Proposed Regulations Clarify Bad Debt Deductions for Regulated Financial Companies
This blog was authored by my colleague Trevor Huisman, a tax principal within our financial services group.
On December 27, 2023, the IRS and Treasury released proposed regulations (REG-121010-17) that would update the standard used to determine when a debt instrument held by a regulated financial company or group would be considered worthless.
The proposed regulations apply to charge offs, from the allowance for credit losses, made by a regulated financial company and members of regulated financial groups on its applicable financial statement. The proposed regulations allow the regulated financial company or group to use an accounting method, either generally accepted accounting principals (GAAP) or statements of statutory accounting principles (SSAP), to apply a conclusive worthless determination on a debt instrument held by the entity.
Taxpayers may rely on the proposed regulations under section 1.166-2(d) for charge-offs made on their applicable financial statement that occurs in tax years ending on or after December 28, 2023.
Comments on the proposed regulations, as well as requests for a public hearing, must be received by February 26, 2024.
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Dean has more than 25 years of experience providing audit, internal audit, and consulting services to financial services companies. He has provided consulting services in the areas of business lending, product costing and profitability, and asset/liability management. Dean has worked with a number of financial services companies on strategic issues such as board governance and enterprise risk management, as well as the role of internal audit and risk management, regulatory issues, and many accounting related topics.
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