Pub. 10 2021 Issue 5

Pub. 10 2021 Issue 5 27 of current-year tax liability can be thrown out and replaced with a total tax liability on all foreseeable income. Should the HCWM’s proposals be enacted, a bank and its shareholders could receive permanent tax savings by accelerating income and deferring expenses in 2021. While you’re surely enjoying all of this talk regarding permanent tax savings, there are other (potentially less enjoyable) proposed changes that bankers should be aware of. The HCWM’s plan includes a proposal that could affect banks with IRA ownership. The new proposal, intended to be effective for years beginning after Dec. 31, 2021, prohibits IRAs from holding securities that require accredited investor status. This would impact community banks with IRA shareholders to the extent that the beneficiary of the IRA has to represent to the bank that they have a minimum amount of income or assets, have a minimum level of education, or hold a specific license or credential in which case they would be considered an accredited investor. If an IRA does not comply with the new restrictions on its underlying investments, it forfeits its status as of the first day of that taxable year. The proposal allows for a two-year transition period for IRAs holding such investments at date of enactment; as a result, these IRA shareholders would have to sell or transfer their shares to a qualified shareholder on or before Dec. 31, 2023. The outlook of the HCWM proposal is subject to change as congressional negotiations are in progress. House Democrats can only lose three votes to pass this bill along party lines in the House, and all 50 Senate Democrats must vote yes on the proposed package to pass the bill in the Senate. To keep updated on proposed changes that may affect your tax planning strategies, visit BKD’s Year-End Tax Advisor at https://www.bkd.com/tax-advisor This article is for general information purposes only and is not to be considered as legal advice. This information was written by qualified, experienced BKD professionals, but applying this information to your particular situation requires careful consideration of your specific facts and circumstances. Consult your BKD advisor or legal counsel before acting on any matter covered in this update. Collin is a member of BKD’s National financial Services Group providing tax consulting to financial institutions.