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

County Attorney 

Caldwell Countv RI?: ProDrlets of 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 advise you as to how the shares 

of stock in the First Iockhart National Bank of.Lockhart, Texasshould be valued for ad valorem tax purposes. The Bank has submitted to the Tax Assessor-Collector of Caldwell County a statement of the condition of then Bank. 

which you have furnished us shows 

!l!he’copy of thlsf statement 

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, Attorney General Opinion No. 

O-4675 (1942).held that a "Reserve for Contingencies" must be 

taken into consideration by the board of equalization In fixing 

the value of the stock for tax purposes. We quote the following 

excerpt from page 4 of this opinion: 

"The phrase' reserve for contlngencies~ 

Indicated that the bank hea set apart and 

segregated a part of its earned surplus for 

the purpose 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 consideration by 

the board of equalization in ffixlng the 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, surplus or undivided 

Q??ofitS.':.~ . 

We quote 'the following eX&e&ts f m pigee' 2 and 3, of 

Attorney Oenersl Opinion No. 0-686~ (1943: . . . 

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"We therefore advise you ttit &.?ognlsed 

acqounting practice d~stlngulshes sur~lus.reserves such a8 for.addltions, anticipated 

losses,~ bond sinking funds, end the like from 

so-called treservesR set 'up for 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'nature as accrued liabilities or' 

debts,~little, If any, .conslderation could 

be accorded such funds as elements tdnding 

to compose or~augment the ,valUe of the stook : 

In ,the hands'of the stoakholder. Therefore, 

if 'the facts ,are found to, be as'titated .by 

the bank, the assessor and counjiy aommis810nersr 

court should give a Qroprlate conslderatlon to 

the facts that the 8 265,376.23 Qortlon.of the 

so-called ~'reserve' fund represents definite. 

accrued~llabllltles rattier than capital' funds,; 

surplus or undivided profits. The assessor 

or ,the~ board of equalization may, 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 'one of the 

factors to be taken into, consideration by the 

board of equalization in fixing the value of 

the stock for tax purposes. I” 

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Mr. E. P. Slater, Page 3 (C-&9) 

We .think the "Reserve for 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 & Id Debts" set up 'by a National 

Bank pursuant to Federal rulings may 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 assessable nor taxable to the Bank, but that as personal 

property they constitute a part of the assets of the Bsnk and 

would be one of the factors to be taken Into consideration by 

the assessor or the board of equallsatlon in fixing the value 

of the shares o? bank stock for ad valorem tsx purposes. 

SUMMARY 

The "Reserve for Bad Debts" and the "Reserve 

for Bond Depletion" are neither assessable nbr 

taxable to the First Lockhart National Bank of - 

‘Lockhart, Texas. As personal property they COQstltute part of the assets of the bank and should 

be taken into consideration by the Tax.AssessorColleotor In determining the value of the shsres~ 

o? bank stock for ad valorem tax purposes. 

Your0 .very truly, 

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 

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