Industry Issue Resolution Pilot Program under
Notice 2000-65
Financial Services Issues
Contents | Introduction
| I | II | III
Introduction
This report is in response to Notice 2000-651 inviting interested parties to
suggest issues for the Industry Issue Resolution Pilot Program. As indicated in the
Notice, the Industry Issue Resolution Pilot Program is intended to provide guidance to
resolve frequently disputed tax issues that are common to a significant number of large or
mid-sized businesses. The members of the Committee on Banking and Savings Institutions who
have contributed to this letter are experienced tax practitioners with substantial
background in working with financial services industry clients on tax controversies.
We welcome the opportunity afforded by the Notice and more especially the
initiative with respect to industry issue resolution. It is clear to us that IRS audits of
banks and other financial institutions are burdened by disputes over several timing issues
that consume too many resources of both Service and taxpayers. Banks face examination
disputes over the tax treatment of problem loans, whether in the form of a deduction for
worthlessness of bad debts under IRC section 166 or for the accrual of interest income on
non-performing loans. The treatment of problem loans is an issue that is common to all
large and mid-sized banks and frequently the subject of dispute between the Service and
bank taxpayers. The tax treatment of bad debts and non-accruals is highly dependent on
facts, and the range of fact situations is endless. Moreover, the issues relate simply to
the timing of deductions, so the cost of the many tax controversies should be weighed
against just the interest on the disputed amount, not the tax amount at issue in any given
year. Finally, it should be observed that Congress and Treasury have recognized in the
past that the tax issues related to problem loans need a more efficient method of
resolution for bank taxpayers, because of the sheer volume of bank lending and the
prospect for unnecessary factual disputes between bank taxpayers and the Service.2
Contents | Introduction | I | II | III |