II 

112TH CONGRESS 

1ST SESSION S. 1600 

To enhance the ability of community banks to foster economic growth and 

serve their communities, boost small businesses, increase individual savings, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

SEPTEMBER 22, 2011 

Mr. MORAN (for himself, Mr. BLUNT, and Mr. BARRASSO) introduced the 

following bill; which was read twice and referred to the Committee on Finance 

A BILL 

To enhance the ability of community banks to foster economic growth and serve their communities, boost small 

businesses, increase individual savings, 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; TABLE OF CONTENTS. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Community Banks Serving Their Communities First 

6 Act’’ or the ‘‘Communities First Act’’. 

7 (b) TABLE OF CONTENTS.—The table of contents for 

8 this Act is as follows: 


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Sec. 1. Short title; table of contents. 

TITLE I—TARGETED REGULATORY RELIEF FOR COMMUNITY 

BANKS 

Sec. 101. Short form reports of condition for certain community banks. 

Sec. 102. Community bank exemption from annual management assessment of 

internal controls requirement of the Sarbanes-Oxley Act of 

2002. 

Sec. 103. Changes required to small bank holding company policy statement on 

assessment of financial and managerial factors. 

Sec. 104. Increase in shareholder registration threshold. 

Sec. 105. FSOC review of Bureau regulations. 

Sec. 106. Federal Reserve examination authority. 

TITLE II—REGULATORY RELIEF FOR COMMUNITY BANKS AND 

THEIR CUSTOMERS 

Sec. 201. Escrow requirements. 

Sec. 202. Exception to annual privacy notice requirement under the GrammLeach-Bliley Act. 

Sec. 203. Agriculture loan guarantees. 

Sec. 204. Reimbursement for production of mandated records. 

Sec. 205. Loan amortization. 

Sec. 206. Loan appraisals. 

Sec. 207. Credit ratings. 

Sec. 208. Small business data collection exclusion. 

TITLE III—TAX RELIEF FOR BANK DEPOSITORS, RURAL BANKS, 

MUNICIPALITIES, BANKS ORGANIZED AS LIMITED LIABILITY 

COMPANIES, AND YOUNG SAVERS 

Sec. 301. Reduced rate and deferral of income recognition on long-term certificates of deposit. 

Sec. 302. Exclusion for interest on loans secured by agricultural real property. 

Sec. 303. Update in cap on qualified small issue bonds. 

Sec. 304. Limited liability company tax treatment for FDIC-insured limited liability companies. 

Sec. 305. Young savers’ accounts. 

TITLE IV—TAX RELIEF FOR COMMUNITY BANKS AND HOLDING 

COMPANIES 

Sec. 401. Limited tax credit. 

Sec. 402. Qualifying investments in small bank issuers. 

Sec. 403. 5-year NOL carryback for certain banks. 

TITLE V—SMALL BUSINESS SUBCHAPTER S REFORMS 

Sec. 501. Increasing shareholder limit for subchapter S to 200. 

Sec. 502. Issuance of preferred stock permitted for subchapter S corporations. 

Sec. 503. IRA shareholders. 


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1 TITLE I—TARGETED REGU2 LATORY RELIEF FOR COMMU3 NITY BANKS 

4 SEC. 101. SHORT FORM REPORTS OF CONDITION FOR CER5 TAIN COMMUNITY BANKS. 

6 (a) IN GENERAL.—Section 7(a) of the Federal De7 posit Insurance Act (12 U.S.C. 1817(a)) is amended by 

8 adding at the end the following: 

9 ‘‘(12) SHORT FORM REPORTS OF CONDITION

10 FOR COMMUNITY BANKS.— 

11 ‘‘(A) IN GENERAL.—With respect to re12 ports of condition required under paragraph (3) 

13 for each calendar quarter, an insured depository 

14 institution described in subparagraphs (A), (B), 

15 (C), and (D) of section 10(d)(4) may submit a 

16 short form of any such report of condition in 2 

17 nonsequential quarters of any calendar year. 

18 ‘‘(B) ASSET ADJUSTMENTS.—For purposes 

19 of this paragraph— 

20 ‘‘(i) section 10(d)(4)(A) shall be ap21 plied by substituting ‘$10,000,000,000’ for 

22 ‘$500,000,000’; and 

23 ‘‘(ii) section 10(d)(4)(C) shall be ap24 plied by substituting ‘$1,000,000,000’ for 

25 ‘$100,000,000’. 


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1 ‘‘(C) SHORT FORM DEFINED.—In this 

2 paragraph, the term ‘short form’ means a re3 port of condition required under paragraph (3) 

4 that is in a format established by the appro5 priate Federal banking agency, after notice and 

6 opportunity for comment, that— 

7 ‘‘(i) is significantly and materially less 

8 burdensome for the insured depository in9 stitution to prepare than the format of the 

10 report of condition otherwise required 

11 under paragraph (3); and 

12 ‘‘(ii) provides sufficient material infor13 mation for the appropriate Federal bank14 ing agency to assure the maintenance of 

15 the safe and sound condition of the deposi16 tory institution and safe and sound prac17 tices.’’. 

18 (b) REGULATIONS.—Any regulation required to carry 

19 out section 7(a)(12) of the Federal Deposit Insurance Act, 

20 as added by subsection (a), shall be published in final form 

21 not later than 6 months after the date of enactment of 

22 this Act. 


