[Federal Register Volume 86, Number 88 (Monday, May 10, 2021)]
[Proposed Rules]
[Pages 24755-24770]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-09047]


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DEPARTMENT OF TREASURY

Office of the Comptroller of the Currency

12 CFR Part 30

[Docket ID OCC-2020-0043]
RIN 1557-AF03

FEDERAL RESERVE SYSTEM

12 CFR Part 208

[Docket No. R-1746]
RIN 7100-AG 14

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 364

RIN 3064-AF62


Tax Allocation Agreements

AGENCY: Office of the Comptroller of the Currency, Treasury; Board of 
Governors of the Federal Reserve System; and Federal Deposit Insurance 
Corporation.

ACTION: Notice of proposed rulemaking and comment request.

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SUMMARY: The Office of the Comptroller of the Currency, the Board of 
Governors of the Federal Reserve System, and the Federal Deposit 
Insurance Corporation (collectively, the agencies) are inviting comment 
on a proposed rule (proposal) under section 39 of the Federal Deposit 
Insurance Act that would establish requirements for tax allocation 
agreements between institutions and their holding companies in a 
consolidated tax filing group. The proposal would promote safety and 
soundness by preserving depository institutions' ownership rights in 
tax refunds and ensuring equitable allocation of tax liabilities among 
entities in a holding company structure. Under the proposal, national 
banks, state banks, and savings associations that file tax returns as 
part of a consolidated tax filing group would be required to enter into 
tax allocation agreements with their holding companies and other 
members of the consolidated group that join in the filing of a 
consolidated group tax return. The proposal also would describe 
specific mandatory provisions in these tax allocation agreements, 
including provisions addressing the ownership of tax refunds received. 
If the agencies were to adopt the proposal as a final rule, the 
agencies would rescind the interagency policy statement on tax 
allocation agreements that was issued in 1998 and supplemented in 2014.

DATES: Comments must be received by July 9, 2021.

ADDRESSES: Comments should be directed to:
    OCC: Commenters are encouraged to submit comments through the 
Federal eRulemaking Portal. Please use the title ``Tax Allocation 
Agreements'' to facilitate the organization and distribution of the 
comments. You may submit comments by any of the following methods:
     Federal eRulemaking Portal--Regulations.gov: Go to https://regulations.gov/. Enter ``Docket ID OCC-2020-0043'' in the Search Box 
and click ``Search.'' Public comments can be submitted via the 
``Comment'' box below the displayed document information or by clicking 
on the document title and then clicking the ``Comment'' box on the top-
left side of the screen. For help with submitting effective comments 
please click on ``Commenter's Checklist.'' For assistance with the 
Regulations.gov site, please call (877) 378-5457 (toll free) or (703) 
454-9859 Monday-Friday, 9 a.m.-5 p.m. ET or email 
[email protected].
     Mail: Chief Counsel's Office, Attention: Comment 
Processing, Office of the Comptroller of the Currency, 400 7th Street 
SW, Suite 3E-218, Washington, DC 20219.
     Hand Delivery/Courier: 400 7th Street SW, Suite 3E-218, 
Washington, DC 20219.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2020-0043'' in your comment. In general, the OCC will 
enter all comments received into the docket and publish the comments on 
the Regulations.gov website without change, including any business or 
personal information provided such as name and address information, 
email addresses, or phone numbers. Comments received, including 
attachments and other supporting materials, are part of the public 
record and subject to public disclosure. Do not include any information 
in your comment or supporting materials that you consider confidential 
or inappropriate for public disclosure.
    You may review comments and other related materials that pertain to 
this action by the following method:

[[Page 24756]]

     Viewing Comments Electronically--Regulations.gov: Go to 
https://regulations.gov/. Enter ``Docket ID OCC-2020-0043'' in the 
Search Box and click ``Search.'' Click on the ``Documents'' tab and 
then the document's title. After clicking the document's title, click 
the ``Browse Comments'' tab. Comments can be viewed and filtered by 
clicking on the ``Sort By'' drop-down on the right side of the screen 
or the ``Refine Results'' options on the left side of the screen. 
Supporting materials can be viewed by clicking on the ``Documents'' tab 
and filtered by clicking on the ``Sort By'' drop-down on the right side 
of the screen or the ``Refine Documents Results'' options on the left 
side of the screen.'' For assistance with the Regulations.gov site, 
please call (877) 378-5457 (toll free) or (703) 454-9859 Monday-Friday, 
9 a.m.-5 p.m. ET or email [email protected].
    The docket may be viewed after the close of the comment period in 
the same manner as during the comment period.
    Board: When submitting comments, please consider submitting your 
comments by email or fax because paper mail in the Washington, DC, area 
and at the Board may be subject to delay.
    You may submit comments, identified by Docket No. R-1746; RIN 7100-
AG 14, by any of the following method:
     Agency Website: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Email: [email protected]. Include docket 
and RIN numbers in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Ann E. Misback, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW, 
Washington, DC 20551.
    All public comments will be made available on the Board's website 
at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, comments 
will not be edited to remove any identifying or contact information 
unless specifically requested by the commenter. Public comments may 
also be viewed in paper in Room 146, 1709 New York Avenue NW, 
Washington, DC 20006, between 9:00 a.m. and 5:00 p.m. on weekdays. For 
security reasons, the Board requires that visitors make an appointment 
to inspect comments. You may do so by calling (202) 452-3684.
    FDIC: You may submit comments, identified by FDIC RIN 3064-AF62, by 
any of the following methods:
     Agency Website: https://www.fdic.gov/regulations/laws/federal/. Follow instructions for submitting comments on the Agency 
website.
     Mail: James P. Sheesley, Assistant Executive Secretary, 
Attention: Comments--RIN 3064-AF62/Legal ESS, Federal Deposit Insurance 
Corporation, 550 17th Street NW, Washington, DC 20429.
     Hand Delivery/Courier: Comments may be hand-delivered to 
the guard station at the rear of the 550 17th Street NW building 
(located on F Street) on business days between 7:00 a.m. and 5:00 p.m.
     Email: [email protected]. Comments submitted must include 
``FDIC RIN 3064-AF62'' on the subject line of the message.
     Public Inspection: All comments received must include 
``FDIC RIN 3064-AF62'' for this rulemaking. All comments received will 
be posted without change to https://www.fdic.gov/regulations/laws/federal/, including any personal information provided. Paper copies of 
public comments may be requested from the FDIC Public Information 
Center, or by telephone at (877) 275-3342 or (703) 562-2200.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Carol Raskin, Senior Policy Accountant, or Mary Katherine 
Kearney, Professional Accounting Fellow, Office of the Chief 
Accountant, 202-649-6280; Kevin Korzeniewski, Counsel, or Joanne 
Phillips, Counsel, Chief Counsel's Office, (202) 649-5490.
    Board: Lara Lylozian, Chief Accountant, (202) 475-6656; Juan 
Climent, Assistant Director, (202) 872-7526; Kathryn Ballintine, 
Manager, (202) 452-2555; Michael Ofori-Kuragu, Senior Financial 
Institution Policy Analyst II, (202) 475-6623, Sasha Pechenik, Senior 
Accounting Policy Analyst, (202) 452-3608, Division of Supervision and 
Regulation; Benjamin W. McDonough, Associate General Counsel, (202) 
452-2036; Asad Kudiya, Senior Counsel, (202) 475-6358; Lucy Chang, 
Senior Counsel, (202) 475-6331; Joshua Strazanac, Senior Attorney, 
(202) 452-2457; David Imhoff, Attorney, (202) 452-2249, Legal Division, 
Board of Governors of the Federal Reserve System, 20th and C Streets 
NW, Washington, DC 20551. For the hearing impaired only, 
Telecommunication Device for the Deaf (TDD), (202) 263-4869.
    FDIC: John Rieger, Chief Accountant, (202) 898-3602, 
[email protected]; Andrew Overton, Senior Examination Specialist, (202) 
898-8922, [email protected], Accounting and Securities Disclosure 
Section, Division of Risk Management Supervision; Jeffrey Schmitt, 
Counsel, (703) 562-2429, [email protected]; Joyce M. Raidle, Counsel, 
(202) 898-6763, [email protected]; Francis Kuo, Counsel, (202) 898-6654, 
[email protected], Legal Division.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
    A. Summary of Proposal
    B. Background
II. Description of the Proposal
    A. Scope of Application
    B. Tax Allocation in a Holding Company Structure
    C. Tax Allocation Agreements and Key Terms
    D. Regulatory Reporting
III. Incorporation of the Proposal as an Appendix to the Agencies' 
Safety and Soundness Rules
IV. Impact Analysis
V. Administrative Law Matters
    A. Paperwork Reduction Act
    B. Regulatory Flexibility Act
    C. Plain Language
    D. Riegle Community Development and Regulatory Improvement Act 
of 1994
    E. OCC Unfunded Mandates Reform Act of 1995

I. Introduction

A. Summary of Proposal

    The Office of the Comptroller of the Currency (OCC), the Board of 
Governors of the Federal Reserve System (Board), and the Federal 
Deposit Insurance Corporation (FDIC) (collectively, the agencies) are 
inviting comment on a proposed rule (proposal) that would prescribe 
requirements for tax allocation agreements that involve insured 
depository institutions and OCC chartered uninsured institutions 
supervised by the agencies (collectively, institutions).\1\ Under the 
proposal, institutions in a consolidated tax filing group (consolidated 
group \2\) would be required to enter into tax allocation agreements 
with their holding companies and other members of the consolidated 
group that join in the filing of a consolidated group tax return. The 
proposal would establish a methodology for tax payment obligations 
between an institution and its parent holding company within a 
consolidated group

[[Page 24757]]

and would address how the institution should be compensated for the use 
of its tax assets (such as net operating losses and tax credits). The 
proposal would be adopted primarily under Section 39 of the Federal 
Deposit Insurance Act (FDI Act) \3\ and codified within the agencies' 
safety and soundness regulations.\4\
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    \1\ National banks and Federal savings associations, (OCC); 
state member banks (Board); and state nonmember banks and state 
savings associations (FDIC).
    \2\ A consolidated group refers to an institution, its parent, 
and any affiliates of the institution that join in the filing of a 
tax return as a single consolidated, combined, or unitary group.
    \3\ 12 U.S.C. 1831p-1.
    \4\ 12 CFR part 30 (OCC); 12 CFR part 208 (Board); 12 CFR part 
364 (FDIC).
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    The proposal would require institutions to include certain 
provisions in all tax allocation agreements, such as: The timing and 
amounts of any payments for taxes due to taxing authorities; the 
acknowledgment of an agency relationship between institutions and their 
holding companies in a consolidated group with respect to tax refunds 
received; and a provision stating that documents, including returns, 
relating to consolidated or combined federal, state, or local income 
tax filings must be made available to an institution or any successor 
during regular business hours. The proposal further addresses the 
regulatory reporting treatment of an institution's deferred tax assets 
(DTAs).

