Tax Tips for Community Banks
Ron Blasi, Georgia State University Professor of Law and Art of Tax Efficiency co-author, highlights these 10 tips as important actions a community bank can take to help achieve tax efficiency.
- Obtain tax credits; Lend/invest in low-income residential housing and new markets.
- Engage in "tax-arbitrage" by purchasing BOLI and by investing in tax-exempt obligations.
- Elect to defer prepaid interest income with respect to points, odd-days interest, etc.
- Elect a conformity bad debt method to defer interest income on nonperforming loans.
- Inform the CFO that loan files may not be given to IRS agents (violation of federal and possibly state privacy laws).
- Plan for a transition to large-bank status (more than $500 million) by reviewing the loan portfolio and bad debt reserves.
- Obtain a fair market appraisal for all foreclosed property to prevent gain recognition at the time of foreclosure.
- When entering new business (e.g., insurance or brokerage), elect deduction of "start-up" expenses.
- Claim a deduction for the decline in value of large loans that are renegotiated.
- Properly identify loans and securities to avoid mark-to-market of the entire portfolio.
