Federal Register Vol. 63, No. 225Monday, November 23, 1998Notices by nks54907

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									                      Federal Register / Vol. 63, No. 225 / Monday, November 23, 1998 / Notices                             64757

DEPARTMENT OF THE TREASURY                  Accountant, (202/874–4933), or Tom          the policies and guidelines themselves,
                                            Rees, Senior Accountant, (202/874–          the Agencies determined that it would
Office of the Comptroller of the            5411), Office of the Chief Accountant,      be beneficial to adopt a uniform
Currency                                    Core Policy Division, Office of the         interagency policy statement regarding
[Docket No. 98–17]                          Comptroller of the Currency, 250 E          intercorporate tax allocation in a
                                            Street, SW, Washington, DC 20219.           holding company structure.
FEDERAL RESERVE SYSTEM                        Board: Charles Holm, Manager, (202/
                                            452–3502), or Arthur Lindo,                 II. Policy Statement
[Docket No. R–1022]                         Supervisory Financial Analyst, (202/           This interagency policy statement
                                            452–2695), Division of Banking              reiterates and clarifies the position the
FEDERAL DEPOSIT INSURANCE                   Supervision and Regulation, Board of
CORPORATION                                                                             Agencies will take as they carry out
                                            Governors of the Federal Reserve            their supervisory responsibilities for
DEPARTMENT OF THE TREASURY                  System, 20th and C Streets, NW,             institutions regarding the allocation and
                                            Washington, DC 20551. For the hearing       payment of income taxes by institutions
Office of Thrift Supervision                impaired only, Telecommunication            that are members of a group filing a
                                            Device for the Deaf (TDD), Diane Jenkins    consolidated return. The interagency
[Docket No. 98–93]                          (202/452–3544).                             policy statement reaffirms that
                                              FDIC: For supervisory issues, Robert      intercorporate tax settlements between
Interagency Policy Statement on             F. Storch, Chief, (202/898–8906), or
Income Tax Allocation in a Holding                                                      an institution and the consolidated
                                            Carol L. Liquori, Examination               group should result in no less favorable
Company Structure                           Specialist, (202/898–7289), Accounting      treatment to the institution than if it had
AGENCIES:  Office of the Comptroller of     Section, Division of Supervision; for       filed its income tax return as a separate
the Currency, Treasury; Board of            legal issues, Jamey Basham, Counsel,        entity. Accordingly, tax remittances
Governors of the Federal Reserve            (202/898–7265), Legal Division, FDIC,       from a subsidiary institution to its
System; Federal Deposit Insurance           550 17th Street, NW, Washington, DC         parent for its current tax expense should
Corporation; and Office of Thrift           20429.                                      not exceed the amount the institution
Supervision, Treasury.                        OTS: Timothy J. Stier, Chief
                                                                                        would have paid had it filed separately.
                                            Accountant, (202/906–5699), or
ACTION: Notice of interagency policy                                                    The payments by the subsidiary to the
                                            Christine Smith, Capital and
statement.                                                                              parent generally should not be made
                                            Accounting Policy Analyst, (202/906–
                                            5740), Accounting Policy Division,          before the subsidiary would have been
SUMMARY: The Office of the Comptroller                                                  obligated to pay the taxing authority had
of the Currency (OCC), the Board of         Office of Thrift Supervision, 1700 G
                                            Street, NW, Washington, DC 20552.           it filed as a separate entity. Similarly, an
Governors of the Federal Reserve                                                        institution incurring a tax loss should
System (Board), the Federal Deposit         SUPPLEMENTARY INFORMATION:
                                                                                        receive a refund from its parent. The
Insurance Corporation (FDIC), and the       I. Background                               refund should be in an amount no less
Office of Thrift Supervision (OTS)                                                      than the amount the institution would
(collectively, the Agencies) are adopting      Section 303(a)(3) of the of the CDRI
                                            Act directs the Agencies, consistent        have received as a separate entity,
a uniform interagency policy statement                                                  regardless of whether the consolidated
regarding intercompany tax allocation       with the principles of safety and
                                            soundness, statutory law and policy,        group is receiving a refund. However,
agreements for banking organizations                                                    adjustments for statutory tax
and savings associations (institutions)     and the public interest, to work jointly
                                            to make uniform regulations and             considerations which may arise in a
that file an income tax return as                                                       consolidated return are permitted as
                                            guidelines implementing common
members of a consolidated group. The                                                    long as the adjustments are made on a
                                            statutory or supervisory policies.
