ABA Issues Staff Analysis of Proposed Pass-Through Deduction Regulations

As Treasury and the IRS work to implement the new tax reform law, the American Bankers Association has published a new staff analysis on the recently proposed regulations that would implement the 20 percent deduction that pass-through entities, including Subchapter S corporations, can take under the 2017 law.

Since the proposal was released last month, ABA has been working with member bankers, trade associations and other industry stakeholders to evaluate how the regulations will carry out policymakers’ intent to have S banks qualify for the deduction. While there is strong language in the preamble related to banking, other parts of the proposed regulations have generated uncertainty about certain activities banks conduct, including trust activities, loan sales and others.

Without clarification, ABA remains concerned that the regulations could be interpreted to mean that if these activities generate gross receipts that exceed a certain threshold, part of or all of an S bank’s income could be deemed illegible for the deduction. The association noted that while it would likely only affect a limited number of banks, it is not in line with congressional intent and must be addressed before the regulations are finalized.

The association continues to seek feedback from bankers as it prepares a comment letter for submission and for further meetings with Treasury officials, in coordination with the Independent Community Bankers of America and the S Bank Association.