I 

112TH CONGRESS 

1ST SESSION H. R. 1697 

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 HOUSE OF REPRESENTATIVES 

MAY 3, 2011 

Mr. LUETKEMEYER introduced the following bill; which was referred to the 

Committee on Ways and Means, and in addition to the Committees on 

Financial Services and Agriculture, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions 

as fall within the jurisdiction of the committee concerned 

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’’. 


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

2 this Act is as follows: 

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. Accounting principles shall reflect business models. 

Sec. 105. Accounting principles cost-benefit requirements. 

Sec. 106. Increase in shareholder registration threshold. 

Sec. 107. FSOC review of Bureau regulations. 

Sec. 108. 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. Fees for agriculture loans. 

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. 


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

Sec. 503. IRA shareholders. 

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 inserting at the end the following new paragraph: 

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, the asset levels for section 

20 10(d)(4) shall be $10,000,000,000 in the case 

21 of subparagraph (A) and $1,000,000,000 in the 

22 case of subparagraph (C). 

23 ‘‘(C) SHORT FORM DEFINED.—The term 

24 ‘short form’, when used in connection with any 


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1 report of condition required under paragraph 

2 (3), means a report of condition in a format es3 tablished by the appropriate Federal banking 

4 agency, after notice and opportunity for com5 ment, that— 

6 ‘‘(i) is significantly and materially less 

7 burdensome for the insured depository in8 stitution to prepare than the format of the 

9 report of condition required under para10 graph (3); and 

11 ‘‘(ii) provides sufficient material infor12 mation for the appropriate Federal bank13 ing agency to assure the maintenance of 

14 the safe and sound condition of the deposi15 tory institution and safe and sound prac16 tices.’’. 

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

18 out the amendment made by subsection (a) shall be pub19 lished in final form before the end of the 6-month period 

20 beginning on the date of the enactment of 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 the following new sub7 section: 

8 ‘‘(d) COMMUNITY BANK EXEMPTION.— 

9 ‘‘(1) IN GENERAL.—This section shall not apply 

10 in any year to any insured depository institution 

11 which, as of the close of the preceding year, had 

12 total assets, as determined on a consolidated basis, 

13 of $1,000,000,000 or less. 

14 ‘‘(2) ADJUSTMENT OF AMOUNT.—The Commis15 sion shall annually adjust the dollar amount in para16 graph (1) by an amount equal to the percentage in17 crease, for the most recent year, in total assets held 

18 by all depository institutions, as reported by the 

19 Federal Deposit Insurance Corporation.’’. 

20 SEC. 103. CHANGES REQUIRED TO SMALL BANK HOLDING 

21 COMPANY POLICY STATEMENT ON ASSESS22 MENT OF FINANCIAL AND MANAGERIAL FAC23 TORS. 

24 (a) SMALL BANK HOLDING COMPANY POLICY

25 STATEMENT ON ASSESSMENT OF FINANCIAL AND MANA26 GERIAL FACTORS.— 


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1 (1) IN GENERAL.—Before the end of the 6- 

2 month period beginning on the date of the enact3 ment of this Act, the Board of Governors of the 

4 Federal Reserve System shall publish in the Federal 

5 Register proposed revisions to the Small Bank Hold6 ing Company Policy Statement on Assessment of Fi7 nancial and Managerial Factors (12 C.F.R. part 

8 225—appendix C) that provide that the policy shall 

9 apply to a bank holding company which has pro 

10 forma consolidated assets of less than 

11 $1,000,000,000 and that— 

12 (A) is not engaged in any nonbanking ac13 tivities involving significant leverage; and 

14 (B) does not have a significant amount of 

15 outstanding debt that is held by the general 

16 public. 

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

18 Governors of the Federal Reserve System shall an19 nually adjust the dollar amount referred to in para20 graph (1) in the Small Bank Holding Company Pol21 icy Statement on Assessment of Financial and Man22 agerial Factors by an amount equal to the percent23 age increase, for the most recent year, in total assets 

24 held by all insured depository institutions, as deter25 mined by the Board. 


