Forvis Mazars was proud to be the Premier Sponsor of the 2024 Bank & Capital Markets Tax Institute (BTI) in Orlando, Florida. From November 6–8, hundreds of professionals gathered to discuss the current state of the industry. This article highlights topics that may be relevant to your financial institution.
Instant Reaction to Election Day Results
Day one of BTI was the day after Election Day, so the conference had a buzz about how the results could affect tax policies. While there is optimism that several Tax Cuts and Jobs Act of 2017 (TCJA) provisions may be extended in anticipation of their scheduled expiration at the end of 2025, concern remains about how taxpayer-friendly provisions will be funded. Jennifer Sanders and Bryan Clevenger of Forvis Mazars addressed these items during the Community Bank Update and focused on President-elect Donald Trump’s priorities for his upcoming administration.
Some highlights of Trump’s priorities among business provisions included:
- Reduce the corporate income tax rate for domestic production from 21% to 15% percent
- 100% bonus depreciation
- Full research and development expensing
When looking at the individual and estate provisions, Trump prioritizes making the individual TCJA provisions permanent, with the exception of the $10,000 state and local tax (SALT) cap, effective January 1, 2026. Key provisions that have been discussed include:
- Rates and brackets
- Standard deduction
- Child tax credit
- Limitations on itemized deductions (except SALT)
- Alternative minimum tax change
- Section 199A Qualified Business Income Deduction
In addition, while on the campaign trail, Trump discussed no income tax on tips and Social Security benefits.
For more information, please refer to our FORsights™ article, “Presidential Election: Tax Impacts and What to Expect.”
Proposed Bad Debt Regulations
During the Community Bank Update, IRS developments were discussed with a focus on proposed regulations that would create a method of tax accounting called the “Allowance Charge-Off Method.” Under the proposed regulations, banks that adopted CECL could use this method to provide a security blanket from IRS scrutiny for the requirements of a deduction for bad debts.
This would be considered a change in accounting method, and it is expected that IRS Form 3115 will be required to be filed to switch to this method. Banks that previously filed a change in accounting method to elect the bad debt conformity election would revoke the conformity election should the Allowance Charge-Off Method be utilized. While this method benefits not only banks but also bank holding companies and other chains of corporations connected through stock ownership under a common parent, there are questions regarding tax implications of interest on nonaccrual loans as well as entities outside the bank holding company change.
For more information, please refer to our FORsights article, “More to Consider After IRS Issues Rev. Proc. On Bad Debt.”
Mergers & Acquisitions (M&A)
M&A continues to be a strong conversation topic throughout BTI every year. During the S Corporation Update, Steven Cunningham and Aaron Wiegert, partners at Forvis Mazars, evaluated the current M&A environment, including the impact of significant unrealized losses on available-for-sale securities. In the current environment, the unrealized losses are being specifically addressed within definitive agreements and plans of merger, including consideration as to whether the target sells the investment portfolio prior to closing and deducts the losses or whether these securities are sold by the acquirer.
Other items discussed over the course of the BTI breakout sessions related to M&A included deferred compensation deduction analysis, state registrations, information reporting, and Internal Revenue Code Section 280G on the deductibility of change in control payments.
Income Tax Disclosures
Changes to the income tax footnote were discussed in multiple sessions this year. FASB listened to investors indicating that the current income tax disclosure did not provide sufficient detail to assess a company’s jurisdictions, risks, and planning opportunities that affected businesses’ tax rate and future cash flows and issued Accounting Standards Update (ASU) 2023-09, Improvements to Income Tax Disclosures.
ASU 2023-09 is effective for public business entities (updated definition from public entity) for annual periods after December 15, 2024, and non-public business entities for annual periods after December 15, 2025 (generally calendar year 2025 and 2026, respectively). In the year of transition, ASU 2023-09 is to be applied on a prospective basis with a retrospective option; early adoption also is allowed. The updated rate reconciliation for public business entities consists of the following categories:
- State and local income tax, net of federal benefit
- Foreign tax effects
- Effect of changes in tax laws or rates enacted in the current period
- Effect of cross-border tax laws
- Tax credits
- Changes in valuation allowances
- Nontaxable or nondeductible items
- Changes in unrecognized tax benefits
The rate reconciliation is to be completed using both percentages and dollar amounts. Only “significant” items need to be disclosed; ASC 740 provides that significant is 5%. If an item does not fall into one of the eight categories and is above the 5% threshold, it should be listed in an additional category of “other adjustment.”
In addition to the rate reconciliation, ASU 2023-09 expanded the income taxes paid disclosure. Income taxes paid only need to be disclosed on an annual basis and broken out between federal, state, and foreign jurisdictions. Each jurisdiction comprising at least 5% of total taxes paid should be broken out separately.
Tax Credits
Solar tax credits remained a topic at this year’s conference, and, after a year with the changes from the Inflation Reduction Act of 2022 (IRA), companies were showing more of a willingness to invest in these types of credits, including transferrable credits. While many factors are involved in the decision (credit pricing, due diligence, etc.), there are a few things the buyer/seller should be aware of to complete the transfer of credits.
When purchasing credits, you can only purchase the credits with cash, and the cash payment is nondeductible. The seller must provide the required minimum documentation so that the buyer can make the proper elections and detail out the credit on the tax return. In general, the buyer can only offset up to 75% of taxable income with credits (same limitations as general business credit) and will become the taxpayer for purposes of the credit, bearing risk upon audit. If the buyer feels there is risk involved with the whole credit or certain portions of the credit, they can purchase insurance policies to protect against the risk, including policies to cover penalties, bankruptcy of the invested company, or additional risks that came up in the due diligence process.
The seller of the credit is allowed to sell pieces of the credit to different buyers but cannot sell varying aspects of the credit, e.g., the tax losses. The payment in cash is not allowed until the year the credit arises, although the agreement to sell can be made earlier. The cash received on sale is not taxable. Credits cannot be transferred multiple times or to a tax-exempt entity to claim a refund.
State Tax Update
With the pass-through entity tax mostly under control, this year’s state tax update focused on the repeal of the “Chevron rule” and various state legislative updates, including changes for tax rates, net operating loss usage, and elections for consolidated return filings.
Under the Chevron rule, when laws were passed that were ambiguous or silent on an issue, agencies could write rules interpreting the laws, and courts were to follow the agencies’ interpretations. Chevron was overturned by the U.S. Supreme Court in 2024. Under the new Loper Bright Enterprises v. Raimondo decision, courts are to exercise their independent judgment in deciding whether agencies acted within statutory authority and not on the agency’s interpretation alone. The cumulative impact of this decision is not yet known, but it is speculated that it will have a large impact on areas where states disagreed with agency interpretation of the law but were still required to follow.
An additional item that stood out during this session was a tax planning opportunity for Georgia. For years after January 1, 2023, a Georgia-affiliated group may elect to file a consolidated return. The election must be made on the originally filed return, including extensions. Each affiliated group is considered a separate taxpayer and will only be netted together with other affiliated groups to the extent that each group has Georgia apportionment. The election to file consolidated is irrevocable and binding for five years, after which the election can be terminated and re-elected.
Conclusion
Forvis Mazars works with financial institutions to deliver assurance, tax, and consulting services within the U.S. and globally. If you have questions on any of the topics above or want to discuss their effects on your institution, please reach out to a professional at Forvis Mazars.