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Rehmann Live! Changes Impacting Financial Institutions
December 16, 2013
© 2013 Rehmann
Moderator Liz is a Principal and is the Firm’s Director of Financial Institution Services. Liz joined Rehmann in September of 1998. She specializes in audit and consulting services for financial institution clients. Liz leads numerous financial statement and internal audits, SOX 404 and other financial services consulting engagements for our firm’s largest and most complex financial institutions, including SEC registrants.
Liz works closely with management and audit committees to address technical issues and ensure sound internal controls. She services as a firm wide resource for financial institution accounting and auditing matters.
Liz Ziesmer, CPA, CBA
© 2013 Rehmann
Agenda
• Accounting and Financial Reporting
• Tax Update
• Q & A
© 2013 Rehmann
Insert Presentation Title Here
Financial Institutions Accounting & Financial
Reporting Update Presented by:
Heidi Cieslik, CPA, MBA Heather Funsch, CPA
© 2013 Rehmann
Presenters Heidi is an Assurance Principal, leading the Metro-Detroit financial services practice. She is also Chair of the Firm’s SEC committee. Heidi’s career began in 1994 and includes experience in the areas of SEC reporting, Sarbanes-Oxley Section 404, accounting and auditing. Over her career, Heidi has served a diversified group of financial services clients including Fortune 500 bank holding companies, nationally recognized mortgage companies, broker dealers and non-registered investment companies. Her areas of expertise include mortgage banking, commercial lending and asset/liability management. She regularly consults with clients on complex technical accounting topics and SEC “hot buttons” including allowance for loan losses and indemnification reserves, derivatives and related hedge accounting and investment valuation.
Heidi is also a member of the AICPA’s Depository Institutions Liquidity & Interest Rate Risk Task Force. Heidi Cieslik, CPA, MBA
© 2013 Rehmann
Heather Funsch, CPA
Heather is a Senior Manager in the Financial Institutions assurance services department of Rehmann, and is based in the Saginaw office. Heather joined the assurance department of Rehmann in September of 2003. Since her arrival at the firm, she has specialized in audit and consulting services for financial institutions. She has performed numerous financial statement, internal audit and internal control consulting engagements for Rehmann’s largest and most complex financial institution clients.
Heather has worked on several SEC engagements and performed SOX 404 internal control procedures both on the part of management and as a part of the integrated audit services. Heather has also participated in the review of quarterly and annual reports for Rehmann’s SEC registrant financial institution clients.
Agenda • Final Guidance
– Disclosures about BS Offsetting
– Intangible Asset Impairment
– Indemnification Asset Accounting
– OCI Reclassifications
– Derivatives & Hedging- • Fed Funds Rate As Benchmark
– Income Taxes • Presentation of Unrecognized Tax
Benefit
• EITF Decisions – Transfers to ORE
– Low Income Housing Investments
• Proposals – Leases
– Revenue Recognition
– Financial Instruments • Classification and Measurement
• Impairment
– Liquidity & Interest Rate Risk Disclosures
– Definition of a Public Business Entity
– Private Company Council
• Regulatory – New COSO Framework
– BASEL III
© 2013 Rehmann
Disclosures about Balance Sheet Offsetting • Effective: Annual periods beginning on or after January
1, 2013 and retrospectively for all periods presented
• New disclosure requirements for certain derivatives that are either:
– Off-set on the balance sheet or
– Subject to an enforceable master netting arrangement or similar agreement
• Existing US GAAP guidance allowing balance sheet offsetting, including industry-specific guidance, remains unchanged
© 2013 Rehmann
Intangible Asset Impairment • Effective: For annual and interim impairment testing for fiscal years
beginning after September 15, 2012. Early adoption was permitted.
• Provides the option to perform a qualitative impairment assessment for indefinite-lived intangible assets.
• First consideration: Is it more likely than not (a likelihood of more than 50%) that an indefinite-lived intangible asset is impaired?
• Factors to identify and evaluate: – Changes in economic, industry and company-specific events
– Circumstances that could affect the significant inputs used in determining the fair value.
