II 

110TH CONGRESS 

1ST SESSION S. 1405 

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 

MAY 16, 2007 

Mr. BROWNBACK (for himself, Mr. ROBERTS, and Mr. COBURN) 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. Community bank protection under the Securities Investor Protection 

Act of 1970. 

Sec. 105. Updating the amount of small bank exception for cap on aggregate 

loans to officers. 

Sec. 106. Consideration of community bank impact. 

Sec. 107. Increase in shareholder registration threshold. 

TITLE II—ADDITIONAL REGULATORY RELIEF FOR COMMUNITY 

BANKS AND THEIR CUSTOMERS 

Sec. 201. Enhance customer capital access. 

Sec. 202. Seasoned customer CTR exemption. 

Sec. 203. Exception to annual privacy notice requirement under the GrammLeach-Bliley Act. 

Sec. 204. Privacy protection of consumer reports during loan application. 

Sec. 205. Update in the special regulatory lending limit on loans to executive 

officers. 

Sec. 206. Reimbursement for production of mandated records. 

Sec. 207. Study by the Comptroller General on implementation of commercial 

real estate guidance. 

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

MUNICIPALITIES, BANKS ORGANIZED AS LIMITED LIABILITY 

COMPANIES, INDIVIDUAL SAVERS, AND SMALL BUSINESSES 

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. Repeal of individual alternative minimum tax. 

Sec. 306. Young savers accounts. 

Sec. 307. Section 179 expensing for small business. 

TITLE IV—TAX RELIEF FOR COMMUNITY BANKS AND HOLDING 

COMPANIES 

Sec. 401. Limited tax credit. 

Sec. 402. Community bank relief from minimum tax. 

TITLE V—SMALL BUSINESS SUBCHAPTER S REFORMS 

Sec. 501. Increasing Shareholder Limit for Subchapter S to 150. 

Sec. 502. Treatment of qualifying director shares. 

Sec. 503. Recapture of bad debt reserves. 


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Sec. 504. Issuance of preferred stock permitted for subchapter S corporations. 

TITLE VI—SMALL BUSINESS LENDING ENHANCEMENTS 

Sec. 601. Reduced fees for section 7(a) loans. 

Sec. 602. Low documentation loan program made mandatory. 

Sec. 603. Effective date. 

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 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) SHORT FORM DEFINED.—The term 

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

20 report of condition required under paragraph 

21 (3), means a report of condition in a format es22 tablished by the appropriate Federal banking 


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1 agency, after notice and opportunity for com2 ment, that— 

3 ‘‘(i) is significantly and materially less 

4 burdensome for the insured depository in5 stitution to prepare than the format of the 

6 report of condition required under para7 graph (3); and 

8 ‘‘(ii) provides sufficient material infor9 mation for the appropriate Federal bank10 ing agency to assure the maintenance of 

11 the safe and sound condition of the deposi12 tory institution and safe and sound prac13 tices.’’. 

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

15 out the amendment made by subsection (a) shall be pub16 lished in final form before the end of the 6-month period 

17 beginning on the date of the enactment of this Act. 

18 SEC. 102. COMMUNITY BANK EXEMPTION FROM ANNUAL 

19 MANAGEMENT ASSESSMENT OF INTERNAL 

20 CONTROLS REQUIREMENT OF THE SAR21 BANES-OXLEY ACT OF 2002. 

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

23 U.S.C. 7262) is amended by adding at the end the fol24 lowing new subsection: 

25 ‘‘(c) COMMUNITY BANK EXEMPTION.— 


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

2 in any year to any insured depository institution 

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

4 total assets, as determined on a consolidated basis, 

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

6 ‘‘(2) ADJUSTMENT OF AMOUNT.—The Commis7 sion shall annually adjust the dollar amount in para8 graph (1) by an amount equal to the percentage in9 crease, for the most recent year, in total assets held 

10 by all depository institutions, as reported by the 

11 Federal Deposit Insurance Corporation.’’. 

12 SEC. 103. CHANGES REQUIRED TO SMALL BANK HOLDING 

13 COMPANY POLICY STATEMENT ON ASSESS14 MENT OF FINANCIAL AND MANAGERIAL FAC15 TORS. 

16 (a) SMALL BANK HOLDING COMPANY POLICY

17 STATEMENT ON ASSESSMENT OF FINANCIAL AND MANA18 GERIAL FACTORS.— 

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

20 month period beginning on the date of the enact21 ment of this Act, the Board of Governors of the 

22 Federal Reserve System shall publish in the Federal 

23 Register proposed revisions to the Small Bank Hold24 ing Company Policy Statement on Assessment of Fi25 nancial and Managerial Factors (12 C.F.R. part 


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1 225—appendix C) that provide that the policy shall 

2 apply to a bank holding company which has pro 

3 forma consolidated assets of less than 

4 $1,000,000,000 and that— 

5 (A) is not engaged in any nonbanking ac6 tivities involving significant leverage; and 

7 (B) does not have a significant amount of 

8 outstanding debt that is held by the general 

9 public. 

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

11 Governors of the Federal Reserve System shall an12 nually adjust the dollar amount referred to in para13 graph (1) in the Small Bank Holding Company Pol14 icy Statement on Assessment of Financial and Man15 agerial Factors by an amount equal to the percent16 age increase, for the most recent year, in total assets 

17 held by all insured depository institutions, as deter18 mined by the Board. 

