The Independent Community Bankers of America on Wednesday issued a report to bolster its pleas to Congress for tax and regulatory relief.

Prepared by Grant Thornton LLP, the report recommends changes to reduce costs and increase deposits at small banks. Key among the proposals are estate tax relief for family-owned banks, exemptions from the Community Reinvestment Act, and a simpler process for converting to tax-saving S corporations.

ICBA officials said community banks need help to survive in the face of the agricultural crisis and megamergers, and they made clear that small banks expect a payback after Congress eased membership limits on tax-exempt credit unions last year.

"Recent federal laws passed here in Washington without considering the full impact on Main Street can cripple local banks and put them out of business," said ICBA president Robert N. Barsness. "Community bankers face onerous tax and regulatory burdens not carried by their key competitors, such as credit unions."

Last year's credit union law requires the Treasury Department to submit a report by early August outlining ways that policymakers could "reduce and simplify the tax burden" on depository institutions with less than $1 billion of assets.

The ICBA/Grant Thornton report was intended to provide ideas to the Treasury Department.

To protect the family-owned bank, the proposals include reducing estate taxes and eliminating them over a 10-year period. Small banks want to accelerate planned increases in exemptions from these so-called death taxes. Under current law, the exemption would rise to $1 million by 2006.

The report proposes three changes to CRA law: It would exempt banks with $250 million of assets or lower; banks with as much as $1 billion of assets would qualify for streamlined CRA exams (the current cut-off is $250 million); and it would grant annual tax credits of 200 basis points on loans that a community bank makes to low-income people or businesses that serve them.

The plan also would let more banks convert to S corpora-tions-which pay no corporate taxes but pass profits directly to individual shareholders, who are individually taxed.

Proposals include doubling the number of S corporation shareholders to 150, lowering to 80% the number of shareholders that must approve a conversion, and letting investors hold S corporation stock in individual retirement accounts.

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