9 00am general banking update


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9 00am general banking update

  1. 1. General Banking Update Presenters: Adrian Fenton, Bank of New York Mellon, Pittsburgh, PA Email: adrian.r.fenton@BNYMellon.com Peter DiVincenzo, Ernst & Young LLP, Boston, MA Email: peter.divincenzo@ey.com Steven Balzer, Ernst & Young LLP, Charlotte, NC Email: steven.balzer@ey.com
  2. 2. Circular 230 disclaimer • • Any US tax advice contained herein was not intended or  written to be used, and cannot be used, for the purpose  of avoiding penalties that may be imposed under the  Internal Revenue Code or applicable state or local tax law  provisions These slides are for educational purposes only and are  not intended, and should not be relied upon, as  accounting advice
  3. 3. Agenda • Final Tangible Property Regulations • Deferred Tax Implications of Final Basel III Rules • Other Matters
  4. 4. Final Tangible Property Regulations
  5. 5. Final Tangible Property Regulations (TPR) ► ► ► ► ► Final TPR released 9/13/13: the “repair” regulations (deduction and capitalization of expenditures) Procedural guidance expected mid/end October or early November Regulations affect ALL taxpayers with tangible property Effective for tax years beginning on or after January 1, 2014 (optional early adoption for 2012 and/or 2013  years) Overall viewed more of a burden from compliance perspective by many clients  ► ► Will require changes to accounting methods, computation of section 481(a) adjustments, process changes and tax  compliance efforts: clients will need to perform more assessments, calculations and complete more filings. Scope of regulations: Materials and supplies ► ► ► ► Definition Types and timing Interaction with de minimis Acquisition costs ► ► De minimis rule Capitalized acquisition costs Improvements ► ► ► Unit of property Repair vs. improvement routine maintenance General Assets Accounts (GAA) and dispositions ► ► ► Structural components Partial dispositions Qualifying dispositions General assets accounts (GAA) and disposition of tangible property: structural components, partial The time to act is now dispositions, qualifying dispositions ► In near term, clients need to assess their policies and processes and consideration of financial statement implications so  many may select their vendor now
  6. 6. Final and Proposed Tangible Property Regulations Materials and supplies (M&S) ► ► ► ► ► Improvements General Asset Accounts (GAA) and dispositions § 1.162-3 (Final) ► Acquisitions §§ 1.263(a)-1 and -2 (Final) § 1.263(a)-3 (Final) §§ 1.168(i)-1, -8 (Prop.) Definition of M&S ► A unit of property ≤ $200 ► Used or consumed in 12 months  or less ► Replacement parts ► Fuel, lubricants, etc. or ► Identified as M&S in other IRS  guidance M&S Types and Timing ► Incidentals (no record of  consumption or physical  inventory) when acquired ► Non‐incidentals (including  emergency spare parts) when  consumed ► Rotable and temporary spare  part when disposed Limited annual election to capitalize  M&S Interaction with de minimis safe  harbor ► ► ► De minimis safe harbor ‐ annual  election to follow book expense  policy ► If have applicable financial  statement (AFS), no more than  $5,000 per invoice or item  ► If no AFS, no more than $500 per  invoice or item ► If written book policy in place at  beginning of year Capitalize costs that facilitate  acquisitions ► 11 inherently facilitative costs Safe harbor annual election to  expense ► Employee compensation and  overhead ► Investigatory costs for real  property ► ► ► ► Unit of Property (“UOP”) definition ‐ functional interdependence property except for ► Buildings ► Plant property ► Leased property Improvement defined ► Betterment ► Restoration ► New or different use Safe harbor to expense routine  maintenance ► Buildings: if more than once over  10‐year period ► Non‐Buildings: if more than once  over class life Annual election to follow book by  capitalizing repairs The regulations affect all taxpayers with tangible property and require compliance via Form 3115 or annual elections Effective for tax years beginning on or after January 1, 2014 (optional early adoption for 2012 and/or 2013 years) ► ► General Asset Accounts ► Establish GAAs with assets of  similar depreciation methods ► Qualifying dispositions do not  include partial dispositions (e.g.,  structural components of a  building) Dispositions (not in GAA) ► Optional annual election to  recognize partial dispositions  (e.g., building structural  components) ► Reasonable valuation method to  determine disposition gain or  loss ► Coordination of dispositions with  IRS examination of repairs
