Banking trades write Treasury in support of Sub S expansion

WASHINGTON-While never tiring of their attack on credit unions’ tax-exempt status, the banking trade associations are seeking to expand their own favorable tax treatment. The bankers have been pushing the Subchapter S Modernization Act (S. 1201/H.R. 2576), introduced last year, to broaden the application of subchapter S tax laws. The American Bankers Association (ABA), America’s Community Bankers (ACB), and Independent Community Bankers of America (ICBA) wrote a letter in follow up to a meeting held November 8 between Treasury Secretary Paul O’Neill and financial services sector trade organizations, at which CUNA was also a participant. The joint letter noted that tax reform and subchapter S were among the topics discussed during the meeting. The bankers asserted that subchapter S eligibility is overly strict and burdensome and “prevent[s] many community banks and thrifts from taking full advantage of subchapter S tax status.” “The banking industry is particularly interested in subchapter S reform measures to increase the number of allowable shareholders, expand shareholders to include IRAs holding bank shares, modify the passive income and bad debt charge-off rules, improve the tax treatment of bank director shares, and allow preferred stock,” the letter read. The ABA, ACB, and ICBA are also in favor of liberalizing the unanimous consent rule (not included in the bill) to reduce required shareholder consent for subchapter S election to 90%.