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institutions, Congress substantially reduced the bad debt
deduction available to thrift institutions. By reducing rather
than eliminating the bad debt deduction, “the committee continues
to believe that there should be some incentive for thrift
institutions to provide residential mortgage loans”. Id. at 582.
Explanation of the new provisions for calculating bad debt
deductions for thrift institutions included the language: “Any
institution meeting the definition of a thrift institution and
holding at least 60 percent of its assets as qualifying assets,
will be eligible for the full 5 percent of taxable income
deduction.” Id. (Emphasis added.) The legislative history
cited by both parties demonstrates that, while the activities of
thrifts and commercial banks began to overlap during the years in
issue, a significant distinction remained in both fiscal and
regulatory policy that lends credence to respondent’s
determination that an institution chartered as a bank does not
meet the threshold requirements of section 7701(a)(19).
Petitioner relies on several decided cases that, according
to petitioner, establish that the laws in this area have been
more concerned with the substance of an institution’s activities
than with the form of its State charter. For example, in
Staunton Indus. Loan Corp. v. Commissioner, 120 F.2d 930 (4th
Cir. 1941), revg. 42 B.T.A. 1030 (1940), the Court of Appeals for
the Fourth Circuit applied a functional test to determine whether
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