  7. 7. Key modifications to temporary regulations
  8. 8. Appendix A – pull through opportunities 
  9. 9. Section 263A interplay  ► Many costs deductible under the TPR may still be required to be capitalized to  inventory or self‐constructed assets under Section 263A ► ► ► ► Materials and supplies Repairs Costs deducted under the de minimis rule Significant differences in taxable income based on which Section 263A methodologies are  used ► ► Historic method not always favorable or permissible Goal generally to increase current expense and reduce costs capitalized to ending inventory and self‐ constructed assets ► Produced assets, including many improvements and betterments capitalizable under the  TPR, are self‐constructed assets to which Section 263A applies ► TPR has significantly heightened IRS focus on Section 263A ► Opportunity now to change to favorable methods and obtain back year audit protection
  10. 10. Section 174 interplay ► ► ► Section 174 costs are excluded from the starting point in the application of:  ► The de minimis rule ► Materials and supplies ► Improvement/betterment rules as it relates to certain R&D test equipment and  prototypes Thus, supplies and expenditures recorded to research designated departments and  labs determined to meet Section 174 criteria do not have to be included in the  analysis  This may be a significant exclusion for taxpayer’s with opportunities under the  proposed Section 174 regulations (released 9/5/2013, REG‐124148‐05, Doc 2013‐ 21136)
  11. 11. Transaction costs ► Which rules apply to transaction costs?   ► ► ► ► If acquisition is assets constituting a trade or  business then Treas. Reg. 1.263(a)‐5 applies If assets do not constitute a trade or business,  TPR  applies to the tangible property, or  Treas. Reg. 1.263(a)‐4 for intangibles Analysis of the existence of a trade or  business under factors set forth in Reg.  1.1060‐1(b) and other relevant authorities Potential to allocate contingent fees ► Transactions could involve the application of  both TPR and Treas. Reg. 1.263(a)‐4  ► Non‐capital transaction costs: ► ► ► ► For real property, costs appropriately  allocated pre‐ “whether and which” date Determination of “whether and which” date  under authorities existing prior to the  issuance of Reg. 1.263(a)‐5 (e.g., Rev. Rul. 99‐ 23) Costs attributable to abandoned acquisitions Ordinary and necessary expenses incidental  to the acquisition are not required to be  capitalized even if they would not have been  incurred “but for” the acquisition.
  12. 12. Appendix B
  13. 13. De minimis safe harbor Major changes from temporary regulations De minimis safe harbor Treas. Reg. §1.263(a)-1(f) ► ► Can follow book de minimis expense policy: ► If policy is in writing at beginning of tax year and ► If amount is expensed for books pursuant to policy and either ► If have Applicable Financial Statement (AFS), invoice or item is ≤ $5,000 or ► If don’t have AFS, invoice or item is ≤ $500 and ► If file annual election statement with return Change in book policy is not a method change ► ► ► ► ► Deleted aggregate ceiling Safe harbor for taxpayers with no AFS Provides clarification on treatment of transaction costs No election to capitalize and depreciate Materials and supplies that meet safe harbor must be deducted as de minimis Key considerations ► ► ► ► Know at the beginning of the year whether the safe harbor is met Fewer book/tax differences Safe harbor for taxpayers without AFS Intended that taxpayers may continue to follow existing agreements with IRS rather than elect safe harbor
  14. 14. Materials and supplies definition Materials and supplies definition Treas. Reg. §1.162-3 Supplies are defined as tangible property that is not inventory and that is: ► A component acquired to maintain, repair or improve a unit of tangible property; or ► Consists of fuel, lubricants, water and similar items that are reasonably expected to be consumed in 12 months or less; or ► A unit of property with an economic useful life of 12 months or less; or ► Identified as such in published guidance ► Increased threshold definition to include items that cost $200 or less ► Adds definition for standby emergency parts A unit of property costing $200 or less; or ► Major changes from temporary regulations Key considerations ► Reduces issue caused by temporary regulations in which common office supplies would not be materials and supplies because cost more than threshold ► If use de minimis rule then must utilize the de minimis rule for all materials and supplies that meet its requirements