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1 SEC. 102. COMMUNITY BANK EXEMPTION FROM ANNUAL 

2 MANAGEMENT ASSESSMENT OF INTERNAL 

3 CONTROLS REQUIREMENT OF THE SAR4 BANES-OXLEY ACT OF 2002. 

5 Section 404 of the Sarbanes-Oxley Act of 2002 (15 

6 U.S.C. 7262) is amended by adding at the end the fol7 lowing: 

8 ‘‘(d) COMMUNITY BANK EXEMPTION.— 

9 ‘‘(1) IN GENERAL.—This section and the rules 

10 prescribed under this section shall not apply in any 

11 year to any insured depository institution which, as 

12 of the close of the preceding year, had total assets, 

13 as determined on a consolidated basis, of 

14 $1,000,000,000 or less. 

15 ‘‘(2) ADJUSTMENT OF AMOUNT.—The Commis16 sion shall annually adjust the dollar amount in para17 graph (1) by an amount equal to the percentage in18 crease, for the most recent year, in total assets held 

19 by all depository institutions, as reported by the 

20 Federal Deposit Insurance Corporation.’’. 


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1 SEC. 103. CHANGES REQUIRED TO SMALL BANK HOLDING 

2 COMPANY POLICY STATEMENT ON ASSESS3 MENT OF FINANCIAL AND MANAGERIAL FAC4 TORS. 

5 (a) SMALL BANK HOLDING COMPANY POLICY

6 STATEMENT ON ASSESSMENT OF FINANCIAL AND MANA7 GERIAL FACTORS.— 

8 (1) IN GENERAL.—Not later than 6 months 

9 after the date of enactment of this Act, the Board 

10 of Governors of the Federal Reserve System shall 

11 publish in the Federal Register proposed revisions to 

12 appendix C to part 225 of title 12, Code of Federal 

13 Regulations (commonly referred to as the ‘‘Small 

14 Bank Holding Company Policy Statement on Assess15 ment of Financial and Managerial Factors’’) that 

16 provide that the requirements of such appendix C 

17 shall apply to a bank holding company that has pro 

18 forma consolidated assets of less than 

19 $1,000,000,000. 

20 (2) ADJUSTMENT OF AMOUNT.—The Board of 

21 Governors of the Federal Reserve System shall an22 nually adjust the dollar amount referred to in para23 graph (1) in the Small Bank Holding Company Pol24 icy Statement on Assessment of Financial and Man25 agerial Factors—the maximum dollar amount of pro 

26 forma consolidated assets required to qualify as a 


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1 small bank holding company under appendix C to 

2 part 225 of title 12, Code of Federal Regulations, by 

3 an amount equal to the percentage increase, for the 

4 most recent year, in total assets held by all insured 

5 depository institutions, as determined by the Board. 

6 (b) INCREASE IN DEBT-TO-EQUITY RATIO OF SMALL

7 BANK HOLDING COMPANY.—Before the end of the 6- 

8 month period beginning on the date of enactment of this 

9 Act, the Board of Governors of the Federal Reserve Sys10 tem shall publish in the Federal Register proposed revi11 sions to appendix C to part 225 of title 12, Code of Fed12 eral Regulations (commonly referred to as the ‘‘Small 

13 Bank Holding Company Policy Statement on Assessment 

14 of Financial and Managerial Factors’’) to increase the 

15 debt-to-equity ratio allowable for a small bank holding 

16 company in order to remain eligible to pay a corporate 

17 dividend and to remain eligible for expedited processing 

18 procedures under part 225 of title 12, Code of Federal 

19 Regulations (commonly referred to as ‘‘Regulation Y’’) 

20 from 1:1 to 3:1. 

21 SEC. 104. INCREASE IN SHAREHOLDER REGISTRATION 

22 THRESHOLD. 

23 (a) REGISTRATION.—Section 12(g) of the Securities 

24 Exchange Act of 1934 (15 U.S.C. 78l(g)) is amended— 


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1 (1) in paragraph (1), by striking subparagraphs 

2 (A) and (B) and inserting the following: 

3 ‘‘(A) in the case of an issuer that is a bank or 

4 a bank holding company, as that term is defined in 

5 section 2 of the Bank Holding Company Act of 1956 

6 (12 U.S.C. 1841), within 120 days after the last day 

7 of its first fiscal year on which the issuer has a class 

8 of equity security (other than an exempted security) 

9 held of record by 2,000 persons or more; and 

10 ‘‘(B) in the case of an issuer that is not a bank 

11 or bank holding company, not later than 120 days 

12 after the last day of its first fiscal year on which the 

13 issuer has a class of equity securities (other than an 

14 exempted security) held of record by 500 persons or 

15 more,’’; and 

16 (2) in paragraph (4), by striking ‘‘three hun17 dred’’ and inserting ‘‘300 persons, or, in the case of 

18 a bank or a bank holding company, as that term is 

19 defined in section 2 of the Bank Holding Company 

20 Act of 1956 (12 U.S.C. 1841), 1700’’. 

21 (b) SUSPENSION.—Section 15(d) of the Securities 

22 Exchange Act of 1934 (15 U.S.C. 78o(d)) is amended, in 

23 the third sentence, by striking ‘‘three hundred’’ and in24 serting ‘‘300 persons, or, in the case of bank or a bank 

25 holding company, as that term is defined in section 2 of 


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1 the Bank Holding Company Act of 1956 (12 U.S.C. 

2 1841), 1700’’. 

3 SEC. 105. FSOC REVIEW OF BUREAU REGULATIONS. 

4 Section 1023(a) of the Consumer Financial Protec5 tion Act of 2010 (12 U.S.C. 5513(a)) is amended by strik6 ing ‘‘would put the safety and soundness of the United 

7 States banking system or the stability of the financial sys8 tem of the United States at risk.’’ and inserting the fol9 lowing: ‘‘is inconsistent with the safe and sound operation 

10 of United States financial institutions.’’. 

