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Taxation of Financial Institutions Outline

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Taxation of Financial Institutions Outline TAXATION OF FINANCIAL INSTITUTIONS Georgetown University Law Center LL.M. Taxation Program Professor J. Walker Johnson Partner, Steptoe & Johnson LLP Professor Alexis A. MacIvor* Chief, IRS Insurance Branch 2016 * Note: This outline was prepared by Professor Johnson and does not reflect the views or positions of the IRS or Professor MacIvor Copyright 2016 Steptoe & Johnson LLP TABLE OF CONTENTS PAGE I. Course Schedule ......................................................................................................... 2 II. Assignments and Course Reading List ...................................................................... 3 III. Substantive Outlines A. Taxation of Commercial Banks and Thrift Institutions .................................... 14 B. Taxation of Regulated Investment Companies (RICs) ..................................... 38 C. Taxation of Real Estate Investment Trusts (REITs) ......................................... 55 D. Taxation of Real Estate Mortgage Investment Conduits (REMICs) ................ 74 E. Taxation of Financial Asset Securitization Investment Trusts (FASITs) ......... 81 F. Taxation of Property and Casualty (P&C) Insurance Companies ..................... 86 G. Taxation of Life Insurance Companies .............................................................. 110 H. Taxation of Insurance Products .......................................................................... 130 I. Other Insurance Topics ....................................................................................... 156 IV. Examples .................................................................................................................... 181 COURSE SCHEDULE 1. Introduction & Taxation of Banks and Thrifts 2. Taxation of Banks and Thrifts 3. Taxation of Banks and Thrifts 4. Taxation of Banks and Thrifts & Taxation of Regulated Investment Companies (RICs) 5. Taxation of Regulated Investment Companies (RICs) & Real Estate Investment Trusts (REITs), 6. Real Estate Investment Trusts (REITs), Real Estate Mortgage Investment Conduits (REMICs), & Financial Asset Securitization Investment Trusts (FASITs) 7. Taxation of Property and Casualty (P&C) Insurance Companies 8. Taxation of Property and Casualty (P&C) Insurance Companies 9. Taxation of Life Insurance Companies 10. Taxation of Life Insurance Companies 11. Taxation of Life Insurance Companies 12. Taxation of Insurance Products 13. Other Insurance Topics - 2 - ASSIGNMENTS AND COURSE READING LIST I. TAXATION OF BANKS AND THRIFTS A. Required Reading Code Sections: Generally §§581-597; §501(c)(1)&(14); §581; §7701(a)(19); §591(a)-(b); §542(c)(2); §166; §165(f)-(g); §1211; §582(a)-(c); §585; §1001; §1221; §172(b)(1)(D); §593; §291; §481; §591; §163; §265; §595; §594; §61(a); §165(c) and (1); §584(a)-(d),(h). Treasury Regulations: § 1.581-1; § 301.7701-13A; § 1.585-2(e)(2)(ii); § 1.165-4; § 1.166-2; § 1.166- 3(a)(2); § 1.585-2; §1.585-5 through -8; § 1.593-I1; Prop. Treas. Reg. § 