Firm Suggests Changes to Proposed Debt-Equity Regs

We are writing on behalf of one of our clients, a foreign banking organization (the "Company," and together with its subsidiaries, the "Group"), to provide comments to the proposed Treasury regulations under Section 385 of the Internal Revenue Code of 1986, as amended (the "Code"), published on April 8, 2016 (the "Proposed Regulations").¹

The Group is a leading financial services group with businesses in global wealth management, investment banking, and retail and commercial banking, headquartered in a country outside of the United States (the "Home Jurisdiction"). The Group operates its financial services business through branches and subsidiaries in over 50 countries around the world. The Company is the common parent of the Group and is publicly traded on a major stock exchange. The Group's main banking organization, which is organized in the Home Jurisdiction, has offices and branches throughout the world including New York (the "Bank"). The Bank holds, directly or indirectly, the Group's principal legal entities in the U.S., including a Delaware corporation that serves as its IHC (as defined below) pursuant to regulatory requirements discussed further below. The Group also includes a U.S. broker-dealer entity that is included in the U.S. consolidated group of which the IHC is the common parent.

Regulators in the Home Jurisdiction, the United States and other jurisdictions supervise the Group's operations, both on a consolidated basis and on an individual entity basis with respect to certain subsidiaries. The Company is subject to consolidated supervision in the Home Jurisdiction. In the United States, the Bank has a U.S. branch and therefore, under the International Banking Act of 1978,³ it and the Company are each subject to the Bank Holding Company Act of 1956 (the "BHC Act"). As a result, the Company is subject to supervision by the Board of Governors of the Federal Reserve System ("Federal Reserve") with respect to its compliance with, and may engage in activities to the extent permitted by, the BHC Act. In addition, the Company is a foreign banking organization (an "FBO") that has elected to be treated as a financial holding company ("FHC") under the BHC Act.⁴ By making this election, the Company is permitted to engage in, or own or control companies engaged in, banking and other financial-related activities in the United States.⁵ Under the Federal Reserve's enhanced prudential standards rule, implemented pursuant to Section 165 of the Dodd-Frank Act, the Company is required, as an FBO with total consolidated assets of $ 50 billion or more and U.S. nonbranch assets of $50 billion or more, to hold all of its U.S. subsidiaries under a single U.S. intermediate holding company ("IHC"), which is separately subject to prudential regulation by the Federal Reserve on a consolidated basis.⁶ The Bank's U.S. branch in New York is also independently subject to supervision by the Federal Reserve and the New York State Department of Financial Services.

We understand that the Securities Industry and Financial Markets Association ("SIFMA") and the Institute of International Bankers ("IIB") have submitted separate comment letters with respect to the Proposed Regulations (the "SIFMA Letter" and the "IIB Letter," respectively), and we expect those comment letters to include detailed descriptions of the commercial and regulatory matters relevant to the financial services industry generally and, in the case of the IIB Letter, foreign banking organizations that conduct business in the United States specifically.⁷ In this letter, being mindful of your time and resource constraints, we, on behalf of the Company, do not seek to repeat those detailed descriptions, but seek to provide the following recommendations driven by the Group's specific regulatory and business concerns.

Regulatory reforms in the Home Jurisdiction and the Dodd-Frank Act require the Company to develop resolution plans, which require internal debt to be credible. A resolution plan describes the Company's strategy for the rapid and orderly resolution of its organization in the event of material financial distress. Under guidance from the regulators, the Company is in the process of developing a resolution plan for the Home Jurisdiction that is expected to follow a single point of entry ("SPOE") strategy, the strategy favored by the Home Jurisdiction and U.S. regulators. Separately, the Company is required to periodically prepare a U.S. resolution plan pursuant to requirements under the Dodd-Frank Act. The Company is also likely to move to an SPOE-like strategy involving the IHC for its next U.S. resolution plan submission to the Federal Reserve and Federal Deposit Insurance Corporation. Under the Company's group-wide SPOE strategy in the Home Jurisdiction's resolution plan, external debt of the Company would be recapitalized and the Company would use its own parent-level resources to recapitalize its operating subsidiaries, including the IHC. Under an SPOE-based U.S. resolution plan, in the event that the Group's material legal entities in the United States were to encounter significant financial stress, the IHC would enter bankruptcy proceedings and internal debt owed by the IHC to the Bank, including the internal long-term debt that would be required under the U.S. "total loss-absorbing capacity" (or "TLAC") proposal discussed below, is expected to be used under the plan to recapitalize the IHC. Such intercompany debt is the only effective way to recapitalize the IHC under a strategy where the IHC enters bankruptcy proceedings. This SPOE strategy would be supported by the requirement, under the TLAC proposal discussed below, to issue internal long-term debt to the Bank, a requirement that could not be satisfied by issuing debt to external third parties. In sum, a key concept of the SPOE strategies is that external debt is issued by the "SPOE" entity, with subsidiaries relying on internal debt, rather than third-party debt, for their funding needs.

