89636 Federal Register / Vol. 88, No. 248 / Thursday, December 28, 2023 / Proposed Rules 

availability of this material at the FAA, call 

206–231–3195. 

(5) You may view this material at the 

National Archives and Records 

Administration (NARA). For information on 

the availability of this material at NARA, 

visit www.archives.gov/federal-register/cfr/ 

ibr-locations or email fr.inspection@nara.gov. 

Issued on December 21, 2023. 

Caitlin Locke, 

Director, Compliance & Airworthiness 

Division, Aircraft Certification Service. 

[FR Doc. 2023–28590 Filed 12–27–23; 8:45 am] 

BILLING CODE 4910–13–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–121010–17] 

RIN 1545–BO11 

Bad Debt Deductions for Regulated 

Financial Companies and Members of 

Regulated Financial Groups 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: This document contains 

proposed regulations that would 

provide guidance regarding whether a 

debt instrument is worthless for Federal 

income tax purposes. The proposed 

regulations are necessary to update the 

standard for determining when a debt 

instrument held by a regulated financial 

company or a member of a regulated 

financial group will be conclusively 

presumed to be worthless. The proposed 

regulations will affect regulated 

financial companies and members of 

regulated financial groups that hold 

debt instruments. 

DATES: Written or electronic comments 

and requests for a public hearing must 

be received by February 26, 2024. 

ADDRESSES: Commenters are strongly 

encouraged to submit public comments 

electronically via the Federal 

eRulemaking Portal at https://

www.regulations.gov (indicate IRS and 

REG–121010–17) by following the 

online instructions for submitting 

comments. Requests for a public hearing 

must be submitted as prescribed in the 

‘‘Comments and Requests for a Public 

Hearing’’ section. Once submitted to the 

Federal eRulemaking Portal, comments 

cannot be edited or withdrawn. The 

Department of the Treasury (Treasury 

Department) and the IRS will publish 

for public availability any comments 

submitted to the IRS’s public docket. 

Send paper submissions to: 

CC:PA:01:PR (REG–121010–17), Room 

5203, Internal Revenue Service, P.O. 

Box 7604, Ben Franklin Station, 

Washington, DC 20044. 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations, 

Stephanie D. Floyd at (202) 317–7053; 

concerning submissions of comments 

and requesting a hearing, Vivian Hayes 

at (202) 317–6901 (not toll-free 

numbers) or by email to 

publichearings@irs.gov (preferred). 

SUPPLEMENTARY INFORMATION: 

Background 

This document contains proposed 

amendments to the Income Tax 

Regulations (26 CFR part 1) under 

section 166 of the Internal Revenue 

Code (Code). These proposed 

amendments (proposed regulations) 

would update the standard in the 

current regulations under § 1.166–2 

(existing regulations) for determining 

when a debt instrument held by a 

regulated financial company or a 

member of a regulated financial group 

will be conclusively presumed to be 

worthless. 

1. Existing Rules 

Section 166(a)(1) provides that a 

deduction is allowed for any debt that 

becomes worthless within the taxable 

year. Section 166(a)(2) permits the 

Secretary of the Treasury or her delegate 

(Secretary) to allow a taxpayer to deduct 

a portion of a partially worthless debt 

that does not exceed the amount 

charged-off within the taxable year. The 

existing regulations do not define 

‘‘worthless.’’ In determining whether a 

debt is worthless in whole or in part, the 

IRS considers all pertinent evidence, 

including the value of any collateral 

securing the debt and the financial 

condition of the debtor. See § 1.166– 

2(a). The existing regulations provide 

further that, when the surrounding 

circumstances indicate that a debt is 

worthless and uncollectible and that 

legal action to enforce payment would 

in all probability not result in the 

satisfaction of execution on a judgment, 

legal action is not required in order to 

determine that the debt is worthless. See 

§ 1.166–2(b). 

The existing regulations provide two 

alternative conclusive presumptions of 

worthlessness for bad debt. First, 

§ 1.166–2(d)(1) generally provides that if 

a bank or other corporation subject to 

supervision by Federal authorities, or by 

State authorities maintaining 

substantially equivalent standards, 

charges off a debt in whole or in part, 

either (1) in obedience to the specific 

orders of such authorities, or (2) in 

accordance with the established policies 

of such authorities, and such authorities 

at the first audit subsequent to the 

charge-off confirm in writing that the 

charge-off would have been subject to 

specific orders, then the debt is 

conclusively presumed to have become 

worthless, in whole or in part, to the 

extent charged off during the taxable 

year. 

Second, § 1.166–2(d)(3) generally 

provides that a bank (but not other 

corporations) subject to supervision by 

Federal authorities, or by State 

authorities maintaining substantially 

equivalent standards, may elect to use a 

method of accounting that establishes a 

conclusive presumption of 

worthlessness for debts, provided the 

bank’s supervisory authority has made 

an express determination that the bank 

maintains and applies loan loss 

classification standards that are 

consistent with the regulatory standards 

of that supervisory authority. Section 

1.166–2(d)(1) and (3) are collectively 

referred to as the ‘‘Conclusive 

Presumption Regulations.’’ 

2. Generally Accepted Accounting 

Principles Prior to the Current Expected 

Credit Loss Revisions 

For financial reporting purposes, 

financial institutions in the United 

States follow the U.S. Generally 

Accepted Accounting Principles 

(GAAP) issued by the Financial 

Accounting Standards Board (FASB). 

The long-standing GAAP model for 

recognizing credit losses is referred to as 

the ‘‘incurred loss model’’ because it 

delays recognition of credit losses until 

it is probable that a loss has been 

incurred. Under the incurred loss 

model, an entity considers only past 

events and current conditions in 

measuring the incurred credit loss. This 

method does not require or allow the 

incorporation of economic forecasts, or 

consideration of industry cycles. The 

incurred loss model permits institutions 

to use various methods to estimate 

credit losses, including historical loss 

methods, roll-rate methods, and 

discounted cash flow methods. The 

GAAP accounting for credit losses has 

been revised with the introduction of 

the current expected credit loss 

methodology for estimating allowance 

for credit losses, as further described in 

section 3 of this Background. 

Under the GAAP incurred loss model, 

an institution must first assess whether 

a decline in fair value of a debt security 

below the amortized cost of the security 

is a temporary impairment or other than 

temporary impairment (OTTI). If an 

entity intends to sell the security or 

more likely than not will be required to 


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sell the security before recovery of its 

amortized cost basis less any currentperiod credit loss, OTTI will be 

recognized in earnings equal to the 

difference between the investment’s 

amortized cost basis and its fair value at 

the balance sheet date. In assessing 

whether the entity more likely than not 

will be required to sell the security 

before recovery of its amortized cost 

basis less any current period credit 

losses, an entity considers various 

factors such as the payment structure of 

the debt security, adverse conditions 

related to the security, or the length of 

time and the extent to which the fair 

value has been less than the amortized 

cost basis. 

By contrast, if an entity determines 

OTTI exists but does not intend to sell 

the debt security or it is more likely 

than not that the entity will not be 

required to sell the debt security prior 

to its anticipated recovery, the 

impairment is separated into two parts: 

the portion of OTTI related to credit loss 

on a debt security (Credit-Only OTTI) 

and the portion of OTTI related to other 

factors but not credit (Non-Credit OTTI). 

Credit-Only OTTI will be recognized in 

earnings on the income statement, but 

Non-Credit OTTI will be reported on the 

balance sheet as Other Comprehensive 

Income. FASB Staff Positions, FSP FAS 

115–2 and 124–2, Recognition and 

Presentation of Other-Than-Temporary 

Impairments (later codified as part of 

ASC 320). 

