Inflation Reduction Act, ESG and the uncertain economy key issues at the 2022 Bank Tax Institute

This year’s Bank Tax Institute was held in person in Orlando, Florida and was back at full attendance after the impact of COVID in recent years. The 2022 conference themes focused mainly on: (1) the midterm elections which took place the same week as the institute, (2) expected tax legislation, and (3) education for banks on the recently enacted Inflation Reduction Act, the emerging digital asset market, and the changing regulatory environment.

New tax legislation

The Inflation Reduction Act of 2022 (IRA) was dissected into applicable impacts for players in the bank and capital markets space. The impact of revived alternative minimum tax on the largest banks is uncertain in the absence of IRS guidance on bank and lender adjustments to the calculation, including mortgage servicing contracts. The new 1% excise tax on stock buybacks discussion focused on who it applied to (banks who are traded on an exchange), and how to plan stock buybacks around the excise tax’s applicability threshold (netting against issuances, mergers, minimal exceptions).

Politics and tax policy outlook

Numerous sessions during the institute focused on how the mid-term elections and a potentially split Congress would affect future tax legislation for financial institutions and lenders. The sunsetting of prior tax provisions over the next few years – including the bonus depreciation phase-out, tax rate increases and research and development cost expensing – was presented. The speculation around potential immediate legislation was geared towards research and development expensing, excess loss limitations for smaller business operations, and the child tax credit.

ESG and financial institutions

Environmental, social and governance (ESG) reporting requirements and limitations were the subject of a Baker Tilly-sponsored roundtable. The discussion centered on how much public and private banks will be required to track and disclose regarding ESG policies and positions in future years. Best practices on establishing internal responsible parties, committees and policies were presented. The SEC’s status of reporting requirements, comment periods, and current legislation circulating at the state level were hot topics. Policies and reporting requirements of foreign countries were also discussed as U.S. requirements often lag European countries.

The IRS

Holly Paz, the acting Large Business & Industry Division Commissioner of the IRS, spoke to the audience on the IRS’s new allotted funding under the IRA. She indicated that the IRS is focused on three main objectives: IRA transition and implementation, increased enforcement and significant technology upgrades. The Commissioner spoke about new and retiring enforcement campaigns, increasing employee count, and the continuance of the Pre-Filing Agreement and Fast Track Settlement programs. Paz also spent significant time informing banks of the upcoming revised Uncertain Tax Position schedules, indicating that disclosures historically have been insufficient form the IRS’s perspective. Companies will need to disclose more in-depth descriptions of their positions and indicate where the positions are specifically recorded by line on the tax return.