
soundness by ensuring that an
institution receives the benefit of its tax
attributes, and is the approach least
likely to create an extension of credit
under section 23A.
Question [2]: While the agencies
expect refunds would be transmitted to
the institution as soon as possible, what
are the advantages and disadvantages of
the agencies requiring that an
institution receive any tax refund based
on its tax attributes within a specific
timeframe from the date received? What
would be an appropriate timeframe, and
why?
Question [3]: What are the advantages
and disadvantages of requiring that a
parent or other members of a
consolidated group compensate an
institution for the use of its tax assets if
and when the relevant tax asset is
absorbed or used? How do these
advantages and disadvantages compare
to the advantages and disadvantages of
other approaches including, for
example, requiring that a parent or
other members of the consolidated
group compensate an institution for use
of its tax assets if and when the
institution would have been able to use
the tax asset on a stand-alone basis?
Agency Relationship
As discussed in the preamble to the
2014 Addendum, there have been many
legal disputes between holding
companies and the FDIC, as receiver for
failed insured depository institutions,
regarding the ownership of tax refunds
generated by the insured depository
institutions. In reported decisions, some
courts have found that tax refunds
generated by an insured depository
institution were the property of its
holding company based on certain
language contained in their tax
allocation agreements that the courts
have interpreted as creating a debtor-
creditor relationship.
13
As a result, the
FDIC’s Deposit Insurance Fund has a
material stake in the outcome of these
legal disputes because they may lead to
significant losses to creditors of the
receiverships and, ultimately, the
Deposit Insurance Fund.
14
Therefore,
the agencies are proposing that holding
companies receive refunds due to
institutions (if attributable to the tax
attributes of an institution) in trust and
promptly remit them to the institutions
for two reasons. First, an institution’s
prompt receipt of refunds that are based
on the tax attributes created by that
institution would allow management to
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For example, if a refund is based on losses
generated by or tax credits due to activities
occurring at the subsidiary insured depository
institution.
16
For example, this would preclude an
institution entering into any side agreements
purporting to allocate a tax refund attributable to its
tax attributes to an affiliate.
17
Tax payments include both annual statutory
tax payments and interim estimated payments
required within an annual period.
18
26 CFR 1.1502–11 and 1.1502–12.
direct those funds for the immediate
benefit of the institution that owns
them, rather than allowing them to be
retained for the benefit of the holding
company. Second, receipt of the refund
by the institution strengthens the
institution’s liquidity profile as
compared to a receivable from the
holding company, and reduces the risk
that a refund paid by the taxing
authority to the holding company based
on use of the institution’s tax attributes
would be diverted to the holding
company’s creditors or other affiliates.
Under the proposal, a group’s tax
allocation agreement must specify that
an agency relationship exists between
the institution and its holding company,
including an affiliate of the institution
that submits tax returns for the
consolidated group with respect to tax
refunds. The proposal would clarify that
the subsidiary institution must enter
into a tax allocation agreement that
specifies that the institution owns any
tax refund that is created from or results
from its tax attributes. A group tax
allocation agreement must state that the
holding company receives any portion
of the tax refund related to the
subsidiary institution’s tax attributes in
trust for the benefit of the subsidiary
institution, including, for example,
when a holding company receives a tax
refund for a consolidated group, and
some or all of the tax refund is due to
tax attributes
15
of a subsidiary
institution. Further, under the proposal,
the tax allocation agreement must
provide that the holding company will
remit the refund promptly to the
subsidiary institution. Finally, to avoid
any transactions that would prevent
institutions from receiving tax refunds
attributable to their tax attributes, the
tax allocation agreement must provide
that, notwithstanding any other
transactions or agreements to the
contrary, the institution must receive
any tax refund attributable to its tax
attributes.
16
Tax Payments to a Holding Company
The proposal also would address the
timing and amount of tax payments
17
made to a holding company by an
institution in a consolidated group.
Specifically, the proposal would require
an institution to be a party to a tax
allocation agreement that prohibits tax
payments by the institution to its
affiliates in excess of the current period
tax obligation of the institution
calculated on a separate entity basis.
This requirement would reduce the risk
that the holding company would use the
institution’s funds to pay expenses or
offset tax liabilities owed by the holding
company or its other affiliates (other
than the institution).
Remitting a current period tax
expense payment to a holding company
significantly in advance of when the
payment would be due to the taxing
authority if the institution filed on a
stand-alone basis may treat the
institution less favorably than if it were
a separate taxpayer and, further, may be
subject to section 23B. As a result,
under the proposal, an institution must
not remit its current period tax expense
(or reasonably calculated estimated tax
payment) earlier than when the
institution would have been obligated to
pay the taxing authority had it filed as
a separate entity, based on the
timeframes established by the taxing
authority. Furthermore, the tax
allocation agreement may permit the
holding company to collect less than
what the institution’s current period
income tax obligation would have been,
calculated on a separate entity basis.
Provided the parent will not later
require the institution to pay the
remainder of the current tax liability,
the amount of this unremitted liability
should be accounted for as having been
paid with a simultaneous capital
contribution by the parent to the
subsidiary. With respect to deferred tax
liabilities (DTLs), however, a parent
cannot forgive some or all of the
institution’s DTL because the parent
cannot legally relieve the subsidiary of
a potential future obligation to the
taxing authorities, especially if the
subsidiary were to become a stand-alone
entity. Furthermore, taxing authorities
can collect some or all of a group’s
liability from any of the group members
if tax payments are not made when due.
Payments and Hypothetical Tax
Refunds From a Holding Company to an
Institution
The proposal would address the
timing and amount of tax payments and
hypothetical refunds to be received by
an institution in a consolidated group
from its holding company. For example,
in a situation whereby the institution, as
a separate entity, has a net operating
loss (NOL) and other members of the
group have taxable income, the
consolidated group must utilize the
institution’s tax loss to reduce the
consolidated group’s current tax
liability because consolidated tax return
rules require the holding company to
utilize the NOLs of members of the
group to reduce the group’s taxable
income and thus its current tax
liability.
18
As a result, in this situation,
the holding company must reimburse
the institution for the current use of its
tax losses at the time the NOL is used.
The institution must reflect the tax
benefit of the loss in the current portion
of its applicable income taxes in the
period the loss is incurred.
Separately, the proposal would
require that an institution must receive
from its holding company no less than
the tax refund amount it would have
received had it filed tax returns on a
separate entity basis. For example, this
would apply if the institution has a tax
loss and would have been able to carry
back that loss to a previous year and
obtain a tax refund from a taxing
authority had it filed income tax returns
on a separate entity basis, but there is
no ability to obtain an actual refund
because other members in the
consolidated group had losses that offset
the institution’s separate tax liability for
the previous year(s). Similarly, if the
institution makes quarterly tax
payments, on an aggregate basis, in
excess of its annual tax liability at year
end and would obtain a tax refund had
it filed on a separate entity basis, the
proposal would require that the
institution receive from the holding
company no less than the tax refund
amount the institution would have
received as a separate entity from the
taxing authority. Consistent with the
principle that the amount and timing of
tax payments within the consolidated
group should be no less favorable to the
institution than if it were a separate
taxpayer, this proposed requirement
would ensure that an institution
receives the full benefit of its tax assets,
such as any tax losses or tax credits it
generates as a separate entity, instead of
allowing those benefits to subsidize the
activities of other affiliates, even if other
affiliates in the consolidated group
generate offsetting tax liabilities that
reduce or eliminate a refund to the
consolidated group. In this situation, the
holding company would be required to
remit the amount due to the institution
within a reasonable period following the
date the institution would have filed its
own return on a separate entity basis.
The prompt transmittal of funds from
the holding company to the institution
would permit management to use those
funds for the benefit of the institution
rather than of the holding company.
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See 12 CFR part 5, subpart E, and 5.55 (OCC);
12 CFR 303.241 (FDIC).
20
See, e.g., Internal Revenue Manual 11.3.2.4.4
(09–17–2020).
21
See 26 U.S.C. 6103(e).
22
The Consolidated Reports of Condition and
Income (Call Reports) (FFIEC 031, FFIEC 041, and
FFIEC 051; OMB No. 1557–0081 (OCC), 7100–0036
(Board), and 3064–0052 (FDIC)).
23
The separate entity method of accounting for
income taxes of depository institution subsidiaries
of holding companies is discussed in the glossary
entry for ‘‘Income Taxes’’ in the Call Report
instructions, available at: www.ffiec.gov/ffiec_
report_forms.htm.
24
See Acct. Standards Codification (ASC) Topic
740 ¶740–10–05–7 (Fin. Acct. Standards Bd. 2019).
25
Id. ¶740–10–10–1.
26
Id. ¶740–10–05–7.
27
Id. ¶740–10–20.
28
When an asset or liability is transferred outside
the consolidated group, the institution would no
longer recognize the associated DTA or DTL. The
institution would include the tax consequences of
the transaction in the calculation of its current
period tax expense or benefit.
If a holding company were to fail to
remit amounts or refunds owed to its
subsidiary institution promptly, that
inaction may be considered an
extension of credit under section 23A. A
holding company’s failure to remit
amounts or refunds owed to its
subsidiary institution also could be
viewed as a constructive dividend from
the institution to the holding company,
which would be subject to other
requirements under applicable
regulations of the agencies.
