(1) For tax years beginning on or after
January 1, 1987, Oregon has adopted the federal provisions for treatment of bad
debts of financial institutions provided in Section
585(c) of the
Internal Revenue Code (IRC). Financial institutions considered large banks,
defined in IRC 585(c)(2), must recapture the balance in their reserve for bad
debts over a four-year period unless they elect the federal "cut-off" method.
(a) The recapture provisions of IRC 585(c)(3)
shall be applied to the ending reserve balance calculated for Oregon tax
purposes for the 1986 tax year.
(b)
For each of the four recapture years, an Oregon addition modification shall be
made if the Oregon reserve recaptured exceeds the federal reserve recaptured.
An Oregon subtraction modification shall be made if the federal reserve
recaptured exceeds the Oregon reserve recaptured.
Example: Lending Corp., a calendar year filer, has
a bad debt reserve of $5,000,000 for federal and $3,000,000 for Oregon tax
purposes on December 31, 1986. Lending Corp. qualifies as a large bank. It
elects to recapture 10 percent of the bad debt reserve as income on its 1987
federal return. An Oregon subtraction modification of $200,000 is calculated as
follows: [Table not included. See ED. NOTE.]
(c) Financially troubled banks don't have to
recapture existing bad debt reserves as long as their nonperforming loans
exceed seventy-five percent of the average of their equity capital for the
year.
(2) Oregon also
adopted the cut-off method provided under IRC 585(c)(4) for tax years beginning
on or after January 1, 1987. If the financial institution elects the cut-off
method, the ending balance of the reserve for bad debts for the 1986 tax year
shall not be recaptured. Instead, bad debts in tax years after 1986 shall be
charged to the reserve rather than deducted from income. When the entire
reserve has been depleted, bad debts shall be deducted as they occur.
(a) The provisions in IRC 585(c)(4) shall be
applied to the ending reserve balance calculated for Oregon tax purposes for
the 1986 tax year.
(b) The ending
balance of the reserve for bad debts as of December 31, 1986, may be greater
for federal purposes than it is for Oregon. If so, the Oregon reserve will be
depleted before the federal reserve. An Oregon subtraction modification shall
be made when the Oregon deduction for bad debts exceeds the federal deduction
for the tax year.
Example: Large Bank, Inc., elected the cut-off
method of treating its reserve for bad debts, starting in 1987. The reserve
balance on January 1, 1991, was $100,000 for federal purposes and $50,000 for
Oregon purposes. During 1991, $150,000 of bad debts were written off. An Oregon
subtraction modification of $50,000 is calculated as follows:
(c) The ending balance of the reserve for bad
debts as of December 31, 1986, may be greater for Oregon purposes than it is
for federal. If so, the federal reserve will be depleted before the Oregon
reserve. An Oregon addition modification shall be made when the federal
deduction for bad debts exceeds the Oregon deduction for the tax year.
[Table not included. See ED. NOTE.]
Notes
Or. Admin. Code §
150-317-0370
RD 11-1988,
f. 12-19-88, cert. ef. 12-31-88; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92;
Renumbered from 150-317.310(2),
REV
68-2016, f. 8-15-16, cert. ef.
9/1/2016;
REV
60-2017, f. & cert. ef.
8/8/2017
Publications: The publication(s) referred to or incorporated
by reference in this rule is available from the Department of Revenue pursuant
to ORS 183.360(2) and
183.355(6).
Attachment referenced is not included in rule text.
Click here for PDF of
attachment.
Stat. Auth.: ORS
305.100
Stats. Implemented: ORS
317.310
