interest
(1) Financial institution preference item The term “financial institution preference item” includes the following: [(A) Repealed. Pub. L. 101–508, title XI, § 11801(c)(12)(B) , Nov. 5, 1990 , 104 Stat. 1388–527 ] (B) Interest on debt to carry tax-exempt obligations acquired after December 31, 1982 , and before August 8, 1986 (i) In general In the case of a financial institution which is a bank (as defined in section 585(a)(2) ), the amount of interest on indebtedness incurred or continued to purchase or carry obligations acquired after December 31, 1982 , and before August 8, 1986 , the interest on which is exempt from taxes for the taxable year, to the extent that a deduction would (but for this paragraph or section 265(b) ) be allowable with respect to such interest for such taxable year. (ii) Determination of interest allocable to indebtedness on tax-exempt obligations Unless the taxpayer (under regulations prescribed by the Secretary) establishes otherwise, the amount determined under clause (i) shall be an amount which bears the same ratio to the aggregate amount allowable (determined without regard to this section and section 265(b) ) to the taxpayer as a deduction for interest for the taxable year as— (I) the taxpayer’s average adjusted basis (within the meaning of section 1016) of obligations described in clause (i), bears to (II) such average adjusted basis for all assets of the taxpayer. (iii) Interest For purposes of this subparagraph, the term “interest” includes amounts (whether or not designated as interest) paid in respect of deposits, investment certificates, or withdrawable or repurchasable shares. (iv) Application of subparagraph to certain obligations issued after August 7, 1986 For application of this subparagraph to certain obligations issued after August 7, 1986 , see section 265(b)(3). That portion of any obligation not taken into account under paragraph (2)(A) of section 265(b) by reason of paragraph (7) of such section shall be treated for purposes of this section as having been acquired on August 7, 1986 .