REPEAL OF BAD DEBT RESERVE METHOD FOR THRIFT SAVINGS ASSOCIATIONS.

SEC. 1616. REPEAL OF BAD DEBT RESERVE METHOD FOR THRIFT SAVINGS ASSOCIATIONS. (a) In General.— Section 593 (relating to reserves for losses on loans) is amended by adding at the end the following new subsections: “(f) Termination of Reserve Method.— Subsections (a), (b), (c) , and (d) shall not apply to any taxable year beginning after December 31, 1995. “(g) 6-Year Spread of Adjustments.— “(1) In general.— In the case of any taxpayer who is required by reason of subsection (f) to change its method of computing reserves for bad debts— “(A) such change shall be treated as a change in a method of accounting, “(B) such change shall be treated as initiated by the taxpayer and as having been made with the consent of the Secretary, and “(C) the net amount of the adjustments required to be taken into account by the taxpayer under section 481(a)— “(i) shall be determined by taking into account only applicable excess reserves, and “(ii) as so determined, shall be taken into account ratably over the 6-taxable year period beginning with the first taxable year beginning after December 31, 1995. “(2) Applicable excess reserves.— “(A) In general.— For purposes of paragraph (1), the term ‘applicable excess reserves’ means the excess (if any) of— “(i) the balance of the reserves described in subsection (c)(1) (other than the supplemental reserve) as of the close of the taxpayer’s last taxable year beginning before January 1, 1996, over “(ii) the lesser of— “(I) the balance of such reserves as of the close of the taxpayer’s last taxable year beginning before January 1, 1988, or “(II) the balance of the reserves described in subclause (I), reduced in the same manner as under section 585(b)(2)(B)(ii) on the basis of the taxable years described in clause (i) and this clause. “(B) Special rule for thrifts which become small banks.— In the case of a bank (as defined in section 581) which was not a large bank (as defined in section 585(c)(2)) for its first 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 balance of such reserves as of the close of its last taxable year beginning before such date if the additions to such reserves for all taxable years had been determined under section 585(b)(2)(A), and 110 STAT. 1855 “(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 purposes of paragraphs (5) and (6) or subsection (e)(1). “(3) Recapture of pre-1988 reserves where taxpayer ceases to be bank.— If, during any taxable year beginning after December 31, 1995, a taxpayer 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 residential 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 beginning after December 31, 1995, or for the following taxable year— “(i) no adjustment shall be taken into account under paragraph (1)for such taxable year, and “(ii) such taxable year shall be disregarded in determining— “(I) whether any other taxable year is a taxable year for which an adjustment is required to be taken into account under paragraph (1), and “(II) the amount of such adjustment. “(B) Residential loan requirement.— A taxpayer meets the residential loan requirement 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 subparagraph (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 taxable year in such principal amount was the lowest. 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. 110 STAT. 1856 “(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 determining 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 reserve for bad debts as of the close of the last taxable 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) thereof 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 section 381(c) items.— The balance taken into account by a taxpayer under paragraph (2)(A)(ii) of this subsection 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 section 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 prescribe such regulations as may be necessary to carry out this subsection and subsection (e), including regulations providing for the application of such subsections 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) referred 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 paragraphs (2) and (3) as paragraphs (1) and (2), respectively. (3) Subsection (a) of section 57 is amended by striking paragraph (4). (4) Section 246 is amended by striking subsection (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”. 110 STAT. 1857 (7) (A) The material preceding subparagraph (A) of section 593(e)(1) is amended by striking “by a domestic building and loan association or an institution that is treated as a mutual savings bank under section 591(b)” and inserting “by a taxpayer having a balance described in subsection (g)(2)(A)(ii)”. (B) Subparagraph (B) of section 593(e)(1) is amended to read as follows: “(B) then out of the balance taken into account under subsection (g)(2)(A)(ii) (properly adjusted for amounts charged against such reserves for taxable years beginning after December 31, 1987),”. (C) The second sentence of section 593(e)(1) is amended by striking “the association or an institution that is treated as a mutual savings bank under section 591(b)” and inserting “a taxpayer having a balance described in subsection (g)(2)(A)(ii)”. (D) The third sentence of section 693(e)(1) is amended by striking “an association” and inserting “a taxpayer having a balance described in subsection (g)(2)(A)(ii)”. (E) Paragraph (1) of section 593(e) is amended by adding at the end the following new sentence: “This paragraph shall not apply to any distribution of all of the stock of a bank (as defined in section 581) to another corporation if, immediately after the distribution, such bank and such other corporation are members of the same affiliated group (as defined in section 1604) and the provisions of section 5(e) of the Federal Deposit Insurance Act (as in effect on December 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 amended— (A) by striking “Except as provided in paragraph (2), the” in paragraph (1) and inserting “The”, (B) by striking paragraphs (2) and (4) and redesignating paragraphs (3), (5), and (6) as paragraphs (2), (3), and (4), respectively, (C) by striking in paragraph (2) (as so redesignated) all that follows “subsection” and inserting a period, and (D) by striking the last sentence of paragraph (4) (as so redesignated). (11) Paragraph (3) of section 992(d) is amended by striking “or 593”. (12) Section 1038 is amended by striking subsection (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 applies”. (16) The table of sections for part II of subchapter 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 section shall apply to taxable years beginning after December 31, 1995. 110 STAT. 1858 (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 distribution, and (B) such distribution is made before the date which is 1 year after the date of the enactment 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)(B) 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 residual interest held by a taxpayer if such interest has been held by such taxpayer at all times after October 31, 1995.