1.593-12 to-14; § 1.166-6; § 1.584-4(a)-(b). Examples: 1-9. B. Optional Reading Cases: U.S. v. Seattle First Int’l Corp., 79-2 U.S.T.C. ¶ 9495 (D. Wash. 1979); Morris Plan Bank of New Haven v. Smith, 125 F.2d 440 (2d Cir. 1942); Austin State Bank v. Comm’r, 57 T.C. 1880 (1973); Barnett Banks, Inc. v. Commissioner, 83 T.C.M. (CCH) 16 (2002); Cottage Savings Ass’n v. Comm’r, 499 U.S. 554 (1991); Community Trust Bancorp v. U.S., 1999-2 USTC ¶ 50,698; Bell Federal Savings and Loan Ass’n v. Comm’r, 40 F.3d 224 (7th Cir. 1994); Midwest Sav. Ass’n v. Comm’r, 75 T.C. 262 (1980); Community Bank v. Comm’r, 819 F.2d 940 (9th Cir. 1987); Gibraltar Financial Corp. of California v. U.S., 825 F.2d 1568 (Fed. Cir. 1987); PSB Holdings, Inc. v. Comm’r, 129 T.C. 15 (2007). Published IRS Guidance: Rev. Rul. 58-605, 1958-2 C.B. 358; Rev. Rul. 90-54,1990-2 C.B. 270; Rev. Rul. 81-18, 1981-1 C.B. 295, Rev. Rul. 92-14, 1992-1 C.B. 93; Rev. Proc. 92-84, 1992-2 C.B. 489; Rev. Rul. 2001-59, 2001-51 I.R.B. l; Rev. Rul. 55-391, 1955-1 C.B. 306; Rev. Proc. 70-20, 1970-2 C.B. 499; Rev. Rul. 90-44, 1990-1 C.B. 54; Notice 2003-54, 2003-33 I.R.B. 363. Informal IRS Guidance: LTR 7921016 (Feb. 12, 1979); LTR 8928002 (Mar. 22, 1989); LTR 9423002 (Jan. 25, 1994); LTR 8425059 (Mar. 20, 1984); LTR 8544030 (July 31, 1985); LTR 8929061 (Apr. 26, 1989). - 3 - Legislative History: Staff of the Jt. Comm. on Taxation, General Explanation of the Tax Reform Act of 1986 (“1986 Act Bluebook”) 549-574; Staff of the Jt. Comm. on Taxation, General Explanation of Tax Legislation Enacted in the 104th Congress (“1996 Act Bluebook”) 195-196, 247-256. Other: Wakely et al., Federal Income Taxation of Banks and Financial Institutions (5th ed.). Peat, Marwick, Mitchell & Co., Taxation of Financial Institutions. RIA, Federal Tax Coordinator 2d, Volume 8, Paragraphs E-3000 to E-3800. II. TAXATION OF RICS, REITS, REMICS, AND FASITS A. RICs 1. Required Reading Code Sections: §851; §584(a); §852; §243; §4982; §855; §860; §561; §562(c), §265(a)(3); §854(b); §67(c); §853. Treasury Regulations: § 1.851-1; § 1.851-5; § 1.852-11; § 1.852-4. Examples: 10-13. 2. Optional Reading Published IRS Guidance: Rev. Rul. 88-41, 1988-1 C.B. 253; Rev. Rul. 89-81, 1989-1 C.B. 226; Rev. Proc. 2003-32, 2003-16 I.R.B. 803; IRS Notice 97-64, 1997-2 C.B. 323; Rev. Rul. 92-56, 1992-2 C.B. 153; Rev. Rul. 2003-84, 2003-32 I.R.B. 289; Rev. Rul. 92-89, 1992-2 C.B. 154; Rev. Proc. 2004-28, 2004-22 I.R.B. 984; Rev. Proc. 2009-42, 2009-40 I.R.B. 459. Informal IRS Guidance: LTR 8806044 (Nov. 17, 1987); LTR 9006015 (Nov. 8, 1989); LTR 9015011 (Jan. 8, 1990); LTR 9332031 (May 17, 1993). - 4 - Other: GCM 39626 (Apr. 29,1987); IRS Notice 97-64,1997-47 I.R.B. 7; IRS Notice 2004-39, 2004-22 I.R.B. 982. B. REITs 1. Required Reading Code Sections: §856; §857; §859; §858; §357(b)(3)(D); §860; §1221(a)(1); §4981; §4982. Treasury Regulations: § 1.857-6(a). Examples: 14-17. 