  15. 15. Materials and supplies timing Major changes from temporary regulations Materials and supplies rules Treas. Reg. §1.162-3 Supplies are deducted at different times depending on how the items are categorized: ► Incidental Deduct when paid ► Non-incidental Deduct when used ► Rotable spare parts Deduct when disposed or Use optional method of accounting ► Elect to capitalize and depreciate Only for rotable, temporary, or standby emergency spare parts ► ► ► Restricted election to capitalize and depreciate to only rotable, temporary, or standby emergency spare parts Clarified interaction with de minimis rule Clarified optional method for rotables Key considerations ► ► ► Election to capitalize rotable, temporary, and emergency spares Removes flexibility in temporary regulations to resolve uncertainty regarding treatment of specific items by capitalizing and depreciating them Relative importance of materials and supplies to the business
  16. 16. Acquisitions Acquisitions rules Treas. Reg. §1.263(a)-2 ► Costs that facilitate acquisition must be capitalized ► ► Major changes from temporary regulations ► Clarified reasonable allocation methods ► Clarified treatment of contingency fees 11 inherently facilitative costs Safe harbor to expense ► ► Investigatory costs for real property Key considerations Employee compensation and overhead, ► Book costs capitalized may not match the list of inherently facilitative costs ► Opportunity to expense costs such as employee compensation that may currently be capitalized for book purposes
  17. 17. Unit of property rules Unit of property rules Treas. Reg. §1.263(a)-3 ► Unit of property generally all functionally interdependent property except for: ► Major changes from temporary regulations ► Buildings – Building is unit of property, but improvement rules applied separately to each building system Clarified application of improvement rules to leasehold improvements Key considerations ► Plant property – unit of property is major and discrete functions within the plant ► Book units of property may be very different than tax ► Leased property – leasehold interest ► ► Network assets – facts and circumstances or as provided in published industry guidance What is a major and discrete function within plant property? ► Certain building systems may be a challenge to analyze
  18. 18. Repair versus improvement Major changes from temporary regulations Improvement rules Treas. Reg. §1.263(a)-3 ► ► ► ► Capitalize ► Betterments ► Restorations ► New or different use Safe harbor for routine maintenance for: ► Property other than buildings if taxpayer reasonably expects to perform maintenance on the property more than once over the class life of the property ► Buildings if taxpayer reasonably expects to perform activities more than once in a 10-year period Election to capitalize repairs that are capitalized for book purposes Treatment of removal costs ► ► ► ► ► Clarified application of rules in examples Casualty loss rule allows deduction of repair costs above casualty loss Election to capitalize repairs Building maintenance safe harbor Clarification of removal costs Key considerations ► ► ► ► Book analysis often different than tax Election to capitalize repairs may prevent change in future year with §481(a) Are repairs written off under a de minimis capitalization threshold for book? Building safe harbor may include only limited reactive maintenance
  19. 19. Dispositions and general asset accounts Major changes from temporary regulations Disposition rules Proposed Treas. Reg. §1.168(i)-1,-8 Proposed rules ► Optional annual election to recognize partial dispositions (e.g., building structural components) ► ► Reasonable valuation method to determine disposition gain or loss ► ► Coordination of dispositions with IRS examination of repairs General Asset Accounts (GAA) ► Establish GAA with assets of similar depreciation methods ► Qualifying dispositions do not include partial dispositions (e.g., structural components of a building) Qualifying dispositions from GAA no longer include structural components of buildings Dispositions (non-GAA) ► Partial dispositions of buildings no longer mandatory ► Election for partial dispositions generally available beginning 2014 (special procedures to elect as early as 2012) ► Interaction with IRS repair examination adjustments Key considerations ► ► ► No annual GAA election needed for buildings Election to take partial dispositions Improvements are separate assets
