The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Calendar No. 1107
8 4 th C on g ress
2d Session
)
j
SENATE
j
K e p t . 1095
(
Part 2
C O N T R O L OF B A N K H O L D IN G C O M PA N IE S
M arch
6, 1956.—Ordered to be printed
Mr. R o b e r t s o n , from the Committee on Banking and Currency,
reported the following additional amendments to accompany the
bill S. 2577, heretofore reported
The Committee on Banking and Currency, having heretofore con
sidered and reported the bill (S. 2577) to define bank holding com
panies, control their future expansion, and require divestment of
their nonbanking interests, hereby report certain additional amend
ments, with an accompanying report, and recommend their adoption.
On July 25, 1955, the committee reported the bill (S. 2577) to define
bank holding companies, control their future expansion, and require
divestment of their nonbanking interests. Since the bill was reported
out during the closing days of the 1st session of the 84th Congress, it
was understood that the bill would not be acted upon by the Senate
until the 2d session of the 84th Congress. The interim period provided
an opportunity for the Members of the Senate, representatives of bank
holding companies, and other interested persons to study the proposed
legislation and determine if any perfecting amendments were neces
sary. As a result of the study, the committee has agreed to a number
of technical and clarifying amendments and amendments to the tax
provisions of the bill.
N
ontax
A
m endm ents
The committee wishes to emphasize that these amendments do not
in any way change the principal objectives of this proposed legislation.
These objectives are: (1) T o regulate the future expansion of bank
holding companies, and (2) to require bank holding companies to
divest their nonbanking investments. The amendments are designed
to correct technical errors in the bill and to clarify the language of
several provisions so that any possible misinterpretation of the com
mittee’s intent can be avoided.
CHANGE
OF DATE
The bill as reported by the committee bears the short title of
“ Bank Holding Com pany A ct of 1955.” Since the bill will be sched
uled for enactment during 1956, it is necessary to change “ 1955” to
2
CONTROL OF BANK HOLDING COMPANIES
“ 1956” in the short title wherever it appears in the bill.
accomplished by striking “ 1955” and inserting “ 1956” on
line 4, and page 14, line 23, in the substantive sections of
The tax amendments make the necessary date changes in
provisions.
SHAREHOLDERS
This is
page 1,
the bill.
the tax
OR M E M B E R S
On page 5, line 9, of the bill as reported by the committee, a refer
ence is made to shares held by trustees for the benefit of the “ share
holders and members” of a bank holding company. The “ and” is
a typographical error and should read “ or.” This change makes the
provision conform to the language on page 2, line 3, where reference
is also made to “ shareholders or members.”
A C Q U IS IT IO N
SHARES
IN
A
F ID U C IA R Y
C A P A C IT Y
Section 3 (a) of the bill requires prior approval by the Federal
Reserve Board before any action may be taken which results in a
company (including a bank) becoming a bank holding company.
The bill as reported provided an exemption from this requirement for
a bank which is a bank holding com pany in cases where the shares
were acquired (i) in good faith in a fiduciary capacity or (ii) in the
regular course of securing or collecting a debt. This language would
seem to preclude a bank which is not a bank holding com pany from
acquiring such shares in other banks or in bank holding companies
without prior approval by the Board. It was not the intent of the
committee to require approval by the Board where a bank acquired
shares in a fiduciary capacity or in the regular course of securing or
collecting a debt. In order to clarify the language of the exemption,
the committee struck the works “ which is a bank holding com pany”
on lines 4 and 5 of page 6. Thus, the amendment exempts from the
prohibition of section 3 (a)—
shares acquired b3^ a bank (i) in good faith in a fiduciary capacity, except where
such shares are held for the benefit of the shareholders of such bank, or (ii) in the
regular course of securing or collecting a debt previously contracted in good faith
but any shares acquired after the date of enactment of this Act in securing or
collecting any such previously contracted debt shall be disposed of within a period
of 2 years from the date on which they were acquired;.
S H A R E S IN
A
BANK
H O L D IN G C O M P A N Y
Section 4 (a) (2) of the bill as reported provides in part that no
bank holding company shall, after the date of enactment of the act,
“ retain direct or indirect ownership or control of any voting shares
of any com pany which is not a bank.” This language would prohibit
a bank holding com pany from holding shares in a subsidiary bank
holding company. This result was not intended, since it is a com m on
practice for bank holding companies to hold a part or all of their
banking investments in a subsidiary corporation. In order to remedy
this situation, line 17 on page 8 was amended by adding after the
word “ bank” the words “ or a bank holding com pany.” Thus, this
section as amended provides that no bank holding company shall
after the date of enactment of the act—
retain direct or indirect ownership or control of any voting shares of any company
which is not a bank or a bank holding company.
CONTROL OF BANK HOLDING COMPANIES
S U B S ID IA R Y
S E R V IC E
3
C O M P A N IE S
Section 4 (c) provides certain exemptions from the divestment
requirements of the bill. Subparagraph (1) of section 4 (c), as
reported b y the committee, exempts companies engaged in serving the
bank holding company and its subsidiary banks in ‘auditing, apprais
ing, investment counseling.” Your committee has found this pro
vision too restrictive as there are many other legitimate types of
servicing which should be permitted. Other services rendered by
subsidiary companies are in the fields of advertising, public relations,
developing new business, organization, operations, preparing tax
returns, personnel, and many others.
In order to properly encompass this wide range of activities, your
committee amended subparagraph (1) to exempt such companies
solety engaged in “ furnishing services to or performing services for”
the bank holding company and its banking subsidiaries. Thus, the
bill, as amended, would permit a bank holding company to furnish
these services to its subsidiaries through a subsidiary company as
well as directly by the holding company itself as provided in section
4 (a) (2).
This provision is not intended to supplant the exemption contained
under section 4 (c) (6), where the Federal Reserve Board is given
discretion to exempt activities of a “ financial, fiduciary, or insurance
nature ’’ which are so closely related to banking as to be a proper
incident thereto. Such financial, fiduciary, or insurance activities
do not come within the scope of the meaning of the phrase “ furnishing
services to or performing services for a bank holding com pany.”
The servicing exemption should not be interpreted to include activities
beyond the ordinary category of such services.
S H A R E S A C Q U IR E D
IN
S A T IS F A C T IO N
OF A D E B T
Section 4 (c) (2) of the bill as reported provides an exemption from
the divestment requirements for shares acquired by a bank holding
company which is a bank or “ any of its banking subsidiaries” in
satisfaction of a debt previously contracted in good faith. A literal
reading of this language would seem to provide an exemption only
for banking subsidiaries of a bank holding company which is a bank.
It was intended that the exemption would apply to banking subsidi
aries of any bank holding company. This provision was clarified by
amending line 4 on page 10 by striking the words “ any of its banking
subsidiaries” and inserting in lieu thereof “ by any banking subsidiary
of a bank holding com pany.” Thus, a banking subsidiary of any
bank holding company could qualify under this exemption;
S H A R E S A C Q U IR E D IN A F ID U C IA R Y C A P A C IT Y
Section 4 (c) (4) of the bill as reported provides an exemption from
the divestment requirements of the bill for shares which are held or
acquired by a bank which is a bank holding company in a fiduciary
capacity. This language would not permit a banking subsidiary
of a bank holding company to qualify under this exemption. Lines
19 and 20 on page 10 were amended by striking the words “ which
is a bank holding company in a fiduciary capacity” and inserting in
lieu thereof—
CONTROL OF BANK HOLDING COMPANIES
4
holding company which is a bank or by any banking subsidiary of a bank holding
company, in good faith in a fiduciary capacity, except where such shares are held
for the benefit of the shareholders such bank holding company or any of its
subsidiaries.
Thus the exemption applies both to a bank holding company which is
a bank and to a banking subsidiary of any bank holding company with
the limitation that such shares cannot be held for the benefit of
the shareholders of such bank holding company or any of its subsidi
aries.
O W N E R S H IP A N D A C Q U IS IT IO N O F S H A R E S
Section. 4 (c) (5) of the bill as reported provides an exemption
from the divestment requirements for the ownership by a bank holding
company of up to 5 percent of the shares of any company. This
section does not refer to the acquisition of shares as is set forth in other
exemptions under section 4 (c). Because of the shift in language,
it could be argued that this exemption does not apply to the acquisition
of shares but only to the retention of shares already owned. T o
clarify the situation, lines 24 and 25 on page 10 were amended by
striking the words “ to the ownership by a bank holding com pany
of shares of any com pany” and by inserting in lieu thereof “ to shares
of any com pany which are held or acquired by a bank holding com
pany.” This amendment makes it clear that the exemption applies
to both the acquisition and ownership of such shares.
LABOR,
A G R IC U L T U R A L
OR
H O R T IC U L T U R A L
O R G A N IZ A T IO N S
Section 4 (c) (7) of the bill as reported contains an exemption
from the divestment requirements for any bank holding com pany
which is a labor, agricultural or horticultural organization. Although
the committee report points out that in order to be entitled to this
exemption no net income derived b y any such organization can inure
to the benefit of any individual, this limitation is not set forth in the
language of the subsection. The intention of the committee is made
explicit b y inserting at the end of the subsection on line 15, page 11,
the words “ and which is exempt from taxation under section 501 o f
the Internal Revenue Code of 1954.”
F O R E IG N B A N K IN G S U B S ID IA R IE S
Section 2 (c) of the bill as reported defines “ bank” so as to exclude
any organization which does not do business within the United States.
Thus, technically any foreign banking subsidiary of a bank holding
com pany would be a nonbanking investment and would be required
to be divested pursuant to section 4 (a) of the bill. The Federal
Reserve Board would probably exempt such foreign banking sub
sidiaries from divestment b y applying the provisions of section 4
(c) (6), which authorizes the Board to exempt companies of a financial
nature which are so closely related to the business of banking as to
be a proper incident thereto.
However, in order to make it unmistakably clear that foreign
banking subsidiaries are not subject to divestment, the committee
added a new subparagraph (8) to section 4 (c) specifically exempting
such subsidiaries. The amendment provides that the divestment
requirements shall not apply—
CONTROL OF BANK HOLDING COMPANIES
5
to shares held or acquired by a bank holding company in any company which is
organized under the laws of a foreign country and which is engaged principally
in the banking business outside the United States.
