DCUC Presses Treasury for Study on Tax Avoidance by Subchapter S Banks

Jason Stverak

​DCUC just sent a prompt letter to Ken Kies, Assistant Secretary of the Treasury, urging the Treasury Department to conduct a comprehensive study into the implications of banks’ use of Subchapter S corporation status.
 
In the letter, Jason Stverak, DCUC Chief Advocacy Officer, expressed concern that banks' exploitation of Subchapter S status—originally designed for small businesses—is creating serious regulatory loopholes, competitive imbalances, and transparency gaps. Stverak noted that over 2,000 banks currently operate under this tax designation, avoiding federal corporate income tax and collectively saving an estimated $1.8 billion in 2022 alone.
 
“Banks leveraging Subchapter S enjoy significant tax breaks with little public scrutiny or accountability,” says Stverak. “Meanwhile, credit unions continue to face unfounded criticism for their longstanding tax-exempt status. If fairness is the goal, these tax models, with their massive fiscal implications, deserve equal examination.”
 
DCUC’s letter highlights several key concerns:

• Regulatory Gaps: Subchapter S banks may bypass prudential norms through aggressive dividend distributions, threatening capital resilience.

• Market Imbalance: While credit unions reinvest earnings into member benefits and community service, many Subchapter S banks funnel profits to a small group of private shareholders.

• Lack of Transparency: Subchapter S banks are not required to disclose corporate tax payments or community reinvestment data, raising questions about their contributions to public good.

• Equity and Fairness: The disparity in scrutiny between credit unions and banks with substantial tax advantages undermines equitable financial policy.

 
DCUC is urging Treasury to lead a fact-based, public examination of whether the current use of Subchapter S aligns with congressional intent and serves the broader interests of financial system safety, soundness, and fairness.
 
“It’s time to bring transparency to this little-known corner of the banking industry,” said Anthony Hernandez, President/CEO of DCUC. “Bank lobbyists can’t continue to selectively spotlight tax issues only when it suits their narrative against credit unions. Policymakers and the public deserve a full and fair accounting of whether Subchapter S is fulfilling its intended purpose—or being exploited as a tax shelter by large, for-profit banks.”
 
DCUC has requested a meeting with Treasury officials to further discuss its concerns and share supporting data, and express its commitment to a balanced, objective dialogue that strengthens the financial system for all Americans.

---