Page:United States Statutes at Large Volume 100 Part 3.djvu/573

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PUBLIC LAW 99-000—MMMM. DD, 1986

PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2381

"(ii) is designated by the issuer for purposes of this paragraph. For purposes of the preceding sentence and subparagraph (C), a qualified 501(c)(3) bond (as defined in section 145) shall not be treated as a private activity bond. "(C) LIMITATION ON ISSUER.—An obligation issued by an issuer during any calendar year shall not be treated as a qualified tax-exempt obligation unless the reasonably anticipated amount of qualified tax-exempt obligations (other than private activity bonds) which will be issued by such issuer during such calendar year does not exceed $10,000,000. "(D) OVERALL $10,000,000 LIMITATION.—Not more than $10,000,000 of obligations issued by an issuer during any calendar year may be designated by such issuer for purposes of this paragraph. "(E) AGGREGATION OF ISSUERS.—For purposes of subpara-

graphs (C) and (D), an issuer and all subordinate entities thereof shall be treated as 1 issuer. "(4) DEFINITIONS.—For purposes of this subsection— "(A) INTEREST EXPENSE.—The term 'interest expense' means the aggregate amount allowable to the taxpayer as a deduction for interest for the taxable year (determined without regard to this subsection and section 291). For purposes of the preceding sentence, the term 'interest' includes amounts (whether or not designated as interest) paid in respect of deposits, investment certificates, or withdrawable or repurchasable shares. "(B) TAX-EXEMPT OBLIGATION.—The term 'tax-exempt obligation' means any obligation the interest on which is wholly exempt from taxes imposed by this subtitle. Such term includes shares of stock of a regulated investment company which during the taxable year of the holder thereof distributes exempt-interest dividends. "(5) FINANCIAL INSTITUTION.—For purposes of this subsection, the term 'financial institution' means any person who— "(A) accepts deposits from the public in the ordinary course of such person's trade or business, and is subject to Federal or State supervision as a financial institution, or "(B) is a corporation described in section 585(a)(2). "(6) SPECIAL RULES.— "(A) COORDINATION WITH SUBSECTION (a).—If interest on

any indebtedness is disallowed under subsection (a) with respect to any tax-exempt obligation— "(i) such disallowed interest shall not be taken into account for purposes of applying this subsection, and "(ii) for purposes of applying paragraph (2), the adjusted basis of such tax-exempt obligation shall be reduced (but not below zero) by the amount of such indebtedness. "(B) COORDINATION WITH SECTION 263A.—This section

shall be applied before the application of section 263A (relating to capitalization of certain expenses where taxpayer produces property)." (b) REPEAL OF SPECIAL TREATMENT FOR CERTAIN FINANCIAL

INSTITUTIONS.—Paragraph (2) of section 265 (as in effect on the day