Rev. Rul. 68-524

The taxpayer, a corporation incorporated only under the laws of a foreign country, is licensed by the State of X to operate as a bank and is, in fact, engaged in a banking business in that State. The taxpayer employs the reserve method of accounting for its had debts.

Revenue Ruling 65-92, C.B. 1965-1, 112, provides a special method for computing the annual additions to the reserve for bad debts of banks as defined therein. Section 8.01 of the Revenue Ruling defines a bank, in part, as one that is incorporated under the laws of the United States (including laws relating to the District of Columbia), of any State, or of any Territory. Likewise, for purposes of section 582 of the Internal Revenue Code of 1954, relating to bad debt and loss deductions with respect to securities held by banks, section 581 of the Code defines a bank, in part, as one that is incorporated under the laws of the United States (including laws relating to the District of Columbia), of any State, or of any Territory.

Held, provided the taxpayer is engaged in the banking business in that State and otherwise qualifies as a bank under Revenue Ruling 65-92, it may compute the addition to its reserve for bad debts for taxable years ending prior to January 1, 1967, under the provisions of that Revenue Ruling with respect to loans the interest on which is from sources within the United States even though it is not incorporated under the laws of the United States. For taxable years ending after December 31, 1966, such taxpayer may compute the addition to its reserve for bad debts under Revenue Ruling 65-92 with respect to loans the interest on which is effectively connected with the conduct of a banking business within the United States. See section 882 of the Code.

Revenue Ruling 65-92 is therefore modified to remove the requirement in section 8.01 that a bank be incorporated under the laws of the United States (including laws relating to the District of Columbia), of any State, or of any Territory.

G.C.M. 25605, C.B. 1948-1, 38 (as modified by Revenue Ruling 65-92) and Revenue Ruling 66-26, C.B. 1966-1, 41, to the extent that they permit all banks computing a bad debt reserve under Revenue Ruling 65-92, and its predecessors, to create a separate reserve for any debt evidenced by a security, are modified to preclude such treatment to a bank not coming within the definition provided in section 581 of the Code.

Thus, the taxpayer, a bank incorporated only under the laws of a foreign country, may not maintain any reserve for a debt which is evidenced by a security.