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[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 1568 Introduced in Senate (IS)]

109th CONGRESS
  1st Session
                                S. 1568

To enhance the ability of community banks to foster economic growth and 
            serve their communities, and for other purposes.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                             July 29, 2005

Mr. Brownback (for himself, Mr. Inhofe, and Mr. Roberts) 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, and for other purposes.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Community Banks Serving Their 
Communities First Act'' or the ``Communities First Act''.

        TITLE I--TARGETED REGULATORY RELIEF FOR COMMUNITY BANKS

SEC. 101. INCREASE EXEMPTION LEVELS UNDER THE HOME MORTGAGE DISCLOSURE 
              ACT OF 1975.

    (a) Depository Institution and Mortgage Lender Disclosure 
Exemptions.--Section 304(i) of the Home Mortgage Disclosure Act (12 
U.S.C. 2803(i)) is amended by striking ``$30,000,000'' and inserting 
``$250,000,000''.
    (b) Depository Institution Exemptions From Act.--Section 309 of the 
Home Mortgage Disclosure Act (12 U.S.C. 2808(a)) is amended--
            (1) in subsection (a), by striking ``$10,000,000'' and 
        inserting ``$250,000,000''; and
            (2) in subsection (b), by adding at the end the following 
        new paragraph:
            ``(4) Indexing of depository institution disclosure 
        exemption amount.--Not later than December 31 of each year 
        beginning after the date of the enactment of the Community 
        Banks Serving Their Communities First Act, the amount 
        applicable under section 304(i) with respect to institutions 
        described in section 303(2) shall be adjusted in accordance 
        with the procedure described in paragraphs (1) and (3) and the 
        adjusted amount shall apply during the subsequent year.''.

SEC. 102. SHORT FORM REPORTS OF CONDITION FOR CERTAIN COMMUNITY BANKS.

    Section 7(a) of the Federal Deposit Insurance Act (12 U.S.C. 
1817(a)) is amended by adding at the end the following new paragraph:
            ``(11) Short form reports of condition for community 
        banks.--An insured depository institution described in 
        subparagraphs (A), (B), (C), and (D) of section 10(d)(4) may 
        submit a short form report of condition under paragraph (3) in 
        2 nonsequential quarters of any calendar year.''.

SEC. 103. COMMUNITY BANK EXEMPTION FROM ANNUAL MANAGEMENT ASSESSMENT OF 
              INTERNAL CONTROLS REQUIREMENT OF THE SARBANES-OXLEY ACT 
              OF 2002.

    Section 404 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7262) is 
amended by adding at the end the following new subsection:
    ``(c) Community Bank Exemption.--
            ``(1) In general.--This section shall not apply in any year 
        to any insured depository institution which, as of the close of 
        the preceding year, had total assets, as determined on a 
        consolidated basis, of $1,000,000,000 or less.
            ``(2) Adjustment of amount.--The Commission shall annually 
        adjust the dollar amount in paragraph (1) by an amount equal to 
        the percentage increase, for the most recent year, in total 
        assets held by all depository institutions, as reported by the 
        Federal Deposit Insurance Corporation.''.

SEC. 104. CHANGES REQUIRED TO SMALL BANK HOLDING COMPANY POLICY 
              STATEMENT ON ASSESSMENT OF FINANCIAL AND MANAGERIAL 
              FACTORS.

