I

104TH CONGRESS

1ST SESSION H. R. 2494

To amend the Internal Revenue Code of 1986 to provide for the treatment

of bad debt reserves of savings associations which are required to convert

into banks, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

OCTOBER 18, 1995

Mr. ARCHER (for himself, Mr. LEACH, and Mrs. ROUKEMA) introduced the

following bill; which was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to provide

for the treatment of bad debt reserves of savings associations which are required to convert into banks, and for

other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Thrift Charter Conver5 sion Tax Act of 1995’’.
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1 SEC. 2. TREATMENT OF RESERVES FOR BAD DEBTS OF SAV2 INGS ASSOCIATIONS WHICH ARE REQUIRED

3 TO CONVERT INTO BANKS.

4 (a) IN GENERAL.—Section 593 of the Internal Reve5 nue Code of 1986 (relating to reserves for losses on loans)

6 is hereby repealed.

7 (b) CONFORMING AMENDMENTS.—

8 (1) Subsection (e) of section 52 of such Code

9 is amended by striking paragraph (1) and by redes10 ignating paragraphs (2) and (3) as paragraphs (1)

11 and (2), respectively.

12 (2) Subsection (a) of section 57 of such Code

13 is amended by striking paragraph (4).

14 (3) Section 246 of such Code is amended by

15 striking subsection (f).

16 (4) Clause (i) of section 291(e)(1)(B) of such

17 Code is amended by striking ‘‘or to which section

18 593 applies’’.

19 (5) Subparagraph (A) of section 585(a)(2) of

20 such Code is amended by striking ‘‘other than an or21 ganization to which section 593 applies’’.

22 (6) Section 596 of such Code is hereby re23 pealed.

24 (7) Subsection (a) of section 860E of such Code

25 is amended—
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1 (A) by striking ‘‘Except as provided in

2 paragraph (2), the’’ in paragraph (1) and in3 serting ‘‘The’’,

4 (B) by striking paragraphs (2) and (4) and

5 redesignating paragraphs (3) and (5) as para6 graphs (2) and (3), respectively, and

7 (C) by striking in paragraph (2) (as so re8 designated) all that follows ‘‘subsection’’ and

9 inserting a period.

10 (8) Paragraph (3) of section 992(d) of such

11 Code is amended by striking ‘‘or 593’’.

12 (9) Section 1038 of such Code is amended by

13 striking subsection (f).

14 (10) Clause (ii) of section 1042(c)(4)(B) of

15 such Code is amended by striking ‘‘or 593’’.

16 (11) Subsection (c) of section 1277 of such

17 Code is amended by striking ‘‘or to which section

18 593 applies’’.

19 (12) Subparagraph (B) of section 1361(b)(2) of

20 such Code is amended by striking ‘‘or to which sec21 tion 593 applies’’.

22 (13) The table of sections for part II of sub23 chapter H of chapter 1 of such Code is amended by

24 striking the items relating to sections 593 and 596.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1995.

4 (d) 6-YEAR SPREAD OF ADJUSTMENTS.—

5 (1) IN GENERAL.—In the case of any taxpayer

6 who is required by reason of the amendments made

7 by this section to change its method of computing

8 reserves for bad debts—

9 (A) such change shall be treated as a

10 change in a method of accounting,

11 (B) such change shall be treated as initi12 ated by the taxpayer and as having been made

13 with the consent of the Secretary, and

14 (C) the net amount of the adjustments re15 quired to be taken into account by the taxpayer

16 under section 481(a) of the Internal Revenue

17 Code of 1986 (as modified by paragraph (2))

18 shall be taken into account ratably over the 6-

19 taxable year period beginning with the first tax20 able year beginning after December 31, 1995.

21 (2) NO INCLUSION OF PORTION OF RESERVE.—

22 In the case of a taxpayer to which paragraph (1) ap23 plies and which is a large bank (as defined in section

24 585(c)(2) of such Code) for its first taxable year be25 ginning after December 31, 1995—
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1 (A) no amount shall be includible in gross

2 income by reason of the reduction of its reserve

3 for bad debts to the extent that the amount of

4 such reserve as of the close of its last taxable

5 year beginning before January 1, 1996, does

6 not exceed the amount applicable to such tax7 payer under section 585(b)(2)(B) of such Code

8 for such last taxable year, and

9 (B) the net amount of adjustments taken

10 into account under paragraph (1)(C) shall be

11 reduced by the amount not includible in gross

12 income by reason of subparagraph (A) of this

13 paragraph.