As part of international standards being implemented in the Home Jurisdiction, the United States and other jurisdictions in which the Group operates, the Company will be required to modify its external capital structure and certain internal funding structures to include instruments that provide minimum levels of external and internal TLAC. Under these standards, a portion of the Company's external TLAC must be in the form of qualifying long-term debt. The Federal Reserve's proposal to implement the TLAC standards will require the IHC to issue minimum amounts of "internal TLAC" and "internal long-term debt." These proposed requirements address the internal funding of the IHC by its parent company, the Bank, which would support the SPOE resolution strategy for the IHC discussed above. Under these proposed requirements, the IHC will be required to issue qualifying long-term debt instruments to the Bank, while debt issued to third parties cannot satisfy the regulatory requirements.

In addition to these proposed TLAC requirements, the Company and certain of its subsidiaries, including the IHC, are each subject to consolidated capital requirements that implement international capital standards known as Basel III. In general, capital requirements are designed to protect the Group's depositors and other creditors by ensuring that the Company, and its separately regulated subsidiaries, each maintain adequate levels of capital -- generally consisting of equity and certain other types of loss-absorbing funding -- relative to their exposures to loss. The Company, or its subsidiaries regulated on an individual basis, would face limitations on the ability to distribute dividends or redeem or repurchase stock if it or they failed to maintain capital levels sufficient to meet prescribed buffers above the minimum capital requirements and sufficient to satisfy any applicable stress testing and capital planning requirements.

The Group's U.S. broker-dealers, which are registered with, and regulated by, the U.S. Securities and Exchange Commission (the "SEC"), are also subject to minimum capital requirements. The SEC's net capital rule requires broker-dealers to maintain minimum net capital in relatively liquid form, and the Financial Industry Regulatory Authority, which is a non-governmental, self-regulatory organization, also imposes net capital requirements.

Finally, the Group's intercompany debt is vital to balancing competing desires among home and host country regulators in a way that equity could not. The same regulatory principles that require entities in a jurisdiction to hold capital have the effect of preventing entities in other jurisdictions from gaining access to that capital, for example, through limits on paying dividends. As a result, financial entities must balance regulators' desires to pre-position capital in entities within their jurisdiction with other regulators' fears that capital will become trapped in another jurisdiction. Intercompany debt eases the tension because while a subsidiary has an intercompany note on its balance sheet, the parent retains a lifeline to move the funds to other stressed entities if and when the need arises. The amount of debt is precisely calibrated to meet both regulators' requirements. For these reasons, equity would not be an adequate substitute for debt.

In sum, the Group's operations and capital structure are subject to extensive regulation in the United States and abroad, which leaves little room for the "manipulation" that the Proposed Regulations raise as a concern. Minimum capital requirements prevent Regulated Financial Group Members from incurring "excessive debt" and engaging in "earnings stripping" transactions, and strict oversight of dividend payments ensures the Group does not engage in transactions implicating the core concerns of the Proposed Regulations. Regulators also effectively require the Group to use internal debt in its capital structure, such as internal debt used to implement an SPOE strategy and internal TLAC.