3. The Current Expected Credit Loss 

Standard 

On June 16, 2016, FASB introduced a 

new standard, the Accounting 

Standards Update (ASU) No. 2016–13, 

Financial Instruments—Credit Losses 

(Topic 326): Measurement of Credit 

Losses on Financial Instruments 

(Update). The Update, which replaces 

the incurred loss model in GAAP, 

became effective for many entities for 

fiscal years beginning after December 

15, 2019, and became generally effective 

for all entities for fiscal years beginning 

after December 15, 2022. 

The Update was in response to 

concerns by regulators that the incurred 

loss model under GAAP restricted the 

ability to record credit losses that are 

expected but that do not yet meet the 

probable threshold. The Update is based 

on a current expected credit loss model 

(CECL Model), which generally requires 

the recognition of expected credit loss 

(ECL) in the allowance for credit losses 

upon initial recognition of a financial 

asset, with the addition to the allowance 

recorded as an offset to current earnings. 

Subsequently, the ECL must be assessed 

each reporting period, and both negative 

and positive changes to the ECL must be 

recognized through an adjustment to the 

allowance and to earnings. ASC 326– 

20–30–1; ASC 326–20–35–1. In 

estimating the ECL under the CECL 

Model, institutions must consider 

information about past events, current 

conditions, and reasonable and 

supportable forecasts relevant to 

assessing the collectability of the cash 

flow of financial assets. The CECL 

Model does not prescribe the use of 

specific estimation methods for 

measuring the ECL. However, an entity 

will need to make adjustments to 

provide an estimate of the ECL over the 

remaining contractual life of an asset 

and to incorporate reasonable and 

supportable forecasts about future 

economic conditions in the calculations. 

A charge-off of a financial asset, which 

may be full or partial, is taken out of the 

allowance in the period in which a 

financial asset is deemed uncollectible. 

ASC 326–20–35–8. At that time the 

carrying value of the financial asset is 

also written down. See ASC 326–20–55– 

52. The ECL recognized under the CECL 

Model cannot be used to determine bad 

debt deductions under section 166 

because the ECL recognized under the 

CECL Model would be a current 

deduction for estimated future losses. 

4. Insurance Company Financial 

Accounting 

Publicly traded insurance companies 

report their financial transactions and 

losses to the Securities and Exchange 

Commission in accordance with GAAP. 

Privately held insurance companies may 

also report their financial transactions 

and losses in accordance with GAAP. 

However, in the United States, all 

insurance companies, whether publicly 

traded or privately held, are regulated 

by State governments in the States in 

which they are licensed to do business 

and are required by State law to prepare 

financial statements in accordance with 

statutory accounting principles 

(Statements of Statutory Accounting 

Principles, known as SSAPs or SAPs). 

SSAPs serve as a basis for preparing 

financial statements for insurance 

companies in accordance with statutes 

or regulations promulgated by various 

States. SSAPs establish guidelines that 

must be followed when an asset is 

impaired. SSAPs are detailed in the 

National Association of Insurance 

Commissioner’s (NAIC’s) Accounting 

Practices and Procedures Manual. 

Generally, the NAIC’s guidelines require 

the carrying value of an asset to be 

written down if the loss of principal is 

OTTI. The OTTI standard is found in 

several different statutory accounting 

provisions, including SSAP 43R (loanbacked and structured securities) and 

SSAP 26 (bonds, excluding loan-backed 

and structured securities). 

5. IRS Directives 

In 2012, in response to comments 

regarding the significant burden on both 

insurance companies and the IRS’s 

Large Business and International 

Division (LB&I) in dealing with audits 

relating to the accounting of loss assets, 

the IRS issued an insurance industry 

directive to its LB&I examiners. See 

I.R.C. § 166: LB&I Directive Related to 

Partial Worthlessness Deduction for 

Eligible Securities Reported by 

Insurance Companies, LB&I 04–0712– 

009 (July 30, 2012) (Insurance 

Directive). The Insurance Directive 

states that LB&I examiners would not 

challenge an insurance company’s 

partial worthlessness deduction under 

section 166(a)(2) for the amount of the 

SSAP 43R—Revised Loan-Backed and 

Structured Securities (September 14, 

2009) credit-related impairment chargeoffs of ‘‘eligible securities’’ as reported 

according to SSAP 43R on its annual 

statement if the company follows the 

procedure set forth in that directive. The 

definition of ‘‘eligible securities’’ in the 

Insurance Directive covers investments 

in loan-backed and structured securities 

within the scope of SSAP 43R, subject 

to section 166 and not subject to section 

165(g)(2)(C) of the Code, including real 

estate mortgage investment conduit 

regular interests. Thus, the Insurance 

Directive allowed insurance companies 

to use the financial accounting standard 

for tax purposes in limited 

circumstances regardless of whether the 

regulatory standard is precisely the 

same as the tax standard for 

worthlessness under section 166. 

In 2014, the IRS issued another 

industry directive to LB&I examiners 

regarding bad debt deductions claimed 

under section 166 by a bank or bank 

subsidiary. See LB&I Directive Related 

to § 166 Deductions for Eligible Debt 

and Eligible Debt Securities, LB&I–04– 

1014–008 (October 24, 2014) (Bank 

Directive). Unlike insurance companies, 

banks generally determine loss 

deductions for partial and wholly 

worthless debts in the same manner for 

GAAP and regulatory purposes. The 

Bank Directive generally allowed for 

loss deductions for partial and wholly 

worthless debts to follow those reported 

for GAAP and regulatory purposes. 

6. Summary of Comments Received in 

Response to Notice 2013–35 

In 2013, the IRS issued Notice 2013– 

35, 2013–24 I.R.B. 1240, requesting 

comments on the Conclusive 

Presumption Regulations. The Treasury 


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1See, for example, Interagency Policy Statement 

on Allowances for Credit Losses, 85 FR 32991 (June 

1, 2020) (providing guidance to financial 

institutions from the Office of the Comptroller of 

the Currency, the Board of Governors of the Federal 

Reserve System, the Federal Deposit Insurance 

Corporation, and the National Credit Union 

Administration on allowances for credit losses in 

response to changes to GAAP); Regulatory Capital 

Rule: Implementation and Transition of the Current 

Expected Credit Losses Methodology for Allowances 

and Related Adjustments to the Regulatory Capital 

Rule and Conforming Amendments to Other 

Regulations, 84 FR 4222 (2019) (adopting final rule 

to address changes to credit loss accounting under 

Department and the IRS noted that since 

the adoption of the Conclusive 

Presumption Regulations, there have 

been significant changes made to the 

regulatory standards relevant for loan 

charge-offs. In light of those changes, 

Notice 2013–35 sought comments on 

whether (1) changes that have occurred 

in bank regulatory standards and 

processes since adoption of the 

Conclusive Presumption Regulations 

require amendment of those regulations, 

and (2) application of the Conclusive 

Presumption Regulations continues to 

be consistent with the principles of 

section 166. Comments were also sought 

on the types of entities that are 

permitted, or should be permitted, to 

apply a conclusive presumption of 

worthlessness. 