© 2013 Rehmann
Indemnification Asset Accounting • Effective:
– Public companies: Fiscal years and interim periods beginning after December 15, 2012
– Nonpublic companies: Fiscal years beginning after December 15, 2012
• Addresses diversity in practice with respect to indemnification assets recorded within the industry
• Clarification for the reporting entity: – Any change in the measurement of the indemnification asset should be on
the same basis as the change in the assets subject to indemnification
– Amortization of changes in value should be limited to the lessor of the contractual term of the indemnification agreement or the remaining life of the asset
• Guidance should be applied prospectively
© 2013 Rehmann
OCI Reclassifications • Effective:
– Public companies: Fiscal years and interim periods beginning after December 15, 2012
– Nonpublic companies: Fiscal years beginning after December 15, 2013
• Report information about reclassifications, by component, out of AOCI in one place on the FS
• Reclassifications out of AOCI to net income in their entirety during the reporting period- must report the effect on the line items in the statement where net income is presented
• Reclassifications made into net income not in their entirety during the period- must provide cross-references in the notes to where other disclosures are included
© 2013 Rehmann
Derivatives & Hedging - Funds Rate As Benchmark • Effective: As of the date the final guidance was issued
(July 17, 2013)
• Historically:
– Only U.S. Treasury and London Interbank Offered Rate (LIBOR) rates able to be used as benchmark interest rates for hedge accounting
• Effect of Amendment:
– Fed Funds Effective Swap Rate can be used as a benchmark interest rate on a prospective basis for new or re-designated hedging relationships
© 2013 Rehmann
Income Taxes - Presentation of an Unrecognized Tax Benefit • Effective:
– Public entities: Fiscal years and interim periods after December 15, 2013.
– Nonpublic entities: Fiscal years beginning after December 15, 2014.
• Requires unrecognized tax benefits to be offset against a deferred tax asset for a net operating loss carry forward, similar tax loss, or tax credit carry forward (in certain situations)
• Will impact DTA valuation allowance considerations and disclosures associated with tax uncertainties
© 2013 Rehmann
Transfers to ORE • Effective:
– Public entities: Fiscal years and interim periods beginning after December 15, 2014
– Nonpublic entities: Fiscal years beginning after December 15, 2014
Entities will have an option to apply the guidance on either a modified retrospective or prospective basis
• Clarification of when ”in substance repossession” or foreclosure occurs. Physical possession is considered when: – Creditor obtains legal title to the residential real estate property or
– Completion of a deed in lieu of foreclosure or similar legal agreement, conveying all of the borrower’s interest in the residential real estate property to the creditor to satisfy that loan, even though legal title may not yet have passed.
Applies to consumer mortgage loans only
© 2013 Rehmann
Low Income Housing Investments • Effective:
– Public entities: Fiscal years and interim periods beginning after December 15, 2014
– Non-public entities: Fiscal years beginning after December 15, 2014
• Current Accounting: – Allows for application of the effective yield method in certain circumstances
– Tax credits allocated to the investor, net of amortization, are recognized in income taxes over the life of the investment
• Effect of Amendment: – Provides guidance on the method used to amortize the investment, the
impairment approach, and the eligibility criteria for entities that have other arrangements (e.g., loans) with the limited liability entity
– Final consensus will eliminate the requirement to use an effective yield model and instead require a proportional amortization model
© 2013 Rehmann
Leases • FASB and the IASB collectively discussed the significant feedback from the
comment period
• Most significant impact from the proposed standard: Would require lessees to recognize most leases on their balance sheets, among other things
• Additional impact on lessor accounting
• Areas needing to be revised from the proposed standard include: – Definition and scope
– Lessee accounting model
– Lessor accounting model
– Lease classification (i.e. Type A vs. Type B)
– Measurement provisions
– Disclosure requirements
© 2013 Rehmann
Revenue Recognition • FASB and IASB continuing to address outstanding issues on
their joint revenue recognition standard
• FASB to address the costs and benefits of a final standard
• No indication that the final standard will be delayed. The proposed standard has the following implementation dates: – Public companies: Reporting periods beginning after December
15, 2016, including interim reporting periods (no early adoption)
– Non-public companies: Reporting periods beginning after December 15, 2017, (early adoption permitted)
• Financial Institution impact (credit card rewards / loyalty programs, in-substance real estate, etc.)
