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106TH CONGRESS
1ST SESSION
H. R. 242
To amend the Internal Revenue Code of 1986 to expand S corporation
eligibility for banks, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 6, 1999
Mrs. ROUKEMA introduced the following bill; which was referred to the
Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to expand
S corporation eligibility for banks, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Small Business and
Financial Institutions Tax Relief Act of 1999’’.
SEC. 2. EXPANSION OF S CORPORATION ELIGIBLE SHARE-
HOLDERS TO INCLUDE IRAS.
(a) IN GENERAL.—Section 1361(c)(2)(A) of the In-
ternal Revenue Code of 1986 (relating to certain trusts
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permitted as shareholders) is amended by inserting after
clause (v) the following:
‘‘(vi) A trust described in section
408(a).’’
(b) 
TREATMENT
AS
SHAREHOLDER.—Section
1361(c)(2)(B) of the Internal Revenue Code of 1986 (re-
lating to treatment as shareholders) is amended by adding
at the end the following:
‘‘(vi) In the case of a trust described
in clause (vi) of subparagraph (A), the in-
dividual for whose benefit the trust was
created shall be treated as a shareholder.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1999.
SEC. 3. EXCLUSION OF INVESTMENT SECURITIES INCOME
FROM PASSIVE INCOME TEST FOR BANK S
CORPORATIONS.
(a) IN GENERAL.—Section 1362(d)(3)(C) of the In-
ternal Revenue Code of 1986 (relating to passive invest-
ment income defined) is amended by adding at the end
the following:
‘‘(v) EXCEPTION FOR BANK INVEST-
MENT SECURITIES INCOME.—In the case of
a bank (as defined in section 581), the
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term ‘passive investment income’ shall not
include interest on investment securities
held by a bank.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1999.
SEC. 4. INCREASE IN NUMBER OF ELIGIBLE SHAREHOLD-
ERS TO 150.
(a) IN GENERAL.—Section 1361(b)(1)(A) of the In-
ternal Revenue Code of 1986 (defining small business cor-
poration) is amended by striking ‘‘75’’ and inserting
‘‘150’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1999.
SEC. 5. TREATMENT OF DIRECTOR QUALIFYING STOCK.
(a) IN GENERAL.—Section 1361(c) of the Internal
Revenue Code of 1986 (relating to special rules for apply-
ing subsection (b)) is amended by adding at the end the
following:
‘‘(7) DIRECTOR QUALIFYING STOCK.—
‘‘(A) IN GENERAL.—For purposes of sub-
section (b)(1)(D), director qualifying stock shall
not be treated as a second class of stock.
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‘‘(B) DIRECTOR
QUALIFYING
STOCK
DE-
FINED.—For purposes of this paragraph, the
term ‘director qualifying stock’ means any stock
held by any director of a bank (as defined in
section 581) as mandated by banking regu-
latory requirements.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1999.
SEC. 6. BAD DEBT CHARGE OFFS IN YEARS AFTER ELEC-
TION YEAR TREATED AS ITEMS OF BUILT IN
LOSS.
The Secretary of the Treasury shall modify Regula-
tion 1.1374–4(f) for taxable years beginning after Decem-
ber 31, 1999, with respect to bad debt deductions under
section 166 of the Internal Revenue Code of 1986 by al-
lowing such deductions to be properly taken into account
throughout the recognition period (as defined in section
1374(d)(7) of such Code).
SEC. 7. INCLUSION OF BANKS IN 3-YEAR S CORPORATION
RULE FOR CORPORATE PREFERENCE ITEMS.
(a) IN GENERAL.—Section 1363(b) of the Internal
Revenue Code of 1986 (relating to computation of cor-
poration’s taxable income) is amended by adding at the
end the following new flush sentence:
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‘‘Paragraph (4) shall apply to any bank whether such
bank is an S corporation of a qualified subchapter S sub-
sidiary.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1999.
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