This was an area for discussion at our FDIC compliance exam last year. We were grossing up all non-taxable income at 25%, but we did not have a list of the types of income that we would gross up. We changed procedures to include a specific list.
We gross up for any loan made to a consumer. Last year, the examiners did not have an issue with a flat rate for all borrowers. We are a small creditor as well. Even though we are not required to follow Appendix Q, it is going to be interesting to see whether examiners change their expectations and ask that we use the actual tax rate of the borrower.