Proposed Rule2023-28589
Bad Debt Deductions for Regulated Financial Companies and Members of Regulated Financial Groups
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
December 28, 2023
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains proposed regulations that would provide guidance regarding whether a debt instrument is worthless for Federal income tax purposes. The proposed regulations are necessary to update the standard for determining when a debt instrument held by a regulated financial company or a member of a regulated financial group will be conclusively presumed to be worthless. The proposed regulations will affect regulated financial companies and members of regulated financial groups that hold debt instruments.
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<title>Federal Register, Volume 88 Issue 248 (Thursday, December 28, 2023)</title>
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[Federal Register Volume 88, Number 248 (Thursday, December 28, 2023)]
[Proposed Rules]
[Pages 89636-89644]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-28589]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-121010-17]
RIN 1545-BO11
Bad Debt Deductions for Regulated Financial Companies and Members
of Regulated Financial Groups
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed regulations that would provide
guidance regarding whether a debt instrument is worthless for Federal
income tax purposes. The proposed regulations are necessary to update
the standard for determining when a debt instrument held by a regulated
financial company or a member of a regulated financial group will be
conclusively presumed to be worthless. The proposed regulations will
affect regulated financial companies and members of regulated financial
groups that hold debt instruments.
DATES: Written or electronic comments and requests for a public hearing
must be received by February 26, 2024.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically via the Federal eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a> (indicate IRS and REG-121010-17) by following the
online instructions for submitting comments. Requests for a public
hearing must be submitted as prescribed in the ``Comments and Requests
for a Public Hearing'' section. Once submitted to the Federal
eRulemaking Portal, comments cannot be edited or withdrawn. The
Department of the Treasury (Treasury Department) and the IRS will
publish for public availability any comments submitted to the IRS's
public docket. Send paper submissions to: CC:PA:01:PR (REG-121010-17),
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Stephanie D. Floyd at (202) 317-7053; concerning submissions of
comments and requesting a hearing, Vivian Hayes at (202) 317-6901 (not
toll-free numbers) or by email to <a href="/cdn-cgi/l/email-protection#d7a7a2b5bbbeb4bfb2b6a5beb9b0a497bea5a4f9b0b8a1"><span class="__cf_email__" data-cfemail="28585d4a44414b404d495a41464f5b68415a5b064f475e">[email protected]</span></a> (preferred).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed amendments to the Income Tax
Regulations (26 CFR part 1) under section 166 of the Internal Revenue
Code (Code). These proposed amendments (proposed regulations) would
update the standard in the current regulations under Sec. 1.166-2
(existing regulations) for determining when a debt instrument held by a
regulated financial company or a member of a regulated financial group
will be conclusively presumed to be worthless.
1. Existing Rules
Section 166(a)(1) provides that a deduction is allowed for any debt
that becomes worthless within the taxable year. Section 166(a)(2)
permits the Secretary of the Treasury or her delegate (Secretary) to
allow a taxpayer to deduct a portion of a partially worthless debt that
does not exceed the amount charged-off within the taxable year. The
existing regulations do not define ``worthless.'' In determining
whether a debt is worthless in whole or in part, the IRS considers all
pertinent evidence, including the value of any collateral securing the
debt and the financial condition of the debtor. See Sec. 1.166-2(a).
The existing regulations provide further that, when the surrounding
circumstances indicate that a debt is worthless and uncollectible and
that legal action to enforce payment would in all probability not
result in the satisfaction of execution on a judgment, legal action is
not required in order to determine that the debt is worthless. See
Sec. 1.166-2(b).
The existing regulations provide two alternative conclusive
presumptions of worthlessness for bad debt. First, Sec. 1.166-2(d)(1)
generally provides that if a bank or other corporation subject to
supervision by Federal authorities, or by State authorities maintaining
substantially equivalent standards, charges off a debt in whole or in
part, either (1) in obedience to the specific orders of such
authorities, or (2) in accordance with the established policies of such
authorities, and such authorities at the first audit subsequent to the
charge-off confirm in writing that the charge-off would have been
subject to specific orders, then the debt is conclusively presumed to
have become worthless, in whole or in part, to the extent charged off
during the taxable year.
Second, Sec. 1.166-2(d)(3) generally provides that a bank (but not
other corporations) subject to supervision by Federal authorities, or
by State authorities maintaining substantially equivalent standards,
may elect to use a method of accounting that establishes a conclusive
presumption of worthlessness for debts, provided the bank's supervisory
authority has made an express determination that the bank maintains and
applies loan loss classification standards that are consistent with the
regulatory standards of that supervisory authority. Section 1.166-
2(d)(1) and (3) are collectively referred to as the ``Conclusive
Presumption Regulations.''
2. Generally Accepted Accounting Principles Prior to the Current
Expected Credit Loss Revisions
For financial reporting purposes, financial institutions in the
United States follow the U.S. Generally Accepted Accounting Principles
(GAAP) issued by the Financial Accounting Standards Board (FASB). The
long-standing GAAP model for recognizing credit losses is referred to
as the ``incurred loss model'' because it delays recognition of credit
losses until it is probable that a loss has been incurred. Under the
incurred loss model, an entity considers only past events and current
conditions in measuring the incurred credit loss. This method does not
require or allow the incorporation of economic forecasts, or
consideration of industry cycles. The incurred loss model permits
institutions to use various methods to estimate credit losses,
including historical loss methods, roll-rate methods, and discounted
cash flow methods. The GAAP accounting for credit losses has been
revised with the introduction of the current expected credit loss
methodology for estimating allowance for credit losses, as further
described in section 3 of this Background.
Under the GAAP incurred loss model, an institution must first
assess whether a decline in fair value of a debt security below the
amortized cost of the security is a temporary impairment or other than
temporary impairment (OTTI). If an entity intends to sell the security
or more likely than not will be required to
[[Page 89637]]
sell the security before recovery of its amortized cost basis less any
current-period credit loss, OTTI will be recognized in earnings equal
to the difference between the investment's amortized cost basis and its
fair value at the balance sheet date. In assessing whether the entity
more likely than not will be required to sell the security before
recovery of its amortized cost basis less any current period credit
losses, an entity considers various factors such as the payment
structure of the debt security, adverse conditions related to the
security, or the length of time and the extent to which the fair value
has been less than the amortized cost basis.