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

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

21 month period beginning on the date of the enactment of 

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

23 System shall publish in the Federal Register proposed re24 visions to the Small Bank Holding Company Policy State25 ment on Assessment of Financial and Managerial Factors 


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1 (12 C.F.R. part 225—appendix C) such that the debt-to2 equity ratio allowable for a small bank holding company 

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

4 to remain eligible for expedited processing procedures 

5 under Regulation Y of the Board of Governors of the Fed6 eral Reserve System would increase from 1:1 to 3:1. 

7 SEC. 104. COMMUNITY BANK PROTECTION UNDER THE SE8 CURITIES INVESTOR PROTECTION ACT OF 

9 1970. 

10 Section 9 of the Securities Investor Protection Act 

11 of 1970 (15 U.S.C. 78fff–3) is amended by adding at the 

12 end the following new subsection: 

13 ‘‘(d) COMMUNITY BANK PROTECTION.— 

14 ‘‘(1) IN GENERAL.—The prohibition on ad15 vances in subsection (a)(5) shall not apply to a bank 

16 with total assets, on a consolidated basis, of less 

17 than $1,000,000,000. 

18 ‘‘(2) ADJUSTMENT OF AMOUNT.—The Commis19 sion shall annually adjust the dollar amount in para20 graph (1) by an amount equal to the percentage in21 crease, for the most recent year, in total assets held 

22 by all depository institutions, as reported by the 

23 Federal Deposit Insurance Corporation.’’. 


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1 SEC. 105. UPDATING THE AMOUNT OF SMALL BANK EXCEP2 TION FOR CAP ON AGGREGATE LOANS TO OF3 FICERS. 

4 Subparagraph (C) of section 22(h)(5) of the Federal 

5 Reserve Act (12 U.S.C. 375b(5)(C)) is amended— 

6 (1) by striking ‘‘$100,000,000 of deposits’’ and 

7 inserting ‘‘$1,000,000,000 of total assets (on a con8 solidated basis)’’; 

9 (2) by striking ‘‘2 times’’ and inserting ‘‘4 

10 times’’; and 

11 (3) by adding at the end the following new sen12 tence: ‘‘The Board shall annually adjust the dollar 

13 amount in the 1st sentence of this subparagraph by 

14 an amount equal to the percentage increase, for the 

15 most recent year, in total assets held by all deposi16 tory institutions, as reported by the Federal Deposit 

17 Insurance Corporation.’’. 

18 SEC. 106. CONSIDERATION OF COMMUNITY BANK IMPACT. 

19 Before establishing or making any revision in any 

20 regulation, requirement, or guideline applicable to insured 

21 depository institutions (as that term is defined in section 

22 3 of the Federal Deposit Insurance Act), the appropriate 

23 Federal banking agency (as that term is defined in such 

24 section) shall take into account the effect of the establish25 ment of the regulation, requirement, or guideline on com26 munity banks and savings associations. 


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1 SEC. 107. INCREASE IN SHAREHOLDER REGISTRATION 

2 THRESHOLD. 

3 Subsection (g) of section 12 of the Securities Ex4 change Act of 1934 (15 U.S.C. 78l(g)) is amended by 

5 striking ‘‘instrumentality of interstate commerce shall— 

6 ’’ and all that follows through ‘‘register such security by 

7 filing’’ and inserting ‘‘instrumentality of interstate com8 merce and which has total assets exceeding $1,000,000 

9 and a class of equity security (other than an exempted 

10 security) held of record by more than 1,000 persons shall 

11 register such security by filing’’. 

12 TITLE II—ADDITIONAL REGU13 LATORY RELIEF FOR COMMU14 NITY BANKS AND THEIR CUS15 TOMERS 

16 SEC. 201. ENHANCE CUSTOMER CAPITAL ACCESS. 

17 (a) OPTIONAL CONSUMER WAIVERS OF RIGHT OF

18 RESCISSION.—Section 125(d) of the Truth in Lending Act 

19 (15 U.S.C. 1635(d)) is amended— 

20 (1) by striking ‘‘The Board may’’ and inserting 

21 ‘‘WAIVERS OF RESCISSION RIGHTS.— 

22 ‘‘(1) PERSONAL FINANCIAL EMERGENCIES.— 

23 The Board may’’; and 

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

25 paragraph: 


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1 ‘‘(2) WAIVERS WHEN CREDITOR IS INSURED

2 DEPOSITORY INSTITUTION.—The Board shall pre3 scribe regulations authorizing a consumer to waive 

4 the rights provided under this section when the cred5 itor is an insured depository institution (as that 

6 term is defined in section 3(c)(2) of the Federal De7 posit Insurance Act) in such manner and after such 

8 notice as the Board may prescribe.’’. 

9 (b) EXEMPTION IN CASE OF REFINANCING WITH NO

10 NEW MONEY REGARDLESS OF CREDITOR.—Section 

11 125(e)(2) of the Truth in Lending Act (15 U.S.C. 

12 1635(e)(2)) is amended by striking ‘‘by the same cred13 itor’’. 

14 (c) EXEMPT HOME EQUITY LINES OF CREDIT.—Sec15 tion 125(e)(4) of the Truth in Lending Act (15 U.S.C. 

16 1635(e)(4)) is amended to read as follows: 

17 ‘‘(4) advances under an open end consumer 

18 credit plan which provides for any extension of cred19 it which is secured by the consumer’s principal 

20 dwelling.’’. 

21 SEC. 202. SEASONED CUSTOMER CTR EXEMPTION. 

22 (a) SHORT TITLE.—This section may be cited as the 

23 ‘‘Seasoned Customer CTR Exemption Act of 2007’’. 


