Loan Shark Regs?

[Corduroy Frog]

I am aware that banks, insurance companies, savings & loans, etc. have a special set of regulations under many code sections that cause them to report taxes under a different set of rules.

I am considering taking on a loan company. Makes all sorts of loans - from financing cars to sleazy payroll advances of $200 or less. However, it won't be linked to the federal reserve or resemble a bank operation in any way other than making loans.

Would such a loan company be treated the same as a bank under the Code/Regs??

[Koss]

Definition of Bank

Based on what you've said, the answer would be NO. Your prospective client is not a bank.

For purposes of the laws and regs that you are talking about, the defining characteristic is not loans, but deposits.

Checking and savings deposits--even time deposits that carry a penalty for early withdrawal--are a sacred cow. The reason for the special rules is to make sure those funds are always available for depositors to withdraw. The government has a legitimate interest in making sure that banks are sufficiently solvent at all times. Except for loss of value due to inflation, deposits must be risk-free for the depositor. If a bank uses too much of their deposits to make loans that are too risky, it puts the entire system in jeopardy.

If your client isn't taking deposits, it's not a bank.

See IRC 581:

For purposes of sections 582 and 584, the term “bank” means a bank or trust company incorporated and doing business under the laws of the United States (including laws relating to the District of Columbia) or of any State, a substantial part of the business of which consists of receiving deposits and making loans and discounts, or of exercising fiduciary powers similar to those permitted to national banks under authority of the Comptroller of the Currency, and which is subject by law to supervision and examination by State, Territorial, or Federal authority having supervision over banking institutions. Such term also means a domestic building and loan association.

The company is probably subject to state laws regulating payday lenders. But that won't change how you do the tax return. If the company is not subject to the banking regulatory agencies (e.g., FDIC, Comptroller of the Currency, Office of Thrift Supervision, etc.), then it's not a bank. The CFO of the company should be able to tell you whether they have to file anything with any of those agencies.

BMK