PUBLIC LAW 91-172-DEC. 30, 1969
year as the balance of the reserve at the close of the ba year bears to the amount of loans outstanding at the Q\ of the base year. ^^^ For purposes of this paragraph, the base year shall be the last taxabl year before the most recent adoption of the experience method, excent that for taxable years beginning after 1987 the base year shali be th last taxable year beginning before 1988. ^ "(4)
26 USC 165.
15 USC e^i' note.
retary or his delegate shall define the terms 'loan' and 'eligible loan' and prescribe such regulations as may be necessary to carry out the purposes of this section; except that the term 'eligible loan' shall not include— , • " (A) a loau to a bank (as defined iu section 581), ' " (B) a loan to a domestic branch of a foreign corporation to which subsection (a)(2) applies, " (C) a loan secured by a deposit (i) in the lending bank or (ii) in an institution described in subparagraph (A) or (B) if the lending bank has control over withdrawal of such deposit " (D) a loan to or guaranteed by the United States, a possession or instrumentality thereof, or a State or a political subdivision thereof, " (E) a loan evidenced by a security as defined in section 165 (g)(2)(C), " (F) a loan of Federal funds, and " (G) commercial paper, including short-term promissory notes which may be purchased on the open market. "SEC. 586. RESERVES FOR LOSSES ON LOANS OF SMALL BUSINESS INVESTMENT COMPANIES, ETC. " (a) INSTITUTIONS TO W H I C H SECTION APPLIES.—This section shall apply to the following financial institutions: "(1) any small business investment company operating under
- ^® Small Business Investment Act of 1958, and
"(2) any business development corporation. For purposes of this section, the term 'business development corporation' means a corporation which was created by or pursuant to an act of a State legislature for purposes of promoting, maintaining, and assisting the economy and industry within such State on a regional or statewide basis by making loans to be used in trades and businesses which would generally not be made by banks (as defined in section 581) within such region or State in the ordinary course of their business (except on the basis of a partial participation), and which is operated primarily for such purposes. " (b)
68A Stat. 50.
REGULATIONS; DEFINITION OF ELIGIBLE LOAN, ETC.—The Seo
ADDITION TO RESERVES FOR BAD DEBTS.— «(]^) GENERAL RULE.—For purposes of section
166(c), except as provided in paragraph (2) the reasonable addition to the reserve for bad debts of any financial institution to which this section applies shall be an amount determined by the taxpayer which shall not exceed the amount necessary to increase the balance • of the reserve for bad debts (at the close of the taxable year) to h the greater of— " (A) the amount which bears the same ratio to loans outstanding at the close of the taxable year as (i) the total bad Wjir' • debts sustained during the taxable year and the 5 preceding taxable years (or, with the approval of the Secretary or 1 ^ ^^ delegate, a shorter period), adjusted for recoveries of bad debts during such period, bears to (ii) the sum of the loans outstanding at the close of such 6 or fewer taxable years, or