By contrast, if an entity determines OTTI exists but does not
intend to sell the debt security or it is more likely than not that the
entity will not be required to sell the debt security prior to its
anticipated recovery, the impairment is separated into two parts: the
portion of OTTI related to credit loss on a debt security (Credit-Only
OTTI) and the portion of OTTI related to other factors but not credit
(Non-Credit OTTI). Credit-Only OTTI will be recognized in earnings on
the income statement, but Non-Credit OTTI will be reported on the
balance sheet as Other Comprehensive Income. FASB Staff Positions, FSP
FAS 115-2 and 124-2, Recognition and Presentation of Other-Than-
Temporary Impairments (later codified as part of ASC 320).
3. The Current Expected Credit Loss Standard
On June 16, 2016, FASB introduced a new standard, the Accounting
Standards Update (ASU) No. 2016-13, Financial Instruments--Credit
Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments (Update). The Update, which replaces the incurred loss
model in GAAP, became effective for many entities for fiscal years
beginning after December 15, 2019, and became generally effective for
all entities for fiscal years beginning after December 15, 2022.
The Update was in response to concerns by regulators that the
incurred loss model under GAAP restricted the ability to record credit
losses that are expected but that do not yet meet the probable
threshold. The Update is based on a current expected credit loss model
(CECL Model), which generally requires the recognition of expected
credit loss (ECL) in the allowance for credit losses upon initial
recognition of a financial asset, with the addition to the allowance
recorded as an offset to current earnings. Subsequently, the ECL must
be assessed each reporting period, and both negative and positive
changes to the ECL must be recognized through an adjustment to the
allowance and to earnings. ASC 326-20-30-1; ASC 326-20-35-1. In
estimating the ECL under the CECL Model, institutions must consider
information about past events, current conditions, and reasonable and
supportable forecasts relevant to assessing the collectability of the
cash flow of financial assets. The CECL Model does not prescribe the
use of specific estimation methods for measuring the ECL. However, an
entity will need to make adjustments to provide an estimate of the ECL
over the remaining contractual life of an asset and to incorporate
reasonable and supportable forecasts about future economic conditions
in the calculations. A charge-off of a financial asset, which may be
full or partial, is taken out of the allowance in the period in which a
financial asset is deemed uncollectible. ASC 326-20-35-8. At that time
the carrying value of the financial asset is also written down. See ASC
326-20-55-52. The ECL recognized under the CECL Model cannot be used to
determine bad debt deductions under section 166 because the ECL
recognized under the CECL Model would be a current deduction for
estimated future losses.
4. Insurance Company Financial Accounting
Publicly traded insurance companies report their financial
transactions and losses to the Securities and Exchange Commission in
accordance with GAAP. Privately held insurance companies may also
report their financial transactions and losses in accordance with GAAP.
However, in the United States, all insurance companies, whether
publicly traded or privately held, are regulated by State governments
in the States in which they are licensed to do business and are
required by State law to prepare financial statements in accordance
with statutory accounting principles (Statements of Statutory
Accounting Principles, known as SSAPs or SAPs). SSAPs serve as a basis
for preparing financial statements for insurance companies in
accordance with statutes or regulations promulgated by various States.
SSAPs establish guidelines that must be followed when an asset is
impaired. SSAPs are detailed in the National Association of Insurance
Commissioner's (NAIC's) Accounting Practices and Procedures Manual.
Generally, the NAIC's guidelines require the carrying value of an asset
to be written down if the loss of principal is OTTI. The OTTI standard
is found in several different statutory accounting provisions,
including SSAP 43R (loan-backed and structured securities) and SSAP 26
(bonds, excluding loan-backed and structured securities).
5. IRS Directives
In 2012, in response to comments regarding the significant burden
on both insurance companies and the IRS's Large Business and
International Division (LB&I) in dealing with audits relating to the
accounting of loss assets, the IRS issued an insurance industry
directive to its LB&I examiners. See I.R.C. Sec. 166: LB&I Directive
Related to Partial Worthlessness Deduction for Eligible Securities
Reported by Insurance Companies, LB&I 04-0712-009 (July 30, 2012)
(Insurance Directive). The Insurance Directive states that LB&I
examiners would not challenge an insurance company's partial
worthlessness deduction under section 166(a)(2) for the amount of the
SSAP 43R--Revised Loan-Backed and Structured Securities (September 14,
2009) credit-related impairment charge-offs of ``eligible securities''
as reported according to SSAP 43R on its annual statement if the
company follows the procedure set forth in that directive. The
definition of ``eligible securities'' in the Insurance Directive covers
investments in loan-backed and structured securities within the scope
of SSAP 43R, subject to section 166 and not subject to section
165(g)(2)(C) of the Code, including real estate mortgage investment
conduit regular interests. Thus, the Insurance Directive allowed
insurance companies to use the financial accounting standard for tax
purposes in limited circumstances regardless of whether the regulatory
standard is precisely the same as the tax standard for worthlessness
under section 166.
In 2014, the IRS issued another industry directive to LB&I
examiners regarding bad debt deductions claimed under section 166 by a
bank or bank subsidiary. See LB&I Directive Related to Sec. 166
Deductions for Eligible Debt and Eligible Debt Securities, LB&I-04-
1014-008 (October 24, 2014) (Bank Directive). Unlike insurance
companies, banks generally determine loss deductions for partial and
wholly worthless debts in the same manner for GAAP and regulatory
purposes. The Bank Directive generally allowed for loss deductions for
partial and wholly worthless debts to follow those reported for GAAP
and regulatory purposes.
6. Summary of Comments Received in Response to Notice 2013-35
In 2013, the IRS issued Notice 2013-35, 2013-24 I.R.B. 1240,
requesting comments on the Conclusive Presumption Regulations. The
Treasury
[[Page 89638]]
Department and the IRS noted that since the adoption of the Conclusive
Presumption Regulations, there have been significant changes made to
the regulatory standards relevant for loan charge-offs. In light of
those changes, Notice 2013-35 sought comments on whether (1) changes
that have occurred in bank regulatory standards and processes since
adoption of the Conclusive Presumption Regulations require amendment of
those regulations, and (2) application of the Conclusive Presumption
Regulations continues to be consistent with the principles of section
166. Comments were also sought on the types of entities that are
permitted, or should be permitted, to apply a conclusive presumption of
worthlessness.
