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US Banking Regulators Issue Additional Guidance Regarding Tax Allocation Agreements in Holding Company Structures

Scott A. Anenberg
Mayer Brown LLP - Washington Office

Hayden D. Brown
Mayer Brown LLP - Charlotte Office

J. Paul Forrester
Mayer Brown LLP - Chicago Office

June 30, 2014

Previously published on June 20, 2014

US banking regulators (the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency) have issued final joint supplemental guidance (Guidance) regarding tax allocation agreements involving holding companies and their insured depository institution subsidiaries. The June 19, 2014, Guidance is virtually identical to proposed guidance issued in December, 2013.

The Guidance is a response to recent litigation involving holding companies in bankruptcy and their failed depository institutions; some courts have concluded that tax refunds generated by the depository institution and held by the holding company pursuant to the tax allocation agreement were property of the holding company.

It supplements a 1998 interagency policy statement on income tax allocations issued by the regulators that states, among other things, that a holding company that receives a tax refund from a taxing authority obtains these funds as agent for its subsidiary insured depository institutions and other affiliates. The Guidance supplements the policy statement by instructing insured depository institutions and their holding companies to review their tax allocation agreements to ensure the agreements expressly acknowledge that the holding company receives any tax refunds as an agent and that they do not contain other language that suggests a contrary intent. In addition, all banking organizations are instructed to insert specific language, an example of which is included in the Guidance, in their tax allocation agreements to further clarify tax refund ownership.

The Guidance also highlights application of sections 23A and 23B of the Federal Reserve Act, which establish certain restrictions on, and requirements for, transactions between depository institutions and their affiliates, to tax allocation agreements. For example, the Guidance suggests that if tax allocation agreements do not contain the required agency language, a bank subsidiary could be deemed to have extended credit to its holding company, triggering the numerical limitations and collateral requirements of section 23A. Similarly, the Guidance notes that an agreement would likely violate the “arms length” requirements of section 23B if it did not require the holding company to “promptly” transmit tax refunds attributable to the depository institution subsidiary to that subsidiary.

Institutions and holding companies should implement the Guidance as soon as reasonably possible, which the regulators expect would not be later than October 31, 2014.


The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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