False Statements About Banks And Subchapter S

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In a December 5th opinion piece titled "New ABA Chair's Zeal Leads To Attack Upon-Banks!" Dave Chatfield, the president and CEO of the California and Nevada Credit Union Leagues, attempts once again to use the Subchapter S argument to attack the banking industry.

Mr. Chatfield and some others in the credit union industry have convinced themselves that Subchapter S tax treatment is a tax exemption like the credit union tax exemption. This is completely false. In fact, a critical distinction between Subchapter S banks and credit unions is that a bank's shareholders are still required to pay taxes on Subchapter S earnings whether or not those earnings are distributed. Subchapter S taxation is similar to Subchapter T of the Internal Revenue Code, which covers the taxation of cooperatives.

Taxes paid on earnings of Subchapter S banks help build healthy, viable communities by paying for such things as improved schools, more teachers, better roads, and more police and fire fighters. Unfortunately, financially sophisticated credit unions-which, for all intents and purposes, behave and compete just like banks-do not contribute to these efforts.

If Mr. Chatfield is so enamored with Subchapter S, we have a simple proposition-have financially sophisticated credit unions taxed under it.

Edward L. Yingling

American Bankers Association


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