[Code of Federal Regulations]
[Title 26, Volume 18]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR301.7701-13A]

[Page 644-648]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 301_PROCEDURE AND ADMINISTRATION--Table of Contents
 
                               Definitions
 
Sec. 301.7701-13A  Post-1969 domestic building and loan association.

    (a) In general. For taxable years beginning after July 11, 1969, the 
term ``domestic building and loan association'' means a domestic 
building and loan association, a domestic savings and loan association, 
a Federal savings and loan association, and any other savings 
institution chartered and supervised as a savings and loan or similar 
association under Federal or State law which meets the supervisory test 
(described in paragraph (b) of this section), the business operations 
test (described in paragraph (c) of this section), and the assets test 
(described in paragraph (d) of this section). For the definition of the 
term ``domestic building and loan association'' for taxable years 
beginning after October 16, 1962, and before July 12, 1969, see Sec. 
301.7701-13.
    (b) Supervisory test. A domestic building and loan association must 
be either (1) an insured institution within the meaning of section 
401(a) of the National Housing Act (12 U.S.C. 1724(a)) or (2) subject by 
law to supervision and examination by State or Federal authority having 
supervision over such associations. An ``insured institution'' is one 
the accounts of which are insured by the Federal Savings and Loan 
Insurance Corporation.
    (c) Business operations test--(1) In general. An association must 
utilize its assets so that its business consists principally of 
acquiring the savings of the public and investing in loans. The 
requirement of this paragraph is referred to in this section as the 
business operations test. The business of acquiring the savings of the 
public and investing in loans includes ancillary or incidental 
activities which are directly and primarily related to such acquisition 
and investment, such as advertising for savings, appraising property on 
which loans are to be made by the association, and inspecting the 
progress of construction in connection with construction loans. Even 
though an association meets the supervisory test described in paragraph 
(b) of this section and the assets test described in paragraph (d) of 
this section, it will nevertheless not qualify as a domestic building 
and loan association if it does not

[[Page 645]]

meet the requirements of both paragraphs (2) and (3) of this paragraph 
(c), relating, respectively, to acquiring the savings of the public and 
investing in loans.
    (2) Acquiring the savings of the public. The requirement that an 
association's business (other than investing in loans) must consist 
principally of acquiring the savings of the public ordinarily will be 
considered to be met if savings are acquired in all material respects in 
conformity with the rules and regulations of the Federal Home Loan Bank 
Board or substantially equivalent rules of a State law or supervisory 
authority. Alternatively, such requirement will be considered to be met 
if more than 75 percent of the dollar amount of the total deposits, 
withdrawable shares, and other obligations of the association are held 
during the taxable year by the general public, as opposed to amounts 
deposited or held by family or related business groups or persons who 
are officers or directors of the association. However, the preceding 
sentence shall not apply if the dollar amount of other obligations of 
the association outstanding during the taxable year exceeds 25 percent 
of the dollar amount of the total deposits, withdrawable shares, and 
other obligations of the association outstanding during such year. For 
purposes of this paragraph, the term ``other obligations'' means notes, 
bonds, debentures, or other obligations, or other securities (except 
capital stock), issued by an association in conformity with the rules 
and regulations of the Federal Home Loan Bank Board or substantially 
equivalent rules of a State law or supervisory authority. The term 
``other obligations'' does not include an advance made by a Federal Home 
Loan Bank under the authority of section 10 or 10b of the Federal Home 
Loan Bank Act (12 U.S.C. 1430, 1430b) as amended and supplemented. Both 
percentages specified in this paragraph shall be computed either as of 
the close of the taxable year or, at the option of the taxpayer, on the 
basis of the average of the dollar amounts of the total deposits, 
withdrawable shares, and other obligations of the association held 
during the taxable year. Such averages shall be determined by computing 
each percentage specified either as of the close of each month, as of 
the close of each quarter, or semiannually during the taxable year and 
by using the yearly average of the monthly, quarterly, or semiannual 
percentages obtained. The method selected must be applied uniformly for 
the taxable year to both percentages, but the method may be changed from 
year to year.
    (3) Investing in loans--(i) In general. The requirement that an 
association's business (other than acquiring the savings of the public) 
must consist principally of investing in loans will be considered to be 
met for a taxable year only if more than 75 percent of the gross income 
of the association consists of--
    (a) Interest or dividends on assets defined in paragraphs (1), (2), 
and (3) of paragraph (e) of this section,
    (b) Interest on loans,
    (c) Income attributable to the portion of property used in the 
association's business, as defined in paragraph (e)(11) of this section,
    (d) So much of the amount of premiums, discounts, commissions, or 
fees (including late charges and penalties) on loans which have at some 
time been held by the association, or for which firm commitments have 
been issued, as is not in excess of 20 percent of the gross income of 
the association,
    (e) Net gain from sales and exchanges of governmental obligations, 
as defined in paragraph (e)(2) of this section, or
    (f) Income, gain or loss attributable to foreclosed property, as 
defined in paragraph (e)(9) of this section, but not including such 
income, gain or loss which, pursuant to section 595 and the regulations 
thereunder, is not included in gross income.

