Banking, Insurance Sectors Urge IRS Flexibility on Bad-Debt Deduction

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The insurance and banking industries are urging the government for flexibility in taking tax deductions for bad debts they have been forced to write down—an issue that has been percolating since the financial crisis of 2008 and its accompanying collapse of mortgage-backed securities.
The question centers on when financially regulated companies can make a presumption that a debt is worthless or partially worthless for tax purposes under Section 166 because it cannot be collected. A key question is how and when companies can get the tax benefit for debt that they had to write off on their books for accounting purposes.
This has led to frequent controversy with the Internal Revenue Service and state regulators. With a landscape marked by tax audits, stakeholders are asking the agency to ease the process of getting the tax benefit.

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