    (a) Small Bank Holding Company Policy Statement on Assessment of 
Financial and Managerial Factors.--
            (1) In general.--Not later than 6 months after the date of 
        enactment of this Act, the Board of Governors of the Federal 
        Reserve System shall publish in the Federal Register proposed 
        revisions to appendix C of section 225 of title 12, Code of 
        Federal Regulations, commonly known as the Small Bank Holding 
        Company Policy Statement on Assessment of Financial and 
        Managerial Factors that provide that the policy shall apply to 
        a bank holding company which has pro forma consolidated assets 
        of less than $1,000,000,000 and that--
                    (A) is not engaged in any nonbanking activities 
                involving significant leverage; and
                    (B) does not have a significant amount of 
                outstanding debt that is held by the general public.
            (2) Adjustment of amount.--The Board of Governors of the 
        Federal Reserve System shall annually adjust the dollar amount 
        referred to in paragraph (1) by an amount equal to the 
        percentage increase, for the most recent year, in total assets 
        held by all bank holding companies, on a consolidated basis, as 
        determined by the Board.
    (b) Increase in Debt-to-Equity Ratio of Small Bank Holding 
Company.--Not later than 6 months after the date of enactment of this 
Act, the Board of Governors of the Federal Reserve System shall publish 
in the Federal Register proposed revisions to appendix C of section 225 
of title 12, Code of Federal Regulations, commonly known as the Small 
Bank Holding Company Policy Statement on Assessment of Financial and 
Managerial Factors such that the debt-to-equity ratio allowable for a 
small bank holding company in order to remain eligible to pay a 
corporate dividend and to remain eligible for expedited processing 
procedures under Regulation Y of the Board of Governors of the Federal 
Reserve System would increase from 1:1 to 3:1.

SEC. 105. INCREASE IN SIZE OF A SMALL DEPOSITORY INSTITUTION EXCEPTION 
              UNDER THE DEPOSITORY INSTITUTION MANAGEMENT INTERLOCKS 
              ACT.

    Section 203(1) of the Depository Institution Management Interlocks 
Act (12 U.S.C. 3202(1)) is amended by striking ``$20,000,000'' and 
inserting ``$500,000,000''.

SEC. 106. COMMUNITY BANK PROTECTION UNDER THE SECURITIES INVESTOR 
              PROTECTION ACT OF 1970.

    Section 9 of the Securities Investor Protection Act of 1970 (15 
U.S.C. 78fff-3) is amended by adding at the end the following new 
subsection:
    ``(d) Community Bank Protection.--
            ``(1) In general.--The prohibition on advances in 
        subsection (a)(5) shall not apply to a bank with total assets, 
        on a consolidated basis, of less than $1,000,000,000.
            ``(2) Adjustment of amount.--The Commission shall annually 
        adjust the dollar amount in paragraph (1) by an amount equal to 
        the percentage increase, for the most recent year, in total 
        assets held by all depository institutions, as reported by the 
        Federal Deposit Insurance Corporation.''.

SEC. 107. FLEXIBLE EXAMINATION SCHEDULE FOR COMMUNITY BANKS.

    (a) In General.--Paragraph (4) of section 10(d) of the Federal 
Deposit Insurance Act (12 U.S.C. 1820(d)) is amended--
            (1) by striking the matter preceding subparagraph (A) and 
        inserting ``In lieu of the 12-month period referred to in 
        paragraphs (1), (2), and (3), the examination required under 
        paragraph (1) of an insured depository institution may be 
        conducted at such intervals as the appropriate Federal banking 
        agency may determine to be appropriate, on the basis of factors 
        the Financial Institutions Examination Council shall establish, 
        if--''; and
            (2) in subparagraph (A), by striking ``$250,000,000'' and 
        inserting ``$1,000,000,000''.
    (b) Clerical Amendment.--The heading for paragraph (4) of section 
10(d) of the Federal Deposit Insurance Act (12 U.S.C. 1820(d)) is 
amended by striking ``18-month rule'' and inserting ``Flexible on-site 
examination schedule''.

SEC. 108. INCREASE IN AMOUNT OF SMALL BANK EXCEPTION FOR CAP ON 
              AGGREGATE LOANS TO EXECUTIVE OFFICERS.

    Subparagraph (C) of section 22(h)(5) of the Federal Reserve Act (12 
U.S.C. 375b(5)(C)) is amended--
            (1) in the first sentence--
                    (A) by striking ``The Board'' and inserting the 
                following:
                            ``(i) Small insitution exception.--The 
                        Board''; and
                    (B) by striking ``$100,000,000 of deposits'' and 
                inserting ``$1,000,000,000 of total assets (on a 
                consolidated basis)''; and
            (2) in the second sentence, by striking ``In no case'' and 
        inserting the following:
                            ``(ii) Cap on credit extension to executive 
                        officers.--In no case''; and
            (3) by adding at the end the following:
                            ``(iii) Annual adjustment.--The Board shall 
                        annually adjust the dollar amount in clause (i) 
                        of this subparagraph by an amount equal to the 
                        percentage increase, for the most recent year, 
                        in total assets held by all depository 
                        institutions, as reported by the Federal 
                        Deposit Insurance Corporation.''.

