SDBA eNews

November 29, 2018

New IRS Guidance Outlines Restrictions for Deductibility of New Business Interest Expense

The IRS on Monday proposed regulations for implementing provisions of the Tax Cuts and Jobs Act that restrict the deductibility of net business interest expense. The rules generally apply to taxpayers with gross receipts over $25 million and restrict the deductibility of net interest expense to an amount that does not exceed 30 percent of a taxpayer’s adjusted taxable income. There are a variety of exceptions to be considered and calculations required to determine the limitation.

Since the restriction applies to net business interest expense (and banks have net business interest income), it should not apply to banks as taxpayers, but it is likely to affect certain bank customers. In addition, the proposed regulations confirm that the limitation is calculated on a consolidated tax return group basis--an important concern for banking groups with multiple legal entities and financial structures.

Comments on the proposed regulations are due in 60 days. ABA staff experts are currently reviewing the extensive 439-page proposal and will be seeking banker feedback in the days ahead.

New Fed Report Signals Confidence in Highly-Capitalized Financial Sector

The nation’s largest banks are strongly capitalized and are holding more liquid assets than they were in the leadup to the financial crisis, the Federal Reserve noted yesterday in its inaugural report on financial stability. The report--which will be published twice a year--examines the resilience of the financial system and highlights potential vulnerabilities that could affect financial stability. 

While regulators expressed confidence overall in the health of the financial sector, they are concerned about a rise in riskier business debt--including high-yield bonds and leveraged loans--which has increased in recent quarters and now totals $2 trillion. They also noted that credit standards for some business loans have loosened. Meanwhile, household borrowing has grown at a low-to-moderate pace relative to income, the report noted. 

In the near term, regulators noted that Brexit and uncertainties in the Eurozone could pose potential risks to the financial system, as could an economic slowdown in China. In addition, uncertainties related to U.S. trade policies and geopolitical uncertainties could also make investors more risk averse in the months ahead, the Fed said. Read the report

SDBA to Hold IRA Basics Seminar

The SDBA will hold the IRA Basics Seminar on Thursday, Dec. 13, in Sioux Falls at the Ramkota Hotel. The seminar gives attendees a solid foundation of IRA knowledge. Real case problems and examples are included throughout the day to help participants apply information to job-related situations.

Attendees will leave this session able to work with IRA holders and process basic IRA transactions with confidence. The IRA Basics Seminar is intended for all new IRA staff, people who are in a backup position, or an IRA support person wanting to stay current. This is also a great review course for those that have been away from IRAs for a couple of years. 

This course goes in a logical order from opening an IRA, to talking about contribution rules, then on to distribution rules and regulations, which includes RMDs and death distributions. The course will also address moving money as a transfer or rollover. Course highlights include introduction to IRAs, establishing an IRA, funding, IRA distributions, portability and reporting. Learn more and register.

IRS Warns of 'Tax Transcript' Email Scam, Danger to Business Networks

The IRS and Security Summit partners warned the public on Nov. 19 of a surge of fraudulent emails impersonating the IRS and using tax transcripts as bait to entice users to open documents containing malware.

The scam is especially problematic for businesses whose employees might open the malware because this malware can spread throughout the network and potentially take months to successfully remove.

This well-known malware, known as Emotet, generally poses as specific banks and financial institutions in its effort to trick people into opening infected documents. The Summit partnership of the IRS, state tax agencies and the nation’s tax industry remind taxpayers to watch out for this scam.

However, in the past few weeks, the scam masqueraded as the IRS, pretending to be from “IRS Online.” The scam email carries an attachment labeled “Tax Account Transcript” or something similar, and the subject line uses some variation of the phrase “tax transcript.” These clues can change with each version of the malware. Scores of these malicious Emotet emails were forwarded to [email protected] recently.

The IRS reminds taxpayers it does not send unsolicited emails to the public, nor would it email a sensitive document such as a tax transcript, which is a summary of a tax return. The IRS urges taxpayers not to open the email or the attachment. If using a personal computer, delete or forward the scam email to [email protected]. If you see these using an employer’s computer, notify the company’s technology professionals.

McWilliams: FDIC Considering Multiple Changes to Resolution Planning

The FDIC is considering several policy changes to “strengthen and streamline” the large bank resolution planning process, FDIC Chairman Jelena McWilliams said at an industry event yesterday.