A D M IN IS T R A T IO N
The committee agreed in reporting out the bill that section 5 (a)
contain the same language as set forth in section 4 (a) of H. R. 6227
in regard to the information required by a bank holding company in
registering with the Federal Reserve Board. However, through
inadvertence, improper language was inserted on lines 22 through 25
on page 11. This was corrected by striking the words beginning with
“ history” on line 22 through to the word “ organizations” on line 25
and inserting in lieu thereof—
condition and operations, management, and intercompany relationships of the
bank holding company and its subsidiaries,.
R E S E R V A T IO N OF S T A T E S R IG H T S
A great deal of concern has been expressed that section 7 of the bill
as reported by the committee granted new authority and powers to
States over national banks in general, and respecting the stocks of
national banks in particular. This concern apparently has arisen as
a result of the language added to this section by the committee and
certain statements which appeared in the committee report. The
language added by the committee in the bill as reported provided that
States in the exercise of their jurisdiction and powers over banks and
bank holding companies could impose “ no less onerous” restrictions
than were provided in the bill. The intent of the committee was to
make it clear that a State could not enact legislation inconsistent with
the bill and therefore nullify its effect. In view of the fact that the
meaning of the no less onerous clause has apparently been miscon
strued by some persons, the committee agreed to strike the clause and
thus return to the language of the comparable section of H R. 6227.
However, your committee reiterates its view that section 7 in no way
permits States to exercise such powers and jurisdiction in a manner
inconsistent with this proposed legislation.
In order to clarify the legislative history of section 7, the committee
wishes to emphasize that this section does not grant any new authority
to States over national banks.. The purpose of the section is to pre
serve to the States those powers which they now have in our dual
banking system. It is always of uppermost importance in legislation
of this nature to preserve the dual system, of National and State banks,
and section 7 must be viewed in that light.
T IM E
L IM IT
ON JU D IC IA L
R E V IE W
Section 9 of the bill as reported by the committee contained no
limit on the time within which an aggrieved party must seek judicial
review of an order of the Federal Reserve Board. A time limit is
necessary so that persons or companies affected by the Board’s
orders may know when they may act in reliance thereon without fear
of the orders being subsequently set aside or modified by court decree.
The committee amended this section by providing that any aggrieved
party seeking judicial review must do so within “ 60 days after entry
of the Board’s order.”
TAX AMENDMENTS
G
eneral
E
x p l a n a t io n
H. R. 6227, passed by the House of Representatives, would add
a new part V III to subchapter O of the Internal Revenue Code of 1954.
Under this new part, several tax-free paths are provided for the
divestment of property which this bill imposes on a bank holding
company. S. 2577, as originally reported, adopted the tax provisions
of the House bill with certain technical changes. Y our com m ittee's
additional amendments m odify these tax provisions so as to prevent
abuse and to make them more flexible to meet legitimate business
needs by alining them closer to similar provisions in the Internal
Revenue Code of 1954.
In general, a corporation which comes within the terms, of the bill
as a bank holding com pany can choose between remaining a bank
holding company or disposing of its interests in banks. The tax
provisions of the bill apply only to a corporation which would have
been a bank holding com pany on M ay 15, 1955, and which on that
date held prohibited property.
If a corporation decides to remain a bank holding company, subject
to the supervision of the Federal Reserve Board, it may distribute
any prohibited property, which the Board certifies is necessary or
appropriate to com ply with the bill, to its shareholders without the
recognition of gain by the shareholders. For this purpose prohibited
property, in general, means stock or assets of nonbanking businesses
to the extent the bank holding com pany is required to divest itself
of such assets under section 4 of the bill. The term does not include
cash, Government bonds, or certain short-term obligations. It is
believed desirable to expressly exclude cash, and so forth, from the
definition of prohibited property, since a similar exclusion is contained
in the comparable provisions of part V I of subchapter O, relating to
exchanges in obedience to SEC orders.
W ith respect to the distributing corporation, the usual provisions
of the Internal Revenue Code of 1954 apply. Under these provisions,
gain generally is not recognized to the distributing corporation except
under unusual circumstances such as the distribution of LIFO inven
tory, the distribution of property subject to a liability in excess of
the adjusted basis, or the distribution of certain installment obligations.
The distribution of prohibited property may be made either directly
to the shareholders of the corporation which is a bank holding com
pany or may be transferred to a wholly owned subsidiary expressly
created for purposes of receiving the prohibited property, in whicn
case all of the shares in the new corporation must be distributed
directly to shareholders. Under the bill prohibited property may be
placed in one or more such new corporations. Y our committee's
amendments differ from S. 2577, as originally reported, by providing
that other assets may also be transferred to a new corporation without
making the transaction taxable. This would include cash and bonds,
for working capital purposes, as well as prohibited property acquired
after M ay 15, 1955, but not controlling shares of bank stock or similar
property.
CONTROL OF BANK HOLDING COMPANIES
7
Your committee’s amendments also differ from S. 2577, as originally
reported, by providing that the tax exemption for any particular
distribution may be denied if that distribution is part of a plan with
a principal purpose of avoiding dividend tax on a distribution of earn
ings and profits.
Your com m ittee’s amendments also differ from S. 2577, as originally
reported, by making provisions for certain exchanges of stocks and
bonds as part of the divestment program. Under S. 2577, as originally
reported, bank holding companies having outstanding preferred stocks
and bonds might encounter serious obstacles in making use of the tax
provisions of the bill. The divestments required under the general
provisions of the bill would remove from the corporation property
that provides security for its preferred stocks or bonds. Your com
m ittee’s amendments would permit the exchange of preferred stocks
and bonds in the old corporation for comparable securities in the new
corporations or direct distribution of prohibited property in exchange
for the outstanding preferred stocks or bonds.
The bill provides that in exchanges involving the creation of a;
subsidiary a common shareholder may only receive common stock,
a preferred shareholder may only receive preferred stock issued on
substantially the same terms or common stock, and, finally, a bond
holder may receive only bonds issued on substantially the same terms,
or preferred or common stock. It is also provided that a bondholder
in such an exchange may be taxable on any greater face value of bonds
received over those given up.
If a corporation which is a qualified bank holding company under
the bill chooses to divest itself of all or part of any stock or property
which causes it to be a bank holding company, it may distribute di
rectly to its shareholders or bondholders such stock or property, or
it may form a subsidiary to effectuate such distribution. Your com
mittee has made the same revisions for divestments of this type as
are made in the case of divestments of prohibited property.
The Board must certify that the divestment of the bank stock or
similar property is necessary or appropriate to effectuate the policies of
the bill. In the case of direct distributions, for example, the corpora
tion may distribute to its shareholders without the recognition of gain
all the shares of bank stock in a bank in which it was deemed to have
control within the meaning of section 2 (a) of the bill. Thus, if a
corporation owned 40 percent of the voting stock of each of two banks,
it could distribute all of its shares in those banks even though it
ceased to be a bank holding company by distributing only 16 percent
of the voting shares in one bank. If the same corporation had in
addition 15 percent of the voting shares of a third bank, it would not
be able to distribute tax free, under this bill, those voting shares unless
the Federal Reserve Board deemed that by virtue of those shares the
corporation exercised an effective control over the election of a
majority of the board of directors of the particular bank.
Your committee contemplates that the Federal Reserve Board, in
the discharge of its functions in making certifications that exchanges
and distributions are necessary or appropriate to effectuate the
purposes of the bill, will examine these from the point of view of their
desirability from a banking standpoint. However, a certification by
the Board that a particular divestment is necessary or appropriate is
not to be considered as permitting any method of carrying out this
8
CONTROL OF BANK HOLDING COMPANIES
divestment if it is part of a plan having a principal purpose of avoiding
dividend tax on a distribution of earnings and profits.
In case of direct distributions to stockholders and bondholders of
either prohibited property or property which causes the distributing
corporation to be *a bank holding company, your committee has
restricted the nonrecognition treatment to property which was owned
on M ay 15, 1955. This restriction is deemed necessary to prevent
corporations from purchasing highly marketable shares and other
property as a means of transferring cash from the corporation to its
shareholders. The restriction would not apply, however, if the
property were received in a transaction in which gain was not recog
nized because of either the general rules described above or in certain
types of corporate reorganizations or liquidations. For example, if
prohibited property originally acquired prior to M ay 15, 1955, were
distributed by a subsidiary to its parent in a corporate chain without
recognition of gain to the parent by reason of provisions in this bill,
the parent, in turn, may distribute the property to its own shareholders
without recognition of gain under a certification by the Board, even
though the property was acquired by the parent after M ay 15, 1955.
Similarly, the M ay 15, 1955, cutoff date is not applicable where the
prohibited property or controlling bank interests certified by the
Board are retained at the corporate level b y the transfer to a wholly
owned subsidiary created for that purpose if stock of the subsidiary
is distributed b y the qualified bank holding company, and such
distribution meets the tax avoidance test discussed previously. In
the case of the creation of a subsidiary, prohibited property or con
trolling bank stock acquired after M ay 15, 1955, may be transferred
to it along with prohibited property or controlling bank stock acquired
prior to M ay 15, 1955.
In the case of a contribution to capital of any corporation made by
a bank holding company after the date o f enactment of this bill, the
general test of a principal purpose of tax avoidance will be applied.
Where a contribution has been made after M ay 15, 1955, and before
the date of enactment under the terms described in the bill, the treat
ment provided in S. 2577, as originally reported, will be retained.
If any part of the contribution made in this period is part of a plan
for the avoidance o f taxes, only a portion of the shares of the corpora
tion to which the contribution is made will be taxable on distribution.
This portion will correspond to the portion of the value of those shares
attributable to the contribution.
Where the nonrecognition treatment has been extended to prohibited
property which has been distributed by the corporation which is a bankholding company, a final certification must be obtained from the Board
that the corporation has divested itself of all property necessary or
appropriate to com ply with the bill within the statutory period per
mitted for divestment. If this final certification is not obtained, the
transactions previously permitted to be made without recognition o f
gain are reopened and tax may be imposed in such cases. For this
purpose the statute of limitations on assessment of deficiency resulting
solely from the distribution of prohibited property which has been
certified by the Board does not expire until 5 years after the corporation
gives notification that the period prescribed in section 4 (a) of the bill
has expired.