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1 (b) SEASONED CUSTOMER EXEMPTION.—Section 

2 5313(e) of title 31, United States Code, is amended to 

3 read as follows: 

4 ‘‘(e) QUALIFIED CUSTOMER EXEMPTION.— 

5 ‘‘(1) IN GENERAL.—Before the end of the 270- 

6 day period beginning on the date of the enactment 

7 of the Seasoned Customer CTR Exemption Act of 

8 2007, the Secretary of the Treasury shall prescribe 

9 regulations that exempt any depository institution 

10 from filing a report pursuant to this section in a 

11 transaction for the payment, receipt, or transfer of 

12 United States coins or currency (or other monetary 

13 instruments the Secretary of the Treasury pre14 scribes) with a qualified customer of the depository 

15 institution. 

16 ‘‘(2) QUALIFIED CUSTOMER DEFINED.—For 

17 purposes of this section, the term ‘qualified cus18 tomer’, with respect to a depository institution, has 

19 such meaning as the Secretary of the Treasury shall 

20 prescribe, which shall include any person that— 

21 ‘‘(A) is incorporated or organized under 

22 the laws of the United States or any State, in23 cluding a sole proprietorship (as defined in 31 

24 C.F.R. 103.22(d)(6)(vii), as in effect on May 


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1 10, 2006), or is registered as, and eligible to do 

2 business within, the United States or a State; 

3 ‘‘(B) has maintained a deposit account 

4 with the depository institution for at least 12 

5 months; and 

6 ‘‘(C) has engaged, using such account, in 

7 multiple currency transactions that are subject 

8 to the reporting requirements of subsection (a). 

9 ‘‘(3) REGULATIONS.— 

10 ‘‘(A) IN GENERAL.—The Secretary of the 

11 Treasury shall prescribe regulations requiring a 

12 depository institution to file a 1-time notice of 

13 designation of exemption for each qualified cus14 tomer of the depository institution. 

15 ‘‘(B) FORM AND CONTENT OF EXEMPTION

16 NOTICE.—The Secretary shall by regulation 

17 prescribe the form, manner, content, and timing 

18 of the qualified customer exemption notice and 

19 such notice shall include information sufficient 

20 to identify the qualified customer and the ac21 counts of the customer. 

22 ‘‘(C) AUTHORITY OF SECRETARY.— 

23 ‘‘(i) IN GENERAL.—The Secretary 

24 may suspend, reject, or revoke any quali25 fied customer exemption notice, in accordVerDate Aug 31 2005 01:37 May 18, 2007 Jkt 059200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S1405.IS S1405

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1 ance with criteria prescribed by the Sec2 retary by regulation. 

3 ‘‘(ii) CONDITIONS.—The Secretary 

4 may establish conditions, in accordance 

5 with criteria prescribed by regulation, 

6 under which exempt qualified customers of 

7 an insured depository institution that is 

8 merged with or acquired by another in9 sured depository institution will continue 

10 to be treated as designated exempt quali11 fied customers of the surviving or acquir12 ing institution.’’. 

13 (c) PERIODIC REVIEW OF REPORTING THRESHOLD

14 AND ADJUSTMENT FOR INFLATION.—Section 5318 of title 

15 31, United States Code, is amended by adding at the end 

16 the following new subsection: 

17 ‘‘(o) PERIODIC REVIEW OF REPORTING THRESHOLD

18 AND ADJUSTMENT FOR INFLATION.— 

19 ‘‘(1) IN GENERAL.—Before the end of the 90- 

20 day period beginning on the date of the enactment 

21 of the Seasoned Customer CTR Exemption Act of 

22 2007, and at least every 5 years after the end of 

23 such period, the Secretary of the Treasury shall— 

24 ‘‘(A) review the continuing appropriate25 ness, relevance, and utility of each threshold 


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1 amount or denomination established by the Sec2 retary, in the Secretary’s discretion, for any re3 port required by the Secretary under this sub4 chapter; and 

5 ‘‘(B) adjust each such amount, at such 

6 time and in such manner as the Secretary con7 siders appropriate, for any inflation that the 

8 Secretary determines has occurred since the 

9 date any such amount was established or last 

10 adjusted, as the case may be. 

11 ‘‘(2) REPORT.—Before the end of the 60-day 

12 period beginning upon the completion of any review 

13 by the Secretary of the Treasury under paragraph 

14 (1), the Secretary shall submit a report to the Con15 gress containing the findings and conclusions of the 

16 Secretary in connection with such review, together 

17 with an explanation for any adjustment, or lack of 

18 adjustment, of any threshold amount or denomina19 tion by the Secretary as a result of such review, in20 cluding the adjustment for inflation.’’. 


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1 SEC. 203. EXCEPTION TO ANNUAL PRIVACY NOTICE RE2 QUIREMENT UNDER THE GRAMM-LEACH-BLI3 LEY ACT. 

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

5 U.S.C. 6803) is amended by adding the following new sub6 sections: 

7 ‘‘(f) EXCEPTION TO ANNUAL NOTICE REQUIRE8 MENT.—A financial institution that— 

9 ‘‘(1) provides nonpublic personal information 

10 only in accordance with the provisions of subsection 

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

12 under section 504(b); 

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

14 under section 603(d)(2)(A) of the Fair Credit Re15 porting Act; and 

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

17 with regard to disclosing nonpublic personal infor18 mation from the policies and practices that were dis19 closed in the most recent disclosure sent to con20 sumers in accordance with this subsection, 

21 shall not be required to provide an annual disclosure under 

22 this subsection until such time as the financial institution 

23 fails to comply with any criteria described in paragraph 

24 (1), (2), or (3). 