Examples of types of income which would cause an association to fail to 
meet the requirements of this paragraph if, in the aggregate, they equal 
or exceed 25 percent of gross income, are: The excess of gains over 
losses from sales of real property (other than foreclosed property); 
rental income (other than on foreclosed property and the portion of 
property used in the association's business); premiums, commissions, and 
fees (other than commitment fees) on loans which have never

[[Page 646]]

been held by the association; and insurance brokerage fees.
    (ii) Computation of gross income. For purposes of this paragraph, 
gross income is computed without regard to--
    (a) Gain or loss on the sale or exchange of the portion of property 
used in the association's business as defined in paragraph (e)(11) of 
this section.
    (b) Gain or loss on the sale or exchange of the rented portion of 
property used as the principal or branch office of the association, as 
defined in paragraph (e)(11) of this section, and
    (c) Gains or losses on sales of participations, and loans, other 
than governmental obligations defined in paragraph (e)(2) of this 
section.


For purposes of this paragraph, gross income is also computed without 
regard to items of income which an association establishes arise out of 
transactions which are necessitated by exceptional circumstances and 
which are not undertaken as recurring business activities for profit. 
Thus, for example, an association would meet the investing in loans 
requirement if it can establish that it would otherwise fail to meet 
that requirement solely because of the receipt of a nonrecurring item of 
income due to exceptional circumstances. For this purpose, transactions 
necessitated by an excess of demand for loans over savings capital in 
the association's area are not to be deemed to be necessitated by 
exceptional circumstances. For purposes of paragraph (c)(3)(ii)(c) of 
this section, the term ``sales of participations'' means sales by an 
association of interests in loans, which sales meet the requirements of 
the regulations of the Federal Home Loan Bank Board relating to sales of 
participations, or which meet substantially equivalent requirements of 
State law or regulations relating to sales of participations.
    (iii) Reporting requirement. In the case of income tax returns for 
taxable years beginning after July 11, 1969, there is required to be 
filed with the return a statement showing the amount of gross income for 
the taxable year in each of the categories described in paragraph 
(c)(3)(i) of this section.
    (d) 60 percent of assets test. At least 60 percent of the amount of 
the total assets of a domestic building and loan association must 
consist of the assets defined in paragraph (e) of this section. The 
percentage specified in this paragraph is computed as of the close of 
the taxable year or, at the option of the taxpayer, may be computed on 
the basis of the average assets outstanding during the taxable year. 
Such average is determined by making the appropriate computation 
described in this section either as of the close of each month, as of 
the close of each quarter, or semiannually during the taxable year and 
by using the yearly average of the monthly, quarterly, or semiannual 
percentage obtained for each category of assets defined in paragraph (e) 
of this section. The method selected must be applied uniformly for the 
taxable year to all categories of assets, but the method may be changed 
from year to year. For purposes of this paragraph, it is immaterial 
whether the association originated the loans defined in paragraphs (4) 
through (8) and (10) of paragraph (e) of this section or purchased or 
otherwise acquired them in whole or in part from another. See paragraph 
(f) of this section for definition of certain terms used in this 
paragraph and in paragraph (e) of this section, and for the 
determination of amount and character of loans.
    (e) Assets defined. The assets defined in this paragraph are--
    (1) Cash. The term ``cash'' means cash on hand, and time or demand 
deposits with, or withdrawable accounts in, other financial 
institutions.
    (2) Governmental obligations. The term ``governmental obligations'' 
means--
    (i) Obligations of the United States,
    (ii) Obligations of a State or political subdivision of a State, and
    (iii) Stock or obligations of a corporation which is an 
instrumentality of the United States, a State, or a political 
subdivision of a State,

other than obligations the interest on which is excludable from gross 
income under section 103 and the regulations thereunder.
    (3) Deposit insurance company securities. The term ``deposit 
insurance company securities'' means certificates of deposit in, or 
obligations of, a corporation organized under a State law which