SEC. 109. CONSIDERATION OF COMMUNITY BANK IMPACT.

    Before establishing or making any revision in any regulation, 
requirement, or guideline applicable to insured depository institutions 
(as defined in section 3 of the Federal Deposit Insurance Act), the 
appropriate Federal banking agency (as defined in such section) shall 
take into account the effect of the establishment of the regulation, 
requirement, or guideline on community banks and savings associations.

SEC. 110. INCREASE IN CRA EXAM INTERVALS FOR COMMUNITY BANKS.

    Section 809(a) of the Community Reinvestment Act of 1977 (12 U.S.C. 
2908(a)) is amended by striking ``$250,000,000'' and inserting 
``$1,000,000,000''.

 TITLE II--ADDITIONAL REGULATORY RELIEF FOR COMMUNITY BANKS AND THEIR 
                               CUSTOMERS

SEC. 201. PROVISIONS RELATING TO 3-DAY RIGHT OF RESCISSION UNDER THE 
              TRUTH IN LENDING ACT.

    (a) Optional Consumer Waivers of Right of Rescission.--Section 
125(d) of the Truth in Lending Act (15 U.S.C. 1635(d)) is amended--
            (1) by striking ``The Board may'' and inserting the 
        following:
            ``(1) Personal financial emergencies.--The Board may''; and
            (2) by adding at the end the following new paragraph:
            ``(2) Waivers when creditor is insured depository 
        institution.--The Board shall prescribe regulations authorizing 
        a consumer to waive the rights provided under this section when 
        the creditor is an insured depository institution (as that term 
        is defined in section 3(c)(2) of the Federal Deposit Insurance 
        Act) in such manner and after such notice as the Board may 
        prescribe.''.
    (b) Clerical Amendment.--The heading for subsection (d) of section 
125 of the Truth in Lending Act (15 U.S.C. 1635) is amended by striking 
``Waiver of Rights.--'' and inserting ``Waivers of Rescission Rights.--
''.
    (c) Exemption in Case of Refinancing With No New Money Regardless 
of Creditor.--Section 125(e)(2) of the Truth in Lending Act (15 U.S.C. 
1635(e)(2)) is amended by striking ``by the same creditor''.
    (d) Exempt Home Equity Lines of Credit.--Section 125(e)(4) of the 
Truth in Lending Act (15 U.S.C. 1635(e)(4)) is amended to read as 
follows:
            ``(4) advances under an open end consumer credit plan which 
        provides for any extension of credit which is secured by the 
        principal dwelling of a consumer.''.

SEC. 202. ADDITIONAL EXEMPTIONS UNDER HOME MORTGAGE DISCLOSURE ACT OF 
              1975; STREAMLINING REPORTING.

    (a) Small Reporter Exemption.--Section 304 of the Home Mortgage 
Disclosure Act (12 U.S.C. 2803) is amended by adding at the end the 
following new subsection:
    ``(n) Small Reporter Exemption.--If, in any year, a depository 
institution makes fewer than 100 reportable loans described in any 
paragraph of subsection (b), the depository institution shall be exempt 
from the disclosure requirements of this section with respect to the 
loans described in that paragraph for such year.''.
    (b) MSA Modifications.--Section 304(a) of the Home Mortgage 
Disclosure Act (12 U.S.C. 2803(a)) is amended----
            (1) in paragraph (1), by inserting ``or as modified by the 
        Board under paragraph (3),'' after ``as defined by the 
        Department of Commerce''; and
            (2) by adding at the end the following new paragraph:
            ``(3) Modification of msas.--The Board may modify the 
        description of any primary metropolitan statistical area, 
        metropolitan statistical area, and consolidated metropolitan 
        statistical area, as defined by the Secretary of Commerce, for 
        purposes of this subsection.''.
    (c) Regular Streamlining.--The Home Mortgage Disclosure Act (12 
U.S.C. 2801 et seq.) is amended by adding at the end the following new 
section:

``SEC. 312. REGULAR STREAMLINING.