Commenters responded that the 

Conclusive Presumption Regulations are 

outdated and contain requirements for a 

bad debt deduction that taxpayers can 

no longer satisfy. For example, one 

commenter noted that § 1.166–2(d)(1) is 

unusable by community banks because 

banking regulators will not issue written 

correspondence confirming that a 

charge-off is being made for either of the 

reasons set forth in § 1.166–2(d)(1). A 

commenter similarly noted that 

regulators generally no longer provide 

specific orders on a loan-by-loan basis 

and may never confirm the 

appropriateness of a charge-off in 

writing. Another commenter noted that 

for certain banks the election under 

§ 1.166–2(d)(3) was automatically 

revoked under § 1.166–2(d)(3)(iv)(C) 

during the 2008 financial crisis because 

bank examiners ordered greater chargeoffs than those initially taken by the 

banks, and then could not provide the 

required express determination letter 

stating that the banks maintained and 

applied loan loss classification 

standards consistent with the regulatory 

standards of the supervisory authority. 

Commenters noted the advantages of 

retaining a conclusive presumption of 

worthlessness. One commenter stated 

that a conclusive presumption helps to 

avoid costly factual disputes between 

the IRS and taxpayers. Another 

commenter stated that it is in the best 

interests of all stakeholders to ensure 

that duplicative efforts by Federal and 

State bank regulators and the IRS do not 

occur. A commenter suggested that the 

IRS follow determinations made by 

regulators that routinely and thoroughly 

examine the financial and accounting 

records and processes of financial 

institutions such as banks, bank holding 

companies, and their non-bank 

subsidiaries. Another commenter noted 

that for decades virtually all community 

banks have conformed their losses on 

loans for income tax purposes to losses 

recorded for regulatory reporting 

purposes. Several commenters 

recommended that § 1.166–2(d)(1) and 

(3) should be replaced with a single 

conclusive presumption rule. 

Commenters requested that the 

Conclusive Presumption Regulations be 

revised to apply to any institution that 

is subject to consolidated supervision by 

the Board of Governors of the Federal 

Reserve System (Federal Reserve), 

including systemically important 

financial institutions (SIFIs) and 

subsidiaries and affiliates of SIFIs, 

because these institutions are required 

to follow a strict process for determining 

the amounts of the allowance for credit 

losses under GAAP for financial 

reporting purposes and the Federal 

Reserve’s examination will focus on the 

consistent application and adherence to 

this process. Another commenter 

suggested that the election under 

§ 1.166–2(d)(3) should be extended to 

bank holding companies and their 

nonbank subsidiaries, and potentially to 

other regulated financial institutions 

that are examined by the same primary 

supervisory authority or regulator. 

Commenters stated that the GAAP 

loss standard and the accounting 

standards used by insurance companies 

for determining whether a debt is 

worthless are sufficiently similar to the 

tax standards for worthlessness under 

section 166 and, therefore, should be 

used in formulating a revised conclusive 

presumption rule. Commenters argued 

that in most cases, any divergence 

between the various standards will not 

be significant enough to result in a 

material acceleration of loss recognition 

for Federal income tax purposes. 

Commenters specifically requested that 

the Conclusive Presumption Regulations 

be revised to include all insurance 

company debts, not just the eligible 

securities covered in the Insurance 

Directive. Commenters noted that, in 

applying the OTTI standard set forth in 

the SSAPs, insurers consider similar 

factors to the ones examined under the 

tax rules such as the adequacy of the 

collateral or the income stream in 

determining whether a debt is worthless 

for purposes of section 166. 

Commenters stated that a critical 

condition for coverage under the 

existing regulations is whether Federal 

or State regulators have the authority to 

compel the charge-off on the financial 

statements of the company. Commenters 

said that State insurance regulators have 

this authority since they can mandate a 

charge-off if an insurance company has 

not complied with the State law 

accounting requirement that requires 

the charge-off. 

Commenters varied in their 

recommendations of what process the 

IRS should require in revised conclusive 

presumption regulations to verify that 

the regulated entity applied appropriate 

regulatory standards in taking a chargeoff. Some commenters recommended 

that the IRS require an attestation from 

the taxpayer that the taxpayer has 

reported worthless debts consistently 

for tax and regulatory reporting 

purposes similar to the taxpayer selfcertification statement required under 

the Insurance Directive. Commenters 

stated that a new self-certification 

requirement adopted by the IRS could 

replace the requirement in the existing 

regulations to obtain written 

confirmation from regulators. Another 

commenter suggested that a taxpayer 

claiming the benefit of the conclusive 

presumption should file a signed 

statement with its tax return listing the 

taxpayer’s Federal and State regulators 

and stating that, for each bad debt 

deducted under section 166 on the tax 

return, the taxpayer has charged off the 

same amount on its financial 

statements. 

Explanation of Provisions 

1. Rationale for the Proposed 

Amendments to § 1.166–2(d) 

Regulated financial companies and 

members of regulated financial groups 

are generally subject to capital 

requirements, leverage requirements, or 

both. A tension exists between the 

incentives of regulated entities and the 

incentives of their regulators. An entity 

that is subject to regulatory capital 

requirements has an incentive not to 

charge-off debt assets prematurely, in 

order to preserve the amount of its 

capital. Conversely, a regulator that 

relies on capital or leverage 

requirements is concerned with 

ensuring that capital is not overstated, 

and therefore has an incentive to ensure 

that regulated entities do not defer 

charge-offs of losses on loans and other 

debt instruments. Regulators have 

provided guidance to those financial 

companies to ensure they charge off 

debt losses appropriately.1 This tension 


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GAAP, including banking organizations’ 

implementation of the CECL Model). 

results in a balance with respect to the 

timing of charge-offs. 

The Treasury Department and the IRS 

believe that regulated financial 

companies and members of regulated 

financial groups described in the 

proposed regulations are subject to 

regulatory and accounting standards for 

charge-offs that are sufficiently similar 

to the Federal income tax standards for 

determining worthlessness under 

section 166. Both GAAP and the SSAPs 

use a facts and circumstance analysis 

that takes into account all available 

information related to the collectability 

of the debt. The analysis considers the 

value of any collateral securing the debt 

and the financial condition of the 

debtor, which are factors that are also 

evaluated under the tax rules for 

determining worthlessness under 

section 166. 

As described in part 5 of the 

Background, the IRS previously has 

recognized the significant 

administrative burden for taxpayers and 

the IRS to independently determine 

worthlessness amounts under section 

166(a)(2) and has accepted charge-off 

amounts reported for the incurred loss 

model previously used by GAAP and for 

regulatory purposes, as well as in 

accordance with the SSAPs, as evidence 

of worthlessness. In the Bank Directive, 

the IRS accepted charge-off amounts 

reported by banks and bank subsidiaries 

for the incurred loss model previously 

used by GAAP and for regulatory 

purposes as sufficient evidence of 

worthlessness. Similarly, in the 

Insurance Directive, the IRS permitted 

the use of the insurance company’s 

SSAP 43R credit-related impairment 

charge-offs for the same securities as 

reported on its annual statement 

regardless of whether the regulatory 

standard is precisely the same as the 

definition of worthlessness under 

section 166. Thus, the IRS previously 

has recognized that the present values of 

timing differences in taxable income 

that arise from applying the regulatory 

standards instead of the tax standards to 

determine worthlessness are likely to be 

minor and therefore do not outweigh the 

costs of having two different standards 

for book and tax purposes. 

Based on the foregoing, the Treasury 

Department and the IRS believe it is 

appropriate to provide conclusive 

presumption rules for regulated 

financial companies and members of 

regulated financial groups. 

