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 reserves as of the close of its
last taxable year beginning before such date
if the additions to such reserves for all tax-
able years had been determined under sec-
tion 585(b)(2)(A), 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 (5) and (6) or subsection
(e)(1).
‘‘(3) RECAPTURE OF PRE-1988 RESERVES WHERE
TAXPAYER CEASES TO BE BANK.—If, during any tax-
able year beginning after December 31, 1995, a tax-
payer to which paragraph (1) applied is not a bank
(as defined in section 581), paragraph (1) shall apply
to the reserves described in paragraph (2)(A)(ii) and
the supplemental reserve; except that such reserves
shall be taken into account ratably over the 6-taxable
year period beginning with such taxable year.
‘‘(4) SUSPENSION OF RECAPTURE IF RESIDEN-
TIAL LOAN REQUIREMENT MET.—
‘‘(A) IN GENERAL.—In the case of a bank
which meets the residential loan requirement of
subparagraph (B) for the first taxable year be-
ginning after December 31, 1995, or for the fol-
lowing 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 ad-
justment is required to be taken into
account under paragraph (1), and
‘‘(II) the amount of such adjust-
ment.
‘‘(B) RESIDENTIAL LOAN REQUIREMENT.—
A taxpayer meets the residential loan require-
ment of this subparagraph for any taxable year
if the principal amount of the residential loans
made by the taxpayer during such year is not
less than the base amount for such year.
‘‘(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) 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 on or before December
31, 1995. At the election of the taxpayer who
made such loans during each of such 6 taxable
years, the preceding sentence shall be applied
without regard to the taxable year in which such
principal amount was the highest and the tax-
able year in such principal amount was the low-
est. Such an election may be made only for the
first taxable year beginning after such date, and,
if made for such taxable year, shall apply to the
succeeding taxable year unless revoked with the
consent of the Secretary.
‘‘(E) CONTROLLED GROUPS.—In the case of
a taxpayer which is a member of any controlled
group of corporations described in section
1563(a)(1), subparagraph (B) shall be applied
with respect to such group.
‘‘(5) 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)) for its first taxable year beginning 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), there shall be taken
into account only the excess (if any) of the re-
serve for bad debts as of the close of the last tax-
able 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)—
‘‘(i) the balance of the reserve taken
into account under subparagraph (B) there-
of 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.
‘‘(6) SUSPENDED RESERVE INCLUDED AS SEC-
TION 381(c) ITEMS.—The balance taken into account
by a taxpayer under paragraph (2)(A)(ii) of this sub-
section and the supplemental reserve shall be treated
as items described in section 381(c).
‘‘(7) CONVERSIONS TO CREDIT UNIONS.—In the
case of a taxpayer to which paragraph (1) applied
which becomes a credit union described in section
501(c) and exempt from taxation under section
501(a)—
‘‘(A) any amount required to be included in
the gross income of the credit union by reason of
this subsection shall be treated as derived from
an unrelated trade or business (as defined in sec-
tion 513), and
‘‘(B) for purposes of paragraph (3), the
credit union shall not be treated as if it were a
bank.
‘‘(8) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary to carry
out this subsection and subsection (e), including regu-
lations providing for the application of such sub-
sections in the case of acquisitions, mergers, spin-offs,
and other reorganizations.’’
(b) CONFORMING AMENDMENTS.—
(1) Subsection (d) of section 50 is amended by
adding at the end the following new sentence:
‘‘Paragraphs (1)(A), (2)(A), and (4) of the section 46(e) re-
ferred to in paragraph (1) of this subsection shall not apply
to any taxable year beginning after December 31, 1995.’’
(2) Subsection (e) of section 52 is amended by
striking paragraph (1) and by redesignating para-
graphs (2) and (3) as paragraphs (1) and (2), respec-
tively.
(3) Subsection (a) of section 57 is amended by
striking paragraph (4).
(4) Section 246 is amended by striking sub-
section (f).
(5) Clause (i) of section 291(e)(1)(B) is amended
by striking ‘‘or to which section 593 applies’’.
(6) Subparagraph (A) of section 585(a)(2) is
amended by striking ‘‘other than an organization to
which section 593 applies’’.