A similar final certification is required where nonrecognition treat
ment has been originally accorded to the distribution of bank stock or
CONTROL OF BANK HOLDING COMPANIES
9
similar property which the Board has certified that the corporation
must divest in order to cease being a bank-holding company. In this
case the tax provisions of the bill provide that the Board must give a
final certification that the corporation has ceased to be a bank-holding
com pany within 2 years after the date of enactment of the bill or
within 2 years after the date on which the corporation becomes a
bank-holding company, whichever is later, unless the time has been
extended by the Board for 1-year renewals not to exceed 5 years from
the date of enactment of the bill or the date on which the corporation
becomes a bank-holding company, whichever is later. The statutory
period for the assessment of a deficiency resulting solely from such
distribution is extended in the same manner as in the case of the
distribution of prohibited property.
The basis of stock or other property received by a distributee
without recognition of gain under the provisions of the bill is deter
mined by allocating the adjusted basis of the stock with respect to
which the distribution is made between such stock and the property
so distributed. In the case of any recognition of gain upon the receipt
of stock or property, such gain will be taken into account in determin
ing the adjusted basis of the stock with respect to which the distribu
tion was made and the property which was received. These rules
are similar to the general rules for allocation of basis in the case of
stock dividends and corporate reorganizations. The bill provides
that the allocation of basis shall be made under regulations provided
by the Secretary or his delegate.
Where a bank holding com pany distributes stock of a subsidiary
formed to receive either prohibited property or controlling bank in
terests which causes it to be a bank holding company, proper alloca
tion of the earnings and profits of the bank holding company is made
to the subsidiary. Your committee has extended such treatment to
direct distributions of stock of a corporation where the bank holding
com pany owns at least 80 percent of such corporation.
Except in the case of a distribution permitted to be made tax free
under this part, nothing in this bill is intended to limit the applica
bility of other provisions of the Internal Revenue Code of 1954. For
example, in a program of divestments under this bill a bank holding
company could make distributions permitted under the tax provisions
of this bill or under subchapter C of chapter 1 of the Internal Revenue
Code of 1954 (relating to corporate distributions and adjustments).
D E T A IL E D D IS C U S S IO N
Section 10 of S. 2577, as reported by your committee, amends subchapter O of chapter 1 of the Internal Revenue Code of 1954 by
adding a new part V III. This part V III specifies the extent to
which (during a transition period after the enactment of the bill)
gain will not be recognized upon receipt of property by a shareholder
of a bank holding company, if such distribution is made pursuant to
a certification by the Board of Governors of the Federal Reserve
System that such distribution is necessary or appropriate to effec
tuate the Bank Holding Company A ct of 1956. The provisions of
the new part V III are restricted by their own terms to the gain
directly attributable to the receipt of property in the distributions
specifically described.
10
CONTROL OF BANK HOLDING COMPANIES
The rules contained in part V III are in addition to the other pro
visions of subtitle A of the Internal Revenue Code of 1954 (such as
provisions relating to the recognition or nonrecognition of gain to a
corporation making distributions, the provisions under which tax-free
reorganizations may be effectuated, etc.). M any of these other pro
visions are contained in subchapter C of chapter 1 of such code
(relating to corporate distributions and reorganizations). The pro
visions of part V III supersede the other provisions of chapter 1 only
in the cases qualifying under part V III, and in those cases only to
the extent specific provision is contained in part V III. Accordingly,
where the distribution to the shareholders of a bank holding com
pany of 100 percent of the stock of another corporation meets the
requirements of section 355 of the Internal Revenue Code of 1954, no
gain or loss is recognized to such shareholders notwithstanding the
fact that, under the provisions contained in part V III, nonrecognition
o f gain or loss would not be granted, in some cases, with respect to
5 percent of such stock.
The additional amendments of your committee make certain
changes in the tax provisions of the bill.
Section 1101 sets forth the conditions for nonrecognition of gain
attributable to distributions of property by a qualified bank holding
corporation when received by the shareholder with respect to his
stock in such corporation. In addition rules are provided as to the
date the qualified bank holding corporation must have acquired the
property before it can be distributed with no gain recognized to its
shareholders as a result of the distribution. This section also pre
scribes certain conditions which must be fulfilled before any such
distributions of property will obtain the nonrecognition of gain
benefits of its provisions.
The additional amendments of your committee revise subsection
(a) of section 1101 in several respects: (1) Distributions of prohibited
property consisting of stock received in an exchange to which section
1101 (c) (2) applies are treated separately from all other distributions
of prohibited property; (2) provision is made for the nonrecognition
of gain to certain shareholders and security holders on certain ex
changes; and (3) it is specifically provided that nonrecognition treat
ment m ay be available whether or not a distribution is pro rata.
Section 1101 (a) (1) provides that a distribution of prohibited
property, other than stock received in an exchange to which section
1101 (c) (2) applies, by a qualified bank holding corporation with
respect to its stock and without the surrender by the shareholders of
any stock in such corporation will not result in any gain being recog
nized on the receipt of such property by the shareholders if the Board
has, before the distribution, certified that the distribution of such
property is necessary or appropriate to carry out section 4 of the
Bank Holding Com pany A ct of 1956. Furthermore, under your
comm ittee’s amendments, the qualified bank holding corporation m ay
distribute such property to a shareholder in exchange for its preferred
stock or to a security holder in exchange for its securities if the Board
has certified that the distribution of such property is necessary or
appropriate to carry out section 4 of the Bank Holding Com pany
A ct of 1956. On the date of distribution the distributing corporation
must have been a qualified bank holding corporation. Section 4
provides in general that it shall be unlawful for any bank holding
CONTROL OF BANK HOLDING COMPANIES
11
company, after 2 years from the date of enactment of the Bank
Holding Com pany A ct of 1956, to own any voting shares of any
company other than a bank or a bank holding company or to engage
in any business other than that of banking or of managing or controlling
banks or of furnishing services to or performing services for any bank
of which it owns or controls 25 percent or more of the voting shares.
However, section 4 (c) sets forth certain exceptions and permits the
holding by a bank holding company of certain types of property.
Section 1101 (a) (2) of your committee's bill provides for the tax
treatment of certain distributions of stock and securities received in an
exchange to which section 1101 (c) (2) applies. A distribution of
comm on stock received in an exchange to which section 1101 (c) (2)
applies may be made b y a qualified bank holding corporation to its
shareholders (both common and preferred), with or without the
surrender by such shareholders of their stock, without the recognition
of any gain to the shareholders. Shareholders owning common stock
in the distributing corporation may not receive preferred stock received
in an exchange to which section 1101 (c) (2) applies with respect to
their common stock without recognition of gain, whether or not they
surrender common stock. Nor may shareholders owning preferred
stock in the distributing corporation receive preferred stock obtained
in an exchange to which section 1101 (c) (2) applies without recogni
tion of gain without surrender of preferred stock. Similarly, in no
case may security holders receive common stock, preferred stock,
or securities received in an exchange to which section 1101 (c) (2)
applies without recognition of gain without the surrender of securities.
Preferred stock or common stock, or both, received in an exchange to
which section 1101 (c) (2) applies may be distributed by a qualified
bank holding corporation to shareholders owning preferred stock in
exchange for their preferred stock without the recognition of gain if the
preferred stock received (if any) has substantially the same terms as
the preferred stock surrendered. Either common or preferred stock,
or both, received in an exchange to which section 1101 (c) (2) applies
m ay be distributed by a qualified bank holding corporation to its
security holders, in exchange for their securities, without any recogni
tion o f gain to the security holders. A qualified bank holding corpora
tion m ay also distribute securities received in an exchange to which
subsection (c) (2) of section 1101 applies in exchange for its securities,
without recognition of gain to the security holders, if the securities
received have substantially the same terms as the securities sur
rendered. However, if the principal amount of the securities received
by the security holder is greater than the principal amount of the
securities surrendered, the excess principal amount does not receive
nonrecognition treatment under section 1101 (a). In the case of any
exchange of stock or securities of the distributing corporation it is not
necessary that all of the stock or securities held by the distributee be
surrendered.
A distribution may be entitled to nonrecognition treatment, with
respect to shareholders, under paragraphs (1) or (2) of section 1101 (a)
whether or not the distribution is pro rata with respect to all of the
shareholders of the qualified bank holding corporation.
Section 1101 (b) deals with distributions in the case of a corporation
ceasing to be a bank holding company. As in the case of subsection
(a), the additional amendments of your committee revise subsec
12
CONTROL OF BANK HOLDING COMPANIES
tion (b) of section 1101 in several respects: (1) Distributions of stock
received in an exchange to which section 1101 (c) (3) applies are treated
separately from all other distributions of property which cause a
corporation to be a bank holding com pany; (2) provision is made
for the nonrecognition of gain to certain shareholders and security
holders on certain exchanges; and (3) it is specifically provided that
nonrecognition treatment m ay be available whether or not a distribu
tion is pro rata. In order to provide greater clarity, your committee
has also revised the description in section 1101 (b) (1) (B) of property
causing a corporation to be a bank holding company.
Section 1101 (b) (1) applies to a distribution of property, other than
stock received in an exchange to which section 1101 (c) (3) applies,
by a qualified bank holding corporation, with respect to its stock, to a
shareholder without the surrender b y such shareholder of stock in
such corporation where the Board has before the distribution certified
that (1) such property is all or part of the property by reason of which
such corporation controls within the meaning of section 2 (a) a bank
or a bank holding company, or that such property is part of the
property by reason of which such corporation did control a bank or a
bank holding com pany before any property of the same kind was dis
tributed under section 1101 (b) or exchanged under section 1101 (c) (3),
and (2) the distribution is necessary or appropriate to effectuate the
policies of the Bank Holding Com pany A ct of 1956. Under your com
mittee’s amendment, the qualified bank holding corporation m ay also
distribute such property to a shareholder in exchange for its preferred
stock or to a security holder in exchange-for its securities if the Board
has made a similar certification. In the case of a distribution falling
within subsection (b), no gain to the shareholder or security holder
upon the receipt of such property is recognized. Property which is
intended to be covered by section 1101 (b) (1) is that property or
properties which is of a kind which causes a company to be a bank
holding com pany within the provisions of section 2 (a) of the Bank
Holding Com pany A ct of 1956. Thus, assuming that all the condi
tions of this part are met, a qualified bank holding corporation may
distribute to its shareholders without the recognition of gain to them
upon such distribution, part or all of the voting shares of one or more
of the banks the ownership of which voting shares was the basis upon
which such corporation is a bank holding company, if the Board
makes the certification required by section 1101 (b) (1) (B). Further
more, if any corporation was held by the Board to be a bank holding
com pany under clause (2) of section 2 (a) of the Bank Holding Com
pany Act, and if such corporation is a qualified bank holding corpora
tion as required by this part, such corporation would be permitted to
distribute whatever property it owned upon the basis of which such
determination was made b y the Board to its shareholders without
recognition of the gain on the distribution, if the Board certifies in
accord with section 1101 (b) (1) (B).