    ``Not later than 1 year after the date of enactment of the 
Community Banks Serving Their Communities First Act and once during 
each 5-year period thereafter, the Board shall--
            ``(1) review the data collection and reporting requirements 
        of this title;
            ``(2) streamline, reduce, or eliminate such requirements by 
        regulation to the extent consistent with the purposes of this 
        title;
            ``(3) revise the data collection and reporting requirements 
        under this title to ensure that they are consistent with those 
        imposed under the Equal Credit Opportunity Act; and
            ``(4) report to the Committee on Banking, Housing, and 
        Urban Affairs of the Senate and the Committee on Financial 
        Services of the House of Representatives such legislative 
        recommendations as the Board determines to be necessary--
                    ``(A) to streamline, reduce, or eliminate such 
                requirements to the extent consistent with the purposes 
                of this title; and
                    ``(B) to ensure that such requirements are 
                consistent with those imposed under the Equal Credit 
                Opportunity Act.''.

SEC. 203. EXCEPTION TO ANNUAL PRIVACY NOTICE REQUIREMENT UNDER THE 
              GRAMM-LEACH-BLILEY ACT.

    Section 503 of the Gramm-Leach-Bliley Act (15 U.S.C. 6803) is 
amended by adding at the end the following new subsection:
    ``(c) Exception to Annual Notice Requirement.--A financial 
institution shall be exempt from the annual disclosure requirement 
under subsection (a), if such financial institution--
            ``(1) provides nonpublic personal information only in 
        accordance with the provisions of section 502(b)(2) (relating 
        to the consumer `opt out' exception) and subsection 502(e) 
        (relating to general exceptions); and
            ``(2) has not changed its policies and practices with 
        regard to disclosing nonpublic personal information.''.

SEC. 204. STREAMLINING REPORTS OF CONDITION.

    Section 7(a) of the Federal Deposit Insurance Act (12 U.S.C. 
1817(a)), as amended by section 102 of this Act, is amended by adding 
at the end the following new paragraph:
            ``(12) Streamlining reports of condition.--
                    ``(A) Review of information and schedules.--Not 
                later than 1 year after the date of enactment of the 
                Community Banks Serving Their Communities First Act and 
                once during each 5-year period thereafter, the 
                Corporation shall, in conjunction with the Board of 
                Governors of the Federal Reserve System, the 
                Comptroller of the Currency, and the Director of the 
                Office of Thrift Supervision, review the information 
                and schedules that are required to be filed by any 
                insured depository institution with a report of 
                condition under paragraph (3).
                    ``(B) Reduction or elimination of filings which are 
                more burdensome than beneficial.--Not later than 9 
                months after completing any review under subparagraph 
                (A), the Corporation, the Board of Governors of the 
                Federal Reserve System, the Comptroller of the 
                Currency, and the Director of the Office of Thrift 
                Supervision shall reduce or eliminate any requirement 
                to file information or schedules under paragraph (3) if 
                such agencies find that the burdens of such filings are 
                not outweighed by--
                            ``(i) the benefits to safety and soundness 
                        of the financial system; or
                            ``(ii) the ability of the Corporation to 
                        accurately determine the financial condition 
                        and the results of operations of each insured 
                        depository institution.
                    ``(C) Report to the congress.--Not later than 6 
                months after the date of completion of any review under 
                subparagraph (A), the Corporation, the Board of 
                Governors of the Federal Reserve System, the 
                Comptroller of the Currency, and the Director of the 
                Office of Thrift Supervision shall submit a report to 
                the Committee on Financial Services of the House of 
                Representatives and the Committee on Banking, Housing, 
                and Urban Affairs of the Senate containing--
                            ``(i) the findings of the agencies with 
                        respect to such review; and
                            ``(ii) any recommendations of such agencies 
                        for legislative action to implement any such 
                        findings.''.