Recently, Congress has directed 

insurance companies to follow their 

financial statements prepared in 

accordance with GAAP in certain 

circumstances. See sections 451(b)(3) 

and 56A(b) of the Code. Section 451 

provides the general rule for the taxable 

year of inclusion of gross income. 

Section 451(b) and (c) were amended by 

section 13221 of Public Law 115–97 

(131 Stat. 2054), commonly referred to 

as the Tax Cuts and Jobs Act. For 

taxpayers using an accrual method of 

accounting, section 451(b) requires the 

recognition of income at the earliest of 

when the all events test is met or when 

any item of income is taken into account 

as revenue in the taxpayer’s applicable 

financial statement (AFS). Section 

451(b)(3) defines AFS. Section 451(b)(3) 

and § 1.451–3(a)(5) list in descending 

priority the financial statements that can 

be considered an AFS for purposes of 

income inclusion under section 451(b) 

and § 1.451–1(a). Highest priority is 

given to a financial statement that is 

certified as being prepared in 

accordance with GAAP, and lowest 

priority is assigned to, among other 

things, non-GAAP financial statements 

filed with a State government or State 

agency or a self-regulatory organization 

including, for example, a financial 

statement filed with a State agency that 

regulates insurance companies or the 

Financial Industry Regulatory 

Authority. 

Section 10101 of Public Law 117–169, 

136 Stat. 1818, 1818–1828 (August 16, 

2022), commonly referred to as the 

Inflation Reduction Act of 2022, 

amended section 55 of the Code to 

impose a new corporate alternative 

minimum tax (CAMT) based on the 

‘‘adjusted financial statement income’’ 

(AFSI) of an applicable corporation for 

taxable years beginning after December 

31, 2022. For purposes of sections 55 

through 59 of the Code, the term AFSI 

means, with respect to any corporation 

for any taxable year, the net income or 

loss of the taxpayer set forth on the 

taxpayer’s AFS of such taxable year, 

adjusted as provided in section 56A. See 

section 56A(a). Section 56A(b) defines 

‘‘applicable financial statement’’ by 

reference to section 451(b)(3) for 

purposes of determining the adjusted 

financial statement income on which 

applicable corporations base their 

tentative minimum tax under section 

55(b). For purposes of section 56A, the 

term AFS means, with respect to any 

taxable year, an AFS as defined in 

section 451(b)(3) or as specified by the 

Secretary in regulations or other 

guidance that covers such taxable year. 

See section 56A(b). 

The Treasury Department and the IRS 

believe that, consistent with recent 

legislation enacted and regulations 

promulgated in other contexts, for 

purposes of determining whether a debt 

instrument is worthless for Federal 

income tax purposes, insurance 

companies should first rely on GAAP 

financial statements that are prioritized 

in these proposed regulations and then, 

in the absence of such a GAAP financial 

statement, should rely on their annual 

statement. 

2. Description of Proposed Amendments 

to § 1.166–2(d) 

These proposed regulations would 

revise § 1.166–2(d) to permit ‘‘regulated 

financial companies,’’ as defined in 

proposed § 1.166–2(d)(4)(ii), and 

members of ‘‘regulated financial 

groups,’’ as defined in proposed 

§ 1.166–2(d)(4)(iii), to use a method of 

accounting under which amounts 

charged off from the allowance for 

credit losses, or pursuant to SSAP 

standards, would be conclusively 

presumed to be worthless for Federal 

income tax purposes (Allowance 

Charge-off Method). Proposed § 1.166– 

2(d)(1) would allow these taxpayers to 

conclusively presume that charge-offs 

from the allowance for credit losses of 

debt instruments subject to section 166 

or, in the case of insurance companies 

that do not produce GAAP financial 

statements for substantive non-tax 

purposes, charge-offs pursuant to SSAP 

standards, satisfy the requirements for a 

bad debt deduction under section 166. 

The proposed regulations do not 

address when a debt instrument 

qualifies as a security within the 

meaning of section 165(g)(2)(C) and 

therefore would not change the scope of 

debt instruments to which section 166 

applies. 

The definition of a ‘‘regulated 

financial company’’ in proposed 

§ 1.166–2(d)(4)(ii) includes entities that 

are regulated by insurance regulators 

and various Federal regulators including 

the Federal Housing Finance Agency 

(FHFA) and the Farm Credit 

Administration (FCA). The Housing and 

Economic Recovery Act of 2008 

established the FHFA as an independent 

agency responsible for regulating the 

safety and soundness of the Federal 

National Mortgage Association and the 

Federal Home Loan Mortgage 

Corporation (Government-Sponsored 

Enterprises, or GSEs). The FHFA has a 

statutory responsibility to ensure that 

the GSEs operate in a safe and sound 

manner, which the FHFA accomplishes 

through supervision and regulation, 

including the supervision and 

regulation of accounting and disclosure 

and capital adequacy. Further, the 

FHFA may order the GSEs to classify 

and charge-off loans, with loan 


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classification generally following bank 

regulatory standards. 

The definition of a ‘‘regulated 

financial company’’ in proposed 

§ 1.166–2(d)(4)(ii) also includes Farm 

Credit System (FCS) institutions subject 

to the provisions of the Farm Credit Act 

of 1971. The FCA, an independent 

Federal agency, is the Federal regulator 

that examines the safety and soundness 

of all FCS institutions through 

regulatory oversight. Including FCS 

institutions in the definition of 

regulated financial company is 

consistent with the existing regulations, 

which define ‘‘banks’’ to include 

institutions that are subject to the 

supervision of the FCA. See § 1.166– 

2(d)(4)(i). 

The definition of a ‘‘regulated 

financial company’’ in proposed 

§ 1.166–2(d)(4)(ii) does not include 

credit unions or U.S. branches of foreign 

banks. The proposed regulations do not 

address how credit unions or U.S. 

branches of foreign banks determine 

charge-offs since the IRS did not receive 

any comments on this topic in response 

to Notice 2013–35. Moreover, many 

credit unions are not subject to Federal 

income tax. However, the Treasury 

Department and the IRS request 

comments regarding whether and, if so, 

how the proposed regulations should be 

modified to apply to credit unions or 

U.S. branches of foreign banks. 

The definition of a ‘‘regulated 

financial company’’ in proposed 

§ 1.166–2(d)(4)(ii) also does not include 

non-bank SIFIs. Treasury and the IRS 

would need to understand the extent to 

which prudential or other regulators of 

non-bank SIFIs apply regulatory 

standards for worthlessness that are 

sufficiently close to tax standards before 

determining whether the rules provided 

in the proposed regulations should 

apply to those SIFIs. 

The definition of ‘‘regulated insurance 

company’’ in proposed § 1.166– 

2(d)(4)(vii) does not include 

corporations that, although licensed, 

authorized, or regulated by one or more 

States to sell insurance, reinsurance, or 

annuity contracts to persons other than 

related persons (within the meaning of 

section 954(d)(3) of the Code) in such 

States, are not engaged in regular 

issuances of (or subject to ongoing 

liability with respect to) insurance, 

reinsurance, or annuity contracts with 

persons that are not related persons 

(within the meaning of section 

954(d)(3)). The Treasury Department 

and the IRS request comments regarding 

whether and how the proposed 

regulations should be modified to 

include a reinsurance entity that 

regularly issues reinsurance contracts 

only to related persons, provided the 

risks reinsured are regularly those of 

persons other than related persons. 

