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).
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.
Bond, etc., losses and gains of financial institutions
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.
Financial institutions to which paragraph (1) applies
In general
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.
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.
Aug. 16, 1954, ch. 73668A Stat. 202Pub. L. 85–866, title I, § 3472 Stat. 1632Pub. L. 91–172, title IV, § 433(a)83 Stat. 623Pub. L. 94–455, title X, § 1044(a)90 Stat. 1642Pub. L. 98–369, div. A, title X, § 1001(b)(6)98 Stat. 1011Pub. L. 99–514, title VI, § 671(b)(4)100 Stat. 2318Pub. L. 100–647, title I, § 1008(d)(3)102 Stat. 3439Pub. L. 101–508, title XI, § 11801(a)(25)104 Stat. 1388–521Pub. L. 104–188, title I, § 1621(b)(4)110 Stat. 1867Pub. L. 108–357, title VIII, § 835(b)(3)118 Stat. 1593(, ; , , ; , (c), , , 624; , title XIV, § 1402(b)(1)(G), (2), , , 1732; , (e), , , 1012; , title IX, § 901(d)(3), , , 2379; , , ; , (c)(11), , , 1388–527; , , ; , , .)
Editorial Notes
References in Text
Pub. L. 85–69972 Stat. 689section 661 of Title 15The Small Business Investment Act of 1958, referred to in subsec. (c)(2)(A)(iii), is , , , which is classified principally to chapter 14B (§ 661 et seq.) of Title 15, Commerce and Trade. For complete classification of this Act to the Code, see Short Title note set out under and Tables.
Amendments
Pub. L. 108–3572004—Subsec. (c)(1). struck out “, and any regular interest in a FASIT,” before “shall be treated”.
Pub. L. 104–1881996—Subsec. (c)(1). inserted “, and any regular interest in a FASIT,” after “REMIC”.
Pub. L. 101–508, § 11801(c)(11)(A)1990—Subsec. (c)(1). , substituted “paragraph (2)” for “paragraph (5)”.
Pub. L. 101–508, § 11801(a)(25)Subsec. (c)(2). , (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).”
Pub. L. 101–508, § 11801(a)(25)Subsec. (c)(3). , 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 .
“(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 , 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.”
Pub. L. 101–508, § 11801(a)(25)Subsec. (c)(4). , 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 . 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).”
Pub. L. 101–508, § 11801(c)(11)(B)Subsec. (c)(5). , redesignated par. (5) as (2).
Pub. L. 100–6471988—Subsec. (a). substituted “subsections (a) and (b) of section 166” for “subsections (a), (b), and (c) of section 166”.
Pub. L. 99–514, § 901(d)(3)(A)1986—Subsec. (c)(1). , substituted “referred to in paragraph (5)” for “to which section 585, 586, or 593 applies”.
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.”
Pub. L. 99–514, § 901(d)(3)(B)Subsec. (c)(5). , added par. (5).
Pub. L. 98–3691984—Subsec. (c)(2). substituted “6 months” for “1 year”, applicable to property acquired after , and before . See Effective Date of 1984 Amendment note below.
Pub. L. 94–455, § 1402(b)(2)1976—Subsec. (c)(2). , provided that “9 months” would be changed to “1 year”.
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.
Pub. L. 94–455, § 1044(a)Subsec. (c)(4). , added par. (4).
Pub. L. 91–172, § 433(c)1969—, 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.
Pub. L. 91–172, § 433(a)Subsec. (c). , redesignated existing provisions as par. (1), inserted reference to sections 585, 586 and 593, and added pars. (2) and (3).
Pub. L. 85–8661958—Subsec. (c). struck out “with interest coupons or in registered form,” before “exceed the gains”.
Statutory Notes and Related Subsidiaries
Effective Date of 2004 Amendment
Pub. L. 108–357section 835(c) of Pub. L. 108–357section 56 of this titleAmendment by effective , with exception for any FASIT in existence on , to the extent that regular interests issued by the FASIT before such date continue to remain outstanding in accordance with the original terms of issuance, see , set out as a note under .
Effective Date of 1996 Amendment
Pub. L. 104–188section 1621(d) of Pub. L. 104–188section 26 of this titleAmendment by effective , see , set out as a note under .
Effective Date of 1988 Amendment
Pub. L. 100–647Pub. L. 99–514section 1019(a) of Pub. L. 100–647section 1 of this titleAmendment by effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, , to which such amendment relates, see , set out as a note under .
Effective Date of 1986 Amendment
section 671(b)(4) of Pub. L. 99–514section 675(a) of Pub. L. 99–514section 860A of this titleAmendment by effective , see , as amended, set out as an Effective Date note under .
section 901(d)(3) of Pub. L. 99–514section 901(e) of Pub. L. 99–514section 166 of this titleAmendment by applicable to taxable years beginning after , see , set out as a note under .
Effective Date of 1984 Amendment
Pub. L. 98–369section 1001(e) of Pub. L. 98–369section 166 of this titleAmendment by applicable to property acquired after , and before , see , set out as a note under .
Effective Date of 1976 Amendment
Pub. L. 94–455, title X, § 1044(b)90 Stat. 1643Pub. L. 99–514, § 2100 Stat. 2095
Pub. L. 94–455, title XIV, § 1402(b)(1)90 Stat. 1731, , , provided that amendment made by that section is effective with respect to taxable years beginning in 1977.
Pub. L. 94–455, title XIV, § 1402(b)(2)90 Stat. 1732, , , provided that the amendment made by that section is effective with respect to taxable years beginning after .
Effective Date of 1969 Amendment
Pub. L. 91–172, title IV, § 433(d)83 Stat. 624Pub. L. 99–514, § 2100 Stat. 2095
In general .—
Election for small business investment companies and business development corporations .—
Effective Date of 1958 Amendment
Pub. L. 85–866section 1(c)(1) of Pub. L. 85–866section 165 of this titleAmendment by applicable to taxable years beginning after , and ending after , see , set out as a note under .
Savings Provision
Pub. L. 101–508section 11821(b) of Pub. L. 101–508section 45K of this titleFor provisions that nothing in amendment by be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to , for purposes of determining liability for tax for periods ending after , see , set out as a note under .