Section 1101 (b) (2) of your com m ittee’s bill provides for the tax
treatment of certain distributions of stock and securities received in an
exchange to which section 1101 (c) (3) applies. A distribution of
common stock received in an exchange to which section 1101 (c) (3)
applies may be made b y a qualified bank holding corporation to its
shareholders (both common and preferred), with or without the sur
render b y such shareholders of their stock, without the recognition of
CONTROL OF BANK HOLDING COMPANIES
13
any gain to the shareholders. Shareholders owning common stock
in the distributing corporation m ay not receive preferred stock received
in an exchange to which section 1101 (c) (3) applies with respect to
their common stock without recognition of gain, whether or not they
surrender common stock. Nor may shareholders owning preferred
stock in the distributing corporation receive preferred stock obtained
in an exchange to which section 1101 (c) (3) applies without recogni
tion of gain without surrender of preferred stock. Similarly, in no
case may security holders receive common stock, preferred stock, or
securities received in an exchange to which section 1101 (c) (3) applies
without recognition of gain without the surrender of securities.
Preferred stock or common stock, or both, received in an exchange to
which section 1101 (c) (3) applies may be distributed by a qualified
bank holding corporation to shareholders owning preferred stock in
exchange for their preferred stock without the recognition of gain if
the preferred stock received (if any) has substantially the same terms
as the preferred stock surrendered. Either common or preferred stock,
or both, received in an exchange to which section 1101 (c) (3) applies
may be distributed b y a qualified bank holding corporation to its
security holders, in exchange for their securities without any recogni
tion of gain to the security holders. A qualified bank holding corpora
tion may also distribute securities received in an exchange to which
subsection (c) (3) of section 1101 applies in exchange for its securities,
without recognition of gain to the security holders, if the securities
received have substantially the same terms as the securities sur
rendered. However, if the principal amount of the securities received
by the security holder is greater than the principal amount of the
securities surrendered, the excess principal amount does not receive
nonrecognition treatment under section 1101 (b). In the case of any
exchange of stock or securities of the distributing corporation it is not
necessary that all of the stock or securities held by the distributee be
surrendered.
A distribution may be entitled to nonrecognition treatment, with
respect to shareholders, under paragraphs (1) or (2) of section 1101 (b)
whether or not the distribution is pro rata with respect to all of the
shareholders of the qualified bank holding corporation.
It is the intent of the bill that a qualified bank holding corporation
must determine whether it will dispose of prohibited property and
remain a bank holding com pany or whether it will dispose of the
property upon the basis of which the corporation is determined to be
a bank holding company. Therefore, section 1101 (a) (4) and (b)
(4) provide that if the first distribution under this part qualifies for
nonrecognition treatment under subsection (a) no distribution may
qualify under subsection (b). Similarly, if the first distribution under
this part qualifies for nonrecognition treatment under subsection (b)
no distribution may qualify under subsection (a).
Subsection (c) of section 1101 is a limitation upon the application
of subsections (a) and (b). Subparagraph (A) of paragraph (1) o f
subsection (c) specifically excludes from the application of subsections
(a) and (b) of section 1101 any property which a qualified bank hold
ing corporation acquired after M ay 15, 1955, except to the extent
such corporation received such property (even though subsequent to
M ay 15, 1955) and (1) gain was not recognized b y reason of subsection
(a) or (b), or (2) the property was received b y the corporation in
2 0 8 6 6 0 — 5 8 -------- 54
14
CONTROL OF BANK HOLDING COMPANIES
exchange for all of its stock in an exchange to which paragraph (Z)
or (3) of subsection (c) applies, or (3) such property was acquired
b y the distributing corporation in a transaction in which gain was
not recognized under section 305 (a) or section 332, or under section
354 b y reason of a reorganization described in section 368 (a) (1) (E)
or (F) (recapitalization or mere change in identity, form, or place of
organization).
Under subparagraph (B) of paragraph (1), neither subsection (a)
nor (b) of section 1101 is applicable to the distribution by a qualified
bank holding corporation of property which was acquired b y such
corporation in a distribution with respect to stock acquired by it
after M ay 15, 1955, unless such stock was acquired by it (1) in a dis
tribution (with respect to stock held by it on M ay 15, 1955, or with
respect to stock in respect of which all previous applications of this
clause are satisfied) with respect to which gain to it was not recog
nized by reason of subsection (a) or (b) of section 1101, or (2) in ex
change for all of its stock in an exchange meeting the requirements of
section 1101 (c) (2) or (3), or (3) in a transaction in which gain was
not recognized under section 305 (a) or section 332, or under section
354 b y reason of a reorganization described in section 368 (a) (1)
(E) or (F).
Paragraphs (2) and (3) of subsection (c) of section 1101 are excep
tions to the general rule of paragraph (1) of subsection (c) that subsec
tions (a) and (b) do not apply to any property acquired by a distribut
ing corporation after M ay 15, 1955. In general paragraphs (2) and
(3) permit the distribution of the stock and securities of corporations
organized to receive property which could have been distributed di
rectly. Under the tax provisions of S. 2577 as originally reported b y
your committee, the corporation organized under these paragraphscould receive only property which could have been distributed directly
without recognition of gain to shareholders. The amendments pro
posed by your committee permit the transfer of additional property
(including cash) when there is not a plan to avoid Federal income tax.
Under subparagraph (C) of paragraph (1), neither subsection (a)
nor (b) of section 1101 is applicable to the distribution by a qualified
bank holding corporation of property acquired by such corporation in
a transaction in which gain was not recognized under section 332,
unless such property was acquired from a corporation which, if it had
been a qualified bank holding corporation, could have distributed such
property under section 1101 (a) (1) or (b) (1).
Under paragraph (2) if a qualified bank holding corporation ex
changes property which, under subsection (a) (1), such corporation
could distribute directly to its shareholders or security holders with
out the recognition of gain to such shareholders or security holders
and other property (except property described in section 1101 (b) (1)
(B) (i)) for all of the stock of a second corporation created and availed
of solely for the purpose of receiving such property, and immediately
after the exchange, the qualified bank holding corporation distributes
all of such stock in a manner prescribed in section 1101 (a) (2) (A),
then the stock and securities of the second corporation m ay be dis
tributed to the shareholders and security holders of such qualified
bank holding corporation in distributions meeting the requirements
of section 1101 (a) (2). However, prior to such exchange, the Board
must certify, with respect to the property exchanged consisting o f
CONTROL OF BANK HOLDING COMPANIES
15
property which the corporation could have distributed directly to
its shareholders or security holders without recognition of gain under
section 1101 (a) (1), that the exchange and distribution are necessary
or appropriate to effectuate section 4 of the Bank Holding Company
A ct of 1956.
Under paragraph (3) of section 1101 (c) if any qualified bank hold
ing corporation exchanges property which it could have distributed
directly to its shareholders or security holders without recognition of
gain to them under section 1101 (b) (1) and other property (except
prohibited property), for all of the stock of a second corporation
created and availed of solely for the purpose of receiving such property,
and immediately after the exchange the qualified bank holding cor
poration distributes all of such stock in a manner prescribed in section
1101 (b) (2) (A ), then the stock and securities of the second corpora
tion may be distributed to the shareholders and security holders of
such qualified bank holding corporation in distributions meeting the
requirements of section 1101 (b) (2). However, prior to such exchange
the Board must have certified, with respect to the property exchanged
consisting of property which the corporation could have distributed
directly to its shareholders or security holders without recognition of
gain under section 1101 (b) (1), that (1) such property is all or part of
the property by reason of which such corporation controls within the
meaning of section 2 (a) a bank or a bank holding company, or that
such property is part of the property b y reason of which the corpora
tion did control a bank or a bank holding com pany before any prop
erty of the same kind was distributed under section 1101 (b) (1) or
exchanged under section 1101 (c) (3), and (2) the exchange and dis
tribution are necessary and appropriate to effectuate the policies of
the Bank Holding Com pany A ct of 1956.
An exchange will meet the requirements of section 1101 (c) (2) or
(3) even though the only property transferred by the qualified bank
holding corporation is property which could have been distributed
to its shareholders or security holders directly without the recognition
of gain to them. However, the distribution of the stock and securities
of the corporation receiving such property will not receive the non
recognition treatment provided in sections 1101 (a) and (b) if property
of the type referred to in section 1101 (d) is retained in pursuance of
a plan to avoid Federal income tax. The qualified bank holding
corporation making an exchange under section 1101 (c) (2) or (3)
may receive securities of the second corporation in addition to all of
the stock of such corporation. However, the securities received may
be distributed without recognition of gain only to the extent provided
in section 1101 (a) (2) and (b) (2).
