Obtaining Property Tax Relief in Ohio

Posted on February 24, 2011 by David A. Tumen

The real estate market in Ohio continues to face significant challenges. With many property values declining throughout the state, challenging property tax assessments to obtain tax relief is an important strategy for financial institutions to consider.

How does the complaint process work?
Property taxes in Ohio are paid in "arrears," meaning taxes paid in 2011 are for tax year 2010. By March 31, 2011, a property owner can file a complaint with the Board of Revision in the county in which the property is located to challenge the assessed value of the property for tax year 2010.

The complaint must include certain information including the current assessed value of the property as well as the owner's opinion of the correct value as of January 1, 2010. The taxpayer will be given a hearing with the Board of Revision, at which the taxpayer can argue for a lower value and at which the local school district may argue to retain the current valuation. An appraisal by a qualified appraiser that supports the taxpayer's opinion of value is generally suggested for commercial and industrial property.

Value of controlling property taxes
Real property taxes are often a significant non-productive expense of property owners. A successful challenge filed by March 31, 2011 for the tax year assured the taxpayer a lower assessment for at least one year and potentially additional years. Generally, because only one complaint per property may be filed within each three-year period, property owners should consider the best time to file a complaint. Factors to consider include the trends in property valuation in general and whether you are in the first, second, or third year of the triennium.

What should you do?
If you own property that you believe has declined in value, you may want to consider pursuing a valuation challenge. A small investment now may reap significant returns in the form of property tax savings. If you would like to explore this opportunity, our experienced tax lawyers can help you navigate this property relief tax process from start to finish.
 

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Tax Court Ruling Negatively Affects Ability to Deduct Some Interest Expenses for "QSub Banks" and Their Owners

Posted on August 11, 2009 by Mark Snider

A U.S. Tax Court ruling issued earlier this year draws into question the ability of “QSub banks” to fully deduct interest expenses related to financing tax-exempt bond investments. If the Tax Court ruling is not overturned on appeal, thousands of shareholders of S corporations may owe millions of dollars in back taxes attributable to interest deductions taken by their S corporation’s wholly owned “QSub bank.”

A “QSub bank” is a bank that is a wholly-owned subsidiary of an S corporation and a bank for which a QSub election has been made. An S corporation is a corporation for which a “S” election has been made, resulting in the corporation being disregarded for federal income tax purposes. Instead, the federal income tax attributes of the an “S” corporation are reported by the shareholders in the S corporation. This contrasts with the treatment of a “C” corporation which is a taxpayer for federal income tax purposes. Many the holding companies of many community banks have found it desirable to elect “S” status.

In general, a QSub is a disregarded entity that is not considered as a separate entity for tax purposes from its S corporation owner, although in the case at issue the Tax Court ruled that the QSub must be considered a separate entity for purposes of the interest deduction rules discussed below, a treatment analogous to the treatment of a C corporation subsidiary .

Section 291 of the Internal Revenue Code requires that tax deductions taken by banks for “interest on debt to carry tax-exempt obligations” (primarily municipal bonds) be reduced by 20%. This provision has been interpreted to require C corporation banks to reduce such interest deductions by 20%. Banks that are S corporations or QSubs, however, have historically deducted their entire interest expense based on a belief that another Internal Revenue Code provision, Section 1363(b)(4), limited the application of the Section 291 deduction limitation to only those S corporation banks that had been C corporations in the previous three years.

The Tax Court disagreed, holding that Treasury Regulations state that “any special rules applicable to banks,” such as Section 291, “continue to apply separately to each QSub that is a bank” as if the QSub election were not in effect. Any QSub deductions are directly reportable on the S corporation’s tax return. Because S corporations are pass-through entities for federal income tax purposes, any additional tax, interest, or penalties resulting from disallowed QSub deductions would be owed by the S corporation’s shareholders.

At least for now, the Tax Court ruling does not negatively impact the amount of interest expenses deductible by S corporation banks, only QSub banks owned by S corporations. The Tax Court case is Vainisi v. Commissioner, 132 T.C. 1 (2009).

Please contact a member of our Financial Institutions or Tax Practice Groups for more details on how the ruling could impact your bank’s ability to deduct interest expenses.


To comply with certain U.S. Treasury regulations, we inform you that any federal tax information contained in this posting is for informational purposes only and is not intended as advice. This posting is not a covered opinion as described in Treasury Department Circular 230 and therefore cannot be relied upon to avoid any tax penalties or to support the promotion or marketing of any federal tax transaction.
 

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