Capital Briefs: Bill Would Ease Rules for S Corporations

Sen. Wayne Allard introduced legislation Monday that would let more small banks convert to tax-saving S corporations.

The Colorado Republican's bill would double the number of shareholders an S corporation may have, to 150, and reduce the share of stockholders who must approve a conversion, to 90%. Several limits specifically for banks would be eased, including letting investors hold S corporation stock in individual retirement accounts and relaxing accounting requirements for bad-debt chargeoffs.

Co-sponsors include Banking Committee Chairman Phil Gramm, R-Tex.

"Sen. Allard's well-thought-out bill would afford many small businesses, particularly community banks, needed relief from punitive double taxation," said Robert N. Barsness, president of the Independent Community Bankers of America. "Community banks are being squeezed by megamergers, rural agricultural difficulties, and encroachment by tax-free rivals."

S corporations pay no corporate taxes but pass profits directly to shareholders, who are individually taxed. Congress let banks adopt this favorable tax structure starting in 1997, but the ICBA says that small financial institutions have trouble qualifying under existing rules.