11 SEC. 106. FEDERAL RESERVE EXAMINATION AUTHORITY. 

12 Section 1012(c) of the Consumer Financial Protec13 tion Act of 2010 (12 U.S.C. 5492(c)) is amended— 

14 (1) by striking paragraph (1); and 

15 (2) by redesignating paragraphs (2) through 

16 (5) as paragraphs (1) through (4), respectively. 

17 TITLE II—REGULATORY RELIEF 

18 FOR COMMUNITY BANKS AND 

19 THEIR CUSTOMERS 

20 SEC. 201. ESCROW REQUIREMENTS. 

21 (a) IN GENERAL.—Section 129D(c) of the Truth in 

22 Lending Act (15 U.S.C. 1639d(c)), as added by section 

23 1461 of the Dodd-Frank Wall Street Reform and Con24 sumer Protection Act (Public Law 111–203; 124 Stat. 

25 2178) is amended— 


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1 (1) by redesignating paragraphs (1), (2), (3), 

2 and (4) as subparagraph (A), (B), (C), and (D), re3 spectively, and moving the margins 2 ems to the 

4 right; 

5 (2) by striking ‘‘The Bureau’’ and inserting the 

6 following: 

7 ‘‘(1) IN GENERAL.—The Bureau’’; and 

8 (3) by adding at the end the following: 

9 ‘‘(2) TREATMENT OF LOANS HELD BY SMALLER

10 INSTITUTIONS.—The Bureau shall, by regulation, 

11 exempt from the requirements of subsection (a) any 

12 loan secured by a first lien on the principal dwelling 

13 of a consumer, if such loan is held by an insured de14 pository institution having assets of 

15 $10,000,000,000 or less.’’. 

16 SEC. 202. EXCEPTION TO ANNUAL PRIVACY NOTICE RE17 QUIREMENT UNDER THE GRAMM-LEACH-BLI18 LEY ACT. 

19 Section 503 of the Gramm-Leach-Bliley Act (15 

20 U.S.C. 6803) is amended by adding at the end the fol21 lowing: 

22 ‘‘(f) EXCEPTION TO ANNUAL NOTICE REQUIRE23 MENT.—A financial institution shall not be required to 

24 provide an annual disclosure under this section until such 

25 time as the financial institution— 


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1 ‘‘(1) fails to provide nonpublic personal infor2 mation in accordance with the provisions of sub3 section (b)(2) or (e) of section 502 or regulations 

4 prescribed under section 504(b); 

5 ‘‘(2) shares information with affiliates described 

6 in section 603(d)(2)(A) of the Fair Credit Reporting 

7 Act; or 

8 ‘‘(3) changes its policies and practices with re9 gard to disclosing nonpublic personal information 

10 from the policies and practices that were disclosed in 

11 the most recent disclosure sent to consumers in ac12 cordance with this subsection. 

13 ‘‘(g) EXCEPTION TO NOTICE REQUIREMENT.—A fi14 nancial institution shall not be required to provide any dis15 closure under this section if— 

16 ‘‘(1) the financial institution is licensed by a 

17 State and is subject to existing regulation of con18 sumer confidentiality that prohibits disclosure of 

19 nonpublic personal information without knowing and 

20 expressed consent of the consumer in the form of 

21 laws, rules, or regulation of professional conduct or 

22 ethics promulgated either by the court of highest ap23 pellate authority or by the principal legislative body 

24 or regulatory agency or body of any State, the DisVerDate Mar 15 2010 00:24 Sep 24, 2011 Jkt 099200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S1600.IS S1600

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1 trict of Columbia, or any territory of the United 

2 States; or 

3 ‘‘(2) the financial institution is licensed by a 

4 State and becomes subject to future regulation of 

5 consumer confidentiality that prohibits disclosure of 

6 nonpublic personal information without knowing and 

7 expressed consent of the consumer in the form of 

8 laws, rules, or regulation of professional conduct or 

9 ethics promulgated either by the court of highest ap10 pellate authority or by the principal legislative body 

11 or regulatory agency or body of any State, the Dis12 trict of Columbia, or any territory of the United 

13 States.’’. 

14 SEC. 203. AGRICULTURE LOAN GUARANTEES. 

15 (a) FEES.—Section 310B(g)(5) of the Consolidated 

16 Farm and Rural Development Act (7 U.S.C. 1932(g)(5)) 

17 is amended by inserting before the period the following: 

18 ‘‘, except that for a loan in an amount of less than 

19 $5,000,000, the Secretary may assess a 1-time fee of 1 

20 percent or less of the guaranteed principal portion of the 

21 loan’’. 

22 (b) GUARANTEE AMOUNTS.—Section 364 of the Con23 solidated Farm and Rural Development Act (7 U.S.C. 

24 2006f) is amended— 

25 (1) in subsection (a)— 


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1 (A) in paragraph (3)— 

2 (i) by striking ‘‘may’’ and inserting 

3 ‘‘shall’’; and 

4 (ii) by striking ‘‘standards that are 

5 not less stringent than’’; and 

6 (B) in paragraph (4), by inserting before 

7 the period the following: ‘‘, except that the Sec8 retary may guarantee not more than 90 percent 

9 of a loan made by a certified lender if such loan 

10 is in an amount of less than $5,000,000’’; and 

11 (2) in subsection (b)— 

12 (A) in paragraph (1)— 

13 (i) in subparagraph (B), by striking 

14 ‘‘and’’ at the end; 

15 (ii) in subparagraph (C), by striking 

16 the period at the end and inserting ‘‘; 

17 and’’; and 

18 (iii) by adding at the end the fol19 lowing: 

20 ‘‘(D) in the absence of a demand for or ex21 perience with guaranteed loans made under a 

22 rural development program, proven experience 

23 in making small business loans.’’; and 

24 (B) in paragraph (5)(A), by inserting be25 fore the semicolon the following: ‘‘, except that 


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1 the Secretary may guarantee not more than 90 

2 percent of a loan made by a certified lender if 

3 such loan is in an amount of less than 

4 $5,000,000’’. 