Your committee has amended the tax provisions of S. 2577, as
originally reported, to provide, in section 1101 (d), that distributions
which are a part of a plan to avoid Federal income tax will not qualify
for nonrecognition treatment under sections 1101 (a) and (b). This
amendment to the bill adopts an approach analogous to that used in
section 355 (a) (1) (B) of the Internal Revenue Code of 1954. This
amendment is applicable both to direct distributions of property and
to distributions of the stock and securities received in an exchange
to which section 1101 (c) (2) or (3) applies. Paragraph (1) of section
1101 (d) provides that section 1101 (a) shall not apply to a distribution
of nonbanking property if, in connection with such distribution, the
16
CONTROL OF BANK HOLDING COMPANIES
distributing corporation retains, or transfers after M ay 15, 1955, to
any corporation, property (other than prohibited property) as part
of a plan one of the principal purposes of which is the distribution of
the earnings and profits of any corporation. Similarly, paragraph (2)
of section 1101 (d) provides that section 1101 (b) shall not apply to
a distribution of banking property if, in connection with such distri
bution, the distributing corporation retains, or transfers after M a y 15,
1955, to any corporation property (other than property described in
sec. 1101 (b) (1) (B) (i)) as part of a plan one of the principal purposes
of which is the distribution of the earnings and profits of any corpo
ration.
Y our committee has adopted an amendment providing a special
rule for contributions to capital o f a corporation made after M ay 15,
1955, and prior to the date o f enactment. Paragraph (3) o f section
1101 (d) provides that in a case of a distribution a portion of which
is attributable to a transfer which is a contribution to the capital o f
a corporation, made after M ay 15, 1955, and prior to the date o f
enactment, if section 1101 (a) or (b) would apply to such distribution
but for the fact that such contribution to capital is part of a tax
avoidance plan under paragraph (1) or (2) of section 1101 (d), then,
notwithstanding paragraph (1) or (2) o f subsection (d), section 1101
(a) or (b) shall apply to that portion of such distribution not attribut
able to such contribution to capital and shall not apply to that
portion attributable to such contribution to capital.
The preceding paragraph m ay be illustrated b y the following
examples:
(1) Assume that corporation A (a qualified bank holding corpora
tion) owns all of the stock of corporation X . Assume further that
corporation A, after M ay 15, 1955, and prior to the date o f the enact
ment o f this bill, makes a contribution to the capital of corporation X
in the amount of $50,000 in pursuance of a plan to avoid Federal
income tax under paragraph (1) or (2) of section 1101 (d). Thereafter,
corporation A makes a distribution o f the stock of corporation X to
the shareholders of corporation A which would be entitled to non
recognition treatment but for the tax avoidance plan. Under sub
section (d) the nonrecognition of gain provided b y subsection (a)
does not apply to that portion o f the distribution which is attributable
to the contribution of capital, that is, $50,000. The amount of the
distribution to the extent of the contribution to capital, $50,000, is
a distribution subject to the provisions of section 301 of the Internal
Revenue Code of 1954.
(2) The facts are the same as in example (1) above, except that
the value of the portion o f the distribution which is attributable to
the contribution to capital, at the time of the distribution, is less
than $50,000. The value o f that portion o f the distribution which
is attributable, to the contribution to capital of $50,000 is a distribution
subject to the provisions of section 301 of the Internal Revenue Code
of 1954.
Subsection (e) of section 1101 provides that neither subsection (a)
nor subsection (b) shall apply with respect to any distribution b y a
corporation unless the board makes the certification required by the
subsection.
Paragraph (1) of subsection (e) relates to certification with respect
to distributions falling within subsection (a). It provides that sub
CONTROL OF BANK HOLDING COMPANIES
17
section (a) shall not apply to any such distribution unless the Board
certifies that, before the expiration of the period permitted under
section 4 (a) of the Bank Holding Company Act of 1956 (including any
extensions thereof granted to such corporation under such sec. 4 (a)),
the corporation has disposed of all the property, the disposition of
which is necessary or appropriate to effectuate section 4 (or would
have been so necessary or appropriate if the corporation had continued
to be a bank holding com pany). In order that subsection (a) of
section 1101 is to apply to distributions of property by a qualified
bank holding corporation, it is essential that such corporation dispose
of all of such property within the period (including extensions thereof)
specified in section 4 (a) of such act. During the period during which
such corporation is required to dispose of all such property, distribu
tions of property are to be considered as being within subsection (a)
of section 1101, if other requirements of this part are met. Thus, no
gain would be recognized to shareholders on distributions (if such dis
tributions would otherwise qualify for the benefits of this part) during
such period. If, at the close of such period, the corporation has dis
posed of all of such property and the Board has made the certification
required under subsection (e) of section 1101, subsection (a) of section
1101 will apply to distributions of property. However, if, at the
close of such period, the corporation has not disposed of all of the
property the disposition of which is necessary or appropriate to effec
tuate section 4 of the Bank Holding Company A ct of 1956, then sub
section (a) of section 1101 will not apply to any distributions of prop
erty by the corporation. Thus, in a case where the provisions of
subsection (e) (1) are not met, the tax treatment of any distribution
of property by a qualified bank holding corporation to its shareholders
is governed by the provisions of other sections of the Internal Revenue
Code of 1954 applicable thereto.
Paragraph (2) of subsection (e) of section 1101 is applicable to dis
tributions falling within subsection (b) of section 1101. Subpara
graph (A) provides that subsection (b) shall not apply unless the
Board certifies that the corporation has ceased to be a bank holding
company before the expiration of the period specified in subparagraph
(B). Under H. R . 6227 the period specified in paragraph (B) was 2
years after the date of enactment. S. 2577, as originally reported,
modified subparagraph (B) to provide that the specified period expires
2 years after the enactment of this part or 2 years after the corporation
becomes a bank holding company, whichever is later. Under subparagraph (B) of H. R . 6227 the Board is authorized on the application
of any qualified bank holding corporation to extend such period from
time to time with respect to such corporation for not more than 1 year
at a time if, in its judgment, such an extension would not be detri
mental to the public interest, but such period might not be extended
beyond the date 5 years after the date of enactment of this part. This
provision was modified by S. 2577, as originally reported, to provide
that such period may not in any case be extended beyond the date
5 years after the date of enactment of this part or 5 years after the
date on which the corporation becomes a bank holding company,
whichever is later. The purpose of this change was to extend the
specified periods in the case of corporations which become bank
holding companies after the date of enactment of this part by reason
of a distribution under section 1101. This treatment makes the
IS
CONTROL OF BANK HOLDING COMPANIES
specified periods uniform whether such a corporation chooses to dis
tribute prohibited property or bank stock. In order that subsection
(b) of section 1101 is to apply to distributions of property of a kind
which causes a qualified bank holding corporation to be a bank hold
ing com pany and the disposition of winch is necessary to enable such
corporation to cease being a bank holding company, it is essential that
such corporation cease to be a bank holding company within the period
(including extensions thereof) specified in subsection (e) (2) of section
1101. During the period during which such corporation disposes of
property to enable it to cease being a bank holding company, distribu
tions of such property are to be considered as being within subsection
(b) of section 1101, if other requirements of this part are met. Thus,
no gain would be recognized to shareholders on such distributions (if
such distributions would otherwise qualify for the benefits of this
part) during such period. If, at the close of such period specified in
subsection (e) (2), the corporation has ceased to be a bank holding
company, subsection (b) of section 1101 will apply to distributions of
such property. However, if, at the close of such period, the corpora
tion has not ceased being a bank holding company, then subsection (b)
of section 1101 will not apply to any distributions of such property by
the corporation. Thus, in a case where the provisions of subsection
(e) (2) are not met, the tax treatment of any distributions of property
of a kind which causes a qualified bank holding corporation to be a
bank holding com pany to its shareholders is governed by the provisions
of other sections of the Internal Revenue Code of 1954 applicable
thereto.
Section 1102 provides special rules for the application of this part.
Subsection (a) relates to the basis of property acquired in distribu
tions under either subsection (a) or subsection (b) of section 1101.
Paragraph (1) of subsection (a) relates to the basis of property
received by a shareholder with respect to stock without the surrender
by such shareholder of stock. If gain is not recognized by reason of
section 1101 (a) or (b) with respect to the receipt of any property
then, under paragraph (1), the basis of such property and of the stock
with respect to which it was distributed shall, in the hands of the
distributee, be determined by allocating the adjusted basis of such
stock between such property and such stock. Such allocation shall be
made under regulations prescribed by the Secretary or his delegate.
Paragraph (2) of subsection (a) relates to the basis of property
received by a shareholder in exchange for stock or by a security
holder in exchange for securities. If gain is not recognized by reason
of section 1101 (a) or (b) with respect to the receipt of any property
then, under regulations prescribed by the Secretary or his delegate,
the basis of the property received shall, in the distributee’s hands,
be the same as the adjusted basis of the stock or securities exchanged,
increased by (1) the amount of the property received which was
treated as a dividend and (2) the amount of gain to the taxpayer
recognized on the property received (not including any portion of
such a gain which was treated as a dividend).
Subsection (b) of section 1102 of H. R. 6227 provided for the exten
sion of the periods of limitation on the assessment and collection of
deficiencies in tax arising from distributions to which subsection (a) or
(b) of section 1101 applies. S. 2577, as originally reported, modified
this provision of the House bill in several respects: (1) It eliminated
CONTROL OF BANK HOLDING COMPANIES
19
the extension of the period under section 6502 relating to collection as
unnecessary; (2) it provided that the extension applies to distributions
certified by the Board under subsection (a) or (b) of section 1101 in
order to correct a technical defect; (3) it provided that the notification
by the corporation be in such manner and with such accompanying
information as prescribed in regulations by the Secretary or his
delegate; (4) it provided for a 5-year period after the notification
instead of a 1-year period; and (5) it provided that the notification
can only be made after the expiration of the period prescribed in
section 4 (a) of the Bank Holding Company A ct or section 1101 (e),
whichever is applicable, instead of after a final certification by the
Board. The additional amendments proposed by your committee
provide that the extension applies to all distributions certified by the
Board under subsection (a), (b), or (c) of section 1101. Accordingly,
under subsection (b) of section 1102, the periods of limitation provided
in section 6501 (relating to limitations on assessment) shall not expire,
with respect to any deficiency (including interest and additions to the
tax) resulting solely from the receipt of property by shareholders in a
distribution which is certified by the Board under subsection (a), (b),
or (c) of section 1101, until 5 years after the distributing corporation
notifies the Secretary or his delegate (in such manner and with such
accompanying information as the Secretary or his delegate may by
regulations prescribe) that the period (including extensions thereof)
prescribed in section 4 (a) of the Bank Holding Company Act, or
section 1101 (e) (2) (B), whichever is applicable, has expired. Such
assessment m ay be made notwithstanding any provision of law or
rule of law which would otherwise prevent such assessment.
