Page:United States Statutes at Large Volume 100 Part 3.djvu/526

 100 STAT. 2334

PUBLIC LAW 99-514—OCT. 22, 1986 "(ii) the amount of any deductions allocable to such properties reduced by the excess described in subparagraph (B) for such taxable year. "(D) PARAGRAPH APPLIED SEPARATELY WITH RESPECT TO GEOTHERMAL PROPERTIES AND OIL AND GAS PROPERTIES.—This

paragraph shall be applied separately with respect to— "(i) all oil and gas properties which are not described in clause (ii), and "(ii) all properties which are geothermal deposits (as defined in section 613(e)(3)). "(3) INCENTIVE STOCK OPTIONS.—

"(A) IN GENERAL.—With respect to the transfer of a share of stock pursuant to the exercise of an incentive stock option (as defined in section 422A), the amount by which the fair market value of the share at the time of exercise exceeds the option price. For purposes of this paragraph, the fair market value of a share of stock shall be determined without regard to any restriction other than a restriction which, by its terms, will never lapse. "(B) BASIS ADJUSTMENT.—In determining the amount of

gain or loss recognized for purposes of this part on any disposition of a share of stock acquired pursuant to an exercise (in a taxable year beginning after December 31, 1986) of an incentive stock option, the basis of such stock shall be increased by the amount of the excess referred to in subparagraph (A). "(4) RESERVES FOR LOSSES ON BAD DEBTS OF FINANCIAL INSTITU-

TIONS.—In the case of a financial institution to which section 585 or 593 applies, the amount by which the deduction allowable for the taxable year for a reasonable addition to a reserve for bad debts exceeds the amount that would have been allowable had the institution maintained its bad debt reserve for all taxable years on the beisis of actual experience. "(5) TAX-EXEMPT INTEREST.—

"(A) IN GENERAL.—Interest on specified private activity bonds reduced by any deduction (not allowable in computing the regular tax) which would have been allowable if such interest were includible in gross income. "(B) TREATMENT OF EXEMPT-INTEREST DIVIDENDS.—Under

regulations prescribed by the Secretary, any exempt-interest dividend (as defined in section 852(b)(5)(A)) shall be treated as interest on a specified private activity bond to the extent of its proportionate share of the interest on such bonds received by the company paying such dividend. "(C) SPECIFIED PRIVATE ACTIVITY BONDS.—

"(i) IN GENERAL.—For purposes of this part, the term 'specified private activity bonds' means any private activity bond (as defined in section 141) issued after August 7, 1986. "(ii) EXCEPTION FOR QUALIFIED 501 (C)(3) BONDS.—For

purposes of clause (i), the term 'private activity bond' shall not include any qualified 501(c)(3) bond (as defined in section 145). "(iii) EXCEPTION FOR REFUNDINGS.—For purposes of clause (i), the term 'private activity bond' shall not include any refunding bond if the refunded bond (or in

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