  20. 20. Deferred Tax Implications of  Final Basel III Rules
  21. 21. Basel III ‐ Significant Rule Updates: definition of capital and  regulatory adjustments and deductions ► US Federal Reserve published a final Basel III regulatory capital rules on July 2,  2013 (subsequently approved by OCC and FDIC on July 9, 2013)  ► The final rule follows a notice of proposed rulemaking (NPR) that was first released in June  2012 and received more than 2,600 comment letters ► Advanced approaches  ‐ Applies to largest internationally active US banks  greater than $250 billion in consolidated assets that are not SLHCs: Effective  January 1, 2014 ► Standardized approach ‐ applies to all banking organizations except small bank  holding companies under $500 million in assets: Effective January 1, 2015 
  22. 22. Significant Rule Updates: definition of capital and regulatory  adjustments and deductions ► ► ► ► Reg capital begins with GAAP/IFRS‐based equity CET1 ‐ computed by subtracting preference shares and a variety of so‐called  “regulatory adjustments” Tier 1 capital ‐ generally CET1 plus preference shares and other types of  instruments that meet a list of certain criteria Tier 2 capital ‐ includes elements of ALLL and subordinated debt (with  certain features) and is added to Tier 1 capital in order to measure Total  Capital
  23. 23. Significant Rule Updates: definition of capital and regulatory  adjustments and deductions ► ► ► ► Among other matters, Basel III requires banks to satisfy several “risk‐based capital ratios” and a “leverage ratio.” Risk‐based Capital Ratio = Capital/RWA ► Numerator =  ► Common Equity Tier 1 (“CET1”) capital (CET1/RWA) ► Tier 1 Capital:  CET1 + Additional Tier 1 (“AT1”) capital (TT1/RWA) ► Total Capital:  Tier 1 + Tier 2 capital (TCap/RWA) ► Denominator = Total Risk‐Weighted Assets ► Multiply the dollar amount of every asset by the risk weight assigned to that asset. ► RWA are reduced by assets disallowed from the numerator (e.g., goodwill, intangibles, disallowed  DTAs) ► RWA include off‐balance sheet items, subject to conversion to on‐balance sheet equivalent The leverage ratio is similar but the numerator typically uses only Tier 1 capital and the denominator takes assets  into account without risk weighting and without other credit‐related adjustments. Consequently banks pay close attention to the composition of their assets – notably, in this context, their DTAs – and  whether a security issued by the bank qualifies as capital, particularly whether the security qualifies as a Tier 1  instrument.
  24. 24. Significant Rule Updates: definition of capital and regulatory  adjustments and deductions – DTAs DTA limitations and DTA/DTL netting ► In measuring CET1, DTAs are subject to three limitations: ► ► ► ► Attribute DTA (i.e., NOLs/credits), net of allocated DTLs, are automatically subtracted Timing DTAs (that cannot be realized through hypothetical carryback), net of related  Valuation Allowances and allocated DTLs, are limited to 10% of Tier 1 Timing DTAs, MSRs, and nonconsolidated investments in other financial entities are added  together and subjected to a combined limitation equal to 15% (or 17.65%) of CET1 DTAs are also subject to different risk weighting: ► ► Timing DTAs offset by hypothetical carryback subject to 100% risk weighting Remaining DTAs not eliminated are subject to 250% risk weighting – cliff phase in during  2018
  25. 25. Significant Rule Updates: definition of capital and regulatory  adjustments and deductions Normal balance sheet Assets 100 Liabilities 80 Equity 20 Regulatory balance sheet Risk-weighted assets 75 [or 150] Risk-based capital ratio Capital Risk-weighted assets Liabilities -------------------------------------------- Leverage ratio Capital 25 Capital Assets (with some adjustments) Risk‐weighted assets may have a weighting that is more than 100% (bad) or less than 100% (good). DTAs and certain other assets are subject to special rules, pursuant to which they may be subtracted from both the  numerator and the denominator.  This has the effect of increasing the amount of capital required to support other assets.   ► Compare 15/100  ratio (15%)  to  same ratio less of  5 of assets:  10/95 (11% ratio).
