Q: In this task, you are given text for US Congressional and California state bills, your task is to generate a summary for this bill.
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 SHAREHOLDERS TO INCLUDE
IRAS.

(a) In General.--Section 1361(c)(2)(A) of the Internal Revenue Code
of 1986 (relating to certain trusts permitted as shareholders) is
amended by inserting after clause (v) the following:
''(vi) A trust which constitutes an
individual retirement account under section
408(a), including one designated as a Roth IRA
under section 408A.''
(b) Treatment as Shareholder.--Section 1361(c)(2)(B) of the
Internal Revenue Code of 1986 (relating 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 individual
for whose benefit the trust was created shall
be treated as a shareholder.''
(c) Sale of Stock in IRA Relating To S Corporation Election Exempt
From Prohibited Transaction Rules.--Section 4975(d) of the Internal
Revenue Code of 1986 (relating to exemptions) is amended by striking
''or'' at the end of paragraph (14), by striking the period at the end
of paragraph (15) and inserting ''; or'', and by adding at the end the
following:
''(16) a sale of stock held by a trust which constitutes an
individual retirement account under section 408(a) to the
individual for whose benefit such account is established if
such sale is pursuant to an election under section 1362(a).''
(d) 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 Internal Revenue Code
of 1986 (defining passive investment income) is amended by adding at
the end the following:
''(v) Exception for banks; etc.--In the
case of a bank (as defined in section 581), a
bank holding company (as defined in section
246A(c)(3)(B)(ii)), or a qualified subchapter S
subsidiary bank, the term 'passive investment
income' shall not include--
''(I) interest income earned by
such bank, bank holding company, or
qualified subchapter S subsidiary bank,
or
''(II) dividends on assets required
to be held by such bank, bank holding
company, or qualified subchapter S
subsidiary bank to conduct a banking
business, including stock in the
Federal Reserve Bank, the Federal Home
Loan Bank, or the Federal Agricultural
Mortgage Bank or participation
certificates issued by a Federal
Intermediate Credit Bank.''
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 1996.

SEC. 4. INCREASE IN NUMBER OF ELIGIBLE SHAREHOLDERS TO 150.

(a) In General.--Section 1361(b)(1)(A) of the Internal Revenue Code
of 1986 (defining small business corporation) 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 QUALIFYING DIRECTOR SHARES.

(a) In General.--Section 1361 of the Internal Revenue Code of 1986
is amended by adding at the end the following:
''(f) Treatment of Qualifying Director Shares.--
''(1) In general.--For purposes of this subchapter--
''(A) qualifying director shares shall not be
treated as a second class of stock, and
''(B) no person shall be treated as a shareholder
of the corporation by reason of holding qualifying
director shares.
''(2) Qualifying director shares defined.--For purposes of
this subsection, the term 'qualifying director shares' means
any shares of stock in a bank (as defined in section 581) or in
a bank holding company registered as such with the Federal
Reserve System--
''(i) which are held by an individual
solely by reason of status as a director of
such bank or company or its controlled
subsidiary; and
''(ii) which are subject to an agreement
pursuant to which the holder is required to
dispose of the shares of stock upon termination
of the holder's status as a director at the
same price as the individual acquired such
shares of stock.
''(3) Distributions.--A distribution (not in part or full
payment in exchange for stock) made by the corporation with
respect to qualifying director shares shall be includible as
ordinary income of the holder and deductible to the corporation
as an expense in computing taxable income under section 1363(b)
in the year such distribution is received.''
(b) Conforming Amendments.--
(1) Section 1361(b)(1) of the Internal Revenue Code of 1986
is amended by inserting '', except as provided in subsection
(f),'' before ''which does not''.
(2) Section 1366(a) of such Code is amended by adding at
the end the following:
''(3) Allocation with respect to qualifying director
shares.--The holders of qualifying director shares (as defined
in section 1361(f)) shall not, with respect to such shares of
stock, be allocated any of the items described in paragraph
(1).''
(3) Section 1373(a) of such Code is amended by striking
''and'' at the end of paragraph (1), by striking the period at
the end of paragraph (2) and inserting '', and'', and adding at
the end the following:
''(3) no amount of an expense deductible under this
subchapter by reason of section 1361(f)(3) shall be apportioned
or allocated to such income.''
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1996.

SEC. 6. BAD DEBT CHARGE OFFS IN YEARS AFTER ELECTION YEAR TREATED AS
ITEMS OF BUILT-IN LOSS.