B. Background

    In 1998, the agencies and the Office of Thrift Supervision \5\ 
adopted the Interagency Policy Statement on Income Tax Allocation in a 
Holding Company Structure \6\ (Interagency Policy Statement) to provide 
guidance to insured depository institutions, their holding companies, 
and other affiliates regarding the allocation and payment of taxes when 
these entities file income tax returns on a consolidated basis. One of 
the principal goals of the Interagency Policy Statement is to clarify 
insured depository institutions' ownership rights in tax refunds when 
the consolidated group elects to file a consolidated tax return. The 
Interagency Policy Statement states that tax settlements between an 
insured depository institution and its holding company should be 
conducted in a manner that is no less favorable to the insured 
depository institution than if it were a separate taxpayer, and that 
whenever a holding company receives a tax refund from any taxing 
authority, and the refund is one that is attributable to its subsidiary 
insured depository institution, the holding company is acting purely as 
an agent for the insured depository institution.
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    \5\ The functions of the Office of Thrift Supervision were 
transferred to the OCC and FDIC in accordance with Title III of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act, Public 
Law 111-203, enacted July 21, 2010.
    \6\ 63 FR 64757 (Nov. 23, 1998).
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    In 2014, the agencies issued an addendum to the Interagency Policy 
Statement to emphasize that tax allocation agreements should expressly 
acknowledge an agency relationship between a holding company and its 
subsidiary insured depository institution to protect the insured 
depository institution's ownership rights in tax refunds (2014 
Addendum).\7\ The 2014 Addendum also clarifies that all tax allocation 
agreements are subject to section 23B of the Federal Reserve Act 
(section 23B).\8\ In addition, the 2014 Addendum provides that tax 
allocation agreements that do not clearly acknowledge the presence of 
an agency relationship between the holding company and the subsidiary 
insured depository institution may be subject to requirements under 
section 23A of the Federal Reserve Act (section 23A).\9\ Moreover, the 
2014 Addendum clarifies that section 23B requires a holding company to 
transmit promptly to its subsidiary insured depository institution any 
tax refunds received from a taxing authority that are attributable to 
the insured depository institution. Sections 23A and 23B apply to 
institutions supervised by the agencies.\10\
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    \7\ 79 FR 35228 (June 19, 2014).
    \8\ 12 U.S.C. 371c-1.
    \9\ 12 U.S.C. 371c. Section 23A requires, among other things, 
that loans and other extensions of credit from an insured depository 
institution to its affiliate be collateralized properly by a 
specified amount and subject to certain quantitative limits. Issues 
concerning compliance with section 23A could arise from instances 
whereby a tax allocation agreement does not (i) acknowledge that a 
holding company in a consolidated group serves as agent for its 
subsidiary insured depository institution with respect to tax 
refunds generated by the subsidiary insured depository institution, 
or (ii) require a holding company in a consolidated group to 
transmit promptly the appropriate portion of a consolidated group's 
tax refund to the subsidiary insured depository institution. In such 
circumstances, the failure of a holding company to acknowledge an 
agency relationship with respect to tax refunds or to pay promptly 
the subsidiary insured depository institution its appropriate 
portion of tax refunds could result in an extension of credit from 
the insured depository institution to its affiliated holding company 
in the consolidated group that would be subject to the requirements 
of section 23A.
    \10\ Sections 23A and 23B and 12 CFR part 223 apply by their 
terms to ``member banks'', that is, any national bank, State bank, 
trust company, or other institution that is a member of the Federal 
Reserve System. In addition, the Federal Deposit Insurance Act (12 
U.S.C. 1828(j)) applies sections 23A and 23B to insured State 
nonmember banks in the same manner and to the same extent as if they 
were member banks. The Home Owners' Loan Act (12 U.S.C. 1468(a)) 
also applies sections 23A and 23B to insured savings associations in 
the same manner and to the same extent as if they were member banks.
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    In their supervision of institutions, the agencies have observed 
that some institutions in consolidated groups either lack tax 
allocation agreements with their holding companies or have agreements 
that do not have language conforming with section 23A or 23B. In 
particular, the agencies have reviewed tax allocation agreements that 
do not require a holding company in a consolidated group to transmit 
promptly the appropriate portion of a consolidated group's tax refund 
to its subsidiary institution, resulting in the holding company failing 
to do so in some instances. Such inaction could adversely affect the 
safety and soundness of the subsidiary institutions because delayed 
access to funds could weaken an institution's liquidity profile. 
Further, in its capacity as receiver for failed insured depository 
institutions, the FDIC has engaged in legal disputes regarding the 
ownership of tax refunds claimed by holding companies based on losses 
incurred by insured depository institutions in a consolidated group 
because the tax allocation agreements did not clearly acknowledge an 
agency relationship between an insured depository institution and its 
holding company. These disputes can reduce or prevent recoveries by the 
FDIC on behalf of failed insured depository institutions, consequently 
increase costs to the Deposit Insurance Fund, and thus could lead to 
higher FDIC deposit insurance premiums charged to solvent insured 
depository institutions.

II. Description of the Proposal

A. Scope of Application

    The proposal would apply to all institutions that file federal and 
state income taxes in a consolidated group in which one or more of the 
institutions in the consolidated group is supervised by any of the 
agencies. A consolidated group refers to an institution, its parent, 
and any affiliates of the institution that join in the filing of a tax 
return as a single consolidated, combined, or unitary group. While the 
Interagency Policy Statement and 2014 Addendum only apply to insured 
depository institutions, the OCC has observed similar problematic tax 
practices at uninsured institutions it supervises. Therefore, the OCC 
proposes to apply relevant provisions of the proposal to uninsured 
institutions as well.
    In contrast, institutions that do not file federal and state income 
taxes as members of a consolidated group file separately and account 
for taxes on a separate entity basis. Therefore, an institution that 
files on a separate entity basis or in a group consisting solely of the 
institution and its subsidiaries would not be subject to the proposal.

[[Page 24758]]

The proposal also would not apply to an institution if the institution 
or its holding company is not subject to corporate income taxes at 
either the federal or state level, such as those that have elected S-
Corporation status and do not have an obligation to pay corporate 
income taxes.\11\
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    \11\ S-corporations are corporations that elect to pass 
corporate income, losses, deductions, and credits through to their 
shareholders for federal tax purposes under Subchapter S of the 
Internal Revenue Code. See 26 U.S.C. 1361 et seq.
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    Question [1]: Is the scope of application of the proposal 
appropriate, and what are the advantages and disadvantages of this 
scope?

B. Tax Allocation in a Holding Company Structure

    As noted, a holding company and its bank subsidiaries have the 
ability to file a consolidated group income tax return. However, each 
depository institution is viewed as, and reports as, a separate legal 
and accounting entity for certain regulatory purposes, including for 
regulatory capital requirements. When a depository institution has 
subsidiaries of its own, the institution's applicable income taxes on a 
separate entity basis include the taxes of the subsidiaries of the 
institution itself that are included with the institution in the 
consolidated group return. Accordingly, each depository institution's 
applicable income taxes, reflecting either an expense or benefit, 
should be recorded in its books and records and reflected in the 
institution's regulatory reports as if the institution had filed on a 
separate entity basis. Throughout this notice, the terms ``separate 
entity'' and ``separate taxpayer'' are used synonymously. Furthermore, 
the amount and timing of payments or refunds should not be in any case 
less favorable to the institution than if the institution were a 
separate taxpayer. Any practice that is not consistent with this 
principle may be viewed as an unsafe or unsound practice.

C. Tax Allocation Agreements and Key Terms

    The proposal would require that all institutions that are subject 
to Federal or State tax and file tax returns as part of a consolidated 
group execute a tax allocation agreement that applies to and binds each 
member of the consolidated group. The proposal also would require that 
the tax allocation agreement be approved by the boards of directors of 
an institution subject to that tax allocation agreement and its holding 
company to ensure the agreement's enforceability by and among the 
institutions in the consolidated group.
    Section 23A and 23B generally govern extensions of credit and 
certain other transactions between institutions and their affiliates, 
which include their holding companies. Section 23A places quantitative 
limits on covered transactions between an institution and its 
affiliates and imposes collateral requirements on certain covered 
transactions. Section 23B requires that transactions between an 
institution and its affiliates be made on terms and under circumstances 
that are substantially the same, or at least as favorable to the 
institution, as comparable transactions involving nonaffiliated 
companies or, in the absence of the comparable transactions, on terms 
and circumstances that would in good faith be offered to nonaffiliated 
companies. The tax allocation agreement requirements in the proposal 
are intended to be consistent with sections 23A and 23B.
    As mentioned above, one of the principles of the Interagency Policy 
Statement is that a tax allocation agreement cannot result in terms 
less favorable to an institution than if the institution filed its 
income tax return on a separate entity basis (that is, not as part of a 
consolidated group). To achieve this result, tax allocation agreements 
subject to the proposal would be required to establish certain rights 
and obligations among institutions in the consolidated group. 
Adjustments for statutory tax considerations that may arise on a 
consolidated tax return are permitted as long as the adjustments are 
made on a basis that is equitable and consistently applied among the 
holding company and other affiliates. Certain proposed key terms that 
would be required under the proposal for tax allocation agreements are 
explained below.
    The proposal clarifies that, in terms of timing, an institution 
must be compensated for the use of its tax assets by the parent or 
other members of the consolidated group at the time the relevant tax 
asset is absorbed by the consolidated group. The proposal also 
clarifies that an institution must be promptly remitted any tax refund 
received (by the holding company) from a taxing authority that is based 
on the institution's tax attributes.\12\ This is a common approach 
taken in tax sharing agreements, would promote safety and soundness by 
ensuring that an institution receives the benefit of its tax 
attributes, and is the approach least likely to create an extension of 
credit under section 23A.
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    \12\ If an overpayment of tax is applied as a credit toward 
estimated tax or other payments due, the tax refund would be 
considered received by the holding company when it files the return 
electing to apply the refund as a credit.
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    Question [2]: While the agencies expect refunds would be 
transmitted to the institution as soon as possible, what are the 
advantages and disadvantages of the agencies requiring that an 
institution receive any tax refund based on its tax attributes within a 
specific timeframe from the date received? What would be an appropriate 
timeframe, and why?
    Question [3]: What are the advantages and disadvantages of 
requiring that a parent or other members of a consolidated group 
compensate an institution for the use of its tax assets if and when the 
relevant tax asset is absorbed or used? How do these advantages and 
disadvantages compare to the advantages and disadvantages of other 
approaches including, for example, requiring that a parent or other 
members of the consolidated group compensate an institution for use of 
its tax assets if and when the institution would have been able to use 
the tax asset on a stand-alone basis?
Agency Relationship
    As discussed in the preamble to the 2014 Addendum, there have been 
many legal disputes between holding companies and the FDIC, as receiver 
for failed insured depository institutions, regarding the ownership of 
tax refunds generated by the insured depository institutions. In 
reported decisions, some courts have found that tax refunds generated 
by an insured depository institution were the property of its holding 
company based on certain language contained in their tax allocation 
agreements that the courts have interpreted as creating a debtor-
creditor relationship.\13\ As a result, the FDIC's Deposit Insurance 
Fund has a material stake in the outcome of these legal disputes 
because they may lead to significant losses to creditors of the 
receiverships and, ultimately, the Deposit Insurance Fund.\14\ 
Therefore, the agencies are proposing that holding companies receive 
refunds due to institutions (if attributable to the tax attributes of 
an institution) in trust and promptly remit them to the institutions 
for two reasons. First, an institution's prompt receipt of refunds that 
are based on the tax attributes created by that institution would allow 
management to