  26. 26. Significant Rule Updates: definition of capital and regulatory  adjustments and deductions – DTAs DTA limitations and DTA/DTL netting ► Prior to measuring these “buckets” of DTAs, DTLs may be optionally netted against  other regulatory adjustments while in other cases netting of tax effects is mandatory Section 22(a):  Goodwill, intangibles, overfunded pension, gain on sale are all optionally nettable w/ related DTLs ► Section 22(b):  Cash flow hedge, DVA and AOCI opt‐out items are mandatorily netted, with  election to reduce DTAs subject to threshold limits by the netted amount of DTA ► Section 22(c): Investments in financials are optionally netted ► Section 22(d): Significant investments and MSRs are optionally netted Sections 22(d)(3) and 22(e)(2) provide rules that should prevent any netted items from being  double counted ► ►
  27. 27. Significant Rule Updates: definition of capital and regulatory  adjustments and deductions – DTAs DTA limitations and DTA/DTL netting ► Hypothetical carryback potential ► ► ► Final regulations permit banks to exempt temporary difference DTAs from  subtraction to the extent supported by hypothetical carryback capacity Preamble suggests that the immediate reversal presumption can be applied to  determine capacity (three years instead of two years) Not totally clear whether the hypothetical carryback is taken into account before  or after apportioning DTLs
  28. 28. Significant Rule Updates: definition of capital and regulatory  adjustments and deductions – DTAs  DTA limitations and DTA/DTL netting ► The Final Rule distinguishes between temporary difference DTAs and other  DTAs (i.e., attributes) ► Some US DTAs do not fit neatly into either category: ► ► ► ► ► ► Disallowed interest expense under IRC § 163(j) Losses on straddles and wash sales IRC § 59(e) or § 174(b) amortization IRC § 481 adjustments IRC § 597 gain deferral IRC § 267 loss deferral
  29. 29. Significant Rule Updates: definition of capital and regulatory  adjustments and deductions – DTAs  DTA limitations and DTA/DTL netting ► Netting of DTAs and DTLs within the same taxing jurisdiction ► ► ► Within a taxing jurisdiction DTAs are grouped into two categories:  (1) NOLs &  Credits and (2) Timing Differences DTLs are allocated to each category – but only DTLs from the same jurisdiction Under US capital adequacy rules there is some thought that DTAs and DTLs can  be netted “across jurisdictional lines;” these rules resolve any lingering doubts
  30. 30. Significant Rule Updates: definition of capital and regulatory  adjustments and deductions – DTAs  DTA limitations and DTA/DTL netting ► Numerous revisions clarify the limitations on how and when deferred tax assets  (DTAs) are required to be subtracted from GAAP equity Some of the changes  between the final rule and the NPR provide further clarity: ► ► ► In measuring the amount of a banking organization’s tax loss carryback capacity for  purposes of determining the amount of exempt temporary difference DTAs, the final  rules explain that current practice will continue to apply (the so‐called hypothetical  carryback rule). DTAs netted against regulatory adjustments such as cash flow hedges will be  subtracted from the GAAP basis DTAs prior to imposing the threshold limitations. DTL netting must be evaluated state by state and not on a multistate basis.