5 SEC. 204. REIMBURSEMENT FOR PRODUCTION OF MAN6 DATED RECORDS. 

7 (a) CORPORATE RECORDS.—Section 1101(4) of the 

8 Right to Financial Privacy Act of 1978 (12 U.S.C. 

9 3401(4)) is amended by inserting before the semicolon the 

10 following: ‘‘, except that, for purposes of section 1115, 

11 such term includes any person’’. 

12 (b) CLARIFICATION OF SCOPE.—Section 1115 of the 

13 Right to Financial Privacy Act of 1978 (12 U.S.C. 3415) 

14 is amended by adding at the end the following new sub15 section: 

16 ‘‘(c) CLARIFICATION OF SCOPE.—Notwithstanding 

17 subsection (a), the fee for reimbursement described under 

18 such subsection shall by paid by a Government authority 

19 for all records required to be assembled or provided for 

20 any Federal law enforcement or investigative purpose out21 side of the regular examination process by any financial 

22 institution with total assets of $1,000,000,000 or less.’’. 

23 SEC. 205. REPORT ON LOAN LOSS AMORTIZATION. 

24 (a) IN GENERAL.—Not later than 90 days after the 

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1 ance Corporation (hereafter in this title referred to as the 

2 ‘‘Corporation’’) shall submit to the Committee on Bank3 ing, Housing, and Urban Affairs of the Senate and the 

4 Committee on Financial Services of the House of Rep5 resentatives, a report containing an analysis of the costs 

6 and benefits of allowing an insured depository institution 

7 having less than $10,000,000,000 in assets the ability to 

8 amortize any loan loss or write-down (resulting from 

9 FASB Statement 114 or 144) over a 10-year period. 

10 (b) FDIC AUTHORITY.—If the Corporation concludes 

11 that the costs of an approach described in subsection (a) 

12 outweigh the benefits thereof, the Corporation shall also 

13 include in its report to Congress under subsection (a) any 

14 recommended alternatives to a 10-year loan loss amortiza15 tion which could provide relief for insured depository insti16 tutions having less than $10,000,000,000 in assets. 

17 (c) CONSULTATION.—In preparing the report re18 quired by this section, the Corporation shall consult with 

19 the other prudential banking supervisors. 

20 SEC. 206. REPORT ON LOAN APPRAISALS. 

21 (a) IN GENERAL.—Not later than 90 days after the 

22 date of enactment of this Act, the Corporation shall sub23 mit to the Committee on Banking, Housing, and Urban 

24 Affairs of the Senate and the Committee on Financial 

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1 taining the feasibility, costs, and benefits of allowing an 

2 insured depository institution having less than 

3 $10,000,000,000 in assets to use a 5-year average of the 

4 appraised value of any real estate securing a loan held 

5 by the institution, for purposes determining capital levels. 

6 (b) CONSULTATION.—In preparing the report re7 quired by this section, the Corporation shall consult with 

8 the other prudential banking supervisors. 

9 SEC. 207. CREDIT RATINGS. 

10 Section 939A(b) of the Dodd-Frank Wall Street Re11 form and Consumer Protection Act (15 U.S.C. 78o–7 

12 note) is amended— 

13 (1) by striking ‘‘to remove’’ and all that follows 

14 through the first period and inserting the following: 

15 ‘‘to specify appropriate levels of due diligence for 

16 regulated entities to use for purposes of evaluating 

17 the creditworthiness of the obligor or assets under18 lying a rated security or instrument based on the 

19 characteristics of such obligor or assets.’’; and 

20 (2) in the second sentence— 

21 (A) by striking ‘‘credit-worthiness for use’’ 

22 and inserting ‘‘due diligence for use’’; and 

23 (B) by striking ‘‘such standards’’ and in24 serting ‘‘such evaluations’’. 


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1 SEC. 208. SMALL BUSINESS DATA COLLECTION EXCLUSION. 

2 Section 704B(h)(1) of the Equal Credit Opportunity 

3 Act (15 U.S.C. 1691c–2(h)(1)) is amended by inserting 

4 before the period the following: ‘‘and that has assets of 

5 more than $1,000,000,000’’. 

6 TITLE III—TAX RELIEF FOR 

7 BANK DEPOSITORS, RURAL 

8 BANKS, MUNICIPALITIES, 

9 BANKS ORGANIZED AS LIM10 ITED LIABILITY COMPANIES, 

11 AND YOUNG SAVERS 

12 SEC. 301. REDUCED RATE AND DEFERRAL OF INCOME REC13 OGNITION ON LONG-TERM CERTIFICATES OF 

14 DEPOSIT. 

15 (a) DEFERRAL OF INCOME RECOGNITION.—Section 

16 451 of the Internal Revenue Code of 1986 is amended by 

17 adding at the end the following new subsection: 

18 ‘‘(j) CERTIFICATES OF DEPOSITS HELD BY CASH

19 BASIS INDIVIDUALS.—In the case of an individual on the 

20 cash receipts and disbursements method of accounting 

21 who holds a nonnegotiable certificate of deposit, interest 

22 income which is not made available for withdrawal before 

23 maturity of the certificate without penalty shall not be in24 cludible in gross income before the certificate is redeemed 

25 or matures.’’. 


