§7507 — Title 26 Internal Revenue Code | U.S. Code

Summary

When a bank or trust company that takes deposits and makes loans shuts down because it is insolvent or bankrupt, the government cannot assess or collect any tax from it if doing so would eat into the assets needed to pay its depositors in full. The same protection applies when a struggling bank cuts a deal with its depositors: if depositors give up part of their claims in exchange for a lien on future earnings or claims against assets set aside for them, no tax may be collected that would shrink those set-aside assets. If such a tax was already collected, it counts as collected in error and gets refunded. But the tax is not forgiven forever. Once it is clear that paying the tax will no longer hurt depositors, or once depositors have been paid in full, the tax can be assessed again. The clock on the statute of limitations pauses during that protected period plus 90 days. This protection does not apply to Social Security and unemployment taxes under chapters 21 and 23.

Title 26, §7507

Internal Revenue Code — Source: USLM XML via OLRC

(a)Whenever and after any bank or trust company, a substantial portion of the business of which consists of receiving deposits and making loans and discounts, has ceased to do business by reason of insolvency or bankruptcy, no tax shall be assessed or collected, or paid into the Treasury of the United States, on account of such bank or trust company, which shall diminish the assets thereof necessary for the full payment of all its depositors; and such tax shall be abated from such national banks as are found by the Comptroller of the Currency to be insolvent; and the Secretary, when the facts shall appear to him, is authorized to remit so much of the said tax against any such insolvent banks and trust companies organized under State law as shall be found to affect the claims of their depositors.

(b)Whenever any bank or trust company, a substantial portion of the business of which consists of receiving deposits and making loans and discounts, has been released or discharged from its liability to its depositors for any part of their claims against it, and such depositors have accepted, in lieu thereof, a lien upon subsequent earnings of such bank or trust company, or claims against assets segregated by such bank or trust company or against assets transferred from it to an individual or corporate trustee or agent, no tax shall be assessed or collected, or paid into the Treasury of the United States, on account of such bank or trust company, such individual or corporate trustee or such agent, which shall diminish the assets thereof which are available for the payment of such depositor claims and which are necessary for the full payment thereof. The term “agent”, as used in this subsection, shall be deemed to include a corporation acting as a liquidating agent.

(c)(1)Any such tax collected shall be deemed to be erroneously collected, and shall be refunded subject to all provisions and limitations of law, so far as applicable, relating to the refunding of taxes.

(2)Any tax, the assessment, collection, or payment of which is barred under subsection (a), or any such tax which has been abated or remitted shall be assessed or reassessed whenever it shall appear that payment of the tax will not diminish the assets as aforesaid.

(3)Any tax, the assessment, collection, or payment of which is barred under subsection (b), or any such tax which has been refunded shall be assessed or reassessed after full payment of such claims of depositors to the extent of the remaining assets segregated or transferred as described in subsection (b).

(4)The running of the statute of limitations on the making of assessment and collection shall be suspended during, and for 90 days beyond, the period for which, pursuant to this section, assessment or collection may not be made, and a tax may be reassessed as provided in paragraphs (2) and (3) of this subsection and collected, during the time within which, had there been no abatement, collection might have been made.

(d)This section shall not apply to any tax imposed by chapter 21 or chapter 23.

Notes & Related Subsidiaries

Editorial Notes

Amendments

1976—Subsec. (a). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”. Subsec. (c). Pub. L. 94–455, § 1906(a)(50), struck out “after May 28, 1938” in par. (2) after “or remitted” and in par. (3) after “been refunded”.

Statutory Notes and Related Subsidiaries

Effective Date

of 1976 AmendmentAmendment by Pub. L. 94–455 effective on first day of first month which begins more than 90 days after Oct. 4, 1976, see section 1906(d)(1) of Pub. L. 94–455, set out as a note under section 6013 of this title.

§7507 Exemption of Insolvent Banks From Tax