  31. 31. Significant Rule Updates: definition of capital and regulatory  adjustments and deductions – DTAs  DTA limitations and DTA/DTL netting ► Two changes that have prompted further questions are: ► ► An addition to section 22(d)(1) suggests DTL apportionment might occur before  considering the banking organization’s tax loss carryback capacity, whereas  section 22(e)(3) continues to state that DTL apportionment is made after  reducing temporary difference DTAs by the banking organization’s tax loss  carryback capacity A new rule that permits the DTLs embedded in leveraged lease accounts seems  to apply only for purposes of determining the amount of net temporary  difference DTAs subject to threshold limitations but does not explicitly allow  leveraged lease DTLs to offset attribute DTAs
  32. 32. Significant Rule Updates: definition of capital and regulatory  adjustments and deductions – DTAs  EXAMPLE 1 Base Example Balance Sheet Book Assets Book Liabilities Book equity $ $ $ Regulatory Filing Book equity Less: Attribute DTAs CET1 before threshold items Less: Threshold Limited DTAs CET1 $ $ $ $ $ Book Assets Plus: DTA adjustments RWA $ $ $ 10,000 9,000 1,000 1,000 (120) 880 880 10,000 10,000 Results CET1 Ratio G-SIB CET1 Target 8.80% 8.00% DTA Profile Attribute DTAs Timing DTAs DTLs Net DTAs per Annual Report Gross $ $ $ $ 180 120 (100) 200 Allocation $ $ $ $ (60) (40) 100 - Threshold Limit on Timing DTAs Timing DTAs $ 80 Less: 10% * CET1 $ (88) Threshold Limited DTAs $ Admitted DTAs $ 80 Net $ $ $ $ 120 80 200
  33. 33. Significant Rule Updates: definition of capital and regulatory  adjustments and deductions – DTAs  Facts Temp DTA Credit DTA DTL Net Carryback TempDTA CreditDTA DTL Net Amounts Alt. #2 TempDTA CreditDTA DTL Net 800 400 (300) 900 700 Given Carryback Amounts Capacity 800 (700) 400 (300) 900 (700) Beginning 800 400 (300) 900 C/B (500) (500) Net of C/B 100 400 (300) 200 Net of C/B 300 400 (300) 400 Net Net attribute temporary DTA DTL deducted DTA subject allocated to 22(d) under 22(e) from CET1 (60) 40 (240) 160 300 160 40 Net Net attribute temporary DTA DTL deducted DTA subject allocated to 22(d) under 22(e) from CET1 (129) 171 (171) 229 300 229 171
  34. 34. Significant Rule Updates: definition of capital and regulatory  adjustments and deductions – DTAs  Alt. #3 TempDTA CreditDTA DTL Net Amounts Alt. #4 TempDTA CreditDTA DTL Net Amounts DTL Given allocated Amounts under 22(d) 800 (200) 400 (100) (300) 300 900 - Given Amounts 800 400 (300) 900 DTL allocated under 22(d) (300) 300 - Net attribute DTA deducted from CET1 Net Reduce Gross temporary DTA by c/b temporary DTA subject via DTA, less to 22(d) 22(d)(1)(i) DTL 600 (600) - 300 300 Net attribute DTA deducted from CET1 - Net Reduce Gross temporary DTA by c/b temporary DTA subject via DTA, less to 22(d) 22(d)(1)(i) DTL 500 (500) - 400 400 -
  35. 35. Significant Rule Updates: definition of capital and regulatory  adjustments and deductions – Other Items  Investments in unconsolidated financial institutions ► The final rule provides more detailed guidance and a framework for identifying indirect  investments, clarifying that these are limited to indirect holdings via investment funds and  not through commercial or other companies. There is also clarification regarding the  definition of a financial institution: the “predominantly engaged” test would now be  applied only to exposures of more than $10 million or ownership of more than 10% o f  common shares (or similar equity interest). ► Additionally, the revised definition excludes investment funds registered under the  Investment Company Act of 1940, as well as employee benefit plans. The final rule also  further clarifies the treatment for hedging long and short positions in equity investments,  an important issue for firms with sizable trading books.