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

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

3 month period beginning on the date of the enactment of 

4 this Act, the Board of Governors of the Federal Reserve 

5 System shall publish in the Federal Register proposed re6 visions to the Small Bank Holding Company Policy State7 ment on Assessment of Financial and Managerial Factors 

8 (12 C.F.R. part 225—appendix C) such that the debt-to9 equity ratio allowable for a small bank holding company 

10 in order to remain eligible to pay a corporate dividend and 

11 to remain eligible for expedited processing procedures 

12 under Regulation Y of the Board of Governors of the Fed13 eral Reserve System would increase from 1:1 to 3:1. 

14 SEC. 104. ACCOUNTING PRINCIPLES SHALL REFLECT BUSI15 NESS MODELS. 

16 (a) Section 13(a) of the Securities Exchange Act of 

17 1934 (15 U.S.C. 78m) is redesignated as paragraph (a)(1) 

18 and paragraphs (1) and (2) are redesignated as subpara19 graphs (A) and (B). 

20 (b) Section 13(a) is further amended by adding the 

21 following new paragraph— 

22 ‘‘(2) The Commission shall ensure that information, 

23 documents, and reports accurately and appropriately re24 flect the business model of the issuer.’’. 


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1 SEC. 105. ACCOUNTING PRINCIPLES COST-BENEFIT RE2 QUIREMENTS. 

3 The Securities Exchange Act of 1934 is amended by 

4 inserting after section 13A the following new section: 

5 ‘‘SEC. 13B. GENERALLY ACCEPTED ACCOUNTING PRIN6 CIPLES COST-BENEFIT REQUIREMENTS. 

7 ‘‘The Commission shall conduct analyses of the costs 

8 and benefits (including economic benefits) of any new or 

9 amended generally accepted accounting principle and may 

10 not approve any new or amended generally accepted ac11 counting principle unless the Commission determines 

12 that— 

13 ‘‘(1) the benefits of such principle significantly 

14 outweigh its costs; and 

15 ‘‘(2) such principle would not have a negative 

16 economic impact on insured depository institutions 

17 with total assets of $10,000,000,000 or less.’’. 

18 SEC. 106. INCREASE IN SHAREHOLDER REGISTRATION 

19 THRESHOLD. 

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

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

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

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

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

25 a bank holding company, as such term is defined in 


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1 section 2 of the Bank Holding Company Act of 1956 

2 (12 U.S.C. 1841), 2000 persons or more; and 

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

4 or bank holding company, 500 persons or more,’’; 

5 and 

6 (2) in paragraph (4), by striking ‘‘three hun7 dred’’ and inserting ‘‘300 persons, or, in the case of 

8 a bank or a bank holding company, as such term is 

9 defined in section 2 of the Bank Holding Company 

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

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

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

13 the third sentence, by striking ‘‘three hundred’’ and in14 serting ‘‘300 persons, or, in the case of bank or a bank 

15 holding company, as such term is defined in section 2 of 

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

17 1841), 1700’’. 

18 SEC. 107. FSOC REVIEW OF BUREAU REGULATIONS. 

19 Section 1023(a) of the Consumer Financial Protec20 tion Act of 2010 is amended— 

21 (1) by striking ‘‘provision would put the safety 

22 and soundness of the United States banking system 

23 or the stability of the financial system of the United 

24 States at risk.’’; and 

25 (2) by inserting the following: 


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1 ‘‘provision— 

2 ‘‘(1) is inconsistent with the safe and sound op3 eration of United States financial institutions; or 

4 ‘‘(2) could adversely impact a subset of the 

5 banking industry disproportionately.’’. 

6 SEC. 108. FEDERAL RESERVE EXAMINATION AUTHORITY. 

7 Section 1012(c) of the Consumer Financial Protec8 tion Act of 2010 is amended— 

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

10 (2) by redesignating paragraphs (2), (3), (4), 

11 and (5) as paragraphs (1), (2), (3), and (4), respec12 tively. 

13 TITLE II—REGULATORY RELIEF 

14 FOR COMMUNITY BANKS AND 

15 THEIR CUSTOMERS 

16 SEC. 201. ESCROW REQUIREMENTS. 

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

18 Lending Act, as added by section 1461(a) of the Dodd19 Frank Wall Street Reform and Consumer Protection Act, 

20 is amended— 

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

22 and (4) as subparagraph (A), (B), (C), and (D) and 

23 moving such subparagraphs 2ems to the right; 

24 (2) striking ‘‘The Board’’ and inserting the fol25 lowing: 


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1 ‘‘(1) IN GENERAL.—The Board’’; and 

2 (3) by adding at the end the following new 

3 paragraph: 

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

5 CREDITORS.—The Board shall, by regulation, exempt 

6 from the requirements of subsection (a) any loan secured 

7 by a first lien on a consumer’s principle dwelling, if such 

8 loan is held by a creditor with assets of $10,000,000,000 

9 or less.’’. 

