[Code of Federal Regulations]
[Title 26, Volume 7]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.597-4]

[Page 378-383]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.597-4  Bridge Banks and Agency Control.

    (a) Scope. This section provides rules that apply to a Bridge Bank 
or other Institution under Agency Control and to transactions in which 
an Institution transfers deposit liabilities (whether or not the 
Institution also transfers assets) to a Bridge Bank.
    (b) Status as taxpayer. A Bridge Bank or other Institution under 
Agency Control is a corporation within the meaning of section 7701(a)(3) 
for all purposes of the Internal Revenue Code and is subject to all 
Internal Revenue Code provisions that generally apply to corporations, 
including those relating to methods of accounting and to requirements 
for filing returns, even if Agency owns stock of the Institution.
    (c) No section 382 ownership change. The imposition of Agency 
Control, the cancellation of Institution stock by Agency, a transaction 
in which an Institution transfers deposit liabilities to a Bridge Bank, 
and an election under paragraph (g) of this section are disregarded in 
determining whether an ownership change has occurred within the meaning 
of section 382(g).
    (d) Transfers to Bridge Banks--(1) In general. Except as otherwise 
provided in paragraph (g) of this section, the rules of this paragraph 
(d) apply to transfers to Bridge Banks. In general, a Bridge Bank and 
its associated Residual Entity are together treated as the successor 
entity to the transferring Institution. If an Institution transfers 
deposit liabilities to a Bridge Bank (whether or not it also transfers 
assets), the Institution recognizes no gain or loss on the transfer and 
the Bridge Bank succeeds to the transferring Institution's basis in any 
transferred assets. The associated Residual Entity retains its basis in 
any assets it continues to hold. Immediately after the transfer, the 
Bridge Bank succeeds to and takes into account the transferring 
Institution's items described in section 381(c) (subject to the 
conditions and limitations specified in section

[[Page 379]]

381(c)), taxpayer identification number (``TIN''), deferred FFA account, 
and account receivable for future FFA as described in paragraph 
(g)(4)(ii) of this section. The Bridge Bank also succeeds to and 
continues the transferring Institution's taxable year.
    (2) Transfers to a Bridge Bank from multiple Institutions. If two or 
more Institutions transfer deposit liabilities to the same Bridge Bank, 
the rules in paragraph (d)(1) of this section are modified to the extent 
provided in this paragraph (d)(2). The Bridge Bank succeeds to the TIN 
and continues the taxable year of the Institution that transfers the 
largest amount of deposits. The taxable years of the other transferring 
Institutions close at the time of the transfer. If all the transferor 
Institutions are members of the same consolidated group, the Bridge 
Bank's carryback of losses to the Institution that transfers the largest 
amount of deposits is not limited by section 381(b)(3). The limitations 
of section 381(b)(3) do apply to the Bridge Bank's carrybacks of losses 
to all other transferor Institutions. If the transferor Institutions are 
not all members of the same consolidated group, the limitations of 
section 381(b)(3) apply with respect to all transferor Institutions. See 
paragraph (g)(6)(ii) of this section for additional rules that apply if 
two or more Institutions that are not members of the same consolidated 
group transfer deposit liabilities to the same Bridge Bank.
    (e) Treatment of Bridge Bank and Residual Entity as a single entity. 
A Bridge Bank and its associated Residual Entity or Entities are treated 
as a single entity for income tax purposes and must file a single 
combined income tax return. The Bridge Bank is responsible for filing 
all income tax returns and statements for this single entity and is the 
agent of each associated Residual Entity to the same extent as if the 
Bridge Bank were the common parent of a consolidated group including the 
Residual Entity. The term Institution includes a Residual Entity that 
files a combined return with its associated Bridge Bank.
    (f) Rules applicable to members of consolidated groups--(1) Status 
as members. Unless an election is made under paragraph (g) of this 
section, Agency Control of an Institution does not terminate the 
Institution's membership in a consolidated group. Stock of a subsidiary 
that is canceled by Agency is treated as held by the members of the 
consolidated group that held the stock prior to its cancellation. If an 
Institution is a member of a consolidated group immediately before it 
transfers deposit liabilities to a Bridge Bank, the Bridge Bank succeeds 
to the Institution's status as the common parent or, unless an election 
is made under paragraph (g) of this section, as a subsidiary of the 
group. If a Bridge Bank succeeds to an Institution's status as a 
subsidiary, its stock is treated as held by the shareholders of the 
transferring Institution, and the stock basis or excess loss account of 
the Institution carries over to the Bridge Bank. A Bridge Bank is 
treated as owning stock owned by its associated Residual Entities, 
including for purposes of determining membership in an affiliated group.
    (2) No 30-day election to be excluded from consolidated group. 
Neither an Institution nor any of its Consolidated Subsidiaries may be 
excluded from a consolidated group for a taxable year under Sec. 
1.1502-76(b)(5)(ii), as contained in 26 CFR part 1 edition revised April 
1, 1994, if the Institution is under Agency Control at any time during 
the year.
    (3) Coordination with consolidated return regulations. The 
provisions of the regulations under section 597 take precedence over 
conflicting provisions in the regulations under section 1502.
    (g) Elective disaffiliation--(1) In general. A consolidated group of 
which an Institution is a subsidiary may elect irrevocably not to 
include the Institution in its affiliated group if the Institution is 
placed in Agency receivership (whether or not assets or deposit 
liabilities of the Institution are transferred to a Bridge Bank). See 
paragraph (g)(6) of this section for circumstances under which a 
consolidated group is deemed to make this election.
    (2) Consequences of election. If the election under this paragraph 
(g) is made with respect to an Institution, the following consequences 
occur immediately before the subsidiary Institution to which the 
election applies is placed in Agency receivership (or, in

