
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC593]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
                   Subchapter H--Banking Institutions
 
                   PART II--MUTUAL SAVINGS BANKS, ETC.
 
Sec. 593. Reserves for losses on loans


(a) Reserve for bad debts

                           (1) In general

        Except as provided in paragraph (2), in the case of--
            (A) any domestic building and loan association,
            (B) any mutual savings bank, or
            (C) any cooperative bank without capital stock organized and 
        operated for mutual purposes and without profit,

    there shall be allowed a deduction for a reasonable addition to a 
    reserve for bad debts. Such deduction shall be in lieu of any 
    deduction under section 166(a).

    (2) Organization must meet 60-percent asset test of section 
                                 7701(a)(19)

        This section shall apply to an association or bank referred to 
    in paragraph (1) only if it meets the requirements of section 
    7701(a)(19)(C).

(b) Addition to reserves for bad debts

                           (1) In general

        For purposes of subsection (a), the reasonable addition for the 
    taxable year to the reserve for bad debts of any taxpayer described 
    in subsection (a) shall be an amount equal to the sum of--
            (A) the amount determined to be a reasonable addition to the 
        reserve for losses on nonqualifying loans, computed in the same 
        manner as is provided with respect to additions to the reserves 
        for losses on loans of banks under section 585(b)(2), plus
            (B) the amount determined by the taxpayer to be a reasonable 
        addition to the reserve for losses on qualifying real property 
        loans, but such amount shall not exceed the amount determined 
        under paragraph (2) or (3), whichever is the larger, but the 
        amount determined under this subparagraph shall in no case be 
        greater than the larger of--
                (i) the amount determined under paragraph (3), or
                (ii) the amount which, when added to the amount 
            determined under subparagraph (A), equals the amount by 
            which 12 percent of the total deposits or withdrawable 
            accounts of depositors of the taxpayer at the close of such 
            year exceeds the sum of its surplus, undivided profits, and 
            reserves at the beginning of such year (taking into account 
            any portion thereof attributable to the period before the 
            first taxable year beginning after December 31, 1951).

               (2) Percentage of taxable income method

        (A) In general

            Subject to subparagraphs (B) and (C), the amount determined 
        under this paragraph for the taxable year shall be an amount 
        equal to 8 percent of the taxable income for such year.

        (B) Reduction for amounts referred to in paragraph (1)(A)

            The amount determined under subparagraph (A) shall be 
        reduced (but not below 0) by the amount determined under 
        paragraph (1)(A).

        (C) Overall limitation on paragraph

            The amount determined under this paragraph shall not exceed 
        the amount necessary to increase the balance at the close of the 
        taxable year of the reserve for losses on qualifying real 
        property loans to 6 percent of such loans outstanding at such 
        time.

        (D) Computation of taxable income

            For purposes of this paragraph, taxable income shall be 
        computed--
                (i) by excluding from gross income any amount included 
            therein by reason of subsection (e),
                (ii) without regard to any deduction allowable for any 
            addition to the reserve for bad debts,
                (iii) by excluding from gross income an amount equal to 
            the net gain for the taxable year arising from the sale or 
            exchange of stock of a corporation or of obligations the 
            interest on which is excludable from gross income under 
            section 103,
                (iv) by excluding from gross income dividends with 
            respect to which a deduction is allowable by part VIII of 
            subchapter B, reduced by an amount equal to 8 percent of the 
            dividends received deduction (determined without regard to 
            section 596) \1\ for the taxable year, and
---------------------------------------------------------------------------
    \1\ See References in Text note below.
---------------------------------------------------------------------------
                (v) if there is a capital gain rate differential (as 
            defined in section 904(b)(3)(D)) for the taxable year, by 
            excluding from gross income the rate differential portion 
            (within the meaning of section 904(b)(3)(E)) of the lesser 
            of--
                    (I) the net long-term capital gain for the taxable 
                year, or
                    (II) the net long-term capital gain for the taxable 
                year from the sale or exchange of property other than 
                property described in clause (iii).

                        (3) Experience method

        The amount determined under this paragraph for the taxable year 
    shall be computed in the same manner as is provided with respect to 
    additions to the reserves for losses on loans of banks under section 
    585(b)(2).

