Bankers Group Suggests Items for 2018-2019 Guidance Priority List

a. Because S Banks are highly regulated and limited in their activities, a rule clarifying the availability of Section 199A to S banks should be narrow in scope and limited in application.

b. Guidance should clarify that a “specified service trade or business” does not include banking. Banks are highly regulated and their permissible activities are clearly defined by statute and regulation. Thus, all of their permissible activities should be eligible for the deduction created by Section 199A.

c. A “banking trade or business” could be appropriately defined as a trade or business using regulatory references.

d. Certain references to ancillary activities in the statute (such as “dealing in securities”) should be read narrowly, consistent with congressional intent, to capture only those entities that were intended to be excluded from the 199A benefits.

e. For additional background, please see our joint trades comment letter submitted on April 30, 2018.

a. Further guidance is needed to resolve potentially inconsistent treatment (as raised in IRS FAQs) for trusts and estates when 965 income is distributed and not accumulated. ABA urges the IRS to clarify that, in all cases, 965 income should be included in distributable net income (“DNI”) and reported on Form 1041, because Subchapter J does not provide any current DNI exclusion for that income. This income should be allocated according to the Subchapter J rules, with indirect expenses of the trust or estate allocated to any item of income included in DNI, as long as a reasonable portion is allocated to nontaxable income, and included on beneficiary K-1s based on the beneficiary's share of DNI.

b. In the revised FAQs, the IRS not only prohibits a regular tax refund to offset the 965 tax due, it also applies regular tax overpayments to future section 965 installment payments due. Section 965(h) permits taxpayers to elect to pay the tax due under section 965 in installments over an eight-year period. Authority from the IRS indicates the IRS will automatically apply any overpayment of 2017 income tax to the next installment of section 965 tax elected to be paid for under the installment election.

c. Accordingly, with regard to the FAQ A14, ABA requests that the IRS honor a refund request for income tax overpayment or request for credit to a first quarter income tax estimate for the next year instead of automatically applying the overpayment to the taxpayer's next 965 tax installment payment.

a. Provide that payments are attributable first to interest that has accrued under the terms of a modified mortgage, second to interest on the pre-modification mortgage that was added to principal at the time of modification, and finally to principal that is not attributable to pre-modification interest.

b. Reporting entities must then allocate payments received on a modified mortgage to interest as described.

c. Be prospective — that is, effective for mortgages modified after issuance of final regulations. To the extent a borrower on a mortgage that was modified prior to the effective date did not deduct the post-modification payments of pre-modification interest that he or she would otherwise be entitled to deduct under the requested guidance, the guidance should permit the borrower to deduct such amount in her/his next filed return via a simplified change in method of accounting process.

a. Although there appears to be less controversy on this issue than in the past, this continues to be an important issue for banks. An examination directive (LB&I-04-1014-008) regarding these issues applied only for taxable years 2010-2014 and accordingly, updated guidance is necessary.

b. A new financial accounting standard (Accounting Standards Update 2016-13, popularly known as “CECL”) has been promulgated for loan loss reserves. It is a relevant time to review the book and tax issues surrounding bad debts.

c. We ask that Treasury re-open this project and update the regulations as appropriate.

d. For additional background, please see our joint trades comment letter submitted on October 8, 2013.

a. In particular, the final rule should eliminate unnecessary filings of Form 8971, except certain property from the reporting requirements, withdraw the negative treatment of after-discovered or omitted property, and withdraw the reporting requirement for subsequent transfers of reported property. In addition, we request that the IRS amend the instructions to Form 8971 to not impose penalties for incomplete information on beneficiaries. For example, situations may arise in which an estate makes a distribution to a beneficiary that has no TIN.