intent of this interagency policy                                                       basis that is equitable and consistently
                                            Section 303(a)(1) of the CDRI Act also
statement is to provide guidance to                                                     applied among the holding company
                                            requires the Agencies to review their
institutions regarding the allocation and                                               affiliates. Regardless of the method used
                                            regulations and written policies and to
payment of taxes among a holding                                                        to settle intercorporate income tax
                                            streamline those regulations where
company and its depository institution                                                  obligations, when depository institution
                                            possible.
subsidiaries. In general, intercorporate       In 1978, the FDIC, the OCC, and the      members prepare regulatory reports,
tax settlements between an institution      Board each published a separate policy      they must provide for current and
and its parent company should be            statement regarding the allocation and      deferred income taxes in amounts that
conducted in a manner that is no less       payment of income taxes by depository       would be reflected as if the institution
favorable to the institution than if it     institutions which are members of a         had filed on a separate entity basis.
were a separate taxpayer. This policy       group filing a consolidated income tax         An institution should not pay its
statement is the result of the Agencies’    return. The OTS provides supervisory        deferred tax liabilities or the deferred
ongoing effort to implement section 303     guidance on this subject in its Holding     portion of its applicable income taxes to
of the Riegle Community Development         Company Handbook. As part of the            its parent since these are not liabilities
and Regulatory Improvement Act of           ongoing effort to fulfill the section 303   required to be paid in the current
1994 (CDRI Act), which requires the         mandate, the Agencies have reviewed,        reporting period. Similarly, transactions
Agencies to work jointly to make            both internally and on an interagency       in which a parent ‘‘forgives’’ any
uniform their regulations and guidelines    basis, the present policy statements and    portion of a subsidiary institution’s
implementing common statutory or            the supervisory guidance that has           deferred tax liability should not be
supervisory policies.                       developed over the years. As a result of    reflected in the institution’s regulatory
DATES: This interagency policy              this review, the Agencies identified        reports. This is because a parent cannot
statement is effective November 23,         minor inconsistencies in the policy         relieve its subsidiary of this potential
1998.                                       statements and supervisory guidance.        future obligation to the taxing
FOR FURTHER INFORMATION CONTACT:            Although largely limited to differences     authorities, since these authorities can
OCC: Gene Green, Deputy Chief               in language and not to the substance of     collect some or all of a group liability
64758                       Federal Register / Vol. 63, No. 225 / Monday, November 23, 1998 / Notices

from any of the group members if tax                     consistent with this policy statement         group. The allocation method should be
payments are not made when due.                          may be viewed as an unsafe and                based upon the portion of tax
   Finally, the Agencies recommend that                  unsound practice prompting either             preferences, adjustments, and other
financial institution members of a                       informal or formal corrective action.         items generated by each group member
consolidated group have a written,                                                                     which causes the AMT to be applicable
comprehensive tax allocation agreement                   Tax Sharing Agreements
                                                                                                       at the consolidated level.