[[Page 647]]

specifically authorizes such corporation to insure the deposits or share 
accounts of member associations.
    (4) Passbook loan. The term ``passbook loan'' means a loan to the 
extent secured by a deposit, withdrawable share, or savings account in 
the association, or share of a member of the association, with respect 
to which a distribution is allowable as a deduction under section 591.
    (5) Residential real property loan. [Reserved]
    (6) Church loan. [Reserved]
    (7) Urban renewal loan. [Reserved]
    (8) Institutional loan. [Reserved]
    (9) Foreclosed property. [Reserved]
    (10) Educational loan. [Reserved]
    (11) Property used in the association's business--(i) In general. 
The term ``property used in the association's business'' means land, 
buildings, furniture, fixtures, equipment, leasehold interests, 
leasehold improvements, and other assests used by the association in the 
conduct of its business of acquiring the savings of the public and 
investing in loans. Real property held for the purpose of being used 
primarily as the principal or branch office of the association 
constitutes property used in the association's business so long as it is 
reasonably anticipated that such property will be occupied for such use 
by the association, or that construction work preparatory to such 
occupancy will be commenced thereon, within 2 years after acquisition of 
the property. Stock of a wholly owned subsidiary corporation which has 
as its exclusive activity the ownership and management of property more 
than 50 percent of the fair rental value of which is used as the 
principal or branch office of the association constitutes property used 
in such business. Real property held by an association for investment or 
sale, even for the purpose of obtaining mortgage loans thereon, does not 
constitute property used in the association's business.
    (ii) Property rented to others. Except as provided in the second 
sentence of paragraph (11)(i) of this paragraph (e), property or a 
portion thereof rented by the association to others does not constitute 
property used in the association's business. However, if the fair rental 
value of the rented portion of a single piece of real property 
(including appurtenant parcels) used as the principal or branch office 
of the association constitutes less than 50 percent of the fair rental 
value of such piece of property, or if such property has an adjusted 
basis of not more than $150,000, the entire property shall be considered 
used in such business. If such rented portion constitutes 50 percent or 
more of the fair rental value of such piece of property, and such 
property has an adjusted basis of more than $150,000, an allocation of 
its adjusted basis is required. The portion of the total adjusted basis 
of such piece of property which is deemed to be property used in the 
association's business shall be equal to an amount which bears the same 
ratio to such total adjusted basis as the amount of the fair rental 
value of the portion used as the principal or branch office of the 
association bears to the total fair rental value of such property. In 
the case of all property other than real property used or to be used as 
the principal or branch office of the association, if the fair rental 
value of the rented portion thereof constitutes less than 15 percent of 
the fair rental value of such property, the entire property shall be 
considered used in the association's business. If such rented portion 
constitutes 15 percent or more of the fair rental value of such 
property, an allocation of its adjusted basis (in the same manner as 
required for real property used as the principal or branch office) is 
required.
    (12) Regular or residual interest in a REMIC--(i) In general. If for 
any calendar quarter at least 95 percent of a REMIC's assets (as 
determined in accordance with Sec. 1.860F-4(e)(1)(ii) or Sec. 1.6049-
7(f)(3) of this chapter) are assets defined in paragraph (e)(1) through 
(e)(11) of this section, then for that calendar quarter all the regular 
and residual interests in that REMIC are treated as assets defined in 
this paragraph (e). If less than 95 percent of a REMIC's assets are 
assets defined in paragraph (e)(1) through (e)(11) of this section, the 
percentage of each REMIC regular or residual interest treated as an 
asset defined in this paragraph (e) is equal to the percentage of the 
REMIC's assets that are assets defined in paragraph (e)(1) through 
(e)(11) of this section.

[[Page 648]]

See Sec. Sec. 1.860F-4(e)(1)(ii)(B) and 1.6049-7(f)(3) of this chapter 
for information required to be provided to regular and residual interest 
holders if the 95 percent test is not met.
    (ii) Loans secured by manufactured housing. For purposes of 
paragraph (e)(12)(i) of this section, a loan secured by manufactured 
housing treated as a single family residence under section 25(e)(10) is 
an asset defined in paragraph (e)(1) through (e)(11) of this section.
    (f) Special rules. [Reserved]

[T.D. 7622, 44 FR 28661, May 16, 1979; 44 FR 29048, May 18, 1979, as 
amended by T.D. 8458, 57 FR 61313, Dec. 24, 1992]