2. Optional Reading Published IRS Guidance: Rev. Rul. 89-130,1989-2 C.B. 117; Rev. Rul. 2004-24, 2004-10 I.R.B. 550; Rev. Rul. 2003-86, 2003-32 I.R.B. 290; Rev. Proc. 2003-65, 2003-32 I.R.B. 336; Rev. Rul. 2002-38, 2002-26 I.R.B. 4. Informal IRS Guidance: LTR 9013043 (Dec. 28, 1989); LTR 9014022 (Jan. 2, 1990); LTR 9826049 (Apr. 1, 1998); LTR 200236037 (May 10, 2002);. LTR 200225034 (Mar. 21, 2002); LTR 200225033 (Mar. 21, 2002); LTR 200226013 (Mar. 21, 2002). Other: IRS Notice 97-64, 1997-47 I.R.B. 7; IRS Notice 2004-39, 2004-22 I.R.B. 982. C. REMICs 1. Required Reading Code Sections: §860D; §860B; §860G(a)-(d); §860C; §856(e); §860F; §1276; §171; §860E; §860A. - 5 - Treasury Regulations: § 1.860D-1; § 1.860F-2; § 1.860E-2; § 1.860C-2; § 1.860E-1; Treas. Reg. § 1.446-6. 2. Optional Reading: Published IRS Guidance: Rev. Proc. 2004-30, 2004-21 I.R.B. 950; Rev. Proc. 2009-23, 2009-17 I.R.B. 884; Rev. Proc. 2009-45, 2009-40 I.R.B. 471. Informal IRS Guidance: LTR 9033008 (May 17, 1990). Other: IRS Notice 87-41, 1987-1 C.B. 500; IRS Notice 87-67, 1987-2 C.B. 377; Notice of Proposed Rulemaking, 2004 Fed (CCH) ¶ 49,610 (Aug. 25, 2004); IRS News Release 2004-97, 2004 I.R.B. LEXIS 324 (July 26, 2004). D. FASITs E. LEGISLATIVE HISTORY OF RICS, REITs REMICs AND FASITs 1. Staff of the Jt. Comm. on Taxation, General Explanation of the Tax Reform Act of 1986 (“1986 Act Bluebook”) 375-383, 384401, and 402- 428. 2. Senate Finance Committee Report on the Technical Corrections Act of 1988 (S. 2238), S. Rep. No. 445, 100th Cong., 2d Sess. 92-109(1988). 3. Staff of the Jt. Comm. on Taxation, General Explanation of Tax Legislation Enacted in the 104th Congress (“1996 Act Bluebook”) 258- 266. 4. Staff of the Jt. Comm. on Taxation, General Explanation of Tax Legislation Enacted in 1997 (“1997 Blue Book”) 382-393. F. OTHER MATERIALS 1. Tax Management, Tax Practice Series, Chapters on RICs, REITs and REMICs 2. Mertens, Law of Federal Income Taxation, Volume 10, Chapters 41 (RICs), 41A (REITs) and 40A (REMICs and FASITs). - 6 - 3. RIA, Federal Tax Coordinator 2d, Volume 8, Sections E- 6000 to E-6300 (RICs), E-6500 to E-6850 (REITs), E-6900 to E-7200 (REMICs); and E- 7300-7400 (FASITs). 4. RIA, Tax Advisors Planning Series, Regulated Investment Companies (1997). 5. Tax Management Portfolio No. 107-5th, Real Estate Investment Trusts. 6. Tax Management Portfolio No. 117-2d, REMICs and Other Mortgage- Backed Securities. 7. Humphreys et. al., Mortgage-Backed Securities Including REMICs and Other Investment Vehicles (Little, Brown 1995). III. TAXATION OF PROPERTY AND CASUALTY (P&C) INSURANCE COMPANIES A. Required Reading Code Sections: §461(h); §816; §832; §831; §501(c)(15); §834; §812(c)-(d); §848; §846; §847; §264(f); §501(m); §833. Treasury Regulations: § 1.832-4; § 1.846-1 through § 1.846-3; Treas. Reg. § 1.832-4. Examples: 18-22. B. Optional Reading Cases: AAA v. U.S., 367 U.S. 687 (1961); RCA Corp. v. U.S., 664 F.2d 881 (2d Cir. 1981); Bituminous Casualty Corp. v. Comm’r, 57 T.C. 58 (1971); Sears, Roebuck & Co. v. Comm’r, 96 T.C. 61 (1991), rev’d, 972 F.2d 858 (7th Cir. 1992); AIG, Inc. v. U.S., 38 Fed. Cl. 272 (1997); Utah Medical Ins. Ass’n v. Comm’r, 76 TCM (CCH) 1100 (1998); Minnesota Lawyers Mutual Ins. Co. v. Comm’r, 79 TCM (CCH) 2234, aff’d, 285 F.3d 1086 (8th Cir. 2002); Home Group, Inc. v. Comm’r, 89-1 U.S.T.C.
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