(c) Treatment of reserve for bad debts

                    (1) Establishment of reserves

        Each taxpayer described in subsection (a) which uses the reserve 
    method of accounting for bad debts shall establish and maintain a 
    reserve for losses on qualifying real property loans, a reserve for 
    losses on nonqualifying loans, and a supplemental reserve for losses 
    on loans. For purposes of this title, such reserves shall be treated 
    as reserves for bad debts, but no deduction shall be allowed for any 
    addition to the supplemental reserve for losses on loans.

                    (2) Certain pre-1963 reserves

        Notwithstanding the second sentence of paragraph (1), any amount 
    allocated pursuant to paragraph (5) (as in effect immediately before 
    the enactment of the Tax Reform Act of 1976) during a taxable year 
    beginning before January 1, 1977, to the reserve for losses on 
    qualifying real property loans out of the surplus, undivided 
    profits, and bad debt reserves (determined as of December 31, 1962) 
    attributable to the period before the first taxable year beginning 
    after December 31, 1951, shall not be treated as a reserve for bad 
    debts for any purpose other than determining the amount referred to 
    in subsection (b)(1)(B), and for such purpose such amount shall be 
    treated as remaining in such reserve.

                (3) Charging of bad debts to reserves

        Any debt becoming worthless or partially worthless in respect of 
    a qualifying real property loan shall be charged to the reserve for 
    losses on such loans, and any debt becoming worthless or partially 
    worthless in respect of a nonqualifying loan shall be charged to the 
    reserve for losses on nonqualifying loans; except that any such debt 
    may, at the election of the taxpayer, be charged in whole or in part 
    to the supplemental reserve for losses on loans.

(d) Loans defined

    For purposes of this section--

                 (1) Qualifying real property loans

        The term ``qualifying real property loan'' means any loan 
    secured by an interest in improved real property or secured by an 
    interest in real property which is to be improved out of the 
    proceeds of the loan, but such term does not include--
            (A) any loan evidenced by a security (as defined in section 
        165(g)(2)(C));
            (B) any loan, whether or not evidenced by a security (as 
        defined in section 165(g)(2)(C)), the primary obligor on which 
        is--
                (i) a government or political subdivision or 
            instrumentality thereof;
                (ii) a bank (as defined in section 581); or
                (iii) another member of the same affiliated group;

            (C) any loan, to the extent secured by a deposit in or share 
        of the taxpayer; or
            (D) any loan which, within a 60-day period beginning in one 
        taxable year of the creditor and ending in its next taxable 
        year, is made or acquired and then repaid or disposed of, unless 
        the transactions by which such loan was made or acquired and 
        then repaid or disposed of are established to be for bona fide 
        business purposes. For purposes of subparagraph (B)(iii), the 
        term ``affiliated group'' has the meaning assigned to such term 
        by section 1504(a); except that (i) the phrase ``more than 50 
        percent'' shall be substituted for the phrase ``at least 80 
        percent'' each place it appears in section 1504(a), and (ii) all 
        corporations shall be treated as includible corporations 
        (without any exclusion under section 1504(b)).

                       (2) Nonqualifying loans

        The term ``nonqualifying loan'' means any loan which is not a 
    qualifying real property loan.

                              (3) Loan

        The term ``loan'' means debt, as the term ``debt'' is used in 
    section 166.

                (4) Treatment of interests in REMIC's

        A regular or residual interest in a REMIC shall be treated as a 
    qualifying real property loan; except that, if less than 95 percent 
    of the assets of such REMIC are qualifying real property loans 
    (determined as if the taxpayer held the assets of the REMIC), such 
    interest shall be so treated only in the proportion which the assets 
    of such REMIC consist of such loans. For purposes of determining 
    whether any interest in a REMIC qualifies under the preceding 
    sentence, any interest in another REMIC held by such REMIC shall be 
    treated as a qualifying real property loan under principles similar 
    to the principles of the preceding sentence, except that if such 
    REMIC's are part of a tiered structure, they shall be treated as 1 
    REMIC for purposes of this paragraph.

(e) Distributions to shareholders

                           (1) In general

        For purposes of this chapter, any distribution of property (as 
    defined in section 317(a)) by a taxpayer having a balance described 
    in subsection (g)(2)(A)(ii) to a shareholder with respect to its 
    stock, if such distribution is not allowable as a deduction under 
    section 591, shall be treated as made--
            (A) first out of its earnings and profits accumulated in 
        taxable years beginning after December 31, 1951, (and, in the 
        case of an S corporation, the accumulated adjustments account, 
        as defined in section 1368(e)(1)) to the extent thereof,
            (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) then out of the supplemental reserve for losses on 
        loans, to the extent thereof,
            (D) then out of such other accounts as may be proper.