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1 (b) INTEREST INCOME ON LONG-TERM CERTIFI2 CATES OF DEPOSIT.—Subparagraph (A) of section 

3 1(h)(11) of such Code is amended by striking ‘‘increased 

4 by qualified dividend income’’ and inserting the following: 

5 ‘‘increased by— 

6 ‘‘(i) qualified dividend income, and 

7 ‘‘(ii) interest income on any nonnego8 tiable certificate of deposit— 

9 ‘‘(I) with a fixed maturity date 

10 which is 1 year or more from the date 

11 of issue, and 

12 ‘‘(II) the interest on which is not 

13 made available for withdrawal before 

14 maturity without penalty.’’. 

15 (c) EFFECTIVE DATE.—The amendments made by 

16 this section shall apply to taxable years beginning after 

17 the date of enactment of this Act. 

18 SEC. 302. EXCLUSION FOR INTEREST ON LOANS SECURED 

19 BY AGRICULTURAL REAL PROPERTY. 

20 (a) IN GENERAL.—Part III of subchapter B of chap21 ter 1 of the Internal Revenue Code of 1986 is amended 

22 by inserting after section 139D the following new section: 


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1 ‘‘SEC. 139E. INTEREST ON LOANS SECURED BY AGRICUL2 TURAL REAL PROPERTY. 

3 ‘‘(a) EXCLUSION.—Gross income shall not include in4 terest received by a qualified lender on any qualified real 

5 estate loan. 

6 ‘‘(b) DEFINITIONS.—For purposes of this section— 

7 ‘‘(1) QUALIFIED LENDER.—The term ‘qualified 

8 lender’ means any bank or savings association the 

9 deposits of which are insured under the Federal De10 posit Insurance Act (12 U.S.C. 1811 et seq.). 

11 ‘‘(2) QUALIFIED REAL ESTATE LOAN.—The 

12 term ‘qualified real estate loan’ means any loan se13 cured by agricultural real estate or by a leasehold 

14 mortgage (with a status as a lien) on agricultural 

15 real estate. For purposes of the preceding sentence, 

16 the determination of whether property securing such 

17 loan is agricultural real estate shall be made as of 

18 the time the interest income on such loan is accrued. 

19 ‘‘(3) AGRICULTURAL REAL ESTATE.—The term 

20 ‘agricultural real estate’ means— 

21 ‘‘(A) real property used for the production 

22 of 1 or more agricultural products, and 

23 ‘‘(B) any single family residence— 

24 ‘‘(i) which is the principal residence 

25 (within the meaning of section 121) of its 

26 occupant, 


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1 ‘‘(ii) which is located in a rural area 

2 (as determined by the Secretary of Agri3 culture), which is not within a Metropoli4 tan Statistical Area (as defined by the Of5 fice of Management and Budget) and 

6 which has a population (determined on the 

7 basis of the most recent decennial census 

8 for which data are available) of 2,500 or 

9 less, and 

10 ‘‘(iii) which is purchased or improved 

11 with the proceeds of the qualified real es12 tate loan. 

13 ‘‘(c) COORDINATION WITH SECTION 265.—Qualified 

14 real estate loans shall be treated as obligations described 

15 in section 265(a)(2) the interest on which is wholly exempt 

16 from the taxes imposed by this subtitle.’’. 

17 (b) CLERICAL AMENDMENT.—The table of sections 

18 for such part III is amended by inserting after the item 

19 relating to section 139D the following new item: 

‘‘Sec. 139E. Interest on loans secured by agricultural real property.’’. 

20 (c) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to taxable years beginning after 

22 the date of enactment of this Act. 


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1 SEC. 303. UPDATE IN CAP ON QUALIFIED SMALL ISSUE 

2 BONDS. 

3 (a) IN GENERAL.—Clause (i) of section 144(a)(4)(A) 

4 of the Internal Revenue Code of 1986 is amended by strik5 ing ‘‘$10,000,000’’ and inserting ‘‘$30,000,000’’. 

6 (b) ADJUSTMENT OF CAP FOR INFLATION.—Sub7 section (a) of section 144 of such Code is amended by re8 designating paragraph (12) as paragraph (13) and by in9 serting after paragraph (11) the following new paragraph: 

10 ‘‘(12) INFLATION ADJUSTMENT.—In the case of 

11 any issue issued during a calendar year after 2011, 

12 the $30,000,000 amount contained in paragraph 

13 (4)(A)(i) shall be increased by an amount equal to— 

14 ‘‘(A) such dollar amount, multiplied by 

15 ‘‘(B) the cost-of-living adjustment deter16 mined under section 1(f)(3) for such calendar 

17 year by substituting ‘calendar year 2010’ for 

18 ‘calendar year 1992’ in subparagraph (B) 

19 thereof. 

20 Any increase under the preceding sentence which is 

21 not a multiple of $100,000 shall be rounded to the 

22 next lowest multiple of $100,000.’’. 

23 (c) CONFORMING AMENDMENT.—The heading of 

24 paragraph (4) of section 144(a) of such Code is amended 

25 by striking ‘‘$10,000,000 LIMIT’’ and inserting ‘‘INCREASED

26 LIMITATION’’. 


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1 (d) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to— 

3 (1) obligations issued after the date of enact4 ment of this Act, and 

5 (2) capital expenditures made after such date 

6 with respect to obligations issued on or before such 

7 date. 

8 SEC. 304. LIMITED LIABILITY COMPANY TAX TREATMENT 

9 FOR FDIC-INSURED LIMITED LIABILITY COM10 PANIES. 

11 (a) IN GENERAL.—Paragraph (2) of section 7701(a) 

12 of the Internal Revenue Code of 1986 (defining partner13 ship and partner) is amended to read as follows: 

14 ‘‘(2) PARTNER AND PARTNERSHIP.— 

15 ‘‘(A) IN GENERAL.—The term ‘partner16 ship’ includes a syndicate, group, pool, joint 

17 venture, or other unincorporated organization, 

18 through or by means of which any business, fi19 nancial operation, or venture is carried on, and 

20 which is not, within the meaning of this title, 

21 a trust or estate or a corporation; and the term 

22 ‘partner’ includes a member in such a syn23 dicate, group, pool, joint venture, or organiza24 tion. 