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1 ‘‘(g) EXCEPTION TO NOTICE REQUIREMENT.—A fi2 nancial institution shall not be required to provide any dis3 closure under this section if— 

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

5 State and is subject to existing regulation of con6 sumer confidentiality that prohibits disclosure of 

7 nonpublic personal information without knowing and 

8 expressed consent of the consumer in the form of 

9 laws, rules, or regulation of professional conduct or 

10 ethics promulgated either by the court of highest ap11 pellate authority or by the principal legislative body 

12 or regulatory agency or body of any State of the 

13 United States, the District of Columbia, any terri14 tory of the United States, Puerto Rico, Guam, 

15 American Samoa, the Trust Territory of the Pacific 

16 Islands, the Virgin Islands, or the Northern Mariana 

17 Islands; or 

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

19 State and becomes subject to future regulation of 

20 consumer confidentiality that prohibits disclosure of 

21 nonpublic personal information without knowing and 

22 expressed consent of the consumer in the form of 

23 laws, rules, or regulation of professional conduct or 

24 ethics promulgated either by the court of highest ap25 pellate authority or by the principal legislative body 


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1 or regulatory agency or body of any State of the 

2 United States, the District of Columbia, any terri3 tory of the United States, Puerto Rico, Guam, 

4 American Samoa, the Trust Territory of the Pacific 

5 Islands, the Virgin Islands, or the Northern Mariana 

6 Islands.’’. 

7 SEC. 204. PRIVACY PROTECTION OF CONSUMER REPORTS 

8 DURING LOAN APPLICATION. 

9 Section 604(c) of the Fair Credit Reporting Act (15 

10 U.S.C. 1681b(c)) is amended by adding at the end the 

11 following new paragraph 

12 ‘‘(4) REPORT PROMPTED BY A REQUEST FOR A

13 CONSUMER REPORT FROM ANOTHER CREDITOR PRO14 HIBITED.— 

15 ‘‘(A) IN GENERAL.—A consumer reporting 

16 agency shall not furnish a consumer report if 

17 such action is prompted by a request for a con18 sumer report from another creditor unless ap19 proved in writing by the consumer. 

20 ‘‘(B) REGULATIONS.—The Commission 

21 shall prescribe regulations in final form to en22 force this paragraph before the end of the 180- 

23 day period beginning on the date of the enact24 ment of the Communities First Act.’’. 


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1 SEC. 205. UPDATE IN THE SPECIAL REGULATORY LENDING 

2 LIMIT ON LOANS TO EXECUTIVE OFFICERS. 

3 Section 22(g) of the Federal Reserve Act (12 U.S.C. 

4 375a) is amended by inserting after paragraph (8) the fol5 lowing new paragraph: 

6 ‘‘(9) LIMIT APPLICABLE ON AGGREGATE

7 AMOUNT OF CERTAIN LOANS TO EXECUTIVE OFFI8 CERS OF COMMUNITY BANKS.—Notwithstanding any 

9 regulation prescribed by the Board under paragraph 

10 (4) and subject to other conditions imposed under 

11 this subsection and subsection (h), the aggregate 

12 amount of extensions of credit that a member bank 

13 may make to an executive officer of the bank under 

14 paragraph (4) shall not exceed $250,000.’’. 

15 SEC. 206. REIMBURSEMENT FOR PRODUCTION OF MAN16 DATED RECORDS. 

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

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

19 3401(4)) is amended by inserting ‘‘, except that, for pur20 poses of section 1115, such term includes any entity’’ after 

21 ‘‘fewer individuals’’. 

22 (b) CLARIFICATION OF SCOPE.—Section 1115(b) of 

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

24 3415) is amended to read as follows: 

25 ‘‘(b) CLARIFICATION OF SCOPE.—Notwithstanding 

26 the introductory clause to the first sentence of subsection 


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1 (a), this section shall apply to all records required to be 

2 assembled or provided for any Federal law enforcement 

3 or investigative purpose.’’. 

4 SEC. 207. STUDY BY THE COMPTROLLER GENERAL ON IM5 PLEMENTATION OF COMMERCIAL REAL ES6 TATE GUIDANCE. 

7 The Comptroller General shall conduct a study on the 

8 implementation, by any Federal banking agency, of exam9 iner guidance on concentrations in commercial real estate 

10 lending, including the impact on— 

11 (1) local economies; 

12 (2) the regulatory burden on banks 

13 (3) community bank portfolios; and 

14 (4) community banks’ market share. 


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1 TITLE III—TAX RELIEF FOR 

2 BANK DEPOSITORS, RURAL 

3 BANKS, MUNICIPALITIES, 

4 BANKS ORGANIZED AS LIM5 ITED LIABILITY COMPANIES, 

6 INDIVIDUAL SAVERS, AND 

7 SMALL BUSINESSES 

8 SEC. 301. REDUCED RATE AND DEFERRAL OF INCOME REC9 OGNITION ON LONG-TERM CERTIFICATES OF 

10 DEPOSIT. 

11 (a) DEFERRAL OF INCOME RECOGNITION.—Section 

12 451 of the Internal Revenue Code of 1986 (relating to 

13 general rule for taxable year of inclusion) is amended by 

14 adding at the end the following new subsection: 

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

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

17 cash receipts and disbursements method of accounting 

18 who holds a nonnegotiable certificate of deposit, interest 

19 income which is not made available for withdrawal before 

20 maturity of the certificate without penalty shall not be in21 cludible in gross income before the certificate is redeemed 

22 or matures.’’. 

