II 110th CONGRESS 2d Session S. 3518 IN THE SENATE OF THE UNITED STATES September 18 (legislative day, September 17), 2008 Mr. Bingaman (for himself and Mr. Crapo) 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 modify the limitations on the deduction of interest by financial institutions which hold tax-exempt bonds, and for other purposes.
1.
Short title
This Act may be cited as the Municipal Bond Market Support Act of 2008.
2.
Modification of small issuer exception to tax-exempt interest expense allocation rules for financial institutions
(a)
Increase in limitation
Subparagraphs (C)(i), (D)(i), and (D)(iii)(II) of section 265(b)(3) of the Internal Revenue Code of 1986 are each amended by striking $10,000,000 and inserting $30,000,000. (b)
Repeal of aggregation rules applicable to small issuer determination
Paragraph (3) of section 265(b) of such Code is amended by striking subparagraphs (E) and (F). (c)
Election To apply limitation at borrower level
Paragraph (3) of section 265(b) of such Code, as amended by subsection (b), is amended by adding at the end the following new subparagraph: (E)
Election to apply limitation on amount of obligations at borrower level
(i)
In general
An issuer, the proceeds of the obligations of which are to be used to make or finance eligible loans, may elect to apply subparagraphs (C) and (D) by treating each borrower as the issuer of a separate issue. (ii)
Eligible loan
For purposes of this subparagraph— (I)
In general
The term eligible loan means one or more loans to a qualified borrower the proceeds of which are used by the borrower and the outstanding balance of which in the aggregate does not exceed $30,000,000. (II)
Qualified borrower
The term qualified borrower means a borrower which is an organization described in section 501(c)(3) and exempt from taxation under section 501(a) or a State or political subdivision thereof. (iii)
Manner of election
The election described in clause (i) may be made by an issuer for any calendar year at any time prior to its first issuance during such year of obligations the proceeds of which will be used to make or finance one or more eligible loans. . (d)
Inflation adjustment
Paragraph (3) of section 265(b) of such Code, as amended by subsections (b) and (c), is amended by adding at the end the following new subparagraph: (F)
Inflation adjustment
In the case of any calendar year after 2009, the $30,000,000 amounts contained in subparagraphs (C)(i), (D)(i), (D)(iii)(II), and (E)(ii)(I) shall each be increased by an amount equal to— (i)such dollar amount, multiplied by (ii)the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting calendar year 2008for calendar year 1992 in subparagraph (B) thereof. Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $100,000.. (e)
Effective date
The amendments made by this section shall apply to obligations issued after December 31, 2008.
3.
De minimis safe harbor exception for tax-exempt interest expense of financial institutions and brokers
(a)
Financial institutions
Subsection (b) of section 265 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph: (7)
De minimis exception
Paragraph (1) shall not apply to any financial institution if the portion of the taxpayer’s holdings of tax-exempt securities is less than 2 percent of the taxpayer’s assets. . (b)
Brokers
Subsection (a) of section 265 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph: (7)
De minimis exception
Paragraph (2) shall not apply to any broker (as defined in section 6045(c)(1)) if the portion of the taxpayer’s holdings of tax-exempt securities is less than 2 percent of the taxpayer’s assets. . (c)
Effective date
The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.