Letter to the Treasury and IRS Regarding Treatment of Section 597

Dear Assistant Secretary Batchelder and Commissioner Werfel:

The American Bankers Association (ABA) submits these comments in response to the request for comments in Notice 2023-7, initial guidance issued by the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) regarding the corporate alternative minimum tax (CAMT) under Sections 55, 56A, and 59. In particular, this letter addresses the application of CAMT to federal financial assistance (FFA) in Section 597 transactions.

In summary, the practical effects of the CAMT will unintentionally increase the costs to the Federal Deposit Insurance Corporation's (FDIC's) Deposit Insurance Fund (DIF) when FFA is provided, and also generally will discourage mid-sized institutions from participating in such transactions. As a result, we recommend Treasury issue guidance that excludes the initial income reported under Generally Accepted Accounting Principles (GAAP) upon the execution of Section 597 transactions from the calculation of Adjusted Financial Statement Income (AFSI) for CAMT purposes.

We appreciate your consideration of the recommendations discussed in this letter.

Introduction

In the Spring of 2023, the United States witnessed certain banks entering receivership by the FDIC. The FDIC conducted orderly liquidations of those banks by selling their assets and liabilities to acquiring banks with a partial guarantee of the assets in what is commonly referred to as an "FDIC-assisted transaction." The tax treatment of FFA received in FDIC-assisted transactions is governed by Section 597. The subject of this letter is the appropriate treatment of FFA-related income under the CAMT to prevent the unintended consequence of restricting the available liquidity of acquiring corporations—specifically, mid-sized banks—during the orderly liquidation of banks in FDIC receivership.

Recommendation

We recommend that Treasury and the IRS exercise their authority under Section 56A(c)(15) and 56A(e) to provide adjustments to AFSI that exclude immediately-recorded GAAP-based income that is attributable to FFA provided in a Section 597 FDIC-assisted transaction, and instead treat the income in a manner consistent with intended regular federal tax treatment under Section 597.

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