19
Consolidated Tax Group Filings
Under the proposal, a tax allocation
agreement must require that all
materials including, but not limited to,
returns, supporting schedules,
workpapers, correspondence, and other
documents relating to the consolidated
federal income tax return and any
consolidated, combined, or unitary
group state or local return, which return
includes the institution, be made
available on demand to the institution
or any successor during regular business
hours and that this requirement must
survive any termination of the tax
allocation agreement. Access to this
information would permit the
institution, as well as agency examiners,
to evaluate compliance with the
proposal, including whether the
institution and holding company are
appropriately calculating the
institution’s share of any tax liability
and the institution’s refund for use of its
tax attributes. This proposed approach
also is consistent with how the Internal
Revenue Service views the relationship
of members in a consolidated group
with respect to tax documentation.
20
With respect to insured depository
institutions that enter receivership, the
FDIC as receiver would be successor to
any rights or interests of the insured
depository institution with respect to
various agreements, including any tax
allocation agreement and the ability to
obtain tax return information for the
consolidated group of which the insured
depository institution is a member.
21
Requiring the holding company to
provide access to tax returns to the
consolidated group, including the
insured depository institution, would
benefit the FDIC as receiver by
improving its ability to meet its tax
obligations and obtain tax refunds that
are due and owed to the failed insured
depository institution in a timely
manner.
Question [4]: What are the advantages
and disadvantages of the proposed
requirements for a tax allocation
agreement between an institution and
its affiliates? Are there other
requirements that the agencies should
consider prescribing?
Question [5]: To what extent is the
proposal consistent with current
industry practices? To the extent that
the proposal differs from current
practice, what are the advantages and
disadvantages of the proposal, relative
to current industry practices?
D. Regulatory Reporting
Regardless of whether an institution
files as part of a consolidated group or
as a separate entity, the institution must
prepare its regulatory reports
22
on a
separate entity basis, as specified in the
current instructions for those reports.
23
The current instructions for the
Consolidated Reports of Condition and
Income (Call Reports) issued by the
Federal Financial Institutions
Examination Council require an
institution that is a subsidiary of a
holding company to calculate and report
its current and deferred taxes on a
separate entity basis. This existing
reporting requirement would be
unaffected by the proposal, which
would establish a similar principle. The
proposal would address transactions
involving the purported purchase or
sale of, or advancement of funds with
respect to, an institution’s DTAs and
DTLs (collectively, ‘‘deferred tax
items’’). A DTA or DTL is an estimate
of an expected future tax benefit more
likely than not to be realized or an
expected future tax obligation to be
paid, respectively. Deferred tax items
are generated by and are intrinsically,
and often legally, tied to the activities,
assets, and liabilities of the institution.
DTAs and DTLs represent the future
effects on income taxes that result from
temporary differences and
carryforwards that exist at the end of a
period.
24
The agencies would propose
to revise the Call Report instructions to
incorporate the treatment for deferred
tax items under the proposal, as
described in the Paperwork Reduction
Act section of the
SUPPLEMENTARY
INFORMATION
.
Temporary Difference Deferred Tax
Items
Consistent with the separate entity
basis reporting requirement, separating
DTAs and DTLs from the associated
assets or liabilities that gave rise to the
deferred tax items would depart from
one of the primary objectives related to
accounting for income taxes, which is to
recognize deferred tax items for the
future tax consequences of events that
have been recognized in an entity’s
financial statements or tax returns.
25
The relevant accounting standards
specifically state that a temporary
difference refers to a difference between
the tax basis of an asset or liability and
its reported amount in the financial
statements that will result in taxable or
deductible amounts in future years
when the reported amount of the asset
or liability is recovered or settled,
respectively.
26
More specifically, DTAs
are the deferred tax consequences
attributable to deductible temporary
differences and carryforwards, while
DTLs are the deferred tax consequences
attributable to taxable temporary
differences.
27
Based on the description of deferred
tax items in ASC paragraph 740–10–05–
7 and the uncertainty over the actual
amounts at which deferred tax items
will be settled or realized in future
periods, temporary difference deferred
tax items should remain on the balance
sheet as long as the associated assets or
liabilities that give rise to those deferred
tax items remain on the balance sheet.
Accordingly, an institution’s purchase,
sale, or other transfer of deferred tax
items arising from temporary differences
is not acceptable under U.S. generally
accepted accounting principles (GAAP)
unless these items are transferred in
connection with the transfer of the
associated assets or liabilities. In the
case of timing differences, it may be
appropriate to transfer DTAs or DTLs
resulting from a timing difference when
the underlying asset or liability that
created the future tax benefit or
obligation is being purchased, sold, or
transferred within the consolidated
group.
28
In addition, when the DTA or
DTL can be realized or is absorbed by
the consolidated group in the current
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Under GAAP, a deferred tax item generally
becomes a current tax item when it is expected to
be used to calculate estimated taxes payable or
receivable on tax returns for current and prior years.
ASC Topic 740 ¶740–10–25–2(a) (Fin. Acct.
Standards Bd. 2019).
30
Id. ¶740–10–20.
31
See id. ¶740–10–30–27 (referring to ASC
subtopic 740–10).
32
Id.
33
12 U.S.C. 1831n(a)(1).
34
12 U.S.C. 1831n(a)(2)(A).
35
12 U.S.C. 1831n(a)(2)(B).
36
See 12 CFR 3.22(a)(3) (OCC); 12 CFR
217.22(a)(3) (Board); 12 CFR 324.22(a)(3) (FDIC).
37
This circumstance also may raise concerns
under section 23A, to the extent that monies owed
to the insured depository institution from an
affiliate as a result of these changed amounts are not
paid promptly to the insured depository institution
and may be viewed as extensions of credit subject
to the requirements of section 23A.
38
See, e.g., NOL carryback provisions in the
Coronavirus Aid, Relief, and Economic Security Act
(CARES Act) and the Worker, Homeownership, and
Business Assistance Act of 2009, and NOL and
corporate tax rate changes in the Tax Cuts and Jobs
Act. Public Law 116–136, 134 Stat. 281 (2020);
Public Law 111–92, 123 Stat. 2984 (2009); Public
Law 115–97, 131 Stat. 2054 (2017).
39
The establishment of valuation allowances for
DTAs for NOL and tax credit carryforwards when
required in accordance with U.S. GAAP is not a
derecognition event.
40
12 U.S.C. 1831p–1.
period tax return, it would be
appropriate to settle or recover the DTA
or DTL, respectively.
29
Therefore, as
described in the Paperwork Reduction
Act section of the
SUPPLEMENTARY
INFORMATION
, the agencies plan to revise
the Call Report instructions to clarify
that transfers of temporary difference
deferred tax items as described above
are not consistent with GAAP.
Operating Loss and Tax Credit
Carryforward DTAs
Carryforwards are deductions or
credits that cannot be utilized on the tax
return during a year that may be carried
forward to reduce taxable income or
taxes payable in a future year.
30
Thus,
in contrast to temporary differences,
carryforwards do not arise directly from
book-tax basis differences associated
with particular assets or liabilities.
GAAP does not require a single
allocation method for income taxes
when members of a consolidated group
issue separate financial statements.
31
The commonly applied ‘‘separate-
return’’ method, which would reflect
DTAs for NOLs and tax credit
carryforwards on a separate return basis,
would meet the relevant criteria.
32
Other systematic and rational methods
that are consistent with the broad
principles established by ASC 740 are
also acceptable.
The FDI Act provides that the
accounting principles applicable to
reports or statements required to be filed
with the agencies by insured depository
institutions should result in reports of
condition that accurately reflect the
capital of such institutions, facilitate
effective supervision of the institutions,
and facilitate prompt corrective action
to resolve the institutions at the least
cost to the Deposit Insurance Fund.
33
The FDI Act also provides that, in
general, the accounting principles
applicable to Call Reports must be
uniform and consistent with GAAP.
34
However, this section permits the
agencies to adopt alternate accounting
principles for regulatory reporting that
are no less stringent than GAAP, if the
agencies find that application of GAAP
fails to meet any of the objectives stated
above.
35
The agencies are aware of instances in
which institutions have engaged in
transactions with affiliates in a
consolidated group to purchase, sell, or
otherwise transfer deferred tax items,
specifically DTAs, other than current
period tax losses useable in the
consolidated group’s tax return for the
current period, which would otherwise
be NOL carryforward DTAs for the
institution. The agencies’ regulatory
capital rule requires the deduction from
common equity tier 1 capital of NOLs
and tax credit carryforward DTAs, net of
any related valuation allowances and
net of DTLs.
36
Because of this treatment,
an institution may attempt to
derecognize its DTAs for NOLs or tax
credit carryforwards on its separate-
entity regulatory reports prior to the
time when the carryforward benefits are
absorbed by the consolidated group by
selling or otherwise transferring these
DTAs to affiliates, particularly affiliates
not subject to the agencies’ regulatory
capital rule, potentially overstating
capital. While an institution may
receive cash from affiliates in exchange
for these transfers, the transfer may be
reversible and not provide the same
quality of regulatory capital as cash in
the form of a capital contribution from
a holding company.
Second, there are significant valuation
uncertainties associated with deferred
tax items, particularly DTAs for NOLs or
tax credit carryforwards, when the
underlying tax attributes cannot be used
or absorbed by the group in the current
period. Even though deferred tax items
are measured in accordance with the
enacted tax rates expected to apply
when these items are settled or realized,
the actual amounts at which these items
will be settled or realized will be
determined using the tax rates in effect
in the future periods when settlement or
realization occurs. In cases where such
transactions have been observed, the
cash settlement for the deferred tax
assets is based on tax rates at the time
of the settlement between the entities.