[[Page 24759]]

direct those funds for the immediate benefit of the institution that 
owns them, rather than allowing them to be retained for the benefit of 
the holding company. Second, receipt of the refund by the institution 
strengthens the institution's liquidity profile as compared to a 
receivable from the holding company, and reduces the risk that a refund 
paid by the taxing authority to the holding company based on use of the 
institution's tax attributes would be diverted to the holding company's 
creditors or other affiliates.
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    \13\ See, e.g., In re IndyMac Bancorp, Inc., 2012 WL 1037481 
(Bankr. C.D. Cal. Mar. 29, 2012); In re Downey Financial Corp., 593 
F. App'x 123 (3d Cir. 2015).
    \14\ The Deposit Insurance Fund is funded primarily from deposit 
insurance assessments collected by the FDIC from insured depository 
institutions.
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    Under the proposal, a group's tax allocation agreement must specify 
that an agency relationship exists between the institution and its 
holding company, including an affiliate of the institution that submits 
tax returns for the consolidated group with respect to tax refunds. The 
proposal would clarify that the subsidiary institution must enter into 
a tax allocation agreement that specifies that the institution owns any 
tax refund that is created from or results from its tax attributes. A 
group tax allocation agreement must state that the holding company 
receives any portion of the tax refund related to the subsidiary 
institution's tax attributes in trust for the benefit of the subsidiary 
institution, including, for example, when a holding company receives a 
tax refund for a consolidated group, and some or all of the tax refund 
is due to tax attributes \15\ of a subsidiary institution. Further, 
under the proposal, the tax allocation agreement must provide that the 
holding company will remit the refund promptly to the subsidiary 
institution. Finally, to avoid any transactions that would prevent 
institutions from receiving tax refunds attributable to their tax 
attributes, the tax allocation agreement must provide that, 
notwithstanding any other transactions or agreements to the contrary, 
the institution must receive any tax refund attributable to its tax 
attributes.\16\
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    \15\ For example, if a refund is based on losses generated by or 
tax credits due to activities occurring at the subsidiary insured 
depository institution.
    \16\ For example, this would preclude an institution entering 
into any side agreements purporting to allocate a tax refund 
attributable to its tax attributes to an affiliate.
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Tax Payments to a Holding Company
    The proposal also would address the timing and amount of tax 
payments \17\ made to a holding company by an institution in a 
consolidated group. Specifically, the proposal would require an 
institution to be a party to a tax allocation agreement that prohibits 
tax payments by the institution to its affiliates in excess of the 
current period tax obligation of the institution calculated on a 
separate entity basis. This requirement would reduce the risk that the 
holding company would use the institution's funds to pay expenses or 
offset tax liabilities owed by the holding company or its other 
affiliates (other than the institution).
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    \17\ Tax payments include both annual statutory tax payments and 
interim estimated payments required within an annual period.
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    Remitting a current period tax expense payment to a holding company 
significantly in advance of when the payment would be due to the taxing 
authority if the institution filed on a stand-alone basis may treat the 
institution less favorably than if it were a separate taxpayer and, 
further, may be subject to section 23B. As a result, under the 
proposal, an institution must not remit its current period tax expense 
(or reasonably calculated estimated tax payment) earlier than when the 
institution would have been obligated to pay the taxing authority had 
it filed as a separate entity, based on the timeframes established by 
the taxing authority. Furthermore, the tax allocation agreement may 
permit the holding company to collect less than what the institution's 
current period income tax obligation would have been, calculated on a 
separate entity basis. Provided the parent will not later require the 
institution to pay the remainder of the current tax liability, the 
amount of this unremitted liability should be accounted for as having 
been paid with a simultaneous capital contribution by the parent to the 
subsidiary. With respect to deferred tax liabilities (DTLs), however, a 
parent cannot forgive some or all of the institution's DTL because the 
parent cannot legally relieve the subsidiary of a potential future 
obligation to the taxing authorities, especially if the subsidiary were 
to become a stand-alone entity. Furthermore, taxing authorities can 
collect some or all of a group's liability from any of the group 
members if tax payments are not made when due.
Payments and Hypothetical Tax Refunds From a Holding Company to an 
Institution
    The proposal would address the timing and amount of tax payments 
and hypothetical refunds to be received by an institution in a 
consolidated group from its holding company. For example, in a 
situation whereby the institution, as a separate entity, has a net 
operating loss (NOL) and other members of the group have taxable 
income, the consolidated group must utilize the institution's tax loss 
to reduce the consolidated group's current tax liability because 
consolidated tax return rules require the holding company to utilize 
the NOLs of members of the group to reduce the group's taxable income 
and thus its current tax liability.\18\ As a result, in this situation, 
the holding company must reimburse the institution for the current use 
of its tax losses at the time the NOL is used. The institution must 
reflect the tax benefit of the loss in the current portion of its 
applicable income taxes in the period the loss is incurred.
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    \18\ 26 CFR 1.1502-11 and 1.1502-12.
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    Separately, the proposal would require that an institution must 
receive from its holding company no less than the tax refund amount it 
would have received had it filed tax returns on a separate entity 
basis. For example, this would apply if the institution has a tax loss 
and would have been able to carry back that loss to a previous year and 
obtain a tax refund from a taxing authority had it filed income tax 
returns on a separate entity basis, but there is no ability to obtain 
an actual refund because other members in the consolidated group had 
losses that offset the institution's separate tax liability for the 
previous year(s). Similarly, if the institution makes quarterly tax 
payments, on an aggregate basis, in excess of its annual tax liability 
at year end and would obtain a tax refund had it filed on a separate 
entity basis, the proposal would require that the institution receive 
from the holding company no less than the tax refund amount the 
institution would have received as a separate entity from the taxing 
authority. Consistent with the principle that the amount and timing of 
tax payments within the consolidated group should be no less favorable 
to the institution than if it were a separate taxpayer, this proposed 
requirement would ensure that an institution receives the full benefit 
of its tax assets, such as any tax losses or tax credits it generates 
as a separate entity, instead of allowing those benefits to subsidize 
the activities of other affiliates, even if other affiliates in the 
consolidated group generate offsetting tax liabilities that reduce or 
eliminate a refund to the consolidated group. In this situation, the 
holding company would be required to remit the amount due to the 
institution within a reasonable period following the date the 
institution would have filed its own return on a separate entity basis. 
The prompt transmittal of funds from the holding company to the 
institution would permit management to use those funds for the benefit 
of the institution rather than of the holding company.

[[Page 24760]]

    If a holding company were to fail to remit amounts or refunds owed 
to its subsidiary institution promptly, that inaction may be considered 
an extension of credit under section 23A. A holding company's failure 
to remit amounts or refunds owed to its subsidiary institution also 
could be viewed as a constructive dividend from the institution to the 
holding company, which would be subject to other requirements under 
applicable regulations of the agencies.\19\
---------------------------------------------------------------------------

    \19\ See 12 CFR part 5, subpart E, and 5.55 (OCC); 12 CFR 
303.241 (FDIC).
---------------------------------------------------------------------------

Consolidated Tax Group Filings
    Under the proposal, a tax allocation agreement must require that 
all materials including, but not limited to, returns, supporting 
schedules, workpapers, correspondence, and other documents relating to 
the consolidated federal income tax return and any consolidated, 
combined, or unitary group state or local return, which return includes 
the institution, be made available on demand to the institution or any 
successor during regular business hours and that this requirement must 
survive any termination of the tax allocation agreement. Access to this 
information would permit the institution, as well as agency examiners, 
to evaluate compliance with the proposal, including whether the 
institution and holding company are appropriately calculating the 
institution's share of any tax liability and the institution's refund 
for use of its tax attributes. This proposed approach also is 
consistent with how the Internal Revenue Service views the relationship 
of members in a consolidated group with respect to tax 
documentation.\20\
---------------------------------------------------------------------------

    \20\ See, e.g., Internal Revenue Manual 11.3.2.4.4 (09-17-2020).
---------------------------------------------------------------------------

    With respect to insured depository institutions that enter 
receivership, the FDIC as receiver would be successor to any rights or 
interests of the insured depository institution with respect to various 
agreements, including any tax allocation agreement and the ability to 
obtain tax return information for the consolidated group of which the 
insured depository institution is a member.\21\ Requiring the holding 
company to provide access to tax returns to the consolidated group, 
including the insured depository institution, would benefit the FDIC as 
receiver by improving its ability to meet its tax obligations and 
obtain tax refunds that are due and owed to the failed insured 
depository institution in a timely manner.
---------------------------------------------------------------------------

    \21\ See 26 U.S.C. 6103(e).
---------------------------------------------------------------------------

    Question [4]: What are the advantages and disadvantages of the 
proposed requirements for a tax allocation agreement between an 
institution and its affiliates? Are there other requirements that the 
agencies should consider prescribing?
    Question [5]: To what extent is the proposal consistent with 
current industry practices? To the extent that the proposal differs 
from current practice, what are the advantages and disadvantages of the 
proposal, relative to current industry practices?

D. Regulatory Reporting

    Regardless of whether an institution files as part of a 
consolidated group or as a separate entity, the institution must 
prepare its regulatory reports \22\ on a separate entity basis, as 
specified in the current instructions for those reports.\23\ The 
current instructions for the Consolidated Reports of Condition and 
Income (Call Reports) issued by the Federal Financial Institutions 
Examination Council require an institution that is a subsidiary of a 
holding company to calculate and report its current and deferred taxes 
on a separate entity basis. This existing reporting requirement would 
be unaffected by the proposal, which would establish a similar 
principle. The proposal would address transactions involving the 
purported purchase or sale of, or advancement of funds with respect to, 
an institution's DTAs and DTLs (collectively, ``deferred tax items''). 
A DTA or DTL is an estimate of an expected future tax benefit more 
likely than not to be realized or an expected future tax obligation to 
be paid, respectively. Deferred tax items are generated by and are 
intrinsically, and often legally, tied to the activities, assets, and 
liabilities of the institution. DTAs and DTLs represent the future 
effects on income taxes that result from temporary differences and 
carryforwards that exist at the end of a period.\24\ The agencies would 
propose to revise the Call Report instructions to incorporate the 
treatment for deferred tax items under the proposal, as described in 
the Paperwork Reduction Act section of the SUPPLEMENTARY INFORMATION.
---------------------------------------------------------------------------

    \22\ The Consolidated Reports of Condition and Income (Call 
Reports) (FFIEC 031, FFIEC 041, and FFIEC 051; OMB No. 1557-0081 
(OCC), 7100-0036 (Board), and 3064-0052 (FDIC)).
    \23\ The separate entity method of accounting for income taxes 
of depository institution subsidiaries of holding companies is 
discussed in the glossary entry for ``Income Taxes'' in the Call 
Report instructions, available at: www.ffiec.gov/ffiec_report_forms.htm.
    \24\ See Acct. Standards Codification (ASC) Topic 740 ] 740-10-
05-7 (Fin. Acct. Standards Bd. 2019).
---------------------------------------------------------------------------

Temporary Difference Deferred Tax Items
    Consistent with the separate entity basis reporting requirement, 
separating DTAs and DTLs from the associated assets or liabilities that 
gave rise to the deferred tax items would depart from one of the 
primary objectives related to accounting for income taxes, which is to 
recognize deferred tax items for the future tax consequences of events 
that have been recognized in an entity's financial statements or tax 
returns.\25\ The relevant accounting standards specifically state that 
a temporary difference refers to a difference between the tax basis of 
an asset or liability and its reported amount in the financial 
statements that will result in taxable or deductible amounts in future 
years when the reported amount of the asset or liability is recovered 
or settled, respectively.\26\ More specifically, DTAs are the deferred 
tax consequences attributable to deductible temporary differences and 
carryforwards, while DTLs are the deferred tax consequences 
attributable to taxable temporary differences.\27\
---------------------------------------------------------------------------

    \25\ Id. ] 740-10-10-1.
    \26\ Id. ] 740-10-05-7.
    \27\ Id. ] 740-10-20.
---------------------------------------------------------------------------

    Based on the description of deferred tax items in ASC paragraph 
740-10-05-7 and the uncertainty over the actual amounts at which 
deferred tax items will be settled or realized in future periods, 
temporary difference deferred tax items should remain on the balance 
sheet as long as the associated assets or liabilities that give rise to 
those deferred tax items remain on the balance sheet. Accordingly, an 
institution's purchase, sale, or other transfer of deferred tax items 
arising from temporary differences is not acceptable under U.S. 
generally accepted accounting principles (GAAP) unless these items are 
transferred in connection with the transfer of the associated assets or 
liabilities. In the case of timing differences, it may be appropriate 
to transfer DTAs or DTLs resulting from a timing difference when the 
underlying asset or liability that created the future tax benefit or 
obligation is being purchased, sold, or transferred within the 
consolidated group.\28\ In addition, when the DTA or DTL can be 
realized or is absorbed by the consolidated group in the current