Commenters responded that the Conclusive Presumption Regulations
are outdated and contain requirements for a bad debt deduction that
taxpayers can no longer satisfy. For example, one commenter noted that
Sec. 1.166-2(d)(1) is unusable by community banks because banking
regulators will not issue written correspondence confirming that a
charge-off is being made for either of the reasons set forth in Sec.
1.166-2(d)(1). A commenter similarly noted that regulators generally no
longer provide specific orders on a loan-by-loan basis and may never
confirm the appropriateness of a charge-off in writing. Another
commenter noted that for certain banks the election under Sec. 1.166-
2(d)(3) was automatically revoked under Sec. 1.166-2(d)(3)(iv)(C)
during the 2008 financial crisis because bank examiners ordered greater
charge-offs than those initially taken by the banks, and then could not
provide the required express determination letter stating that the
banks maintained and applied loan loss classification standards
consistent with the regulatory standards of the supervisory authority.
Commenters noted the advantages of retaining a conclusive
presumption of worthlessness. One commenter stated that a conclusive
presumption helps to avoid costly factual disputes between the IRS and
taxpayers. Another commenter stated that it is in the best interests of
all stakeholders to ensure that duplicative efforts by Federal and
State bank regulators and the IRS do not occur. A commenter suggested
that the IRS follow determinations made by regulators that routinely
and thoroughly examine the financial and accounting records and
processes of financial institutions such as banks, bank holding
companies, and their non-bank subsidiaries. Another commenter noted
that for decades virtually all community banks have conformed their
losses on loans for income tax purposes to losses recorded for
regulatory reporting purposes. Several commenters recommended that
Sec. 1.166-2(d)(1) and (3) should be replaced with a single conclusive
presumption rule.
Commenters requested that the Conclusive Presumption Regulations be
revised to apply to any institution that is subject to consolidated
supervision by the Board of Governors of the Federal Reserve System
(Federal Reserve), including systemically important financial
institutions (SIFIs) and subsidiaries and affiliates of SIFIs, because
these institutions are required to follow a strict process for
determining the amounts of the allowance for credit losses under GAAP
for financial reporting purposes and the Federal Reserve's examination
will focus on the consistent application and adherence to this process.
Another commenter suggested that the election under Sec. 1.166-2(d)(3)
should be extended to bank holding companies and their nonbank
subsidiaries, and potentially to other regulated financial institutions
that are examined by the same primary supervisory authority or
regulator.
Commenters stated that the GAAP loss standard and the accounting
standards used by insurance companies for determining whether a debt is
worthless are sufficiently similar to the tax standards for
worthlessness under section 166 and, therefore, should be used in
formulating a revised conclusive presumption rule. Commenters argued
that in most cases, any divergence between the various standards will
not be significant enough to result in a material acceleration of loss
recognition for Federal income tax purposes. Commenters specifically
requested that the Conclusive Presumption Regulations be revised to
include all insurance company debts, not just the eligible securities
covered in the Insurance Directive. Commenters noted that, in applying
the OTTI standard set forth in the SSAPs, insurers consider similar
factors to the ones examined under the tax rules such as the adequacy
of the collateral or the income stream in determining whether a debt is
worthless for purposes of section 166. Commenters stated that a
critical condition for coverage under the existing regulations is
whether Federal or State regulators have the authority to compel the
charge-off on the financial statements of the company. Commenters said
that State insurance regulators have this authority since they can
mandate a charge-off if an insurance company has not complied with the
State law accounting requirement that requires the charge-off.
Commenters varied in their recommendations of what process the IRS
should require in revised conclusive presumption regulations to verify
that the regulated entity applied appropriate regulatory standards in
taking a charge-off. Some commenters recommended that the IRS require
an attestation from the taxpayer that the taxpayer has reported
worthless debts consistently for tax and regulatory reporting purposes
similar to the taxpayer self-certification statement required under the
Insurance Directive. Commenters stated that a new self-certification
requirement adopted by the IRS could replace the requirement in the
existing regulations to obtain written confirmation from regulators.
Another commenter suggested that a taxpayer claiming the benefit of the
conclusive presumption should file a signed statement with its tax
return listing the taxpayer's Federal and State regulators and stating
that, for each bad debt deducted under section 166 on the tax return,
the taxpayer has charged off the same amount on its financial
statements.
Explanation of Provisions
1. Rationale for the Proposed Amendments to Sec. 1.166-2(d)
Regulated financial companies and members of regulated financial
groups are generally subject to capital requirements, leverage
requirements, or both. A tension exists between the incentives of
regulated entities and the incentives of their regulators. An entity
that is subject to regulatory capital requirements has an incentive not
to charge-off debt assets prematurely, in order to preserve the amount
of its capital. Conversely, a regulator that relies on capital or
leverage requirements is concerned with ensuring that capital is not
overstated, and therefore has an incentive to ensure that regulated
entities do not defer charge-offs of losses on loans and other debt
instruments. Regulators have provided guidance to those financial
companies to ensure they charge off debt losses appropriately.\1\ This
tension
[[Page 89639]]
results in a balance with respect to the timing of charge-offs.
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\1\ See, for example, Interagency Policy Statement on Allowances
for Credit Losses, 85 FR 32991 (June 1, 2020) (providing guidance to
financial institutions from the Office of the Comptroller of the
Currency, the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation, and the National Credit Union
Administration on allowances for credit losses in response to
changes to GAAP); Regulatory Capital Rule: Implementation and
Transition of the Current Expected Credit Losses Methodology for
Allowances and Related Adjustments to the Regulatory Capital Rule
and Conforming Amendments to Other Regulations, 84 FR 4222 (2019)
(adopting final rule to address changes to credit loss accounting
under GAAP, including banking organizations' implementation of the
CECL Model).
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The Treasury Department and the IRS believe that regulated
financial companies and members of regulated financial groups described
in the proposed regulations are subject to regulatory and accounting
standards for charge-offs that are sufficiently similar to the Federal
income tax standards for determining worthlessness under section 166.
