United States Department of the Treasury Releases Term Sheet Allowing Subchapter S Corporations to Participate in Capital Purchase Program
On Wednesday, January 14, 2009, the United States Department of the Treasury ("UST") issued a new term sheet and set of frequently asked questions that set forth a program for qualifying financial institutions which have made a valid election to be taxed as a Subchapter S corporation ("S-Corps") to participate in the UST's capital purchase program. The deadline for S-Corps to file an application to participate in the capital purchase program is Friday, February 13, 2009. However, if a financial institution is an S-Corp and has previously submitted an application, the financial institution does not need to resubmit an application but may need to amend the previously filed application.
The program for S-Corps is funded with subordinated debt instead of the preferred stock utilized for privately-held C corporations. The interest rate on the debt is adjusted, however, to recognize that interest may be deducted for tax purposes while dividend payments cannot and, as such, the interest rates are intended to equate to the after-tax effective rates for dividends issued by privately-held C corporations. While there are similarities between the program for S-Corps and the program for privately-held C corporations, there are a number of significant revisions to the program as a result of S-Corps restrictions. As such, S-Corps should closely review the newly issued term sheet and any follow-up documents issued by the UST to determine whether they desire to participate in the program. The term sheet and frequently asked questions for the program for S-Corps can be found
HERE.
Winthrop & Weinstine, P.A., will continue to monitor the capital purchase program for S-Corps. Should you wish to discuss this program in greater detail, please feel free to contact any of the undersigned attorneys in Winthrop & Weinstine's community banking practice. Winthrop & Weinstine actively counsels and works with its clients in connection with all aspects of the capital purchase program.
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