[[Page 24761]]

period tax return, it would be appropriate to settle or recover the DTA 
or DTL, respectively.\29\ Therefore, as described in the Paperwork 
Reduction Act section of the SUPPLEMENTARY INFORMATION, the agencies 
plan to revise the Call Report instructions to clarify that transfers 
of temporary difference deferred tax items as described above are not 
consistent with GAAP.
---------------------------------------------------------------------------

    \28\ When an asset or liability is transferred outside the 
consolidated group, the institution would no longer recognize the 
associated DTA or DTL. The institution would include the tax 
consequences of the transaction in the calculation of its current 
period tax expense or benefit.
    \29\ Under GAAP, a deferred tax item generally becomes a current 
tax item when it is expected to be used to calculate estimated taxes 
payable or receivable on tax returns for current and prior years. 
ASC Topic 740 ] 740-10-25-2(a) (Fin. Acct. Standards Bd. 2019).
---------------------------------------------------------------------------

Operating Loss and Tax Credit Carryforward DTAs
    Carryforwards are deductions or credits that cannot be utilized on 
the tax return during a year that may be carried forward to reduce 
taxable income or taxes payable in a future year.\30\ Thus, in contrast 
to temporary differences, carryforwards do not arise directly from 
book-tax basis differences associated with particular assets or 
liabilities.
---------------------------------------------------------------------------

    \30\ Id. ] 740-10-20.
---------------------------------------------------------------------------

    GAAP does not require a single allocation method for income taxes 
when members of a consolidated group issue separate financial 
statements.\31\ The commonly applied ``separate-return'' method, which 
would reflect DTAs for NOLs and tax credit carryforwards on a separate 
return basis, would meet the relevant criteria.\32\ Other systematic 
and rational methods that are consistent with the broad principles 
established by ASC 740 are also acceptable.
---------------------------------------------------------------------------

    \31\ See id. ] 740-10-30-27 (referring to ASC subtopic 740-10).
    \32\ Id.
---------------------------------------------------------------------------

    The FDI Act provides that the accounting principles applicable to 
reports or statements required to be filed with the agencies by insured 
depository institutions should result in reports of condition that 
accurately reflect the capital of such institutions, facilitate 
effective supervision of the institutions, and facilitate prompt 
corrective action to resolve the institutions at the least cost to the 
Deposit Insurance Fund.\33\ The FDI Act also provides that, in general, 
the accounting principles applicable to Call Reports must be uniform 
and consistent with GAAP.\34\ However, this section permits the 
agencies to adopt alternate accounting principles for regulatory 
reporting that are no less stringent than GAAP, if the agencies find 
that application of GAAP fails to meet any of the objectives stated 
above.\35\
---------------------------------------------------------------------------

    \33\ 12 U.S.C. 1831n(a)(1).
    \34\ 12 U.S.C. 1831n(a)(2)(A).
    \35\ 12 U.S.C. 1831n(a)(2)(B).
---------------------------------------------------------------------------

    The agencies are aware of instances in which institutions have 
engaged in transactions with affiliates in a consolidated group to 
purchase, sell, or otherwise transfer deferred tax items, specifically 
DTAs, other than current period tax losses useable in the consolidated 
group's tax return for the current period, which would otherwise be NOL 
carryforward DTAs for the institution. The agencies' regulatory capital 
rule requires the deduction from common equity tier 1 capital of NOLs 
and tax credit carryforward DTAs, net of any related valuation 
allowances and net of DTLs.\36\ Because of this treatment, an 
institution may attempt to derecognize its DTAs for NOLs or tax credit 
carryforwards on its separate-entity regulatory reports prior to the 
time when the carryforward benefits are absorbed by the consolidated 
group by selling or otherwise transferring these DTAs to affiliates, 
particularly affiliates not subject to the agencies' regulatory capital 
rule, potentially overstating capital. While an institution may receive 
cash from affiliates in exchange for these transfers, the transfer may 
be reversible and not provide the same quality of regulatory capital as 
cash in the form of a capital contribution from a holding company.
---------------------------------------------------------------------------

    \36\ See 12 CFR 3.22(a)(3) (OCC); 12 CFR 217.22(a)(3) (Board); 
12 CFR 324.22(a)(3) (FDIC).
---------------------------------------------------------------------------

    Second, there are significant valuation uncertainties associated 
with deferred tax items, particularly DTAs for NOLs or tax credit 
carryforwards, when the underlying tax attributes cannot be used or 
absorbed by the group in the current period. Even though deferred tax 
items are measured in accordance with the enacted tax rates expected to 
apply when these items are settled or realized, the actual amounts at 
which these items will be settled or realized will be determined using 
the tax rates in effect in the future periods when settlement or 
realization occurs. In cases where such transactions have been 
observed, the cash settlement for the deferred tax assets is based on 
tax rates at the time of the settlement between the entities. However, 
the actual tax benefit realized by the consolidated group may 
ultimately differ from that amount, depending upon tax rates at the 
time the relevant deferred tax asset is absorbed by the consolidated 
group. As a result, an institution that sells or purchases DTAs for 
NOLs or tax credit carryforwards may receive significantly less than, 
or overpay for, these DTAs in relation to the amounts at which these 
DTAs ultimately would have been realized had they not been transferred, 
which also raises concerns under section 23B to the extent that the 
insured depository institution is placed in a position less favorable 
than if it filed its income tax return on a separate entity basis.\37\ 
For example, changes in federal tax laws, such as a change in the 
corporate income tax rate or provisions related to NOL carryback 
periods, can significantly affect the value of associated DTAs.\38\
---------------------------------------------------------------------------

    \37\ This circumstance also may raise concerns under section 
23A, to the extent that monies owed to the insured depository 
institution from an affiliate as a result of these changed amounts 
are not paid promptly to the insured depository institution and may 
be viewed as extensions of credit subject to the requirements of 
section 23A.
    \38\ See, e.g., NOL carryback provisions in the Coronavirus Aid, 
Relief, and Economic Security Act (CARES Act) and the Worker, 
Homeownership, and Business Assistance Act of 2009, and NOL and 
corporate tax rate changes in the Tax Cuts and Jobs Act. Public Law 
116-136, 134 Stat. 281 (2020); Public Law 111-92, 123 Stat. 2984 
(2009); Public Law 115-97, 131 Stat. 2054 (2017).
---------------------------------------------------------------------------

    For these reasons, the agencies have concluded that the 
derecognition by insured depository institutions of DTAs for NOL or tax 
credit carryforwards on their separate-entity regulatory reports before 
the period in which they are absorbed by the consolidated group raises 
significant concerns and would not meet the objectives described in 12 
U.S.C. 1831n(a)(1).\39\ Specifically, the agencies find that 
derecognizing DTAs for NOLs or tax credit carryforwards in the Call 
Report in such circumstances may not accurately reflect an 
institution's capital and may increase the cost to the Deposit 
Insurance Fund if insured depository institutions that have engaged in 
these transactions subsequently fail after the DTAs were sold for less 
than their value, and the FDIC as receiver is unable to fully recover 
the value of these DTAs under applicable tax laws.
---------------------------------------------------------------------------

    \39\ The establishment of valuation allowances for DTAs for NOL 
and tax credit carryforwards when required in accordance with U.S. 
GAAP is not a derecognition event.
---------------------------------------------------------------------------

    Consistent with this finding, as described in the Paperwork 
Reduction Act section of the SUPPLEMENTARY INFORMATION, the agencies 
expect to propose to revise the Call Report instructions to clarify 
that an institution must not derecognize DTAs for NOLs or tax credit 
carryforwards on its separate-entity regulatory reports prior to the 
time when such carryforwards are absorbed by the consolidated group.

III. Incorporation of the Proposal as an Appendix to the Agencies' 
Safety and Soundness Rules

    The agencies would adopt the proposal under the procedures 
described in section 39 of the FDI Act.\40\

[[Page 24762]]

The OCC would also adopt the proposal for uninsured institutions under 
its general rulemaking authority.\41\ Guidelines or standards adopted 
under section 39 through a rulemaking are accorded special enforcement 
treatment under that statute. The agencies each have procedural rules 
that implement the enforcement remedies for guidelines prescribed by 
section 39. Under procedural provisions in these rules, each agency 
would be authorized to require an institution that intends to 
participate in a consolidated tax filing group and does not have an 
acceptable tax allocation agreement to develop a plan to implement an 
acceptable agreement consistent with the proposal or to be subject to 
enforcement actions.
---------------------------------------------------------------------------

    \40\ 12 U.S.C. 1831p-1.
    \41\ 12 U.S.C. 93a.
---------------------------------------------------------------------------

    Each agency proposes to incorporate the proposal as an appendix to 
its relevant safety and soundness rule (located in 12 CFR part 30 
(OCC), 12 CFR part 208 (Board) and part 364 (FDIC)).

IV. Impact Analysis

Scope of Application

    As of the most recent data, the agencies estimate that 2,604 
supervised institutions (including 2,581 insured institutions and 23 
uninsured OCC-chartered institutions) would be subject to the 
proposal.\42\ Covered institutions must be part of a consolidated group 
and obligated to pay federal and state income taxes. These covered 
institutions represent 51 percent of all institutions supervised by the 
agencies, and they hold over 93 percent of total assets of all 
institutions supervised by the agencies.\43\
---------------------------------------------------------------------------

    \42\ Call Report data, September 30, 2020. The agencies estimate 
the covered institutions by subtracting the 1,537 insured 
institutions and 3 uninsured OCC-chartered institutions supervised 
by the agencies that are subsidiaries of bank or thrift holding 
companies supervised by the Board, are registered as Subchapter S 
corporations, and would not be affected by the adoption of the 
proposal; from the 4,118 insured institutions and 26 uninsured OCC-
chartered institutions supervised by the agencies that are 
subsidiaries of bank or thrift holding companies supervised by the 
Board, respectively.
    \43\ Id.
---------------------------------------------------------------------------

    The agencies do not have, nor are they aware of, data that 
indicates whether any particular institution files taxes as part of a 
consolidated group, whether the institutions have tax allocation 
agreements with their holding companies, or whether the institutions 
have agreements that would conform with the proposal. Therefore, it is 
difficult to accurately estimate the number of institutions that would 
be potentially affected by the proposal. However, in their supervision 
of institutions, the agencies have observed that only a small number of 
institutions in consolidated groups lack tax allocation agreements with 
their holding companies, have agreements that do not have language 
conforming with section 23A or 23B, or engage in transfers of DTAs or 
DTLs that are inconsistent with the separate entity basis reporting 
requirement. Overall, due to the fact that the agencies expect most 
covered institutions to already be in compliance with the proposal, the 
expected costs of the proposal are likely to be small.
    The potential benefits and costs discussed below generally apply to 
the supervised institutions, their affiliates, and holding companies 
that are not already implementing principles from the existing non-
codified guidance.