    This paragraph shall apply in the case of any distribution in 
    redemption of stock or in partial or complete liquidation of a 
    taxpayer having a balance described in subsection (g)(2)(A)(ii), 
    except that any such distribution shall be treated as made first out 
    of the amount referred to in subparagraph (B), second out of the 
    amount referred to in subparagraph (C), third out of the amount 
    referred to in subparagraph (A), and then out of such other accounts 
    as may be proper. This paragraph shall not apply to any transaction 
    to which section 381 applies, or to any distribution to the Federal 
    Savings and Loan Insurance Corporation (or any successor thereof) or 
    the Federal Deposit Insurance Corporation in redemption of an 
    interest in a taxpayer having a balance described in subsection 
    (g)(2)(A)(ii), if such interest was originally received by any such 
    entity in exchange for assistance provided under a provision of law 
    referred to in section 597(c). 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 1504) 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.

      (2) Amounts charged to reserve accounts and included in 
                                gross income

        If any distribution is treated under paragraph (1) as having 
    been made out of the reserves described in subparagraphs (B) and (C) 
    of such paragraph, the amount charged against such reserve shall be 
    the amount which, when reduced by the amount of tax imposed under 
    this chapter and attributable to the inclusion of such amount in 
    gross income, is equal to the amount of such distribution; and the 
    amount so charged against such reserve shall be included in gross 
    income of the taxpayer.

                          (3) Special rules

        (A) For purposes of paragraph (1)(B), additions to the reserve 
    for losses on qualifying real property loans for the taxable year in 
    which the distribution occurs shall be taken into account.
        (B) For purposes of computing under this section the amount of a 
    reasonable addition to the reserve for losses on qualifying real 
    property loans for any taxable year, any amount charged during any 
    year to such reserve pursuant to the provisions of paragraph (2) 
    shall not be taken into account.

(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
                (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.

     (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.

(Aug. 16, 1954, ch. 736, 68A Stat. 205; Pub. L. 87-834, Sec. 6(a), Oct. 
16, 1962, 76 Stat. 977; Pub. L. 91-172, title IV, Sec. 432(a), (b), Dec. 
30, 1969, 83 Stat. 620, 622; Pub. L. 94-455, title XIX, 
Sec. 1901(a)(84), Oct. 4, 1976, 90 Stat. 1778; Pub. L. 96-222, title I, 
Sec. 104(a)(3)(C), Apr. 1, 1980, 94 Stat. 215; Pub. L. 97-34, title II, 
Secs. 243, 245(b), (c), Aug. 13, 1981, 95 Stat. 255, 256; Pub. L. 99-
514, title III, Sec. 311(b)(2), title VI, Sec. 671(b)(2), title IX, 
Sec. 901(b)(1)-(3), (d)(2), Oct. 22, 1986, 100 Stat. 2219, 2317, 2378; 
Pub. L. 100-647, title I, Secs. 1003(c)(3), 1006(t)(25)(B), Nov. 10, 
1988, 102 Stat. 3384, 3426; Pub. L. 101-73, title XIV, Sec. 1401(b)(3), 
Aug. 9, 1989, 103 Stat. 550; Pub. L. 101-508, title XI, 
Sec. 11801(c)(12)(F), Nov. 5, 1990, 104 Stat. 1388-527; Pub. L. 104-188, 
title I, Secs. 1616(a), (b)(7), 1704(t)(51), Aug. 20, 1996, 110 Stat. 
1854, 1857, 1890; Pub. L. 105-34, title XVI, Sec. 1601(f)(5)(A), Aug. 5, 
1997, 111 Stat. 1091.)

                       References in Text

    Section 596, referred to in subsec. (b)(2)(D)(iv), was repealed by 
Pub. L. 104-188, title I, Sec. 1616(b)(9), Aug. 20, 1996, 110 Stat. 
1857.
    The Tax Reform Act of 1976, referred to in subsec. (c)(2), is Pub. 
L. 94-455, Oct. 4, 1976, 90 Stat. 1520, as amended, which was enacted 
Oct. 4, 1976. For complete classification of this Act to the Code, see 
Tables.
    Section 5(e) of the Federal Deposit Insurance Act, referred to in 
subsec. (e)(1), is classified to section 1815(e) of Title 12, Banks and 
Banking.