The term ‘‘financial statement’’ is 

defined in proposed § 1.166–2(d)(4)(ix) 

broadly to include a financial statement 

provided to a bank regulator, along with 

any amendments or supplements to that 

financial statement. The Treasury 

Department and the IRS note that many 

insurance companies prepare GAAP 

financial statements. Therefore, the term 

‘‘financial statement’’ includes a 

financial statement based on GAAP that 

is prepared contemporaneously with a 

financial statement prepared in 

accordance with the standards set out 

by the NAIC and given to creditors for 

purposes of making lending decisions. 

However, the Treasury Department and 

the IRS also understand that there are 

insurance companies that do not 

prepare GAAP financial statements but, 

for substantive non-tax purposes, use 

the SSAP financial statements discussed 

above, which may not have the 

functional equivalent of an allowance 

from which charge-offs are made. In 

order to extend conformity to insurance 

company taxpayers that do not prepare 

GAAP financial statements for 

substantive non-tax purposes, the 

Treasury Department and the IRS 

propose to allow these taxpayers to use 

their SSAP financial statements for 

purposes of determining the amount of 

bad debt deduction under, and in the 

manner prescribed in, the proposed 

regulations. Thus, the proposed 

regulations would direct insurance 

companies to first rely on a financial 

statement certified as prepared in 

accordance with GAAP that is a Form 

10–K or an annual statement to 

shareholders. If no such financial 

statement exists, the proposed 

regulations would direct insurance 

companies to next rely on a financial 

statement that is based on GAAP that is 

(1) given to creditors for purposes of 

making lending decisions, (2) given to 

equity holders for purposes of 

evaluating their investments in the 

regulated financial company or member 

of a regulated financial group, or (3) 

provided for other substantial non-tax 

purposes that also meet certain criteria 

set forth in these proposed regulations. 

If an insurance company does not have 

either of these two types of financial 

statements based on GAAP, the 

insurance company would then rely on 

a financial statement prepared in 

accordance with the standards set forth 

by the NAIC and filed with the 

insurance regulatory authorities of a 

State that is the principal insurance 

regulator of the insurance company. 

Accordingly, the term ‘‘financial 

statement’’ would be defined in the 

insurance industry context under 

proposed § 1.166–2(d)(4)(ix)(D) to 

include a financial statement that is 

prepared in accordance with standards 

set out by the NAIC and filed with State 

insurance regulatory authorities. The 

Treasury Department and the IRS 

request comments regarding whether 

these financial statements should be 

assigned different levels of priority and 

on this definition generally. 

The term ‘‘charge-off’’ is defined in 

proposed § 1.166–2(d)(4)(i) to mean an 

accounting entry or set of accounting 

entries for a taxable year that reduces 

the basis of the debt when the debt is 

recorded in whole or in part as a loss 

asset on the applicable financial 

statement of the regulated financial 

company or the member of a regulated 

financial group for that year. For a 

regulated financial company that is a 

regulated insurance company that has as 

its applicable financial statement a 

financial statement described in 

proposed § 1.166–2(d)(4)(ix)(D), the 

term charge-off is defined in the 

proposed regulations to mean an 

accounting entry or set of accounting 

entries that reduces the debt’s carrying 

value and results in a realized loss or a 

charge to the statement of operations (as 

opposed to recognition of unrealized 

loss) that is recorded on the regulated 

insurance company’s annual statement. 

Certain of the commenters suggested 

that the proposed regulations should 

extend to GAAP post-impairment 

accounting for recoveries. Extending tax 

conformity to GAAP post-impairment 

accounting for recoveries raises, among 

other issues, questions about whether 

GAAP recoveries qualify as tax 

recoveries, both with regard to amount 

and timing, and whether GAAP’s 

treatment of recoveries is consistent 

with the tax recovery payment ordering 

rules. See, for example, section 111, 

§§ 1.111–1(a)(2), 1.446–2(e), 1.1275– 

2(a), Rev. Rul. 2007–32, 2007–1 C.B. 

1278, and Hillsboro National Bank v. 

Commissioner, 460 U.S. 370 (1983). In 

view of the foregoing, the Treasury 

Department and the IRS, while 

welcoming comments on the topic, do 

not propose extending tax conformity to 

GAAP post-impairment recovery 

accounting at this time. 

Under the proposed regulations, the 

Allowance Charge-off Method would be 

a method of accounting because it 

would determine the timing of the bad 

debt deduction. Accordingly, proposed 

§ 1.166–2(d)(2) provides that a change to 

the Allowance Charge-off Method is a 

change in method of accounting 


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requiring consent of the Commissioner 

under section 446(e). 

When the proposed regulations are 

finalized, those regulated financial 

companies or members of regulated 

financial groups that do not presently 

use or change to the Allowance Chargeoff Method would not be entitled to a 

conclusive presumption of 

worthlessness and would in most cases 

be required to use the specific chargeoff method for deducting bad debts 

under section 166(a) and § 1.166–1(a)(1). 

3. Proposed Applicability Dates and

Reliance on the Proposed Regulations

A. Proposed Applicability Dates of the

Final Regulations

Under the proposed applicability date 

in proposed § 1.166–2(d)(5), the final 

regulations would apply to charge-offs 

made by a regulated financial company 

or a member of a regulated financial 

group on its applicable financial 

statement that occur in taxable years 

ending on or after the date of 

publication of a Treasury decision 

adopting those rules as final regulations 

in the Federal Register. However, under 

proposed § 1.166–2(d)(5), a regulated 

financial company or a member of a 

regulated financial group may choose to 

apply the final regulations, once 

published in the Federal Register, to 

charge-offs made on its applicable 

financial statement that occur in taxable 

years ending on or after December 28, 

2023, and before the date of publication 

of a Treasury decision adopting those 

rules as final regulations in the Federal 

Register. See section 7805(b)(7) of the 

Code. 

B. Reliance on the Proposed Regulations

A regulated financial company or a

member of a regulated financial group 

may rely on proposed § 1.166–2(d) for 

charge-offs made on its applicable 

financial statement that occur in taxable 

years ending on or after December 28, 

2023, and before the date of publication 

of final regulations in the Federal 

Register. 

Special Analyses 

I. Regulatory Planning and Review

Pursuant to the Memorandum of

Agreement, Review of Treasury 

Regulations under Executive Order 

12866 (June 9, 2023), tax regulatory 

actions issued by the IRS are not subject 

to the requirements of section 6 of 

Executive Order 12866, as amended. 

Therefore, a regulatory impact 

assessment is not required. 

II. Paperwork Reduction Act

These proposed regulations do not

impose any additional information 

collection requirements in the form of 

reporting, recordkeeping requirements, 

or third-party disclosure statements. 

The Allowance Charge-off Method is a 

method of accounting under the 

proposed regulations, and therefore 

taxpayers would be required to request 

the consent of the Commissioner for a 

change in method of accounting under 

section 446(e) to change to that method. 

The IRS expects that these taxpayers 

would request this consent by filing 

Form 3115, Application for Change in 

Accounting Method. Filing of Form 

3115 and any statements attached 

thereto is the sole collection of 

information requirement imposed by the 

statute and the proposed regulations. 

For purposes of the Paperwork 

Reduction Act of 1995 (44 U.S.C. 

3507(c)) (PRA), the reporting burden 

associated with the collection of 

information for the Form 3115 will be 

reflected in the PRA submission 

associated with the income tax returns 

under the OMB control number 1545– 

0123. To the extent there is a change in 

burden because of these proposed 

regulations, the change in burden will 

be reflected in the updated burden 

estimates for Form 3115. The 

requirement to maintain records to 

substantiate information on Form 3115 

is already contained in the burden 

associated with the control number for 

the form and remains unchanged. 