Benefits

    There are three key benefits of the proposal. First, in some 
situations, the proposal would strengthen the safety and soundness of 
covered insured and uninsured institutions by ensuring that 
consolidated tax filing arrangements and practices are not adverse to 
their interests. Second, in some circumstances, the proposal would 
reduce the FDIC's resolution-related costs for covered insured 
institutions. Third, under some circumstances, the proposal would 
result in institutions more accurately reflecting their common equity 
tier 1 capital. These issues are discussed in more detail below.
    The proposal could strengthen the safety and soundness of covered 
institutions. In particular, to the extent that covered institutions, 
their affiliates, and holding companies are not already implementing 
principles from the existing non-codified guidance, it may be possible 
to transfer tax credits out of the institution to a parent or 
affiliate. In this situation, the transfer weakens the safety and 
soundness of the institution. The proposal would limit such transfers, 
increasing the safety and soundness of the covered institution.
    The effect of the proposal on safety and soundness of all members 
of a consolidated group can be more nuanced. For example, when the 
parent or affiliate entity retains the transfers of tax credits out of 
the covered institution, the potential reduction of the safety and 
soundness of the covered institution may be accompanied by a 
corresponding increase in safety and soundness at the holding company 
or other affiliates.
    To the extent there are covered institutions that currently engage 
in transactions involving NOL and tax credit carryforward DTAs within a 
consolidated group, the proposal could result in fewer transfers of 
such deferred tax items and the covered institutions may be more likely 
to receive equitable treatment. Furthermore, if the proposal were 
adopted, the covered institutions would retain access to the 
appropriate share of funds as they avoid being underpaid, or 
overpaying, in the course of the transactions related to deferred tax 
items.
    By requiring a tax allocation agreement, and clear language in such 
agreements about an agency relationship, the proposal could reduce the 
cost of resolving failed insured depository institutions. In 
particular, to the extent that covered institutions, their affiliates, 
and holding companies are not already implementing principles from the 
existing non-codified guidance, it is possible to transfer tax credits 
out of the insured depository institution and into a parent or 
affiliate thereby reducing the value of the assets of the insured 
depository institution and raising the cost of resolving failed banks. 
Prompt receipt of tax refunds and appropriate timing and payment of tax 
obligations based on terms and provisions in a tax allocation agreement 
would, in some situations, result in the insured depository institution 
being better capitalized when entering receivership, and allow the FDIC 
to avoid litigation over the consolidated group's tax refunds and 
reduce uncertainties over any tax liabilities. By reducing the insured 
depository institution's failure resolution costs, including the 
related litigation and other procedural costs of resolution, the 
proposal would allow the FDIC to more efficiently resolve failed 
insured depository institutions, carry out its mission in a more cost-
effective manner, and reduce future costs to the Deposit Insurance 
Fund.
    As described in the Operating Loss and Tax Credit Carryforward DTAs 
section of the SUPPLEMENTARY INFORMATION, the agencies are aware of 
instances in which institutions have engaged in transactions with 
affiliates in a consolidated group to purchase, sell, or otherwise 
transfer deferred tax items, specifically DTAs, other than current 
period tax losses useable in the consolidated group's tax return for 
the current period, which would otherwise be NOL and tax credit 
carryforward DTAs for the covered institution. The proposal clarifies 
regulatory reporting requirements to help ensure that an institution 
recognizes all its individual deferred tax items, including those 
arising from temporary timing

[[Page 24763]]

differences, in its regulatory reports.\44\ An institution cannot 
report such items on its Call Reports separately from the asset or 
liability that gave rise to it, except under certain circumstances that 
are appropriate under GAAP.\45\ The proposal also addresses accounting 
principles for regulatory reporting for institutions' transactions 
involving the purported purchase or sale of, or advancement of funds 
with respect to its NOLs and tax credit carryforward DTAs \46\ to other 
affiliates in the consolidated group or the holding company. The 
agencies' regulatory capital rule requires the deduction from common 
equity tier 1 capital of NOL and tax credit carryforward DTAs, net of 
any related valuation allowances and net of DTLs.\47\ Thus, by 
clarifying the regulatory reporting requirements, the proposal would 
more accurately reflect institutions' common equity tier 1 capital.
---------------------------------------------------------------------------

    \44\ For banks, savings associations, and non-deposit trust 
companies, the Consolidated Reports of Condition and Income (Call 
Reports) (FFIEC 031, FFIEC 041, and FFIEC 051; OMB No. 1557-0081 
(OCC), 7100-0036 (Board), and 3064-0052 (FDIC)).
    \45\ GAAP does not prohibit the purchase, sale, or transfer of 
deferred tax items of the institutions within the consolidated group 
if the institution would not be entitled to a current refund on a 
separate entity basis, or if the purchase, sale, or transfer of 
deferred tax items occurs in conjunction with the purchase, sale, or 
transfer of the assets or the liabilities giving rise to those 
items.
    \46\ In contrast to temporary differences, carryforwards do not 
arise directly from book-tax basis differences associated with 
particular assets or liabilities.
    \47\ See 12 CFR 3.22(a)(3) (OCC); 12 CFR 217.22(a)(3) (Board); 
12 CFR 324.22(a)(3) (FDIC).
---------------------------------------------------------------------------

Costs

    To the extent the supervised institutions, their affiliates, and 
holding companies are not already implementing principles from the 
existing non-codified guidance, there are two primary costs of the 
proposal. First, parent companies and affiliates of covered 
institutions could lose some discretion over the timing, magnitude, and 
direction of cash flows between members of the group. Second, there 
would be regulatory costs associated with preparing agreements as well 
as ongoing compliance or reporting expenses. These issues are discussed 
in more detail below.
    Under the proposal, holding companies would be required to remit 
tax refunds to their subsidiary institutions, if the relevant 
subsidiary's tax assets such as net operating losses or tax credits 
generate the refund. Similarly, if the institution's tax assets allow 
the group to make smaller payments to a tax authority, the institution 
must be compensated at such time as when the consolidated group has 
benefitted from the use of its assets. The proposal would also enable 
institutions to avoid scenarios whereby they are required to submit tax 
payments to their holding company either materially before the holding 
company must remit taxes to the tax authority or greater than their 
actual obligations. The proposal could also result in certain holding 
companies ceasing to retain tax refunds and transmitting refunds to 
their subsidiary institutions, or no longer receiving funds well in 
advance of the obligated payment date.
    Mandatory tax allocation agreements with terms outlined in the 
proposal would reduce discretion over the timing, magnitude, or 
direction of certain cash flows between members of the group. This may 
reduce the flexibility of the holding company to allocate funds between 
members of the consolidated group, potentially resulting in reduced 
growth or profitability.
    To the extent the supervised institutions, their affiliates, and 
holding companies are not already implementing principles from the 
existing non-codified guidance, they could incur regulatory costs in 
order to enter into tax allocation agreements that comply with the 
requirements in the proposal. While these costs are uncertain, they are 
likely to be relatively small given that in the agencies' experience 
only a small number of institutions do not have a tax allocation 
agreement or, have a tax allocation agreement that does not conform 
with the proposal. Further, the Paperwork Reduction Act section of the 
Supplementary Information describes relatively small recordkeeping, 
reporting and disclosure costs associated with the proposal for covered 
entities.
    Overall, due to the fact that the agencies expect most covered 
institutions to already be in compliance with the proposal, the 
expected costs are likely to be small. The proposal would increase the 
safety and soundness of institutions not implementing the principles in 
the Interagency Policy Statement and the 2014 Addendum and reduce 
litigation costs to the Deposit Insurance Fund.

V. Administrative Law Matters

A. Paperwork Reduction Act

    Certain provisions of the proposal contain ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501-3521) (PRA). In accordance with 
the requirements of the PRA, the agencies may not conduct or sponsor, 
and a respondent is not required to respond to, an information 
collection unless it displays a currently valid Office of Management 
and Budget (OMB) control number. The agencies will request new control 
numbers for this information collection. The information collection 
requirements contained in this proposal have been submitted to OMB for 
review and approval by the OCC and FDIC under section 3507(d) of the 
PRA (44 U.S.C. 3507(d)) and Sec.  1320.11 of the OMB's implementing 
regulations (5 CFR part 1320). The Board reviewed the proposal under 
the authority delegated to the Board by OMB.
    Comments are invited on:
    a. Whether the collections of information are necessary for the 
proper performance of the agencies' functions, including whether the 
information has practical utility;
    b. The accuracy or the estimate of the burden of the information 
collections, including the validity of the methodology and assumptions 
used;
    c. Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    d. Ways to minimize the burden of the information collections on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    e. Estimates of capital or startup costs and costs of operation, 
maintenance, and purchase of services to provide information.
    All comments will become a matter of public record. Comments on 
aspects of this notice that may affect reporting, recordkeeping, or 
disclosure requirements and burden estimates should be sent to the 
addresses listed in the ADDRESSES section of this document. A copy of 
the comments may also be submitted to the OMB desk officer for the 
agencies by mail to U.S. Office of Management and Budget, 725 17th 
Street NW, #10235, Washington, DC 20503; facsimile to (202) 395-6974; 
or email to [email protected], Attention, Federal Banking 
Agency Desk Officer.
(1) New Information Collection
OCC
    OMB control number: 1557-NEW.
    Title of Information Collection: Recordkeeping Provisions 
Associated with the Interagency Guidelines on Safety and Soundness 
Standards for Tax Allocation Agreements.
    Frequency: Event generated, annually.
    Affected Public: National banks and federal savings associations.

[[Page 24764]]

    Number of Respondents: 579.
    Estimated average hours per response:
    Recordkeeping Section 30 Appendix F Initial setup--20.
    Recordkeeping Section 30 Appendix F Ongoing--1.
    Estimated annual burden hours:
    Recordkeeping Section 30 Appendix F Initial setup--11,580.
    Recordkeeping Section 30 Appendix F Ongoing--579.
    Total--12,159.
Board
    OMB control number: 7100-NEW.
    Title of Information Collection: Recordkeeping Provisions 
Associated with the Interagency Guidelines on Safety and Soundness 
Standards for Tax Allocation Agreements.
    Frequency: Event generated, annual.
    Affected Public: State member banks.
    Number of Respondents: 435.
    Estimated average hours per response:
    Recordkeeping Section 208 Appendix D-3 Initial setup--20.
    Recordkeeping Section 208 Appendix D-3 Ongoing--1.
    Estimated annual burden hours:
    Recordkeeping Section 208 Appendix D-3 Initial setup--8,700.
    Recordkeeping Section 208 Appendix D-3 Ongoing--435.
FDIC
    OMB control number: 3064-NEW.
    Title of Information Collection: Recordkeeping Provisions 
Associated with the Interagency Guidelines on Safety and Soundness 
Standards for Tax Allocation Agreements.
    Frequency: Event generated, annual.
    Affected Public: State nonmember banks and state savings 
associations.
    Estimated average hours per response:
    Number of Respondents: 1,590.
    Estimated average hours per response:
    Recordkeeping Section 364 Appendix C Initial setup--20.
    Recordkeeping Section 364 Appendix C Ongoing--1.
    Estimated annual burden hours:
    Recordkeeping Section 364 Appendix C Initial setup--31,800.
    Recordkeeping Section 364 Appendix C Ongoing--1,590.
    Current Actions: The proposal prescribes PRA recordkeeping 
requirements for tax allocation agreements that involve institutions 
supervised by the agencies. Each institution that is part of a 
consolidated group must enter into a written tax allocation agreement 
with its holding company. The respective boards of directors of each 
institution and its parent holding company must approve the tax 
allocation agreement.
(2) FFIEC 031, FFIEC 041, and FFIEC 051
Current Actions
    In addition, the proposal would require changes to the instructions 
for the Call Reports (OMB No. 1557-0081 (OCC), 7100-0036 (Board), and 
3064-0052 (FDIC)), which will be addressed in a separate Federal 
Register notice.