Subsection (c) of section 1102 relates to allocation of earnings and
profits. The amendments proposed by your Committee extend the
rule relating to allocation of earnings and profits contained in section
1102 (c) of S. 2577 as originally reported by your committee to the
distribution of stock in a controlled corporation. Y our committee
believes it appropriate to provide a rule which is similar to that applied
under section 312 (i) in cases involving the distribution of stock of a
controlled corporation under section 355. Accordingly, paragraph
(1) of section 1101 (c) provides that in the case of a distribution by a
qualified bank holding corporation under section 1101 (a) (1) or (b) (1)
of stock in a controlled corporation, proper allocation with respect to
the earnings and profits of the distributing corporation and the con
trolled corporation shall be made under regulations prescribed by the
Secretary or his delegate. (Par. (3) of sec. 1101 (c) defines* the term
“ controlled corporation” in the same manner as sec. 368 (c) of the
Internal Revenue Code of 1954.) Paragraph (2) of section 1101 (c)
provides that in the case of any exchange described in section 1101 (c)
(2) or (3), the earnings and profits of the corporation transferring the
property shall be properly allocated between such corporation and the
.corporation receiving such property under regulations prescribed by
the Secretary or his delegate.
Subsection (d) relates to itemization of property distributed. The
Board is required in any certification under this part to make such
specification and itemization of property as may be necessary to carry
out the provisions of this part.
Section 1103 sets forth the definitions, for purpose of this part, of
“ bank holding com pany,” “ qualified bank holding corporation,”
“ prohibited property,” “ nonexempt property,” and “ Board.”
20
CONTROL OF BANK HOLDING COMPANIES
Subsection (a) of this section provides that the term “ bank holding
com pany” means a bank holding com pany as defined by section 2 of
the Bank H olding Com pany A ct of 1956.
Subsection (b) of this section defines the term “ qualified bank hold
ing corporation.” S. 2577, as originally reported, made a technical
amendment to subsection (b) in order to make it clear that the tax
provisions of this part apply to any corporation as defined in section
7701 (a) (3) of the Internal Revenue Code of 1954 if such corporation
is a qualified bank holding corporation. In order for a corporation
to be a qualified bank holding corporation, and therefore for its shareholders to receive the special tax treatment provided b y this part, it
must not only be a bank holding com pany but, in addition, it must
hold “ prohibited property” as defined in subsection (c). For example,
if the sole assets of corporation X consist of 25 percent of the voting
shares of each of two banks, corporation X is not a qualified bank
holding corporation.
In addition, to be a qualified bank holding corporation the pro
hibited property must have been acquired on or before M ay 15, 1955,
by a corporation which is a bank holding company, or must have been
acquired in a distribution to it b y a qualified bank holding corporation
with respect to which gain is not recognized by reason of section 1101
(a) or (b). Furthermore, a bank holding com pany which holds pro
hibited property acquired b y it in exchange for all of its stock in an
exchange described in section 1101 (c) (2) or (3) is a qualified bank
holding corporation. (The amendments proposed by your committee
add references to sec. 1101 (b) and sec. 1101 (c) (2) to par. (1) of sec.
1103 (b) in order to conform the tax provisions of this bill to the
change proposed b y your committee in sec. 4 (a) (2) of this bill.)
The preceding paragraph may be illustrated by the following
examples:
(1) If the sole assets of corporation X on M ay 15, 1955, consist of
cash and 25 percent of the voting shares of each of two banks and on
M ay 30, 1955, corporation X purchases nonbanking business assets,
corporation X is not a qualified bank holding corporation.
(2) The sole assets of corporation Y , on M ay 15, 1955, consist o f
25 percent of the voting shares of each of two banks and 4 percent of
the outstanding voting stocks (the value of which is less than 5
percent of the value of corporation Y 's total assets) of corporation
Z, a qualified bank holding corporation. Corporation Z distributes
nonbanking business assets to corporation Y which are prohibited
property in the hands of corporation Y , in a distribution to which
section 1101 (a) applies. Corporation Y becomes a qualified bank
holding corporation by reason of the distribution by Z.
Notwithstanding that a corporation meets the requirements of
paragraph (1) of subsection (b), such corporation shall not be a
qualified bank holding corporation unless it meets the additional
requirements of subparagraphs (A ), (B ), and (C) of paragraph (2).
Subparagraph (A) of paragraph (2) provides that a bank holding
company shall not be a qualified bank holding corporation unless
such corporation would have been a bank holding com pany on
M ay 15, 1955, if the Bank Holding Com pany Act of 1956 had been
in effect on such date, or unless such corporation is a bank holding
company determined solely by reference to the following: (1) Property
acquired b y such corporation on or before M ay 15, 1955; (2) property
CONTROL OF BANK HOLDING COMPANIES
21
acquired b y such corporation in a distribution b y a qualified bank
holding corporation to such corporation wherein gain was not recog
nized by reason of subsection (a) or (b) of section 1101; and (3)
property acquired by such corporation in exchange for all of its
stock in an exchange meeting the requirements of section 1101 (c) (2)
or (3).
Thus, if on M ay 15, 1955, the sole assets of corporation X consist
of cash and business assets and on M ay 30, 1955, corporation X
acquires 25 percent of the voting shares of each of two banks for cash,
then, by reason of subparagraph (A) of paragraph (2), corporation X ,
although a bank holding com pany holding prohibited property
acquired by it before M ay 15, 1955, is not a qualified bank holding
corporation. Similarly, if corporation X acquired 25 percent or more
of the voting shares of each of two banks in a tax-free reorganization,
corporation X , although a bank holding com pany holding prohibited
property acquired by it before M ay 15, 1955, would not be a qualified
bank holding corporation. An additional example of the application
of subparagraph (A) of paragraph (2) is where corporation X is
determined by the Board to be a bank holding company by reason of
clause (2) of section 2 (a) of the Bank Holding Corporation Act of
1956, solely b y reference to (1) property acquired by such corporation
on or before M ay 15, 1955, and (2) property acquired by it from a
qualified bank holding corporation in a distribution in which gain
to the distributee was not recognized by reason of subsection (a) or (b)
of section 1101.
Except as explained in the next paragraph, subparagraph (B) of
paragraph (2) provides that a bank holding company shall not be a
qualified bank holding corporation by reason of either (1) the acqui
sition by such bank holding company of prohibited property after
M ay 15, 1955, in a distribution from a qualified bank holding corpora
tion to which section 1101 (a) is applicable or (2) the acquisition by
such bank holding company (which company would not have been a
bank holding compa
on M ay 15,1955, if the Bank Holding Company
A ct of 1956 had br ■ ' effect on such date) of property described in
clause (ii) of subparagraph (A) of paragraph (2). An example of the
operation of the foregoing is where, on M ay 15, 1955, the sole assets
of corporation Y consist of cash and 25 percent of the voting shares
of each of two banks. On M ay 30, 1955, corporation Y purchases for
cash 50 percent of the stock of corporation Z, a qualified bank holding
corporation. Corporation Z distributed business assets to corporation
Y in a distribution in which gain to corporation Y with respect to
the receipt of such property was not recognized by reason of section
1101 (a). Corporation Y is not a qualified bank holding corporation
since such property was acquired by corporation Y in a distribution
with respect to stock acquired after M ay 15,1955.
A bank holding company may be a qualified bank holding corpora
tion by reason of the property described in the preceding paragraph
if such property was acquired in a distribution with respect to stock
which was acquired by such company (1) on or before M ay 15, 1955,
(2) in a distribution (with respect to stock held by it on M a y 15, 1955,
or with respect to stock in respect of which all previous applications
of this clause are satisfied) with respect to which gain to it was not
recognized by reason of subsection (a) or (b) of section 1101, or (3) in
22
CONTROL OF BANK HOLDING COMPANIES
exchange for all of the stock of the bank holding com pany in an ex
change meeting the requirements of section 1101 (c) (2) or (3).
Subparagraph (C) of paragraph (2) states that a corporation m ay
not be treated as a qualified bank holding corporation unless the
Board certifies that it satisfies the requirements of subsection (b) of
section 1103.
Subsection (c) of section 1103 defines the term “ prohibited prop
erty.” Such property is defined as property, other than nonexempt
property, the disposition of which, in the case of any bank holding
company, would be necessary or appropriate to effectuate section 4
of the Bank Holding Com pany A ct of 1956, if such company continued
to be a bank holding company beyond the period (including any
extensions thereof) specified in section 4 (a ), in the case of distributions
under section 1101 (a), or specified in section 1101 (e) (2) (B), in the
case of distributions under section 1101 (b). The term “ prohibited
property” does not include shares of any com pany which are held by
a bank bolding com pany to the extent that the ownership b y such
bank holding com pany of such property is not prohibited by section
4 of such bill by reason of subsection (c) (5) of such section.
Subsection (d) defines the term “ nonexempt property,” the dis
tribution of which m ay not be accorded the tax treatment provided
by this part.
Subsection (e) of this section states that the term “ B oard” means
the Board of Governors of the Federal Reserve System.
Section 10 (b) amends table of parts of chapter 1, subchapter O
of Internal Revenue Code of 1954 by adding “ Part V III. Distribu
tions pursuant to Bank Holding Com pany A ct of 1955.”
Section 10 (c) makes these tax provisions in section 10 (a) apply to
taxable years ending after the enactment of the act.
C hanges
in
E x is t in g
L aw
In compliance with subsection (4) of rule X X I X of the Standing
Rules of the Senate, changes in existing law made by the bill, as
reported, are shown as follows (new matter is printed in italics,
existing law in which no change is proposed is shown in roman):
INTERNAL REVENUE CODE OF 1954
*
*
Chapter I— Normal Taxes and Surtaxes
*
*
*
*
*
SUBCHAPTER O—GAIN OR LOSS ON DISPOSITION OF PROPERTY
Part
I.
Part
II.
Part III.
Part IV.
Part
V.
Part VI.
Part VII.
Determination of amount and recognition of gain or loss.
Basic rules of general application.
Common nontaxable exchanges.
Special rules.
Changes to effectuate F. C. C. policy.