However, the actual tax benefit realized
by the consolidated group may
ultimately differ from that amount,
depending upon tax rates at the time the
relevant deferred tax asset is absorbed
by the consolidated group. As a result,
an institution that sells or purchases
DTAs for NOLs or tax credit
carryforwards may receive significantly
less than, or overpay for, these DTAs in
relation to the amounts at which these
DTAs ultimately would have been
realized had they not been transferred,
which also raises concerns under
section 23B to the extent that the
insured depository institution is placed
in a position less favorable than if it
filed its income tax return on a separate
entity basis.
37
For example, changes in
federal tax laws, such as a change in the
corporate income tax rate or provisions
related to NOL carryback periods, can
significantly affect the value of
associated DTAs.
38
For these reasons, the agencies have
concluded that the derecognition by
insured depository institutions of DTAs
for NOL or tax credit carryforwards on
their separate-entity regulatory reports
before the period in which they are
absorbed by the consolidated group
raises significant concerns and would
not meet the objectives described in 12
U.S.C. 1831n(a)(1).
39
Specifically, the
agencies find that derecognizing DTAs
for NOLs or tax credit carryforwards in
the Call Report in such circumstances
may not accurately reflect an
institution’s capital and may increase
the cost to the Deposit Insurance Fund
if insured depository institutions that
have engaged in these transactions
subsequently fail after the DTAs were
sold for less than their value, and the
FDIC as receiver is unable to fully
recover the value of these DTAs under
applicable tax laws.
Consistent with this finding, as
described in the Paperwork Reduction
Act section of the
SUPPLEMENTARY
INFORMATION
, the agencies expect to
propose to revise the Call Report
instructions to clarify that an institution
must not derecognize DTAs for NOLs or
tax credit carryforwards on its separate-
entity regulatory reports prior to the
time when such carryforwards are
absorbed by the consolidated group.
III. Incorporation of the Proposal as an
Appendix to the Agencies’ Safety and
Soundness Rules
The agencies would adopt the
proposal under the procedures
described in section 39 of the FDI Act.
40
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12 U.S.C. 93a.
42
Call Report data, September 30, 2020. The
agencies estimate the covered institutions by
subtracting the 1,537 insured institutions and 3
uninsured OCC-chartered institutions supervised by
the agencies that are subsidiaries of bank or thrift
holding companies supervised by the Board, are
registered as Subchapter S corporations, and would
not be affected by the adoption of the proposal;
from the 4,118 insured institutions and 26
uninsured OCC-chartered institutions supervised by
the agencies that are subsidiaries of bank or thrift
holding companies supervised by the Board,
respectively.
43
Id.
The OCC would also adopt the proposal
for uninsured institutions under its
general rulemaking authority.
41
Guidelines or standards adopted under
section 39 through a rulemaking are
accorded special enforcement treatment
under that statute. The agencies each
have procedural rules that implement
the enforcement remedies for guidelines
prescribed by section 39. Under
procedural provisions in these rules,
each agency would be authorized to
require an institution that intends to
participate in a consolidated tax filing
group and does not have an acceptable
tax allocation agreement to develop a
plan to implement an acceptable
agreement consistent with the proposal
or to be subject to enforcement actions.
Each agency proposes to incorporate
the proposal as an appendix to its
relevant safety and soundness rule
(located in 12 CFR part 30 (OCC), 12
CFR part 208 (Board) and part 364
(FDIC)).
IV. Impact Analysis
Scope of Application
As of the most recent data, the
agencies estimate that 2,604 supervised
institutions (including 2,581 insured
institutions and 23 uninsured OCC-
chartered institutions) would be subject
to the proposal.
42
Covered institutions
must be part of a consolidated group
and obligated to pay federal and state
income taxes. These covered
institutions represent 51 percent of all
institutions supervised by the agencies,
and they hold over 93 percent of total
assets of all institutions supervised by
the agencies.
43
The agencies do not have, nor are they
aware of, data that indicates whether
any particular institution files taxes as
part of a consolidated group, whether
the institutions have tax allocation
agreements with their holding
companies, or whether the institutions
have agreements that would conform
with the proposal. Therefore, it is
difficult to accurately estimate the
number of institutions that would be
potentially affected by the proposal.
However, in their supervision of
institutions, the agencies have observed
that only a small number of institutions
in consolidated groups lack tax
allocation agreements with their holding
companies, have agreements that do not
have language conforming with section
23A or 23B, or engage in transfers of
DTAs or DTLs that are inconsistent with
the separate entity basis reporting
requirement. Overall, due to the fact
that the agencies expect most covered
institutions to already be in compliance
with the proposal, the expected costs of
the proposal are likely to be small.
The potential benefits and costs
discussed below generally apply to the
supervised institutions, their affiliates,
and holding companies that are not
already implementing principles from
the existing non-codified guidance.
Benefits
There are three key benefits of the
proposal. First, in some situations, the
proposal would strengthen the safety
and soundness of covered insured and
uninsured institutions by ensuring that
consolidated tax filing arrangements
and practices are not adverse to their
interests. Second, in some
circumstances, the proposal would
reduce the FDIC’s resolution-related
costs for covered insured institutions.
Third, under some circumstances, the
proposal would result in institutions
more accurately reflecting their common
equity tier 1 capital. These issues are
discussed in more detail below.
The proposal could strengthen the
safety and soundness of covered
institutions. In particular, to the extent
that covered institutions, their affiliates,
and holding companies are not already
implementing principles from the
existing non-codified guidance, it may
be possible to transfer tax credits out of
the institution to a parent or affiliate. In
this situation, the transfer weakens the
safety and soundness of the institution.
The proposal would limit such
transfers, increasing the safety and
soundness of the covered institution.
The effect of the proposal on safety
and soundness of all members of a
consolidated group can be more
nuanced. For example, when the parent
or affiliate entity retains the transfers of
tax credits out of the covered
institution, the potential reduction of
the safety and soundness of the covered
institution may be accompanied by a
corresponding increase in safety and
soundness at the holding company or
other affiliates.
To the extent there are covered
institutions that currently engage in
transactions involving NOL and tax
credit carryforward DTAs within a
consolidated group, the proposal could
result in fewer transfers of such deferred
tax items and the covered institutions
may be more likely to receive equitable
treatment. Furthermore, if the proposal
were adopted, the covered institutions
would retain access to the appropriate
share of funds as they avoid being
underpaid, or overpaying, in the course
of the transactions related to deferred
tax items.
By requiring a tax allocation
agreement, and clear language in such
agreements about an agency
relationship, the proposal could reduce
the cost of resolving failed insured
depository institutions. In particular, to
the extent that covered institutions,
their affiliates, and holding companies
are not already implementing principles
from the existing non-codified guidance,
it is possible to transfer tax credits out
of the insured depository institution and
into a parent or affiliate thereby
reducing the value of the assets of the
insured depository institution and
raising the cost of resolving failed
banks. Prompt receipt of tax refunds and
appropriate timing and payment of tax
obligations based on terms and
provisions in a tax allocation agreement
would, in some situations, result in the
insured depository institution being
better capitalized when entering
receivership, and allow the FDIC to
avoid litigation over the consolidated
group’s tax refunds and reduce
uncertainties over any tax liabilities. By
reducing the insured depository
institution’s failure resolution costs,
including the related litigation and
other procedural costs of resolution, the
proposal would allow the FDIC to more
efficiently resolve failed insured
depository institutions, carry out its
mission in a more cost-effective manner,
and reduce future costs to the Deposit
Insurance Fund.
As described in the Operating Loss
and Tax Credit Carryforward DTAs
section of the
SUPPLEMENTARY
INFORMATION
, the agencies are aware of
instances in which institutions have
engaged in transactions with affiliates in
a consolidated group to purchase, sell,
or otherwise transfer deferred tax items,
specifically DTAs, other than current
period tax losses useable in the
consolidated group’s tax return for the
current period, which would otherwise
be NOL and tax credit carryforward
DTAs for the covered institution. The
proposal clarifies regulatory reporting
requirements to help ensure that an
institution recognizes all its individual
deferred tax items, including those
arising from temporary timing
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For banks, savings associations, and non-
deposit trust companies, the Consolidated Reports
of Condition and Income (Call Reports) (FFIEC 031,
FFIEC 041, and FFIEC 051; OMB No. 1557–0081
(OCC), 7100–0036 (Board), and 3064–0052 (FDIC)).
45
GAAP does not prohibit the purchase, sale, or
transfer of deferred tax items of the institutions
within the consolidated group if the institution
would not be entitled to a current refund on a
separate entity basis, or if the purchase, sale, or
transfer of deferred tax items occurs in conjunction
with the purchase, sale, or transfer of the assets or
the liabilities giving rise to those items.
46
In contrast to temporary differences,
carryforwards do not arise directly from book-tax
basis differences associated with particular assets or
liabilities.
47
See 12 CFR 3.22(a)(3) (OCC); 12 CFR
217.22(a)(3) (Board); 12 CFR 324.22(a)(3) (FDIC).
differences, in its regulatory reports.
44
An institution cannot report such items
on its Call Reports separately from the
asset or liability that gave rise to it,
except under certain circumstances that
are appropriate under GAAP.
45
The
proposal also addresses accounting
principles for regulatory reporting for
institutions’ transactions involving the
purported purchase or sale of, or
advancement of funds with respect to its
NOLs and tax credit carryforward
DTAs
46
to other affiliates in the
consolidated group or the holding
company. The agencies’ regulatory
capital rule requires the deduction from
common equity tier 1 capital of NOL
and tax credit carryforward DTAs, net of
any related valuation allowances and
net of DTLs.
47
Thus, by clarifying the
regulatory reporting requirements, the
proposal would more accurately reflect
institutions’ common equity tier 1
capital.