(7)(A) The material preceding subparagraph (A)
of section 593(e)(1) is amended by striking ‘‘by a do-
mestic building and loan association or an institu-
members of the same affiliated group (as defined in
section 1504) and the provisions of section 5(e) of the
Federal Deposit Insurance Act (as in effect on Decem-
ber 31, 1995) or similar provisions are in effect.’’
(8) Section 595 is hereby repealed.
(9) Section 596 is hereby repealed.
(10) Subsection (a) of section 860E is amend-
ed—
(A) by striking ‘‘Except as provided in
paragraph (2), the’’ in paragraph (1) and in-
serting ‘‘The’’,
(B) by striking paragraphs (2) and (4) and
redesignating paragraphs (3) and (5) as para-
graphs (2) and (3), respectively, and
(C) by striking in paragraph (2) (as so re-
designated) all that follows ‘‘subsection’’ and in-
serting a period.
(11) Paragraph (3) of section 992(d) is amended
by striking ‘‘or 593’’.
(12) Section 1038 is amended by striking sub-
section (f).
(13) Clause (ii) of section 1042(c)(4)(B) is
amended by striking ‘‘or 593’’.
(14) Subsection (c) of section 1277 is amended
by striking ‘‘or to which section 593 applies’’.
(15) Subparagraph (B) of section 1361(b)(2) is
amended by striking ‘‘or to which section 593 ap-
plies’’.
(16) The table of sections for part II of sub-
chapter H of chapter 1 is amended by striking the
items relating to sections 595 and 596.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as otherwise provided
in this subsection, the amendments made by this sec-
tion shall apply to taxable years beginning after De-
cember 31, 1995.
(2) SUBSECTION (b)(7)(B).—The amendments
made by subsection (b)(7)(B) shall not apply to any
distribution with respect to preferred stock if—
(A) such stock is outstanding at all times
after October 31, 1995, and before the distribu-
tion, and
(B) such distribution is made before the
date which is 1 year after the date of the enact-
ment of this Act (or, in the case of stock which
may be redeemed, if later, the date which is 30
days after the earliest date that such stock may
be redeemed).
(3) SUBSECTION (b)(8).—The amendment made
by subsection (b)(8) shall apply to property acquired
in taxable years beginning after December 31, 1995.
(4) 
SUBSECTION
(b)(10).—The 
amendments
made by subsection (b)(10) shall not apply to any re-
sidual interest held by a taxpayer if such interest has
been held by such taxpayer at all times after October
31, 1995.
SEC. 
402. 
DEPRECIATION 
UNDER 
INCOME 
FORECAST
METHOD.
(a) GENERAL RULE.—Section 167 (relating to depre-
ciation) is amended by redesignating subsection (g) as sub-
section (h) and by inserting after subsection (f) the follow-
ing new subsection:
‘‘(g) DEPRECIATION
UNDER
INCOME
FORECAST
METHOD.—
‘‘(1) IN GENERAL.—If the depreciation deduction
allowable under this section to any taxpayer with re-
spect to any property is determined under the income
forecast method or any similar method—
‘‘(A) the income from the property to be
taken into account in determining the deprecia-
tion deduction under such method shall be equal
to the amount of income earned in connection
with the property before the close of the 10th tax-
able year following the taxable year in which the
property was placed in service,
‘‘(B) the adjusted basis of the property shall
only include amounts with respect to which the
requirements of section 461(h) are satisfied,
‘‘(C) the depreciation deduction under such
method for the 10th taxable year beginning after
the taxable year in which the property was
placed in service shall be equal to the adjusted
basis of such property as of the beginning of such
10th taxable year, and
‘‘(D) such taxpayer shall pay (or be entitled
to receive) interest computed under the look-back
method of paragraph (2) for any recomputation
year.