© 2013 Rehmann
Financial Instruments
• Joint project between the FASB and the IASB
• Three categories:
– Classification and measurement (most recently
issued in February 2013)
– Impairment (most recently issued in December 2012)
– Hedge accounting
© 2013 Rehmann
Financial Instruments - Classification and Measurement • Key changes from current U.S. GAAP:
– Debt instruments (including loans) would first be evaluated under a new cash flow characteristics test. Instruments that pass that test would be classified and measured at amortized cost (AC), fair value through other comprehensive income (FV-OCI) or fair value through net income (FV-NI) based on a business model assessment
– Reclassifications would be required only when an entity’s business model for managing its financial assets changes
© 2013 Rehmann
Financial Instruments - Classification and Measurement • Equity Investments:
– Equity investments that do not result in consolidation and are not accounted for under the equity method would be measured at FV-NI
• Financial Liabilities:
– Financial liabilities would generally be measured initially at their transaction price and subsequently at AC unless an entity’s business strategy when it incurs the liability is to transact at fair value or the liability results from a short sale. Those liabilities would be recorded at FV-NI
© 2013 Rehmann
Financial Instruments -Classification and Measurement • Presentation and Disclosure:
– Presentation of financial assets and financial liabilities separately on the balance sheet by measurement category:
• Public entities would have to present the fair value of financial assets and financial liabilities (except for receivables or payables due in less than a year and demand deposit liabilities) measured at AC parenthetically on the face of the balance sheet.
• Nonpublic entities would be exempted from both parenthetical and footnote disclosures of the fair value for instruments measured at AC.
• Effective Date and Transition:
– No date yet determined
At the beginning of the period in which the guidance becomes effective, an entity would record a cumulative-effect adjustment to retained earnings
© 2013 Rehmann
Financial Instruments - Impairment • Proposed aspects for consideration
– A single model for all entities to account for credit losses on loans, debt securities, and trade, lease and other receivables
– Removes the probable threshold for recognizing credit losses and requires an estimate of the contractual cash flows an entity does not expect to collect on financial assets not measured at fair value through net income at each reporting date
– Changes current practice for recognizing other-than-temporary impairment and interest income on debt securities
© 2013 Rehmann
Financial Instruments - Impairment • Allowance for credit losses
– Estimate of the contractual cash flows not expected to be collected to be recorded as opposed to the current incurred loss model
• No longer a joint FASB and IASB standard – The IASB is continuing to pursue “the three-bucket model”
• Requirement to estimate the allowance for credit losses on debt instruments classified as AC or FV-OCI, including loans, debt securities and trade and reinsurance receivables.
• The model would also be applied to – Lease receivables recognized by lessors and loan commitments;
– Expected credit losses for purchased credit-impaired assets and the related allowance presented on the balance sheet upon purchase.