Costs
To the extent the supervised
institutions, their affiliates, and holding
companies are not already
implementing principles from the
existing non-codified guidance, there
are two primary costs of the proposal.
First, parent companies and affiliates of
covered institutions could lose some
discretion over the timing, magnitude,
and direction of cash flows between
members of the group. Second, there
would be regulatory costs associated
with preparing agreements as well as
ongoing compliance or reporting
expenses. These issues are discussed in
more detail below.
Under the proposal, holding
companies would be required to remit
tax refunds to their subsidiary
institutions, if the relevant subsidiary’s
tax assets such as net operating losses or
tax credits generate the refund.
Similarly, if the institution’s tax assets
allow the group to make smaller
payments to a tax authority, the
institution must be compensated at such
time as when the consolidated group
has benefitted from the use of its assets.
The proposal would also enable
institutions to avoid scenarios whereby
they are required to submit tax
payments to their holding company
either materially before the holding
company must remit taxes to the tax
authority or greater than their actual
obligations. The proposal could also
result in certain holding companies
ceasing to retain tax refunds and
transmitting refunds to their subsidiary
institutions, or no longer receiving
funds well in advance of the obligated
payment date.
Mandatory tax allocation agreements
with terms outlined in the proposal
would reduce discretion over the
timing, magnitude, or direction of
certain cash flows between members of
the group. This may reduce the
flexibility of the holding company to
allocate funds between members of the
consolidated group, potentially
resulting in reduced growth or
profitability.
To the extent the supervised
institutions, their affiliates, and holding
companies are not already
implementing principles from the
existing non-codified guidance, they
could incur regulatory costs in order to
enter into tax allocation agreements that
comply with the requirements in the
proposal. While these costs are
uncertain, they are likely to be relatively
small given that in the agencies’
experience only a small number of
institutions do not have a tax allocation
agreement or, have a tax allocation
agreement that does not conform with
the proposal. Further, the Paperwork
Reduction Act section of the
SUPPLEMENTARY INFORMATION
describes
relatively small recordkeeping,
reporting and disclosure costs
associated with the proposal for covered
entities.
Overall, due to the fact that the
agencies expect most covered
institutions to already be in compliance
with the proposal, the expected costs
are likely to be small. The proposal
would increase the safety and
soundness of institutions not
implementing the principles in the
Interagency Policy Statement and the
2014 Addendum and reduce litigation
costs to the Deposit Insurance Fund.
V. Administrative Law Matters
A. Paperwork Reduction Act
Certain provisions of the proposal
contain ‘‘collection of information’’
requirements within the meaning of the
Paperwork Reduction Act of 1995 (44
U.S.C. 3501–3521) (PRA). In accordance
with the requirements of the PRA, the
agencies may not conduct or sponsor,
and a respondent is not required to
respond to, an information collection
unless it displays a currently valid
Office of Management and Budget
(OMB) control number. The agencies
will request new control numbers for
this information collection. The
information collection requirements
contained in this proposal have been
submitted to OMB for review and
approval by the OCC and FDIC under
section 3507(d) of the PRA (44 U.S.C.
3507(d)) and § 1320.11 of the OMB’s
implementing regulations (5 CFR part
1320). The Board reviewed the proposal
under the authority delegated to the
Board by OMB.
Comments are invited on:
a. Whether the collections of
information are necessary for the proper
performance of the agencies’ functions,
including whether the information has
practical utility;
b. The accuracy or the estimate of the
burden of the information collections,
including the validity of the
methodology and assumptions used;
c. Ways to enhance the quality,
utility, and clarity of the information to
be collected;
d. Ways to minimize the burden of the
information collections on respondents,
including through the use of automated
collection techniques or other forms of
information technology; and
e. Estimates of capital or startup costs
and costs of operation, maintenance,
and purchase of services to provide
information.
All comments will become a matter of
public record. Comments on aspects of
this notice that may affect reporting,
recordkeeping, or disclosure
requirements and burden estimates
should be sent to the addresses listed in
the
ADDRESSES
section of this document.
A copy of the comments may also be
submitted to the OMB desk officer for
the agencies by mail to U.S. Office of
Management and Budget, 725 17th
Street NW, #10235, Washington, DC
20503; facsimile to (202) 395–6974; or
email to oira_submission@omb.eop.gov,
Attention, Federal Banking Agency Desk
Officer.
(1) New Information Collection
OCC
OMB control number: 1557–NEW.
Title of Information Collection:
Recordkeeping Provisions Associated
with the Interagency Guidelines on
Safety and Soundness Standards for Tax
Allocation Agreements.
Frequency: Event generated, annually.
Affected Public: National banks and
federal savings associations.
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Number of Respondents: 579.
Estimated average hours per response:
Recordkeeping Section 30 Appendix
F Initial setup—20.
Recordkeeping Section 30 Appendix
F Ongoing—1.
Estimated annual burden hours:
Recordkeeping Section 30 Appendix
F Initial setup—11,580.
Recordkeeping Section 30 Appendix
F Ongoing—579.
Total—12,159.
Board
OMB control number: 7100–NEW.
Title of Information Collection:
Recordkeeping Provisions Associated
with the Interagency Guidelines on
Safety and Soundness Standards for Tax
Allocation Agreements.
Frequency: Event generated, annual.
Affected Public: State member banks.
Number of Respondents: 435.
Estimated average hours per response:
Recordkeeping Section 208 Appendix
D–3 Initial setup—20.
Recordkeeping Section 208 Appendix
D–3 Ongoing—1.
Estimated annual burden hours:
Recordkeeping Section 208 Appendix
D–3 Initial setup—8,700.
Recordkeeping Section 208 Appendix
D–3 Ongoing—435.
FDIC
OMB control number: 3064–NEW.
Title of Information Collection:
Recordkeeping Provisions Associated
with the Interagency Guidelines on
Safety and Soundness Standards for Tax
Allocation Agreements.
Frequency: Event generated, annual.
Affected Public: State nonmember
banks and state savings associations.
Estimated average hours per response:
Number of Respondents: 1,590.
Estimated average hours per response:
Recordkeeping Section 364 Appendix
C Initial setup—20.
Recordkeeping Section 364 Appendix
C Ongoing—1.
Estimated annual burden hours:
Recordkeeping Section 364 Appendix
C Initial setup—31,800.
Recordkeeping Section 364 Appendix
C Ongoing—1,590.
Current Actions: The proposal
prescribes PRA recordkeeping
requirements for tax allocation
agreements that involve institutions
supervised by the agencies. Each
institution that is part of a consolidated
group must enter into a written tax
allocation agreement with its holding
company. The respective boards of
directors of each institution and its
parent holding company must approve
the tax allocation agreement.
(2) FFIEC 031, FFIEC 041, and FFIEC
051
Current Actions
In addition, the proposal would
require changes to the instructions for
the Call Reports (OMB No. 1557–0081
(OCC), 7100–0036 (Board), and 3064–
0052 (FDIC)), which will be addressed
in a separate Federal Register notice.
B. Regulatory Flexibility Act Analysis
OCC: In general, the Regulatory
Flexibility Act (RFA), 5 U.S.C. 601 et
seq., requires an agency, in connection
with a proposed rule, to prepare and
make available for public comment an
Initial Regulatory Flexibility Analysis
describing the impact of the rule on
small entities (defined by the Small
Business Administration (SBA) for
purposes of the RFA to include
commercial banks and savings
institutions with total assets of $600
million or less and trust companies with
total assets of $41.5 million of less) or
to certify that the proposed rule would
not have a significant economic impact
on a substantial number of small
entities. The OCC currently supervises
approximately 745 small entities, of
which 281 may be within the scope of
the proposed rule. The OCC classifies
the economic impact on an individual
small entity as significant if the total
estimated impact in one year is greater
than 5 percent of the small entity’s total
annual salaries and benefits or greater
than 2.5 percent of the small entity’s
total non-interest expense. The OCC
estimates the cost of implementing or
revising the tax allocation agreements
under the proposal would be less than
$1,000 per institution and not result in
a significant economic impact to these
entities. Therefore, the OCC certifies
that the proposal, if adopted as final,
would not have a significant economic
impact on a substantial number of small
entities.
Board: The Board is providing an
initial regulatory flexibility analysis
with respect to this proposal. The
Regulatory Flexibility Act, 5 U.S.C. 601
et seq. (RFA), requires an agency to
consider whether the rules it proposes
will have a significant economic impact
on a substantial number of small
entities. In connection with a proposed
rule, the RFA requires an agency to
prepare an Initial Regulatory Flexibility
Analysis describing the impact of the
rule on small entities or to certify that
the proposed rule would not have a
significant economic impact on a
substantial number of small entities. An
initial regulatory flexibility analysis
must contain (1) a description of the
reasons why action by the agency is
being considered; (2) a succinct
statement of the objectives of, and legal
basis for, the proposed rule; (3) a
description of, and, where feasible, an
estimate of the number of small entities
to which the proposed rule will apply;
(4) a description of the projected
reporting, recordkeeping, and other
compliance requirements of the
proposed rule, including an estimate of
the classes of small entities that will be
subject to the requirement and the type
of professional skills necessary for
preparation of the report or record; (5)
an identification, to the extent
practicable, of all relevant Federal rules
which may duplicate, overlap with, or
conflict with the proposed rule; and (6)
a description of any significant
alternatives to the proposed rule which
accomplish its stated objectives.