The proposed regulations also would 

remove the requirement in § 1.166– 

2(d)(3)(iii)(B) for a new bank to attach a 

statement to its income tax return, and 

thereby reduce the burden estimates for 

OMB control number 1545–0123. The 

overall burden estimates associated with 

the OMB control number are aggregate 

amounts related to the entire package of 

forms associated with the applicable 

OMB control number and will include, 

but not isolate, the estimated burden of 

the tax forms that will be created, 

revised, or reduced as a result of the 

information collection in these 

proposed regulations. These numbers 

are therefore not specific to the burden 

imposed by these proposed regulations. 

No burden estimates specific to the 

forms affected by the proposed 

regulations are currently available. For 

the OMB control number discussed in 

this section, the Treasury Department 

and the IRS estimate PRA burdens on a 

taxpayer-type basis rather than a 

provision-specific basis. Those 

estimates capture both changes made by 

the proposed regulations (when final) 

and other regulations that affect the 

compliance burden for that form. 

The Treasury Department and IRS 

request comment on all aspects of the 

information collection burden related to 

the proposed regulations, including 

estimates for how much time it would 

take to comply with the paperwork 

burden described above for the relevant 

form and ways for the IRS to minimize 

paperwork burden. In addition, when 

available, drafts of IRS forms are posted 

at https://www.irs.gov/draft-tax-forms, 

and comments may be submitted at 

https://www.irs.gov/forms-pubs/ 

comment-on-tax-forms-andpublications. Final IRS forms are 

available at https://www.irs.gov/formsinstructions. Forms will not be finalized 

until after they have been approved by 

OMB under the PRA. 

III. Regulatory Flexibility Act

It is hereby certified that these

regulations would not have a significant 

economic impact on a substantial 

number of small entities within the 

meaning of section 601(6) of the 

Regulatory Flexibility Act (5 U.S.C. 

chapter 6). 

These proposed regulations would 

affect only those business entities that 

qualify as regulated financial companies 

and members of regulated financial 

groups, as defined in the proposed 

regulations. These entities are expected 

to consist of insurance companies and 

financial institutions with annual 

receipts in excess of the amounts set 

forth in 13 CFR 121.201, Sector 52 

(finance and insurance). Therefore, 

these proposed regulations will not 

affect a substantial number of small 

entities. 

Although the burden falls primarily 

on larger entities, some small entities 

with annual receipts not in excess of the 

amounts set forth in 13 CFR 121.201, 

Sector 52 (finance and insurance), may 

be affected. However, these proposed 

regulations are unlikely to present a 

significant economic burden on any 

small entities affected. The costs to 

comply with these proposed regulations 

are not significant. Taxpayers needing to 

make method changes pursuant to the 

proposed regulations would be required 

to file a Form 3115. For those entities 

that would make a method change, the 

cost to determine or track the 

information needed is minimal. The 

insurance companies and financial 

institutions affected by the proposed 

regulations prepare financial statements 

in accordance with SSAPs or GAAP. 

The Allowance Charge-off Method is a 

method of accounting under which 

these entities would be permitted to use 

these financial statements to obtain a 


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conclusive presumption of 

worthlessness for purposes of claiming 

bad debt deductions under section 166. 

Accordingly, the affected entities 

already possess the information needed. 

The cost in time to fill out a Form 3115 

would be minimal. 

Notwithstanding this certification, the 

Treasury Department and IRS invite 

comments from the public about the 

impact of these proposed regulations on 

small entities. 

Pursuant to section 7805(f), these 

regulations will be submitted to the 

Chief Counsel for the Office of 

Advocacy of the Small Business 

Administration for comment on their 

impact on small business. 

IV. Unfunded Mandates Reform Act 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 requires 

that agencies assess anticipated costs 

and benefits and take certain other 

actions before issuing a final rule that 

includes any Federal mandate that may 

result in expenditures in any one year 

by a State, local, or Tribal government, 

in the aggregate, or by the private sector, 

of $100 million in 1995 dollars, updated 

annually for inflation. This proposed 

rule does not include any Federal 

mandate that may result in expenditures 

by State, local, or Tribal governments, or 

by the private sector, in excess of that 

threshold. 

V. Executive Order 13132: Federalism 

Executive Order 13132 (Federalism) 

prohibits an agency from publishing any 

rule that has federalism implications if 

the rule either imposes substantial, 

direct compliance costs on State and 

local governments, and is not required 

by statute, or preempts State law, unless 

the agency meets the consultation and 

funding requirements of section 6 of the 

Executive order. These proposed 

regulations do not have federalism 

implications and do not impose 

substantial direct compliance costs on 

State and local governments or preempt 

State law within the meaning of the 

Executive order. 

Comments and Requests for a Public 

Hearing 

Before these proposed amendments to 

the final regulations are adopted as final 

regulations, consideration will be given 

to comments that are submitted timely 

to the IRS as prescribed in this preamble 

under the ADDRESSES heading. The 

Treasury Department and the IRS 

request comments on all aspects of the 

proposed regulations, including how 

best to transition from the existing 

regulations to the proposed regulations. 

Any comments submitted will be made 

available at https://www.regulations.gov 

or upon request. 

A public hearing will be scheduled if 

requested in writing by any person who 

timely submits electronic or written 

comments. Requests for a public hearing 

are also encouraged to be made 

electronically. If a public hearing is 

scheduled, notice of the date and time 

for the public hearing will be published 

in the Federal Register. 

Drafting Information 

The principal authors of these 

regulations are Stephanie D. Floyd and 

Jason D. Kristall of the Office of 

Associate Chief Counsel (Financial 

Institutions and Products). However, 

other personnel from the Treasury 

Department and the IRS participated in 

their development. 

Statement of Availability of IRS 

Documents 

The IRS Notices, Revenue Procedures, 

and Revenue Rulings cited in this 

preamble are published in the Internal 

Revenue Bulletin (or Cumulative 

Bulletin) and are available from the 

Superintendent of Documents, U.S. 

Government Publishing Office, 

Washington, DC 20402, or by visiting 

the IRS website at https://www.irs.gov. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Proposed Amendments to the 

Regulations 

Accordingly, the Treasury Department 

and the IRS propose to amend 26 CFR 

part 1 as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 continues to read in part as 

follows: 

Authority: 26 U.S.C. 7805 * * * 

■ Par. 2. Section 1.166–2 is amended by 

revising paragraph (d) to read as 

follows: 

§ 1.166–2 Evidence of worthlessness. 

* * * * * 

(d) Regulated financial companies 

and members of regulated financial 

groups— (1) Worthlessness presumed in 

year of charge-off. Debt held by a 

regulated financial company (as defined 

in paragraph (d)(4)(ii) of this section) or 

a member of a regulated financial group 

(as defined in paragraph (d)(4)(iii) of 

this section) that uses the charge-off 

method described in paragraph (d)(1) of 

this section (Allowance Charge-off 

Method) is conclusively presumed to 

have become worthless, in whole or in 

part, to the extent that the amount of 

any charge-off (as defined in paragraph 

(d)(4)(i) of this section) under paragraph 

(d)(1)(i) or (ii) of this section is claimed 

as a deduction under section 166 of the 

Internal Revenue Code (Code) by the 

regulated financial company or the 

member of a regulated financial group 

on the relevant Federal income tax 

return for the taxable year in which the 

charge-off takes place. 

