Pub. 5 2014 Issue 3

fall 2014 15 West Virginia Banker ownership interest in a tax refund that is attributable to income earned, taxes paid, and losses incurred by the Institution. The [holding company] hereby agrees that this tax sharing agreement does not give it an ownership interest in a tax refund generat- ed by the tax attributes of the Institution.” The Addendum is intended to: (1) protect the IDI’s ownership rights in tax refunds, (2) ensure tax allocation agreements explicitly acknowledge the existence of an agency relationship between the holding company and its subsidiary IDIs with respect to tax refunds, and (3) ensure such agreements do not contain other language to suggest a contrary intent. Furthermore, the Addendum also clarifies that: (1) all tax allocation agreements are subject to the requirements of section 23B of the Federal Reserve Act (FRA); (2) tax allocation agreements that do not clearly acknowledge an agency relationship exists may be subject to additional requirements under section 23A of the FRA; and (3) Section 23B of the FRA requires a holding company to promptly transmit tax refunds received from a taxing authority to its subsidiary IDI. For holding companies that have elected S corporation status for federal income tax purposes, the Addendum does not apply to an IDI, its holding company, or other affiliates if the holding company is not subject to corporate income taxes at the federal or state level. Conclusion The Addendum issued does not represent a change in supervisory approach to these issues. Additionally, it does not change the method in which companies calculate and pay income taxes. It is a clarification as a result of adverse bankruptcy experi- ence and constitutes a reaffirmation of the Interagency Policy Statement. In order to avoid potential implications under Section 23A of the Federal Reserve Act, holding companies and IDI subsidiaries should review their existing tax allocation agree- ments to ensure inclusion of the provision specified in the Addendum no later than October 31, 2014. The Interagency Policy Statement on Income Tax Allocation in a Holding Company Structure can be located at: https://www.fdic.gov/regulations/laws/ rules/5000-5000.html n Ryan Environmental has been serving West Virginia banks for more than 20 years, helping them mitigate risk and protect their real estate portfolios. We specialize in • Phase 1 and Phase 2 environmental assessments • Remediation and clean-up of tainted properties • Certified asbestos inspections and abatement • Certified underground and above ground storage tank removal and installation Call Al Anderson or Hunter Reed at 304-842-5578 for a sample report and/or pricing schedule. For a complete list of our services, visit www.ryanenv.com. Joseph Hager is a Supervisor at Ar- nett Foster Toothman PLLC, Certified Public Accountants, Charleston, West Virginia. Mr. Hager has over nine years experience in the financial institutions industry. He provides audit, internal audit, loan review, and compliance consulting services to community banks through the firm’s Financial Institutions Service Group. Mr. Hager can be contacted at 800-642-3601 or joseph.hager@aftcpas.com.