The Secretary of the Treasury shall modify Regulation 1.1374-4(f)
for S corporation elections made in taxable years beginning after
December 31, 1996, with respect to bad debt deductions under section
166 of the Internal Revenue Code of 1986 to treat such deductions as
built-in losses under section 1374(d)(4) of such Code during the entire
period during which the bank recognizes built-in gains from changing
its accounting method for recognizing bad debts from the reserve method
under section 585 of such Code to the charge-off method under section
166 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 corporation's taxable income) is
amended by adding at the end the following new flush sentence:
''Paragraph (4) shall apply to any bank whether such bank is an S
corporation or a qualified subchapter S subsidiary.''
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 1999.

SEC. 8. EXPANSION OF S CORPORATION ELIGIBLE SHAREHOLDERS TO INCLUDE
FAMILY LIMITED PARTNERSHIPS.

(a) In General.--Section 1361(b)(1)(B) of the Internal Revenue Code
of 1986 (defining small business corporation) is amended--
(1) by striking ''or an organization'' and inserting ''an
organization'', and
(2) by inserting '', or a family partnership described in
subsection (c)(8)'' after ''subsection (c)(6)''.
(b) Family Partnership.--Section 1361(c) of the Internal Revenue
Code of 1986 (relating to special rules for applying subsection (b)),
as amended by section 5, is amended by adding at the end the following:
''(8) Family partnerships.--
''(A) In general.--For purposes of subsection
(b)(1)(B), any partnership or limited liability company
may be a shareholder in an S corporation if--
''(i) all partners or members are members
of 1 family as determined under section
704(e)(3), and
''(ii) all of the partners or members would
otherwise be eligible shareholders of an S
corporation.
''(B) Treatment as shareholders.--For purposes of
subsection (b)(1)(A), in the case of a partnership or
limited liability company described in subparagraph
(A), each partner or member 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. 9. ISSUANCE OF PREFERRED STOCK PERMITTED.

(a) In General.--Section 1361 of the Internal Revenue Code of 1986,
as amended by section 5(a), is amended by adding at the end the
following:
''(g) Treatment of Qualified Preferred Stock.--
''(1) In general.--For purposes of this subchapter--
''(A) qualified preferred stock shall not be
treated as a second class of stock, and
''(B) no person shall be treated as a shareholder
of the corporation by reason of holding qualified
preferred stock.
''(2) Qualified preferred stock defined.--For purposes of
this subsection, the term 'qualified preferred stock' means
stock which meets the requirements of subparagraphs (A), (B),
and (C) of section 1504(a)(4). Stock shall not fail to be
treated as qualified preferred stock solely because it is
convertible into other stock.
''(3) Distributions.--A distribution (not in part or full
payment in exchange for stock) made by the corporation with
respect to qualified preferred stock shall be includible as
ordinary income of the holder and deductible to the corporation
as an expense in computing taxable income under section 1363(b)
in the year such distribution is received.''
(b) Conforming Amendments.--
(1) Section 1361(b)(1) of the Internal Revenue Code of
1986, as amended by section 5(b)(1), is amended by striking
''subsection (f)'' and inserting ''subsections (f) and (g)''.
(2) Section 1366(a) of such Code, as amended by section
5(b)(2), is amended by adding at the end the following:
''(4) Allocation with respect to qualified preferred
stock.--The holders of qualified preferred stock (as defined in
section 1361(g)) shall not, with respect to such stock, be
allocated any of the items described in paragraph (1).''
(3) Section 1373(a)(3) of such Code, as added by section
5(b)(3), is amended by inserting ''or 1361(g)(3)'' after
''section 1361(f)(3)''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1999.

SEC. 10. CONSENT TO ELECTIONS.