                               Amendments

    1997--Subsec. (e)(1)(A). Pub. L. 105-34 inserted ``(and, in the case 
of an S corporation, the accumulated adjustments account, as defined in 
section 1368(e)(1))'' after ``1951,''.
    1996--Subsec. (b)(1)(A), (3). Pub. L. 104-188, Sec. 1704(t)(51), 
provided that the amendment made by section 11801(c)(12)(F) of Pub. L. 
101-508 shall be applied as if ``and (3)'' appeared instead of ``and 
(E)''. See 1990 Amendment note below.
    Subsec. (e)(1). Pub. L. 104-188, Sec. 1616(b)(7)(A), substituted 
``by a taxpayer having a balance described in subsection (g)(2)(A)(ii)'' 
for ``by a domestic building and loan association or an institution that 
is treated as a mutual savings bank under section 591(b)'' in 
introductory provisions.
    Pub. L. 104-188, Sec. 1616(b)(7)(C)-(E), in closing provisions, 
substituted ``a taxpayer having a balance described in subsection 
(g)(2)(A)(ii)'' for ``the association or an institution that is treated 
as a mutual savings bank under section 591(b)'' after ``complete 
liquidation of'' and for ``an association'' after ``an interest in'' and 
inserted at end ``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 1504) 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.''
    Subsec. (e)(1)(B). Pub. L. 104-188, Sec. 1616(b)(7)(B), amended 
subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: 
``then out of the reserve for losses on qualifying real property loans, 
to the extent additions to such reserve exceed the additions which would 
have been allowed under subsection (b)(3),''.
    Subsecs. (f), (g). Pub. L. 104-188, Sec. 1616(a), added subsecs. (f) 
and (g).
    1990--Subsec. (b). Pub. L. 101-508, Sec. 11801(c)(12)(F), which 
directed the amendment of pars. (1)(A) and (E) by substituting ``section 
585(b)(2)'' for ``section 585(b)(3)'', was executed to pars. (1)(A) and 
(3). See 1996 Amendment note above.
    1989--Subsec. (e)(1). Pub. L. 101-73 amended last sentence 
generally. Prior to amendment, last sentence read as follows: ``This 
paragraph shall not apply to any transaction to which section 381 
(relating to carryovers in certain corporate acquisitions) applies, or 
to any distribution to the Federal Savings and Loan Insurance 
Corporation in redemption of an interest in an association, if such 
interest was originally received by the Federal Savings and Loan 
Insurance Corporation in exchange for financial assistance pursuant to 
section 406(f) of the National Housing Act (12 U.S.C. sec. 1729(f)).''
    1988--Subsec. (b)(2)(D)(v). Pub. L. 100-647, Sec. 1003(c)(3), added 
cl. (v).
    Subsec. (d)(4). Pub. L. 100-647, Sec. 1006(t)(25)(B), inserted at 
end ``For purposes of determining whether any interest in a REMIC 
qualifies under the preceding sentence, any interest in another REMIC 
held by such REMIC shall be treated as a qualifying real property loan 
under principles similar to the principles of the preceding sentence, 
except that if such REMIC's are part of a tiered structure, they shall 
be treated as 1 REMIC for purposes of this paragraph.''
    1986--Subsec. (a). Pub. L. 99-514, Sec. 901(b)(1), amended subsec. 
(a) generally. Prior to amendment, subsec. (a) read as follows: ``This 
section shall apply to any mutual savings bank, domestic building and 
loan association, or cooperative bank without capital stock organized 
and operated for mutual purposes and without profit.''
    Subsec. (b)(1). Pub. L. 99-514, Sec. 901(d)(2)(A), (B), in 
introductory provisions, substituted ``subsection (a)'' for ``section 
166(c)'' and in subpar. (B), substituted ``paragraph (2) or (3), 
whichever is the larger'' for ``paragraph (2), (3), or (4), whichever 
amount is the largest'' in introductory provisions and ``paragraph (3)'' 
for ``paragraph (4)'' in cl. (i).
    Subsec. (b)(2)(A). Pub. L. 99-514, Sec. 901(b)(2)(A), added subpar. 
(A) and struck out former subpar. (A) which provided that subject to 