23 (b) INTEREST INCOME ON LONG-TERM CERTIFI24 CATES OF DEPOSIT.—Subparagraph (A) of section 


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

2 by’’ and all that follows and inserting: 

3 ‘‘increased by— 

4 ‘‘(i) qualified dividend income, and 

5 ‘‘(ii) interest income on any nonnego6 tiable certificate of deposit— 

7 ‘‘(I) with a fixed maturity date 

8 which is 1 year or more from the date 

9 of issue, and 

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

11 made available for withdrawal before 

12 maturity without penalty.’’. 

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. 

16 SEC. 302. EXCLUSION FOR INTEREST ON LOANS SECURED 

17 BY AGRICULTURAL REAL PROPERTY. 

18 (a) IN GENERAL.—Part III of subchapter B of chap19 ter 1 of the Internal Revenue Code of 1986 (relating to 

20 items specifically excluded from gross income) is amended 

21 by inserting after section 139A the following new section: 


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1 ‘‘SEC. 139B. 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 139A the following new item: 

‘‘Sec. 139B. 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 (relating to general 

5 rule for $10,000,000 limit in certain cases) is amended 

6 by striking ‘‘$10,000,000’’ and inserting ‘‘$30,000,000’’. 

7 (b) ADJUSTMENT OF CAP FOR INFLATION.—Sub8 section (a) of section 144 of such Code (relating to quali9 fied small issue bond) is amended by redesignating para10 graph (12) as paragraph (13) and by inserting after para11 graph (11) the following new paragraph: 

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

13 a calendar year after 2007, the $30,000,000 amount 

14 contained in paragraph (4)(A)(i) shall be increased 

15 by an amount equal to— 

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

17 ‘‘(B) the cost-of-living adjustment deter18 mined under section 1(f)(3) for such calendar 

19 year by substituting ‘calendar year 2006’ for 

20 ‘calendar year 1992’ in subparagraph (B) 

21 thereof. 

22 Any increase under the preceding sentence which is 

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

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


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1 (c) CONFORMING AMENDMENT.—Paragraph (4) of 

2 section 144(a) of such Code is amended in the heading 

3 by striking ‘‘$10,000,000’’ and inserting ‘‘$30,000,000’’. 

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

5 this section shall apply to— 

6 (1) obligations issued after the date of the en7 actment of this Act, and 

8 (2) capital expenditures made after such date 

9 with respect to obligations issued on or before such 

10 date. 

11 SEC. 304. LIMITED LIABILITY COMPANY TAX TREATMENT 

12 FOR FDIC-INSURED LIMITED LIABILITY COM13 PANIES. 

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

15 of the Internal Revenue Code of 1986 (defining partner16 ship and partner) is amended to read as follows: 

17 ‘‘(2) PARTNER AND PARTNERSHIP.— 

18 ‘‘(A) IN GENERAL.—The term ‘partner19 ship’ includes a syndicate, group, pool, joint 

20 venture, or other unincorporated organization, 

21 through or by means of which any business, fi22 nancial operation, or venture is carried on, and 

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

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

25 ‘partner’ includes a member in such a synVerDate Aug 31 2005 01:37 May 18, 2007 Jkt 059200 PO 00000 Frm 00025 Fmt 6652 Sfmt 6201 E:\BILLS\S1405.IS S1405

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1 dicate, group, pool, joint venture, or organiza2 tion. 

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

4 TAXED AS PARTNERSHIPS.— 

5 ‘‘(i) IN GENERAL.—An eligible cor6 poration may elect to be treated as a part7 nership for purposes of this title. 

8 ‘‘(ii) TAX TREATMENT.—In the case 

9 of an eligible corporation making an elec10 tion under clause (i)— 

11 ‘‘(I) no gain or loss shall be rec12 ognized to the corporation or the 

13 shareholders by reason of an election 

14 under clause (i), and 

15 ‘‘(II) section 1374 shall apply to 

16 the entity after such election. 

17 ‘‘(iii) ELIGIBLE CORPORATION.—The 

18 term ‘eligible corporation’ means any of 

19 the following entities which would (but for 

20 this subparagraph) be treated as a C cor21 poration for purposes of this title: 

22 ‘‘(I) Any bank (as defined in sec23 tion 581). 

24 ‘‘(II) Any bank holding company 

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


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•S 1405 IS

1 Bank Holding Company Act of 1956 

2 (12 U.S.C. 1841(a))). 

3 ‘‘(III) Any savings association 

4 (as defined in section 3(b) of the Fed5 eral Deposit Insurance Act (12 U.S.C. 

6 1813)). 

7 ‘‘(IV) Any savings and loan hold8 ing company (as defined in section 

9 10(a)(1)(D) of the Home Owners 

10 Loan Act).’’. 

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

12 this section shall apply to taxable years beginning after 

13 the date of the enactment of this Act. 

14 SEC. 305. REPEAL OF INDIVIDUAL ALTERNATIVE MINIMUM 

15 TAX. 

16 (a) IN GENERAL.—Section 55(a) of the Internal Rev17 enue Code of 1986 (relating to alternative minimum tax 

18 imposed) is amended by adding at the end the following 

19 new flush sentence: 

20 ‘‘Except in the case of a corporation, no tax shall be im21 posed by this section for any taxable year beginning after 

22 December 31, 2007, and the tentative minimum tax of any 

23 taxpayer other than a corporation for any such taxable 

24 year shall be zero for purposes of this title.’’. 