© 2013 Rehmann
Liquidity and Interest Rate Risk Disclosures • Proposed ASU issued in response to feedback from 2010 Financial
Instruments exposure draft
• Three main risks financial statement users wanted to understand – Credit risk (addressed with credit quality ASU)
– Liquidity risk
– Interest rate risk
• Liquidity risk disclosures apply to all entities
• Interest rate risk disclosures – Applies only to financial institutions
– Additional disclosures required for depository institutions
• Comment period ended September 2012
© 2013 Rehmann
Liquidity and Interest Rate Risk Disclosures - What is Required? • Liquidity Risk
– Tabular disclosures of carrying amounts of financial assets and liabilities segregated by expected maturity
– Table of available liquid funds, including unencumbered cash, highly liquid assets, and available borrowings
– Supplemental narrative with goal to inform users of entity’s exposure to liquidity risk
• Interest Rate Risk – Carrying amounts of classes of assets and liabilities
segregated by time intervals based on contractual re-pricing of instruments
– Interest rate sensitivity table
– Supplemental qualitative disclosures, if necessary
© 2013 Rehmann
Definition of a Public Business Entity • The FASB has proposed a single definition of a
public company or a “public business entity”
(PBE)
• Determines which entities are eligible to use any
alternatives under US GAAP that the Private
Company Council (PCC) and the FASB approve for
private companies (referred to in recent proposals
as nonpublic entities)
© 2013 Rehmann
Definition of a Public Business Entity • Under the proposed definition, a PBE would be an entity that meets any of the
following criteria: – It is required by the Securities and Exchange Commission (SEC) to file or furnish
financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing)
– It is required by the Securities Exchange Act of 1934, as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency, other than the SEC
– It is required to file or furnish financial statements with a regulatory agency in preparation for the sale of securities or for purposes of issuing securities
– It has (or is a conduit bond obligor for) securities that are traded, quoted or listed, on an exchange or an over-the-counter market
– It has securities that are not subject to contractual restrictions on transfer, and it is required to prepare U.S, GAAP financial statements (including footnotes) and make them publicly available on a periodic basis (for example, interim or annual periods) pursuant to a legal, contractual or regulatory requirement.
© 2013 Rehmann
Private Company Council • The Private Company Council (PCC) has been created to determine
whether and when to make exceptions to US GAAP for private companies. Its’ decisions will require endorsement by the FASB. The PCC will also advise the FASB on private company treatment for current standard-setting projects
• PCC proposals in process to allow private companies to apply alternatives under U.S. GAAP – Applying VIE Guidance to Common Control Leasing Arrangements
– Accounting for Identifiable Intangible Assets in a Business Combination
– Accounting for Goodwill
– Accounting for Certain Receive- Variable, Pay- Fixed Interest Rate Swaps
© 2013 Rehmann
New COSO Framework • Users should transition to the 2013 New Framework in
their applications and related documentation “as soon as it is feasible given their particular circumstances”
• After December 15, 2014, the framework is superseded
• The Committee of Sponsoring Organization of the Treadway Commission (COSO) released its Internal Control - Integrated Framework originally in 1992
• New Framework sets forth 17 Principles of internal control within the five components of the original framework
© 2013 Rehmann
New COSO Framework • The Updated Framework:
– Changes the financial reporting objective with the broader objective of reporting
– Emphasizes the relationship between objectives, risks, and internal control
– Emphasizes the integrated nature of internal control
– Introduces a “principles” approach to evaluating each component of the internal control framework
– Makes explicit the need to assess fraud risk
– Expands discussion of the importance of the compliance and operations objectives, and reiterates that principles of good internal control are appropriate for operations and compliance objectives
– Updates guidance in emerging areas such as IT, organizational relationships dependencies, and monitoring.
© 2013 Rehmann
BASEL III
• July 2, 2013: FRB approved Basel III Final Rule
• Final rule applies to all banking organizations
currently subject to minimum capital requirements
• Community banking organizations become subject
to the new rule on January 1, 2015
© 2013 Rehmann
BASEL III • Key changes from the June 2013 Proposals:
– Residential Mortgage Exposures
• The new rule’s treatment of 1-4 family residential mortgage exposures remains the same as under the current general risk-based capital rule
– Accumulated Other Comprehensive Income • Non-advanced approach banking organizations are given a one-time option to filter
certain AOCI components, comparable to the treatment under the current general risk-based capital rule. The AOCI opt-out election must be made on the first filing, as applicable, filed after January 1, 2015
– Non-Qualifying Capital Instruments and Tier 1 Capital: • The new rule exempts depository institution holding companies with <$15 billion in total
consolidated assets as of December 31, 2009, or organized in mutual form as of May 19, 2010, from the requirement to phase out trust preferred securities and cumulated perpetual preferred stock from tier 1 capital
– Capital instruments issued prior to May 19, 2010, and that are currently in tier 1 capital are grandfathered in as tier 1 capital
© 2013 Rehmann
BASEL III • Major changes from the current general risk-based capital rule:
– Revisions to the Minimum Capital Requirements and Adjustments to Prompt Corrective Action Thresholds
• The new rule implements higher minimum capital requirements, includes a new common equity tier 1 capital requirement, and establishes criteria that instruments must meet in order to be considered common equity tier 1 capital, additional tier 1 capital, or tier 2 capital.
