Agencies say proposal updates, codifies guidance on tax allocation agreements, protecting banks and insurance fund

Banks 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 their consolidated group under a proposed rule announced Thursday by federal banking regulators.

The proposed rule, issued by the Federal Deposit Insurance Corp. (FDIC), Federal Reserve, and Office of the Comptroller of the Currency (OCC), would also describe the provisions required to be included in those agreements and specifies regulatory reporting treatment, the agencies said.

The agencies last updated their joint statement on tax allocation agreements in 2014. According to a Federal Reserve memorandum, the policy statement is not enforceable, causing losses for the FDIC in some receiverships.

“Adopting a rule on tax allocation agreements should help to avoid the situation where significant amounts of tax refunds become trapped at depository institution holding companies in connection with a bank failure, potentially reducing resolution-related costs to the Deposit Insurance Fund,” according to the memorandum.

It said the proposal would require a depository institution to enter into a written, comprehensive tax allocation agreement with its holding company. It said this would protect the depository institution’s ownership rights in tax refunds that are attributable to the depository institution; and would promote safety and soundness by requiring that a depository institution be compensated for the use of its tax assets by its affiliates.

The proposed rule will be out for comment for 60 days following its publication in the Federal Register.

Agencies invite comment on proposed rule for income tax allocation agreements