SEC. 205. INCREASE IN THE SPECIAL REGULATORY LENDING LIMIT ON LOANS TO 
              EXECUTIVE OFFICERS.

    Section 22(g) of the Federal Reserve Act (12 U.S.C. 375a(g)) is 
amended by adding at the end the following new paragraph:
            ``(11) Limit applicable on aggregate amount of certain 
        loans to executive officers of community banks.--
        Notwithstanding any regulation prescribed by the Board under 
        paragraph (4) and subject to other conditions imposed under 
        this subsection and section 22(h), the aggregate amount of 
        extensions of credit that a member bank may make to an 
        executive officer of the bank under paragraph (4) shall not 
        exceed $250,000.''.

TITLE III--TAX RELIEF FOR BANK DEPOSITORS, RURAL BANKS, MUNICIPALITIES, 
           AND BANKS ORGANIZED AS LIMITED LIABILITY COMPANIES

SEC. 301. REDUCED RATE AND DEFERRAL OF INCOME RECOGNITION ON LONG-TERM 
              CERTIFICATES OF DEPOSIT.

    (a) Deferral of Income Recognition.--Section 451 of the Internal 
Revenue Code of 1986 (relating to general rule for taxable year of 
inclusion) is amended by adding at the end the following new 
subsection:
    ``(j) Certificates of Deposits Held by Cash Basis Individuals.--In 
the case of an individual on the cash receipts and disbursements method 
of accounting who holds a nonnegotiable certificate of deposit, 
interest income which is not made available for withdrawal before 
maturity of the certificate without penalty shall not be includible in 
gross income before the certificate is redeemed or matures.''.
    (b) Interest Income on Long-Term Certificates of Deposit.--Section 
1(h)(11)(A) of the Internal Revenue Code of 1986 is amended by striking 
``increased by'' and all that follows through the end and inserting: 
``increased by--
                            ``(i) qualified dividend income; and
                            ``(ii) interest income on any nonnegotiable 
                        certificate of deposit--
                                    ``(I) with a fixed maturity date 
                                which is 1 year or more from the date 
                                of issue, and
                                    ``(II) the interest on which is not 
                                made available for withdrawal before 
                                maturity without penalty.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 302. EXCLUSION FOR INTEREST ON LOANS SECURED BY AGRICULTURAL REAL 
              PROPERTY.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to items specifically excluded 
from gross income) is amended by inserting after section 139A the 
following new section:

``SEC. 139B. INTEREST ON LOANS SECURED BY AGRICULTURAL REAL PROPERTY.

    ``(a) Exclusion.--Gross income shall not include interest received 
by a qualified lender on any qualified real estate loan.
    ``(b) Coordination With Section 265.--Qualified real estate loans 
shall be treated as obligations described in section 265(a)(2), the 
interest on which is wholly exempt from the taxes imposed by this 
subtitle.
    ``(c) Definitions.--For purposes of this section:
            ``(1) Qualified lender.--The term `qualified lender' means 
        any bank or savings association the deposits of which are 
        insured under the Federal Deposit Insurance Act (12 U.S.C. 1811 
        et seq.).
            ``(2) Qualified real estate loan.--
                    ``(A) In general.--The term `qualified real estate 
                loan' means any loan secured by agricultural real 
                estate or by a leasehold mortgage (with a status as a 
                lien) on agricultural real estate.
                    ``(B) Determination of agricultural real estate.--
                For purposes of subparagraph (A), the determination of 
                whether property securing such loan is agricultural 
                real estate shall be made as of the time the interest 
                income on such loan is accrued.
            ``(3) Agricultural real estate.--The term `agricultural 
        real estate' means--
                    ``(A) real property used for the production of 1 or 
                more agricultural products, and
                    ``(B) any single family residence which is--
                            ``(i) the principal residence (within the 
                        meaning of section 121) of its occupant;
                            ``(ii) located in a rural area (as 
                        determined by the Secretary of Agriculture)--
                                    ``(I) which is not within a 
                                Metropolitan Statistical Area (as 
                                defined by the Office of Management and 
                                Budget), and
                                    ``(II) which has a population 
                                (determined on the basis of the most 
                                recent decennial census for which data 
                                are available) of 2,500 or less, and
                            ``(iii) purchased or improved with the 
                        proceeds of the qualified real estate loan.''.
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 of the Internal Revenue Code of 1986 is 
amended by inserting after the item relating to section 139A the 
following new item:

``Sec. 139B. Interest on loans secured by agricultural real property.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 303. INCREASE IN CAP ON QUALIFIED SMALL ISSUE BONDS.

    (a) In General.--Section 144(a)(4)(A)(i) of the Internal Revenue 
Code of 1986 (relating to general rule for $10,000,000 limit in certain 
cases) is amended by striking ``$10,000,000'' and inserting 
``$30,000,000''.
    (b) Adjustment of Cap for Inflation.--Section 144(a) of the 
Internal Revenue Code of 1986 (relating to qualified small issue bond) 
is amended--
            (1) by redesignating paragraph (12) as paragraph (13); and
            (2) by inserting after paragraph (11) the following new 
        paragraph:
            ``(12) Inflation adjustment.--
                    ``(A) In general.--In the case of any calendar year 
                after 2006, the $30,000,000 amount contained in 
                paragraph (4)(A)(i) shall be increased by an amount 
                equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for such 
                        calendar year by substituting `calendar year 
                        2005' for `calendar year 1992' in subparagraph 
                        (B) thereof.
                    ``(B) Rounding.--Any increase under subparagraph 
                (A) which is not a multiple of $100,000 shall be 
                rounded to the next lowest multiple of $100,000.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to--
            (1) obligations issued after the date of the enactment of 
        this Act; and
            (2) capital expenditures made after such date with respect 
        to obligations issued on or before such date.

SEC. 304. LIMITED LIABILITY COMPANY TAX TREATMENT FOR FDIC-INSURED 
              LIMITED LIABILITY COMPANIES.

    (a) In General.--Section 7701(a)(2) of the Internal Revenue Code of 
1986 (defining partnership and partner) is amended to read as follows:
            ``(2) Partner and partnership.--
                    ``(A) Partnership.--The term `partnership' includes 
                a syndicate, group, pool, joint venture, or other 
                unincorporated organization, through or by means of 
                which any business, financial operation, or venture is 
                carried on, and which is not, within the meaning of 
                this title, a trust or estate or a corporation.
                    ``(B) Partner.--The term `partner' includes a 
                member in any syndicate, group, pool, joint venture, or 
                organization described in subparagraph (A).
                    ``(C) Election by certain banks to be taxed as 
                partnerships.--
                            ``(i) In general.--An eligible corporation 
                        may elect to be treated as a partnership for 
                        purposes of this title.
                            ``(ii) Tax treatment.--In the case of an 
                        eligible corporation making an election under 
                        clause (i)--
                                    ``(I) no gain or loss shall be 
                                recognized to the corporation or the 
                                shareholders by reason of an election 
                                under clause (i), and
                                    ``(II) section 1374 shall apply to 
                                the entity after such election.
                            ``(iii) Eligible corporation.--The term 
                        `eligible corporation' means any of the 
                        following entities which would (but for this 
                        subparagraph) be treated as a C corporation for 
                        purposes of this title:
                                    ``(I) Any bank (as defined in 
                                section 581).
                                    ``(II) Any bank holding company (as 
                                defined in section 2(a) of the Bank 
                                Holding Company Act of 1956 (12 U.S.C. 
                                1841(a))).
                                    ``(III) Any savings association (as 
                                defined in section 3(b) of the Federal 
                                Deposit Insurance Act (12 U.S.C. 
                                1813)).
                                    ``(IV) Any savings and loan holding 
                                company (as defined in section 
                                10(a)(1)(D) of the Home Owners Loan 
                                Act).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

     TITLE IV--TAX RELIEF FOR COMMUNITY BANKS AND HOLDING COMPANIES

SEC. 401. REDUCTION IN TAX.

