IRS Releases Ruling on Deductibility of Specific Reserves

The IRS recently released field attorney advice (FAA) 20123002F, which appears to confirm the acceptability of a common practice at many financial institutions – treating specific reserves as deductible bad debts. The taxpayer in the case was a thrift institution, which met the definition of a bank under the Internal Revenue Code, that treated its specific valuation allowance as a deductible bad debt. Earlier this year, the IRS released a chief counsel advice memorandum (CCA 201302024) concluding the same as the FAA, except it did not specify that the bank in question was a thrift.