MUTUAL SAVINGS BANKS, ETC.

SEC. 432. MUTUAL SAVINGS BANKS, ETC. (a) Reserve for Losses on Loans.—Section 593(b) (relating to addition to reserves for bad debts) is amended— (1) by striking out subparagraph (A) of paragraph (1) and inserting in lieu thereof the following: “(A) the amount determined to be a reasonable addition to the reserve for losses on nonqualifying loans, computed in the same manner as is provided with respect to additions to the reserves for losses on loans of banks under section 585(b)(3), plus”. (2) by striking out paragraphs (2), (3), (4), and (5) and inserting in lieu thereof the following: “(2) Percentage of taxable income method.— “(A) In general.—Subject to subparagraphs (B), (C), and (D), the amount determined under this paragraph for the taxable year shall be an amount equal to the applicable percentage of the taxable income for such year (determined under the following table): “For a taxable year beginning in— The applicable percentage under this paragraph shall be— 1969 60 percent. 1970 57 percent. 1971 54 percent. 1972 51 percent. 1973 49 percent. 1974 47 percent. 1975 45 percent. 1976 43 percent. 1977 42 percent. 1978 41 percent. 1979 or thereafter 40 percent. “(B) Reduction of applicable percentage in certain cases.—If, for the taxable year, the percentage of the assets of a taxpayer described in subsection (a), which are assets described in section 7701(a)(19)(C), is less than— “(i) 82 percent of the total assets in the case of a taxpayer other than a mutual savings bank, the applicable percentage for such year provided by subparagraph (A) shall be reduced by ¾ of 1 percentage point for each 1 percentage point of such difference, or “(ii) 72 percent of the total assets in the case of a mutual savings bank, the applicable percentage for such 83 Stat. 621 year provided by subparagraph (A) shall be reduced by 1½ percentage points for each 1 percentage point of such difference. If, for the taxable year, the percentage of the assets of such taxpayer which are assets described in section 7701(a)(19)(C) is less than 60 percent (50 percent for a taxable year beginning before 1973 in the case of a mutual savings bank), this paragraph shall not apply. “(C) Reduction for amounts referred to in paragraph (1)(a).—The amount determined under subparagraph (A) shall be reduced by that portion of the amount referred to in paragraph (1)(A) for the taxable year (not in excess of 100 percent) which bears the same ratio to such amount as (i) 18 percent (28 percent in the case of mutual savings banks) bears to (ii) the percentage of the assets of the taxpayer for such year which are not assets described in section 7701(a)(19)(C). “(D) Overall limitation on paragraph.—The amount determined under this paragraph shall not exceed the amount necessary to increase the balance at the close of the taxable year of the reserve for losses on qualifying real property loans to 6 percent of such loans outstanding at such time. “(E) Computation of taxable income.—For purposes of this paragraph, taxable income shall be computed— “(i) by excluding from gross income any amount included therein by reason of subsection (f), “(ii) without regard to any deduction allowable for any addition to the reserve for bad debts, “(iii) by excluding from gross income an amount equal to the net gain for the taxable year arising from the sale or exchange of stock of a corporation or of obligations the interest on which is excludable from gross income under section 103, “(iv) by excluding from gross income an amount equal to the lesser of ⅜ of the net long-term capital gain for the taxable year or ⅜ of the net long-term capital gain for the taxable year from the sale or exchange of property other than property described in clause (iii), and “(v) by excluding from gross income dividends with respect to which a deduction is allowable by part VIII of subchapter B, reduced by an amount equal to the applicable percentage (determined under subparagraphs (A) and (B)) of the dividends received deduction (determined without regard to section 596) for the taxable year. “(3) Percentage method.—The amount determined under this paragraph to be a reasonable addition to the reserve for losses on qualifying real property loans shall be computed in the same manner as is provided with respect to additions to the reserves for losses on loans of banks under section 585(b)(2), reduced by the amount referred to in paragraph (1)(A) for the taxable year. “(4) Experience method.—The amount determined under this paragraph for the taxable year shall be computed in the same manner as is provided with respect to additions to the reserves for losses on loans of banks under section 585(b)(3). “(5) Determination of reserve for percentage method.—For purposes of paragraph (3), the amount deemed to be the balance of the reserve for losses on loans at the beginning of the 83 Stat. 622 taxable year shall be the total of the balances at such time of the reserve for losses on nonqualifying loans, the reserve for losses on qualifying real property loans, and the supplemental reserve for losses on loans.” (b) Certain Corporate Acquisitions.