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1 ‘‘(B) ELECTION BY CERTAIN BANKS TO BE

2 TAXED AS PARTNERSHIPS.— 

3 ‘‘(i) IN GENERAL.—An eligible cor4 poration may elect to be treated as a part5 nership for purposes of this title. 

6 ‘‘(ii) TAX TREATMENT.—In the case 

7 of an eligible corporation making an elec8 tion under clause (i)— 

9 ‘‘(I) no gain or loss shall be rec10 ognized to the corporation or the 

11 shareholders by reason of an election 

12 under clause (i), and 

13 ‘‘(II) section 1374 shall apply to 

14 the entity after such election. 

15 ‘‘(iii) ELIGIBLE CORPORATION.—The 

16 term ‘eligible corporation’ means any enti17 ty described in clause (iv) if— 

18 ‘‘(I) such entity would (but for 

19 this subparagraph) be treated as a C 

20 corporation for purposes of this title, 

21 and 

22 ‘‘(II) the gross assets of such en23 tity (determined under the rules of 

24 section 1202(d)) are $10,000,000,000 

25 or less. 


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1 ‘‘(iv) ENTITIES DESCRIBED.—The en2 tities described in this clause are the fol3 lowing: 

4 ‘‘(I) Any bank (as defined in sec5 tion 581). 

6 ‘‘(II) Any bank holding company 

7 (as defined in section 2(a) of the 

8 Bank Holding Company Act of 1956 

9 (12 U.S.C. 1841(a))). 

10 ‘‘(III) Any savings association 

11 (as defined in section 3(b) of the Fed12 eral Deposit Insurance Act (12 U.S.C. 

13 1813)). 

14 ‘‘(IV) Any savings and loan hold15 ing company (as defined in section 

16 10(a)(1)(D) of the Home Owners 

17 Loan Act).’’. 

18 (b) EFFECTIVE DATE.—The amendment made by 

19 this section shall apply to taxable years beginning after 

20 the date of enactment of this Act. 

21 SEC. 305. YOUNG SAVERS’ ACCOUNTS. 

22 (a) IN GENERAL.—Section 408A of the Internal Rev23 enue Code of 1986 is amended by adding at the end the 

24 following new subsection: 


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1 ‘‘(g) SPECIAL RULES FOR ROTH IRAS FOR CHIL2 DREN.— 

3 ‘‘(1) GENERAL RULE.—In the case of a Roth 

4 IRA maintained for the benefit of an individual who 

5 has not attained age 26 before the close of the tax6 able year, the limitation on contributions under 

7 paragraph (2) shall apply in lieu of paragraphs (2) 

8 and (3) of subsection (c). 

9 ‘‘(2) LIMITATION ON CONTRIBUTIONS.—The 

10 aggregate amount of contributions for any taxable 

11 year to all Roth IRAs maintained for the benefit of 

12 an individual described in paragraph (1) with re13 spect to such taxable year shall not exceed the max14 imum amount allowable as a deduction under sub15 section (b)(1) of section 219 for such taxable year 

16 (computed without regard to subsections (b)(1)(B), 

17 (d)(1), and (g) of such section).’’. 

18 (b) ENFORCEMENT OF CONTRIBUTION LIMITS.— 

19 Paragraphs (1)(B) and (2)(B) of section 4973(f) of such 

20 Code are each amended by striking ‘‘and (c)(3)’’ and in21 serting ‘‘, (c)(3), and (g)(2)’’. 

22 (c) EFFECTIVE DATE.—The amendments made by 

23 this section shall apply to taxable years beginning after 

24 December 31, 2011. 


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1 TITLE IV—TAX RELIEF FOR COM2 MUNITY BANKS AND HOLD3 ING COMPANIES 

4 SEC. 401. LIMITED TAX CREDIT. 

5 (a) C CORPORATIONS.—Section 11 of the Internal 

6 Revenue Code of 1986 (relating to tax imposed) is amend7 ed by adding at the end the following new subsection: 

8 ‘‘(e) REDUCTION OF TAX ON COMMUNITY BANKS.— 

9 ‘‘(1) IN GENERAL.—In the case of a C corpora10 tion which is a community bank, the aggregate tax 

11 imposed by this section, section 55, and section 

12 1201 shall be 80 percent of the aggregate tax which 

13 would (but for this subsection) be imposed by such 

14 sections. 

15 ‘‘(2) MAXIMUM REDUCTION.—The reduction in 

16 tax by reason of this subsection shall not exceed 

17 $250,000. Corporations treated as 1 corporation 

18 under section 1202(d)(3) shall be so treated under 

19 this subsection, and the limitation under the pre20 ceding sentence shall be allocated among such cor21 porations in such manner as the Secretary shall pre22 scribe. 

23 ‘‘(3) INCREASED BENEFIT FOR BANKS OPER24 ATING IN DISTRESSED AREAS, ETC.— 


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1 ‘‘(A) IN GENERAL.—In the case of a bank 

2 operating in an area referred to in subpara3 graph (B)— 

4 ‘‘(i) paragraph (1) shall be applied by 

5 substituting ‘50 percent’ for ‘80 percent’, 

6 and 

7 ‘‘(ii) paragraph (2) shall be applied by 

8 substituting ‘$500,000’ for ‘$250,000’. 

