Opinion ID: 2604202
Heading Depth: 1
Heading Rank: 5

Heading: the interest received from the secondary reserves is taxable

Text: The savings and loan associations contend that the interest income earned on the secondary reserve maintained by the FSLIC is not subject to Oklahoma corporate income tax. We disagree. The FSLIC is obligated to insure the accounts of federal savings and loan associations. [34] Insured institutions are charged annual premiums and, at one time, were also required to make contributions to the FSLIC secondary reserve. [35] Since 1973, no prepayments of insurance premiums have been made. The secondary reserve is only available to the FSLIC when losses occur, and then only to the extent other available accounts are insufficient. [36] Each insured institution has a pro rata share in the secondary reserve. [37] It is not assignable or transferable except under circumstances set by the FSLIC, e.g., approved mergers, consolidations, or similar situations. [38] A separate account is maintained for each insured institution's share of the secondary reserve and a statement issued annually. [39] The FSLIC uses the funds to pay the savings and loan associations insurance premiums under § 1727(g). [40] An insured institution may obtain a cash refund of its pro rata share if its status as an insured is terminated or upon receivership or liquidation. [41] In Commissioner v. Lincoln Savings and Loan Association, 403 U.S. 345, 356, 91 S.Ct. 1893, 1900, 29 L.Ed. 519, 528 (1971), the Court recognized that each insured institution has a distinct and recognized property interest in the secondary reserve. The Court also noted that savings and loan associations were required under federal and state requirements to show the interest credited by the FSLIC as an asset on its balance sheet and the credit as income. We, therefore, find that the interest is taxable income, not an exempt obligation.