[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 2346 Introduced in Senate (IS)]

  2d Session
                                S. 2346

  To amend the Internal Revenue Code of 1986 to expand S corporation 
             eligibility for banks, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 23, 1998

  Mr. Allard (for himself, Mr. D'Amato, Mr. Faircloth, Mr. Hagel, Mr. 
Enzi, Mr. Bennett, Mr. Mack, Mr. Shelby, and Mr. Grams) introduced the 
 following bill; which was read twice and referred to the Committee on 
                                Finance

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to expand S corporation 
             eligibility for banks, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Business and Financial 
Institutions Tax Relief Act of 1998''.

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 described in section 
                        408(a).''
    (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) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1998.

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 (relating to passive investment income defined) is amended by 
adding at the end the following:
                            ``(v) Exception for bank investment 
                        securities income.--In the case of a bank (as 
                        defined in section 581), the term `passive 
                        investment income' shall not include interest 
                        on investment securities held by a bank.''
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1998.

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, 1998.

SEC. 5. TREATMENT OF DIRECTOR QUALIFYING STOCK.

    (a) In General.--Section 1361(c) of the Internal Revenue Code of 
1986 (relating to special rules for applying subsection (b)) is amended 
by adding at the end the following:
            ``(7) Director qualifying stock.--
                    ``(A) In general.--For purposes of subsection 
                (b)(1)(D), director qualifying stock shall not be 
                treated as a second class of stock.
                    ``(B) Director qualifying stock defined.--For 
                purposes of this paragraph, the term `director 
                qualifying stock' means any stock held by any director 
                of a bank (as defined in section 581) as mandated by 
                banking regulatory requirements.''
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1998.

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 taxable years beginning after December 31, 1998, with respect to 
bad debt deductions under section 166 of the Internal Revenue Code of 
1986 by allowing such deductions to be properly taken into account 
throughout the recognition period (as defined in section 1374(d)(7) 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 of a qualified subchapter S subsidiary.''
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1998.
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