Iowa Administrative Code › Agency 701 - Revenue Department › Title VII - Franchise Tax › Chapter 602 - Determination of Net Income › Rule 701-602.20 - Disallowance of Expenses to Carry an Investment Subsidiary for Tax Years Which Begin on or After January 1, 1995

Current through Register Vol. 47, No. 3, July 24, 2024
A financial institution which has an investment in an
				  investment subsidiary on or after July 1, 1995, must allocate a portion of its
				  total expenses used in computing its federal taxable income on a separate
				  return basis to its investment subsidiary. The expenses which are allocable to
				  the investment in an investment subsidiary are computed by multiplying the
				  financial institution's total expenses used in computing its federal taxable
				  income on a separate return basis by the ratio of the average adjusted basis in
				  its investment subsidiary to the average adjusted basis for all assets of the
				  financial institution. For tax years beginning on or after January 1, 1995, and
				  before December 31, 1995, a financial institution which has an investment in an
				  investment subsidiary on July 1, 1995, must allocate a portion of its total
				  expenses for the entire tax year to its investment in an investment subsidiary
				  even though it did not have an investment in an investment subsidiary for the
				  entire tax year.
A calculation of the average for the tax year of the adjusted
				  bases of a financial institution's investment in investment subsidiaries, and
				  total assets, held each day of the tax year is the most accurate method for
				  determining under Iowa Code subsection
				  422.61(3)  the
				  portion of a financial institution's total expenses that is allocable to the
				  financial institution's investment in investment subsidiaries. However, the
				  department will generally allow the average adjusted bases of an investment in
				  investment subsidiaries for the tax year to be calculated using the average of
				  the adjusted bases of the investment in investment subsidiaries held by the
				  financial institution at the end of each month within the tax year. The
				  department generally will allow the average bases of all assets of the
				  financial institution for the tax year to be calculated using the average bases
				  of all assets held by the financial institution at the end of each quarter of
				  the tax year. A financial institution may compute for any tax year, without
				  prior permission of the director, the average adjusted bases of investment in
				  investment subsidiaries or total assets on a more frequent basis than set forth
				  above. However, a financial institution may not compute these averages for any
				  tax year on a less frequent basis than quarterly without obtaining prior
				  approval of the director. This permission will be granted only in extraordinary
				  circumstances. In addition, a financial institution may not compute these
				  averages for any tax year on a less frequent basis than it used for the
				  preceding tax year unless the financial institution obtains prior approval of
				  the director. A financial institution that has elected to use an estimate of
				  the adjusted tax bases of its total assets for each of the first three quarters
				  of the taxable year under Internal Revenue Service's Revenue Ruling 90-44 for
				  federal income tax purposes may use this estimate for Iowa franchise
				  purposes.
(1) For the purposes of this
				rule, the term "affiliate" means a corporation, trust, estate, association, or
				similar organization:
a. Of which a financial
				institution, directly or indirectly, owns or controls either a majority of the
				voting shares or more than 50 percent of the number of shares voted for the
				election of its directors, trustees, or other individuals exercising similar
				functions at the preceding election, or controls in any manner the election of
				a majority of its directors, trustees, or other individuals exercising similar
				functions; or
b. Of which control
				is held, directly or indirectly, through share ownership or in any other
				manner, by the shareholders of a financial institution who own or control
				either a majority of the shares of such financial institution or more than 50
				percent of the number of shares voted for election of directors of such
				financial institution at the preceding election, or by trustees for the benefit
				of the shareholders of such financial institution; or
c. Of which a majority of its directors,
				trustees, or other individuals exercising similar functions are directors of
				any financial institution; or
d.
				Which owns or controls, directly or indirectly, either a majority of the voting
				shares of a financial institution or more than 50 percent of the number of
				shares voted for the election of directors of a financial institution at the
				preceding election, or controls in any manner the election of a majority of the
				directors of a financial institution, or for the benefit of those shareholders
				or members all or substantially all of the outstanding voting shares of a
				financial institution is held by trustees; or
e. Which is a bank holding company, as
				defined by the laws of the United States, of which a financial institution is a
				subsidiary, and any other subsidiary as defined by the laws of the United
				States, of a bank holding company.