(13) Subsection (c) of section 1277 of such Code
is amended by striking ‘‘or to which section 593 ap-
plies’’.
(14) Subparagraph (B) of section 1361(b)(2) of
such Code is amended by striking ‘‘or to which section
593 applies’’.
(15) The table of sections for part II of sub-
chapter H of chapter 1 of such Code is amended by
striking the items relating to sections 593, 595, and
596.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to taxable years beginning after December 31,
1995.
(2) REPEAL OF SECTION 595.—The amendment
made by subsection (b)(7) shall apply to property ac-
quired in taxable years beginning after December 31,
1995.
(d) 6-YEAR SPREAD OF ADJUSTMENTS.—
(1) IN GENERAL.—In the case of any taxpayer
who is required by reason of the amendments made
by this section to change its method of computing re-
serves for bad debts—
(A) such change shall be treated as a change
in a method of accounting,
(B) such change shall be treated as initiated
by the taxpayer and as having been made with
the consent of the Secretary, and
(C) the net amount of the adjustments re-
quired to be taken into account by the taxpayer
under section 481(a) of the Internal Revenue
Code of 1986—
(i) shall be determined by taking into
account only applicable excess reserves, and
(ii) as so determined, shall be taken
into account ratably over the 6-taxable year
period beginning with the first taxable year
beginning after December 31, 1995.
(2) APPLICABLE EXCESS RESERVES.—
(A) IN GENERAL.—For purposes of para-
graph (1), the term ‘‘applicable excess reserves’’
means the excess (if any) of—
(i) the balance of the reserves described
in section 593(c)(1) of such Code (as in ef-
fect on the day before the date of the enact-
ment of this Act) as of the close of the tax-
payer’s last taxable year beginning before
January 1, 1996, over
(ii) the balance of such reserves as of
the close of the taxpayer’s last taxable year
beginning before January 1, 1988.
(B) SPECIAL
RULE
FOR
THRIFTS
WHICH
BECOME SMALL BANKS.—In the case of a bank
(as defined in section 581 of such Code) which
was not a large bank (as defined in section
585(c)(2) of such Code) for its first taxable year
beginning after December 31, 1995—
(i) the balance taken into account
under subparagraph (A)(ii) shall not be less
than the amount which would be the bal-
ance of such reserve as of the close of its last
taxable year beginning before January 1,
1996, if the additions to such reserve for all
taxable years had been determined under
section 585(b)(2)(A) of such Code, and
(ii) the opening balance of the reserve
for bad debts as of the beginning of such
first taxable year shall be the balance taken
into account under subparagraph (A)(ii)
(determined after the application of clause
(i) of this subparagraph).
The preceding sentence shall not apply for pur-
poses of paragraphs (4), (5), and (6).
(3) SUSPENSION OF RECAPTURE IF RESIDENTIAL
LOAN REQUIREMENT MET.—
(A) IN GENERAL.—In the case of a taxpayer
which meets the residential loan requirement of
subparagraph (B) for any taxable year—
(i) no adjustment shall be taken into
account under paragraph (1) for such tax-
able year, and
(ii) such taxable year shall be dis-
regarded in determining—
(I) whether any other taxable year
is a taxable year for which an adjust-
ment is required to be taken into ac-
count under paragraph (1), and
(II) the amount of such adjust-
ment.
(B) RESIDENTIAL LOAN REQUIREMENT.—A
taxpayer meets the residential loan requirement
of this subparagraph for any taxable year if—
(i) the principal amount of the resi-
dential loans made by the taxpayer during
such year is not less than the base amount
for such year, or
(ii) the principal amount of the resi-
dential loans made by the taxpayer during
each of the 2 preceding taxable years is not
less than the base amount for such preced-
ing years.
Clause (ii) shall not apply for purposes of deter-
mining whether a taxpayer meets the residential
loan requirement of this subparagraph for any
taxable year beginning before January 1, 1998.
(C) RESIDENTIAL LOAN.—For purposes of
this paragraph, the term ‘‘residential loan’’
means any loan described in clause (v) of section
7701(a)(19)(C) of such Code but only if such
loan is incurred in acquiring, constructing, or
improving the property described in such clause.
