What is the tax equivalent adjustment and how is it computed?
The tax equivalent adjustment is designed to gross up tax exempt income to an equivalent amount if it were taxable. The UBPR system uses the following pieces of data from the Call Report to estimate the tax benefit: Tax exempt income, interest expense to carry tax exempt securities and pre-tax net operating income. The amount of tax benefit is determined using federal income tax tables and is limited by the lesser of amount of estimated taxable income or tax exempt income. The UBPR Users Guide on www.ffiec.gov has a multi-page worksheet for re-computing the tax benefit. Return to top.