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1 (b) MODIFICATION OF LIMITATION ON USE OF

2 CREDIT FOR PRIOR YEAR MINIMUM TAX LIABILITY.— 

3 Subsection (c) of section 53 of the Internal Revenue Code 

4 of 1986 (relating to credit for prior year minimum tax 

5 liability) is amended to read as follows: 

6 ‘‘(c) LIMITATION.— 

7 ‘‘(1) IN GENERAL.—Except as provided in para8 graph (2), the credit allowable under subsection (a) 

9 for any taxable year shall not exceed the excess (if 

10 any) of— 

11 ‘‘(A) the regular tax liability of the tax12 payer for such taxable year reduced by the sum 

13 of the credits allowable under subparts A, B, D, 

14 E, and F of this part, over 

15 ‘‘(B) the tentative minimum tax for the 

16 taxable year. 

17 ‘‘(2) TAXABLE YEARS BEGINNING AFTER

18 2007.—In the case of any taxable year beginning 

19 after 2007, the credit allowable under subsection (a) 

20 to a taxpayer other than a corporation for any tax21 able year shall not exceed 90 percent of the regular 

22 tax liability of the taxpayer for such taxable year re23 duced by the sum of the credits allowable under sub24 parts A, B, D, E, and F of this part.’’. 


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•S 1405 IS

1 (c) EFFECTIVE DATE.—The amendment made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2007. 

4 SEC. 306. YOUNG SAVERS ACCOUNTS. 

5 (a) IN GENERAL.—Section 408A of the Internal Rev6 enue Code of 1986 (relating to Roth IRAs) is amended 

7 by adding at the end the following new subsection: 

8 ‘‘(g) SPECIAL RULES FOR ROTH IRAS FOR CHIL9 DREN.— 

10 ‘‘(1) GENERAL RULE.—A Roth IRA maintained 

11 for the benefit of an individual who has not attained 

12 age 25 before the close of the taxable year shall be 

13 maintained under this section, as modified by this 

14 subsection. 

15 ‘‘(2) CONTRIBUTION LIMITS.— 

16 ‘‘(A) IN GENERAL.—For so long as a Roth 

17 IRA is subject to this subsection, contributions 

18 to such Roth IRA shall be subject to this para19 graph and not to subsection (c)(2), and sub20 section (c)(3) shall not apply. 

21 ‘‘(B) LIMIT.—The aggregate amount of 

22 contributions for any taxable year to all child 

23 Roth IRAs maintained for the benefit of an in24 dividual under this subsection shall not exceed 

25 the maximum amount allowable as a deduction 


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•S 1405 IS

1 under subsection (b)(1) of section 219 for such 

2 taxable year (computed without regard to sub3 sections (b)(1)(B), (d)(1), and (g) of such sec4 tion).’’. 

5 (b) ENFORCEMENT OF CONTRIBUTION LIMITS.— 

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

7 Code are each amended by striking ‘‘and (c)(3)’’ and in8 serting ‘‘, (c)(3), and (f)(2)’’. 

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

10 this section shall apply to taxable years beginning after 

11 December 31, 2007. 

12 SEC. 307. SECTION 179 EXPENSING FOR SMALL BUSINESS. 

13 Subsections (b)(1), (b)(2), (b)(5), (c)(2), and 

14 (d)(1)(A)(ii) of section 179(b) (relating to election to ex15 pense certain depreciable business assets) are each amend16 ed by striking ‘‘and before 2010’’. 

17 TITLE IV—TAX RELIEF FOR COM18 MUNITY BANKS AND HOLD19 ING COMPANIES 

20 SEC. 401. LIMITED TAX CREDIT. 

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

22 Revenue Code of 1986 (relating to tax imposed) is amend23 ed by adding at the end the following new subsection: 

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


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•S 1405 IS

1 ‘‘(1) IN GENERAL.—In the case of a C corpora2 tion which is a community bank, the aggregate tax 

3 imposed by this section, section 55, and section 

4 1201 shall be 80 percent of the aggregate tax which 

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

6 sections. 

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

8 tax by reason of this subsection shall not exceed 

9 $250,000. Corporations treated as 1 corporation 

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

11 this subsection, and the limitation under the pre12 ceding sentence shall be allocated among such cor13 porations in such manner as the Secretary shall pre14 scribe. 

15 ‘‘(3) INCREASED BENEFIT FOR BANKS OPER16 ATING IN DISTRESSED AREAS, ETC.— 

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

18 operating in an area referred to in subpara19 graph (B)— 

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

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

22 and 

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

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


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1 ‘‘(B) AREAS DESCRIBED.—The areas re2 ferred to in this subparagraph are— 

3 ‘‘(i) empowerment zones and enter4 prise communities designated under section 

5 1391, 

6 ‘‘(ii) renewal communities designated 

7 under section 1400E, 

8 ‘‘(iii) low-income communities (as de9 fined in section 45D(e)), and 

10 ‘‘(iv) distressed communities (within 

11 the meaning of section 233 of the Bank 

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

13 1834a(b)). 

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

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

16 the following entities the gross assets of which (de17 termined under the rules of section 1202(d)) are 

18 $5,000,000,000 or less: 

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

20 ‘‘(B) Any bank holding company (as de21 fined in section 2(a) of the Bank Holding Com22 pany Act of 1956 (12 U.S.C. 1841(a))). 

