Amended 1969
- 1969 Pub. L. 91-172 Pub. L. 91–172, § 433(c), substituted “Bad debts, losses, and gains with respect to securities held by financial institutions” for “Bad debt and loss deduction with respect to securities held by banks” in section catchline.
Cases: Southern Bancorporation v. Commissioner, 67 T.C. 1022 (1977); United States Holding Co. v. Commissioner, 44 T.C. 323 (1965); City Bank of Washington v. Commissioner, 38 T.C. 713 (1962)
(a) Securities Notwithstanding sections 165(g)(1) and 166(e), subsections (a) and (b) of section 166 (relating to allowance of deduction for bad debts) shall apply in the case of a bank to a debt which is evidenced by a security as defined in section 165(g)(2)(C).
Amended 1988
- 1988 Pub. L. 100-647 Pub. L. 100–647 substituted “subsections (a) and (b) of section 166” for “subsections (a), (b), and (c) of section 166”.
(b) Worthless stock in affiliated bank For purposes of section 165(g)(1), where the taxpayer is a bank and owns directly at least 80 percent of each class of stock of another bank, stock in such other bank shall not be treated as a capital asset.
(c) Bond, etc., losses and gains of financial institutions
Amended 1958, 1969, 1976, 1986, 1990
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11801(a)(25), struck out par. (3) “Special rules” which read as follows: “For purposes of this subsection—
“(A) The term ‘qualifying security’ means a bond, debenture, note, or certificate or other evidence of indebtedness held by a bank on July 11, 1969.
“(B) The amount treated as capital gain or loss from the sale or exchange of a qualifying security shall be determined by multiplying the amount of capital gain or loss from the sale or exchange of such security (determined without regard to this subsection) by a fraction, the numerator of which is the number of days before July 12, 1969, that such security was held by the bank, and the denominator of which is the number of days the security was held by the bank.”
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11801(a)(25), struck out par. (4) “Transitional rule for banks” which read as follows: “In the case of a corporation which would be a bank except for the fact that it is a foreign corporation, the net gain, if any, for the taxable year on sales and exchanges described in paragraph (1) shall be considered as gain from the sale or exchange of a capital asset to the extent such net gain does not exceed the portion of any capital loss carryover to such taxable year which is attributable to capital losses on sales or exchanges described in paragraph (1) for a taxable year beginning before July 12, 1969. For purposes of the preceding sentence, the portion of a net capital loss for a taxable year which is attributable to capital losses on sales or exchanges described in paragraph (1) is the amount of the net capital loss on such sales or exchanges for such taxable year (but not in excess of the net capital loss for such taxable year).”
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11801(c)(11)(B), redesignated par. (5) as (2).
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 901(d)(3)(B), added par. (5).
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 1044(a), added par. (4).
- 1969 Pub. L. 91-172 Pub. L. 91–172, § 433(a), redesignated existing provisions as par. (1), inserted reference to sections 585, 586 and 593, and added pars. (2) and (3).
- 1958 Pub. L. 85-866 Pub. L. 85–866 struck out “with interest coupons or in registered form,” before “exceed the gains”.
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(1) General rule For purposes of this subtitle, in the case of a financial institution referred to in paragraph (2), the sale or exchange of a bond, debenture, note, or certificate or other evidence of indebtedness shall not be considered a sale or exchange of a capital asset. For purposes of the preceding sentence, any regular or residual interest in a REMIC shall be treated as an evidence of indebtedness.
Amended 1986, 1990, 1996, 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357 struck out “, and any regular interest in a FASIT,” before “shall be treated”.
- 1996 Pub. L. 104-188 Pub. L. 104–188 inserted “, and any regular interest in a FASIT,” after “REMIC”.
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11801(c)(11)(A), substituted “paragraph (2)” for “paragraph (5)”.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 901(d)(3)(A), substituted “referred to in paragraph (5)” for “to which section 585, 586, or 593 applies”.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 671(b)(4), inserted “For purposes of the preceding sentence, any regular or residual interest in a REMIC shall be treated as an evidence of indebtedness.”
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(2) Financial institutions to which paragraph (1) applies
(A) In general For purposes of paragraph (1), the financial institutions referred to in this paragraph are—
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(i) any bank (and any corporation which would be a bank except for the fact it is a foreign corporation),
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(ii) any financial institution referred to in section 591,
(iii) any small business investment company operating under the Small Business Investment Act of 1958, and
(B) Business development corporation For purposes of subparagraph (A), the term “business development corporation” means a corporation which was created by or pursuant to an act of a State legislature for purposes of promoting, maintaining, and assisting the economy and industry within such State on a regional or statewide basis by making loans to be used in trades and businesses which would generally not be made by banks within such region or State in the ordinary course of their business (except on the basis of a partial participation), and which is operated primarily for such purposes.
(C) Limitations on foreign banks In the case of a foreign corporation referred to in subparagraph (A)(i), paragraph (1) shall only apply to gains and losses which are effectively connected with the conduct of a banking business in the United States.
Amended 1976, 1984, 1990
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11801(a)(25), (c)(11)(B), redesignated par. (5) as (2) and struck out former par. (2) “Transitional rule for banks” which read as follows: “In the case of a bank, if the net long-term capital gains of the taxable year from sales or exchanges of qualifying securities exceed the net short-term capital losses of the taxable year from such sales or exchanges, such excess shall be considered as gain from the sale of a capital asset held for more than 6 months to the extent it does not exceed the net gain on sales and exchanges described in paragraph (1).”
- 1984 Pub. L. 98-369 Pub. L. 98–369 substituted “6 months” for “1 year”, applicable to property acquired after June 22, 1984, and before Jan. 1, 1988. See Effective Date of 1984 Amendment note below.
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 1402(b)(2), provided that “9 months” would be changed to “1 year”.
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 1402(b)(1)(G), (2), provided that “6 months” would be changed to “9 months” for taxable years beginning in 1977.