ABA, Groups Provide Comments to Treasury on Sub S Bank Tax Deduction

As the Treasury Department develops guidance to implement Section 199A of the Tax Cuts and Jobs Act, it should be clear that Subchapter S banks are eligible for the section’s pass-through deduction as Congress intended, a group of trade associations said yesterday.

The American Bankers Association, the Independent Community Bankers of America and the Subchapter S Bank Association emphasized that Congress fully intended for banks to be eligible for the deduction, which is not available for a “specified service trade or business” such as a law firm or an accounting firm. The groups pointed out that banking is included in a list cross-referenced by Section 199A which is part of the definitions for determining eligibility for Sub S tax treatment and that banking has long been understood not to be a personal service business.

“To address any potential ambiguity in the interpretation of Section 199A, we suggest that future Treasury guidance should clarify that income from a ‘banking trade or business’ is qualified income for purpose of the Section 199A deduction,” the groups said. “Properly defined, a ‘banking trade or business’ will include only the limited set of activities in which regulated banks and bank holding companies are permitted to engage, and the clarification does not run the risk of becoming an unintended loophole.”

ABA, ICBA and the Sub S Bank Association have been meeting with Treasury officials to communicate this message and will continue to engage. For more information, contact ABA’s John Kinsella or Curtis Dubay.