The Board has considered the
potential impact of the proposal on
small entities in accordance with the
RFA. Based on its analysis and for the
reasons stated below, the proposal is not
expected to have a significant economic
impact on a substantial number of small
entities. Nevertheless, the Board is
publishing and inviting comment on
this initial regulatory flexibility
analysis. The Board will consider
whether to conduct a final regulatory
flexibility analysis after any comments
received during the public comment
period have been considered.
Reasons Why Action Is Being
Considered by the Board
In their supervision of institutions,
the agencies have observed that certain
institutions in consolidated groups
either lack tax allocation agreements
with their holding companies or have
agreements that fail to ensure that the
institutions receive the benefit of their
tax attributes, which could negatively
impact the safety and soundness of
these institutions. Although there is
existing interagency guidance relating to
tax allocation agreements, this guidance
is nonbinding.
The Objectives of, and Legal Basis for,
the Proposal
The proposal would codify and make
enforceable (with certain modifications)
earlier guidance documents relating to
tax allocation agreements. The proposal
is intended to (1) ensure that state
member banks that file taxes as part of
a consolidated group have tax allocation
agreements in place, and (2) specify
certain mandatory terms for such
agreements. The proposal would also
clarify that an institution must not
derecognize DTAs for NOLs or tax credit
carryforwards on its separate-entity
regulatory reports prior to the time
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12 U.S.C. 1831p–1 and 12 U.S.C. 1831(a)(2).
49
Under regulations issued by the Small Business
Administration, a small entity includes a depository
institution, bank holding company, or savings and
loan holding company with total assets of $600
million or less. See 84 FR 34261 (July 18, 2019).
Consistent with the General Principles of Affiliation
in 13 CFR 121.103, the Board counts the assets of
all domestic and foreign affiliates when
determining if the Board should classify a Board-
supervised institution as a small entity. The small
entity information is based on Call Report data as
of September 30, 2020.
50
To estimate average hourly wages, we review
data from September 2020 for wages (by industry
and occupation) from the U.S. Bureau of Labor
Statistics (BLS) for depository credit intermediation
(NAICS 522100). To estimate compensation costs
associated with the rule, we use $115 per hour,
which is based on the weighted average of the 75th
percentile for four occupations adjusted for
inflation, plus an additional 33.9 percent to cover
private sector benefits.
51
This estimate is based on the assumption that
all 242 Board-supervised small entities that are not
Subchapter S corporations would need to spend 20
hours establishing or modifying a tax allocation
agreement, at a cost of $115.00 per hour. As
discussed above, because the proposal largely
codifies existing guidance and likely reflects
existing industry practice, the number of small
entities impacted by the rule’s requirements and the
initial aggregate administrative cost of the proposal
is likely to be considerably smaller.
52
5 U.S.C. 601 et seq.
53
The SBA defines a small banking organization
as having $600 million or less in assets, where ‘‘a
financial institution’s assets are determined by
averaging the assets reported on its four quarterly
financial statements for the preceding year.’’ See 13
CFR 121.201 (as amended, effective August 19,
2019). In its determination, the ‘‘SBA counts the
receipts, employees, or other measure of size of the
concern whose size is at issue and all of its
domestic and foreign affiliates.’’ See 13 CFR
121.103. Following these regulations, the FDIC uses
a covered entity’s affiliated and acquired assets,
averaged over the preceding four quarters, to
determine whether the covered entity is ‘‘small’’ for
the purposes of RFA.
when such carryforwards are absorbed
by the consolidated group.
The Board proposes to adopt the
proposal pursuant to sections 39 and 37
of the FDI Act.
48
Section 39 of the FDI
Act authorizes the Board to prescribe
standards for safety and soundness by
regulation or guideline. Section 37 of
the FDI Act permits the Board to
prescribe an accounting principle
applicable to insured depository
institutions that is no less stringent than
generally accepted accounting
principles. The guidelines promulgated
under the proposal would be
incorporated as an appendix to the
Interagency Guidelines Establishing
Standards for Safety and Soundness
contained in 12 CFR part 208.
Estimate of the Number of Small
Entities
The proposal would apply to state
member banks. According to Call
Reports, there are approximately 455
state member banks that are small
entities for purposes of the RFA.
49
213
of these entities are registered as
Subchapter S corporations, would pay
no tax at the business level, and
therefore would not be impacted by the
proposal. Additionally, the majority of
potentially impacted small entities are
likely already party to a tax allocation
agreement, as discussed in existing
guidance, and thus the number of small
entities impacted by the proposal’s
requirements is likely to be considerably
smaller.
Description of the Compliance
Requirements of the Proposal
The proposal would require state
member banks to enter into tax
allocation agreements containing certain
specified terms. To the extent that
institutions are not already party to
compliant tax allocation agreements,
they could incur administrative costs to
enter into tax allocation agreements that
comply with this proposal, or to modify
existing tax allocation agreements to be
compliant, which would require legal
and accounting skills. It is likely that
the majority of potentially impacted
small entities are already party to a tax
allocation agreement, as discussed in
existing guidance. The majority of these
agreements are likely either compliant
with the proposal or could be made
compliant with relatively minor
modifications. Board staff estimates that
impacted Board-supervised small
entities will spend 20 hours establishing
or modifying a tax allocation agreement,
at an hourly cost of $115.00.
50
The
estimated aggregate initial
administrative costs of the proposal to
Board-supervised small entities amount
to $556,600.00,
51
and ongoing costs are
expected to be small when measured by
small banks’ annual expenses. In
addition, the proposal may also reduce
existing flexibility around the timing of
compensation from holding companies
to state member banks for the use of
their tax attributes. The Board does not
anticipate any material impact on the
overall tax liability of consolidated
groups as a result of the proposal.
Consideration of Duplicative,
Overlapping, or Conflicting Rules and
Significant Alternatives to the Proposal
The Board has not identified any
federal statutes or regulations that
would duplicate, overlap, or conflict
with the proposal. The Board has
considered the alternative of
maintaining or amending existing
interagency guidance but considers the
proposal to be a more appropriate
alternative.
FDIC:
The RFA generally requires that, in
connection with a proposed rulemaking,
an agency prepare and make available
for public comment an initial regulatory
flexibility analysis describing the
impact of the proposed rule on small
entities.
52
However, a regulatory
flexibility analysis is not required if the
agency certifies that the rule will not
have a significant economic impact on
a substantial number of small entities.
The SBA has defined ‘‘small entities’’ to
include banking organizations with total
assets of less than or equal to $600
million that are independently owned
and operated or owned by a holding
company with less than or equal to $600
million in total assets.
53
Generally, the
FDIC considers a significant effect to be
a quantified effect in excess of 5 percent
of total annual salaries and benefits per
institution, or 2.5 percent of total non-
interest expenses. The FDIC believes
that effects in excess of these thresholds
typically represent significant effects for
FDIC-supervised institutions. The FDIC
does not believe that the proposed rule,
if adopted, will have a significant
economic effect on a substantial number
of small entities. However, some
expected effects of the proposed rule are
difficult to assess or accurately quantify
given current information, therefore the
FDIC has included an Initial Regulatory
Flexibility Act Analysis in this section.
Reasons Why This Action Is Being
Considered
As previously discussed, in its
supervision of institutions, the FDIC has
observed that some institutions and
affiliated entities in consolidated groups
lack tax allocation agreements with their
holding companies, have agreements
that do not have language conforming
with section 23A or 23B, or engage in
the sale or transfer of DTAs or DTLs
with other entities in a consolidated tax
filing group that is inconsistent with the
separate entity basis reporting
requirement. In particular, the FDIC has
reviewed tax allocation agreements that
do not require holding companies in a
consolidated group to promptly transmit
the appropriate portion of a
consolidated group’s tax refund to their
subsidiary institutions, resulting in
some holding companies failing to do so
in some instances. The FDIC believes
that such inaction could adversely affect
the safety and soundness of the
subsidiary institutions. Further, in its
capacity as receiver for failed insured
depository institutions, the FDIC has
engaged in legal disputes regarding the
ownership of tax refunds claimed by the
holding company based on losses
incurred by insured depository
institutions in a consolidated group due
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12 U.S.C. 1831p–1.
55
See 12 U.S.C. 1831n(a)(1).
56
See 12 U.S.C. 1831n(a)(1).
57
Call Report data, September 30, 2020. The FDIC
estimates small covered institutions by subtracting
the 906 small insured institutions supervised by the
FDIC that are subsidiaries of bank or thrift holding
companies supervised by the Board, are registered
as Subchapter S corporations, and would not be
affected by the adoption of the proposed rule; from
the 1,914 small insured institutions supervised by
the FDIC that are subsidiaries of bank or thrift
holding companies supervised by the Board,
respectively.
58
Id.
to tax allocation agreements that did not
clearly acknowledge an agency
relationship between the insured
depository institution and its holding
company. These disputes can reduce or
prevent recoveries by the FDIC on
behalf of failed insured depository
institutions, which increases the cost to
the Deposit Insurance Fund and thus
leads to higher FDIC deposit insurance
premiums charged to solvent insured
depository institutions.
Policy Objectives
The primary objective of the proposal
is to further clarify the relationship
between institutions supervised by the
agencies (including insured depository
institutions and uninsured institutions)
and affiliates or parent holding
companies who are in a consolidated
tax filing group with respect to the
treatment of tax obligations, tax refunds
and related intra-group transactions.
Tax allocation agreements between
institutions and their holding
companies and other affiliates are
important safeguards to ensure
compliance by institutions with sections
23A and 23B and certain other agency
regulations that ensure that holding
companies in a consolidated group
promptly transmit the appropriate
portion of a consolidated group’s tax
refund to their subsidiary institutions.
