118 STAT. 1436 PUBLIC LAW 108–357—OCT. 22, 2004 SEC. 237. EXCLUSION OF INVESTMENT SECURITIES INCOME FROM PAS SIVE INCOME TEST FOR BANK S CORPORATIONS. (a) IN GENERAL.—Section 1362(d)(3) (relating to where passive investment income exceeds 25 percent of gross receipts for 3 consecutive taxable years and corporation has accumulated earnings and profits) is amended by adding at the end the following new subparagraph: ‘‘(F) EXCEPTION FOR BANKS; ETC.—In the case of a bank (as defined in section 581), a bank holding company (within the meaning of section 2(a) of the Bank Holding Company Act of 1956 (12 U.S.C. 1841(a))), or a financial holding company (within the meaning of section 2(p) of such Act), the term ‘passive investment income’ shall not include— ‘‘(i) interest income earned by such bank or com pany, or ‘‘(ii) dividends on assets required to be held by such bank or company, including stock in the Federal Reserve Bank, the Federal Home Loan Bank, or the Federal Agricultural Mortgage Bank or participation certificates issued by a Federal Intermediate Credit Bank.’’. (b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable years beginning after December 31, 2004. SEC. 238. RELIEF FROM INADVERTENTLY INVALID QUALIFIED SUB CHAPTER S SUBSIDIARY ELECTIONS AND TERMI NATIONS. (a) IN GENERAL.—Section 1362(f) (relating to inadvertent invalid elections or terminations) is amended— (1) by inserting ‘‘, section 1361(b)(3)(B)(ii),’’ after ‘‘sub section (a)’’ in paragraph (1), (2) by inserting ‘‘, section 1361(b)(3)(C),’’ after ‘‘subsection (d)’’ in paragraph (1)(B), (3) by amending paragraph (3)(A) to read as follows: ‘‘(A) so that the corporation for which the election was made or the termination occurred is a small business corporation or a qualified subchapter S subsidiary, as the case may be, or’’, (4) by amending paragraph (4) to read as follows: ‘‘(4) the corporation for which the election was made or the termination occurred, and each person who was a share holder in such corporation at any time during the period speci fied pursuant to this subsection, agrees to make such adjust ments (consistent with the treatment of such corporation as an S corporation or a qualified subchapter S subsidiary, as the case may be) as may be required by the Secretary with respect to such period,’’, and (5) by inserting ‘‘or a qualified subchapter S subsidiary, as the case may be’’ after ‘‘S corporation’’ in the matter following paragraph (4). (b) EFFECTIVE DATE.—The amendments made by this section shall apply to elections made and terminations made after December 31, 2004. 26 USC 1362 note. 26 USC 1362 note.
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