B. Regulatory Flexibility Act Analysis

    OCC: In general, the Regulatory Flexibility Act (RFA), 5 U.S.C. 601 
et seq., requires an agency, in connection with a proposed rule, to 
prepare and make available for public comment an Initial Regulatory 
Flexibility Analysis describing the impact of the rule on small 
entities (defined by the Small Business Administration (SBA) for 
purposes of the RFA to include commercial banks and savings 
institutions with total assets of $600 million or less and trust 
companies with total assets of $41.5 million of less) or to certify 
that the proposed rule would not have a significant economic impact on 
a substantial number of small entities. The OCC currently supervises 
approximately 745 small entities, of which 281 may be within the scope 
of the proposed rule. The OCC classifies the economic impact on an 
individual small entity as significant if the total estimated impact in 
one year is greater than 5 percent of the small entity's total annual 
salaries and benefits or greater than 2.5 percent of the small entity's 
total non-interest expense. The OCC estimates the cost of implementing 
or revising the tax allocation agreements under the proposal would be 
less than $1,000 per institution and not result in a significant 
economic impact to these entities. Therefore, the OCC certifies that 
the proposal, if adopted as final, would not have a significant 
economic impact on a substantial number of small entities.
    Board: The Board is providing an initial regulatory flexibility 
analysis with respect to this proposal. The Regulatory Flexibility Act, 
5 U.S.C. 601 et seq. (RFA), requires an agency to consider whether the 
rules it proposes will have a significant economic impact on a 
substantial number of small entities. In connection with a proposed 
rule, the RFA requires an agency to prepare an Initial Regulatory 
Flexibility Analysis describing the impact of the rule on small 
entities or to certify that the proposed rule would not have a 
significant economic impact on a substantial number of small entities. 
An initial regulatory flexibility analysis must contain (1) a 
description of the reasons why action by the agency is being 
considered; (2) a succinct statement of the objectives of, and legal 
basis for, the proposed rule; (3) a description of, and, where 
feasible, an estimate of the number of small entities to which the 
proposed rule will apply; (4) a description of the projected reporting, 
recordkeeping, and other compliance requirements of the proposed rule, 
including an estimate of the classes of small entities that will be 
subject to the requirement and the type of professional skills 
necessary for preparation of the report or record; (5) an 
identification, to the extent practicable, of all relevant Federal 
rules which may duplicate, overlap with, or conflict with the proposed 
rule; and (6) a description of any significant alternatives to the 
proposed rule which accomplish its stated objectives.
    The Board has considered the potential impact of the proposal on 
small entities in accordance with the RFA. Based on its analysis and 
for the reasons stated below, the proposal is not expected to have a 
significant economic impact on a substantial number of small entities. 
Nevertheless, the Board is publishing and inviting comment on this 
initial regulatory flexibility analysis. The Board will consider 
whether to conduct a final regulatory flexibility analysis after any 
comments received during the public comment period have been 
considered.
Reasons Why Action Is Being Considered by the Board
    In their supervision of institutions, the agencies have observed 
that certain institutions in consolidated groups either lack tax 
allocation agreements with their holding companies or have agreements 
that fail to ensure that the institutions receive the benefit of their 
tax attributes, which could negatively impact the safety and soundness 
of these institutions. Although there is existing interagency guidance 
relating to tax allocation agreements, this guidance is nonbinding.
The Objectives of, and Legal Basis for, the Proposal
    The proposal would codify and make enforceable (with certain 
modifications) earlier guidance documents relating to tax allocation 
agreements. The proposal is intended to (1) ensure that state member 
banks that file taxes as part of a consolidated group have tax 
allocation agreements in place, and (2) specify certain mandatory terms 
for such agreements. The proposal would also clarify that an 
institution must not derecognize DTAs for NOLs or tax credit 
carryforwards on its separate-entity regulatory reports prior to the 
time

[[Page 24765]]

when such carryforwards are absorbed by the consolidated group.
    The Board proposes to adopt the proposal pursuant to sections 39 
and 37 of the FDI Act.\48\ Section 39 of the FDI Act authorizes the 
Board to prescribe standards for safety and soundness by regulation or 
guideline. Section 37 of the FDI Act permits the Board to prescribe an 
accounting principle applicable to insured depository institutions that 
is no less stringent than generally accepted accounting principles. The 
guidelines promulgated under the proposal would be incorporated as an 
appendix to the Interagency Guidelines Establishing Standards for 
Safety and Soundness contained in 12 CFR part 208.
---------------------------------------------------------------------------

    \48\ 12 U.S.C. 1831p-1 and 12 U.S.C. 1831(a)(2).
---------------------------------------------------------------------------

Estimate of the Number of Small Entities
    The proposal would apply to state member banks. According to Call 
Reports, there are approximately 455 state member banks that are small 
entities for purposes of the RFA.\49\ 213 of these entities are 
registered as Subchapter S corporations, would pay no tax at the 
business level, and therefore would not be impacted by the proposal. 
Additionally, the majority of potentially impacted small entities are 
likely already party to a tax allocation agreement, as discussed in 
existing guidance, and thus the number of small entities impacted by 
the proposal's requirements is likely to be considerably smaller.
---------------------------------------------------------------------------

    \49\ Under regulations issued by the Small Business 
Administration, a small entity includes a depository institution, 
bank holding company, or savings and loan holding company with total 
assets of $600 million or less. See 84 FR 34261 (July 18, 2019). 
Consistent with the General Principles of Affiliation in 13 CFR 
121.103, the Board counts the assets of all domestic and foreign 
affiliates when determining if the Board should classify a Board-
supervised institution as a small entity. The small entity 
information is based on Call Report data as of September 30, 2020.
---------------------------------------------------------------------------

Description of the Compliance Requirements of the Proposal
    The proposal would require state member banks to enter into tax 
allocation agreements containing certain specified terms. To the extent 
that institutions are not already party to compliant tax allocation 
agreements, they could incur administrative costs to enter into tax 
allocation agreements that comply with this proposal, or to modify 
existing tax allocation agreements to be compliant, which would require 
legal and accounting skills. It is likely that the majority of 
potentially impacted small entities are already party to a tax 
allocation agreement, as discussed in existing guidance. The majority 
of these agreements are likely either compliant with the proposal or 
could be made compliant with relatively minor modifications. Board 
staff estimates that impacted Board-supervised small entities will 
spend 20 hours establishing or modifying a tax allocation agreement, at 
an hourly cost of $115.00.\50\ The estimated aggregate initial 
administrative costs of the proposal to Board-supervised small entities 
amount to $556,600.00,\51\ and ongoing costs are expected to be small 
when measured by small banks' annual expenses. In addition, the 
proposal may also reduce existing flexibility around the timing of 
compensation from holding companies to state member banks for the use 
of their tax attributes. The Board does not anticipate any material 
impact on the overall tax liability of consolidated groups as a result 
of the proposal.
---------------------------------------------------------------------------

    \50\ To estimate average hourly wages, we review data from 
September 2020 for wages (by industry and occupation) from the U.S. 
Bureau of Labor Statistics (BLS) for depository credit 
intermediation (NAICS 522100). To estimate compensation costs 
associated with the rule, we use $115 per hour, which is based on 
the weighted average of the 75th percentile for four occupations 
adjusted for inflation, plus an additional 33.9 percent to cover 
private sector benefits.
    \51\ This estimate is based on the assumption that all 242 
Board-supervised small entities that are not Subchapter S 
corporations would need to spend 20 hours establishing or modifying 
a tax allocation agreement, at a cost of $115.00 per hour. As 
discussed above, because the proposal largely codifies existing 
guidance and likely reflects existing industry practice, the number 
of small entities impacted by the rule's requirements and the 
initial aggregate administrative cost of the proposal is likely to 
be considerably smaller.
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Consideration of Duplicative, Overlapping, or Conflicting Rules and 
Significant Alternatives to the Proposal
    The Board has not identified any federal statutes or regulations 
that would duplicate, overlap, or conflict with the proposal. The Board 
has considered the alternative of maintaining or amending existing 
interagency guidance but considers the proposal to be a more 
appropriate alternative.
    FDIC:
    The RFA generally requires that, in connection with a proposed 
rulemaking, an agency prepare and make available for public comment an 
initial regulatory flexibility analysis describing the impact of the 
proposed rule on small entities.\52\ However, a regulatory flexibility 
analysis is not required if the agency certifies that the rule will not 
have a significant economic impact on a substantial number of small 
entities. The SBA has defined ``small entities'' to include banking 
organizations with total assets of less than or equal to $600 million 
that are independently owned and operated or owned by a holding company 
with less than or equal to $600 million in total assets.\53\ Generally, 
the FDIC considers a significant effect to be a quantified effect in 
excess of 5 percent of total annual salaries and benefits per 
institution, or 2.5 percent of total non-interest expenses. The FDIC 
believes that effects in excess of these thresholds typically represent 
significant effects for FDIC-supervised institutions. The FDIC does not 
believe that the proposed rule, if adopted, will have a significant 
economic effect on a substantial number of small entities. However, 
some expected effects of the proposed rule are difficult to assess or 
accurately quantify given current information, therefore the FDIC has 
included an Initial Regulatory Flexibility Act Analysis in this 
section.
---------------------------------------------------------------------------

    \52\ 5 U.S.C. 601 et seq.
    \53\ The SBA defines a small banking organization as having $600 
million or less in assets, where ``a financial institution's assets 
are determined by averaging the assets reported on its four 
quarterly financial statements for the preceding year.'' See 13 CFR 
121.201 (as amended, effective August 19, 2019). In its 
determination, the ``SBA counts the receipts, employees, or other 
measure of size of the concern whose size is at issue and all of its 
domestic and foreign affiliates.'' See 13 CFR 121.103. Following 
these regulations, the FDIC uses a covered entity's affiliated and 
acquired assets, averaged over the preceding four quarters, to 
determine whether the covered entity is ``small'' for the purposes 
of RFA.
---------------------------------------------------------------------------

Reasons Why This Action Is Being Considered
    As previously discussed, in its supervision of institutions, the 
FDIC has observed that some institutions and affiliated entities in 
consolidated groups lack tax allocation agreements with their holding 
companies, have agreements that do not have language conforming with 
section 23A or 23B, or engage in the sale or transfer of DTAs or DTLs 
with other entities in a consolidated tax filing group that is 
inconsistent with the separate entity basis reporting requirement. In 
particular, the FDIC has reviewed tax allocation agreements that do not 
require holding companies in a consolidated group to promptly transmit 
the appropriate portion of a consolidated group's tax refund to their 
subsidiary institutions, resulting in some holding companies failing to 
do so in some instances. The FDIC believes that such inaction could 
adversely affect the safety and soundness of the subsidiary 
institutions. Further, in its capacity as receiver for failed insured 
depository institutions, the FDIC has engaged in legal disputes 
regarding the ownership of tax refunds claimed by the holding company 
based on losses incurred by insured depository institutions in a 
consolidated group due

[[Page 24766]]

to tax allocation agreements that did not clearly acknowledge an agency 
relationship between the insured depository institution and its holding 
company. These disputes can reduce or prevent recoveries by the FDIC on 
behalf of failed insured depository institutions, which increases the 
cost to the Deposit Insurance Fund and thus leads to higher FDIC 
deposit insurance premiums charged to solvent insured depository 
institutions.
Policy Objectives
    The primary objective of the proposal is to further clarify the 
relationship between institutions supervised by the agencies (including 
insured depository institutions and uninsured institutions) and 
affiliates or parent holding companies who are in a consolidated tax 
filing group with respect to the treatment of tax obligations, tax 
refunds and related intra-group transactions. Tax allocation agreements 
between institutions and their holding companies and other affiliates 
are important safeguards to ensure compliance by institutions with 
sections 23A and 23B and certain other agency regulations that ensure 
that holding companies in a consolidated group promptly transmit the 
appropriate portion of a consolidated group's tax refund to their 
subsidiary institutions.
Legal Basis
    The FDIC proposes to adopt the guidelines pursuant to sections 39 
and 37 of the FDI Act.\54\ Section 39 prescribes different consequences 
depending on whether the agency issues regulations or guidelines. Under 
these provisions, an agency may require an institution that intends to 
participate in a consolidated tax filing group and does not have an 
acceptable tax allocation agreement to develop a plan to implement an 
acceptable agreement consistent with the proposal or to be subject to 
enforcement actions. Section 37(a) of the FDI Act states that the 
accounting principles applicable to reports or statements required to 
be filed with the agencies by institutions should result in reports of 
condition that accurately reflect the capital of such institutions, 
facilitate effective supervision of the institutions, and facilitate 
prompt corrective action to resolve the institutions at the least cost 
to the Deposit Insurance Fund.\55\ For a more detailed discussion of 
the proposal's legal basis please refer to Section III entitled 
``Incorporation of the Guidelines as an Appendix to the Agencies' 
Safety and Soundness Rules''.
---------------------------------------------------------------------------

