United States Government Publishing Office publisher pbl distributor dst United States Government Accountability Office General Government Division author aut Government Organization text government publication eng GAOREPORTS Legislative Agency Publications gao legislative 2010-08-12 U.S. Government Printing Office 2000-06-23 monographic deposited born digital 72 p. GA 1.13:GGD-00-159 https://www.govinfo.gov/app/details/GAOREPORTS-GGD-00-159 P0b002ee18039d05c f:gg00159 DGPO 2010-08-12 2011-03-28 GAOREPORTS-GGD-00-159 machine generated eng fdlp REPORT GAOREPORTS-GGD-00-159 GGD-00-159 Tax law Lending institutions Proposed legislation Income taxes Banking regulation Tax exempt status Corporations Letter Report GGD

Pursuant to a legislative requirement, GAO: (1) analyzed possible revisions to the tax rules governing S-corporations; and (2) determined the potential impact such revisions might have, primarily on community banks.<p/>GAO noted that: (1) GAO studied five possible revisions to the tax rules governing S-corporations; (2) the proposed provisions were written to address perceived obstacles to becoming S-corporations cited by representatives of the banking industry; (3) two of the five proposed tax changes that GAO analyzed--increasing the number of shareholders and allowing individual retirement accounts as shareholders--would affect both non bank and bank corporations; (4) expanding the number of eligible shareholders would allow more firms to choose to become S-corporations; (5) increasing the shareholder limit, however, appears to be more important to the banking industry than to other industries because S-corporation banks have significantly more shareholders than S-corporations from other industries; (6) the three remaining provisions-- clarifying passive income rules, tax treatment of bank director shares, and tax accounting of bad debts--specifically affect individual banks' corporate strategies; (7) banks face certain obstacles in becoming S-corporations that are situational to an individual bank's history and business strategy; (8) the proposed tax provisions would allow allow more and larger banks to benefit from not paying corporate tax by electing S-corporation status, and the overall impact on community banks would be determined by this expansion; (9) it is difficult to project how many banks could be affected by the proposed tax changes; (10) estimates ranged from about 300 to 5,700 banks and thrifts; (11) the proposed provisions could help community banks become more competitive relative to credit unions to the extent that converting banks provide the same services offered by credit unions; (12) the benefits of these proposed provisions for community banks relative to larger banks would depend on the characteristics of the converting banks; and (13) other potential impacts of the proposed provisions include: (a) tax revenue losses estimated by the Joint Committee on Taxation to be at least $748 million over a 5-year period; and (b) behavioral changes--higher dividends and lower capital in S-corporation banks, relative to comparable banks, that might have regulatory implications. https://www.govinfo.gov/content/pkg/GAOREPORTS-GGD-00-159/html/GAOREPORTS-GGD-00-159.htm https://www.govinfo.gov/content/pkg/GAOREPORTS-GGD-00-159/pdf/GAOREPORTS-GGD-00-159.pdf GAO/GGD-00-159 https://www.govinfo.gov/app/details/GAOREPORTS-GGD-00-159 Letter Report GAO/GGD-00-159; Banking Taxation: Implications of Proposed Revisions Governing S-Corporations on Community Banks; Tax law Lending institutions Proposed legislation Income taxes Banking regulation Tax exempt status Corporations Title 12 Section 1813(a)(2) Title 12 Section 61 Title 12 Section 71 Title 12 Section 72 12 U.S.C. 1813(a)(2) 12 U.S.C. 61 12 U.S.C. 71 12 U.S.C. 72 Title 26 Section 1361(b)(1)(A) Title 26 Section 1361(c)(1) Title 26 Section 302(c)(1) Title 26 Section 318(a)(1) Title 26 Section 581 26 U.S.C. 1361(b)(1)(A) 26 U.S.C. 1361(c)(1) 26 U.S.C. 302(c)(1) 26 U.S.C. 318(a)(1) 26 U.S.C. 581 Public Law 95-600 Public Law 97-34 Public Law 97-354 Public Law 97-455 Public Law 104-188 Public Law 105-34 Public Law 105-219