(a) 90 Percent of Shares Required for Consent to Election.--Section
1362(a)(2) of the Internal Revenue Code of 1986 (relating to all
shareholders must consent to election) is amended--
(1) by striking ''all persons who are shareholders in'' and
inserting ''shareholders holding at least 90 percent of the
shares of'', and
(2) by striking ''All shareholders'' in the heading and
inserting ''At least 90 percent of shares''.
(b) Rules for Consent.--Section 1362(a) of the Internal Revenue
Code of 1986 (relating to election) is amended by adding at the end the
following:
''(3) Rules for consent.--For purposes of making any
consent required under paragraph (2) or subsection (d)(1)(B)--
''(A) each joint owner of shares shall consent with
respect to such shares,
''(B) the personal representative or other
fiduciary authorized to act on behalf of the estate of
a deceased individual shall consent for the estate,
''(C) one parent, the custodian, the guardian, or
the conservator shall consent with respect to shares
owned by a minor or subject to a custodianship,
guardianship, conservatorship, or similar arrangement,
''(D) the trustee of a trust shall consent with
respect to shares owned in trust,
''(E) the trustee of the estate of a bankrupt
individual shall consent for shares owned by a
bankruptcy estate,
''(F) an authorized officer or the trustee of an
organization described in subsection (c)(6) shall
consent for the shares owned by such organization, and
''(G) in the case of a partnership or limited
liability company described in subsection (c)(8)--
''(i) all general partners shall consent
with respect to shares owned by such
partnership,
''(ii) all managers shall consent with
respect to shares owned by such company if
management of such company is vested in 1 or
more managers, and
''(iii) all members shall consent with
respect to shares owned by such company if
management of such company is vested in the
members.''
(c) Treatment of Nonconsenting Shareholder Stock.--
(1) In general.--Section 1361 of the Internal Revenue Code
of 1986, as amended by section 9(a), is amended by adding at
the end the following:
''(h) Treatment of Nonconsenting Shareholder Stock.--
''(1) In general.--For purposes of this subchapter--
''(A) nonconsenting shareholder stock shall not be
treated as a second class of stock,
''(B) such stock shall be treated as C corporation
stock, and
''(C) the shareholder's pro rata share under
section 1366(a)(1) with respect to such stock shall be
subject to tax paid by the S corporation at the highest
rate of tax specified in section 11(b).
''(2) Nonconsenting shareholder stock defined.--For
purposes of this subsection, the term 'nonconsenting
shareholder stock' means stock of an S corporation which is
held by a shareholder who did not consent to an election under
section 1362(a) with respect to such S corporation.
''(3) Distributions.--A distribution (not in part or full
payment in exchange for stock) made by the corporation with
respect to nonconsenting shareholder stock shall be includible
as ordinary income of the holder and deductible to the
corporation as an expense in computing taxable income under
section 1363(b) in the year such distribution is received.''
(2) Conforming amendment.--Section 1361(b)(1) of the
Internal Revenue Code of 1986, as amended by section 9(b)(1),
is amended by striking ''subsections (f) and (g)'' and
inserting ''subsections (f), (g), and (h)''.
(d) Effective Date.--The amendments made by this section shall
apply to elections made in taxable years beginning after December 31,
1999.

SEC. 11. INFORMATION RETURNS FOR QUALIFIED SUBCHAPTER S SUBSIDIARIES.

(a) In General.--Section 1361(b)(3)(A) of the Internal Revenue Code
of 1986 (relating to treatment of certain wholly owned subsidiaries) is
amended by inserting ''and in the case of information returns required
under part III of subchapter A of chapter 61'' after ''Secretary''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 1999.
A:
Small Business and Financial Institutions Tax Relief Act of 1999 - Amends the Internal Revenue Code to permit S corporation eligible shareholders to include individual retirement accounts (IRAs).
(Sec. 2) Exempts from prohibited transaction rules any sale of stock in an IRA pursuant to a small business corporation's election to be an S corporation.
(Sec. 3) Excludes from the definition of passive income for purposes of S status termination any interest income earned by or dividends on assets required to be held by a bank, a bank holding company, or a qualified subchapter S subsidiary bank.
(Sec. 4) Increases from 75 to 150 the maximum number of shareholders a small business organization may have to be eligible to elect S corporation treatment.
(Sec. 5) States that stock held by a bank director as required by banking regulations (director qualifying stock) shall not be considered a disqualifying second class of S corporation stock.
(Sec. 6) Directs the Secretary of the Treasury to modify a certain regulation to permit an S corporation bank to treat certain bad debt deductions as built-in losses during the entire period during which the bank recognized built-in gains from changing its accounting method for recognizing bad debts from the reserve method to the charge-off method.
(Sec. 7) Includes all banks within the three-year deduction preference rule.
(Sec. 8) Makes family limited partnerships eligible to be S corporation shareholders.
(Sec. 9) Permits the issuance of qualified preferred stock, which shall not be treated as second class stock. Makes any distribution (not in payment in exchange for stock) made by an S corporation with respect to qualified preferred stock includible as ordinary income of the holder and deductible to the corporation as an expense.
(Sec. 10) Reduces from 100 percent to 90 percent the percentage of shares held by shareholders necessary for consent to election by a small business organization to be an S corporation. Prescribes rules for such consent.
(Sec. 11) Revises exceptions to the criteria for the treatment of certain wholly owned subchapter S subsidiaries with reference to required information returns.