10 SEC. 202. EXCEPTION TO ANNUAL PRIVACY NOTICE RE11 QUIREMENT UNDER THE GRAMM-LEACH-BLI12 LEY ACT. 

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

14 U.S.C. 6803) is amended by adding the following new sub15 sections: 

16 ‘‘(f) EXCEPTION TO ANNUAL NOTICE REQUIRE17 MENT.—A financial institution that— 

18 ‘‘(1) provides nonpublic personal information 

19 only in accordance with the provisions of subsection 

20 (b)(2) or (e) of section 502 or regulations prescribed 

21 under section 504(b), 

22 ‘‘(2) does not share information with affiliates 

23 under section 603(d)(2)(A) of the Fair Credit Re24 porting Act, and 


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1 ‘‘(3) has not changed its policies and practices 

2 with regard to disclosing nonpublic personal infor3 mation from the policies and practices that were dis4 closed in the most recent disclosure sent to con5 sumers in accordance with this subsection, 

6 shall not be required to provide an annual disclosure under 

7 this subsection until such time as the financial institution 

8 fails to comply with any criteria described in paragraph 

9 (1), (2), or (3). 

10 ‘‘(g) EXCEPTION TO NOTICE REQUIREMENT.—A fi11 nancial institution shall not be required to provide any dis12 closure under this section if— 

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

14 State and is subject to existing regulation of con15 sumer confidentiality that prohibits disclosure of 

16 nonpublic personal information without knowing and 

17 expressed consent of the consumer in the form of 

18 laws, rules, or regulation of professional conduct or 

19 ethics promulgated either by the court of highest ap20 pellate authority or by the principal legislative body 

21 or regulatory agency or body of any State of the 

22 United States, the District of Columbia, or any ter23 ritory of the United States; or 

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

25 State and becomes subject to future regulation of 


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1 consumer confidentiality that prohibits disclosure of 

2 nonpublic personal information without knowing and 

3 expressed consent of the consumer in the form of 

4 laws, rules, or regulation of professional conduct or 

5 ethics promulgated either by the court of highest ap6 pellate authority or by the principal legislative body 

7 or regulatory agency or body of any State of the 

8 United States, the District of Columbia, any terri9 tory of the United States.’’. 

10 SEC. 203. AGRICULTURE LOAN GUARANTEES. 

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

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

13 is amended by inserting before the period the following: 

14 ‘‘, except that for loans under $5,000,000, the Secretary 

15 may assess a 1-time fee of 1 percent or less of the guaran16 teed principal portion of the loan’’. 

17 (b) GUARANTEE AMOUNTS.—Section 364 of the Con18 solidated Farm and Rural Development Act (7 U.S.C. 

19 2006f) is amended— 

20 (1) in subsection (a)— 

21 (A) in paragraph (3)— 

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

23 ‘‘shall’’; and 

24 (ii) by striking ‘‘standards that are 

25 not less stringent than’’; 


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

2 the period the following: ‘‘except that the Sec3 retary may guarantee not more than 90 percent 

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

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

6 (C) in paragraph (6); and 

7 (2) in subsection (b)— 

8 (A) by amending paragraph (1) to read as 

9 follows: 

10 ‘‘(1) IN GENERAL.—The Secretary may estab11 lish a preferred certified lender’s program for lend12 ers who— 

13 ‘‘(A) establish their— 

14 ‘‘(i) knowledge of, and experience 

15 under, the program established under sub16 section (a); 

17 ‘‘(ii) knowledge of the regulations con18 cerning the particular guaranteed loan pro19 gram; and 

20 ‘‘(iii) proficiency related to the cer21 tified lender program requirement; or 

22 ‘‘(B) in the absence of a demand for or ex23 perience with guaranteed loans having been 

24 made under a rural development program, esVerDate Mar 15 2010 05:26 May 04, 2011 Jkt 099200 PO 00000 Frm 00014 Fmt 6652 Sfmt 6201 E:\BILLS\H1697.IH H1697

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1 tablish their proven experience in having made 

2 small business loans.’’; and 

3 (B) in paragraph (5)(A), by inserting be4 fore the semicolon the following: ‘‘except that 

5 the Secretary may guarantee not more than 90 

6 percent of a loan made by a certified lender if 

7 such loan is in an amount of less than 

8 $5,000,000’’. 