  36. 36. Significant Rule Updates: definition of capital and regulatory  adjustments and deductions – Other Items  Unrealized gains and losses in AOCI ► final rule permits non‐advanced firms to make a one‐time election to retain the  existing Basel I filter that removes the impact of unrealized gains and losses from  regulatory capital. The election must be made for the initial Basel III reporting date  (March 31, 2015) and cannot subsequently be changed except in “limited  circumstances.” Removal of 90% fair value limitation on MSAs  ► The final rule removes the existing Basel I limitation (maintained in the NPR) that  MSAs can be included in regulatory capital only up to 90% of fair value.
  37. 37. Other Matters
  38. 38. Wells Fargo vs. US re Tax Accrual Workpaper (TAW) Requests  • • • • The Court found that the IRS had a proper purpose in requesting  Wells Fargo’s TAWs.  The Court determined that Wells Fargo’s identification of UTPs is  not entitled to work product protection but that Wells Fargo’s  recognition and measurement steps are protected.  the Court found that eight of Wells Fargo’s documents are  protected by the attorney‐client privilege.  The Court found that the United States has not shown the  potential relevance of Wells Fargo’s state and local TAWs or  Wachovia’s TAWs 
  39. 39. Notice 2013‐35 • Requests comments on the current bank bad debt  conformity regulations: • “Directed charge‐off” rule of Reg. §1.166‐2(d)(1) • “Conformity method” of Reg. §1.166‐2(d)(3) • Motivated possibly by substantial changes in GAAP  charge‐off and valuation methodology since 1991— toward “fair value” and away from “collectability.” • Watch this space.
  40. 40. New requirements for IDRs issued after June 30, 2013 • All IDRs issued after June 30, 2013 must meet the following new  requirements: • • • Must be issue focused, i.e., must identify and state the issue that has  led the examiner to request the information in the IDR IRS examiner must discuss the IDR with the taxpayer prior to its  issuance Taxpayer and the IRS agent must discuss and determine a reasonable  timeframe for response Note: All existing Memoranda of Understanding (MOUs) relating to IDR  management that do not comply with the principles set forth in the new  Directive are deemed no longer effective
  41. 41. IRS Business Plan Items  • • • • • • • • • • Regulations regarding the scope and application of §597 Guidance under §4261(e)(3)(C) re the application of the domestic air  transportation excise tax to the purchase of mileage awards Guidance under §166 on the conclusive presumption of worthlessness for  bad debts Final regulations providing guidance under §171 Regulations under §446 on NPCs Regulations on prepaid forward contracts Regulations on distressed debt Guidance under §954(c), including guidance related to transactions involving  commodities and nonfunctional currency Final regulations on the treatment of upfront payments on swaps under  §956 Regulations under §871(m)
  42. 42. IRS Business Plan Items  • • • • • • • • • • Revenue Procedure under §1441 updating Revenue Procedure 89‐47 on central  withholding agreements Final regulations under §909 on foreign tax credit splitting events. Regulations under §482 on global dealing operations Final regulations under §987 Guidance on §988 transactions, including hedging transactions Guidance under Chapter 3 (§§1441‐1446) and under Chapter 4 (§§1471‐1474) Guidance under §6038D Guidance under §6050H regarding information reporting of mortgage insurance  premiums Guidance under §6050P regarding the 36‐month rule for reporting cancellation of  indebtedness Guidance under §§7701(o) and 6662(b)(6) regarding codification of the economic  substance doctrine
  43. 43. Tax Credit Matters • • • • The Emerging Issues Task Force (EITF) reached a consensus‐for‐ exposure on EITF Issue 13‐B: Accounting for Investments in  Affordable Housing Tax Credits.   The EITF concluded that the conditions required to use the  effective yield method to account for investments in qualified  affordable housing projects should be revised to be less restrictive. The Task Force recommendation is to revise the conditions in EITF  94‐1 for using the effective yield method (i.e., recognizing the  entity’s portion of both the Low Income Housing Tax Credits  (LIHTC) and the earnings or losses of the LIHTC investment net as a  component of income taxes).  Considerations for the potential new standard
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