subpars. (B), (C), and (D), the amount determined under par. (2) was to 
be an amount equal to applicable percentage of taxable income for such 
year determined under a table which fixed specific percentages for 
taxable years 1976, 1977, 1978, and 1979 or thereafter.
    Subpar. (b)(2)(B). Pub. L. 99-514, Sec. 901(b)(2)(A), added subpar. 
(B), which incorporated provisions of former subpar. (C), relating to 
reducing amounts referred to in par. (1)(A), and struck out former 
subpar. (B) which provided for reduction of applicable percentage in 
certain cases.
    Subsec. (b)(2)(C). Pub. L. 99-514, Sec. 901(b)(2)(A), (B), 
redesignated former subpar. (D) as (C) and struck out former subpar. (C) 
which related to reduction for amounts referred to in par. (1)(A). See 
par. (1)(B).
    Subsec. (b)(2)(D). Pub. L. 99-514, Sec. 901(b)(2)(B), (d)(2)(B), 
redesignated subpar. (E) as (D) and substituted in cl. (iv) ``8 
percent'' for ``the applicable percentage (determined under 
subparagraphs (A) and (B))''. Former subpar. (D) redesignated (C).
    Subsec. (b)(2)(E). Pub. L. 99-514, Sec. 901(b)(2)(B), redesignated 
subpar. (E) as (D).
    Pub. L. 99-514, Sec. 311(b)(2), redesignated former cl. (v) as (iv), 
and struck out former cl. (iv) which read as follows: ``by excluding 
from gross income an amount equal to the lesser of \18/46\ of the net 
long-term capital gain for the taxable year or \18/46\ of the net long-
term capital gain for the taxable year from the sale or exchange of 
property other than property described in clause (iii), and''.
    Subsec. (b)(3), (4). Pub. L. 99-514, Sec. 901(b)(3), redesignated 
par. (4) as (3) and struck out former par. (3) which read as follows: 
``The amount determined under this paragraph to be a reasonable addition 
to the reserve for losses on qualifying real property loans shall be 
computed in the same manner as is provided with respect to additions to 
the reserves for losses on loans of banks under section 585(b)(2), 
reduced by the amount referred to in paragraph (1)(A) for the taxable 
year.''
    Subsec. (b)(5). Pub. L. 99-514, Sec. 901(b)(3), struck out par. (5) 
which read as follows: ``For purposes of paragraph (3), the amount 
deemed to be the balance of the reserve for losses on loans at the 
beginning of the taxable year shall be the total of the balances at such 
time of the reserve for losses on nonqualifying loans, the reserve for 
losses on qualifying real property loans, and the supplemental reserve 
for losses on loans.''
    Subsec. (d)(4). Pub. L. 99-514, Sec. 671(b)(2), added par. (4).
    Subsec. (e)(1)(B). Pub. L. 99-514, Sec. 901(d)(2)(C), substituted 
``subsection (b)(3)'' for ``subsection (B)(4)''.
    1981--Subsec. (a). Pub. L. 97-34, Sec. 245(c)(1), struck out ``not 
having capital stock represented by shares'' after ``mutual savings 
bank''.
    Subsec. (b)(2)(B). Pub. L. 97-34, Sec. 245(b)(1), inserted ``which 
is not described in section 591(b)'' after ``mutual savings bank'' in 
cls. (i) and (ii) and in last sentence.
    Subsec. (b)(2)(C). Pub. L. 97-34, Sec. 245(b)(2), inserted ``which 
are not described in section 591(b)'' after ``mutual savings banks'' in 
cl. (i).
    Subsec. (e)(1). Pub. L. 97-34, Sec. 245(c)(2), inserted ``or an 
institution that is treated as a mutual savings bank under section 
591(b)'' after ``domestic building and loan association'' and 
``liquidation of the association''.
    Pub. L. 97-34, Sec. 243, inserted provisions making par. (1) 
inapplicable to any distribution to the Federal Savings and Loan 
Insurance Corporation in redemption of an interest in an association, if 
such interest was originally received by the Corporation in exchange for 
financial assistance pursuant to section 1729(f) of title 12.
    1980--Subsec. (b)(2)(E)(iv). Pub. L. 96-222 substituted ``\18/46\'' 
for ``\3/8\'' in two places.
    1976--Subsec. (b)(2)(A). Pub. L. 94-455, Sec. 1901(a)(84)(A), struck 
from the percentage table the years 1969 to 1975, inclusive.
