977 
without regard to this subsection) with respect to 
the amount described in paragraph (2) shall be re-
duced by 20 percent. 
‘‘(2) INTEREST ON DEBT TO CARRY TAX-EX-
EMPT OBLIGATIONS ACQUIRED AFTER DECEMBER 31, 
1982, AND BEFORE AUGUST 8, 1986.— 
‘‘(A) IN GENERAL.—In the case of a finan-
cial institution which is a bank (as defined in 
section 585(a)(2)), the amount described in this 
paragraph is the amount of interest on indebt-
edness incurred or continued to purchase or 
carry obligations acquired after December 31, 
1982, and before August 8, 1986, the interest 
on which is exempt from taxes for the taxable 
year, to the extent that a deduction would (but 
for this paragraph or section 265(b)) be allow-
able with respect to such interest for such tax-
able year. 
‘‘(B) DETERMINATION OF INTEREST ALLO-
CABLE TO INDEBTEDNESS ON TAX-EXEMPT OB-
LIGATIONS.—Unless the taxpayer (under regu-
lations prescribed by the Secretary) establishes 
otherwise, the amount determined under sub-
paragraph (A) shall be an amount which bears 
the same ratio to the aggregate amount allow-
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able (determined without regard to this section 
and section 265(b)) to the taxpayer as a deduc-
tion for interest for the taxable year as— 
‘‘(i) the taxpayer’s average adjusted 
basis (within the meaning of section 1016) 
of obligations described in subparagraph 
(A), bears to 
‘‘(ii) such average adjusted basis for 
all assets of the taxpayer. 
‘‘(C) INTEREST.—For purposes of this 
paragraph, the term ‘interest’ includes amounts 
(whether or not designated as interest) paid in 
respect of deposits, investment certificates, or 
withdrawable or repurchasable shares. 
‘‘(D) APPLICATION OF SUBPARAGRAPH TO 
CERTAIN OBLIGATIONS ISSUED AFTER AUGUST 
7, 1986.—For application of this subparagraph 
to certain obligations issued after August 7, 
1986, see section 265(b)(3) (as in effect before 
the enactment of the Tax Reform Act of 2014). 
That portion of any obligation not taken into 
account under paragraph (2)(A) of section 
265(b) (as so in effect) by reason of paragraph 
(7) of such section shall be treated for purposes 
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979 
of this section as having been acquired on Au-
gust 7, 1986.’’. 
(B) CONFORMING AMENDMENTS.— 
(i) Section 1277(c) is amended by 
striking ‘‘section 291(e)(1)(B)(ii)’’ and in-
serting ‘‘section 163(n)(2)(B)’’. 
(ii) Section 1363(b)(3), as amended 
by the preceding provisions of this Act, is 
amended by striking ‘‘section 291’’ and in-
serting ‘‘section 163(n)’’. 
(4) EFFECTIVE
DATE.—Except as otherwise 
provided in this Act with respect to amendments 
made to section 291 of the Internal Revenue Code 
of 1986, the amendments made this subsection shall 
apply to taxable years beginning after December 31, 
2014. 
Æ 
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