(D) BASE AMOUNT.—For purposes of sub-
paragraph (B), the base amount is the average
of the principal amounts of the residential loans
made by the taxpayer during the 6 most recent
taxable years beginning before January 1, 1996.
At the election of the taxpayer who made such
loans during each of such 6 taxable years, the
preceding sentence shall be applied without re-
gard to the taxable year in which such principal
amount was the highest and the taxable year in
such principal amount was the lowest. Such an
election may be made only for the first taxable
year beginning after December 31, 1995, and, if
made for such taxable year, shall apply to all
succeeding taxable years unless revoked with the
consent of the Secretary of the Treasury or his
delegate.
(E) INFLATION
ADJUSTMENT
OF
BASE
AMOUNT.—In the case of a taxable year begin-
ning in a calendar year after 1996, the amount
determined under subparagraph (D) shall be in-
creased by an amount equal to—
(i) the amount so determined, multi-
plied by
(ii) the cost-of-living adjustment deter-
mined under section 1(f)(3) of such Code for
such calendar year, by substituting ‘‘cal-
endar year 1995’’ for ‘‘calendar year 1992’’
in subparagraph (B) thereof.
(F) CONTROLLED GROUPS.—In the case of a
taxpayer which is a member of any controlled
group of corporations described in section
1563(a)(1) of such Code, subparagraph (B) shall
be applied with respect to such group.
(4) CONTINUED APPLICATION OF FRESH START
UNDER SECTION 585 TRANSITIONAL RULES.—In the
case of a taxpayer to which paragraph (1) applied
and which was not a large bank (as defined in section
585(c)(2) of such Code) for its first taxable year be-
ginning after December 31, 1995:
(A) IN GENERAL.—For purposes of deter-
mining the net amount of adjustments referred to
in section 585(c)(3)(A)(iii) of such Code, there
shall be taken into account only the excess of the
reserve for bad debts as of the close of the last
taxable year before the disqualification year over
the balance taken into account by such taxpayer
under paragraph (2)(A)(ii) of this subsection.
(B) TREATMENT UNDER ELECTIVE CUT-OFF
METHOD.—For purposes of applying section
585(c)(4) of such Code—
(i) the balance of the reserve taken into
account under subparagraph (B) thereof
shall be reduced by the balance taken into
account by such taxpayer under paragraph
(2)(A)(ii) of this subsection, and
(ii) no amount shall be includible in
gross income by reason of such reduction.
(5) 
CONTINUED
APPLICATION
OF
SECTION
593(e).—Notwithstanding the amendments made by
this section, in the case of a taxpayer to which para-
graph (1) of this subsection applies, section 593(e) of
such Code (as in effect on the day before the date of
the enactment of this Act) shall continue to apply to
such taxpayer as if such taxpayer were a domestic
building and loan association but the amount of the
reserve taken into account under such section 593(e)
shall be only the balance taken into account by such
taxpayer under paragraph (2)(A)(ii) of this sub-
section.
(6) CERTAIN ITEMS INCLUDED AS SECTION 381(c)
ITEMS.—The balance of the applicable excess reserves,
and the balance taken into account by a taxpayer
under paragraph (2)(A)(ii) of this subsection, shall be
treated as items described in section 381(c) of such
Code.
(7) REGULATIONS.—The Secretary of the Treas-
ury or his delegate shall prescribe such regulations as
may be necessary to carry out this subsection, includ-
ing regulations providing for the application of para-
graph (3) in the case of mergers, spin-offs, and other
reorganizations.
SEC. 3. DEDUCTION FOR SPECIAL ASSESSMENTS.
For purposes of subtitle A of the Internal Revenue Code
of 1986, the amount allowed as a deduction under section
162 of such Code for a taxable year shall include the amount
paid during such year as a special assessment under section
7(b)(6)(B) of the Federal Deposit Insurance Act, as amend-
ed by the Thrift Charter Conversion Act of 1995, as con-
tained in subtitle B of title II of H.R. 2491 of the 104th
Congress, as passed by the House of Representatives.