9 ‘‘(B) AREAS DESCRIBED.—The areas re10 ferred to in this subparagraph are— 

11 ‘‘(i) empowerment zones and enter12 prise communities designated under section 

13 1391, 

14 ‘‘(ii) renewal communities designated 

15 under section 1400E, 

16 ‘‘(iii) low-income communities (as de17 fined in section 45D(e)), and 

18 ‘‘(iv) distressed communities (within 

19 the meaning of section 233 of the Bank 

20 Enterprise Act of 1991 (12 U.S.C. 

21 1834a(b))). 

22 ‘‘(4) COMMUNITY BANK.—For purposes of this 

23 section, the term ‘community bank’ means any of 

24 the following entities the gross assets of which (deVerDate Mar 15 2010 00:24 Sep 24, 2011 Jkt 099200 PO 00000 Frm 00027 Fmt 6652 Sfmt 6201 E:\BILLS\S1600.IS S1600

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1 termined under the rules of section 1202(d)) are 

2 $10,000,000,000 or less: 

3 ‘‘(A) Any bank (as defined in section 581). 

4 ‘‘(B) Any bank holding company (as de5 fined in section 2(a) of the Bank Holding Com6 pany Act of 1956 (12 U.S.C. 1841(a))). 

7 ‘‘(C) Any savings association (as defined in 

8 section 3(b) of the Federal Deposit Insurance 

9 Act (12 U.S.C. 1813)). 

10 ‘‘(D) Any savings and loan holding com11 pany (as defined in section 10(a)(1)(D) of the 

12 Home Owners Loan Act).’’. 

13 (b) S CORPORATIONS.—Subsection (a) of section 

14 1366 of such Code is amended by adding at the end the 

15 following new paragraph: 

16 ‘‘(3) REDUCTION OF TAX ON COMMUNITY

17 BANKS.— 

18 ‘‘(A) IN GENERAL.—In the case of an S 

19 corporation which is a community bank (as de20 fined in section 11(e)(4)), the net amount re21 quired to be taken into account by shareholders 

22 (without regard to this paragraph) shall be re23 duced by the lesser of— 

24 ‘‘(i) 20 percent of such net amount, or 

25 ‘‘(ii) $1,250,000. 


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1 ‘‘(B) INCREASED BENEFIT FOR BANKS OP2 ERATING IN DISTRESSED AREAS, ETC.—In the 

3 case of a bank operating in an area referred to 

4 in section 11(e)(3)(B)— 

5 ‘‘(i) subparagraph (A)(i) shall be ap6 plied by substituting ‘50 percent’ for ‘20 

7 percent’, and 

8 ‘‘(ii) subparagraph (A)(ii) shall be ap9 plied by substituting ‘$2,500,000’ for 

10 ‘$1,250,000’.’’. 

11 (c) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to taxable years beginning after 

13 the date of enactment of this Act. 

14 SEC. 402. QUALIFYING INVESTMENTS IN SMALL BANK 

15 ISSUERS. 

16 (a) GENERALLY.—The principles of Internal Revenue 

17 Service Notice 2010–2 shall apply to any qualifying invest18 ment by any person in a small bank issuer in the same 

19 manner as if such investment had been made by the 

20 Treasury Department pursuant to any of the Programs 

21 (as defined in Notice 2010–2). 

22 (b) DEFINITIONS.—For purposes of this section: 

23 (1) The term ‘‘qualifying investment’’ means 

24 any investment in the equity of a small bank issuer 

25 that otherwise would have constituted an ownership 


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1 change under section 382(g) of the Internal Revenue 

2 Code of 1986 (relating to limitations on net oper3 ating loss carry forward and certain built-in losses 

4 following an ownership change). 

5 (2) The term ‘‘small bank issuer’’ means any 

6 insured depository institution as defined in section 

7 3(c)(2) of the Federal Deposit Insurance Act (12 

8 U.S.C. 1813(c)(2)) which— 

9 (A) was required under a Prompt Correc10 tive Action order issued pursuant to section 38 

11 of the Federal Deposit Insurance Act (12 

12 U.S.C. 1831o), or a formal or informal enforce13 ment order, to raise capital as a result of an ex14 amination that took place during calendar years 

15 2008 through 2012 by the Board of Governors 

16 of the Federal Reserve System, the Office of 

17 the Comptroller of the Currency, the Office of 

18 Thrift Supervision, or the Federal Deposit In19 surance Corporation, and 

20 (B) at the time of the order referred to in 

21 subparagraph (A), had total consolidated assets 

22 of $10,000,000,000 or less. 


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1 SEC. 403. 5-YEAR NOL CARRYBACK FOR CERTAIN BANKS. 

2 (a) IN GENERAL.—Subparagraph (H) of section 

3 172(b)(1) of the Internal Revenue Code of 1986 is amend4 ed to read as follows: 

5 ‘‘(H) CARRYBACK FOR 2010 AND 2011 NET

6 OPERATING LOSSES OF CERTAIN BANKS.— 

7 ‘‘(i) IN GENERAL.—In the case of an 

8 applicable 2010 or 2011 net operating loss 

9 of a specified bank with respect to which 

10 the taxpayer has elected the application of 

11 this subparagraph— 

12 ‘‘(I) subparagraph (A)(i) shall be 

13 applied by substituting any whole 

14 number elected by the taxpayer which 

15 is more than 2 and less than 6 for ‘2’, 

16 ‘‘(II) subparagraph (E)(ii) shall 

17 be applied by substituting the whole 

18 number which is one less than the 

19 whole number substituted under sub20 clause (I) for ‘2’, and 

21 ‘‘(III) subparagraph (F) shall not 

22 apply. 

