II 110th CONGRESS 2d Session S. 3254 IN THE SENATE OF THE UNITED STATES July 11, 2008 Mr. Hatch (for himself and Mrs. Lincoln) 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 allow banks to be taxed as limited liability companies, and for other purposes.

1.

Election for certain banking entities to be taxed as limited liability companies

(a)

In general

Section 7701 of the Internal Revenue Code is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection: (p)

Classification election for certain banking entities

(1)

In general

For purposes of this title, an entity described in paragraph (2) may elect to be treated as a partnership or, if the entity has a single owner, to be disregarded as an entity separate from the owner. (2)

Entity described

An entity is described in this paragraph if— (A)it is a State-chartered business entity conducting banking activities, (B)any of its deposits are insured under the Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.) or a similar Federal law, and (C)it is organized as a limited liability company under the laws of a State. (3)

Treatment of entity

An entity that makes an election under paragraph (1) shall not be considered a bank as defined in section 581. (4)

Transitional rule

(A)

In general

In the case of an entity that makes an election under paragraph (1) before the beginning of the third taxable year beginning after the date of the enactment of this subsection— (i)no gain or loss shall be recognized to the entity or its owners by reason of such election, and (ii)rules similar to the rules of section 1374 shall apply to the entity. (B)

Exception

Subparagraph (A)(ii) shall not apply to an entity that began conducting banking activities after February 12, 2003. . (b)

Effective date

The amendments made by this section shall apply to elections made after the date of the enactment of this Act with respect to taxable years ending on or after December 31, 2007.