14 (3) SUSPENSION OF RECAPTURE IF RESIDEN15 TIAL LOAN REQUIREMENT MET.—

16 (A) IN GENERAL.—In the case of a tax17 payer which meets the residential loan require18 ment of subparagraph (B) for any taxable

19 year—

20 (i) no adjustment shall be taken into

21 account under paragraph (1) for such tax22 able year, and

23 (ii) such taxable year shall be dis24 regarded in determining—
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1 (I) whether any other taxable

2 year is a taxable year for which an

3 adjustment is required to be taken

4 into account under paragraph (1), and

5 (II) the amount of such adjust6 ment.

7 (B) RESIDENTIAL LOAN REQUIREMENT.—

8 A taxpayer meets the residential loan require9 ment of this subparagraph for any taxable year

10 if the principal amount of the residential loans

11 made by the taxpayer during such year is not

12 less than the average of the principal amounts

13 of such loans made by the taxpayer during the

14 6 most recent testing years ending before such

15 taxable year.

16 (C) TESTING YEARS.—For purposes of

17 subparagraph (B), the term ‘‘testing year’’

18 means—

19 (i) each taxable year ending on or

20 after December 31, 1990, and before Jan21 uary 1, 1996, and

22 (ii) each taxable year ending after De23 cember 31, 1995, for which the taxpayer

24 meets the residential loan requirement of

25 subparagraph (B).
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1 (D) RESIDENTIAL LOAN.—For purposes of

2 this paragraph, the term ‘‘residential loan’’

3 means any loan described in section

4 7701(a)(19)(C)(v) of such Code.

5 (E) CONTROLLED GROUPS.—In the case of

6 a taxpayer which is a member of any controlled

7 group of corporations described in section

8 1563(a)(1) of such Code, subparagraph (B)

9 shall be applied with respect to such group.

10 (F) COORDINATION WITH ESTIMATED TAX

11 PAYMENTS.—For purposes of applying section

12 6655(e)(2)(A)(i) of such Code with respect to

13 any installment, the determination under sub14 paragraph (A) of whether an adjustment is re15 quired to be taken into account under para16 graph (1) shall be made as of the last day pre17 scribed for payment of such installment.

18 (4) CONTINUED APPLICATION OF PARAGRAPH

19 (2) UNDER SECTION 585 TRANSITIONAL RULES.—In

20 the case of a taxpayer to which paragraph (1) ap21 plied and which was not a large bank (as defined in

22 section 585(c)(2) of such Code) for its first taxable

23 year beginning after December 31, 1995—

24 (A) IN GENERAL.—Rules similar to the

25 rules of paragraph (2) shall apply for purposes
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1 of applying section 585(c)(3) of such Code with

2 respect to the amount of such taxpayer’s re3 serve for bad debts as of the close of the last

4 taxable year before the disqualification year.

5 (B) TREATMENT UNDER ELECTIVE CUT6 OFF METHOD.—No amount shall be includible

7 in gross income under section 585(c)(4) of such

8 Code by reason of the reduction of such tax9 payer’s reserve for bad debts below the amount

10 applicable to such taxpayer under section

11 585(b)(2)(B) of such Code for the last taxable

12 year before the disqualification year.

13 (5) CONTINUED APPLICATION OF SECTION

14 593(e).—Notwithstanding the amendments made by

15 this section, in the case of a taxpayer to which para16 graph (1) of this subsection applies, section 593(e)

17 of such Code (as in effect on the day before the date

18 of the enactment of this Act) shall continue to apply

19 to such taxpayer as if such taxpayer were a domestic

20 building and loan association but the amount of the

21 reserve taken into account under such section 593(e)

22 shall be only the amount of such taxpayer’s reserve

23 for bad debts which is not includible in gross income

24 by reason of paragraph (2) or (4) of this subsection.
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1 (6) REGULATIONS.—The Secretary of the

2 Treasury or his delegate shall prescribe such regula3 tions as may be necessary to carry out this sub4 section, including regulations providing for the appli5 cation of paragraph (3) in the case of mergers, spin6 offs, and other reorganizations.

7 SEC. 3. DEDUCTION FOR SPECIAL ASSESSMENTS.

8 For purposes of subtitle A of the Internal Revenue

9 Code of 1986, the amount allowed as a deduction under

10 section 162 of such Code for the taxable year shall include

11 the amount paid during 1996 as a special assessment

12 under section 7(b)(6)(B) of the Federal Deposit Insurance

13 Act, as amended by the Thrift Charter Conversion Act of

14 1995, as proposed by H.R. 2491, as introduced in the

15 104th Congress.

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