Mr. E/P. Slater OQlnlo~ No. c-519

County Attorney Caldwell Countv RI?: ProDrletsof lncltiion of %eserve Luling, Texas- for-Bad i)ebts"and deserve for Bond Depletion" In determlning the value of shares of bank stock Dear Mr. Slater: for ad valorem tax purpoees.

You have requested that we adviseyou as to how the shares of stock in the First Iockhart National Bank of.Lockhart, Texasshould be valued for ad valorem taxpurposes. The Bank has submitted to the Tax Assessor-Collectorof Caldwell County a statement of the condition of then Bank. whichyou have furnished us shows !l!he’copy of thlsfstatement Bad Debts" In the amount of Depletion" in the amount of t% as liablllt~es a Reserve for 3:z.s and a Reserve for Bond

. . As stated in your letter, AttorneyGeneral Opinion No. O-4675 (1942).heldthat a "Reservefor Contingencies"must be taken into considerationby the board of equalization In fixing the value of the stock for tax purposes. We quote the following excerpt frompage 4 of this opinion:

"Thephrase' reserve for contlngencies~ Indicated that the bank hea set apart and segregated a part of its earned surplus for thepurpose of meeting whatever contingency that may arise. That fund, by whatever name It may be called, Is a part of the bank's personal property. As such It is neither assessable nor taxable to the bank. Article 7166, supra; City of Marshall vs. State Bank of Marshall, 60 C. A. 508, 127 S.W. 1083. On the other hand, as personal property, it Is a part of the assets of the bank and Is one of the factors to be taken into considerationby the board of equalization in ffixlngthe Value of the stoak for tax purposes. You then make the following statement:

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. Mr. E. P. Slate* - Page .2 (C-519) '~

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### “Following ‘ your opinion No. O-~&O, MS, are unable~to determine If these reserves represent definite accrued llabllltles rather ,. than capital furids,surplusor undivided Q??ofitS.':.~ .
We quote 'thefollowingeX&e&ts f m pigee' 2 and 3,of Attorney 

### Oenersl OpinionNo. 0-686~ (1943:

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"We thereforeadviseyou ttit &.?ognlsed acqountingpractice d~stlngulshes sur~lus.reserves such a8 for.addltions,anticipated 

### losses,~ bond sinking funds, end the like from so-called treservesRset 'upfor contra asset acoo'unts,

such as accrued llabilit%es. While accrued llablllty 'tieeerveti' represent funds held by the bank not imsnedlately payable, by their vely'natureas accrued liabilitiesor' debts,~little,

### If any,.conslderationcould be accorded such funds as elements tdnding to compose or~augment the ,valUeof the stook : In ,thehands'of the stoakholder. Therefore, if 'thefacts ,arefound to, be as'titated

.by the bank, the assessor and counjiy aommis810nersr court shouldgive a Qroprlate conslderatlon to the facts that the 8265,376.23 Qortlon.of the so-called~'reserve'fund representsdefinite. accrued~llabllltlesrattierthan capital' funds,; surplus

### or undividedprofits. The assessor or ,the~

board of equalizationmay, of~course, In exercising their expert 'adminlstratfve Judgment, conclude that

### an amount In excess~ of'that necessary to

### meet these liabllltles has b&en set eside. Any such excess should, of course,be treated as surplus or undivided ,~ QlVfltS. .

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"It Is believed that the ratlonallsatlon - suggested in this opinion will serve to dlstingulsh It from Opinion No. O-4675 to which you Invited the attent.ion of this department. That opinion involved a fund set up for contingencies rather than accrued 1iabllSties and ~the holding was that such fund was 'oneof the factors to be taken into, considerationby the board of equalization in fixing the value of the stock for tax purposes. I”

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We .thinkthe "Reservefor Bond Depletion" constitutes a~"Reserve for Contingencies"within the scope of the holding of Attorney General Opinion No. O-4675. 4

Attorney General Opinion No. Ww-935 (1960) speclflcally' held that the “Reserve **for** &IdDebts" set up 'bya National Bank pursuant to Federal rulingsmay not be deducted In arrlving at the value of the shareh61deris shares for State and County ad valorem tax purposes. A copy of Opinion No. WW-935 Is attached hereto.
You are, therefore, advised that these two Reserves are neither assessablenor taxable to the Bank, but that as personal property they constitute apart of the assets of the Bsnk and would be one of **the** factors to be taken Into considerationby the 

### assessor or the board of equallsatlon in fixing the value of the shares o? bank stock for ad valorem tsx purposes.

**SUMMARY** The "Reservefor Bad Debts" and the "Reserve for Bond Depletion" are neither assessablenbr taxable to the First Lockhart National Bank of - ‘Lockhart, Texas. Aspersonal property they COQstltutepart of the assets of the bank and should be taken into considerationby the Tax.AssessorColleotor In determining the value of the shsres~ o? bank stock for ad valorem tax purposes. Your0 .verytruly,
WAOOONER CARR Attorney General of Texas

MMP/fb 

### AP&NED: OPINION COMMITTEg W. V. Oeppert, Chairman $;sp$ Taylor Brandon Bickett John Pettlt

. APPROVED FOR TRE ATIy)RNRY QERERAL BY: T. B. Wright **;** l

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