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Abstract
Proposed regulations, under Section 593, provide rational and relatively comprehensive guidelines for the recapture of a thrift's bad-debt reserves upon conversion to a commercial bank or failure to meet the requirements of Section 593, assuming that one accepts the IRS' underlying premise that a change in method of accounting has occurred. Furthermore, by permitting former thrifts to use the cutoff method of Section 585(c)(2) to recapture their hypothetical bank reserves, the proposed regulations may make it possible for many thrifts to defer a substantial portion of the total recapture tax liability for an extended period. Unless and until a resolution of the financial statement problem can be crafted, however, it seems unlikely that many large and well-established thrifts will be able to afford the charge to earnings and capital that would result from a conversion to commercial bank charter.