Can they designate $10 million as Bank Qualified and then exceed the $10 million as not bank qualified? A – No.
Q – What are the consequences for a bank of acquiring a Bank Qualified (BQ) transaction? A – Many years ago when banks did not pay interest on demand deposits, they were allowed to invest in tax-exempt obligations without any arbitrage consequences. As banks started paying interest on deposits, the Internal Revenue Service started looking at the fact that banks were earning interest that was exempt from federal income taxes AND deducting the interest expense related to the funds used to acquire the tax-exempt investment. As a result, the IRS created the TEFRA rules that only allowed banks to deduct 80% of the interest costs related to a tax-exempt investment. In 1986, the IRS considered not allowing banks this privilege at all and as a result of much lobbying by municipal entities, it came up with the “small issuer exemption” or BQ.
Related Questions
- If my aggregated subscription instructions exceed my available holdings of rights shares or open offer shares after the Banks deadline, how will the Bank handle such instructions?
- Can they designate $10 million as Bank Qualified and then exceed the $10 million as not bank qualified? A - No.
- I bought a house from a bank. Why isn it considered a qualified, arms length transaction?
