Union Calendar No. 175

104TH CONGRESS

1ST SESSION H. R. 2494

[Report No. 104–324]

A BILL

To amend the Internal Revenue Code of 1986 to

vert into banks, and for other purposes.savings associations which are required to conprovide for the treatment of bad debt reserves of

NOVEMBER 7, 1995

Reported with an amendment, committed to the Commitordered to be printed tee of the Whole House on the State of the Union, and
IB

Union Calendar No. 175

104TH CONGRESS

1ST SESSION H. R. 2494

[Report No. 104–324]

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

NOVEMBER 7, 1995

Reported with an amendment, committed to the Committee of the Whole

House on the State of the Union, and ordered to be printed

[Strike out all after the enacting clause and insert the part printed in italic]

[For text of introduced bill, see copy of bill as introduced on October 18, 1995]

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,
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1 SECTION 1. SHORT TITLE.

2 This Act may be cited as the ‘‘Thrift Charter Conver3 sion Tax Act of 1995’’.

4 SEC. 2. TREATMENT OF RESERVES FOR BAD DEBTS OF SAV5 INGS ASSOCIATIONS WHICH ARE REQUIRED

6 TO CONVERT INTO BANKS.

7 (a) IN GENERAL.—Section 593 of the Internal Revenue

8 Code of 1986 (relating to reserves for losses on loans) is

9 hereby repealed.

10 (b) CONFORMING AMENDMENTS.—

11 (1) Subsection (d) of section 50 of such Code is

12 amended by adding at the end the following new sen13 tence:

14 ‘‘Paragraphs (1)(A), (2)(A), and (4) of the section 46(e) re15 ferred to in paragraph (1) of this subsection shall not apply

16 to any taxable year beginning after December 31, 1995.’’

17 (2) Subsection (e) of section 52 of such Code is

18 amended by striking paragraph (1) and by redesig19 nating paragraphs (2) and (3) as paragraphs (1) and

20 (2), respectively.

21 (3) Subsection (a) of section 57 of such Code is

22 amended by striking paragraph (4).

23 (4) Section 246 of such Code is amended by

24 striking subsection (f).
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1 (5) Clause (i) of section 291(e)(1)(B) of such

2 Code is amended by striking ‘‘or to which section 593

3 applies’’.

4 (6) Subparagraph (A) of section 585(a)(2) of

5 such Code is amended by striking ‘‘other than an or6 ganization to which section 593 applies’’.

7 (7) Section 595 of such Code is hereby repealed.

8 (8) Section 596 of such Code is hereby repealed.

9 (9) Subsection (a) of section 860E of such Code

10 is amended—

11 (A) by striking ‘‘Except as provided in

12 paragraph (2), the’’ in paragraph (1) and in13 serting ‘‘The’’,

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

15 redesignating paragraphs (3) and (5) as para16 graphs (2) and (3), respectively, and

17 (C) by striking in paragraph (2) (as so re18 designated) all that follows ‘‘subsection’’ and in19 serting a period.

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

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

22 (11) Section 1038 of such Code is amended by

23 striking subsection (f).

24 (12) Clause (ii) of section 1042(c)(4)(B) of such

25 Code is amended by striking ‘‘or 593’’.
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1 (13) Subsection (c) of section 1277 of such Code

2 is amended by striking ‘‘or to which section 593 ap3 plies’’.

4 (14) Subparagraph (B) of section 1361(b)(2) of

5 such Code is amended by striking ‘‘or to which section

6 593 applies’’.

7 (15) The table of sections for part II of sub8 chapter H of chapter 1 of such Code is amended by

9 striking the items relating to sections 593, 595, and

10 596.

11 (c) EFFECTIVE DATE.—

12 (1) IN GENERAL.—Except as provided in para13 graph (2), the amendments made by this section shall

14 apply to taxable years beginning after December 31,

15 1995.

16 (2) REPEAL OF SECTION 595.—The amendment

17 made by subsection (b)(7) shall apply to property ac18 quired in taxable years beginning after December 31,

19 1995.