Exchanges in obedience to S. E. C. orders.
Wash sales of stock or securities.
Part VIII. Distributions pursuant to Bank Holding Company Act of 1955.
*
*
*
*
*
*
*
Part VIII— Distributions Pursuant to Bank Holding Company Act o f 1956
Sec. 1101. Distributions pursuant to Bank Holding Company Act of 1956.
Sec. 1102. Special rules.
Sec. 110S. Definitions.
23
CONTROL OF BANK HOLDING COMPANIES
SBC. 1101. DISTRIBUTIONS PURSUANT TO BANK BOLDING COMPANY ACT OF 1956.
(a )
D
is t r ib u t io n s
(1 )
D
of
C
is t r ib u t io n s
N
e r t a in
of
on
-B
a n k in g
p r o h ib it e d
P
r o p e r t y
p r o p e r t y
.— •
.—
If—
(A) a qualified bank holding corporation distributes prohibited property
(other than stock received in an exchange to which subsection (c) (2) applies)—
(i) to a shareholder (with respect to its stock held by such share
holder), without the surrender by such shareholder of stock in such
corporation; or
(ii) to a shareholder, in exchange for its preferred stock; or
(Hi) to a security holder, in exchange for its securities; and
(B) the Board has, before the distribution, certified that the distribution
of such prohibited property is necessary or appropriate to effectuate section 4
of the Bank Holding Company Act of 1956 ,
then no gain to the shareholder or security holder from the receipt of such property
shall be recognized.
(2) D i s t r i b u t i o n s o f s t o c k a n d s e c u r i t i e s r e c e i v e d i n a n e x c h a n g e
TO W H I C H S U B S E C T I O N ( c ) (B) A P P L I E S . ---I f —
(A) a qualified bank holding corporation distributes—
(i) common stock received in an exchange to which subsection
(2)
applies to a shareholder (with respect to its stock held by such share
holder), without the surrender by such shareholder of stock in such
corporation; or
(ii) common stock received in an exchange to which subsection (c) (2)
applies to a shareholder, in exchange for its common stock; or
(Hi) preferred stock or common stock received in an exchange to which
subsection
(2) applies to a shareholder, in exchange for its preferred
stock; or
(iv) securities or preferred or common stock received in an exchange
to which subsection (c) (2) applies to a security holder, in exchange for
its securities; and
(B) any preferred stock received has substantially the same terms as the
preferred stock exchanged, and any securities received have substantially the
same terms as the securities exchanged,
then, except as provided in subsection (/), no gain to the shareholder or security
holder from the receipt of such stock or such securities or such stock and securities
shall be recognized.
(c)
(c)
(8) N on p r o r a t a d i s t r i b u t i o n s . — Paragraphs (1) and (2) shall apply to
a distribution whether or not the distribution is pro rata with respect to all of
the shareholders of the distributing qualified bank holding corporation.
(4) E x c e p t i o n . — This subsection shall not apply to any distribution by a
corporation which has made any distribution pursuant to subsection (6).
(5) D i s t r i b u t i o n s i n v o l v i n g g i f t o r c o m p e n s a t i o n . —
In the case of a distribution to which paragraph (1) or (2)
applies, but which—
(A) results in a gift, see section 2501, and following, or
(B) has the effect of the paym ent of compensation, see
section 61 (a) (2).
(b)
C o r p o r a tio n
(1 )
b a n k
D
C e a s in g
is t r ib u t io n s
h o l d in g
c o m pan y
To
B e
of
p r o p e r t y
a
B a nk
H o ld in g
w h ic h
C o m p a n y .—
cau se
a
c o r p o r a t io n
to
b e
a
.— I f —
(A) a qualified bank holding corporation distributes property (other than
stock received in an exchange to which subsection (c) (8) applies)—
(i) to a shareholder (with respect to its stock held by such shareholder),
without the surrender by such shareholder of stock in such corporation;
or
(ii) to a shareholderj in exchange for its preferred stock; or
(Hi) to a security holder, in exchange for its securities; and
(B) the Board has, before the distribution, certified that—
(i)
such property is all or part of the property by reason of which
such corporation controls (within the meaning of section 2 (a) of the
Bank Holding Company Act of 1956) a bank or bank holding com
pany , or such property is part of the property by reason of which such
corporation did control a bank or a bank holding company before any
property of the same kind was distributed under this subsection or
exchanged under subsection (c) (8), and
24
CONTROL OF BANK HOLDING COMPANIES
(ii)
the distribution is necessary or appropriate to effectuate"'the
policies of such Act , then no gain to the shareholder or security holder
from, the receipt of such property shall be recognized.
(2 )
D
is t r ib u t io n s
of
TO W H I C H S U B S E C T I O N ( C)
stock
an d
s e c u r it ie s
(S) A P P L I E S .—
r e c e iv e d
in
a n
e x c h a n g e
If—
(A) a qualified bank holding corporation distributes—
(i) common stock received in an exchange to which subsection (c) (3)
applies to a shareholder (with respect to its stock held by such share
holder), without the surrender by such shareholder of stock in such
corporation; or
(ii) common stock received in an exchange to which subsection (c) (3)
applies to a shareholder, in exchange for its common stock; or
(Hi) preferred stock or common stock received in an exchange to
which subsection (c) (8) applies to a shareholder, in exchange for its
preferred stock; or
(iv) securities or preferred or common stock received in an exchange
to which subsection (c) (8) applies to a security holder, in exchange for
its securities; and
(B) any preferred stock received has substantially the same terms as the
preferred stock exchanged, and any securities received have substantially the
same terms as the securities exchanged,
then, except as provided in subsection (f), no gain to the shareholder or security
holder from the receipt of such stock or such securities or such stock and securities
shall be recognized.
(3) N on p r o r a t a d i s t r i b u t i o n s . — Paragraphs (1) and (2) shall apply
to a distribution' whether or not the distribution is pro rata with respect to all of
the shareholders of the distributing qualified bank holding corporation.
(4) E x c e p t i o n . — This subsection shall not apply to any distribution by a
corporation which has made any distribution pursuant to subsection (a).
(5)
D istr ib u tio n s in v o lv in g
g ift or
c o m p e n sa tio n .
—
In the case o f a distribution to which paragraph (1) or (2)
applies, but which—
(A) results in a gift, see section 2501, and following, or
(B) has the effect of the paym ent of compensation, see
. section 61 (a) (1).
A c q u i r e d A f t e r M a y 15 , 1955 .—
(1) I n g e n e r a l . — Except as provided in paragraphs (2) and (3), subsection
(*a) or (b) shall not apply to—
(.4) any property acquired by the distributing corporation after M a y 15>
1955 , unless (i) gain to such corporation with respect to the receipt of such
property ivas not recognized by reason of subsection (a) or (b), or (ii) such
property was received by it in exchange for all of its stock in an exchange
to which paragraph (2) or (3) applies, or (Hi) such property was acquired
by the distributing corporation in a transaction in which gain was not
recognized under section 305 (a) or section 832, or under section 354 with
respect to a reorganization described in section 868 (a) (1) (E ) or (F), or
(B) any property which was acquired by the distributing corporation in
a distribution with respect to stock acquired by such corporation after M a y
15, 1955, unless such stock was acquired by such corporation (i) in a dis
tribution (with respect to stock held by it on M ay 15, 1955, or with respect
to stock in respect of which all previous applications of this clause are
satisfied) with respect to which gain to it was not recognized by reason of
subsection (a) or (b), or (ii) in exchange for all of its stock in an exchange
to which paragraph (2) or (3) applies, or (in) in a transaction in which
gain was not recognized under section 305 (a) or section 832, or under
section 854 with respect to a reorganization described in section 368 (a) (1)
(E) or (F ), or
(C) any property acquired by the distributing corporation in a transaction
in which gain was not recognized under section 832 , unless such property
was acquired from a corporation which, if it had been a qualified bank holding
corporation, could have distributed such properly under subsection (a)
(1) or (b) (1).
(c)
P r o p e r ty
(2 )
E
xc h a n g e s
in v o l v in g
p r o h ib it e d
p r o p e r t y
.— I f —
(A)
any qualified bank holding corporation exchanges (i) property, which,
under subsection (a) (1), such corporation could distribute directly to its
shareholders or security holders without the recognition of gain to such share
holders or security holders, and other property (except property described in
CONTROL OF BANK HOLDING COMPANIES
25
subsection (b) (1) ( B) (?')), for (ii) all of the stock of a second corporation
created and availed of soiely for the purpose of receiving such property;
( B ) immediately after the exchange, the qualified bank holding corporation
distributes all of such stock in a manner prescribed in subsection (a) (2) (A );
and
(C) before such exchange, the Board has certified (with respect to the
property exchanged which consists of property which, under subsection
(a) (1), such corporation could distribute directly to its shareholders or
security holders without the recognition of gain) that the exchange and dis
tribution are necessary or appropriate to effectuate section 4 of the Bank
Holding Company Act of 1956,
then paragraph (1) shall not apply with respect to such distribution.
(3) E x c h a n g e s i n v o l v i n g i n t e r e s t s i n b a n k s . — I f —
(A) any qualified bank holding corporation exchanges (i) property which,
under subsection (b) (1), such corporation could distribute directly to its
shareholders or security holders without the recognition of gain to such
shareholders or security holders, and other property (except prohibited
property), for (ii) all of the stock of a second corporation created and availed
of solely for the purpose of receiving such property,
(B ) immediately after the exchange, the qualified bank holding corporation
distributes all of such stock in a manner prescribed in subsection (b) (2)
(A ); and
(C) before such exchange, the Board has certified (with respect to the
property exchanged which consists of property which, under subsection (b)
(1), such corporation could distribute directly to its shareholders or security
holders without the recognition of gain) that—
(i) such property is all or part of the property by reason of which
such corporation controls (within the meaning of section 2 (a) of the
Bank Holding Company Act of 1956) a bank or bank holding company,
or such property is part of the property by reason of which such corpo
ration did control a bank or a bank holding company before any property
of the same kind was distributed under subsection (b) (1) or exchanged
under this paragraph, and
(ii) the exchange and distribution are necessary or appropriate to
effectuate the policies of such Act,
then paragraph (1) shall not apply with respect to such distribution.
