Revises provisions concerning treatment of controlled foreign corporations, including: (1) expanding the de minimis rule; (2) excluding from the definition of "foreign base company oil related income" the pipeline transportation of oil or gas within such foreign country; (3) repealing rules applicable to foreign personal holding companies and foreign investment companies; and (4) amending the definition of foreign personal holding company income to include income from certain personal services contracts and sale of such contracts.
Sets forth provisions concerning foreign tax credit, including: (1) extending the period in which excess foreign taxes may be carried; (2) defining overall domestic loss and setting forth provisions for determining taxable income for any taxpayer sustaining such a loss; (3) issuing special rules relating to financial services income; (4) dictating rules for the treatment of dividends from certain corporations and extending the look-through treatment for such corporations; (5) extending the carryforward period for foreign tax credits; (6) repealing the limitation of such credits under the alternative minimum tax; and (7) eliminating limitation on such credits with regard to oil or gas extraction taxes.
Makes other revisions, including: (1) expanding the deduction for dividends from foreign corporations with U.S. income; (2) exempting certain foreign corporations from uniform capitalization rules; (3) setting forth provisions concerning airline mileage awards to certain foreign persons; and (4) repealing the special capital gains tax on nonresident aliens.
Permits, for interest allocation rule purposes, treating each electing worldwide affiliated group as an affiliated group, subject to exceptions.
Makes permanent the subpart F exception for active income financing (presently, the exception expires for taxable years beginning after December 31, 2006).
Repeals provisions of the FSC Repeal and Extraterritorial Income Exclusion Act of 2000 (which amended the Code) which, subject to exception, excluded from extraterritorial income from gross income.
[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4151 Introduced in House (IH)]
107th CONGRESS
2d Session
H. R. 4151
To amend the Internal Revenue Code of 1986 to simplify certain rules
relating to the taxation of United States businesses operating abroad,
and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
April 10, 2002
Mr. Houghton introduced the following bill; which was referred to the
Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to simplify certain rules
relating to the taxation of United States businesses operating abroad,
and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Fairness,
Simplification and Competitiveness for American Business Act of 2002''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressed in
terms of an amendment to, or repeal of, a section or other provision,
the reference shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; amendment of 1986 Code; table of contents.
TITLE I--TREATMENT OF CONTROLLED FOREIGN CORPORATIONS
Sec. 101. Expansion of de minimis rule under subpart F.
Sec. 102. Clarification of treatment of pipeline transportation income.
Sec. 103. Look-through treatment for sales of partnership interests.
Sec. 104. Repeal of foreign personal holding company rules and foreign
investment company rules.
Sec. 105. Determination of foreign personal holding company income with
respect to transactions in commodities.
Sec. 106. Study of proper treatment of European Union under same
country exceptions.
Sec. 107. Effective date.
TITLE II--PROVISIONS RELATING TO FOREIGN TAX CREDIT
Sec. 201. Recharacterization of overall domestic loss.
Sec. 202. Special rules relating to financial services income.
Sec. 203. Look-thru rules to apply to dividends from noncontrolled
section 902 corporations.
Sec. 204. Application of look-thru rules to foreign tax credit.
Sec. 205. Ordering rules for foreign tax credit carryovers; 10-year
carryforward.
Sec. 206. Repeal of limitation of foreign tax credit under alternative
minimum tax.
Sec. 207. Attribution of stock ownership through partnerships to apply
in determining section 902 and 960 credits.
Sec. 208. Repeal of special rules for applying foreign tax credit in
case of foreign oil and gas income.
TITLE III--OTHER PROVISIONS
Sec. 301. Deduction for dividends received from certain foreign
corporations.
Sec. 302. Application of uniform capitalization rules to foreign
persons.
Sec. 303. United States property not to include certain assets acquired
by dealers in ordinary course of trade or
business.
Sec. 304. Treatment of certain dividends of regulated investment
companies.
Sec. 305. Airline mileage awards to certain foreign persons.
Sec. 306. Interest payments deductible where disqualified guarantee has
economic effect.
Sec. 307. Modifications of reporting requirements for certain foreign-
owned corporations.
Sec. 308. Election not to use average exchange rate for foreign tax
paid other than in functional currency.
Sec. 309. Repeal of special capital gains tax on aliens present in the
United States for 183 days or more.
Sec. 310. Repeal of withholding tax on dividends from certain foreign
corporations.
Sec. 311. Interest allocation rules.
