What is the de minimis rule?
At one time banks and other financial institutions owned most of the tax-exempt obligations issued by government entities. One of the advantages for banks was that they were able to deduct as a business expense the cost of buying these tax-exempt obligations. In other words, financial institutions were getting a tax deduction for the interest expense of borrowing to buy tax exempt obligations and getting a tax exemption for the interest earned on the tax exempt obligations. The Internal Revenue Code was changed to eliminate this double benefit. At present, financial institutions, except for tax-exempt obligations issued by government entities that anticipate issuing less than $10 million in tax-exempt obligations in the then-current calendar year, are not able to deduct the expenses of acquiring tax exempt obligations. However, the IRS created an exception to this rule to address situations when the financial institutions investment in tax-exempt obligations is considered insignificant