[[Page 380]]

the case of a deemed election under paragraph (g)(6) of this section, 
immediately before the consolidated group is deemed to make the 
election) and in the following order--
    (i) All adjustments of the Institution and its Consolidated 
Subsidiaries under section 481 are accelerated;
    (ii) Deferred intercompany gains and losses with respect to the 
Institution and its Consolidated Subsidiaries are taken into account and 
the Institution and its Consolidated Subsidiaries take into account any 
other items required under the regulations under section 1502 for 
members that become nonmembers within the meaning of Sec. 1.1502-
32(d)(4);
    (iii) The taxable year of the Institution and its Consolidated 
Subsidiaries closes and the Institution includes the amount described in 
paragraph (g)(3) of this section in income as ordinary income as its 
last item for that taxable year;
    (iv) The members of the consolidated group owning the common stock 
of the Institution include in income any excess loss account with 
respect to the Institution's stock under Sec. 1.1502-19 and any other 
items required under the regulations under section 1502 for members that 
own stock of corporations that become nonmembers within the meaning of 
Sec. 1.1502-32(d)(4); and
    (v) If the Institution's liabilities exceed the aggregate fair 
market value of its assets on the date the Institution is placed in 
Agency receivership (or, in the case of a deemed election under 
paragraph (g)(6) of this section, on the date the consolidated group is 
deemed to make the election), the members of the consolidated group 
treat their stock in the Institution as worthless. (See Sec. Sec. 
1.337(d)-2T and 1.1502-35T(f) for rules applicable when a member of a 
consolidated group is entitled to a worthless stock deduction with 
respect to stock of another member of the group.) In all other cases, 
the consolidated group will be treated as owning stock of a nonmember 
corporation until such stock is disposed of or becomes worthless under 
rules otherwise applicable.
    (3) Toll charge. The amount described in this paragraph (g)(3) is 
the excess of the Institution's liabilities over the adjusted bases of 
its assets immediately before the Institution is placed in Agency 
receivership (or, in the case of a deemed election under paragraph 
(g)(6) of this section, immediately before the consolidated group is 
deemed to make the election). In computing this amount, the adjusted 
bases of an Institution's assets are reduced by the amount of the 
Institution's reserves for bad debts under section 585 or 593, other 
than supplemental reserves under section 593. For purposes of this 
paragraph (g)(3), an Institution is treated as a single entity that 
includes the assets and liabilities of its Consolidated Subsidiaries, 
with appropriate adjustments to prevent duplication. The amount 
described in this paragraph (g)(3) for alternative minimum tax purposes 
is determined using alternative minimum tax basis, deductions, and all 
other items required to be taken into account. In computing the increase 
in the group's taxable income or alternative minimum taxable income, 
sections 56(d)(1), 382 and 383 and Sec. Sec. 1.1502-15, 1.1502-21 and 
1.1502-22 (or Sec. Sec. 1.1502-15A, 1.1502-21A and 1.1502-22A, as 
appropriate) do not limit the use of the attributes of the Institution 
and its Consolidated Subsidiaries to the extent, if any, that the 
inclusion of the amount described in this paragraph (g)(3) in income 
would result in the group having taxable income or alternative minimum 
taxable income (determined without regard to this sentence) for the 
taxable year. The preceding sentence does not apply to any limitation 
under section 382 or 383 or Sec. 1.1502-15, 1.1502-21, or 1.1502-22 (or 
Sec. 1.1502-15A, 1.1502-21A, or 1.1502-22A, as appropriate) that arose 
in connection with or prior to a corporation becoming a Consolidated 
Subsidiary of the Institution.
    (4) Treatment of Institutions after disaffiliation--(i) In general. 
If the election under this paragraph (g) is made with respect to an 
Institution, immediately after the Institution is placed in Agency 
receivership (or, in the case of a deemed election under paragraph 
(g)(6) of this section, immediately after the consolidated group is 
deemed to make the election), the Institution and each of its 
Consolidated Subsidiaries are treated for income tax purposes as new