Both GAAP and the SSAPs use a facts and circumstance analysis that
takes into account all available information related to the
collectability of the debt. The analysis considers the value of any
collateral securing the debt and the financial condition of the debtor,
which are factors that are also evaluated under the tax rules for
determining worthlessness under section 166.
As described in part 5 of the Background, the IRS previously has
recognized the significant administrative burden for taxpayers and the
IRS to independently determine worthlessness amounts under section
166(a)(2) and has accepted charge-off amounts reported for the incurred
loss model previously used by GAAP and for regulatory purposes, as well
as in accordance with the SSAPs, as evidence of worthlessness. In the
Bank Directive, the IRS accepted charge-off amounts reported by banks
and bank subsidiaries for the incurred loss model previously used by
GAAP and for regulatory purposes as sufficient evidence of
worthlessness. Similarly, in the Insurance Directive, the IRS permitted
the use of the insurance company's SSAP 43R credit-related impairment
charge-offs for the same securities as reported on its annual statement
regardless of whether the regulatory standard is precisely the same as
the definition of worthlessness under section 166. Thus, the IRS
previously has recognized that the present values of timing differences
in taxable income that arise from applying the regulatory standards
instead of the tax standards to determine worthlessness are likely to
be minor and therefore do not outweigh the costs of having two
different standards for book and tax purposes.
Based on the foregoing, the Treasury Department and the IRS believe
it is appropriate to provide conclusive presumption rules for regulated
financial companies and members of regulated financial groups.
Recently, Congress has directed insurance companies to follow their
financial statements prepared in accordance with GAAP in certain
circumstances. See sections 451(b)(3) and 56A(b) of the Code. Section
451 provides the general rule for the taxable year of inclusion of
gross income. Section 451(b) and (c) were amended by section 13221 of
Public Law 115-97 (131 Stat. 2054), commonly referred to as the Tax
Cuts and Jobs Act. For taxpayers using an accrual method of accounting,
section 451(b) requires the recognition of income at the earliest of
when the all events test is met or when any item of income is taken
into account as revenue in the taxpayer's applicable financial
statement (AFS). Section 451(b)(3) defines AFS. Section 451(b)(3) and
Sec. 1.451-3(a)(5) list in descending priority the financial
statements that can be considered an AFS for purposes of income
inclusion under section 451(b) and Sec. 1.451-1(a). Highest priority
is given to a financial statement that is certified as being prepared
in accordance with GAAP, and lowest priority is assigned to, among
other things, non-GAAP financial statements filed with a State
government or State agency or a self-regulatory organization including,
for example, a financial statement filed with a State agency that
regulates insurance companies or the Financial Industry Regulatory
Authority.
Section 10101 of Public Law 117-169, 136 Stat. 1818, 1818-1828
(August 16, 2022), commonly referred to as the Inflation Reduction Act
of 2022, amended section 55 of the Code to impose a new corporate
alternative minimum tax (CAMT) based on the ``adjusted financial
statement income'' (AFSI) of an applicable corporation for taxable
years beginning after December 31, 2022. For purposes of sections 55
through 59 of the Code, the term AFSI means, with respect to any
corporation for any taxable year, the net income or loss of the
taxpayer set forth on the taxpayer's AFS of such taxable year, adjusted
as provided in section 56A. See section 56A(a). Section 56A(b) defines
``applicable financial statement'' by reference to section 451(b)(3)
for purposes of determining the adjusted financial statement income on
which applicable corporations base their tentative minimum tax under
section 55(b). For purposes of section 56A, the term AFS means, with
respect to any taxable year, an AFS as defined in section 451(b)(3) or
as specified by the Secretary in regulations or other guidance that
covers such taxable year. See section 56A(b).
The Treasury Department and the IRS believe that, consistent with
recent legislation enacted and regulations promulgated in other
contexts, for purposes of determining whether a debt instrument is
worthless for Federal income tax purposes, insurance companies should
first rely on GAAP financial statements that are prioritized in these
proposed regulations and then, in the absence of such a GAAP financial
statement, should rely on their annual statement.
2. Description of Proposed Amendments to Sec. 1.166-2(d)
These proposed regulations would revise Sec. 1.166-2(d) to permit
``regulated financial companies,'' as defined in proposed Sec. 1.166-
2(d)(4)(ii), and members of ``regulated financial groups,'' as defined
in proposed Sec. 1.166-2(d)(4)(iii), to use a method of accounting
under which amounts charged off from the allowance for credit losses,
or pursuant to SSAP standards, would be conclusively presumed to be
worthless for Federal income tax purposes (Allowance Charge-off
Method). Proposed Sec. 1.166-2(d)(1) would allow these taxpayers to
conclusively presume that charge-offs from the allowance for credit
losses of debt instruments subject to section 166 or, in the case of
insurance companies that do not produce GAAP financial statements for
substantive non-tax purposes, charge-offs pursuant to SSAP standards,
satisfy the requirements for a bad debt deduction under section 166.
The proposed regulations do not address when a debt instrument
qualifies as a security within the meaning of section 165(g)(2)(C) and
therefore would not change the scope of debt instruments to which
section 166 applies.
The definition of a ``regulated financial company'' in proposed
Sec. 1.166-2(d)(4)(ii) includes entities that are regulated by
insurance regulators and various Federal regulators including the
Federal Housing Finance Agency (FHFA) and the Farm Credit
Administration (FCA). The Housing and Economic Recovery Act of 2008
established the FHFA as an independent agency responsible for
regulating the safety and soundness of the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation (Government-
Sponsored Enterprises, or GSEs). The FHFA has a statutory
responsibility to ensure that the GSEs operate in a safe and sound
manner, which the FHFA accomplishes through supervision and regulation,
including the supervision and regulation of accounting and disclosure
and capital adequacy. Further, the FHFA may order the GSEs to classify
and charge-off loans, with loan
[[Page 89640]]
classification generally following bank regulatory standards.
The definition of a ``regulated financial company'' in proposed
Sec. 1.166-2(d)(4)(ii) also includes Farm Credit System (FCS)
institutions subject to the provisions of the Farm Credit Act of 1971.