20 (d) 6-YEAR SPREAD OF ADJUSTMENTS.—

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

22 who is required by reason of the amendments made

23 by this section to change its method of computing re24 serves for bad debts—
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1 (A) such change shall be treated as a change

2 in a method of accounting,

3 (B) such change shall be treated as initiated

4 by the taxpayer and as having been made with

5 the consent of the Secretary, and

6 (C) the net amount of the adjustments re7 quired to be taken into account by the taxpayer

8 under section 481(a) of the Internal Revenue

9 Code of 1986—

10 (i) shall be determined by taking into

11 account only applicable excess reserves, and

12 (ii) as so determined, shall be taken

13 into account ratably over the 6-taxable year

14 period beginning with the first taxable year

15 beginning after December 31, 1995.

16 (2) APPLICABLE EXCESS RESERVES.—

17 (A) IN GENERAL.—For purposes of para18 graph (1), the term ‘‘applicable excess reserves’’

19 means the excess (if any) of—

20 (i) the balance of the reserves described

21 in section 593(c)(1) of such Code (as in ef22 fect on the day before the date of the enact23 ment of this Act) as of the close of the tax24 payer’s last taxable year beginning before

25 January 1, 1996, over
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1 (ii) the balance of such reserves as of

2 the close of the taxpayer’s last taxable year

3 beginning before January 1, 1988.

4 (B) SPECIAL RULE FOR THRIFTS WHICH

5 BECOME SMALL BANKS.—In the case of a bank

6 (as defined in section 581 of such Code) which

7 was not a large bank (as defined in section

8 585(c)(2) of such Code) for its first taxable year

9 beginning after December 31, 1995—

10 (i) the balance taken into account

11 under subparagraph (A)(ii) shall not be less

12 than the amount which would be the bal13 ance of such reserve as of the close of its last

14 taxable year beginning before January 1,

15 1996, if the additions to such reserve for all

16 taxable years had been determined under

17 section 585(b)(2)(A) of such Code, and

18 (ii) the opening balance of the reserve

19 for bad debts as of the beginning of such

20 first taxable year shall be the balance taken

21 into account under subparagraph (A)(ii)

22 (determined after the application of clause

23 (i) of this subparagraph).

24 The preceding sentence shall not apply for pur25 poses of paragraphs (4), (5), and (6).
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1 (3) SUSPENSION OF RECAPTURE IF RESIDENTIAL

2 LOAN REQUIREMENT MET.—

3 (A) IN GENERAL.—In the case of a taxpayer

4 which meets the residential loan requirement of

5 subparagraph (B) for any taxable year—

6 (i) no adjustment shall be taken into

7 account under paragraph (1) for such tax8 able year, and

9 (ii) such taxable year shall be dis10 regarded in determining—

11 (I) whether any other taxable year

12 is a taxable year for which an adjust13 ment is required to be taken into ac14 count under paragraph (1), and

15 (II) the amount of such adjust16 ment.

17 (B) RESIDENTIAL LOAN REQUIREMENT.—A

18 taxpayer meets the residential loan requirement

19 of this subparagraph for any taxable year if—

20 (i) the principal amount of the resi21 dential loans made by the taxpayer during

22 such year is not less than the base amount

23 for such year, or

24 (ii) the principal amount of the resi25 dential loans made by the taxpayer during
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1 each of the 2 preceding taxable years is not

2 less than the base amount for such preced3 ing years.

4 Clause (ii) shall not apply for purposes of deter5 mining whether a taxpayer meets the residential

6 loan requirement of this subparagraph for any

7 taxable year beginning before January 1, 1998.

8 (C) RESIDENTIAL LOAN.—For purposes of

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

10 means any loan described in clause (v) of section

11 7701(a)(19)(C) of such Code but only if such

12 loan is incurred in acquiring, constructing, or

13 improving the property described in such clause.

14 (D) BASE AMOUNT.—For purposes of sub15 paragraph (B), the base amount is the average

16 of the principal amounts of the residential loans

17 made by the taxpayer during the 6 most recent

18 taxable years beginning before January 1, 1996.

