Trying to salvage a disappointing legislative session, industry lobbyists plan a last-minute drive for tax relief.

Two bills would make it easier for community banks to convert to so- called S corporations, which are exempt from corporate taxes be-cause all profits are passed directly to shareholders.

Banking officials said they are cautiously optimistic about winning tax help for small banks because lawmakers want to make amends after voting against the industry on the credit union and financial reform bills.

But getting tax breaks is always tough, and the House and Senate will be preoccupied this fall with a slew of spending bills and reaction to the presidential sex scandal. Adjournment is set for Oct. 9.

"It's a long shot," said Edward L. Yingling, chief lobbyist for the American Bankers Association, "but it is something we will be taking a run at."

Sen. Wayne Allard, a member of the Banking Committee, introduced legislation in late July that would let a company qualify for S corporation status if it has no more than 150 shareholders. The current limit is 75.

The Colorado Republican would also permit investors to hold S corporation stock in individual retirement accounts, and exempt investments that banks maintain for supervisory or liquidity purposes from limits on S corporations' passive investment income.

A similar measure was introduced last month in the House by Rep. E. Clay Shaw Jr., a Florida Republican on the Ways and Means Committee. His bill would let S corporations offer preferred stock, repeal some investment limits, and loosen other restrictions.

Bankers will argue that Congress owes them a favor after enacting a law that eases membership limits on credit unions and preserves their tax- exempt status.

"Here's something you can do for banks," said Herbert L. Spira, tax counsel for the Independent Bankers Association of America. "Under the circumstances, it would be deserved and legitimate."

Senate Banking Committee Chairman Alfonse M. D'Amato, a co-sponsor of the Allard bill, agreed. "We have to give them some tax relief" to stay competitive, the New York Republican said during debate on the credit union bill.

Little time remains in the session for the House and Senate tax-writing committees to consider legislation, so a spokeswoman for Rep. Shaw said he will seek to attach it to an anticipated House tax-relief bill. Sen. Allard said last month that he would pursue a similar strategy.

Other potential obstacles include the undetermined cost of the bill and the Treasury Department's stance. A Treasury spokesman said agency officials are still studying the bills.

Meanwhile, the Independent Bankers Association of Texas is seeking sponsors for a proposal to cut taxes for banks with less than $5 billion of assets that have strong records of investing in their communities. These lenders would pay no taxes on their first $250,000 of profits, 15% on the next $750,000, and the prevailing rate on earnings exceeding $1 million.

The Texas group expects the bill to be introduced in September but not enacted this year, executive vice president Steve Scurlock said.

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