9 SEC. 204. REIMBURSEMENT FOR PRODUCTION OF MAN10 DATED RECORDS. 

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

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

13 3401(4)) is amended by inserting before the semicolon the 

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

15 such term includes any entity’’. 

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

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

18 is amended by adding at the end the following new sub19 section: 

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

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

22 such subsection shall by paid by a Government authority 

23 for all records required to be assembled or provided for 

24 any Federal law enforcement or investigative purpose by 


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1 any financial institution with total assets of 

2 $10,000,000,000 or less.’’. 

3 SEC. 205. LOAN AMORTIZATION. 

4 (a) IN GENERAL.—For purposes of capital calcula5 tion under the Financial Institutions Examination Coun6 cil’s Consolidated Reports of Condition, an eligible institu7 tion may choose to amortize any loss or write-down, on 

8 a quarterly straight-line basis over the 10-year period be9 ginning with the month in which such loss or write-down 

10 occurs, resulting from the application of FASB Statement 

11 114 or 144 to— 

12 (1) other real estate owned (as defined under 

13 section 34.81 of title 12, Code of Federal Regula14 tions); or 

15 (2) an impaired loan secured by real estate, 

16 provided that the institution discloses the difference 

17 in the amount of the institution’s capital, when cal18 culated taking into account the temporary amortiza19 tion, from the amount of the institution’s capital 

20 when calculated without taking into account the 

21 temporary amortization on the Financial Institutions 

22 Examination Council’s Consolidated Reports of Con23 dition. 

24 (b) ELIGIBLE INSTITUTION DEFINED.—For pur25 poses of this section, the term ‘‘eligible institution’’ has 


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1 the meaning given such term under section 4102(11) of 

2 the Small Business Jobs Act of 2010. 

3 (c) EFFECTIVE DATE.—The provisions of this section 

4 shall apply to loan originations that occurred on or after 

5 January 1, 2003, and before January 1, 2008. 

6 SEC. 206. LOAN APPRAISALS. 

7 For purposes of determining capital requirements or 

8 measuring capital of an insured depository institution 

9 under section 38 of the Federal Deposit Insurance Act (12 

10 U.S.C. 1831o) or any other provision of law, an insured 

11 depository institution may average, over a five-year period, 

12 the appraised value of any real estate securing a loan held 

13 by the institution. 

14 SEC. 207. CREDIT RATINGS. 

15 Section 939A(b) of the Dodd-Frank Wall Street Re16 form and Consumer Protection Act is amended by striking 

17 the first sentence and inserting: ‘‘Each such agency shall 

18 modify any such regulations identified by the review con19 ducted under subsection (a) and require that ratings20 based determinations be confirmed by an analysis of the 

21 probability of a loss from holding such an asset, but only 

22 in circumstances where external credit ratings present an 

23 incomplete picture of the risks presented to an institution, 

24 or where those risks are heightened due to concentrations 

25 in particular assets classes.’’. 


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1 SEC. 208. SMALL BUSINESS DATA COLLECTION EXCLUSION. 

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

3 Act is amended by inserting before the period the fol4 lowing: ‘‘and that has assets of more than 

5 $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 the 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 the 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 the en4 actment 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 the 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 05:26 May 04, 2011 Jkt 099200 PO 00000 Frm 00028 Fmt 6652 Sfmt 6201 E:\BILLS\H1697.IH H1697

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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 a S cor19 poration which is a community bank (as defined 

20 in section 11(e)(4)), the net amount required to 

21 be taken into account by shareholders (without 

22 regard to this paragraph) shall be reduced by 

23 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 the 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 carryforwards 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 Treasury 

2 or the Secretary’s designee shall prescribe such rules as 

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

4 amendments made by this section, including anti-stuffing 

5 rules, antichurning rules (including rules relating to sale6 leasebacks), and rules similar to the rules under section 

7 1091 of the Internal Revenue Code of 1986 relating to 

8 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 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 the enactment of this clause’’. 

Æ 


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