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

24 section 3(b) of the Federal Deposit Insurance 

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


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•S 1405 IS

1 ‘‘(D) Any savings and loan holding com2 pany (as defined in section 10(a)(1)(D) of the 

3 Home Owners Loan Act).’’. 

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

5 1366 of such Code is amended by adding at the end the 

6 following new paragraph: 

7 ‘‘(3) REDUCTION OF TAX ON COMMUNITY

8 BANKS.— 

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

10 corporation which is a community bank (as de11 fined in section 11(e)(4)), the net amount re12 quired to be taken into account by shareholders 

13 (without regard to this paragraph) shall be re14 duced by the lesser of— 

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

16 ‘‘(ii) $1,250,000. 

17 ‘‘(B) INCREASED BENEFIT FOR BANKS OP18 ERATING IN DISTRESSED AREAS, ETC.—In the 

19 case of a bank operating in an area referred to 

20 in section 11(e)(3)(B)— 

21 ‘‘(i) subparagraph (A)(i) shall be ap22 plied by substituting ‘50 percent’ for ‘20 

23 percent’, and 


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•S 1405 IS

1 ‘‘(ii) subparagraph (A)(ii) shall be ap2 plied by substituting ‘$2,500,000’ for 

3 ‘$1,250,000’.’’. 

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

5 this section shall apply to taxable years beginning after 

6 the date of the enactment of this Act. 

7 SEC. 402. COMMUNITY BANK RELIEF FROM MINIMUM TAX. 

8 (a) IN GENERAL.—Section 55 of the Internal Rev9 enue Code of 1986 (relating to alternative minimum tax 

10 imposed) is amended by adding at the end the following 

11 new subsection: 

12 ‘‘(f) EXEMPTION FOR COMMUNITY BANKS.— 

13 ‘‘(1) IN GENERAL.—The tentative minimum tax 

14 of a community bank (as defined in section 11(e)(4)) 

15 shall be zero. 

16 ‘‘(2) CERTAIN RULES TO APPLY.—Rules similar 

17 to the rules of paragraphs (2) through (5) of sub18 section (e) shall apply for purposes of this sub19 section.’’. 

20 (b) 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 TITLE V—SMALL BUSINESS 

2 SUBCHAPTER S REFORMS 

3 SEC. 501. INCREASING SHAREHOLDER LIMIT FOR SUB4 CHAPTER S TO 150. 

5 (a) IN GENERAL.—Section 1361(b)(1)(A) of the In6 ternal Revenue Code of 1986 (defining small business cor7 poration) is amended by striking ‘‘100’’ and inserting 

8 ‘‘150’’. 

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

10 this section shall apply to taxable years beginning after 

11 December 31, 2007. 

12 SEC. 502. ISSUANCE OF PREFERRED STOCK PERMITTED 

13 FOR SUBCHAPTER S CORPORATIONS. 

14 (a) IN GENERAL.—Section 1361 of such Code (defin15 ing S corporation) is amended by adding at the end the 

16 following new subsection: 

17 ‘‘(f) TREATMENT OF QUALIFIED PREFERRED

18 STOCK.— 

19 ‘‘(1) IN GENERAL.—For purposes of this sub20 chapter— 

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

22 treated as a second class of stock, and 

23 ‘‘(B) no person shall be treated as a share24 holder of the corporation by reason of holding 

25 qualified preferred stock. 


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1 ‘‘(2) QUALIFIED PREFERRED STOCK DE2 FINED.—For purposes of this subsection, the term 

3 ‘qualified preferred stock’ means stock which meets 

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

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

6 treated as qualified preferred stock merely because 

7 it is convertible into other stock. 

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

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

10 the corporation with respect to qualified preferred 

11 stock shall be includible as ordinary income of the 

12 holder and deductible to the corporation as an ex13 pense in computing taxable income under section 

14 1363(b) in the year such distribution is received.’’. 

15 (b) CONFORMING AMENDMENTS.— 

16 (1) Paragraph (1) of section 1361(b) of such 

17 Code is amended by inserting ‘‘, except as provided 

18 in subsection (f),’’ before ‘‘which does not’’. 

19 (2) Subsection (a) of section 1366 of such Code 

20 is amended by adding at the end the following new 

21 paragraph: 

22 ‘‘(3) ALLOCATION WITH RESPECT TO QUALI23 FIED PREFERRED STOCK.—The holders of qualified 

24 preferred stock (as defined in section 1361(f)) shall 


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•S 1405 IS

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

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

3 (3) Clause (ii) of section 354(a)(2)(C) of such 

4 Code is amended— 

5 (A) in the header by inserting ‘‘AND S

6 CORPORATIONS’’ after ‘‘CORPORATIONS’’; and 

7 (B) by striking subclause (I) and inserting 

8 the following: 

9 ‘‘(I) IN GENERAL.—Clause (i) 

10 shall not apply in the case of a recapi11 talization under section 368(a)(I)(E) 

12 of a family-owned corporation or S 

13 corporation.’’. 

14 (4) Subsection (a) of section 1373 of such Code 

15 is amended by striking ‘‘and’’ at the end of para16 graph (1), by striking the period at the end of para17 graph (2) and inserting ‘‘, and’’, and by adding at 

18 the end the following new paragraph: 

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

20 this subchapter by reason of section 1361(f)(3) shall 

21 be apportioned or allocated to such income.’’. 

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

23 this section shall apply to taxable years beginning after 

24 December 31, 2007. 


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1 SEC. 503. TREATMENT OF QUALIFYING DIRECTOR SHARES. 