Similarly, the nature of the Group's business, not tax motivations, dictates its funding transactions. The Group's "inventory" is cash; its interest expense is what, to a manufacturer, would be considered the "cost of goods sold"; and internal debt is the means by which the Group manages its inventory. The Group utilizes a centralized treasury function to manage liquidity and funding risks, which enables it to respond quickly to meet stress situations. It uses internal loans and cross-border sale and repurchase transactions to move "inventory" between entities to meet customer demand. The Group also uses internal loans to move proceeds from external debt issued primarily by the Bank (and, in response to regulatory reforms, the Company) in the capital markets to its operating subsidiaries in order to meet the subsidiaries' capital requirements and support their business initiatives. Although mandated by markets rather than a regulator, EGIs issued or acquired in the ordinary course of a Regulated Financial Group Member's business are, by definition, issued or acquired for substantial non-tax business purposes and not to manipulate tax effects. Treasury and the IRS have recognized, through the exception to the "per se" rule in Proposed Regulation § 1.385-3(b)(3)(iv)(B)(2), that an EGI issued in the ordinary course of business generally is not an EGI issued with a principal purpose of funding a distribution or acquisition identified as raising significant policy concerns. However, the current exception -- limited to EGIs issued or acquired in connection with the purchase of property or the receipt of services -- ignores a vast number of transactions in the ordinary course of a financial services business, whose "goods and services" are debt, deposits and other financial instruments. This omission is incongruous with the vital role that debt plays in a financial services business, and overlooks the increased burden the Proposed Regulations will have on the Group (described in further detail below) as a result. In fact, the Company believes the justification for the exception calls for an expansive rule, encompassing any EGI issued by a Regulated Financial Group Member (rather than a limited exception to the "per se" rule).

Because their debt levels are determined by regulation and business exigencies, members of the Group do not have the flexibility to manipulate their debt in the manner that the Proposed Regulations seek to address. This lack of ability to manipulate their funding transactions also results in the inability of the Group, unlike other taxpayers, to avoid the deleterious consequences of the Proposed Regulations. Recharacterization of debt as equity not only results in a loss of interest deductions, but also gives rise to dividend income upon repayment of debt to the extent of the relevant borrower's earnings. Such payments would generally be subject to U.S. withholding tax. The Group's IHC is, or likely will be, required to issue debt to the Bank in order to comply with regulatory mandates, in accordance with the Company's SPOE strategies to implement the resolution plans, and under the proposed internal TLAC rules and pursuant to other regulations described above. Thus, by penalizing the Group's use of intercompany debt, the Proposed Regulations work at cross purposes to the mechanisms carefully designed by financial regulators to ensure stability in the financial markets. Given the vital role of intercompany debt to the Group's business, the possibility of recharacterizing the Group's intercompany debt as equity (compounded by potential cascading effects¹¹ ) would also negatively impact every aspect of its operations.

Finally, the Proposed Regulations are at odds with the treatment of financial institutions elsewhere in the Code and Regulations. For example, Regulation § 1.882-5 permits a foreign bank with a U.S. branch to elect to use a 95% asset-to-liability ratio to determine its deductible interest expense, which results in a greater U.S. interest deduction than would a lower ratio.¹² By contrast, Regulation § 1.882-5 generally permits non-banks to elect to use an asset-to-liability ratio of only 50%. The higher ratio for banks reflects Treasury's recognition that banks are highly leveraged. Further, existing and proposed earning stripping rules generally do not apply to banks in practice. Section 163(j) disallows a deduction for net interest expense (i.e., the excess of interest expense over interest income). Because financial institutions generally aim to have interest income that is more than their interest expense, as a practical matter, this limitation rarely applies to them. Similarly, the Administration's 2017 budget proposals that would modify Section 163(j) provided an explicit exception for financial services entities.¹³ Other tax rules also provide special treatment for certain financial services entities,¹⁴ generally out of recognition that such entities enter into financial transactions in the ordinary course of their businesses.¹⁵

If Treasury is not prepared to endorse the exception requested above, the Company believes the application of Proposed Regulation § 1.385-3 to Regulated Financial Group Members should be reserved upon until a more comprehensive analysis by Treasury and the IRS is completed, taking into account the unique considerations applicable to the financial services industry. The Preamble explained that Congress authorized Treasury to establish rules under Section 385 because regulations would be more adept than "comprehensive and specific statutory rules of universal and equal applicability" at answering debt/equity questions that require a nuanced understanding of "particular factual situations."¹⁶ Regulators around the world confronting multi-faceted questions of cross-border taxation, including Treasury, have taken the time to study how regulations and other regulatory initiatives should apply to financial institutions and their transactions, in recognition of the complexities presented by such groups' businesses.¹⁷

