Insights from the 2024 Bank & Capital Markets Tax Institute

During election week 2024, the annual 2024 Bank & Capital Markets Tax Institute was held in Orlando. This year's conference themes focused on the direction of tax policy based on final 2024 election results, current areas of tax controversy at the federal and state level and tax and effective tax rate saving strategies. This article will discuss key insights from those main topics. 

The election 

Speakers and attendees alike came prepared to wait out the final election results and discuss each presidential candidate’s tax proposals. With an unexpectedly fast determination for the presidential seat, the focus turned to the components of the 2017 Tax Cuts and Jobs Act (TCJA) and it’s expiring provisions.  

 If the TCJA is not extended, the following provisions are expected to impact management decision making and tax planning for financial institutions of all sizes in the coming years: 

• An increase in individual tax rates, which would return to pre-2018 levels, S corporation bank shareholders would see an immediate increase in their tax liability 
• The elimination of the Section 199A 20% qualified business income (QBI) deduction for shareholders would also result in an increase in tax liabilities. The combination of the individual income tax rate increase and the elimination of the QBI deduction would increase the effective maximum tax rate on business income that qualifies for a QBI deduction from 29.6% to 39.6%, an almost 34% increase in tax liability. 
• The eventual complete phase-out of bonus depreciation would affect banks with new branch construction and qualified branch remodels. 
• The expiration of New Markets Tax Credits, which are not part of TCJA but are also set to expire at the end of 2025, would impact some banks as they are frequently investors or lenders in New Markets Tax Credit deals.  

Although financial services transactions are not currently considered to be subject to tariffs, the industry and its lobbyists are continuously fighting the perception that banks are an easy taxation target.  Many banks feel this is not justified with the majority of corporate banks being at the top end of the effective tax rate scale.  

Tax planning 

Several conference sessions focused on tax planning to decrease tax liability.  

Energy credits were a hot topic again this year as acquisition opportunities increasing as producers come online. The tax attribute investment opportunities are also becoming more widely available to the smaller bank population. 

A bank tax conference would not be complete without a discussion around Bank-Owed Life Insurance. This year’s focus was on Section 1035 tax-free policy exchanges and how to replace policies acquired under less-than-ideal market conditions. 

Politics and pending legislation 

With a business-focused administration at the helm, the conference's attention shifted to a hope for a reduction in regulation. The regulatory environment continues to be one that creates long drawn-out merger and acquisition approvals, costing banks administratively, including their time and talent resources.  

Tax enforcement 

Holly Paz, deputy commissioner of the Internal Revenue Service’s (IRS’s) Large Corporation division spoke during a plenary session. Her comments focused on the areas of utilization of the additional budget funds appropriated by Congress, and the increase in hiring and agent training efforts. It is expected that audit volume for banks will increase in the near future. 

On the state and local level, several states were presented as ramping up examination of banks. A review of state and local taxation indicated an increasing tax burden on banks and the individual shareholders.  

Stay tuned! We’re monitoring tax policy and will be bringing you relevant updates and insights as they develop. 

Questions? 

If you have questions, please reach out to your Baker Tilly tax advisor to discuss the impact of our tax policy updates.