The FCA, an independent Federal agency, is the Federal regulator that
examines the safety and soundness of all FCS institutions through
regulatory oversight. Including FCS institutions in the definition of
regulated financial company is consistent with the existing
regulations, which define ``banks'' to include institutions that are
subject to the supervision of the FCA. See Sec. 1.166-2(d)(4)(i).
The definition of a ``regulated financial company'' in proposed
Sec. 1.166-2(d)(4)(ii) does not include credit unions or U.S. branches
of foreign banks. The proposed regulations do not address how credit
unions or U.S. branches of foreign banks determine charge-offs since
the IRS did not receive any comments on this topic in response to
Notice 2013-35. Moreover, many credit unions are not subject to Federal
income tax. However, the Treasury Department and the IRS request
comments regarding whether and, if so, how the proposed regulations
should be modified to apply to credit unions or U.S. branches of
foreign banks.
The definition of a ``regulated financial company'' in proposed
Sec. 1.166-2(d)(4)(ii) also does not include non-bank SIFIs. Treasury
and the IRS would need to understand the extent to which prudential or
other regulators of non-bank SIFIs apply regulatory standards for
worthlessness that are sufficiently close to tax standards before
determining whether the rules provided in the proposed regulations
should apply to those SIFIs.
The definition of ``regulated insurance company'' in proposed Sec.
1.166-2(d)(4)(vii) does not include corporations that, although
licensed, authorized, or regulated by one or more States to sell
insurance, reinsurance, or annuity contracts to persons other than
related persons (within the meaning of section 954(d)(3) of the Code)
in such States, are not engaged in regular issuances of (or subject to
ongoing liability with respect to) insurance, reinsurance, or annuity
contracts with persons that are not related persons (within the meaning
of section 954(d)(3)). The Treasury Department and the IRS request
comments regarding whether and how the proposed regulations should be
modified to include a reinsurance entity that regularly issues
reinsurance contracts only to related persons, provided the risks
reinsured are regularly those of persons other than related persons.
The term ``financial statement'' is defined in proposed Sec.
1.166-2(d)(4)(ix) broadly to include a financial statement provided to
a bank regulator, along with any amendments or supplements to that
financial statement. The Treasury Department and the IRS note that many
insurance companies prepare GAAP financial statements. Therefore, the
term ``financial statement'' includes a financial statement based on
GAAP that is prepared contemporaneously with a financial statement
prepared in accordance with the standards set out by the NAIC and given
to creditors for purposes of making lending decisions. However, the
Treasury Department and the IRS also understand that there are
insurance companies that do not prepare GAAP financial statements but,
for substantive non-tax purposes, use the SSAP financial statements
discussed above, which may not have the functional equivalent of an
allowance from which charge-offs are made. In order to extend
conformity to insurance company taxpayers that do not prepare GAAP
financial statements for substantive non-tax purposes, the Treasury
Department and the IRS propose to allow these taxpayers to use their
SSAP financial statements for purposes of determining the amount of bad
debt deduction under, and in the manner prescribed in, the proposed
regulations. Thus, the proposed regulations would direct insurance
companies to first rely on a financial statement certified as prepared
in accordance with GAAP that is a Form 10-K or an annual statement to
shareholders. If no such financial statement exists, the proposed
regulations would direct insurance companies to next rely on a
financial statement that is based on GAAP that is (1) given to
creditors for purposes of making lending decisions, (2) given to equity
holders for purposes of evaluating their investments in the regulated
financial company or member of a regulated financial group, or (3)
provided for other substantial non-tax purposes that also meet certain
criteria set forth in these proposed regulations. If an insurance
company does not have either of these two types of financial statements
based on GAAP, the insurance company would then rely on a financial
statement prepared in accordance with the standards set forth by the
NAIC and filed with the insurance regulatory authorities of a State
that is the principal insurance regulator of the insurance company.
Accordingly, the term ``financial statement'' would be defined in the
insurance industry context under proposed Sec. 1.166-2(d)(4)(ix)(D) to
include a financial statement that is prepared in accordance with
standards set out by the NAIC and filed with State insurance regulatory
authorities. The Treasury Department and the IRS request comments
regarding whether these financial statements should be assigned
different levels of priority and on this definition generally.
The term ``charge-off'' is defined in proposed Sec. 1.166-
2(d)(4)(i) to mean an accounting entry or set of accounting entries for
a taxable year that reduces the basis of the debt when the debt is
recorded in whole or in part as a loss asset on the applicable
financial statement of the regulated financial company or the member of
a regulated financial group for that year. For a regulated financial
company that is a regulated insurance company that has as its
applicable financial statement a financial statement described in
proposed Sec. 1.166-2(d)(4)(ix)(D), the term charge-off is defined in
the proposed regulations to mean an accounting entry or set of
accounting entries that reduces the debt's carrying value and results
in a realized loss or a charge to the statement of operations (as
opposed to recognition of unrealized loss) that is recorded on the
regulated insurance company's annual statement.
Certain of the commenters suggested that the proposed regulations
should extend to GAAP post-impairment accounting for recoveries.
Extending tax conformity to GAAP post-impairment accounting for
recoveries raises, among other issues, questions about whether GAAP
recoveries qualify as tax recoveries, both with regard to amount and
timing, and whether GAAP's treatment of recoveries is consistent with
the tax recovery payment ordering rules. See, for example, section 111,
Sec. Sec. 1.111-1(a)(2), 1.446-2(e), 1.1275-2(a), Rev. Rul. 2007-32,
2007-1 C.B. 1278, and Hillsboro National Bank v. Commissioner, 460 U.S.
370 (1983). In view of the foregoing, the Treasury Department and the
IRS, while welcoming comments on the topic, do not propose extending
tax conformity to GAAP post-impairment recovery accounting at this
time.
Under the proposed regulations, the Allowance Charge-off Method
would be a method of accounting because it would determine the timing
of the bad debt deduction. Accordingly, proposed Sec. 1.166-2(d)(2)
provides that a change to the Allowance Charge-off Method is a change
in method of accounting
[[Page 89641]]
requiring consent of the Commissioner under section 446(e).
When the proposed regulations are finalized, those regulated
financial companies or members of regulated financial groups that do
not presently use or change to the Allowance Charge-off Method would
not be entitled to a conclusive presumption of worthlessness and would
in most cases be required to use the specific charge-off method for
deducting bad debts under section 166(a) and Sec. 1.166-1(a)(1).
