Ally Bank Units Barred From Offsetting Losses on Alabama Taxes

Ally Financial and related entities owe Alabama roughly $4 million in financial institution excise taxes after an Alabama tax tribunal held they could not file on a consolidated basis and therefore could not use Ally Financial’s net operating losses to offset Ally Bank’s Alabama-taxable income for 2011–2019.

Key points:

• Structure: Ally Financial Inc. (the parent) owns 100% of IB Finance Holding Co. LLC, which in turn owns 100% of Ally Bank, making Ally Bank an indirect, not direct, subsidiary of Ally Financial.

• Consolidated filing attempt: The parent filed consolidated Alabama Financial Institution Excise Tax (FIET) returns including itself, the intermediate holding company and Ally Bank, and tried to use large parent-level NOLs (over $125 million across the years) to offset Ally Bank’s income.

• Legal issue: Alabama’s FIET “ownership test” and “filing test” require specific relationships for entities to be included in a consolidated group; the tribunal concluded the parent, intermediate holding company, and bank did not jointly meet those statutory requirements for the years at issue.

• Result:

  • The Department of Revenue’s disallowance of the parent’s losses to offset the bank’s income was upheld.

  • Refund claims for 2019–2020 were denied.

  • Final excise tax assessments against Ally Bank for 2017 and 2018 (about $1.7M and $2.5M with interest and penalties) were sustained, leaving Ally with approximately a $4 million Alabama FIET liability overall.