    \54\ 12 U.S.C. 1831p-1.
    \55\ See 12 U.S.C. 1831n(a)(1).
---------------------------------------------------------------------------

The Proposed Rule
    The FDIC proposes to incorporate the guidelines as an appendix to 
its safety and soundness rule in part 364. The FDIC has procedural 
rules in part 364 that implement the enforcement remedies prescribed by 
section 39. Under these provisions, the FDIC may require an institution 
that does not have an acceptable tax allocation agreement to develop a 
plan to implement an acceptable agreement consistent with the proposal 
or be subject to enforcement actions.\56\ For a more detailed 
discussion of the proposal please refer to Section II entitled 
``Description of the Proposal'' and Section III entitled 
``Incorporation of the Guidelines as an Appendix to the Agencies' 
Safety and Soundness Rules''.
---------------------------------------------------------------------------

    \56\ See 12 U.S.C. 1831n(a)(1).
---------------------------------------------------------------------------

Small Entities Affected
    As of the most recent data, the FDIC supervises 3,245 depository 
institutions of which 2,434 are ``small'' entities according to the 
terms of the RFA. Covered institutions must be part of a consolidated 
group, and subject to and obligated to pay federal and state income 
tax. The FDIC estimates that 1,008 small, FDIC-supervised institutions 
will be subject to the proposal.\57\ These covered institutions 
represent 41 percent of all small institutions supervised by the FDIC, 
and they hold over 47 percent of total assets of all small institutions 
supervised by the FDIC.\58\
---------------------------------------------------------------------------

    \57\ Call Report data, September 30, 2020. The FDIC estimates 
small covered institutions by subtracting the 906 small insured 
institutions supervised by the FDIC that are subsidiaries of bank or 
thrift holding companies supervised by the Board, are registered as 
Subchapter S corporations, and would not be affected by the adoption 
of the proposed rule; from the 1,914 small insured institutions 
supervised by the FDIC that are subsidiaries of bank or thrift 
holding companies supervised by the Board, respectively.
    \58\ Id.
---------------------------------------------------------------------------

    As described in the Impact Analysis section of the SUPPLEMENTARY 
INFORMATION, it is difficult to accurately estimate the number of small 
FDIC-supervised institutions that would be potentially affected by the 
proposal. Specifically, the FDIC does not have data that indicates 
whether or not any particular small FDIC-supervised institution files 
taxes as a consolidated group, whether the small FDIC-supervised 
institutions have tax allocation agreements with their holding 
companies, or whether the institutions have agreements that do not have 
language conforming with section 23A or 23B. However, the FDIC believes 
that the number of small, FDIC-supervised depository institutions that 
will be directly affected by the proposal is likely to be small, given 
that in the agencies' supervisory experience only a small number of 
institutions do not currently have tax allocation agreements, have 
existing tax allocation agreements that do not have language conforming 
with section 23A or 23B, or engage in the sale or transfer of DTAs or 
DTLs with other entities in a consolidated tax filing group that is not 
consistent with the separate entity basis reporting requirement, 
notwithstanding the existing non-codified guidance.
Expected Effects
    The potential benefits and costs summarized below generally apply 
to the small FDIC-supervised institutions, their affiliates, and 
holding companies that are not already implementing principles from the 
existing non-codified guidance.
Benefits
    There are three key benefits of the proposal. First, in some 
situations, the proposal would strengthen the safety-and-soundness of 
covered small FDIC-supervised institutions by ensuring that 
consolidated tax filing arrangements and practices are not adverse to 
their interests. Second, in some circumstances, the proposal would 
reduce the FDIC's resolution-related costs. Third, under some 
circumstances, the proposal would result in small FDIC-supervised 
institutions more accurately reflecting their common equity tier 1 
capital. These benefits are discussed in more detail in the Impact 
Analysis section of the SUPPLEMENTARY INFORMATION.
Costs

[[Page 24767]]

    To the extent the small, FDIC-supervised institutions, their 
affiliates, and holding companies are not already implementing 
principles from the existing non-codified guidance, there are two 
primary costs of the proposal. First, covered small FDIC-supervised 
institutions, their parent companies, and affiliates could lose some 
discretion over the timing, magnitude, and direction of cash flows 
between members of the group. Second, there would be regulatory costs 
associated with preparing agreements as well as ongoing compliance or 
reporting expenses. These costs are discussed in more detail in the 
Impact Analysis section of the SUPPLEMENTARY INFORMATION.
    Overall, due to the fact that the FDIC expects most small FDIC-
supervised institutions to already be in compliance with the proposal, 
the expected effects are likely to be small.
Alternatives Considered
    The FDIC considered the status quo alternative to maintain or amend 
the existing guidance and not include the guidance as a new codified 
appendix to the agencies' safety and soundness rules. However, for 
reasons previously stated in the Background section of the 
SUPPLEMENTARY INFORMATION, the FDIC considers the proposal to be a more 
appropriate alternative.
Other Statutes and Federal Rules
    The FDIC has not identified any likely duplication, overlap, and/or 
potential conflict between this proposal and any other federal rule.
    The FDIC invites comments on all aspects of the supporting 
information provided in this RFA section. In particular, would the 
proposal have any significant effects on small entities that the FDIC 
has not identified?

C. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act requires the Federal 
banking agencies to use plain language in all proposed and final rules 
published after January 1, 2000.\59\ The agencies have sought to 
present the proposal as a new appendix to certain codified safety and 
soundness rules in a simple and straightforward manner and invite 
comment on the use of plain language. For example:
---------------------------------------------------------------------------

    \59\ Public Law 106-102, sec. 722, 113 Stat. 1338 (codified at 
12 U.S.C. 4809).
---------------------------------------------------------------------------

     Have the agencies organized the material to suit your 
needs? If not, how could they present the proposal more clearly?
     Are the requirements in the proposal clearly stated? If 
not, how could the proposal be more clearly stated?
     Does the proposal contain technical language or jargon 
that is not clear? If so, which language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the proposal easier to understand? 
If so, what changes would achieve that?
     Is the section format adequate? If not, which of the 
sections should be changed and how?
     What other changes can the agencies incorporate to make 
the proposal easier to understand?

D. Riegle Community Development and Regulatory Improvement Act of 1994

    Pursuant to section 302(a) of the Riegle Community Development and 
Regulatory Improvement Act of 1994 (RCDRIA),\60\ in determining the 
effective date and administrative compliance requirements for new 
regulations that impose additional reporting, disclosure, or other 
requirements on insured depository institutions, each Federal banking 
agency must consider, consistent with principles of safety and 
soundness and the public interest, any administrative burdens that such 
regulations would place on depository institutions, including small 
depository institutions, and customers of depository institutions, as 
well as the benefits of such regulations. In addition, section 302(b) 
of RCDRIA requires new regulations and amendments to regulations that 
impose additional reporting, disclosures, or other new requirements on 
insured depository institutions generally to take effect on the first 
day of a calendar quarter that begins on or after the date on which the 
regulations are published in final form.\61\
---------------------------------------------------------------------------

    \60\ 12 U.S.C. 4802(a).
    \61\ 12 U.S.C. 4802.
---------------------------------------------------------------------------

    The agencies invite comments that will further inform their 
consideration of RCDRIA.

E. OCC Unfunded Mandates Reform Act of 1995

    The OCC analyzed the proposal under the factors set forth in the 
Unfunded Mandates Reform Act of 1995 (UMRA).\62\ Under this analysis, 
the OCC considered whether the proposal includes a Federal mandate that 
may result in the expenditure by State, local, and Tribal governments, 
in the aggregate, or by the private sector, of $157 million or more in 
any one year (as adjusted for inflation). The OCC has determined that 
the proposal, if implemented, could result in total costs of 
approximately $1 million for OCC institutions. Therefore, the OCC 
believes the proposal, if adopted as final, will not result in a 
Federal mandate imposing costs of $157 million or more.
---------------------------------------------------------------------------

    \62\ 2 U.S.C. 1532.
---------------------------------------------------------------------------

Text of Common Proposed Guidelines on Tax Allocation Agreements (All 
Agencies)

Appendix [ ]

Interagency Guidelines on Safety and Soundness Standards for Tax 
Allocation Agreements

I. Introduction

    The Guidelines establish standards under section 39 of the Federal 
Deposit Insurance Act (12 U.S.C. 1831p-1) for intercorporate tax 
allocation agreements between a [BANK] and its parent holding company 
and other affiliates.

A. Scope

    These Guidelines apply to a [BANK] that is part of a consolidated 
or combined group for federal or state income tax purposes. These 
Guidelines apply only if the [BANK] is subject to corporate income tax 
obligations at the federal or state level and files income taxes as 
part of a consolidated group.

B. Preservation of Existing Authority

    Neither section 39 of the Federal Deposit Insurance Act (12 U.S.C. 
1831p-1) nor these Guidelines in any way limits the authority of the 
[AGENCY] to address unsafe or unsound practices or conditions or other 
violations of law or regulation. The [AGENCY] may take action under 
section 39 of the FDI Act and these Guidelines independently of or in 
addition to any other supervisory or enforcement authority available to 
the [AGENCY].

C. Definitions

    Consolidated group means one or more [BANKS], any parent holding 
company, and any other affiliate that file federal or state income tax 
returns on a consolidated basis.
    Deferred tax items mean deferred tax assets and deferred tax 
liabilities.
    Separate entity basis refers to a situation where each [BANK] is 
viewed, and reports its applicable income taxes and its deferred tax 
items, as if it were a stand-alone legal and accounting entity for 
regulatory reporting purposes, notwithstanding its membership in a 
consolidated group. For purposes of this definition, when a [BANK] has 
subsidiaries that are included with the [BANK] in the consolidated 
group return, the [BANK's] applicable income

[[Page 24768]]

taxes and deferred tax items on a separate entity basis include the 
applicable income taxes and deferred tax items of its subsidiaries, 
unless eliminated in consolidation for regulatory reporting purposes.

