June 2023 Sub S Bank Report

Dear Sub S Bankers and Friends,
We appreciate your continued support of the Association which has enabled us to do the work of maintaining the benefits of the Subchapter S election for community banks. The expiration of Section 199A has become an enormous priority for all Sub S Banks as the window on the Qualified Business Income comes closer to closing – December 31, 2025.
As you will see in this Report, Senator Daines of Montana has introduced a bill to make 199A permanent and to extend certain other expiring provisions of the TCJA of 2017. It is imperative that all Sub S Banks talk to their elected Senators and Congressman about the importance of making 199A
a permanent part of the IRC. Since the original legislation was signed permitting banks to make an S election in 1997 and the coincident formation of the Association the following year, we have had a generous and enthusiastic group of Advisory Board members who have been principal shareholders and Senior leaders of prominent Sub S Banks across the country. A number of them are no longer with us and we salute them for their vision and wisdom in supporting Subchapter S for Banks.
We thought it made sense to identify a new generation of such leaders now 25 years later and are pleased at the response we have received and welcome the following new members:
• Michael Wallace, Chairman of the Board of Freemont Bank, Fremont, CA,
• Russell Williamson, Chairman of Citizens National Bank and its holding
company, Meridian Mississippi,
• Patrick Ware, Vice Chairman, Amarillo National Bank
• Ryan James, President/CEO of Surety Bank, DeLand, Fla.

Thank you very much for your willingness to join our Advisory Board! We appreciate those of you who have continued to support our work
financially and participated in other important ways such as testifying and appearing before US Treasury and the IRS regarding important regulations
being drafted to implement 199A. We have kept our annual dues at a very moderate level for the nearly 30 years since the founding of the Association and many Sub S Banks benefit from our work including our Annual Conferences, the Sub S Bank Report and our Webinars. While our primary goal is to
preserve and protect the value of the Sub S election for community banks, we are always sharing new ideas and strategies in support of community banks.
We encourage those of you who may not have joined the Association as supporting members, to consider doing so now as we move to the extremely important work of making 199A permanent. While that is of utmost importance, I would like to refresh the discussion we had at our Annual Conference last
October where we had a video conference with then Chairman of the Ways and Means Committee Kevin Brady who has been a real champion for Sub S banks and with whom we worked closely in 2017 to assure passage of the TCJA in a form that fairly benefited Sub S Banks as related to the corporate tax reduction of C Corps.
Included in that discussion was Congressman Drew Ferguson and now Chairman Jason Smith’s Senior Legislative Aide Kathryn Chakmak, Legislative Assistant & Tax Policy Advisor, Honorable Jason Smith, (R- Mo).
In addition to making 199A permanent, there was significant discussion about the possibility of improving 199A to include investment management income from bank trust departments and related businesses as well as other features that were mostly eliminated through the rulemaking process. While there was clear interest on the part of the Congressional leadership present, the practical wisdom of the legislative process suggests that a simple one line change to 199A eliminating the December 31, 2025 expiration date would be the most important objective. For those of you who do not know the history of the Association, it was just this kind of creative thought process and
grassroots effort that resulted in the 1997 legislation amending the IRC to permit banks to make a Sub S election. I was fortunate to be representing some thoughtful bank investors in Texas – The George Hawn Family – who helped initiate that effort and allowed me to serve as their point person in Washington as we developed a small
group of other bankers – such as Ross McKnight of Throckmorton, Texas and a few others around the country who had friends on the Hill with whom they could reach out. This kind of outreach is key if we are to keep community banking alive and well in this country.

Thanks to all of those who have participated, supported and otherwise encouraged thee efforts during the now
almost 30 years! Please continue to engage!

Very truly yours,
Patrick J. Kennedy, Jr.
June 19, 2023, San Antonio, Texas