Legal Basis
The FDIC proposes to adopt the
guidelines pursuant to sections 39 and
37 of the FDI Act.
54
Section 39
prescribes different consequences
depending on whether the agency issues
regulations or guidelines. Under these
provisions, an agency may require an
institution that intends to participate in
a consolidated tax filing group and does
not have an acceptable tax allocation
agreement to develop a plan to
implement an acceptable agreement
consistent with the proposal or to be
subject to enforcement actions. Section
37(a) of the FDI Act states that the
accounting principles applicable to
reports or statements required to be filed
with the agencies by institutions should
result in reports of condition that
accurately reflect the capital of such
institutions, facilitate effective
supervision of the institutions, and
facilitate prompt corrective action to
resolve the institutions at the least cost
to the Deposit Insurance Fund.
55
For a
more detailed discussion of the
proposal’s legal basis please refer to
Section III entitled ‘‘Incorporation of the
Guidelines as an Appendix to the
Agencies’ Safety and Soundness Rules’’.
The Proposed Rule
The FDIC proposes to incorporate the
guidelines as an appendix to its safety
and soundness rule in part 364. The
FDIC has procedural rules in part 364
that implement the enforcement
remedies prescribed by section 39.
Under these provisions, the FDIC may
require an institution that does not have
an acceptable tax allocation agreement
to develop a plan to implement an
acceptable agreement consistent with
the proposal or be subject to
enforcement actions.
56
For a more
detailed discussion of the proposal
please refer to Section II entitled
‘‘Description of the Proposal’’ and
Section III entitled ‘‘Incorporation of the
Guidelines as an Appendix to the
Agencies’ Safety and Soundness Rules’’.
Small Entities Affected
As of the most recent data, the FDIC
supervises 3,245 depository institutions
of which 2,434 are ‘‘small’’ entities
according to the terms of the RFA.
Covered institutions must be part of a
consolidated group, and subject to and
obligated to pay federal and state
income tax. The FDIC estimates that
1,008 small, FDIC-supervised
institutions will be subject to the
proposal.
57
These covered institutions
represent 41 percent of all small
institutions supervised by the FDIC, and
they hold over 47 percent of total assets
of all small institutions supervised by
the FDIC.
58
As described in the Impact Analysis
section of the
SUPPLEMENTARY
INFORMATION
, it is difficult to accurately
estimate the number of small FDIC-
supervised institutions that would be
potentially affected by the proposal.
Specifically, the FDIC does not have
data that indicates whether or not any
particular small FDIC-supervised
institution files taxes as a consolidated
group, whether the small FDIC-
supervised institutions have tax
allocation agreements with their holding
companies, or whether the institutions
have agreements that do not have
language conforming with section 23A
or 23B. However, the FDIC believes that
the number of small, FDIC-supervised
depository institutions that will be
directly affected by the proposal is
likely to be small, given that in the
agencies’ supervisory experience only a
small number of institutions do not
currently have tax allocation
agreements, have existing tax allocation
agreements that do not have language
conforming with section 23A or 23B, or
engage in the sale or transfer of DTAs or
DTLs with other entities in a
consolidated tax filing group that is not
consistent with the separate entity basis
reporting requirement, notwithstanding
the existing non-codified guidance.
Expected Effects
The potential benefits and costs
summarized below generally apply to
the small FDIC-supervised institutions,
their affiliates, and holding companies
that are not already implementing
principles from the existing non-
codified guidance.
Benefits
There are three key benefits of the
proposal. First, in some situations, the
proposal would strengthen the safety-
and-soundness of covered small FDIC-
supervised institutions by ensuring that
consolidated tax filing arrangements
and practices are not adverse to their
interests. Second, in some
circumstances, the proposal would
reduce the FDIC’s resolution-related
costs. Third, under some circumstances,
the proposal would result in small
FDIC-supervised institutions more
accurately reflecting their common
equity tier 1 capital. These benefits are
discussed in more detail in the Impact
Analysis section of the
SUPPLEMENTARY
INFORMATION
.
Costs
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59
Public Law 106–102, sec. 722, 113 Stat. 1338
(codified at 12 U.S.C. 4809).
60
12 U.S.C. 4802(a).
61
12 U.S.C. 4802.
62
2 U.S.C. 1532.
To the extent the small, FDIC-
supervised institutions, their affiliates,
and holding companies are not already
implementing principles from the
existing non-codified guidance, there
are two primary costs of the proposal.
First, covered small FDIC-supervised
institutions, their parent companies,
and affiliates could lose some discretion
over the timing, magnitude, and
direction of cash flows between
members of the group. Second, there
would be regulatory costs associated
with preparing agreements as well as
ongoing compliance or reporting
expenses. These costs are discussed in
more detail in the Impact Analysis
section of the
SUPPLEMENTARY
INFORMATION
.
Overall, due to the fact that the FDIC
expects most small FDIC-supervised
institutions to already be in compliance
with the proposal, the expected effects
are likely to be small.
Alternatives Considered
The FDIC considered the status quo
alternative to maintain or amend the
existing guidance and not include the
guidance as a new codified appendix to
the agencies’ safety and soundness
rules. However, for reasons previously
stated in the Background section of the
SUPPLEMENTARY INFORMATION
, the FDIC
considers the proposal to be a more
appropriate alternative.
Other Statutes and Federal Rules
The FDIC has not identified any likely
duplication, overlap, and/or potential
conflict between this proposal and any
other federal rule.
The FDIC invites comments on all
aspects of the supporting information
provided in this RFA section. In
particular, would the proposal have any
significant effects on small entities that
the FDIC has not identified?
C. Plain Language
Section 722 of the Gramm-Leach-
Bliley Act requires the Federal banking
agencies to use plain language in all
proposed and final rules published after
January 1, 2000.
59
The agencies have
sought to present the proposal as a new
appendix to certain codified safety and
soundness rules in a simple and
straightforward manner and invite
comment on the use of plain language.
For example:
Have the agencies organized the
material to suit your needs? If not, how
could they present the proposal more
clearly?
Are the requirements in the
proposal clearly stated? If not, how
could the proposal be more clearly
stated?
Does the proposal contain technical
language or jargon that is not clear? If
so, which language requires
clarification?
Would a different format (grouping
and order of sections, use of headings,
paragraphing) make the proposal easier
to understand? If so, what changes
would achieve that?
Is the section format adequate? If
not, which of the sections should be
changed and how?
What other changes can the
agencies incorporate to make the
proposal easier to understand?
D. Riegle Community Development and
Regulatory Improvement Act of 1994
Pursuant to section 302(a) of the
Riegle Community Development and
Regulatory Improvement Act of 1994
(RCDRIA),
60
in determining the effective
date and administrative compliance
requirements for new regulations that
impose additional reporting, disclosure,
or other requirements on insured
depository institutions, each Federal
banking agency must consider,
consistent with principles of safety and
soundness and the public interest, any
administrative burdens that such
regulations would place on depository
institutions, including small depository
institutions, and customers of
depository institutions, as well as the
benefits of such regulations. In addition,
section 302(b) of RCDRIA requires new
regulations and amendments to
regulations that impose additional
reporting, disclosures, or other new
requirements on insured depository
institutions generally to take effect on
the first day of a calendar quarter that
begins on or after the date on which the
regulations are published in final
form.
61
The agencies invite comments that
will further inform their consideration
of RCDRIA.
E. OCC Unfunded Mandates Reform Act
of 1995
The OCC analyzed the proposal under
the factors set forth in the Unfunded
Mandates Reform Act of 1995
(UMRA).
62
Under this analysis, the OCC
considered whether the proposal
includes a Federal mandate that may
result in the expenditure by State, local,
and Tribal governments, in the
aggregate, or by the private sector, of
$157 million or more in any one year (as
adjusted for inflation). The OCC has
determined that the proposal, if
implemented, could result in total costs
of approximately $1 million for OCC
institutions. Therefore, the OCC believes
the proposal, if adopted as final, will
not result in a Federal mandate
imposing costs of $157 million or more.
Text of Common Proposed Guidelines
on Tax Allocation Agreements (All
Agencies)
Appendix [ ]
Interagency Guidelines on Safety and
Soundness Standards for Tax
Allocation Agreements
I. Introduction
The Guidelines establish standards
under section 39 of the Federal Deposit
Insurance Act (12 U.S.C. 1831p–1) for
intercorporate tax allocation agreements
between a [BANK] and its parent
holding company and other affiliates.
A. Scope
These Guidelines apply to a [BANK]
that is part of a consolidated or
combined group for federal or state
income tax purposes. These Guidelines
apply only if the [BANK] is subject to
corporate income tax obligations at the
federal or state level and files income
taxes as part of a consolidated group.
B. Preservation of Existing Authority
Neither section 39 of the Federal
Deposit Insurance Act (12 U.S.C.
1831p–1) nor these Guidelines in any
way limits the authority of the
[AGENCY] to address unsafe or
unsound practices or conditions or
other violations of law or regulation.
The [AGENCY] may take action under
section 39 of the FDI Act and these
Guidelines independently of or in
addition to any other supervisory or
enforcement authority available to the
[AGENCY].
C. Definitions
Consolidated group means one or
more [BANKS], any parent holding
company, and any other affiliate that
file federal or state income tax returns
on a consolidated basis.
Deferred tax items mean deferred tax
assets and deferred tax liabilities.
