WASHINGTON - Legislation to rescue the Savings Association Insurance Fund may require thrifts to repay past tax breaks, adding at least $2 billion to the industry's cleanup tab.

If Congress does decide to make thrifts pay back taxes on the so-called bad-debt reserve, the industry may withdraw its support of the Clinton administration's rescue plan.

"The thrift industry cannot recapitalize SAIF and pay the tax," said William A. Cooper, chairman of TCF Financial Corp., a Minneapolis-based thrift holding company. "It's more than we can afford."

Thrifts are supporting the administration's proposal to inject $6.1 billion into the fledgling insurance fund through a one-time fee on deposits. In exchange, the administration has agreed to back a merger of the thrift and bank insurance funds.

But the banking industry is pushing Congress to adopt a broader bill, including a plan to combine the bank and thrift charters. If the charters are merged, then the legislation would have to address the thrift industry's tax deduction.

The potential double whammy threatens to unravel the fragile alliance the thrift industry has forged with the administration.

So, industry leaders are hoping Congress heeds their protests and doesn't force a recapture of past "bad-debt reserve" tax breaks if it requires thrifts to switch to commercial bank charters.

Mr. Cooper's $7.5 billion-asset company would face a $30 million tax hit if it converted its thrifts to bank charters under current Internal Revenue Service rules. TCF's share of the $6.1 billion tab would be $40 million.

No reliable figures are available for the industry as a whole, but Washington thrift lobbyist Ken McLean estimates the total bill at $2 billion to $3 billion - or more.

Since 1953, when thrifts lost their full tax exemption, Congress has whittled the size of their bad-debt deduction from 100% of earnings to 60%, then 40%, and, in 1987, to 8%.

At 8%, the deduction is not of great value to most thrifts, and few in the industry expect to keep it.

At best, thrift executives hope to be able to do what commercial banks under $500 million in assets can - deduct for tax purposes their average loan losses over the past six years. Bigger banks can only charge off actual loan losses each year.

But the bad-debt reserve thrifts have built up since 1953 - the difference between the allowed deduction and the institutions' actual loan losses - is another matter.

Not only would it be hard for many thrifts to afford the taxes on these reserves, say those involved in the industry, it wouldn't be fair.

"The way thrifts view it, the ability to deduct excess reserves in the past has been a subsidy to encourage thrifts to invest in housing - which they have done," said Mr. McLean.

Forcing thrifts to repay this money "would be a tremendous breach of contract between these institutions and the federal government," said Jack Schaffer, Illinois commissioner of savings and residential finance, in testimony earlier this month before the House Banking subcommittee on financial institutions.

The tax bill would be highest for conservative, well-run institutions that did not suffer heavy loan losses in the past, said Paul D. Borja, a financial institutions tax lawyer with Housley Goldberg Kantarian & Bronstein in Washington. "It's almost a penalty for efficiency," he added.

The Clinton administration is expected to issue its plan for handling the bad-debt reserve problem in late September or early October.

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