3. Proposed Applicability Dates and Reliance on the Proposed
Regulations
A. Proposed Applicability Dates of the Final Regulations
Under the proposed applicability date in proposed Sec. 1.166-
2(d)(5), the final regulations would apply to charge-offs made by a
regulated financial company or a member of a regulated financial group
on its applicable financial statement that occur in taxable years
ending on or after the date of publication of a Treasury decision
adopting those rules as final regulations in the Federal Register.
However, under proposed Sec. 1.166-2(d)(5), a regulated financial
company or a member of a regulated financial group may choose to apply
the final regulations, once published in the Federal Register, to
charge-offs made on its applicable financial statement that occur in
taxable years ending on or after December 28, 2023, and before the date
of publication of a Treasury decision adopting those rules as final
regulations in the Federal Register. See section 7805(b)(7) of the
Code.
B. Reliance on the Proposed Regulations
A regulated financial company or a member of a regulated financial
group may rely on proposed Sec. 1.166-2(d) for charge-offs made on its
applicable financial statement that occur in taxable years ending on or
after December 28, 2023, and before the date of publication of final
regulations in the Federal Register.
Special Analyses
I. Regulatory Planning and Review
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
II. Paperwork Reduction Act
These proposed regulations do not impose any additional information
collection requirements in the form of reporting, recordkeeping
requirements, or third-party disclosure statements. The Allowance
Charge-off Method is a method of accounting under the proposed
regulations, and therefore taxpayers would be required to request the
consent of the Commissioner for a change in method of accounting under
section 446(e) to change to that method. The IRS expects that these
taxpayers would request this consent by filing Form 3115, Application
for Change in Accounting Method. Filing of Form 3115 and any statements
attached thereto is the sole collection of information requirement
imposed by the statute and the proposed regulations.
For purposes of the Paperwork Reduction Act of 1995 (44 U.S.C.
3507(c)) (PRA), the reporting burden associated with the collection of
information for the Form 3115 will be reflected in the PRA submission
associated with the income tax returns under the OMB control number
1545-0123. To the extent there is a change in burden because of these
proposed regulations, the change in burden will be reflected in the
updated burden estimates for Form 3115. The requirement to maintain
records to substantiate information on Form 3115 is already contained
in the burden associated with the control number for the form and
remains unchanged.
The proposed regulations also would remove the requirement in Sec.
1.166-2(d)(3)(iii)(B) for a new bank to attach a statement to its
income tax return, and thereby reduce the burden estimates for OMB
control number 1545-0123. The overall burden estimates associated with
the OMB control number are aggregate amounts related to the entire
package of forms associated with the applicable OMB control number and
will include, but not isolate, the estimated burden of the tax forms
that will be created, revised, or reduced as a result of the
information collection in these proposed regulations. These numbers are
therefore not specific to the burden imposed by these proposed
regulations. No burden estimates specific to the forms affected by the
proposed regulations are currently available. For the OMB control
number discussed in this section, the Treasury Department and the IRS
estimate PRA burdens on a taxpayer-type basis rather than a provision-
specific basis. Those estimates capture both changes made by the
proposed regulations (when final) and other regulations that affect the
compliance burden for that form.
The Treasury Department and IRS request comment on all aspects of
the information collection burden related to the proposed regulations,
including estimates for how much time it would take to comply with the
paperwork burden described above for the relevant form and ways for the
IRS to minimize paperwork burden. In addition, when available, drafts
of IRS forms are posted at <a href="https://www.irs.gov/draft-tax-forms">https://www.irs.gov/draft-tax-forms</a>, and
comments may be submitted at <a href="https://www.irs.gov/forms-pubs/comment-on-tax-forms-and-publications">https://www.irs.gov/forms-pubs/comment-on-tax-forms-and-publications</a>. Final IRS forms are available at <a href="https://www.irs.gov/forms-instructions">https://www.irs.gov/forms-instructions</a>. Forms will not be finalized until after
they have been approved by OMB under the PRA.
III. Regulatory Flexibility Act
It is hereby certified that these regulations would not have a
significant economic impact on a substantial number of small entities
within the meaning of section 601(6) of the Regulatory Flexibility Act
(5 U.S.C. chapter 6).
These proposed regulations would affect only those business
entities that qualify as regulated financial companies and members of
regulated financial groups, as defined in the proposed regulations.
These entities are expected to consist of insurance companies and
financial institutions with annual receipts in excess of the amounts
set forth in 13 CFR 121.201, Sector 52 (finance and insurance).
Therefore, these proposed regulations will not affect a substantial
number of small entities.
Although the burden falls primarily on larger entities, some small
entities with annual receipts not in excess of the amounts set forth in
13 CFR 121.201, Sector 52 (finance and insurance), may be affected.
However, these proposed regulations are unlikely to present a
significant economic burden on any small entities affected. The costs
to comply with these proposed regulations are not significant.
Taxpayers needing to make method changes pursuant to the proposed
regulations would be required to file a Form 3115. For those entities
that would make a method change, the cost to determine or track the
information needed is minimal. The insurance companies and financial
institutions affected by the proposed regulations prepare financial
statements in accordance with SSAPs or GAAP. The Allowance Charge-off
Method is a method of accounting under which these entities would be
permitted to use these financial statements to obtain a
[[Page 89642]]
conclusive presumption of worthlessness for purposes of claiming bad
debt deductions under section 166. Accordingly, the affected entities
already possess the information needed. The cost in time to fill out a
Form 3115 would be minimal.
Notwithstanding this certification, the Treasury Department and IRS
invite comments from the public about the impact of these proposed
regulations on small entities.
Pursuant to section 7805(f), these regulations will be submitted to
the Chief Counsel for the Office of Advocacy of the Small Business
Administration for comment on their impact on small business.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 requires
that agencies assess anticipated costs and benefits and take certain
other actions before issuing a final rule that includes any Federal
mandate that may result in expenditures in any one year by a State,
local, or Tribal government, in the aggregate, or by the private
sector, of $100 million in 1995 dollars, updated annually for
inflation. This proposed rule does not include any Federal mandate that
may result in expenditures by State, local, or Tribal governments, or
by the private sector, in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. These proposed regulations do not
have federalism implications and do not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive order.
