26 U.S.C. § 582 — Bad debts, losses, and gains with respect to

Page 1775 TITLE 26—INTERNAL REVENUE CODE § 582 panying the consent shall be credited against the tax imposed by this subtitle on the share- holder. (f) Definitions (1) Consent stock Consent stock, for purposes of this section, means the class or classes of stock entitled, after the payment of preferred dividends, to a share in the distribution (other than in com- plete or partial liquidation) within the taxable year of all the remaining earnings and profits, which share constitutes the same proportion of such distribution regardless of the amount of such distribution. (2) Preferred dividends Preferred dividends, for purposes of this sec- tion, means a distribution (other than in com- plete or partial liquidation), limited in amount, which must be made on any class of stock before a further distribution (other than in complete or partial liquidation) of earnings and profits may be made within the taxable year. (Aug. 16, 1954, ch. 736, 68A Stat. 200; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.) Editorial Notes AMENDMENTS 1976—Subsecs. (a), (e). Pub. L. 94–455 struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Subchapter H—Banking Institutions Part I. Rules of general application to banking insti- tutions. II. Mutual savings banks, etc. Editorial Notes AMENDMENTS 1976—Pub. L. 94–455, title XIX, § 1901(b)(20)(C), Oct. 4, 1976, 90 Stat. 1797, struck out item for part III ‘‘Bank affiliates’’. PART I—RULES OF GENERAL APPLICATION TO BANKING INSTITUTIONS Sec. 581. Definition of bank. 582. Bad debts, losses, and gains with respect to securities held by financial institutions. [583. Repealed.] 584. Common trust funds. 585. Reserves for losses on loans of banks. [586. Repealed.] Editorial Notes AMENDMENTS 1986—Pub. L. 99–514, title IX, § 901(d)(4)(H), Oct. 22, 1986, 100 Stat. 2380, struck out item 586 ‘‘Reserves for losses on loans of small business investment compa- nies, etc.’’ 1976—Pub. L. 94–455, title XIX, § 1901(b)(18), Oct. 4, 1976, 90 Stat. 1796, struck out item 583 ‘‘Deductions of dividends paid on certain preferred stock’’. 1969—Pub. L. 91–172, title IV, § 431(c)(2), Dec. 30, 1969, 83 Stat. 620, substituted ‘‘Bad debts, losses, and gains with respect to securities held by financial institu- tions’’, for ‘‘Bad debt and loss deduction with respect to securities held by banks’’ in item 582, and added items 585 and 586. § 581. Definition of bank For purposes of sections 582 and 584, the term ‘‘bank’’ means a bank or trust company incor- porated and doing business under the laws of the United States (including laws relating to the District of Columbia) or of any State, a substan- tial part of the business of which consists of re- ceiving deposits and making loans and dis- counts, or of exercising fiduciary powers similar to those permitted to national banks under au- thority of the Comptroller of the Currency, and which is subject by law to supervision and exam- ination by State or Federal authority having su- pervision over banking institutions. Such term also means a domestic building and loan asso- ciation. (Aug. 16, 1954, ch. 736, 68A Stat. 202; Pub. L. 87–722, § 5, Sept. 28, 1962, 76 Stat. 670; Pub. L. 94–455, title XIX, § 1901(c)(5), Oct. 4, 1976, 90 Stat. 1803.) Editorial Notes AMENDMENTS 1976—Pub. L. 94–455 substituted ‘‘or of any State’’ for ‘‘of any State, or of any Territory’’ after ‘‘District of Columbia)’’ and struck out ‘‘, Territorial,’’ after ‘‘ex- amination by State’’. 1962—Pub. L. 87–722 substituted ‘‘authority of the Comptroller of the Currency’’ for ‘‘section 11(k) of the Federal Reserve Act (38 Stat. 262; 12 U.S.C. 248(k))’’. § 582. Bad debts, losses, and gains with respect to securities held by financial institutions (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 evi- denced by a security as defined in section 165(g)(2)(C). (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 insti- tutions (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 in- debtedness shall not be considered a sale or ex- change of a capital asset. For purposes of the preceding sentence, any regular or residual in- terest in a REMIC shall be treated as an evi- dence of indebtedness. (2) Financial institutions to which paragraph (1) applies (A) In general For purposes of paragraph (1), the finan- cial institutions referred to in this para- graph are— Page 1776 TITLE 26—INTERNAL REVENUE CODE § 582 (i) any bank (and any corporation which would be a bank except for the fact it is a foreign corporation), (ii) any financial institution referred to in section 591, (iii) any small business investment com- pany operating under the Small Business Investment Act of 1958, and (iv) any business development corpora- tion. (B) Business development corporation For purposes of subparagraph (A), the term ‘‘business development corporation’’ means a corporation which was created by or pursu- ant to an act of a State legislature for pur- poses of promoting, maintaining, and assist- ing the economy and industry within such State on a regional or statewide basis by making loans to be used in trades and busi- nesses which would generally not be made by banks within such region or State in the or- dinary course of their business (except on the basis of a partial participation), and which is operated primarily for such pur- poses. (C) Limitations on foreign banks In the case of a foreign corporation re- ferred 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. 