© 2013 Rehmann
BASEL III • Major changes from the current general risk-based
capital rule: – Regulatory Capital
• Disallow the inclusion of instruments such as trust preferred securities in tier 1 capital going forward, and new constraints on the inclusion of others
– Capital Conservation Buffer • A banking organization must hold a capital conservation buffer
composed of common equity tier 1 capital above its minimum risk-based capital requirements to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers
• Phase-in of the capital conservation buffer requirements will begin on January 1, 2016
© 2013 Rehmann
BASEL III
• Major changes from the current general risk-based
capital rule:
– Capital Conservation Buffer (cont’d)
© 2013 Rehmann
BASEL III • Major changes from the current general risk-based capital rule:
– Credit Ratings • Section 939A of the Dodd-Frank Wall Street Reform and Consumer
Protection Act prohibits using references to , and reliance on, external credit ratings in the regulations of federal agencies and directs agencies to use alternative standards of creditworthiness
– MSAs and DTAs • MSAs and DTAs are subject to stricter limitations than those applicable
under the current general risk-based capital rule. Each are subject to an individual limit of 10% of common equity tier 1 capital elements and are subject to an aggregate limit of 15% of common equity tier 1 capital elements. Amounts not deducted due to the 10 and 15% thresholds must be assigned a 250% risk weight
– Revised Risk Weights • The new rule increases the risk weights for past-due loans, certain
commercial real estate loans, and some equity exposures, and makes selected other changes in risk weights and credit conversation factors.
© 2013 Rehmann
Insert Presentation Title Here
Financial Institutions Tax Update
Presented by:
Mike Robbins, CPA Cathy Lambert, CPA Lisa Newland, CPA
© 2013 Rehmann
Presenters Mike is a Principal in the tax department of Rehmann and Chairman of the firm’s Tax Executive Committee. He serves as a firm-wide tax specialist and leads the financial institutions group tax team. During his 30 years of experience, Mike has developed significant expertise in the tax consulting and planning area for bank holding companies, including mergers and acquisitions, S-Corporations, and financial analysis. He serves as an integral part of Rehmann’s tax management team.
Michael Robbins, CPA
© 2013 Rehmann
Lisa Newland, CPA
Lisa serves as a Tax Executive for the firm’s financial institution tax practice and has been with the firm since 1997. Lisa also serves as a firm wide resource for income tax accounting (FAS 109) , and is a member of the Western Region’s tax leadership team of Rehmann. Lisa has previous experience within industry serving as a Controller for a Mid-Michigan Community financial institution where her responsibilities included overseeing the accounting department.
Presenters Cathy is a Principal for the Firm’s State and Local Tax practice and leads the firm’s financial institution state tax practice. Cathy is an active member of both the state section of the Michigan Chamber and the Michigan Association of CPA’s, where she is a frequent speaker. Prior to joining Rehmann in 1997, Cathy was the tax director of a large savings bank.
