Latest News

Vaulation Comment Period Closes

Nov 04, 2016

The official comment period on the proposed Section 2704 regulations closed on November 2nd with 9,830 comments filed. The Ways & Means Republicans also released a letter on November 3rd stating their strong opposition to the rules. The 24 committee members signed the letter, which states, "The proposed regulations as drafted represent a dramtic change from past practice and history and are not consistent with the congressional intent. In order to avoid immediate and substantial economic harm to family-owned businesses andn the jobs they create, these regulations should be withdrawn. any new proposal in this area should be clearly defined and narrowly targeted withink the reach of the applicable statutory rules." The IRS will host a public hearing on December 1st, where the issue is likely to be addressed.     Read more

Sigh of Relief: S Corps Exempted from 385 Rules

Oct 17, 2016

The final rules offer significant relief for S corp community banks. On October 13th, the Treasury Department and IRS released final and temporary section 385 regulations. These regulations had been proposed on April 4, 2016.  A significant collateral effect of the Proposed 385 Regulations would have been that if debt issued by an “S Corporation” were recharacterized into equity, the deemed equity could invalidate the S Corporation’s “S Election” by being treated as a prohibited second class of stock. The Final 385 Regulations responded to comments requesting relief on this point by excluding S Corporations from the definition of an expanded group, thereby fully exempting debt issued by S Corporations from the section 385 rules.  After much speculation and concern, the final product reflects a significant effort by Treasury and the IRS to limit the scope and burden of the 385 Regulations. The Treasury stated, " Because an S corporation cannot be owned by persons other than U.S. resident individuals, certain trusts, and certain exempt organizations, an S corporation cannot be controlled by members of an expanded group in a manner that implicates the policies underlying the final and temporary regulations. S corporations are therefore excluded from the definition of an expanded group member for all purposes of the final and temporary regulations."  Read more

The Sub S Bank Report Volume 19, Issue 3

Sep 28, 2016

The Sub S Bank Report Volume 19, Issue 3 is now available to read. Learn more about: Sub S Bank Inadvertent Terminations a Big Risk; New Bank Charters & Subchapter S Elections; Sub S Bank Capital Access Bill to be Amended & Reintroduced; S Corp Banks: Roadmap to Long-Term Independence; CDFIs & Historic Tax Credits Addressed in Federal Banking Regulators Updated CRA Guidance; Legislative Round Up and the 19th Annual Subchapter S Bank Association Conference Agenda.  To read it, log in with your membership information. If you need assistance resetting your log in information or did not receive the email copy to your inbox email Amy Trevino at atrevino@kslawllp.com.   Read more

Proposed Valuation Rules Under Section 2704

Sep 26, 2016

Proposed regulations under section 2704 of the Internal Revenue Code, released on August 2, 2016 and published to the Federal Register on August 4, 2016, would make sweeping and very significant changes to the valuation of interests in many family-controlled entities for estate, gift, and generation-skipping transfer tax purposes. Code section 2704 provides special gift, estate and generation-skipping transfer tax valuation rules for valuing transfers of interests in corporations and partnerships subject to lapsing voting or liquidation rights and restrictions on liquidation. The proposed regualtions would significantly increase the burden of the death tax. Specifically, the rule will hinder the ability of businesses to apply proper valuation discounts for estate, gift, and generation skipping taxes. Legilsations has been introduced in both the House & Senate to block the Treasury from finalizing the proposed rules. Sponsored by Congressman Davidson (R-OH), HR 6100,  and Congressman Rubio's (R-FL) S 3436, the legislation objects to the underlying premise of the proposed rules and prohibits Treasury from taking action to make them final. These bills go a step farther than HR 6042 which was introduced by Congressman Sensenbrenner (R-WI) that would nullify the proposed regulations. We strongly incourage everyone to get involved. The official comment perios is open until November 2nd. The more the Treasury hears from the community banking community on this issues, the less likely they will be able to finalize these harmful rules as proposed.   Read more

Amendment to Help Community Banks Become S Corps Passes Committee

Sep 22, 2016

 U.S. Sen. John Thune (R-S.D.), a member of the tax-writing Senate Finance Committee,  applauded the Finance Committee’s approval of his provision that would make it easier for community banks to become S corporations by allowing S corporation bank shares to be held in individual retirement accounts (IRAs). In 2004, legislation was enacted making it easier for existing community banks to utilize the option of converting to an S corporation. Thune’s amendment, which was included in the bipartisan Retirement Enhancement and Savings Act of 2016 markup, would provide additional community banks the option to convert to an S corporation and would grant S corporation bank shareholders the ability to use IRA funds to purchase additional shares.    “S corporations are one of the most popular forms of businesses in the United States and play an important role in South Dakota’s economy,” said Thune. “Similarly, community banks – many of which are organized as S corporations – provide an invaluable source of financing to small businesses throughout South Dakota and our nation. While the federal tax code is large and complicated, I’m always glad when we can find common-sense, bipartisan reforms like this one that would streamline the process, and in this case, help banks continue to serve their communities.” The Independent Community Bankers of South Dakota (ICBSD) and the Independent Community Bankers of America (ICBA) have expressed their support for the Thune amendment: “Access to capital is particularly important as community banks are facing regulator demands for higher capital levels under the Basel III Capital Accords and other regulations,” said Greg McCurry, president and CEO of ICBSD. “Community banks have limited means of raising capital. This amendment would allow funds held in IRAs to be used to help meet the challenges of the current capital regulatory environment. The ultimate beneficiary of these changes will be the South Dakota customers and the 35 different communities served by S corporation community banks.” “ICBA strongly supported this amendment as a stand-alone bill, the S Corporation Modernization Act of 2016 (S. 3181), and is very pleased that it was included in the chairman’s mark,” said Camden Fine, president and CEO of ICBA. In July, Thune and U.S. Sen. Ben Cardin (D-Md.) introduced the S Corporation Modernization Act of 2016 (S. 3181), legislation that would make several pro-growth reforms to help S corporations operate more easily, which would improve their ability to raise capital. The amendment adopted during the committee's markup is a key provision of S. 3181. As mentioned previously, this is the first time since 2009 that the S Corporation Modernization Act, of which Sen. Pat Roberts (R-Kan.) is also a cosponsor, has been introduced in the Senate. U.S. Reps. Dave Reichert (R-Wash.) and Ron Kind (D-Wis.) have introduced companion legislation in the House of Representatives.  Read more