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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