Comments and Requests for a Public Hearing
Before these proposed amendments to the final regulations are
adopted as final regulations, consideration will be given to comments
that are submitted timely to the IRS as prescribed in this preamble
under the ADDRESSES heading. The Treasury Department and the IRS
request comments on all aspects of the proposed regulations, including
how best to transition from the existing regulations to the proposed
regulations. Any comments submitted will be made available at <a href="https://www.regulations.gov">https://www.regulations.gov</a> or upon request.
A public hearing will be scheduled if requested in writing by any
person who timely submits electronic or written comments. Requests for
a public hearing are also encouraged to be made electronically. If a
public hearing is scheduled, notice of the date and time for the public
hearing will be published in the Federal Register.
Drafting Information
The principal authors of these regulations are Stephanie D. Floyd
and Jason D. Kristall of the Office of Associate Chief Counsel
(Financial Institutions and Products). However, other personnel from
the Treasury Department and the IRS participated in their development.
Statement of Availability of IRS Documents
The IRS Notices, Revenue Procedures, and Revenue Rulings cited in
this preamble are published in the Internal Revenue Bulletin (or
Cumulative Bulletin) and are available from the Superintendent of
Documents, U.S. Government Publishing Office, Washington, DC 20402, or
by visiting the IRS website at <a href="https://www.irs.gov">https://www.irs.gov</a>.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR part 1 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.166-2 is amended by revising paragraph (d) to read as
follows:
Sec. 1.166-2 Evidence of worthlessness.
* * * * *
(d) Regulated financial companies and members of regulated
financial groups-- (1) Worthlessness presumed in year of charge-off.
Debt held by a regulated financial company (as defined in paragraph
(d)(4)(ii) of this section) or a member of a regulated financial group
(as defined in paragraph (d)(4)(iii) of this section) that uses the
charge-off method described in paragraph (d)(1) of this section
(Allowance Charge-off Method) is conclusively presumed to have become
worthless, in whole or in part, to the extent that the amount of any
charge-off (as defined in paragraph (d)(4)(i) of this section) under
paragraph (d)(1)(i) or (ii) of this section is claimed as a deduction
under section 166 of the Internal Revenue Code (Code) by the regulated
financial company or the member of a regulated financial group on the
relevant Federal income tax return for the taxable year in which the
charge-off takes place.
(i) Allowance Charge-off Method generally. The debt is charged off
from the allowance for credit losses in accordance with the United
States Generally Accepted Accounting Principles and recorded in the
period in which the debt is deemed uncollectible on the applicable
financial statement (as defined in paragraph (d)(4)(viii) of this
section) of the regulated financial company or the member of a
regulated financial group.
(ii) Certain regulated insurance companies. In the case of a
regulated financial company that is a regulated insurance company (as
defined in paragraph (d)(4)(vii) of this section) that prepares an
applicable financial statement pursuant to paragraphs (d)(4)(viii) and
(d)(4)(ix)(D) of this section, the debt is charged off pursuant to an
accounting entry or set of accounting entries that reduce the debt's
carrying value and result in a realized loss or a charge to the
statement of operations (as opposed to recognition of an unrealized
loss) that, in either case, is recorded on the regulated insurance
company's annual statement.
(2) Methods of accounting--(i) In general. A taxpayer may change a
method of accounting only with the consent of the Commissioner as
required under section 446(e) of the Code and the corresponding
regulations. A change to the Allowance Charge-off Method under this
paragraph (d) constitutes a change in method of accounting.
Accordingly, a regulated financial company or member of a regulated
financial group that changes its method of accounting to the Allowance
Charge-Off Method is required to secure consent of the Commissioner
before using this method for Federal income tax purposes. A change to
the Allowance Charge-off Method must be made on an entity-by-entity
basis.
(ii) General rule for changes in method of accounting. A taxpayer
that makes a change in method of accounting to the Allowance Charge-Off
Method is treated as making a change in method initiated by the
taxpayer for purposes of section 481 of the Code. A taxpayer obtains
the consent of the Commissioner to make a change in method of
[[Page 89643]]
accounting by using the applicable administrative procedures that
govern changes in method of accounting under section 446(e). See Sec.
1.446-1(e)(3).
(3) Worthlessness in later taxable year. If a regulated financial
company or member of a regulated financial group does not claim a
deduction under section 166 for a totally or partially worthless debt
on its Federal income tax return for the taxable year in which the
charge-off takes place, but claims the deduction for a later taxable
year, then the charge-off in the prior taxable year is deemed to have
been involuntary and the deduction under section 166 is allowed for the
taxable year for which claimed.
(4) Definitions. The following definitions apply for purposes of
paragraph (d) of this section:
(i) Charge-off. The term charge-off means an accounting entry or
set of accounting entries for a taxable year that reduces the basis of
the debt when the debt is recorded in whole or in part as a loss asset
on the applicable financial statement (as defined in paragraph
(d)(4)(viii) of this section) of the regulated financial company or the
member of a regulated financial group for that year. For a regulated
financial company that is a regulated insurance company (as defined in
paragraph (d)(4)(vii) of this section) that has as its applicable
financial statement a financial statement described in paragraph
(d)(4)(ix)(D) of this section, the term charge-off means an accounting
entry or set of accounting entries that reduce the debt's carrying
value and results in a realized loss or a charge to the statement of
operations (as opposed to recognition of unrealized loss) that is
recorded on the regulated insurance company's annual statement.
(ii) Regulated financial company. The term regulated financial
company means--
(A) A bank holding company, as defined in 12 U.S.C. 1841, that is a
domestic corporation;
(B) A covered savings and loan holding company, as defined in 12
CFR 217.2;
(C) A national bank;
(D) A bank that is a member of the Federal Reserve System and is
incorporated by special law of any State, or organized under the
general laws of any State, or of the United States, or other
incorporated banking institution engaged in a similar business;
(E) An insured depository institution, as defined in 12 U.S.C.