II. General Provisions

    A. Purpose. A [BANK] must ensure that its inclusion in a 
consolidated or combined group tax return does not prejudice the 
interests of any [BANK] that is a member of the consolidated group. For 
purposes of this standard, intercorporate tax settlements between a 
[BANK] and its parent company do not prejudice the interests of a 
[BANK] provided that the settlements are conducted in a manner that is 
no less favorable to the [BANK] than if it were a separate taxpayer.
    B. Measurement of Current and Deferred Income Taxes. U.S. generally 
accepted accounting principles and instructions for the preparation of 
Reports of Condition and Income require [BANKS] to provide for their 
current tax liability or benefit as well as for deferred income taxes 
resulting from any temporary differences and tax carryforwards.
    1. When the [BANKS] in a consolidated group prepare separate 
regulatory reports, each [BANK] must record current and deferred taxes 
as if it filed its tax returns on a separate entity basis, regardless 
of the consolidated group's tax paying or refund status. Adjustments 
for statutory tax considerations that arise in a consolidated return 
may be made to the [BANK's] liability as calculated on a separate 
entity basis, as long as they are made on a consistent and equitable 
basis among all members of the consolidated group.
    2. A [BANK] must recognize all of its deferred tax items, including 
those based on or attributable to temporary differences or net 
operating loss or tax credit carryforwards on its separate-entity 
regulatory reports, and these items cannot be presented separate from 
the entity that reports the asset or liability that gave rise to them. 
A [BANK] is prohibited from derecognizing any of its deferred tax items 
unless those items are reversed, are settled through payment to the 
[BANK] because the items are absorbed in a current tax period by the 
consolidated tax group, or are transferred in connection with the 
transfer of the associated assets or liabilities that gave rise to the 
deferred tax items.
    C. Tax Refunds.
    1. A [BANK] that files tax returns as part of a consolidated group 
must enter into a tax allocation agreement that specifies that a parent 
company that receives a tax refund from a taxing authority obtains 
these funds as agent for the [BANK] member whose tax attributes created 
the tax refund. This refund could be the result of a current year tax 
loss carried back to years with taxable income or quarterly payments 
made in excess of the current tax liability owed by the [BANK]. The 
agreement must specify that the parent hold such funds in trust for the 
exclusive benefit of the member [BANK] that owns the funds and must 
promptly remit the funds held in trust to such member [BANK]. The 
agreement must also specify that the parent company does not obtain any 
ownership interest in any tax refund because it receives a tax refund 
from a taxing authority.
    2. If a [BANK's] loss or credit is used to reduce the consolidated 
group's overall tax liability, the [BANK] must reflect the tax benefit 
of the loss or credit in the current portion of its applicable income 
taxes in the period the loss or credit is incurred, and the [BANK] must 
obtain compensation for the use of its loss or credit at the time that 
it is used. If a [BANK's] loss or credit is not absorbed in the current 
period by the consolidated group, the [BANK] must not recognize the tax 
benefit in the current portion of its applicable income taxes in the 
loss year. Rather, the tax loss or credit represents a loss 
carryforward, the benefit of which is recognized as a deferred tax 
asset, net of any valuation allowance.
    3. If a [BANK] would have received a refund from the taxing 
authority if it had filed on a separate entity basis, but there is no 
ability to obtain an actual refund because other members in the 
consolidated group had losses that offset the [BANK's] separate tax 
liability for the previous year, the [BANK] must obtain no less than 
its stand-alone refund amount from the parent company on or before the 
date the [BANK] would have filed its own return if it had filed on a 
separate entity basis. To the extent the group has previously made a 
payment to the [BANK] for the use of its loss by the group, such amount 
can offset the amount due.
    D. Income Tax Forgiveness Transaction. A tax allocation agreement 
may allow a subsidiary [BANK] to pay a parent company less than the 
full amount of the current income tax liability that the [BANK] would 
have owed if calculated on a separate entity basis. Provided the parent 
will not later require the [BANK] to pay the remainder of such stand-
alone current tax liability, the [BANK] must account for this 
unremitted liability as having been paid with a simultaneous capital 
contribution by the parent to the [BANK]. In contrast, because a parent 
cannot relieve a [BANK] of future tax liability to a taxing authority, 
a [BANK] may not enter into a transaction in which a parent purports to 
forgive some or all of the [BANK's] deferred tax liability, through a 
capital contribution or otherwise.

III. Intercompany Tax Allocation Agreements

    A. Intercompany Tax Allocation Agreement. Each [BANK] that is part 
of a consolidated group must enter into a written tax allocation 
agreement with its holding company that protects the tax position of 
the [BANK] and is consistent with the principles in Section II and the 
terms described below, as well as the requirements of sections 23A and 
23B of the Federal Reserve Act (12 U.S.C. 371c and 371c-1). The board 
of directors, or a duly authorized committee thereof, of each [BANK] 
and each holding company must approve the tax allocation agreement.
    B. Terms. The tax allocation agreement must:
    1. Expressly state and not contain language to suggest a contrary 
intent:
    a. That an agency relationship exists between the [BANK] and its 
holding company with respect to tax refunds and that the [BANK] owns 
the tax assets that were created from its tax attributes;
    b. That any refund received from the taxing authority and due to 
the [BANK] is held in trust by the holding company; and
    c. That, notwithstanding any other transactions to the contrary, 
the [BANK] must receive promptly any tax refund attributable to the 
[BANK's] tax attributes.
    2. Include the following paragraph or substantially similar 
language:
    ``The [name of holding company] is an agent for the [name of 
institution] (the ``Institution'') with respect to all matters related 
to consolidated tax returns and refund claims, and nothing in this 
agreement shall be construed to alter or modify this agency 
relationship. If the [name of holding company] receives a tax refund 
[attributable to income earned, taxes paid, or losses incurred by the 
Institution] from a taxing authority, these funds are obtained as agent 
for the Institution. Any tax refund attributable to income earned, 
taxes paid, or losses incurred by the Institution is the property of 
and owned by the Institution, and must be held in trust by the [name of 
holding company] for the benefit of the Institution. The [name of 
holding company] must forward promptly the

[[Page 24769]]

amounts held in trust to the Institution. Nothing in this agreement is 
intended to be or should be construed to provide the [name of holding 
company] with an ownership interest in a tax refund that is 
attributable to income earned, taxes paid, or losses incurred by the 
Institution. The [name of holding company] hereby agrees that this tax 
sharing agreement does not give it an ownership interest in a tax 
refund generated by the tax attributes of the Institution.''
    3. With respect to tax payments from the [BANK] to its affiliates:
    a. Prohibit payments in excess of the current period tax expense or 
reasonably calculated estimated tax expense of the [BANK] on a separate 
entity basis;
    b. Prohibit payment for the settlement of any deferred tax 
liabilities of the [BANK]; and
    c. Prohibit payment from occurring earlier than when the [BANK] 
would have been obligated to pay the taxing authority had it filed as a 
separate entity.
    d. Provide that if, on the basis of payments previously made during 
the year for estimated tax owed, the [BANK] would have been entitled to 
a refund if it had filed on a separate entity basis, the affiliate must 
repay such excess in an amount equal to the refund the institution 
would have been entitled to.
    4. State that if a [BANK's] loss or credit is used to reduce the 
consolidated group's overall tax liability, the [BANK] must reflect the 
tax benefit of the loss or credit in the current portion of its 
applicable income taxes in the period the loss or credit is incurred, 
and the parent company must compensate the [BANK] for the use of its 
loss or credit at the time that it is used.
    5. State that all materials, including, but not limited to, 
returns, supporting schedules, workpapers, correspondence, and other 
documents relating to the consolidated federal income tax return and 
any consolidated, combined, or unitary group state or local returns 
must be made available on demand to the [BANK] or any successor during 
regular business hours. The tax allocation agreement must provide that 
this obligation will survive any termination of the tax allocation 
agreement.
End of Common Proposed Guidelines on Tax Allocation Agreements

List of Subjects

12 CFR Part 30

    Safety and soundness standards.

12 CFR Part 208

    Accounting, Agriculture, Banks, banking, Confidential business 
information, Consumer protection, Crime, Currency, Federal Reserve 
System, Flood insurance, Insurance, Investments, Mortgages, Reporting 
and recordkeeping requirements, Securities.

12 CFR Part 364

    Banks, banking, Information.
Adoption of Proposed Common Guidelines
    The adoption of the proposed common guidelines by the agencies, as 
modified by the agency-specific text, is set forth below:

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance
    For the reasons stated in the Supplementary Information, the Office 
of the Comptroller of the Currency proposes to amend part 30 of chapter 
I of Title 12, Code of Federal Regulations as follows:

PART 30--SAFETY AND SOUNDNESS STANDARDS

0
1. The authority citation for part 30 continues to read as follows:

    Authority:  12 U.S.C. 1, 93a, 371, 1462a, 1463, 1464, 1467a, 
1818, 1828, 1831p-1, 1881-1884, 3102(b) and 5412(b)(2)(B); 15 U.S.C. 
1681s, 1681w, 6801, and 6805(b)(1).

Appendix F [Added]

0
2. Amend part 30 by adding Appendix F as set forth at the end of the 
common preamble.

Appendix F [Amended]

0
3. Amend Appendix F of part 30 by:
0
a. Removing ``[BANK]'' and adding in its place ``national bank or 
Federal savings association'', removing ``[BANKS]'' and adding in its 
place ``national banks and Federal savings associations'', and removing 
``[BANK's]'' and adding in its place ``national bank's or Federal 
savings association's'' whenever they appear.
0
b. Removing ``[AGENCY]'' and adding in its place ``OCC'', whenever it 
appears.

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

12 CFR Chapter II

Authority and Issuance
    For the reasons stated in the Supplementary Information, the Board 
proposes to amend chapter II of Title 12, Code of Federal Regulations 
as follows:

PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL 
RESERVE SYSTEM (REGULATION H)

0
4. The authority citation for part 208 continues to read as follows:

    Authority: 12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-338a, 
371d, 461, 481-486, 601, 611, 1814, 1816, 1817(a)(3), 1817(a)(12), 
1818, 1820(d)(9), 1833(j), 1828(o), 1831, 1831o, 1831p-1, 1831r-1, 
1831w, 1831x, 1835a, 1882, 2901-2907, 3105, 3310, 3331-3351, 3905-
3909, 5371, and 5371 note; 15 U.S.C. 78b, 78I(b), 78l(i), 780-
4(c)(5), 78q, 78q-1, 78w, 1681s, 1681w, 6801, and 6805; 31 U.S.C. 
5318; 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.

Appendix D-3 [Added]

0
5. Amend part 208 by adding Appendix D-3 as set forth at the end of the 
common preamble:

Appendix D-3 [Amended]

0
6. Amend Appendix D-3 of part 208 by:
0
a. Removing ``[BANK]'' and adding in its place ``state member bank'', 
removing ``[BANK]'' and adding in its place ``state member banks'', and 
removing ``[BANK's]'' and adding in its place ``state member bank's'', 
whenever it appears.
0
b. Removing ``[AGENCY]'' and adding in its place ``Board'' whenever it 
appears.

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Chapter III

Authority and Issuance
    For the reasons set forth in the common preamble, the Federal 
Deposit Insurance Corporation proposes to amend part 364 of chapter III 
of title 12 of the Code of Federal Regulations as follows:

PART 364--STANDARDS FOR SAFETY AND SOUNDNESS

0
7. The authority citation for part 364 continues to read as follows:

    Authority: 12 U.S.C. 1818 and 1819 (Tenth), 1831p-1; 15 U.S.C. 
1681b, 1681s, 1681w, 6801(b), 6805(b)(1).

Appendix C [Added]

0
8. Amend part 364 by adding Appendix C as set forth at the end of the 
common preamble.

Appendix C [Amended]

0
9. Amend Appendix C of part 364 by:
0
a. Removing ``[BANK]'' and adding in its place ``FDIC-supervised 
institution'',

[[Page 24770]]

removing ``[BANKS]'' and adding in its place ``FDIC-supervised 
institutions'', and removing ``[BANK's]'' and adding in its place 
``FDIC-supervised institution's'', whenever it appears.
0
b. Removing ``[AGENCY]'' and adding in its place ``FDIC'' whenever it 
appears.

Blake J. Paulson,
Acting Comptroller of the Currency.

    By order of the Board of Governors of the Federal Reserve 
System.

Ann E. Misback,
Secretary of the Board.

Federal Deposit Insurance Corporation.

    By order of the Board of Directors.

    Dated at Washington, DC, on April 21, 2021.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2021-09047 Filed 5-7-21; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P