Without a specific exception, purchases of parent stock to serve as employee compensation will be within the scope of Proposed Regulation § 1.385-3. Given that equity-based compensation is an integral part of the Group's business and a key aspect of its talent retention strategy with no impermissible tax-avoidance purpose, the Company strongly believes Proposed Regulation § 1.385-3 should provide an explicit exception for EGIs issued by a non-publicly traded member of an expanded group (an "EG") in order to fund acquisitions of a publicly-traded member's stock as equity-based compensation for employees. This exception could follow the approach taken under Section 263 to identify when indebtedness is "incurred or continued to purchase or carry . . . [specified] property." Alternatively, if the IRS is concerned about examination burdens, the exception could require the taxpayer to prove by clear and convincing evidence that an EGI is issued to fund the relevant stock purchase.

In addition, the Company fully supports the recommendation made by SIFMA that acquisitions of stock of a publicly-traded member of an EG by a non-public member should not be taken into account in applying Proposed Regulation § 1.385-3(b).²¹ However, the Company believes both an exception for the stock acquisition (per SIFMA's recommendation) and the EGI funding the acquisition (the Company's recommendation described above) are appropriate. The Company's recommendation would, for example, prevent the EGI issued to fund the stock purchase from being recharacterized if the issuer were to distribute property in excess of its current earnings and profits.

The Company believes that the threat of a significant penalty for failure to comply with the Documentation Rules would serve the stated policy goals without the disruptive impact of the current Proposed Regulations. Congress favored a similar approach in the context of related-party payments subject to Section 482. Given the shared policy concerns motivating the Section 482 rules and the Documentation Rules, the Company believes an approach modelled on the Section 482 rules is appropriate.²⁵ Therefore, the Company proposes that if the Documentation Rules are not satisfied, a 20% penalty be imposed on any underpayment of tax attributable to the taxpayer's treatment of the instrument as debt.

However, if Treasury is unwilling to adopt the penalty approach as described above, the Company strongly believes that the Documentation Rules should not serve to recharacterize as stock an EGI that in substance is indebtedness. Instead, the rules should create a rebuttable presumption that the relevant instrument is stock, leaving the burden of establishing debt treatment to the taxpayer. This approach, like the penalty approach described above, would incentivize related parties to produce the documentation necessary for later analysis without the drastic consequences of the current Proposed Regulations, and it would also serve to reduce substantially the IRS's audit burden. Finally, the rebuttable presumption approach is more consistent with the Code and the Regulations' approach to other areas requiring heightened scrutiny of complex factual questions.²⁶

The Company believes that reasonable expectation of a Regulated Financial Group Member's intent and ability to repay debt obligations up to a threshold amount should be evaluated on an annual basis. This rule would allow the issuer to draw on its annual financial statements and any required regulatory analysis to both minimize the burdens of compliance and ensure the accuracy of the results, and would require additional examination and documentation only if the issuer seeks to incur indebtedness above the amount identified.

Finally, it is worth noting that the rule under Proposed Regulation § 1.385-2(b)(2)(iii) is "not dispositive in establishing that a purported debt instrument is indebtedness for federal tax purposes," but only a minimum "threshold test for allowing the possibility of indebtedness treatment."³⁶ Thus, if an issuer's financial condition were to drastically deteriorate such that an issuance of debt within the boundaries of the annual financial analysis would clearly not be treated as indebtedness for federal tax purposes, the IRS's ability to challenge such instrument would be unimpeded (although it is unlikely that a Regulated Financial Group Member would be able to issue additional debt in this circumstance, in light of regulatory constraints).

In conclusion, we appreciate this opportunity to comment on the Proposed Regulations. If you have any questions regarding this letter or would like further information, please contact the undersigned (212-450-4571; po.sit@davispolk.com).

²Id. at 20914.

³See 12 U.S.C. § 3106.

⁴See FED. RESERVE BD., FINANCIAL HOLDING COMPANIES AS OF MAY 16, 2016, https://www.federalreserve.gov/bankinforeg/fhc.htm (last visited June 23, 2016).

⁵See 12 U.S.C. § 1843(k). See also RANDALL D. GUYNN, LUIGI L. DE GHENGHI & MARGARET E. TAHYAR, FOREIGN BANKS AS U.S. FINANCIAL HOLDING COMPANIES, in REGULATION OF FOREIGN BANKS & AFFILIATES 1032 (Randall D. Guynn ed., 8th ed. 2014).