    Subsec. (b)(2)(E)(i). Pub. L. 94-455, Sec. 1901(a)(84)(D), 
substituted ``subsection (e)'' for ``subsection (f)'' after ``by reason 
of''.
    Subsec. (c)(2). Pub. L. 94-455, Sec. 1901(a)(84)(B), added par. (2). 
Former par. (2), relating to allocation of pre-1963 reserves for bad 
debts, was struck out.
    Subsec. (c)(3). Pub. L. 94-455, Sec. 1901(a)(84)(B), redesignated 
par. (6) as par. (3). Former par. (3), relating to the method of 
allocation to reserves for bad debts, was struck out.
    Subsec. (c)(4), (5). Pub. L. 94-455, Sec. 1901(a)(84)(B), struck out 
par. (4) which defined ``pre-1963 reserves'', and struck out par. (5) 
which related to certain pre-1952 surplus.
    Subsec. (c)(6). Pub. L. 94-455, Sec. 1901(a)(84)(B), redesignated 
par. (6) as (3).
    Subsecs. (d) to (f). Pub. L. 94-455, Sec. 1901(a)(84)(C), struck out 
subsec. (d) relating to the determination of taxable income for taxpayer 
which uses the reserve method of accounting for bad debts for taxable 
years beginning in 1962 and ending in 1963, and redesignated subsecs. 
(e) and (f) as (d) and (e), respectively.
    Subsecs. (e), (f). Pub. L. 94-455, Sec. 1901(a)(84)(C), redesignated 
subsec. (f) as (e). Former subsec. (e) redesignated (d).
    1969--Subsec. (b)(1)(A). Pub. L. 91-172, Sec. 432(a)(1), inserted 
provisions for the method of computing the amount of the reasonable 
addition to the reserve for losses on nonqualifying loans.
    Subsec. (b)(2). Pub. L. 91-172, Sec. 432(a)(2), substituted a table 
of applicable percentages of the taxable income for each year up to 1979 
and thereafter for the amount in excess of 60 percent over the amount 
referred to in former subsec. (b)(1)(A), transferred the remaining 
provisions of former subsec. (b)(2) to subpart (D), and added subpars. 
(B) to (E).
    Subsec. (b)(3). Pub. L. 91-172, Sec. 432(a)(2), substantially 
changed method of computation of the amount by conforming it to the 
method of determining the additions to the reserves for losses on loans 
of banks under section 585(b)(2).
    Subsec. (b)(4). Pub. L. 91-172, Sec. 432(a)(2), changed method of 
computation of the amount by conforming it to the method of determining 
the additions to the reserves for losses on loans of banks under section 
585(b)(3).
    Subsec. (b)(5). Pub. L. 91-172, Sec. 432(a)(2), substituted 
provisions relating to determination of reserve for percentage method 
for provisions relating to limitation in case of certain domestic 
building and loan associations.
    Subsec. (f). Pub. L. 91-172, Sec. 432(b), excepted the application 
of par. (1) to any transaction to which section 381 of this title 
applied.
    1962--Pub. L. 87-834 amended section generally. Prior to such 
amendment, section read as follows:
``Sec. 593. Additions to reserve for bad debts
    ``In the case of a mutual savings bank not having capital stock 
represented by shares, a domestic building and loan association, and a 
cooperative bank without capital stock organized and operated for mutual 
purposes and without profit, the reasonable addition to a reserve for 
bad debts under section 166(c) shall be determined with due regard to 
the amount of the taxpayer's surplus or bad debt reserves existing at 
the close of December 31, 1951. In the case of a taxpayer described in 
the preceding sentence, the reasonable addition to a reserve for bad 
debts for any taxable year shall in no case be less than the amount 
determined by the taxpayer as the reasonable addition for such year; 
except that the amount determined by the taxpayer under this sentence 
shall not be greater than the lesser of--
        ``(1) the amount of its taxable income for the taxable year, 
    computed without regard to this section, or
        ``(2) the amount by which 12 percent of the total deposits or 
    withdrawable accounts of its depositors at the close of such year 
    exceeds the sum of its surplus, undivided profits, and reserves at 
    the beginning of the taxable year.''


