Tax Allocation Agreements

• Published date: 10 May 2021
• Citation: 86 FR 24755
• Record Number: 2021-09047
• Section: Proposed rules
• Court: Federal Reserve System,The Comptroller Of The Currency Office,Treasury Department

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

Deputy Assistant Secretary and Acting

Assistant Secretary for Energy Efficiency

and Renewable Energy, pursuant to

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Signed in Washington, DC, on May 4, 2021.

Treena V. Garrett,

Federal Register Liaison Officer, U.S.

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

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