Pub. 4 2015 Issue 7

l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s 28 TAX CONSIDERATIONS FOR 2014 & 2015 By BrianMall, BKD, LLP bmall@bkd.com Here are some significant tax changes that could impact your bank and its shareholders. LB&I Directive Traditionally, banks have disputed with the IRS about when the bank is entitled to a charge-off deduction for tax purposes. In general, banks have argued the tax deduction should mirror when the financial and regulatory guidance requires a book charge-off. The IRS has consistently taken the stance that a charge-off for financial and regulatory purposes does not make the debt worthless for tax purposes. As banks determine charge- offs on a secured loan by comparing the excess of the carrying value of the loan to the fair-market value of the collateral, banks usually factor estimated selling cost into the fair-market value. This estimated selling cost has also been an area of contention. As a result, a traditional IRS bank examination has proven timeconsuming and costly for banks. On October 24, 2014, the IRS released a new directive instructing IRS examiners not to challenge the charge-offs and selling costs on eligible debt and eligible debt securities. This applies both to banks and bank subsidiaries. For this directive to apply to your bank, the bank must adopt the directive no later than a tax year beginning in 2014 and be applied consistently to years going forward. To adopt the directive, banks simply must provide a certification statement within 30 days after the IRS agent requests the statement. Accordingly, banks still can adopt this on their 2014 tax return even if they have already filed, as nothing needs to be included in the 2014 tax return. Overall, this is a bank-friendly directive and should prove valuable in reducing the time spent during an IRS examination. Please note: The directive is not law and can be revoked by the IRS at any time, and it does not pertain to small banks using the reserve method of accounting under IRC Section 585. Therefore, banks that would be adopting the directive would be