Audit and Accounting Guide - Depository and Lending Institutions

Chapter 16 Income Taxes

Gray shaded text in this chapter reflects guidance issued but not yet effective as of the date of this guide, July 1, 2018, but becoming effective on or prior to December 31, 2018, exclusive of any option to early adopt ahead of the mandatory effective date. Unless otherwise indicated, all unshaded text reflects guidance that was already effective as of the date of this guide.

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 ...