23 ‘‘(ii) APPLICABLE 2010 OR 2011 NET

24 OPERATING LOSS.—For purposes of this 

25 subparagraph, the term ‘applicable 2010 

26 or 2011 net operating loss’ means— 


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1 ‘‘(I) the specified bank’s net op2 erating loss for any taxable year end3 ing in 2010 or 2011, or 

4 ‘‘(II) if the specified bank elects 

5 to have this subclause apply in lieu of 

6 subclause (I), the specified bank’s net 

7 operating loss for any taxable year be8 ginning in 2010 or 2011. 

9 ‘‘(iii) SPECIFIED BANK.—For pur10 poses of this subparagraph, the term ‘spec11 ified bank’ means a community bank (as 

12 defined in section 11(e)(4)) and any entity 

13 which would be a community bank (as so 

14 defined) if section 11(e)(4) were applied by 

15 substituting ‘$15,000,000,000’ for 

16 ‘$10,000,000,000’. 

17 ‘‘(iv) ELECTION.—Any election under 

18 this subparagraph shall be made in such 

19 manner as may be prescribed by the Sec20 retary, and shall be made by the due date 

21 (including extension of time) for filing the 

22 taxpayer’s return for the taxable year of 

23 the net operating loss. Any such election, 

24 once made, shall be irrevocable.’’. 


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1 (b) ANTI-ABUSE RULES.—The Secretary of the 

2 Treasury, or the designee thereof, shall prescribe such 

3 rules as are necessary to prevent the abuse of the purposes 

4 of the amendments made by this section, including anti5 stuffing rules, antichurning rules (including rules relating 

6 to sale-leasebacks), and rules similar to the rules under 

7 section 1091 of the Internal Revenue Code of 1986 relat8 ing to losses from wash sales. 

9 (c) EFFECTIVE DATE.—The amendments made by 

10 this section shall apply to net operating losses arising in 

11 taxable years ending after December 31, 2009. 

12 TITLE V—SMALL BUSINESS 

13 SUBCHAPTER S REFORMS 

14 SEC. 501. INCREASING SHAREHOLDER LIMIT FOR SUB15 CHAPTER S TO 200. 

16 (a) IN GENERAL.—Subparagraph (A) of section 

17 1361(b)(1) of the Internal Revenue Code of 1986, is 

18 amended by striking ‘‘100’’ and inserting ‘‘200’’. 

19 (b) EFFECTIVE DATE.—The amendment made by 

20 this section shall apply to taxable years beginning after 

21 December 31, 2011. 


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1 SEC. 502. ISSUANCE OF PREFERRED STOCK PERMITTED 

2 FOR SUBCHAPTER S CORPORATIONS. 

3 (a) IN GENERAL.—Section 1361 (defining S corpora4 tion) is amended by adding at the end the following new 

5 subsection: 

6 ‘‘(h) TREATMENT OF QUALIFIED PREFERRED

7 STOCK.— 

8 ‘‘(1) IN GENERAL.—For purposes of this sub9 chapter— 

10 ‘‘(A) qualified preferred stock shall not be 

11 treated as a second class of stock, and 

12 ‘‘(B) no person shall be treated as a share13 holder of the corporation by reason of holding 

14 qualified preferred stock. 

15 ‘‘(2) QUALIFIED PREFERRED STOCK DE16 FINED.—For purposes of this subsection, the term 

17 ‘qualified preferred stock’ means stock which meets 

18 the requirements of subparagraphs (A), (B), and (C) 

19 of section 1504(a)(4). Stock shall not fail to be 

20 treated as qualified preferred stock merely because 

21 it is convertible into other stock. 

22 ‘‘(3) DISTRIBUTIONS.—A distribution (not in 

23 part or full payment in exchange for stock) made by 

24 the corporation with respect to qualified preferred 

25 stock shall be includible as ordinary income of the 

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1 pense in computing taxable income under section 

2 1363(b) in the year such distribution is received.’’. 

3 (b) CONFORMING AMENDMENTS.— 

4 (1) Paragraph (1) of section 1361(b) is amend5 ed by inserting ‘‘, except as provided in subsection 

6 (f),’’ before ‘‘which does not’’. 

7 (2) Subsection (a) of section 1366 is amended 

8 by adding at the end the following new paragraph: 

9 ‘‘(3) ALLOCATION WITH RESPECT TO QUALI10 FIED PREFERRED STOCK.—The holders of qualified 

11 preferred stock (as defined in section 1361(h)) shall 

12 not, with respect to such stock, be allocated any of 

13 the items described in paragraph (1).’’. 

14 (3) So much of clause (ii) of section 

15 354(a)(2)(C) as precedes subclause (II) is amended 

16 to read as follows: 

17 ‘‘(ii) RECAPITALIZATION OF FAMILY18 OWNED CORPORATIONS AND S CORPORA19 TIONS.— 

20 ‘‘(I) IN GENERAL.—Clause (i) 

21 shall not apply in the case of a recapi22 talization under section 368(a)(I)(E) 

23 of a family-owned corporation or an S 

24 corporation.’’. 


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1 (4) Subsection (a) of section 1373 is amended 

2 by striking ‘‘and’’ at the end of paragraph (1), by 

3 striking the period at the end of paragraph (2) and 

4 inserting ‘‘, and’’, and by adding at the end the fol5 lowing new paragraph: 

6 ‘‘(3) no amount of an expense deductible under 

7 this subchapter by reason of section 1361(h)(3) shall 

8 be apportioned or allocated to the income referred to 

9 in such section.’’. 

10 (c) EFFECTIVE DATE.—The amendments made by 

11 this section shall apply to taxable years beginning after 

12 December 31, 2011. 

13 SEC. 503. IRA SHAREHOLDERS. 

14 Clause (vi) of section 1361(c)(2)(A) of the Internal 

15 Revenue Code of 1986 is amended by striking ‘‘as of the 

16 date of enactment of this clause’’. 

Æ 


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