Chapter 16 Income Taxes
Introduction1
16.01 Depository institutions generally are subject to the same tax rules that apply to other corporations, including those that are members of a consolidated group. Generally, credit unions are exempt from federal income taxes. Banks and savings institutions are permitted to elect subchapter S status under IRC Section 1362, provided certain requirements are met. Among these requirements are a 100-shareholder limitation (including family attribution), one class of stock restriction, and prohibition on the use of the reserve method of accounting for bad debts for tax. If elected, S corporation status essentially converts the financial institution to a pass-through entity for tax purposes so that most of the corporate level tax on income is avoided.
16.02 The IRC contains many provisions specific to taxable depository institutions. Finance and mortgage companies generally are subject to the same tax rules that apply to other corporations. The purpose of this chapter is to highlight certain federal tax matters and related accounting matters specific to the industry and to provide related auditing guidance.
Banks and Savings Institutions
16.03 Definition of a bank for tax purposes. IRC Section 581 defines a bank for tax purposes and provides special rules governing bank taxation.
16.04 Definition of a savings institution for tax purposes. Savings institutions are considered to be mutual savings banks (IRC Section 591), domestic building and loan ...
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