to address intercorporate tax policies                      A holding company and its subsidiary
and procedures.                                          institutions are encouraged to enter into     Tax Payments to the Parent Company
   This interagency policy statement                     a written, comprehensive tax allocation          Tax payments from a subsidiary
revises and replaces the Board’s ‘‘Policy                agreement tailored to their specific          institution to the parent company
Statement on Intercorporate Income Tax                   circumstances. The agreement should be        should not exceed the amount the
Accounting Transactions of Bank                          approved by the respective boards of          institution has properly recorded as its
Holding Companies and State Member                       directors. Although each agreement will       current tax expense on a separate entity
Banks,’’ (43 FR 22782, May 26, 1978);                    be different, tax allocation agreements       basis. Furthermore, such payments,
the OCC’s ‘‘Statement of Policy on                       usually address certain issues common         including estimated tax payments,
Income Tax Remittance to Holding                         to consolidated groups. Therefore, such       generally should not be made before the
Company Affiliates,’’ (Banking Circular                  an agreement should:                          institution would have been obligated to
No. 105, May 22, 1978); the FDIC’s                          • Require a subsidiary depository          pay the taxing authority had it filed as
Statement of Policy on ‘‘Income Tax                      institution to compute its income taxes       a separate entity. Payments made in
Remittance by Banks to Holding                           (both current and deferred) on a              advance may be considered extensions
Company Affiliates’’ (43 FR 22241, May                   separate entity basis;                        of credit from the subsidiary to the
24, 1978); and the OTS’s ‘‘OTS Tax-                         • Discuss the amount and timing of         parent and may be subject to affiliate
Sharing Policy,’’ (Section 500, ‘‘Funds                  the institution’s payments for current        transaction rules, i.e., Sections 23A and
Distribution,’’ OTS Holding Companies                    tax expense, including estimated tax          23B of the Federal Reserve Act.
Handbook). This interagency policy                       payments;                                        A subsidiary institution should not
statement does not materially change                        • Discuss reimbursements to an             pay its deferred tax liabilities or the
any of the guidance previously issued                    institution when it has a loss for tax        deferred portion of its applicable
by any of the Agencies.                                  purposes; and                                 income taxes to the parent. The deferred
   The text of the interagency policy                       • Prohibit the payment or other            tax account is not a tax liability required
statement follows:                                       transfer of deferred taxes by the             to be paid in the current reporting
                                                         institution to another member of the          period. As a result, the payment of
Interagency Policy Statement on                          consolidated group.                           deferred income taxes by an institution
Income Tax Allocation in a Holding
                                                         Measurement of Current and Deferred           to its holding company is considered a
Company Structure
                                                         Income Taxes                                  dividend subject to dividend
  The Federal Deposit Insurance                                                                        restrictions,2 not the extinguishment of
Corporation, the Board of Governors of                      Generally accepted accounting
                                                                                                       a liability. Furthermore, such payments
the Federal Reserve System, the Office                   principles, instructions for the
                                                                                                       may constitute an unsafe and unsound
of the Comptroller of the Currency, and                  preparation of both the Thrift Financial
                                                                                                       banking practice.
the Office of Thrift Supervision (‘‘the                  Report and the Reports of Condition and
Agencies’’) are issuing this policy                      Income, and other guidance issued by          Tax Refunds From the Parent Company
statement to provide guidance to                         the Agencies require depository                  An institution incurring a loss for tax
banking organizations and savings                        institutions to provide for their current     purposes should record a current
associations regarding the allocation                    tax liability or benefit. Institutions also   income tax benefit and receive a refund
and payment of taxes among a holding                     must provide for deferred income taxes        from its parent in an amount no less
company and its subsidiaries. A holding                  resulting from any temporary                  than the amount the institution would
company and its depository institution                   differences and tax carryforwards.            have been entitled to receive as a
subsidiaries will often file a                              When the depository institution            separate entity. The refund should be
consolidated group income tax return.                    members of a consolidated group               made to the institution within a
However, each depository institution is                  prepare separate regulatory reports, each     reasonable period following the date the
viewed as, and reports as, a separate                    subsidiary institution should record          institution would have filed its own
legal and accounting entity for                          current and deferred taxes as if it files     return, regardless of whether the
regulatory purposes. Accordingly, each                   its tax returns on a separate entity basis,   consolidated group is receiving a
depository institution’s applicable                      regardless of the consolidated group’s        refund. If a refund is not made to the
income taxes, reflecting either an                       tax paying or refund status. Certain          institution within this period, the
expense or benefit, should be recorded                   adjustments for statutory tax                 institution’s primary federal regulator
as if the institution had filed on a                     considerations that arise in a                may consider the receivable as either an
separate entity basis.1 Furthermore, the                 consolidated return, e.g., application of     extension of credit or a dividend from
amount and timing of payments or                         graduated tax rates, may be made to the       the subsidiary to the parent. A parent
refunds should be no less favorable to                   separate entity calculation as long as        company may reimburse an institution
the subsidiary than if it were a separate                they are made on a consistent and             more than the refund amount it is due
taxpayer. Any practice that is not                       equitable basis among the holding             on a separate entity basis. Provided the
                                                         company affiliates.