[[Page 381]]

corporations that are not members of the electing group's affiliated 
group. Each new corporation retains the TIN of the corresponding 
disaffiliated corporation and is treated as having received the assets 
and liabilities of the corresponding disaffiliated corporation in a 
transaction to which section 351 applies (and in which no gain was 
recognized under section 357(c) or otherwise). Thus, the new corporation 
has no net operating or capital loss carryforwards. An election under 
this paragraph (g) does not terminate the single entity treatment of a 
Bridge Bank and its Residual Entities provided in paragraph (e) of this 
section.
    (ii) FFA. A new Institution is treated as having a non-interest 
bearing, nontransferable account receivable for future FFA with a basis 
equal to the amount described in paragraph (g)(3) of this section. If a 
disaffiliated Institution has a deferred FFA account at the time of its 
disaffiliation, the corresponding new Institution succeeds to and takes 
into account that deferred FFA account.
    (iii) Filing of consolidated returns. If a disaffiliated Institution 
has Consolidated Subsidiaries at the time of its disaffiliation, the 
corresponding new Institution is required to file a consolidated income 
tax return with the subsidiaries in accordance with the regulations 
under section 1502.
    (iv) Status as Institution. If an Institution is disaffiliated under 
this paragraph (g), the resulting new corporation is treated as an 
Institution for purposes of the regulations under section 597 regardless 
of whether it is a bank or domestic building and loan association within 
the meaning of section 597.
    (v) Loss carrybacks. To the extent a carryback of losses would 
result in a refund being paid to a fiduciary under section 6402(i), an 
Institution or Consolidated Subsidiary with respect to which an election 
under this paragraph (g) (other than under paragraph (g)(6)(ii) of this 
section) applies is allowed to carry back losses as if the Institution 
or Consolidated Subsidiary had continued to be a member of the 
consolidated group that made the election.
    (5) Affirmative election--(i) Original Institution--(A) Manner of 
making election. Except as otherwise provided in paragraph (g)(6) of 
this section, a consolidated group makes the election provided by this 
paragraph (g) by sending a written statement by certified mail to the 
affected Institution on or before the later of 120 days after its 
placement in Agency receivership or May 31, 1996. The statement must 
contain the following legend at the top of the page: ``THIS IS AN 
ELECTION UNDER Sec. 1.597-4(g) TO EXCLUDE THE BELOW-REFERENCED 
INSTITUTION AND CONSOLIDATED SUBSIDIARIES FROM THE AFFILIATED GROUP,'' 
and must include the names and taxpayer identification numbers of the 
common parent and of the Institution and Consolidated Subsidiaries to 
which the election applies, and the date on which the Institution was 
placed in Agency receivership. The consolidated group must send a 
similar statement to all subsidiary Institutions placed in Agency 
receivership during the consistency period described in paragraph 
(g)(5)(ii) of this section. (Failure to satisfy the requirement in the 
preceding sentence, however, does not invalidate the election with 
respect to any subsidiary Institution placed in Agency receivership 
during the consistency period described in paragraph (g)(5)(ii) of this 
section.) The consolidated group must include a copy of any election 
statement and accompanying certified mail receipt as part of its first 
income tax return filed after the due date under this paragraph (g)(5) 
for such statement. A statement must be attached to this return 
indicating that the individual who signed the election was authorized to 
do so on behalf of the consolidated group. Agency cannot make this 
election under the authority of section 6402(i) or otherwise.
    (B) Consistency limitation on affirmative elections. A consolidated 
group may make an affirmative election under this paragraph (g)(5) with 
respect to a subsidiary Institution placed in Agency receivership only 
if the group made, or is deemed to have made, the election under this 
paragraph (g) with respect to every subsidiary Institution of the group 
placed in Agency receivership on or after May 10, 1989 and within five