⁶See 12 C.F.R. § 252.153. The Federal Reserve's capital and liquidity requirements take into account exposures of all of the IHC's subsidiaries, even if such subsidiaries would not otherwise be subject to Federal Reserve supervision.

⁷ The Company is a member of SIFMA and IIB, and it supports the recommendations that are provided in the SIFMA Letter and the IIB Letter.

⁸ To be clear, these recommendations are not intended as an alternative to the Company's first recommendation described in II.A. Indeed, these changes would be woefully inadequate to address the concerns described with respect to that section. Further, the Company recognizes that, if Treasury and the IRS accept the recommendation in II.A., these changes described in this section would no longer be important to the Group because the Group would be excepted from Proposed Regulation § 1.385-3. However, the Company believes the problems addressed by these recommendations are vital to many multinational entities and are sufficiently significant to warrant further comments.

⁹See, e.g., § 1272(a)(2)(C) (defining a "short-term obligation" as "any debt instrument which has a fixed maturity date not more than 1 year from the date of issue").

¹⁰ 12 C.F.R. § 249.3 provides:

¹¹See, e.g., James M. Peaslee, Re: IRS REG-108060-15 (Section 385 Proposed Regulations) (May 18, 2016), https://www.regulations.gov/document?D=IRS-2016-0014-0054; L.G. "Chip" Harter et al., Section 385 Proposed Regulations Would Vitiate Internal Cash Management Operations (May 4, 2016) (unpublished manuscript); ABA Tax Section -- Corporate Tax Committee, Section 385 Proposed Regulations: Where Have All the Factors Gone? (May 7, 2016); D.C. Bar -- Taxation Section, The Proposed Section 385 Regulations: An In-Depth Look (May 16, 2016).

¹² Regulation § 1.882-5.

¹³ U.S. DEP'T OF TREASURY, GEN. EXPLANATIONS OF THE ADMIN.'S FISCAL YEAR 2017 REVENUE PROPOSALS 3 (Feb. 2017).

¹⁴See § 956(c)(2) (providing special rules for certain deposits and dealer transactions); § 1297(b)(2)(A) (providing special rules for income derived in the active conduct of certain banking businesses); § 954(c)(2)(C) (providing special rules for certain dealer transactions).

¹⁵See, e.g., § 954(c)(2)(C) (excepting certain dealer transactions "entered into in the ordinary course of such dealer's trade or business"); H.R. REP. NO. 108-548, pt. 1, at 198 (2004) (describing the rationale for the exception for certain dealer transactions in § 956(c)(2)(K)); H.R. REP. NO. 105-220, at 638-39 (1997) (Conf. Rep.) (describing the rationale for the exception for certain dealer transactions in § 956(c)(2)(I) and (J)); H.R. REP. NO. 87-1447, at 65 (1962) (describing the rationale for the bank deposits exception in § 956); cf. H.R. REP. NO. 99-426, at 410 (1985) ("[I]ncome earned by banks . . . and income earned by other active companies are not generally to be treated as passive income for purposes of this provision [(the predecessor of § 1297(b)(2)(A))] as long as such income is not includible in the passive income foreign tax credit.").

¹⁶See Treatment of Certain Interests in Corporations as Stock or Indebtedness, supra note 1, at 20913 (citing S. REP. NO. 91-552, at 138 (1969)).

¹⁷See, e.g., Income and Currency Gain or Loss With Respect to a Section 987 QBU, 71 Fed. Reg.52876, 52880 (proposed Sept. 7, 2006) ("The IRS and the Treasury . . . believe it is appropriate to request comments regarding how the rules of the proposed regulations [under § 987] need to be precisely tailored to address issues unique to financial entities."); Transition Rules for the Allocation and Apportionment of Interest Expense and Rules Concerning the Treatment of Financial Products That Alter Effective Cost of Borrowing, 54 Fed. Reg. 31816, 31818 (proposed Aug. 2, 1989) (explaining that Treas. Reg. § 1.861-9T(b)(6) reserves on the treatment of financial services entities and inviting comments from stakeholders with respect to appropriate rules for such entities); OECD, LIMITING BASE EROSION INVOLVING INTEREST DEDUCTIONS AND OTHER FINANCIAL PAYMENTS, ACTION 4 -- 2015 FINAL REPORT 75-76 (2015) ("[f]urther work will therefore be conducted to be completed in 2016, to identify best practice rules to deal with the potential base erosion and profit shifting risks posed by banks and insurance companies, taking into account the particular features of these sectors").