                    Effective Date of 1997 Amendment

    Amendment by Pub. L. 105-34 effective as if included in the 
provisions of the Small Business Job Protection Act of 1996, Pub. L. 
104-188, to which it relates, see section 1601(j) of Pub. L. 105-34, set 
out as a note under section 23 of this title.


                    Effective Date of 1996 Amendment

    Section 1616(c) of Pub. L. 104-188 provided that:
    ``(1) In general.--Except as otherwise provided in this subsection, 
the amendments made by this section [amending this section and sections 
50, 52, 57, 246, 291, 585, 860E, 992, 1038, 1042, 1277, and 1361 of this 
title and repealing sections 595 and 596 of this title] shall apply to 
taxable years beginning after December 31, 1995.
    ``(2) Subsection (b)(7)(B).--The amendments made by subsection 
(b)(7)(B) [amending this section] 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 [Aug. 20, 1996] (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)(8) 
[repealing section 595 of this title] shall apply to property acquired 
in taxable years beginning after December 31, 1995.
    ``(4) Subsection (b)(10).--The amendments made by subsection (b)(10) 
[amending section 860E of this title] 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.''


                    Effective Date of 1989 Amendment

    Section 1401(c)(6) of Pub. L. 101-73 provided that: ``The amendment 
made by subsection (b)(3) [amending this section] shall take effect on 
the date of the enactment of this Act [Aug. 9, 1989].''


                    Effective Date of 1988 Amendment

    Amendment by Pub. L. 100-647 effective, except as otherwise 
provided, as if included in the provision of the Tax Reform Act of 1986, 
Pub. L. 99-514, to which such amendment relates, see section 1019(a) of 
Pub. L. 100-647, set out as a note under section 1 of this title.


                    Effective Date of 1986 Amendment

    Amendment by section 311(b)(2) of Pub. L. 99-514 applicable to 
taxable years beginning after Dec. 31, 1986, see section 311(c) of Pub. 
L. 99-514, set out as a note under section 1201 of this title.
    Amendment by section 671(b)(2) of Pub. L. 99-514 effective Jan. 1, 
1987, see section 675(a) of Pub. L. 99-514, as amended, set out as an 
Effective Date note under section 860A of this title.
    Amendment by section 901(b)(1)-(3), (d)(2) of Pub. L. 99-514 
applicable to taxable years beginning after Dec. 31, 1986, see section 
901(e) of Pub. L. 99-514, set out as a note under section 166 of this 
title.


                    Effective Date of 1981 Amendment

    Section 246(b) of Pub. L. 97-34 provided that: ``The amendment made 
by section 243 [amending this section] shall apply to any distribution 
made on or after January 1, 1981.''
    Amendment by section 245(b), (c) of Pub. L. 97-34 applicable with 
respect to taxable years ending after Aug. 13, 1981, see section 246(d) 
of Pub. L. 97-34, set out as a note under section 591 of this title.


                    Effective Date of 1980 Amendment

    Amendment by Pub. L. 96-222 effective, except as otherwise provided, 
as if it had been included in the provisions of the Revenue Act of 1978, 
Pub. L. 95-600, to which such amendment relates, see section 201 of Pub. 
L. 96-222, set out as a note under section 32 of this title.


                    Effective Date of 1976 Amendment

    Amendment by Pub. L. 94-455 applicable with respect to taxable years 
beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, 
set out as a note under section 2 of this title.


                    Effective Date of 1969 Amendment

    Section 432(e) of Pub. L. 91-172 provided that: ``The amendments 
made by this section [amending this section and section 7701 of this 
title] shall be effective for taxable years beginning after July 11, 
1969.''


                    Effective Date of 1962 Amendment

    Section 6(g)(1) of Pub. L. 87-834, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ``The amendment 
made by subsection (a) [amending this section] shall apply to taxable 
years ending after December 31, 1962, except that section 593(f) of the 
Internal Revenue Code of 1986 [formerly I.R.C. 1954] shall apply to 
distributions after December 31, 1962, in taxable years ending after 
such date.''


                            Savings Provision

    For provisions that nothing in amendment by Pub. L. 101-508 be 
construed to affect treatment of certain transactions occurring, 
property acquired, or items of income, loss, deduction, or credit taken 
into account prior to Nov. 5, 1990, for purposes of determining 
liability for tax for periods ending after Nov. 5, 1990, see section 
11821(b) of Pub. L. 101-508, set out as a note under section 29 of this 
title.

                          Transfer of Functions

    Federal Savings and Loan Insurance Corporation abolished and its 
functions transferred, see sections 401 to 406 of Pub. L. 101-73, set 
out as a note under section 1437 of Title 12, Banks and Banking.

                  Section Referred to in Other Sections

    This section is referred to in section 1374 of this title.