(i) Allowance Charge-off Method 

generally. The debt is charged off from 

the allowance for credit losses in 

accordance with the United States 

Generally Accepted Accounting 

Principles and recorded in the period in 

which the debt is deemed uncollectible 

on the applicable financial statement (as 

defined in paragraph (d)(4)(viii) of this 

section) of the regulated financial 

company or the member of a regulated 

financial group. 

(ii) Certain regulated insurance 

companies. In the case of a regulated 

financial company that is a regulated 

insurance company (as defined in 

paragraph (d)(4)(vii) of this section) that 

prepares an applicable financial 

statement pursuant to paragraphs 

(d)(4)(viii) and (d)(4)(ix)(D) of this 

section, the debt is charged off pursuant 

to an accounting entry or set of 

accounting entries that reduce the debt’s 

carrying value and result in a realized 

loss or a charge to the statement of 

operations (as opposed to recognition of 

an unrealized loss) that, in either case, 

is recorded on the regulated insurance 

company’s annual statement. 

(2) Methods of accounting—(i) In 

general. A taxpayer may change a 

method of accounting only with the 

consent of the Commissioner as 

required under section 446(e) of the 

Code and the corresponding regulations. 

A change to the Allowance Charge-off 

Method under this paragraph (d) 

constitutes a change in method of 

accounting. Accordingly, a regulated 

financial company or member of a 

regulated financial group that changes 

its method of accounting to the 

Allowance Charge-Off Method is 

required to secure consent of the 

Commissioner before using this method 

for Federal income tax purposes. A 

change to the Allowance Charge-off 

Method must be made on an entity-byentity basis. 

(ii) General rule for changes in 

method of accounting. A taxpayer that 

makes a change in method of accounting 

to the Allowance Charge-Off Method is 

treated as making a change in method 

initiated by the taxpayer for purposes of 

section 481 of the Code. A taxpayer 

obtains the consent of the Commissioner 

to make a change in method of 


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accounting by using the applicable 

administrative procedures that govern 

changes in method of accounting under 

section 446(e). See § 1.446–1(e)(3). 

(3) Worthlessness in later taxable 

year. If a regulated financial company or 

member of a regulated financial group 

does not claim a deduction under 

section 166 for a totally or partially 

worthless debt on its Federal income tax 

return for the taxable year in which the 

charge-off takes place, but claims the 

deduction for a later taxable year, then 

the charge-off in the prior taxable year 

is deemed to have been involuntary and 

the deduction under section 166 is 

allowed for the taxable year for which 

claimed. 

(4) Definitions. The following 

definitions apply for purposes of 

paragraph (d) of this section: 

(i) Charge-off. The term charge-off 

means an accounting entry or set of 

accounting entries for a taxable year that 

reduces the basis of the debt when the 

debt is recorded in whole or in part as 

a loss asset on the applicable financial 

statement (as defined in paragraph 

(d)(4)(viii) of this section) of the 

regulated financial company or the 

member of a regulated financial group 

for that year. For a regulated financial 

company that is a regulated insurance 

company (as defined in paragraph 

(d)(4)(vii) of this section) that has as its 

applicable financial statement a 

financial statement described in 

paragraph (d)(4)(ix)(D) of this section, 

the term charge-off means an accounting 

entry or set of accounting entries that 

reduce the debt’s carrying value and 

results in a realized loss or a charge to 

the statement of operations (as opposed 

to recognition of unrealized loss) that is 

recorded on the regulated insurance 

company’s annual statement. 

(ii) Regulated financial company. The 

term regulated financial company 

means— 

(A) A bank holding company, as 

defined in 12 U.S.C. 1841, that is a 

domestic corporation; 

(B) A covered savings and loan 

holding company, as defined in 12 CFR 

217.2; 

(C) A national bank; 

(D) A bank that is a member of the 

Federal Reserve System and is 

incorporated by special law of any State, 

or organized under the general laws of 

any State, or of the United States, or 

other incorporated banking institution 

engaged in a similar business; 

(E) An insured depository institution, 

as defined in 12 U.S.C. 1813(c)(2); 

(F) A U.S. intermediate holding 

company formed by a foreign banking 

organization in compliance with 12 CFR 

252.153; 

(G) An Edge Act corporation 

organized under section 25A of the 

Federal Reserve Act (12 U.S.C. 611– 

631); 

(H) A corporation having an 

agreement or undertaking with the 

Board of Governors of the Federal 

Reserve System under section 25 of the 

Federal Reserve Act (12 U.S.C. 601– 

604a); 

(I) A Federal Home Loan Bank, as 

defined in 12 U.S.C. 1422(1)(A); 

(J) A Farm Credit System Institution 

chartered and subject to the provisions 

of the Farm Credit Act of 1971 (12 

U.S.C. 2001 et seq.); 

(K) A regulated insurance company, 

as defined in paragraph (d)(4)(vii) of this 

section; 

(L) The Federal National Mortgage 

Association; 

(M) The Federal Home Loan Mortgage 

Corporation; and 

(N) Any additional entities that may 

be provided in guidance published in 

the Internal Revenue Bulletin (see 

§ 601.601(d)(2)(ii)(a) of this chapter). 

(iii) Regulated financial group. The 

term regulated financial group means 

one or more chains of corporations 

connected through stock ownership 

with a common parent corporation that 

is not described in section 1504(b)(4) of 

the Code and is a regulated financial 

company described in paragraphs 

(d)(4)(ii)(A) through (N) of this section 

(regulated financial group parent) that is 

not owned, directly or indirectly (as set 

out in paragraph (d)(4)(v) of this 

section), by another regulated financial 

company, but only if— 

(A) The regulated financial group 

parent owns directly or indirectly stock 

meeting the requirements of section 

1504(a)(2) in at least one of the other 

corporations; and 

(B) Stock meeting the requirements of 

section 1504(a)(2) in each of the other 

corporations (except the regulated 

financial group parent) is owned 

directly or indirectly by one or more of 

the other corporations. 

(iv) Stock. The term stock has the 

same meaning as stock in section 1504 

(without regard to § 1.1504–4), and all 

shares of stock within a single class are 

considered to have the same value. 

Thus, control premiums and minority 

and blockage discounts within a single 

class are not taken into account. 

(v) Indirect stock ownership. Indirect 

stock ownership is determined by 

applying the constructive ownership 

rules of section 318(a) of the Code. 

(vi) Member of a regulated financial 

group. A member of a regulated 

financial group is any corporation in the 

chain of corporations of a regulated 

financial group described in paragraph 

(d)(4)(iii) of this section. A corporation, 

however, is not a member of a regulated 

financial group if it is held by a 

regulated financial company pursuant to 

12 U.S.C. 1843(k)(1)(B), 12 U.S.C. 

1843(k)(4)(H), or 12 U.S.C. 1843(o), or if 

it is a Regulated Investment Company 

under section 851 of the Code, or a Real 

Estate Investment Trust under section 

856 of the Code. 

(vii) Regulated insurance company. 

The term regulated insurance company 

means a corporation that is— 

(A) Subject to tax under subchapter L 

of chapter 1 of the Code; 

(B) Domiciled or organized under the 

laws of one of the 50 States or the 

District of Columbia (State); 

(C) Licensed, authorized, or regulated 

by one or more States to sell insurance, 

reinsurance, or annuity contracts to 

persons other than related persons 

(within the meaning of section 954(d)(3) 

of the Code) in such States, but in no 

case will a corporation satisfy the 

requirements of this paragraph 

(d)(4)(vii)(C) if a principal purpose for 

obtaining such license, authorization, or 

regulation was to qualify the issuer as a 

regulated insurance company; and 

(D) Engaged in regular issuances of (or 

subject to ongoing liability with respect 

to) insurance, reinsurance, or annuity 

contracts with persons that are not 

related persons (within the meaning of 

section 954(d)(3)). 