¹⁸See § 163(j)(3), (5)(B).

¹⁹See, e.g., § 163(j)(3)(A) (the general rule of disallowing deduction of interest for an issuer on its debt instruments issued to a foreign related person does not apply to the extent the original issue discount is effectively connected with such foreign related person's U.S. trade or business).

²⁰See, e.g., SIFMA Letter, Re: IRS REG-108060-15 (Proposed Regulations Under Section 385) (July 6, 2016), at 43 (the discussion of §§ 163(j)(3) and 267(a)(3) under recommendation 9).

²¹See id. at 45 (recommendation 11).

²²See Treatment of Certain Interests in Corporations as Stock or Indebtedness, supra note 1, at 20915.

²³Id. at 20931 (Prop. Treas. Reg. § 1.385-2(a)(1)).

²⁴See id. at 20916.

²⁵ § 6662(e) imposes 20 percent tax on underpayments of taxes arising from a "substantial valuation misstatement." The purpose of imposing such penalty is to "encourage...a taxpayer engaged in related party transactions to prepare a factual and economic analysis based on reasonably available related party and third party market data that substantiates the price chosen, and to maintain appropriate documentation of that analysis," thereby "ensur[ing] that the transfer price a taxpayer reports on its income tax return is determined in a manner consistent with the arm's length standard." See T.D. 8519, 1994-1 C.B. 298, 299.

²⁶See § 355(e)(2)(B) (treating an acquisition of stock within a specified time period of a distribution of the same stock as occurring "pursuant to a plan [that includes the distribution] . . . unless it is established that the distribution and the acquisition are not pursuant to a plan or series of related transactions"); Regulation § 1.707-3(c)(1) (presuming, subject to certain exceptions, that a transfer of property to a partnership by a partner who receives money or other consideration from the partnership as "a sale of the property to the partnership unless the facts and circumstances clearly establish that the transfers do not constitute a sale").

²⁷See Treatment of Certain Interests in Corporations as Stock or Indebtedness, supra note 1, at20934 (Prop. Treas. Reg. § 1.385-2(c)(5)).

²⁸Id. at 20937 (Prop. Treas. Reg. § 1.385-3(d)(6)).

²⁹Id. at 20927 (citing Revenue Ruling 99-5).

³⁰See JASPER L. CUMMINGS JR., CAN TREASURY BULLY CORPORATIONS INTO SHAPING UP THEIR DEBT?, Tax Notes Today, LexisNexis (June 21, 2016).

³¹ When a disregarded entity has two or more members, it is treated as a partnership under Treas. Reg. § 301.7701-3(b), unless it elects to be treated as a corporation. Because a partnership is not an includible corporation under § 1504(b), it cannot be a member in a consolidated group under Treas. Reg. § 1.1502-1, and corporations whose stock is held by the partnership will not be a member (unless the requisite amount of stock in such corporation is held by another shareholder that is an includible corporation).

³²See, e.g., Treatment of Certain Interests in Corporations as Stock or Indebtedness, supra note 1, at 20914 ("the Treasury Department and the IRS also have determined that the proposed regulations should not apply to issuances of interests and related transactions among members of a consolidated group").

³³ The Preamble suggests it is significant that "a disregarded entity can be treated as the issuer" for purposes of the Documentation Rules. See id. at 20920.

³⁴ For example, if debt is issued by a limited liability company without a guaranty or other credit support from its owner, the debt could be treated as limited recourse debt, and the reasonable expectation of the issuer's intent and ability to repay the debt would therefore be measured by reference to the disregarded entity's assets alone.

³⁵See Treatment of Certain Interests in Corporations as Stock or Indebtedness, supra note 1, at 20916.

³⁶Id. at 20920.

³⁷See, e.g., Treatment of Certain Interests in Corporations as Stock or Indebtedness, supra note 1, at 20932 (Prop. Treas. Reg. § 1.385-2(b)(2)(iii), (iv)).

³⁸ For further discussion of potential consequences under Regulation § 1.882-5, see IIB Letter, Re: IRS REG-108060-15 (Proposed Regulations Under Section 385), at 19, 32 (June 30, 2016).