736, 68A Stat. 202; Pub. L. 85–866, title I, § 34, Sept. 2, 1958, 72 Stat. 1632; Pub. L. 91–172, title IV, § 433(a), (c), Dec. 30, 1969, 83 Stat. 623, 624; Pub. L. 94–455, title X, § 1044(a), title XIV, § 1402(b)(1)(G), (2), Oct. 4, 1976, 90 Stat. 1642, 1732; Pub. L. 98–369, div. A, title X, § 1001(b)(6), (e), July 18, 1984, 98 Stat. 1011, 1012; Pub. L. 99–514, title VI, § 671(b)(4), title IX, § 901(d)(3), Oct. 22, 1986, 100 Stat. 2318, 2379; Pub. L. 100–647, title I, § 1008(d)(3), Nov. 10, 1988, 102 Stat. 3439; Pub. L. 101–508, title XI, § 11801(a)(25), (c)(11), Nov. 5, 1990, 104 Stat. 1388–521, 1388–527; Pub. L. 104–188, title I, § 1621(b)(4), Aug. 20, 1996, 110 Stat. 1867; Pub. L. 108–357, title VIII, § 835(b)(3), Oct. 22, 2004, 118 Stat. 1593.) Editorial Notes REFERENCES IN TEXT The Small Business Investment Act of 1958, referred to in subsec. (c)(2)(A)(iii), is Pub. L. 85–699, Aug. 21, 1958, 72 Stat. 689, which is classified principally to chap- ter 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 section 661 of Title 15 and Tables. AMENDMENTS 2004—Subsec. (c)(1). Pub. L. 108–357 struck out ‘‘, and any regular interest in a FASIT,’’ before ‘‘shall be treated’’. 1996—Subsec. (c)(1). Pub. L. 104–188 inserted ‘‘, and any regular interest in a FASIT,’’ after ‘‘REMIC’’. 1990—Subsec. (c)(1). Pub. L. 101–508, § 11801(c)(11)(A), substituted ‘‘paragraph (2)’’ for ‘‘paragraph (5)’’. Subsec. (c)(2). 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 ex- tent it does not exceed the net gain on sales and ex- changes described in paragraph (1).’’ Subsec. (c)(3). Pub. L. 101–508, § 11801(a)(25), struck out par. (3) ‘‘Special rules’’ which read as follows: ‘‘For pur- poses of this subsection— ‘‘(A) The term ‘qualifying security’ means a bond, debenture, note, or certificate or other evidence of in- debtedness 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 sub- section) by a fraction, the numerator of which is the number of days before July 12, 1969, that such secu- rity was held by the bank, and the denominator of which is the number of days the security was held by the bank.’’ Subsec. (c)(4). Pub. L. 101–508, § 11801(a)(25), struck out par. (4) ‘‘Transitional rule for banks’’ which read as fol- lows: ‘‘In the case of a corporation which would be a bank except for the fact that it is a foreign corpora- tion, the net gain, if any, for the taxable year on sales and exchanges described in paragraph (1) shall be con- sidered 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 pre- ceding 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 ex- changes for such taxable year (but not in excess of the net capital loss for such taxable year).’’ Subsec. (c)(5). Pub. L. 101–508, § 11801(c)(11)(B), redesig- nated par. (5) as (2). 1988—Subsec. (a). Pub. L. 100–647 substituted ‘‘sub- sections (a) and (b) of section 166’’ for ‘‘subsections (a), (b), and (c) of section 166’’. 1986—Subsec. (c)(1). Pub. L. 99–514, § 901(d)(3)(A), sub- stituted ‘‘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 indebted- ness.’’ Subsec. (c)(5). Pub. L. 99–514, § 901(d)(3)(B), added par. (5). 1984—Subsec. (c)(2). 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—Subsec. (c)(2). Pub. L. 94–455, § 1402(b)(2), pro- vided 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. Subsec. (c)(4). Pub. L. 94–455, § 1044(a), added par. (4). 1969—Pub. L. 91–172, § 433(c), substituted ‘‘Bad debts, losses, and gains with respect to securities held by fi- nancial institutions’’ for ‘‘Bad debt and loss deduction with respect to securities held by banks’’ in section catchline. Subsec. (c). Pub. L. 91–172, § 433(a), redesignated exist- ing provisions as par. (1), inserted reference to sections 585, 586 and 593, and added pars. (2) and (3). 1958—Subsec. (c). Pub. L. 85–866 struck out ‘‘with in- terest coupons or in registered form,’’ before ‘‘exceed the gains’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2004 AMENDMENT Amendment by Pub. L. 108–357 effective Jan. 1, 2005, with exception for any FASIT in existence on Oct. 22, Page 1777 TITLE 26—INTERNAL REVENUE CODE § 584 2004, to the extent that regular interests issued by the FASIT before such date continue to remain out- standing in accordance with the original terms of issuance, see section 835(c) of Pub. L. 108–357, set out as a note under section 56 of this title. EFFECTIVE DATE OF 1996 AMENDMENT Amendment by Pub. L. 104–188 effective Sept. 1, 1997, see section 1621(d) of Pub. L. 104–188, set out as a note under section 26 of this title. 