As we are nearing the finish line in what appears to be a tax package that will likely get passed this calendar year after resolution through a conference committee, bankers need to be aware of at least one transition issue that will impact calendar year C corporation taxpayers. If the bill is indeed signed into law prior to calendar year-end, and if a C corporation bank has a deferred tax asset (DTA) on its books, the bank will likely have an expense in 2017 with little or no tax benefit from tax reform until 2018 or even 2019, depending on how the two separate proposals get resolved in conference.

More specifically, if the C corporation rate goes to 20%, it will lower the combined tax rate such banks have to pay, which has the direct effect of reducing the value of the DTA. The amount by which the DTA is reduced is the amount the C corporation will need to take as an increase to its tax expense resulting in a hit to the bank's earnings in 2017.

WBA's understanding of GAAP rules are that this hit to earnings must be taken in the year of enactment of the change in tax law not the tax year in which the change is effective. Bankers are encouraged to speak with their tax professionals about this matter to see if there is any end-of-year planning that can be done given the potential for this very accelerated time frame of enactment of a compromise bill. WBA will also host an Executive Briefing on the impact of tax reform likely in January, after a compromise bill is finalized, passed and signed into law.