Cathy Lambert, CPA
© 2013 Rehmann
Tax Agenda
• Year-End Planning Opportunities
– Fixed Asset Depreciation
• Financial Institutions Tax Update
– Tangible Asset Regulations
– Other Real Estate Owned
– Bad Debt Conformity Election
– IRS Exam Issues
– BASEL III
– Legislative Update
– State Tax Update
© 2013 Rehmann
Year-End Planning Opportunities
• Fixed Asset Depreciation
– Section 179 Deduction:
• The 2013 Section 179 direct deduction is $500,000 with a
$2,000,000 phase-out threshold for qualifying property
placed in service prior to year end
• Examples of qualifying property: computer, furniture, and
software
– Applies to both new and used property
– The deduction is set to revert back to $25,000 for 2014 with a
$200,000 phase-out threshold
© 2013 Rehmann
Year-End Planning Opportunities
• Bonus Depreciation under Section 168(K)
– The bonus depreciation provisions are available for
qualified property placed in service before December
31, 2013 and provides for a 50% deduction for the
2013 tax year
– Qualifying property is typically tangible “new” personal
property including software
– This provision is set to expire under present law at
December 31, 2013
© 2013 Rehmann
Financial Institutions Tax Update
• Tangible Asset and Repair Regulations
– The IRS has issued long awaited regulations
providing guidance on the application of Code Sec.
162(a) and Code Sec. 263(a) to amounts paid to
acquire, produce, or improve tangible property and
will affect virtually all taxpayers
– Generally effective for tax years (or amounts paid or
incurred in tax years) that begin after Dec. 31, 2013
© 2013 Rehmann
Financial Institution Tax Update • Tangible Asset and Repair Regulations
– The rules are very lengthy and complex
– The regulations set forth the general rule that amounts paid to improve a unit of property must be capitalized
– The regulations also allow for a current deduction of repairs and maintenance
– Buildings generally are treated as one unit of property per structure with nine separate specific building systems.
© 2013 Rehmann
Financial Institutions Tax Update
• Tangible Asset and Repair Regulations
– De minimis safe harbor:
• The regulations allow a taxpayer to deduct certain limited
amounts paid for tangible property that are expensed for
financial accounting purposes
– Under the regulations, a taxpayer with an audited
financial statement may rely on the de minimis safe
harbor if no more than $5,000 per invoice, or per item,
as substantiated by the invoice, was paid for the
property.
© 2013 Rehmann
Financial Institutions Tax Update
• Tangible Asset and Repair Regulations – For taxpayers without an audited financial statement, the maximum
figure is $500 rather than $5,000
– To use the safe harbor, the taxpayer must have a written accounting policy in place at the beginning of the tax year
– The regulations also include a safe harbor for routine maintenance of a building structure or system. The taxpayer must reasonably expect to perform the maintenance for more than once during the 10-year period that begins when the structure is placed in service
– A change to conform to the regulations is considered a change in method of accounting, and the IRS plans to issue procedures under which taxpayers can get automatic consent to the accounting method change.
© 2013 Rehmann
Financial Institutions Tax Update
• Other Real Estate Owned (OREO) – IRS has issued formal guidance with regards to the tax
accounting related to OREO expenses.
– Favorable ruling for financial institutions
– GLAM 2013-001 (Released March 1, 2013) • The GLAM specifically applies to OREO property held by a bank
originating the underlying loan.
• Not considered “property acquired for resale” for the purposes of Section 263A.
• Expenses to carry OREO property are considered ordinary and necessary thus deductible under Section162. Consistent with book accounting treatment.
© 2013 Rehmann
Financial Institutions Tax Update • Bad Debt Conformity Election
– Issue centers on the timing of the deduction for worthless debt obligations and worthless accrued interest under IRC Section 166
– This continues to be a hot topic within the Bank tax industry
– Differences exist in GAAP and tax definition of bad debts: • GAAP-includes anticipated future worthlessness
– Charge-off for tax purposes: • Loan is classified as a loss asset for the charge-off to be deductible.
• Loan must be charged off for book accounting purposes
• Requires actual worthlessness at the time of charge-off
– The conformity election provides for a conclusive presumption of worthlessness based on the application of a single set of standards for both regulatory and tax purposes (essentially creates a safe harbor).