—Section 593(f)(1) (relating to distributions to shareholders) is amended by adding at the end thereof the following new sentence: “This paragraph shall not apply to any transaction to which section 381 (relating to carryovers in certain corporate acquisitions) applies.” (c) Investment Standards.—Section 7701(a)(19) (defining domestic building and loan association) is amended to read as follows: “(19) Domestic building and loan association.—The term ‘domestic building and loan association’ means a domestic building and loan association, a domestic savings and loan association and a Federal savings and loan association— “(A) which either (i) is an insured institution within the meaning of section 401(a) of the National Housing Act (12 U.S.C, sec. 1724(a)), or (ii) is subject by law to supervision and examination by State or Federal authority having supervision over such associations; “(B) the business of which consists principally of acquiring the savings of the public and investing in loans; and “(C) at least 60 percent of the amount of the total assets of which (at the close of the taxable year) consists of— “(i) cash, “(ii) obligations of the United States or of a State or political subdivision thereof, and stock or obligations of a corporation which is an instrumentality of the United States or of a State or political subdivision thereof, but not including obligations the interest on which is excludable from gross income under section 103, “(iii) certificates of deposit in, or obligations of, a corporation organized under a State law which specifically authorizes such corporation to insure the deposits or share accounts of member associations, “(iv) loans secured by a deposit or share of a member, “(v) loans (including redeemable ground rents, as defined in section 1055) secured by an interest in real property which is (or, from the proceeds of the loan, will become) residential real property or real property used primarily for church purposes, loans made for the improvement of residential real property or real property used primarily for church purposes, provided that for purposes of this clause, residential real property shall include single or multifamily dwellings, facilities in residential developments dedicated to public use or property used on a nonprofit basis for residents, and mobile homes not used on a transient basis, “(vi) loans secured by an interest in real property located within an urban renewal area to be developed for predominantly residential use under an urban renewal plan approved by the Secretary of Housing and Urban Development under part A or part B of title I of the Housing Act of 1949, as amended, or located within any area covered by a program eligible for assistance under section 103 of the Demonstration Cities and Metropolitan Development Act of 1966, as amended, and loans made for the improvement of any such real property, 83 Stat. 623 “(vii) loans secured by an interest in educational, health, or welfare institutions or facilities, including structures designed or used primarily for residential purposes for students, residents, and persons under care, employees, or members of the staff of such institutions or facilities, “(viii) property acquired through the liquidation of defaulted loans described in clause (v), (vi), or (vii), “(ix) loans made for the payment of expenses of college or university education or vocational training, in accordance with such regulations as may be prescribed by the Secretary or his delegate, and “(x) property used by the association in the conduct of the business described in subparagraph (B). At the election of the taxpayer, the percentage specified in this subparagraph shall be applied on the basis of the average assets outstanding during the taxable year, in lieu of the close of the taxable year, computed under regulations prescribed by the Secretary or his delegate. For purposes of clause (v), if a multifamily structure securing a loan is used in part for nonresidential purposes, the entire loan is deemed a residential real property loan if the planned residential use exceeds 80 percent of the property’s planned use (determined as of the time the loan is made). For purposes of clause (v), loans made to finance the acquisition or development of land shall be deemed to be loans secured by an interest in residential real property if, under regulations prescribed by the Secretary or his delegate, there is reasonable assurance that the property will become residential real property within a period of 3 years from the date of acquisition of such land; but this sentence shall not apply for any taxable year unless, within such 3-year period, such land becomes residential real property.” (d) Conforming Amendments.—Section 7701(a)(32) (defining cooperative bank) is amended— (1) by striking out subparagraph (B) and inserting in lieu thereof the following: “(B) meets the requirements of subparagraphs (B) and (C) of paragraph (19) of this subsection (relating to definition of domestic building and loan association).”, and (2) by striking out the third sentence thereof. (e) Effective Date.—The amendments made by this section shall effective for taxable years beginning after July 11, 1969.