1813(c)(2);
(F) A U.S. intermediate holding company formed by a foreign banking
organization in compliance with 12 CFR 252.153;
(G) An Edge Act corporation organized under section 25A of the
Federal Reserve Act (12 U.S.C. 611-631);
(H) A corporation having an agreement or undertaking with the Board
of Governors of the Federal Reserve System under section 25 of the
Federal Reserve Act (12 U.S.C. 601-604a);
(I) A Federal Home Loan Bank, as defined in 12 U.S.C. 1422(1)(A);
(J) A Farm Credit System Institution chartered and subject to the
provisions of the Farm Credit Act of 1971 (12 U.S.C. 2001 et seq.);
(K) A regulated insurance company, as defined in paragraph
(d)(4)(vii) of this section;
(L) The Federal National Mortgage Association;
(M) The Federal Home Loan Mortgage Corporation; and
(N) Any additional entities that may be provided in guidance
published in the Internal Revenue Bulletin (see Sec.
601.601(d)(2)(ii)(a) of this chapter).
(iii) Regulated financial group. The term regulated financial group
means one or more chains of corporations connected through stock
ownership with a common parent corporation that is not described in
section 1504(b)(4) of the Code and is a regulated financial company
described in paragraphs (d)(4)(ii)(A) through (N) of this section
(regulated financial group parent) that is not owned, directly or
indirectly (as set out in paragraph (d)(4)(v) of this section), by
another regulated financial company, but only if--
(A) The regulated financial group parent owns directly or
indirectly stock meeting the requirements of section 1504(a)(2) in at
least one of the other corporations; and
(B) Stock meeting the requirements of section 1504(a)(2) in each of
the other corporations (except the regulated financial group parent) is
owned directly or indirectly by one or more of the other corporations.
(iv) Stock. The term stock has the same meaning as stock in section
1504 (without regard to Sec. 1.1504-4), and all shares of stock within
a single class are considered to have the same value. Thus, control
premiums and minority and blockage discounts within a single class are
not taken into account.
(v) Indirect stock ownership. Indirect stock ownership is
determined by applying the constructive ownership rules of section
318(a) of the Code.
(vi) Member of a regulated financial group. A member of a regulated
financial group is any corporation in the chain of corporations of a
regulated financial group described in paragraph (d)(4)(iii) of this
section. A corporation, however, is not a member of a regulated
financial group if it is held by a regulated financial company pursuant
to 12 U.S.C. 1843(k)(1)(B), 12 U.S.C. 1843(k)(4)(H), or 12 U.S.C.
1843(o), or if it is a Regulated Investment Company under section 851
of the Code, or a Real Estate Investment Trust under section 856 of the
Code.
(vii) Regulated insurance company. The term regulated insurance
company means a corporation that is--
(A) Subject to tax under subchapter L of chapter 1 of the Code;
(B) Domiciled or organized under the laws of one of the 50 States
or the District of Columbia (State);
(C) Licensed, authorized, or regulated by one or more States to
sell insurance, reinsurance, or annuity contracts to persons other than
related persons (within the meaning of section 954(d)(3) of the Code)
in such States, but in no case will a corporation satisfy the
requirements of this paragraph (d)(4)(vii)(C) if a principal purpose
for obtaining such license, authorization, or regulation was to qualify
the issuer as a regulated insurance company; and
(D) Engaged in regular issuances of (or subject to ongoing
liability with respect to) insurance, reinsurance, or annuity contracts
with persons that are not related persons (within the meaning of
section 954(d)(3)).
(viii) Applicable financial statement. The term applicable
financial statement means a financial statement that is described in
paragraph (d)(4)(ix) of this section of a regulated financial company
or any member of a regulated financial group. The financial statement
may be a separate company financial statement of any member of a
regulated financial group, if prepared in the ordinary course of
business; otherwise, it is the consolidated financial statement that
includes the assets, portion of the assets, or annual total revenue of
any member of a regulated financial group.
(ix) Financial statement. The term financial statement means the
taxpayer's financial statement listed in paragraphs (d)(4)(ix)(A)
through (D) of this section that has the highest priority. A financial
statement includes any supplement or amendment to that financial
statement. The financial statements are, in order of descending
priority:
(A) A financial statement certified as being prepared in accordance
with Generally Accepted Accounting Principles that is a Form 10-K (or
successor form), or annual statement to shareholders, required to be
filed with the United States Securities and Exchange Commission;
[[Page 89644]]
(B) A financial statement that is required to be provided to a bank
regulator;
(C) In the case of an insurance company, a financial statement
based on Generally Accepted Accounting Principles that is given to
creditors for purposes of making lending decisions, given to equity
holders for purposes of evaluating their investments in the regulated
financial company or member of a regulated financial group, or provided
for other substantial non-tax purposes, and that the regulated
financial company or member of a regulated financial group reasonably
anticipates will be directly relied on for the purposes for which it
was given or provided and that is prepared contemporaneously with a
financial statement prepared in accordance with the standards set out
by the National Association of Insurance Commissioners and filed with
the insurance regulatory authorities of a State that is the principal
insurance regulator of the insurance company; and
(D) In the case of an insurance company, a financial statement that
is prepared in accordance with the standards set out by the National
Association of Insurance Commissioners and filed with the insurance
regulatory authorities of a State that is the principal insurance
regulator of the insurance company.
(x) Bank regulator. The term bank regulator means the Office of the
Comptroller of the Currency, the Board of Governors of the Federal
Reserve System and any Federal Reserve Bank, the Federal Deposit
Insurance Corporation, the Farm Credit Administration, the Federal
Housing Finance Authority, any successor to any of the foregoing
entities, or State banking authorities maintaining substantially
equivalent standards as these Federal regulatory authorities.
Additional entities included in this paragraph (d)(4)(x) may be
provided in guidance published in the Internal Revenue Bulletin (see
Sec. 601.601(d)(2)(ii)(a) of this chapter).
(5) Applicability date. Paragraph (d) of this section applies to
charge-offs made by a regulated financial company or a member of a
regulated financial group on its applicable financial statement that
occur in taxable years ending on or after [DATE OF FINAL RULE]. A
regulated financial company or a member of a regulated financial group
may choose to apply paragraph (d) of this section to charge-offs on its
applicable financial statement that occur in taxable years ending on or
after December 28, 2023.
Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2023-28589 Filed 12-27-23; 8:45 am]
BILLING CODE 4830-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.