© 2013 Rehmann
Financial Institutions Tax Update
• Bad Debt Conformity Election – The conformity election is made on a bank by bank basis through
the filing of a Form 3115 attached to a timely filed tax return
– The Bank must obtain an express determination letter its primary regulator for the most recent examination
– In the event an express determination letter is not received, the election is considered revoked. Taxpayers only have one opportunity to file for an automatic change in accounting method. Future applications require a permissible change subject to a “fee”
– The Conformity election by-and-large virtually eliminates all controversy over charge-offs for loans and non-accrual interest upon IRS examination
© 2013 Rehmann
Financial Institutions Tax Update
• IRS Examination Issues – The conformity election was not challenged and adhered to in
our most recent IRS exam
– By in large, there has been minimal IRS examination activity within our financial institution tax practice
– New Issue: “Estimated Selling Costs” • Under GAAP accounting, the amount of loan charge-off usually equals
the amount by which the loan balance exceeds the FMV of the secured collateral less estimated costs to sell
• New IRS exam issue-Upon audit, the IRS will propose adjustments for amounts related to estimated selling costs
• This IRS issue will create a book and tax timing difference or deferred tax asset at foreclosure
• There will be a need to quantify estimated selling costs on an annual basis
© 2013 Rehmann
Financial Institutions Tax Update
• IRS Examination Issues – Although the conformity election provides for book/tax conformity
on loan charge-offs, the tax treatment for selling expenses does not follow the application of the conformity election
– Book accounting example
• Loan value: $100,000
• Fair market value: $80,000
• Estimated selling costs: $5,000 – Book accounting at foreclosure:
» Dr. ALLL $25,000
» Dr. OREO $75,000
» Cr. Loan $100,000
• Book basis of the OREO asset: $75,000
• Tax basis of the OREO asset: $80,000
• Current year unfavorable book/tax adjustment of $5,000 (deferred tax asset available for future deduction upon sale of the OREO property
© 2013 Rehmann
Financial Institutions Tax Update
• BASEL III – How does it impact tax accounting and reporting?
• New standards will limit the amount current deferred tax assets and related tax attributes counted for as regulatory capital.
• The single most important issue provided for within the final regulations concern the hypothetical carryback and the allocation of deferred tax liabilities.
• Final regulations are very complex and there is limited guidance available.
• We are expecting that additional analyses will need to be completed on a bank by bank basis and formal calculations of deferred tax assets/liabilities may be required on a quarterly basis.
• Stay tuned!
© 2013 Rehmann
Financial Institutions Tax Update
• Legislative Update
– What we know:
• 3.8% Medicare tax on net investment income for 2013 on certain taxpayers
• 0.9% Medicare tax on high wage earners
• It does not appear that a comprehensive tax reform bill will be introduced in 2013
• Continue to plan for the Affordable Care Act healthcare reform
• International tax matters and reporting are the focal point of the IRS including reporting by Banks
© 2013 Rehmann
Financial Institutions Tax Update
• State Tax Update 2013
– Notice to taxpayers regarding financial institution
unitary filing and reporting of eliminations for MBT and
CIT, 9/20/13
• New form for 2013 year
– Increased audit activity: 2008 – 2011 MBT returns
• State is challenging – acquisitions and dissolutions of
subsidiaries, eliminations and “negative” equity
© 2013 Rehmann
Financial Institutions Tax Update
• State Tax Update 2013
– Proposed legislation SB 516
• Passed Senate on December 4, 2013 and now is with the
House Tax Policy committee
• Equity capital will now be defined as regulatory capital
instead of GAAP
• 5 year average will no longer be used
• Parent equity will be used in an unitary group.
© 2013 Rehmann
Thank you! Liz Ziesmer, CPA, CBA
Phone: 616.975.4100
Email: [email protected]
Heidi Cieslik, CPA, MBA
Phone: 248.293.7108
Email: [email protected]
Heather Funsch, CPA
Phone: 989.797.8393
Email: [email protected]
Mike Robbins, CPA
Phone: 517.787.6503
Email: [email protected]
Lisa Newland, CPA
Phone: 517.787.6503
Email: [email protected]
Cathy Lambert, CPA
Phone: 248.614.6420
Email: [email protected]
© 2013 Rehmann