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 671(b)(4) of Pub. L. 99–514 ef- fective 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(d)(3) of Pub. L. 99–514 ap- plicable 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 1984 AMENDMENT Amendment by Pub. L. 98–369 applicable to property acquired after June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub. L. 98–369, set out as a note under section 166 of this title. EFFECTIVE DATE OF 1976 AMENDMENT Pub. L. 94–455, title X, § 1044(b), Oct. 4, 1976, 90 Stat. 1643, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘(1) The amendment made by subsection (a) [amend- ing this section] shall apply with respect to taxable years beginning after July 11, 1969. ‘‘(2) If the refund or credit of any overpayment attrib- utable to the application of the amendment made by subsection (a) to any taxable year is otherwise pre- vented by the operation of any law or rule of law (other than section 7122 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], relating to compromises) on the day which is one year after the date of the enactment of this Act [Oct. 4, 1976], such credit or refund shall be nevertheless allowed or made if claim therefor is filed on or before such day.’’ Pub. L. 94–455, title XIV, § 1402(b)(1), Oct. 4, 1976, 90 Stat. 1731, provided that amendment made by that sec- tion is effective with respect to taxable years beginning in 1977. Pub. L. 94–455, title XIV, § 1402(b)(2), Oct. 4, 1976, 90 Stat. 1732, provided that the amendment made by that section is effective with respect to taxable years begin- ning after Dec. 31, 1977. EFFECTIVE DATE OF 1969 AMENDMENT Pub. L. 91–172, title IV, § 433(d), Dec. 30, 1969, 83 Stat. 624, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘(1) IN GENERAL.—The amendments made by this sec- tion [amending this section and section 1243 of this title] shall apply to taxable years beginning after July 11, 1969. ‘‘(2) ELECTION FOR SMALL BUSINESS INVESTMENT COM- PANIES AND BUSINESS DEVELOPMENT CORPORATIONS.— Notwithstanding paragraph (1), in the case of a finan- cial institution described in section 586(a) of the Inter- nal Revenue Code of 1986 [formerly I.R.C. 1954], the amendments made by this section [amending this sec- tion and section 1243 of this title] shall not apply for its taxable years beginning after July 11, 1969, and before July 11, 1974, unless the taxpayer so elects at such time and in such manner as shall be prescribed by the Sec- retary of the Treasury or his delegate. Such election shall be irrevocable and shall apply to all such taxable years.’’ EFFECTIVE DATE OF 1958 AMENDMENT Amendment by Pub. L. 85–866 applicable to taxable years beginning after Dec. 31, 1953, and ending after Aug. 16, 1954, see section 1(c)(1) of Pub. L. 85–866, set out as a note under section 165 of this title. 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 liabil- ity for tax for periods ending after Nov. 5, 1990, see sec- tion 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title. [§ 583. Repealed. Pub. L. 94–455, title XIX, § 1901(a)(82), Oct. 4, 1976, 90 Stat. 1778] Section, act Aug. 16, 1954, ch. 736, 68A Stat. 202, re- lated to deductions by certain taxpayers of dividends paid to the United States or any instrumentality there- of exempt from Federal income taxes on the preferred stock of the corporation owned by the United States or such instrumentality. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF REPEAL Repeal effective with respect to taxable years begin- ning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as an Effective Date of 1976 Amendment note under section 2 of this title. § 584. Common trust funds (a) Definitions For purposes of this subtitle, the term ‘‘com- mon trust fund’’ means a fund maintained by a bank— (1) exclusively for the collective investment and reinvestment of moneys contributed thereto by the bank in its capacity— (A) as a trustee, executor, administrator, or guardian, or (B) as a custodian of accounts— (i) which the Secretary determines are established pursuant to a State law which is substantially similar to the Uniform Gifts to Minors Act as published by the American Law Institute, and (ii) with respect to which the bank estab- lishes, to the satisfaction of the Secretary, that it has duties and responsibilities similar to duties and responsibilities of a trustee or guardian; and (2) in conformity with the rules and regula- tions, prevailing from time to time, of the Board of Governors of the Federal Reserve System or the Comptroller of the Currency pertaining to the collective investment of trust funds by national banks. For purposes of this subsection, two or more banks which are members of the same affiliated group (within the meaning of section 1504) shall be treated as one bank for the period of affili- ation with respect to any fund of which any of the member banks is trustee or two or more of the member banks are cotrustees. (b) Taxation of common trust funds A common trust fund shall not be subject to taxation under this chapter and for purposes of