19 At the election of the taxpayer who made such

20 loans during each of such 6 taxable years, the

21 preceding sentence shall be applied without re22 gard to the taxable year in which such principal

23 amount was the highest and the taxable year in

24 such principal amount was the lowest. Such an

25 election may be made only for the first taxable
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1 year beginning after December 31, 1995, and, if

2 made for such taxable year, shall apply to all

3 succeeding taxable years unless revoked with the

4 consent of the Secretary of the Treasury or his

5 delegate.

6 (E) INFLATION ADJUSTMENT OF BASE

7 AMOUNT.—In the case of a taxable year begin8 ning in a calendar year after 1996, the amount

9 determined under subparagraph (D) shall be in10 creased by an amount equal to—

11 (i) the amount so determined, multi12 plied by

13 (ii) the cost-of-living adjustment deter14 mined under section 1(f)(3) of such Code for

15 such calendar year, by substituting ‘‘cal16 endar year 1995’’ for ‘‘calendar year 1992’’

17 in subparagraph (B) thereof.

18 (F) CONTROLLED GROUPS.—In the case of a

19 taxpayer which is a member of any controlled

20 group of corporations described in section

21 1563(a)(1) of such Code, subparagraph (B) shall

22 be applied with respect to such group.

23 (4) CONTINUED APPLICATION OF FRESH START

24 UNDER SECTION 585 TRANSITIONAL RULES.—In the

25 case of a taxpayer to which paragraph (1) applied
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1 and which was not a large bank (as defined in section

2 585(c)(2) of such Code) for its first taxable year be3 ginning after December 31, 1995:

4 (A) IN GENERAL.—For purposes of deter5 mining the net amount of adjustments referred to

6 in section 585(c)(3)(A)(iii) of such Code, there

7 shall be taken into account only the excess of the

8 reserve for bad debts as of the close of the last

9 taxable year before the disqualification year over

10 the balance taken into account by such taxpayer

11 under paragraph (2)(A)(ii) of this subsection.

12 (B) TREATMENT UNDER ELECTIVE CUT-OFF

13 METHOD.—For purposes of applying section

14 585(c)(4) of such Code—

15 (i) the balance of the reserve taken into

16 account under subparagraph (B) thereof

17 shall be reduced by the balance taken into

18 account by such taxpayer under paragraph

19 (2)(A)(ii) of this subsection, and

20 (ii) no amount shall be includible in

21 gross income by reason of such reduction.

22 (5) CONTINUED APPLICATION OF SECTION

23 593(e).—Notwithstanding the amendments made by

24 this section, in the case of a taxpayer to which para25 graph (1) of this subsection applies, section 593(e) of
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1 such Code (as in effect on the day before the date of

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

3 such taxpayer as if such taxpayer were a domestic

4 building and loan association but the amount of the

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

6 shall be only the balance taken into account by such

7 taxpayer under paragraph (2)(A)(ii) of this sub8 section.

9 (6) CERTAIN ITEMS INCLUDED AS SECTION 381(c)

10 ITEMS.—The balance of the applicable excess reserves,

11 and the balance taken into account by a taxpayer

12 under paragraph (2)(A)(ii) of this subsection, shall be

13 treated as items described in section 381(c) of such

14 Code.

15 (7) REGULATIONS.—The Secretary of the Treas16 ury or his delegate shall prescribe such regulations as

17 may be necessary to carry out this subsection, includ18 ing regulations providing for the application of para19 graph (3) in the case of mergers, spin-offs, and other

20 reorganizations.

21 SEC. 3. DEDUCTION FOR SPECIAL ASSESSMENTS.

22 For purposes of subtitle A of the Internal Revenue Code

23 of 1986, the amount allowed as a deduction under section

24 162 of such Code for a taxable year shall include the amount

25 paid during such year as a special assessment under section
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1 7(b)(6)(B) of the Federal Deposit Insurance Act, as amend2 ed by the Thrift Charter Conversion Act of 1995, as con3 tained in subtitle B of title II of H.R. 2491 of the 104th

4 Congress, as passed by the House of Representatives.