(d) D i s t r i b u t i o n s To A v o i d F e d e r a l I n c o m e T a x . —
(1) P r o h i b i t e d p r o p e r t y . — Subsection (a) shall not apply to a distribution
if, in connection with such distribution, the distributing corporation retains, or
transfers after M a y 15, 1955 , to any corporation, property (other than prohibited
property) as part of a plan one of the principal purposes of which is the distri
bution of the earnings and profits of any corporation.
( 2 ) B a n k i n g p r o p e r t y . — Subsection (b) shall not apply to a distribution ify
in connection with such distribution, the distributing corporation retains, or trans
fers after M a y 15, 1955, to any corporation, property (other than property
described in subsection (b) (1) (B) (i)) as part of a plan one of the principal pur
poses of which is the distribution of the earnings and profits of any corporation.
(3) C e r t a i n c o n t r i b u t i o n s t o c a p i t a l . — In the case of a distribution a
portion of which is attributable to a transfer which is a contribution to the capital
of a corporation, made after M a y 15, 1955, and prior to the date of the enactment
of this part, if subsection (a) or (b) would apply to such distribution but for the
fact that, under paragraph (1) or (2) (as the case may be) of this subsection, such
contribution to capital is part of a plan one of the principal purposes of which
is to distribute the earnings and profits of any corporation, then, notwithstanding
paragraph (1) or (2), subsection (a) or (b) (as the case may be) shall apply to
that poftion of such distribution not attributable to such contribution to capital,
and shall not apply to that portion of such distribution attributable to such
contribution to capital.
(e )
F
in a l
C
e r t if ic a t io n
.— •
(1)
F o r s u b s e c t i o n (a).— Subsection (a) shall not apply with respect to any
distribution by a corporation unless the Board certifies that, before the expiration
of the period permitted under section 4 (a) of the Bank Holding Company Act of
1956 (including any extensions thereof granted to such corporation under such
section 4 (a)), the corporation has disposed of all the property the disposition
of which is necessary or appropriate to effectuate section 4 of such Act (or would
have been so necessary or appropriate if the corporation had continued to be a
bank holding company).
26
CONTROL OF BANK HOLDING COMPANIES
( 2 ) F o r s u b s e c t i o n ( b) . — ■
(A) Subsection (b) shall not apply with respect to any distribution by any
corporation unless the Board certifies that, before the expiration of the period
specified in subparagraph (B ), the corporation has ceased to be a bank holding
company.
(B ) The period referred to in subparagraph U4) is the period which expires
2 years after the date of the enactment of this part or 2 years after the date on
which the corporation becomes a bank holding company, whichever date is later.
The Board is authorized, on application by any corporation, to extend such
period from time to time with respect to such corporation for not more than
one year at a time if, in its judgment, such an extension would not be detrimental
to the public interest; except that such period may not in any case be extended
beyond the date 5 years after the date of the enactment of this part or 5 years
after the date on which the corporation becomes a bank holding company,
whichever date is later.
(/) C e r t a i n E x c h a n g e s o f S e c u r i t i e s . — In the case of an exchange described
in subsection (a) (2) (A) (iv) or subsection (b) (2) (A) (iv), subsection (a) or
subsection (b) (as the case may be) shall apply only to the extent that the principal
amount of the securities received does not exceed the principal amount of the securities
exchanged.
SEC. 1102. SPECIAL RULES.
(a) B a s i s o f P r o p e r t y A c q u i r e d i n D i s t r i b u t i o n s . —//, by reason of section
1101, gain is not recognized with respect to the receipt of any property, then, under
regulations prescribed by the Secretary or his delegate-—
(1) if the property is received by a shareholder with respect to stock, without
the surrender by such shareholder of stock, the basis of the property received
and of the stock with respect to which it is distributed shall, in the distributee’s
hands, be determined by allocating between such property and such stock the
adjusted basis of such stock; or
(2) if the property is received by a shareholder in exchange for stock or by a
security holder in exchange for securities, the basis of the property received shallT
in the distributee’s hands, be the same as the adjusted basis of the stock or securities
exchanged, increased by —
(A) the amount of the property received which was treated as a dividendf
and
(B ) the amount of gain to the taxpayer recognized on the property received
(not including any portion of such gain which was treated as a dividend).
(b) P e r i o d s o f L i m i t a t i o n . — The periods of limitation provided in section 6501
(relating to limitations on assessment and collection) shall not expire, with respect
to any deficiency (including interest and additions to the tax) resulting solely from
the receipt of property by shareholders in a distribution which is certified by the Board
under subsection (a), (b), or (c) of section 11011, until 5 years after the distributing
corporation notifies the Secretary or his delegate (in such manner and with such
accompanying information as the Secretary or his delegate may by regidations pre
scribe) that dhe period (including extensions thereof) prescribed in section 4 («) o f
the Bank Holding Company Act of 1956, or section 1101 (e) (2) (B), whichever is
applicable, has expired; and such assessment may be made notwithstanding any
provision of law or rule of law which would otherwise prevent such assessme?it.
(c) A l l o c a t i o n o f E a r n i n g s a n d P r o f i t s , —•
(1 ) D i s t r i b u t i o n o f s t o c k i n a c o n t r o l l e d
c o r p o r a t i o n . — In the case
oi a distribution by a qualified bank holding corporation under section 1101 (a)
(1) or (b) (1) of stock in a controlled corporation, proper allocation with respect
to the earnings and profits of the distributing corporation and the controlled corpo
ration shall be made under regulations prescribed by the Secretary or his delegate.
(2) E x c h a n g e s d e s c r i b e d i n s e c t i o n lioi (c ) (£) o r (s).— In the case of any
exchange described in section 1101 (c) (2) or (3), proper allocation with respect to
the earnings and profits of the corporation transferring the property and the
corporation receiving such property shall be made under regulations prescribed
by the Secretary or his delegate.
( 3 ) D e f i n i t i o n o f c o n t r o l l e d c o r p o r a t i o n . — For purposes of paragraph
(1), the term “ controlled corporation” means a corporation with respect to which at
least 80 percent of the total combined voting power of all classes of stock entitled
to vote and at least 80 percent of the total number of shares of all other classes of
stock is owned by the distributing qualified bank holding corporation.
(d) I t e m i z a t i o n o f P r o p e r t y . — In any certification under this part, the Board
shall make such specification and itemization of property as may be necessary to carry
out the provisions of this part.
CONTROL OF BANK HOLDING COMPANIES
27
SEC. 1103. DEFINITIONS.
(a)
H o l d i n g C o m p a n y . — For purposes of this part, M e t e r m “ bank holding
company” has the meaning assigned to such term by section 2 of the Bank Holding
Company Act of 1956.
(b) Q u a l i f i e d B a n k H o l d i n g C o r p o r a t i o n . —
(1) In g e n e r a l . — Except as provided in paragraph (2), for purposes of this
part the term “ qualified bank holding corporation” means any corporation (as
defined in section 7701 (a) (3)) which is a bank holding company and which
holds prohibited property acquired by it—
(A) on or before M a y 15, 1955,
(B) in a distribution in which gain to such corporation with respect to
the receipt of such property was not recognized by reason of subsection (a) or
(b) of section 1101, or
(C) in exchange for all of its stock in an exchange described in section
1101 (c) (2) or (c) (3).
(2) L i m i t a t i o n s . —•
(A) A bank holding company shall not be a qualified bank holding
corporation, unless it would have been a bank holding company on M a y 15,
1955, if the Bank Holding Company Act of 1956 had been in effect on such
date, or unless it is a bank holding company determined solely by reference
to—
(i) property acquired by it on or before M a y 15, 1955.
(ii) property acquired by it in a distribution in which gain to such
corporation with respect to the receipt of such property was not recog
nized by reason of subsection (a) or (b) of section 1101, and
(in) property acquired by it in exchange for all of its stock in an
exchange described in section 1101 (c) (2) or (3).
(B) A bank holding company shall not be a qualified bank holding cor
poration by reason of property described in subparagraph (B) of para
graph (1) or clause (ii) of subparagraph (A) of this paragraph, unless such
property was acquired in a distribution with respect to stock, which stock
was acquired by such bank holding company—
(i) on or before M a y 15, 1955.
(ii) in a distribution (with respect to stock held by it on M a y 15,
1955, or with respect to stock in respect of which all previous applica
tions of this clause are satisfied) with respect to which gain to it was
not recognized by reason of subsection (a) or (b) of section 1101 , or
(Hi) in exchange for all of its stock in an exchange described in section
1101 (c) (2) or (3).
(C) A corporation shall be treated as a qualified bank holding corporation
only if the Board certifies that it satisfies the foregoing requirements of this
subsection.
(c) P r o h i b i t e d P r o p e r t y .— For purposes o f this part, the term “ prohibited
property11 means, in the case o f any bank holding com pan y, property (other than non
exem pt property) the disposition o f which would be necessary or appropriate to effectu
ate section 4 o f the Bank H olding C om pany A ct o f 1956 i f such com pany continued to
be a bank holding com pany beyond the period (including any extensions thereof)
specified in subsection (a) o f such section or in section 1101 (e) (2) (B ) o f this part, as
the case may be.
The term uprohibited prop erty” does not include shares o f any
com pany held by a bank holding com pany to the extent that the prohibitions o f section 4
o f the Bank H olding C om pany A ct o f 1956 do not apply to the ownership by such bank
holding com pany o f such property by reason o f subsection (c) (5) o f such section.
(d) N o n e x e m p t P r o p e r t y . — For purposes o f this part, the term “ nonexem pt
property” means—
(1) obligations (including notes, drafts, bills o f exchange, and bankers>
acceptances) having a maturity at the time o f issuance o f not exceeding
months, exclusive o f days o f grace;
(2) securities issued by or guaranteed as to prin cip al or interest by a govern
ment or subdivision thereof or by any instrum entality o f a government or subdivi
sion ; or
(3) m oney, and the right to receive money not evidenced by a security or obliga
tion {other than a security or obligation described in paragraph (1) or ( 2) ) .
(e) B o a r d . — For purposes o f this part, the term “ B oard 11 means the Board o f
Governors o f the Federal Reserve System.
24
C
@FedFRASER