PSB Holdings, Inc. - Page 26




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                                      APPENDIX                                        
                    SEC. 265(b). Pro rata Allocation of Interest                      
               Expense of Financial Institutions to Tax-Exempt                        
               Interest.--                                                            
                         (1) In general.--In the case of a                            
                    financial institution, no deduction shall be                      
                    allowed for that portion of the taxpayer’s                        
                    interest expense which is allocable to                            
                    tax-exempt interest.                                              
                         (2) Allocation.--For purposes of                             
                    paragraph (1), the portion of the taxpayer’s                      
                    interest expense which is allocable to                            
                    tax-exempt interest is an amount which bears                      
                    the same ratio to such interest expense as--                      
                              (A) the taxpayer’s average                              
                         adjusted bases (within the meaning                           
                         of section 1016) of tax-exempt                               
                         obligations acquired after August                            
                         7, 1986, bears to                                            
                              (B) such average adjusted                               
                         bases for all assets of the                                  
                         taxpayer.                                                    
                    SEC. 291(e).  Definitions.--For purposes of this                  
               section--                                                              
                         (1) Financial institution preference                         
                    item.--The term “financial institution                            
                    preference item” includes the following:                          
                         *    *    *    *    *    *    *                              
                              (B) Interest on debt to carry                           
                         tax-exempt obligations acquired                              
                         after December 31, 1982, and before                          
                         August 8, 1986.--                                            
                                   (i) In general.--In                                
                              the case of a financial                                 
                              institution which is a                                  
                              bank (as defined in                                     
                              section 585(a)(2)), the                                 
                              amount of interest on                                   






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Last modified: March 27, 2008