McWilliams expressed support for legislative efforts to establish a tailored, transparent process for large firms to be resolved through bankruptcy and noted the FDIC is also considering changes to the Orderly Liquidation Authority to make the process more certain and transparent. She also said that the FDIC will soon issue an advanced notice of proposed rulemaking as it prepares to make changes to its rule requiring resolution plans for insured depository institutions. McWilliams noted that in light of recent actions to raise the threshold at which bank holding companies are required to submit resolution plans under the Dodd-Frank framework, “it is appropriate that we revisit that threshold” for IDIs as well.

In addition to seeking feedback on which institutions should be subject to the rule, the ANPR will also ask for comments on how to appropriately tailor the rule based on size, complexity, risk profile and other factors, McWilliams said. She added that “for purposes of clarity, the next round of submissions under the IDI rule will not begin until this rulemaking process has been completed.” Read McWilliams' remarks. For more information, contact ABA's Hu Benton

Podcast: Strategies that Work for Small Market Economic Development

Small cities, small towns and rural areas are facing a variety of structural headwinds, from demographic declines to globalization to the digital transformation of the economy. But locally-owned community banks remain a strong countervailing force to help these communities navigate the transition, economic development expert Aaron Renn says on the latest ABA Banking Journal Podcast.

Renn, who is a senior fellow at the Manhattan Institute, also offers ideas for bankers to consider as they contribute to local economic development through their lending, investing and participation in civic organizations, including tips for “exporting lifestyle” to nearby commuter hubs, identifying key local assets, and finding the kinds of infrastructure investments that actually pay off. He also flags risky or ineffective development strategies.

Listen to this episode. Do you use podcast apps to listen? You can find the ABA Banking Journal Podcast on Apple Podcasts, Google Play,, Pocket Casts, Stitcher, TuneIn and Spotify, as well as in the Daily Newsbytes email every Thursday.

Webinar: Fighting Consumer Fraud and Identity Theft in South Dakota

Join the Federal Trade Commission for a free, one-hour webinar on Thursday, Dec. 6, at 1 p.m. CT to learn about the top scams reported in South Dakota and get tips to help people in your community avoid scams, protect their identity and recover from identity theft. 

Speakers will include staff from the Federal Trade Commission; Office of the South Dakota Attorney General; U.S. Attorney’s Office for the District of South Dakota; Better Business Bureau Serving Nebraska, South Dakota, the Kansas Plains and Southwest Iowa; East River Legal Services; Centers for Medicare and Medicaid Services; and Senior Medicare Patrol of South Dakota.

Join the webinar online. You also can download the presentation at Contact [email protected] with questions.

Webinar: Tax Security Awareness: Understanding the Dark Web

In support of the IRS' Tax Security Awareness Week next week, a free webinar is being offered on Monday, Dec. 3, to help taxpayers understand the Dark Web and how it is used as a repository for stolen identities, credit data, tax information, banking/financial information, etc. 

During this webinar, IRS criminal investigators will provide an overview of the Dark Web and answer questions that will help you recognize the risks and use of the Dark Web by cyber criminals. A Live Q&A will be included.

The two-hour webinar will held at 1 p.m. CT. Register for the webinar.

Compliance Alliance

Question of the Week

Question: Why do we have to have two copies signed at closing for the notice of right to rescind?

Answer: The regulation requires that two copies of the notice of right to rescind be delivered to each consumer entitled to rescind, but there’s not a regulatory requirement that the copies be signed. The signature requirement may come from bank policy to document that the consumers received the notices, but the signatures aren’t required by Reg. Z.

(1) Notice of right to rescind. In a transaction subject to rescission, a creditor shall deliver two copies of the notice of the right to rescind to each consumer entitled to rescind (one copy to each if the notice is delivered in electronic form in accordance with the consumer consent and other applicable provisions of the E-Sign Act). 1026.23(b)(1),

Compliance rules and regulations change quickly. For timely compliance updates, subscribe to Compliance Alliance’s email newsletters.

Compliance Alliance offers a comprehensive suite of compliance management solutions. To learn how to put them to work for your bank, call 888.353.3933 or email.

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Contact Alisa Bousa, SDBA, at 800.726.7322 or via email.