   1 Throughout this policy statement, the terms            In addition, when an organization’s           2 These restrictions include the Prompt Corrective

‘‘separate entity’’ and ‘‘separate taxpayer’’ are used   consolidated income tax obligation            Action provisions of section 38(d)(1) of the Federal
synonymously. When a depository institution has          arising from the alternative minimum          Deposit Insurance Act (12 U.S.C. 1831o(d)(1)) and
subsidiaries of its own, the institution’s applicable    tax (AMT) exceeds its regular tax on a        its implementing regulations: for insured state
income taxes on a separate entity basis include the                                                    nonmember banks, 12 CFR part 325, subpart B; for
taxes of the subsidiaries of the institution that are
                                                         consolidated basis, the excess should be      national banks, 12 CFR 6.6; for savings associations,
included with the institution in the consolidated        consistently and equitably allocated          12 CFR part 565; and for state member banks, 12
group return.                                            among the members of the consolidated         CFR 208.45.
                           Federal Register / Vol. 63, No. 225 / Monday, November 23, 1998 / Notices                              64759

institution will not later be required to      subsidiary of a potential future                SUPPLEMENTARY INFORMATION:       Customs
repay this excess amount to the parent,        obligation to the taxing authorities.           invites the general public and other
the additional funds received should be        Although the subsidiaries have no direct        Federal agencies to comment on
reported as a capital contribution.            obligation to remit tax payments to the         proposed and/or continuing information
   If the institution, as a separate entity,   taxing authorities, these authorities can       collections pursuant to the Paperwork
would not be entitled to a current             collect some or all of a group liability        Reduction Act of 1995 (Pub. L. 104–13;
refund because it has no carryback             from any of the group members if tax            44 U.S.C. 3505(c)(2)). The comments
benefits available on a separate entity        payments are not made when due.                 should address: (1) Whether the
basis, its holding company may still be                                                        collection of information is necessary
                                                 Dated: October 14, 1998.
able to utilize the institution’s tax loss                                                     for the proper performance of the
                                               Julie L. Williams,
to reduce the consolidated group’s                                                             functions of the agency, including
current tax liability. In this situation,      Acting Comptroller of the Currency.
                                                                                               whether the information shall have
the holding company may reimburse the            By order of the Board of Governors of the     practical utility; (b) the accuracy of the
institution for the use of the tax loss. If    Federal Reserve System, October 29, 1998.
                                                                                               agency’s estimates of the burden of the
the reimbursement will be made on a            Jennifer J. Johnson,                            collection of information; (c) ways to
timely basis, the institution should           Secretary of the Board.                         enhance the quality, utility, and clarity
reflect the tax benefit of the loss in the       By order of the Board of Directors.           of the information to be collected; (d)
current portion of its applicable income         Dated at Washington, DC, this 5th day of      ways to minimize the burden including
taxes in the period the loss is incurred.      November, 1998.                                 the use of automated collection
Otherwise, the institution should not          Federal Deposit Insurance Corporation.          techniques or the use of other forms of
recognize the tax benefit in the current       Robert E. Feldman,                              information technology; and (e)
portion of its applicable income taxes in      Executive Secretary.                            estimates of capital or start-up costs and
the loss year. Rather, the tax loss                                                            costs of operations, maintenance, and
                                                 Dated: October 14, 1998.
represents a loss carryforward, the                                                            purchase of services to provide
benefit of which is recognized as a              By the Office of Thrift Supervision.
                                               Ellen Seidman,
                                                                                               information. The comments that are
deferred tax asset, net of any valuation                                                       submitted will be summarized and
allowance.                                     Director.
