II 

110TH CONGRESS 

2D SESSION S. 3518 

To amend the Internal Revenue Code of 1986 to modify the limitations 

on the deduction of interest by financial institutions which hold taxexempt bonds, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

SEPTEMBER 18 (legislative day, SEPTEMBER 17), 2008 

Mr. BINGAMAN (for himself and Mr. CRAPO) introduced the following bill; 

which was read twice and referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to modify 

the limitations on the deduction of interest by financial 

institutions which hold tax-exempt bonds, and for other 

purposes. 

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

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Municipal Bond Mar5 ket Support Act of 2008’’. 

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•S 3518 IS

1 SEC. 2. MODIFICATION OF SMALL ISSUER EXCEPTION TO 

2 TAX-EXEMPT INTEREST EXPENSE ALLOCA3 TION RULES FOR FINANCIAL INSTITUTIONS. 

4 (a) INCREASE IN LIMITATION.—Subparagraphs 

5 (C)(i), (D)(i), and (D)(iii)(II) of section 265(b)(3) of the 

6 Internal Revenue Code of 1986 are each amended by 

7 striking ‘‘$10,000,000’’ and inserting ‘‘$30,000,000’’. 

8 (b) REPEAL OF AGGREGATION RULES APPLICABLE

9 TO SMALL ISSUER DETERMINATION.—Paragraph (3) of 

10 section 265(b) of such Code is amended by striking sub11 paragraphs (E) and (F). 

12 (c) ELECTION TO APPLY LIMITATION AT BORROWER

13 LEVEL.—Paragraph (3) of section 265(b) of such Code, 

14 as amended by subsection (b), is amended by adding at 

15 the end the following new subparagraph: 

16 ‘‘(E) ELECTION TO APPLY LIMITATION ON

17 AMOUNT OF OBLIGATIONS AT BORROWER

18 LEVEL.— 

19 ‘‘(i) IN GENERAL.—An issuer, the 

20 proceeds of the obligations of which are to 

21 be used to make or finance eligible loans, 

22 may elect to apply subparagraphs (C) and 

23 (D) by treating each borrower as the issuer 

24 of a separate issue. 

25 ‘‘(ii) ELIGIBLE LOAN.—For purposes 

26 of this subparagraph— 

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•S 3518 IS

1 ‘‘(I) IN GENERAL.—The term ‘el2 igible loan’ means one or more loans 

3 to a qualified borrower the proceeds of 

4 which are used by the borrower and 

5 the outstanding balance of which in 

6 the aggregate does not exceed 

7 $30,000,000. 

8 ‘‘(II) QUALIFIED BORROWER.— 

9 The term ‘qualified borrower’ means a 

10 borrower which is an organization de11 scribed in section 501(c)(3) and ex12 empt from taxation under section 

13 501(a) or a State or political subdivi14 sion thereof. 

15 ‘‘(iii) MANNER OF ELECTION.—The 

16 election described in clause (i) may be 

17 made by an issuer for any calendar year at 

18 any time prior to its first issuance during 

19 such year of obligations the proceeds of 

20 which will be used to make or finance one 

21 or more eligible loans.’’. 

22 (d) INFLATION ADJUSTMENT.—Paragraph (3) of sec23 tion 265(b) of such Code, as amended by subsections (b) 

24 and (c), is amended by adding at the end the following 

25 new subparagraph: 

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•S 3518 IS

1 ‘‘(F) INFLATION ADJUSTMENT.—In the 

2 case of any calendar year after 2009, the 

3 $30,000,000 amounts contained in subpara4 graphs (C)(i), (D)(i), (D)(iii)(II), and (E)(ii)(I) 

5 shall each be increased by an amount equal 

6 to— 

7 ‘‘(i) such dollar amount, multiplied by 

8 ‘‘(ii) the cost-of-living adjustment de9 termined under section 1(f)(3) for such 

10 calendar year, determined by substituting 

11 ‘calendar year 2008’ ‘for calendar year 

12 1992’ in subparagraph (B) thereof. 

13 Any increase determined under the preceding 

14 sentence shall be rounded to the nearest mul15 tiple of $100,000.’’. 

16 (e) EFFECTIVE DATE.—The amendments made by 

17 this section shall apply to obligations issued after Decem18 ber 31, 2008. 

19 SEC. 3. DE MINIMIS SAFE HARBOR EXCEPTION FOR TAX-EX20 EMPT INTEREST EXPENSE OF FINANCIAL IN21 STITUTIONS AND BROKERS. 

22 (a) FINANCIAL INSTITUTIONS.—Subsection (b) of 

23 section 265 of the Internal Revenue Code of 1986 is 

24 amended by adding at the end the following new para25 graph: 

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•S 3518 IS

1 ‘‘(7) DE MINIMIS EXCEPTION.—Paragraph (1) 

2 shall not apply to any financial institution if the por3 tion of the taxpayer’s holdings of tax-exempt securi4 ties is less than 2 percent of the taxpayer’s assets.’’. 

5 (b) BROKERS.—Subsection (a) of section 265 of the 

6 Internal Revenue Code of 1986 is amended by adding at 

7 the end the following new paragraph: 

8 ‘‘(7) DE MINIMIS EXCEPTION.—Paragraph (2) 

9 shall not apply to any broker (as defined in section 

10 6045(c)(1)) if the portion of the taxpayer’s holdings 

11 of tax-exempt securities is less than 2 percent of the 

12 taxpayer’s assets.’’. 

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

14 this section shall apply to taxable years beginning after 

15 the date of the enactment of this Act. 

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