Community Bank Flexibility Act

To amend the Internal Revenue Code of 1986 to clarify the treatment of banks organized as limited liability companies. 1. Short title This Act may be cited as the Community Bank Flexibility Act 2. Treatment of banks organized as limited liability companies (a) In general Section 581 (1) by striking For purposes of (a) In general For purposes of , and (2) by adding at the end the following new subsection: (b) Treatment of limited liability companies, etc (1) In general An entity shall not fail to be treated as a bank under subsection (a) merely because such entity is a specified entity (or because such entity elects to be treated either as a corporation or as a partnership for purposes of this title). (2) Specified entity For purposes of this subsection, the term specified entity (3) Transitional rules (A) Reorganizations In the case of any acquisition or transfer during the 5-year period beginning on the date of the enactment of this subsection, any specified entity which (after such acquisition or transfer) qualifies as a bank under paragraph (1) shall be treated as a corporation for purposes of applying section 368(a)(1). (B) Tax imposed on certain built-in gains (i) In general In the case of any specified entity with respect to which any transfer or acquisition is treated as a reorganization under section 368(a)(1) by reason of this paragraph, rules similar to the rules of section 1374 shall apply with respect to such specified entity by treating such reorganization in the same manner as an election under section 1362(a) (and by treating the specified entity as an S corporation and the other corporation with respect to such reorganization as the small business corporation making such election). (ii) Special rule for reorganizations during recognition period of an S corporation bank In the case of a transfer or acquisition to which clause (i) applies, if— (I) the other corporation referred to in clause (i) is an S corporation, and (II) such transfer or acquisition occurs during the recognition period (as defined in section 1374(d)(7)) of such S corporation, the recognition period of the specified entity determined by reason of the application of clause (i) shall not include any taxable year of the specified entity which begins after the recognition period of such S corporation. (C) Election to have transition rules not apply Subparagraphs (A) and (B) shall not apply if the specified entity referred to in such subparagraphs elects under this subparagraph to have such subparagraphs not apply. Any such election shall, except as otherwise provided by the Secretary, be made contemporaneously with the acquisition or transfer referred to in subparagraph (A). . (b) Effective date The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

Summary: Community Bank Flexibility Act This bill amends the Internal Revenue Code, with respect to the tax treatment of small banks, to: (1) allow such banks to reorganize as either corporations or partnerships for tax purposes, (2) permit such banks to reorganize without incurring an additional tax for liquidation, and (3) impose a five-year recognition period of the built-in gains of such banks.