(viii) Applicable financial statement. 

The term applicable financial statement 

means a financial statement that is 

described in paragraph (d)(4)(ix) of this 

section of a regulated financial company 

or any member of a regulated financial 

group. The financial statement may be 

a separate company financial statement 

of any member of a regulated financial 

group, if prepared in the ordinary 

course of business; otherwise, it is the 

consolidated financial statement that 

includes the assets, portion of the assets, 

or annual total revenue of any member 

of a regulated financial group. 

(ix) Financial statement. The term 

financial statement means the 

taxpayer’s financial statement listed in 

paragraphs (d)(4)(ix)(A) through (D) of 

this section that has the highest priority. 

A financial statement includes any 

supplement or amendment to that 

financial statement. The financial 

statements are, in order of descending 

priority: 

(A) A financial statement certified as 

being prepared in accordance with 

Generally Accepted Accounting 

Principles that is a Form 10–K (or 

successor form), or annual statement to 

shareholders, required to be filed with 

the United States Securities and 

Exchange Commission; 


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89644 Federal Register / Vol. 88, No. 248 / Thursday, December 28, 2023 / Proposed Rules 

(B) A financial statement that is 

required to be provided to a bank 

regulator; 

(C) In the case of an insurance 

company, a financial statement based on 

Generally Accepted Accounting 

Principles that is given to creditors for 

purposes of making lending decisions, 

given to equity holders for purposes of 

evaluating their investments in the 

regulated financial company or member 

of a regulated financial group, or 

provided for other substantial non-tax 

purposes, and that the regulated 

financial company or member of a 

regulated financial group reasonably 

anticipates will be directly relied on for 

the purposes for which it was given or 

provided and that is prepared 

contemporaneously with a financial 

statement prepared in accordance with 

the standards set out by the National 

Association of Insurance Commissioners 

and filed with the insurance regulatory 

authorities of a State that is the 

principal insurance regulator of the 

insurance company; and 

(D) In the case of an insurance 

company, a financial statement that is 

prepared in accordance with the 

standards set out by the National 

Association of Insurance Commissioners 

and filed with the insurance regulatory 

authorities of a State that is the 

principal insurance regulator of the 

insurance company. 

(x) Bank regulator. The term bank 

regulator means the Office of the 

Comptroller of the Currency, the Board 

of Governors of the Federal Reserve 

System and any Federal Reserve Bank, 

the Federal Deposit Insurance 

Corporation, the Farm Credit 

Administration, the Federal Housing 

Finance Authority, any successor to any 

of the foregoing entities, or State 

banking authorities maintaining 

substantially equivalent standards as 

these Federal regulatory authorities. 

Additional entities included in this 

paragraph (d)(4)(x) may be provided in 

guidance published in the Internal 

Revenue Bulletin (see 

§ 601.601(d)(2)(ii)(a) of this chapter). 

(5) Applicability date. Paragraph (d) of 

this section applies to charge-offs made 

by a regulated financial company or a 

member of a regulated financial group 

on its applicable financial statement 

that occur in taxable years ending on or 

after [DATE OF FINAL RULE]. A 

regulated financial company or a 

member of a regulated financial group 

may choose to apply paragraph (d) of 

this section to charge-offs on its 

applicable financial statement that 

occur in taxable years ending on or after 

December 28, 2023. 

Douglas W. O’Donnell, 

Deputy Commissioner for Services and 

Enforcement. 

[FR Doc. 2023–28589 Filed 12–27–23; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 110 

[USCG–2023–0749] 

RIN 1625–AA01 

Establish Anchorage Ground; Port 

Westward Anchorage, Columbia River, 

Oregon and Washington 

AGENCY: Coast Guard, Department of 

Homeland Security (DHS). 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Coast Guard is 

considering establishing an anchorage 

ground near Port Westward, Oregon in 

the Columbia River. We are considering 

this action after receiving requests 

suggesting that this anchorage ground is 

necessary to provide for the safe 

anchoring of commercial vessels in the 

navigable waters of the Lower Columbia 

River. We invite your comments on this 

proposed rulemaking. 

DATES: Comments and related material 

must be received by the Coast Guard on 

or before February 26, 2024. 

ADDRESSES: You may submit comments 

identified by docket number USCG– 

2023–0749 using the Federal DecisionMaking Portal at https://

www.regulations.gov. See the ‘‘Public 

Participation and Request for 

Comments’’ portion of the 

SUPPLEMENTARY INFORMATION section for 

further instructions on submitting 

comments. 

FOR FURTHER INFORMATION CONTACT: If 

you have questions about this proposed 

rulemaking, call or email LT Carlie 

Gilligan, Sector Columbia River 

Waterways Management Division, U.S. 

Coast Guard, 503–240–9319, email 

SCRWWM@uscg.mil. 

SUPPLEMENTARY INFORMATION: 

I. Table of Abbreviations 

CFR Code of Federal Regulations 

DHS Department of Homeland Security 

FR Federal Register 

NPRM Notice of proposed rulemaking 

§ Section 

U.S.C. United States Code 

II. Background, Purpose, and Legal 

Basis 

Under Title 33 of the Code of Federal 

Regulations (CFR) 109.05, U.S. Coast 

Guard District Commanders are 

delegated the authority to establish 

anchorage grounds by the Commandant 

of the U.S. Coast Guard. The Coast 

Guard establishes anchorage grounds 

under Section 7 of the Act of March 4, 

1915, as amended (38 Stat. 1053; 46 

U.S.C. 70006) and places these 

regulations in Title 33 CFR part 110, 

subpart B. The Coast Guard is proposing 

the rulemaking to establish a Port 

Westward anchorage ground in the 

Columbia River. 

In the last several years, the Columbia 

River Marine Transportation System has 

seen an increase in commercial traffic 

and vessel size, thus creating a concern 

for anchorage capacity within the river 

system. The Columbia River Steamship 

Operators Association and the Columbia 

River Pilots have formally requested the 

Coast Guard review and evaluate the 

establishment of this new anchorage 

ground to address the safety and 

navigation concerns with the expanding 

vessel traffic in the Lower Columbia 

River. 

The purpose of this rulemaking is to 

establish a Federal anchorage ground in 

the Lower Columbia River that would be 

maintained and used by commercial 

vessels. The Coast Guard is proposing 

this rulemaking under authority in 46 

U.S.C. 70034. 

III. Discussion of Proposed Rule 

The Coast Guard is proposing to 

establish a new anchorage ground in the 

vicinity of Port Westward, in the Lower 

Columbia River. The anticipated users 

of the proposed anchorage ground are 

commercial vessels and their attending 

tug, tow, or push boats. The 

approximate depth of this proposed 

anchorage ground would be 43 feet to 

align with the Federal channel depth 

and would accommodate a variety of 

vessel types and configurations. An 

illustration showing the location of the 

proposed anchorage ground is available 

in the docket. 

When the Columbia River Federal 

channel was deepened in 2010, the size 

and draft of commercial vessels was 

increased, but the anchorage capacity 

within the river system was not. The 

vessels transiting in the Columbia River 

system now are longer and have deeper 

drafts than before the channel was 

deepened. Having larger vessels, and 

increased transit frequency causes 

concern for safe navigation and 

emergency situations with limited 

anchorage capacity. The proposed Port 


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