[[Page 382]]

years preceding the date the subject Institution was placed in Agency 
receivership.
    (ii) Effect on Institutions placed in receivership simultaneously or 
subsequently. An election under this paragraph (g), other than under 
paragraph (g)(6)(ii) of this section, applies to the Institution with 
respect to which the election is made or deemed made (the original 
Institution) and each subsidiary Institution of the group placed in 
Agency receivership or deconsolidated in contemplation of Agency Control 
or the receipt of FFA simultaneously with the original Institution or 
within five years thereafter.
    (6) Deemed Election--(i) Deconsolidations in contemplation. If one 
or more members of a consolidated group deconsolidate (within the 
meaning of Sec. 1.1502-19(c)(1)(ii)(B)) a subsidiary Institution in 
contemplation of Agency Control or the receipt of FFA, the consolidated 
group is deemed to make the election described in this paragraph (g) 
with respect to the Institution on the date the deconsolidation occurs. 
A subsidiary Institution is conclusively presumed to have been 
deconsolidated in contemplation of Agency Control or the receipt of FFA 
if either event occurs within six months after the deconsolidation.
    (ii) Transfers to a Bridge Bank from multiple groups. On the day an 
Institution's transfer of deposit liabilities to a Bridge Bank results 
in the Bridge Bank holding deposit liabilities from both a subsidiary 
Institution and an Institution not included in the subsidiary 
Institution's consolidated group, each consolidated group of which a 
transferring Institution or the Bridge Bank is a subsidiary is deemed to 
make the election described in this paragraph (g) with respect to its 
subsidiary Institution. If deposit liabilities of another Institution 
that is a subsidiary member of any consolidated group subsequently are 
transferred to the Bridge Bank, the consolidated group of which the 
Institution is a subsidiary is deemed to make the election described in 
this paragraph (g) with respect to that Institution at the time of the 
subsequent transfer.
    (h) Examples. The following examples illustrate the provisions of 
this section:

    Facts. Corporation X, the common parent of a consolidated group, 
owns all the stock (with a basis of $4 million) of Institution M, an 
insolvent Institution with no Consolidated Subsidiaries. At the close of 
business on April 30, 1996, M has $4 million of deposit liabilities, $1 
million of other liabilities, and assets with an adjusted basis of $4 
million and a fair market value of $3 million.
    Example 1. Effect of receivership on consolidation. On May 1, 1996, 
Agency places M in receivership and begins liquidating M. X does not 
make an election under Sec. 1.597-4(g). M remains a member of the X 
consolidated group after May 1, 1996. Section 1.597-4(f)(1).
    Example 2. Effect of Bridge Bank on consolidation--(i) Additional 
facts. On May 1, 1996, Agency places M in receivership and causes M to 
transfer all of its assets and deposit liabilities to Bridge Bank MB.
    (ii) Consequences without an election to disaffiliate. M recognizes 
no gain or loss from the transfer and MB succeeds to M's basis in the 
transferred assets, M's items described in section 381(c) (subject to 
the conditions and limitations specified in section 381(c)) and TIN. 
Section 1.597-4(d)(1). (If M had a deferred FFA account, MB would also 
succeed to that account. Section 1.597-4(d)(1).) MB continues M's 
taxable year and succeeds to M's status as a member of the X 
consolidated group after May 1, 1996. Section 1.597-4 (d)(1) and (f). MB 
and M are treated as a single entity for income tax purposes. Section 
1.597-4(e).
    (iii) Consequences with an election to disaffiliate. If, on July 1, 
1996, X makes an election under Sec. 1.597-4(g) with respect to M, the 
following consequences are treated as occurring immediately before M was 
placed in Agency receivership. M must include $1 million ($5 million of 
liabilities--$4 million of adjusted basis) in income as of May 1, 1996. 
Section 1.597-4(g) (2) and (3). M is then treated as a new corporation 
that is not a member of the X consolidated group and that has assets 
(including a $1 million account receivable for future FFA) with a basis 
of $5 million and $5 million of liabilities received from disaffiliated 
corporation M in a section 351 transaction. New corporation M retains 
the TIN of disaffiliated corporation M. Section 1.597-4(g)(4). 
Immediately after the disaffiliation, new corporation M is treated as 
transferring its assets and deposit liabilities to Bridge Bank MB. New 
corporation M recognizes no gain or loss from the transfer and MB 
succeeds to M's TIN and taxable year. Section 1.597-4(d)(1). Bridge Bank 
MB is treated as a single entity that includes M and has $5 million of 
liabilities, an account receivable for future FFA with a basis of $1

[[Page 383]]

million, and other assets with a basis of $4 million. Section 1.597-
4(d)(1).

[T.D. 8641, 60 FR 66098, Dec. 21, 1995, as amended by T.D. 8677, 61 FR 
33322, 33323, June 27, 1996; T.D. 8823, 64 FR 36099, July 2, 1999; T.D. 
9048, 68 FR 12290, Mar. 14, 2003]