‘‘(2) LOOK-BACK
METHOD.—The interest com-
puted under the look-back method of this paragraph
for any recomputation year shall be determined by—
‘‘(A) first determining the depreciation de-
ductions under this section with respect to such
property which would have been allowable for
prior taxable years if the determination of the
amounts so allowable had been made on the basis
of the sum of the following (instead of the esti-
mated income from such property)—
‘‘(i) the actual income earned in con-
nection with such property for periods be-
fore the close of the recomputation year, and
‘‘(ii) an estimate of the future income
to be earned in connection with such prop-
erty for periods after the recomputation
year and before the close of the 10th taxable
year following the taxable year in which the
property was placed in service,
‘‘(B) second, determining (solely for pur-
poses of computing such interest) the overpay-
ment or underpayment of tax for each such prior
taxable year which would result solely from the
application of subparagraph (A), and
‘‘(C) then using the adjusted overpayment
rate 
(as 
defined 
in 
section 
460(b)(7)),
compounded daily, on the overpayment or under-
payment determined under subparagraph (B).
For purposes of the preceding sentence, any cost in-
curred after the property is placed in service (which
is not treated as a separate property under para-
graph (5)) shall be taken into account by discounting
(using the Federal mid-term rate determined under
section 1274(d) as of the time such cost is incurred)
such cost to its value as of the date the property is
placed in service. The taxpayer may elect with respect
to any property to have the preceding sentence not
apply to such property.
‘‘(3) EXCEPTION FROM LOOK-BACK METHOD.—
Paragraph (1)(D) shall not apply with respect to any
property which had a cost basis of $100,000 or less.
‘‘(4) RECOMPUTATION
YEAR.—For purposes of
this subsection, except as provided in regulations, the
term ‘recomputation year’ means, with respect to any
property, the 3d and the 10th taxable years beginning
after the taxable year in which the property was
placed in service, unless the actual income earned in
connection with the property for the period before the
close of such 3d or 10th taxable year is within 10 per-
cent of the income earned in connection with the
property for such period which was taken into ac-
count under paragraph (1)(A).
‘‘(5) SPECIAL RULES.—
‘‘(A) CERTAIN
COSTS
TREATED
AS
SEPA-
RATE
PROPERTY.—For purposes of this sub-
section, the following costs shall be treated as
separate properties:
‘‘(i) Any costs incurred with respect to
any property after the 10th taxable year be-
property shall include income from the exploi-
tation of characters, designs, scripts, scores, and
other incidental income associated with such
films, but only to the extent that such income
is earned in connection with the ultimate use of
such items by, or the ultimate sale of merchan-
dise to, persons who are not related persons
(within the meaning of section 267(b)) to the
taxpayer.
‘‘(D) COLLECTION OF INTEREST.—For pur-
poses of subtitle F (other than sections 6654 and
6655), any interest required to be paid by the
taxpayer under paragraph (1) for any recom-
putation year shall be treated as an increase in
the tax imposed by this chapter for such year.
‘‘(E) DETERMINATIONS.—For purposes of
paragraph (2), determinations of the amount of
income earned in connection with any property
shall be made in the same manner as for pur-
poses of applying the income forecast method; ex-
cept that any income from the disposition of
such property shall be taken into account.
‘‘(F) TREATMENT
OF
PASS-THRU
ENTI-
TIES.—Rules similar to the rules of section
460(b)(4) shall apply for purposes of this sub-
section.’’
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendment made by sub-
section (a) shall apply to property placed in service
after September 13, 1995.
(2) 
BINDING
CONTRACTS.—The 
amendment
made by subsection (a) shall not apply to any prop-
erty produced or acquired by the taxpayer pursuant
to a written contract which was binding on Septem-
ber 13, 1995, and at all times thereafter before such
production or acquisition.
(3) UNDERPAYMENTS OF INCOME TAX.—No addi-
tion to tax shall be made under—
(A) section 6654 or 6655 of the Internal
Revenue Code of 1986 (relating to failure to pay
estimated tax) with respect to any underpay-
ment of an installment required to be paid before
the date of the enactment of this Act, or
(B) section 6662 of such Code as a result of
the application of subsection (d) of that section
(relating to substantial understatements of in-
come tax) with respect to any underpayment of
income tax for any taxable year ending before
such date of enactment,
to the extent such underpayment was created or in-
creased by the amendments made by subsection (a).
Æ