                                                                                               included in the Customs request for
   Regardless of the treatment of an           [FR Doc. 98–31179 Filed 11–20–98; 8:45 am]      Office of Management and Budget
institution’s tax loss for regulatory          BILLING CODE 4810–13–P, 6210–01–P, 6714–01–P,   (OMB) approval. All comments will
reporting and supervisory purposes, a          6720–01–P
                                                                                               become a matter of public record. In this
parent company that receives a tax                                                             document Customs is soliciting
refund from a taxing authority obtains                                                         comments concerning the following
these funds as agent for the consolidated      DEPARTMENT OF THE TREASURY
                                                                                               information collection:
group on behalf of the group members.3
                                               Customs Service                                   Title: Lay Order Period—General
Accordingly, an organization’s tax
allocation agreement or other corporate                                                        Order Merchandise Cost Submissions.
                                               Proposed Collection; Comment                      OMB Number: 1515–0220.
policies should not purport to                 Request; Lay Order Period—General
characterize refunds attributable to a         Order Merchandise                                 Form Number: N/A.
subsidiary depository institution that                                                           Abstract: This collection is required
the parent receives from a taxing                    Notice and request for
                                               ACTION:                                         to ensure that the operator of an arriving
authority as the property of the parent.       comments.                                       carrier, or transfer agent shall notify a
                                                                                               bonded warehouse proprietor of the
Income Tax Forgiveness Transactions            SUMMARY:   As part of its continuing effort     presence of merchandise that has
   A parent company may require a              to reduce paperwork and respondent              remained at the place of arrival or
subsidiary institution to pay it less than     burden, Customs invites the general             unlading without entry beyond the time
the full amount of the current income          public and other Federal agencies to            period provided for by regulation.
tax liability that the institution             comment on an information collection              Current Actions: There are no changes
calculated on a separate entity basis.         requirement concerning Lay Order                to the information collection. This
Provided the parent will not later             Period—General Order Merchandise.               submission is being submitted to extend
require the institution to pay the             This request for comment is being made          the expiration date.
remainder of the current tax liability,        pursuant to the Paperwork Reduction
                                                                                                 Type of Review: Extension (without
the amount of this unremitted liability        Act of 1995 (Pub. L. 104–13; 44 U.S.C.
                                                                                               change).
should be accounted for as having been         3505(c)(2)).
paid with a simultaneous capital                                                                 Affected Public: Businesses,
                                               DATES: Written comments should be               Individuals, Institutions.
contribution by the parent to the              received on or before January 22, 1999,
subsidiary.                                                                                      Estimated Number of Respondents:
                                               to be assured of consideration.
   In contrast, a parent cannot make a                                                         300.
capital contribution to a subsidiary           ADDRESS: Direct all written comments to           Estimated Time Per Respondent: 15
institution by ‘‘forgiving’’ some or all of    U.S. Customs Service, Information               hours.
the subsidiary’s deferred tax liability.       Services Group, Attn.: J. Edgar Nichols,          Estimated Total Annual Burden
Transactions in which a parent                 1300 Pennsylvania Avenue, NW, Room              Hours: 7,500.
‘‘forgives’’ any portion of a subsidiary       3.2C, Washington, DC 20229.
                                                                                                 Estimated Total Annualized Cost to
institution’s deferred tax liability should    FOR FURTHER INFORMATION CONTACT:                the Public: N/A.
not be reflected in the institution’s          Requests for additional information
                                                                                                  Dated: November 16, 1998.
regulatory reports. These transactions         should be directed to U.S. Customs
lack economic substance because the            Service, Attn.: J. Edgar Nichols, 1300          J. Edgar Nichols,
parent cannot legally relieve the              Pennsylvania Avenue NW, Room 3.2C,              Team Leader, Information Services Group.
                                               Washington, DC 20229, Tel. (202) 927–           [FR Doc. 98–31237 Filed 11–20–98; 8:45 am]
 3 See   26 CFR 1.1502–77(a).                  1426.                                           BILLING CODE 4820–02–P

								
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