    (a) C Corporations.--Section 11 of the Internal Revenue Code of 
1986 (relating to tax imposed) is amended by adding at the end the 
following new subsection:
    ``(e) Reduction of Tax on Community Banks.--
            ``(1) In general.--In the case of a C corporation which is 
        a community bank, the aggregate tax imposed by this section, 
        section 55, and section 1201 shall be 80 percent of the 
        aggregate tax which would (but for this subsection) be imposed 
        by such sections.
            ``(2) Maximum reduction.--
                    ``(A) In general.--The reduction in tax by reason 
                of this subsection shall not exceed $250,000.
                    ``(B) Corporations treated as 1 corporation.--
                Corporations treated as 1 corporation under section 
                1202(d)(3) shall be so treated under this subsection, 
                and the limitation under subparagraph (A) shall be 
                allocated among such corporations in such manner as the 
                Secretary shall prescribe.
            ``(3) Increased benefit for banks operating in distressed 
        areas, etc.--
                    ``(A) In general.--In the case of a bank operating 
                in an area referred to in subparagraph (B)--
                            ``(i) paragraph (1) shall be applied by 
                        substituting `50 percent' for `80 percent', and
                            ``(ii) paragraph (2)(A) shall be applied by 
                        substituting `$500,000' for `$250,000'.
                    ``(B) Areas described.--The areas referred to in 
                this subparagraph are--
                            ``(i) empowerment zones and enterprise 
                        communities designated under section 1391,
                            ``(ii) renewal communities designated under 
                        section 1400E,
                            ``(iii) low-income communities (as defined 
                        in section 45D(e)), and
                            ``(iv) distressed communities (within the 
                        meaning of section 233 of the Bank Enterprise 
                        Act of 1991 (12 U.S.C. 1834a(b)).
            ``(4) Community bank.--For purposes of this section, the 
        term `community bank' means any of the following entities the 
        gross assets of which (determined under the rules of section 
        1202(d)) are $5,000,000,000 or less:
                    ``(A) Any bank (as defined in section 581).
                    ``(B) Any bank holding company (as defined in 
                section 2(a) of the Bank Holding Company Act of 1956 
                (12 U.S.C. 1841(a))).
                    ``(C) Any savings association (as defined in 
                section 3(b) of the Federal Deposit Insurance Act (12 
                U.S.C. 1813)).
                    ``(D) Any savings and loan holding company (as 
                defined in section 10(a)(1)(D) of the Home Owners Loan 
                Act).''.
    (b) S Corporations.--Section 1366(a) of the Internal Revenue Code 
of 1986 is amended by adding at the end the following new paragraph:
            ``(3) Reduction of tax on community banks.--
                    ``(A) In general.--In the case of an S corporation 
                which is a community bank (as defined in section 
                11(e)(4)), the net amount required to be taken into 
                account by shareholders (without regard to this 
                paragraph) shall be reduced by the lesser of--
                            ``(i) 20 percent of such net amount, or
                            ``(ii) $1,250,000.
                    ``(B) Increased benefit for banks operating in 
                distressed areas, etc.--In the case of a bank operating 
                in an area referred to in section 11(e)(3)(B)--
                            ``(i) subparagraph (A)(i) shall be applied 
                        by substituting `50 percent' for `20 percent', 
                        and
                            ``(ii) subparagraph (A)(ii) shall be 
                        applied by substituting `$2,500,000' for 
                        `$1,250,000'.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 402. COMMUNITY BANKS EXEMPT FROM MINIMUM TAX.

    (a) In General.--Section 55 of the Internal Revenue Code of 1986 
(relating to alternative minimum tax imposed) is amended by adding at 
the end the following new subsection:
    ``(f) Exemption for Community Banks.--
            ``(1) In general.--The tentative minimum tax of a community 
        bank (as defined in section 11(e)(4)) shall be zero.
            ``(2) Certain rules to apply.--Rules similar to the rules 
        of paragraphs (2) through (5) of subsection (e) shall apply for 
        purposes of this subsection.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.
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