Separate entity basis refers to a
situation where each [BANK] is viewed,
and reports its applicable income taxes
and its deferred tax items, as if it were
a stand-alone legal and accounting
entity for regulatory reporting purposes,
notwithstanding its membership in a
consolidated group. For purposes of this
definition, when a [BANK] has
subsidiaries that are included with the
[BANK] in the consolidated group
return, the [BANK’s] applicable income
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taxes and deferred tax items on a
separate entity basis include the
applicable income taxes and deferred
tax items of its subsidiaries, unless
eliminated in consolidation for
regulatory reporting purposes.
II. General Provisions
A. Purpose. A [BANK] must ensure
that its inclusion in a consolidated or
combined group tax return does not
prejudice the interests of any [BANK]
that is a member of the consolidated
group. For purposes of this standard,
intercorporate tax settlements between a
[BANK] and its parent company do not
prejudice the interests of a [BANK]
provided that the settlements are
conducted in a manner that is no less
favorable to the [BANK] than if it were
a separate taxpayer.
B. Measurement of Current and
Deferred Income Taxes. U.S. generally
accepted accounting principles and
instructions for the preparation of
Reports of Condition and Income
require [BANKS] to provide for their
current tax liability or benefit as well as
for deferred income taxes resulting from
any temporary differences and tax
carryforwards.
1. When the [BANKS] in a
consolidated group prepare separate
regulatory reports, each [BANK] must
record current and deferred taxes as if
it filed its tax returns on a separate
entity basis, regardless of the
consolidated group’s tax paying or
refund status. Adjustments for statutory
tax considerations that arise in a
consolidated return may be made to the
[BANK’s] liability as calculated on a
separate entity basis, as long as they are
made on a consistent and equitable
basis among all members of the
consolidated group.
2. A [BANK] must recognize all of its
deferred tax items, including those
based on or attributable to temporary
differences or net operating loss or tax
credit carryforwards on its separate-
entity regulatory reports, and these
items cannot be presented separate from
the entity that reports the asset or
liability that gave rise to them. A
[BANK] is prohibited from
derecognizing any of its deferred tax
items unless those items are reversed,
are settled through payment to the
[BANK] because the items are absorbed
in a current tax period by the
consolidated tax group, or are
transferred in connection with the
transfer of the associated assets or
liabilities that gave rise to the deferred
tax items.
C. Tax Refunds.
1. A [BANK] that files tax returns as
part of a consolidated group must enter
into a tax allocation agreement that
specifies that a parent company that
receives a tax refund from a taxing
authority obtains these funds as agent
for the [BANK] member whose tax
attributes created the tax refund. This
refund could be the result of a current
year tax loss carried back to years with
taxable income or quarterly payments
made in excess of the current tax
liability owed by the [BANK]. The
agreement must specify that the parent
hold such funds in trust for the
exclusive benefit of the member [BANK]
that owns the funds and must promptly
remit the funds held in trust to such
member [BANK]. The agreement must
also specify that the parent company
does not obtain any ownership interest
in any tax refund because it receives a
tax refund from a taxing authority.
2. If a [BANK’s] loss or credit is used
to reduce the consolidated group’s
overall tax liability, the [BANK] must
reflect the tax benefit of the loss or
credit in the current portion of its
applicable income taxes in the period
the loss or credit is incurred, and the
[BANK] must obtain compensation for
the use of its loss or credit at the time
that it is used. If a [BANK’s] loss or
credit is not absorbed in the current
period by the consolidated group, the
[BANK] must not recognize the tax
benefit in the current portion of its
applicable income taxes in the loss year.
Rather, the tax loss or credit represents
a loss carryforward, the benefit of which
is recognized as a deferred tax asset, net
of any valuation allowance.
3. If a [BANK] would have received a
refund from the taxing authority if it
had filed on a separate entity basis, but
there is no ability to obtain an actual
refund because other members in the
consolidated group had losses that offset
the [BANK’s] separate tax liability for
the previous year, the [BANK] must
obtain no less than its stand-alone
refund amount from the parent
company on or before the date the
[BANK] would have filed its own return
if it had filed on a separate entity basis.
To the extent the group has previously
made a payment to the [BANK] for the
use of its loss by the group, such
amount can offset the amount due.
D. Income Tax Forgiveness
Transaction. A tax allocation agreement
may allow a subsidiary [BANK] to pay
a parent company less than the full
amount of the current income tax
liability that the [BANK] would have
owed if calculated on a separate entity
basis. Provided the parent will not later
require the [BANK] to pay the
remainder of such stand-alone current
tax liability, the [BANK] must account
for this unremitted liability as having
been paid with a simultaneous capital
contribution by the parent to the
[BANK]. In contrast, because a parent
cannot relieve a [BANK] of future tax
liability to a taxing authority, a [BANK]
may not enter into a transaction in
which a parent purports to forgive some
or all of the [BANK’s] deferred tax
liability, through a capital contribution
or otherwise.
III. Intercompany Tax Allocation
Agreements
A. Intercompany Tax Allocation
Agreement. Each [BANK] that is part of
a consolidated group must enter into a
written tax allocation agreement with its
holding company that protects the tax
position of the [BANK] and is consistent
with the principles in Section II and the
terms described below, as well as the
requirements of sections 23A and 23B of
the Federal Reserve Act (12 U.S.C. 371c
and 371c–1). The board of directors, or
a duly authorized committee thereof, of
each [BANK] and each holding
company must approve the tax
allocation agreement.
B. Terms. The tax allocation
agreement must:
1. Expressly state and not contain
language to suggest a contrary intent:
a. That an agency relationship exists
between the [BANK] and its holding
company with respect to tax refunds
and that the [BANK] owns the tax assets
that were created from its tax attributes;
b. That any refund received from the
taxing authority and due to the [BANK]
is held in trust by the holding company;
and
c. That, notwithstanding any other
transactions to the contrary, the [BANK]
must receive promptly any tax refund
attributable to the [BANK’s] tax
attributes.
2. Include the following paragraph or
substantially similar language:
‘‘The [name of holding company] is
an agent for the [name of institution]
(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 [name of holding company]
receives a tax refund [attributable to
income earned, taxes paid, or losses
incurred by the Institution] from a
taxing authority, these funds are
obtained as agent for the Institution.
Any tax refund attributable to income
earned, taxes paid, or losses incurred by
the Institution is the property of and
owned by the Institution, and must be
held in trust by the [name of holding
company] for the benefit of the
Institution. The [name of holding
company] must forward promptly the
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amounts held in trust to the Institution.
Nothing in this agreement is intended to
be or should be construed to provide the
[name of holding company] with an
ownership interest in a tax refund that
is attributable to income earned, taxes
paid, or losses incurred by the
Institution. The [name of 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.’’
3. With respect to tax payments from
the [BANK] to its affiliates:
a. Prohibit payments in excess of the
current period tax expense or
reasonably calculated estimated tax
expense of the [BANK] on a separate
entity basis;
b. Prohibit payment for the settlement
of any deferred tax liabilities of the
[BANK]; and
c. Prohibit payment from occurring
earlier than when the [BANK] would
have been obligated to pay the taxing
authority had it filed as a separate
entity.
d. Provide that if, on the basis of
payments previously made during the
year for estimated tax owed, the [BANK]
would have been entitled to a refund if
it had filed on a separate entity basis,
the affiliate must repay such excess in
an amount equal to the refund the
institution would have been entitled to.
4. State that if a [BANK’s] loss or
credit is used to reduce the consolidated
group’s overall tax liability, the [BANK]
must reflect the tax benefit of the loss
or credit in the current portion of its
applicable income taxes in the period
the loss or credit is incurred, and the
parent company must compensate the
[BANK] for the use of its loss or credit
at the time that it is used.
5. State that all materials, including,
but not limited to, returns, supporting
schedules, workpapers, correspondence,
and other documents relating to the
consolidated federal income tax return
and any consolidated, combined, or
unitary group state or local returns must
be made available on demand to the
[BANK] or any successor during regular
business hours. The tax allocation
agreement must provide that this
obligation will survive any termination
of the tax allocation agreement.
End of Common Proposed Guidelines
on Tax Allocation Agreements
List of Subjects
12 CFR Part 30
Safety and soundness standards.
12 CFR Part 208
Accounting, Agriculture, Banks,
banking, Confidential business
information, Consumer protection,
Crime, Currency, Federal Reserve
System, Flood insurance, Insurance,
Investments, Mortgages, Reporting and
recordkeeping requirements, Securities.
12 CFR Part 364
Banks, banking, Information.
Adoption of Proposed Common
Guidelines
The adoption of the proposed
common guidelines by the agencies, as
modified by the agency-specific text, is
set forth below:
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Chapter I
Authority and Issuance
For the reasons stated in the
SUPPLEMENTARY INFORMATION
, the Office
of the Comptroller of the Currency
proposes to amend part 30 of chapter I
of Title 12, Code of Federal Regulations
as follows:
PART 30—SAFETY AND SOUNDNESS
STANDARDS
1. The authority citation for part 30
continues to read as follows:
Authority: 12 U.S.C. 1, 93a, 371, 1462a,
1463, 1464, 1467a, 1818, 1828, 1831p–1,
1881–1884, 3102(b) and 5412(b)(2)(B); 15
U.S.C. 1681s, 1681w, 6801, and 6805(b)(1).
Appendix F [Added]
2. Amend part 30 by adding Appendix
F as set forth at the end of the common
preamble.
Appendix F [Amended]
3. Amend Appendix F of part 30 by:
a. Removing ‘‘[BANK]’’ and adding in
its place ‘‘national bank or Federal
savings association’’, removing
‘‘[BANKS]’’ and adding in its place
‘‘national banks and Federal savings
associations’’, and removing
‘‘[BANK’s]’’ and adding in its place
‘‘national bank’s or Federal savings
association’s’’ whenever they appear.
b. Removing ‘‘[AGENCY]’’ and adding
in its place ‘‘OCC’’, whenever it appears.
BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
12 CFR Chapter II
Authority and Issuance
For the reasons stated in the
SUPPLEMENTARY INFORMATION
, the Board
proposes to amend chapter II of Title 12,
Code of Federal Regulations as follows:
PART 208—MEMBERSHIP OF STATE
BANKING INSTITUTIONS IN THE
FEDERAL RESERVE SYSTEM
(REGULATION H)
4. The authority citation for part 208
continues to read as follows:
Authority: 12 U.S.C. 24, 36, 92a, 93a,
248(a), 248(c), 321–338a, 371d, 461, 481–486,
601, 611, 1814, 1816, 1817(a)(3), 1817(a)(12),
1818, 1820(d)(9), 1833(j), 1828(o), 1831,
1831o, 1831p–1, 1831r–1, 1831w, 1831x,
1835a, 1882, 2901–2907, 3105, 3310, 3331–
3351, 3905–3909, 5371, and 5371 note; 15
U.S.C. 78b, 78I(b), 78l(i), 780–4(c)(5), 78q,
78q–1, 78w, 1681s, 1681w, 6801, and 6805;
31 U.S.C. 5318; 42 U.S.C. 4012a, 4104a,
4104b, 4106, and 4128.
Appendix D–3 [Added]
5. Amend part 208 by adding
Appendix D–3 as set forth at the end of
the common preamble:
Appendix D–3 [Amended]
6. Amend Appendix D–3 of part 208
by:
a. Removing ‘‘[BANK]’’ and adding in
its place ‘‘state member bank’’,
removing ‘‘[BANK]’’ and adding in its
place ‘‘state member banks’’, and
removing ‘‘[BANK’s]’’ and adding in its
place ‘‘state member bank’s’’, whenever
it appears.
b. Removing ‘‘[AGENCY]’’ and adding
in its place ‘‘Board’’ whenever it
appears.
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Chapter III
Authority and Issuance
For the reasons set forth in the
common preamble, the Federal Deposit
Insurance Corporation proposes to
amend part 364 of chapter III of title 12
of the Code of Federal Regulations as
follows:
PART 364—STANDARDS FOR SAFETY
AND SOUNDNESS
7. The authority citation for part 364
continues to read as follows:
Authority: 12 U.S.C. 1818 and 1819
(Tenth), 1831p–1; 15 U.S.C. 1681b, 1681s,
1681w, 6801(b), 6805(b)(1).
Appendix C [Added]
8. Amend part 364 by adding
Appendix C as set forth at the end of the
common preamble.
Appendix C [Amended]
9. Amend Appendix C of part 364 by:
a. Removing ‘‘[BANK]’’ and adding in
its place ‘‘FDIC-supervised institution’’,
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1
See 18 U.S.C. 709 (‘‘Whoever, except as
expressly authorized by Federal law, uses the words
‘Federal Deposit’, Federal Deposit Insurance’, or
‘Federal Deposit Insurance Corporation’ or a
combination of any three of these words, as the
name or a part thereof under which he or it does
business, or advertises or otherwise represents
falsely by any device whatsoever that his or its
deposit liabilities, obligations, certificates, or shares
are insured or guaranteed by the Federal Deposit
Insurance Corporation, or by the United States or
by any instrumentality thereof, or whoever
advertises that his or its deposits, shares, or
accounts are federally insured, or falsely advertises
or otherwise represents by any device whatsoever
the extent to which or the manner in which the
deposit liabilities of an insured bank or banks are
insured by the Federal Deposit Insurance
Corporation . . . Shall be punished . . . by a fine
under this title or imprisonment for not more than
one year . . .’’).
removing ‘‘[BANKS]’’ and adding in its
place ‘‘FDIC-supervised institutions’’,
and removing ‘‘[BANK’s]’’ and adding
in its place ‘‘FDIC-supervised
institution’s’’, whenever it appears.
b. Removing ‘‘[AGENCY]’’ and adding
in its place ‘‘FDIC’’ whenever it appears.
Blake J. Paulson,
Acting Comptroller of the Currency.
By order of the Board of Governors of the
Federal Reserve System.
Ann E. Misback,
Secretary of the Board.
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, on April 21,
2021.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2021–09047 Filed 5–7–21; 8:45 am]
BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 328
RIN 3064–AF71
False Advertising, Misrepresentation
of Insured Status, and Misuse of the
FDIC’s Name or Logo
AGENCY
: Federal Deposit Insurance
Corporation.
ACTION
: Notice of proposed rulemaking
and request for information.
SUMMARY
: The Federal Deposit
Insurance Corporation is seeking
comment on a proposed rule to
implement section 18(a)(4) of the
Federal Deposit Insurance Act. Section
18(a)(4) of the Federal Deposit Insurance
Act prohibits any person from making
false or misleading representations
about deposit insurance or from using
the Federal Deposit Insurance
Corporation’s name or logo in a manner
that would imply that an uninsured
financial product is insured or
guaranteed by the Federal Deposit
Insurance Corporation. The proposed
rule would describe: The process by
which the Federal Deposit Insurance
Corporation will identify and
investigate conduct that may violate
section 18(a)(4) of the Federal Deposit
Insurance Act; the standards under
which such conduct will be evaluated;
and the procedures which the Federal
Deposit Insurance Corporation will
follow when formally and informally
enforcing the provisions of section
18(a)(4) of the Federal Deposit Insurance
Corporation Act.
DATES
: Comments are due on or before
July 9, 2021. Comments on the
Paperwork Reduction Act burden
estimates are due on or before July 9,
2021.
ADDRESSES
: You may submit comments,
identified by RIN 3064–AF71, by any of
the following methods:
FDIC website: https://www.fdic.gov/
regulations/laws/federal/. Follow
instructions for submitting comments
on the agency website.
FDIC Email: Comments@fdic.gov.
Include RIN 3064–AF71 on the subject
line of the message.
Mail: James P. Sheesley, Assistant
Executive Secretary, Legal-ESS,
Attention: Comments—RIN 3064–AF71,
Federal Deposit Insurance Corporation,
550 17th Street NW, Washington, DC
20429.
Hand Delivery/Courier: Comments
may be hand-delivered to the guard
station at the rear of the 550 17th Street
NW building (located on F Street) on
business days between 7 a.m. and 5 p.m.
Please include your name, affiliation,
address, email address, and telephone
number(s) in your comment. All
statements received, including
attachments and other supporting
materials, are part of the public record
and are subject to public disclosure.
You should submit only information
that you wish to make publicly
available.
Please note: All comments received will be
posted generally without change to https://
www.fdic.gov/regulations/laws/federal/,
including any personal information
provided.
FOR FURTHER INFORMATION CONTACT
:
Richard M. Schwartz, Counsel, Legal
Division, (202) 898–7424; Michael P.
Farrell, Counsel, Legal Division, (202)
898–3853, Federal Deposit Insurance
Corporation, 550 17th Street NW,
Washington, DC 20429.
SUPPLEMENTARY INFORMATION
:
I. Policy Objectives
Section 18(a)(4) of the Federal Deposit
Insurance Act, 12 U.S.C. 1828(a)(4),
(Section 18(a)(4)) prohibits any person
from misusing the name or logo of the
Federal Deposit Insurance Corporation
(FDIC) or from engaging in false
advertising or making knowing
misrepresentations about deposit
insurance. The FDIC has observed an
increasing number of instances where
financial services providers or other
entities or individuals have misused the
FDIC’s name or logo or have made false
or misleading representations that
would suggest to the public that these
providers’ products are FDIC-insured.
To provide transparency into how the
FDIC will address these and similar
concerns, the FDIC is proposing to
adopt regulations to further clarify its
procedures for identifying,
investigating, and where necessary
taking formal and informal action to
address potential violations of Section
18(a)(4). The regulations would also
establish a point-of-contact for receiving
complaints about potentially false or
misleading representations regarding
deposit insurance and would direct
depositors and prospective depositors to
where they could obtain information or
verification about deposit insurance
claims. Although the FDIC is not
required to promulgate regulations to
implement section 18(a)(4), the FDIC
nonetheless believes that the proposed
rule, if adopted, would establish a more
transparent process that will benefit all
parties and would promote stability and
confidence in FDIC deposit insurance
and the nation’s financial system.
II. Background
The FDIC has steadfastly and
proactively sought to protect depositors
and prospective depositors by limiting
use of the FDIC’s name, seal, and logo
to insured depository institutions (IDIs)
and preventing false and misleading
representations about the manner and
extent of FDIC deposit insurance
(deposit insurance). Under Federal law,
it is a criminal offense to misuse the
FDIC name or make false
representations regarding deposit
insurance.
1
Moreover, the FDIC has
independent authority to investigate
and take administrative enforcement
actions, including the power to issue
cease and desist orders and impose civil
money penalties, against any person
who: (1) Falsely represents or implies
that any deposit liability, obligation,
certificate, or share is insured by the
FDIC; or (2) otherwise knowingly
misrepresents: (a) That any deposit
liability, obligation, certificate, or share
is insured, or (b) the extent or manner
VerDate Sep<11>2014 16:59 May 07, 2021 Jkt 253001 PO 00000 Frm 00021 Fmt 4702 Sfmt 4702 E:\FR\FM\10MYP1.SGM 10MYP1
khammond on DSKJM1Z7X2PROD with PROPOSALS

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