2 (a) IN GENERAL.—Section 1361 of the Internal Rev3 enue Code of 1986 (defining S corporation), as amended 

4 by section 502(a), is amended by adding at the end the 

5 following new subsection: 

6 ‘‘(g) TREATMENT OF QUALIFYING DIRECTOR

7 SHARES.— 

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

10 ‘‘(A) qualifying director shares 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 qualifying director shares. 

15 ‘‘(2) QUALIFYING DIRECTOR SHARES DE16 FINED.—For purposes of this subsection, the term 

17 ‘qualifying director shares’ means any shares of 

18 stock in a bank (as that term is defined in section 

19 581) or in a bank holding company registered as 

20 such with the Federal Reserve System— 

21 ‘‘(A) which are held by an individual solely 

22 by reason of status as a director of such bank 

23 or company or its controlled subsidiary, and 

24 ‘‘(B) which are subject to an agreement 

25 pursuant to which the holder is required to dis26 pose of the shares of stock upon termination of 


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•S 1405 IS

1 the holder’s status as a director at the same 

2 price as the individual acquired such shares of 

3 stock. 

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

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

6 the corporation with respect to qualifying director 

7 shares shall be includible as ordinary income of the 

8 holder and deductible to the corporation as an ex9 pense in computing taxable income under section 

10 1363(b) in the year such distribution is received.’’. 

11 (b) CONFORMING AMENDMENTS.— 

12 (1) Section 1361(b)(1) of the Internal Revenue 

13 Code of 1986, as amended by section 502(b), is 

14 amended by striking ‘‘subsection (f)’’ and inserting 

15 ‘‘subsections (f) and (g)’’. 

16 (2) Section 1366(a) of such Code, as amended 

17 by section 502(b), is amended by adding at the end 

18 the following new paragraph: 

19 ‘‘(4) ALLOCATION WITH RESPECT TO QUALI20 FYING DIRECTOR SHARES.—The holders of quali21 fying director shares (as that term is defined in sec22 tion 1361(g)) shall not, with respect to such shares 

23 of stock, be allocated any of the items described in 

24 paragraph (1).’’. 


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1 (3) Section 1373(a) of such Code, as amended 

2 by section 502(b), is amended— 

3 (A) by striking ‘‘and’’ at the end of para4 graph (2); 

5 (B) by striking the period at the end of 

6 paragraph (3) and inserting ‘‘, and’’; 

7 (C) and adding at the end the following 

8 new paragraph: 

9 ‘‘(4) no amount of an expense deductible under 

10 this subchapter by reason of section 1361(g)(3) shall 

11 be apportioned or allocated to such income.’’. 

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

13 this section shall apply to taxable years beginning after 

14 December 31, 2007. 

15 SEC. 504. RECAPTURE OF BAD DEBT RESERVES. 

16 Notwithstanding section 481 of the Internal Revenue 

17 Code of 1986, with respect to any S corporation election 

18 made by any bank in taxable years beginning after Decem19 ber 31, 1996, such bank may recognize built-in gains from 

20 changing its accounting method for recognizing bad debts 

21 from the reserve method under section 585 or 593 of such 

22 Code to the charge-off method under section 166 of such 

23 Code either in the taxable year ending with or beginning 

24 with such an election. 


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1 TITLE VI—SMALL BUSINESS 

2 LENDING ENHANCEMENTS 

3 SEC. 601. REDUCED FEES FOR SECTION 7(a) LOANS. 

4 Section 7(a) of the Small Business Act (15 U.S.C. 

5 636(a)) is amended— 

6 (1) in paragraph (23)(C)— 

7 (A) in the matter preceding clause (i), by 

8 striking ‘‘may be reduced,’’ and all that follows 

9 through ‘‘guarantees—’’ and inserting ‘‘may be 

10 reduced—’’; and 

11 (B) in clause (i), by striking ‘‘, to the max12 imum extent possible’’; and 

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

14 paragraph: 

15 ‘‘(32) FEE REDUCTION.—Amounts appro16 priated or otherwise made available to the Adminis17 trator for the purpose of fee reduction shall be used 

18 by the Administrator to reduce the fee percentages 

19 in effect under paragraphs (18)(A) and (23)(A), to 

20 the maximum extent possible.’’. 

21 SEC. 602. LOW DOCUMENTATION LOAN PROGRAM MADE 

22 MANDATORY. 

23 Section 7(a) of the Small Business Act (15 U.S.C. 

24 636(a)) (as amended by section 601 of this title) is amend25 ed— 


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•S 1405 IS

1 (1) in paragraph (25), by striking subpara2 graph (C); and 

3 (2) by inserting after paragraph (32) (as added 

4 by section 601(2) of this title) the following new 

5 paragraph: 

6 ‘‘(33) LOW DOCUMENTATION LOAN PRO7 GRAM.— 

8 ‘‘(A) IN GENERAL.—The Administrator 

9 shall carry out a low documentation loan pro10 gram for loans of $250,000 or less only through 

11 lenders with significant experience in making 

12 small business loans. 

13 ‘‘(B) REGULATIONS.—Not later than 45 

14 days after the date of the enactment of this 

15 paragraph, the Administrator shall prescribe 

16 regulations defining the experience necessary 

17 for participation as a lender in the low docu18 mentation loan program.’’. 

19 SEC. 603. EFFECTIVE DATE. 

20 The amendments made by sections 601 and 602 shall 

21 apply for fiscal years beginning with fiscal year 2008. 

Æ 


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