TREATMENT OF BONDS, ETC., HELD BY FINANCIAL INSTITUTIONS.

SEC. 433. TREATMENT OF BONDS, ETC., HELD BY FINANCIAL INSTITUTIONS. (a) Gain on Securities Held by Financial Institutions.—Subsection (c) of section 682 (relating to bad debt and loss deduction with respect to securities held by banks) is amended by striking out such subsection and inserting the following in lieu thereof: “(c) Bond, Etc., Losses and Gains of Financial Institutions.— “(1) General rule.—For purposes of this subtitle, in the case of a financial institution to which section 585, 586, or 593 applies, the sale or exchange of a bond, debenture, note, or certificate or other evidence of indebtedness shall not be considered a sale or exchange of a capital asset. “(2) Transitional rule for banks.—In the case of a bank, if the net long-term capital gains of the taxable year from sales or 83 Stat. 624 exchanges of qualifying securities exceed the net short-term capital losses of the taxable year from such sales or exchanges such excess shall be considered as gain from the sale of a capital asset held for more than 6 months to the extent it does not exceed the net gain on sales and exchanges described in paragraph (1). “(3) Special rules.—For purposes of this subsection— “(A) The term ‘qualifying security’ means a bond, debenture, note, or certificate or other evidence of indebtedness held by a bank on July 11, 1969. “(B) The amount treated as capital gain or loss from the sale or exchange of a qualifying security shall be determined by multiplying the amount of capital gain or loss from the sale or exchange of such security (determined without regard to this subsection) by a fraction, the numerator of which is the number of days before July 12, 1969, that such security was held by the bank, and the denominator of which is the number of days the security was held by the bank.” (b) Conforming Amendment.—Paragraph (1) of section 1243 (relating to loss of a small business investment company) is amended to read as follows: “(1) a loss is on stock received pursuant to the conversion privilege of convertible debentures acquired pursuant to section 304 of the Small Business Investment Act of 1958, and”. (c) Clerical Amendment.—The heading for section 582 is amended to read as follows: “SEC. 582. BAD DEBTS, LOSSES, AND GAINS WITH RESPECT TO SECURITIES HELD BY FINANCIAL INSTITUTIONS.” (d) Effective Date.— (1) In general.—The amendments made by this section shall apply to taxable years beginning after July 11, 1969. (2) Election for small business investment companies and business development corporations.—Notwithstanding paragraph (1), in the case of a financial institution described in section 586(a) of the Internal Revenue Code of 1954, the amendments made by this section shall not apply for its taxable years beginning after July 11, 1969, and before July 11, 1974, unless the taxpayer so elects at such time and in such manner as shall be prescribed by the Secretary of the Treasury or his delegate. Such election shall be irrevocable and shall apply to all such taxable years.