Sec. 312. Permanent extension of Subpart F exemption for active
financing.
Sec. 313. Repeal of treatment of extraterritorial income.
TITLE I--TREATMENT OF CONTROLLED FOREIGN CORPORATIONS
SEC. 101. EXPANSION OF DE MINIMIS RULE UNDER SUBPART F.
(a) In General.--Clause (ii) of section 954(b)(3)(A) (relating to
de minimis, etc., rules) is amended by striking ``$1,000,000'' and
inserting ``$5,000,000''.
(b) Technical Amendments.--
(1) Clause (ii) of section 864(d)(5)(A) is amended by
striking ``$1,000,000'' and inserting ``$5,000,000''.
(2) Clause (i) of section 881(c)(5)(A) is amended by
striking ``$1,000,000'' and inserting ``$5,000,000''.
SEC. 102. CLARIFICATION OF TREATMENT OF PIPELINE TRANSPORTATION INCOME.
Section 954(g)(1) (defining foreign base company oil related
income) is amended by striking ``or'' at the end of subparagraph (A),
by striking the period at the end of subparagraph (B) and inserting ``,
or'', and by inserting after subparagraph (B) the following new
subparagraph:
``(C) the pipeline transportation of oil or gas
within such foreign country.''
SEC. 103. LOOK-THROUGH TREATMENT FOR SALES OF PARTNERSHIP INTERESTS.
(a) In General.--Section 954(c) (defining foreign personal holding
company income) is amended by adding at the end the following new
paragraph:
``(4) Look-through rule for certain partnership sales.--
``(A) In general.--In the case of any sale by a
controlled foreign corporation of an interest in a
partnership with respect to which such corporation is a
25-percent owner, such corporation shall be treated for
purposes of this subsection as selling the
proportionate share of the assets of the partnership
attributable to such interest.
``(B) 25-percent owner.--For purposes of this
paragraph, the term `25-percent owner' means a
controlled foreign corporation which owns 25 percent or
more of the capital or profits interest in the
partnership. The constructive ownership rules of
section 958(b) shall apply for purposes of the
preceding sentence.''
(b) Conforming Amendment.--Section 954(c)(1)(B)(ii) is amended by
inserting ``except as provided in paragraph (4),'' before ``which''.
SEC. 104. REPEAL OF FOREIGN PERSONAL HOLDING COMPANY RULES AND FOREIGN
INVESTMENT COMPANY RULES.
(a) General Rule.--The following provisions are hereby repealed:
(1) Part III of subchapter G of chapter 1 (relating to
foreign personal holding companies).
(2) Section 1246 (relating to gain on foreign investment
company stock).
(3) Section 1247 (relating to election by foreign
investment companies to distribute income currently).
(b) Exemption of Foreign Corporations From Personal Holding Company
Rules.--
(1) In general.--Subsection (c) of section 542 (relating to
exceptions) is amended--
(A) by striking paragraph (5) and inserting the
following:
``(5) a foreign corporation,'',
(B) by striking paragraphs (7) and (10) and by
redesignating paragraphs (8) and (9) as paragraphs (7)
and (8), respectively,
(C) by inserting ``and'' at the end of paragraph
(7) (as so redesignated), and
(D) by striking ``; and'' at the end of paragraph
(8) (as so redesignated) and inserting a period.
(2) Treatment of income from personal service contracts.--
Paragraph (1) of section 954(c) is amended by adding at the end
the following new subparagraph:
``(H) Personal service contracts.--
``(i) Amounts received under a contract
under which the corporation is to furnish
personal services; if some person other than
the corporation has the right to designate (by
name or by description) the individual who is
to perform the services, or if the individual
who is to perform the services is designated
(by name or by description) in the contract;
and
``(ii) amounts received from the sale or
other disposition of such a contract.
This subparagraph shall apply with respect to amounts
received for services under a particular contract only
if at some time during the taxable year 25 percent or
more in value of the outstanding stock of the
corporation is owned, directly or indirectly, by or for
the individual who has performed, is to perform, or may
be designated (by name or by description) as the one to
perform, such services.''
(c) Conforming Amendments.--
(1) Paragraph (2) of section 171(c) is amended--
(A) by striking ``, or by a foreign personal
holding company, as defined in section 552'', and
(B) by striking ``, or a foreign personal holding
company''.
(2) Paragraph (2) of section 245(a) is amended by striking
``foreign personal holding company or''
(3) Section 312 is amended by striking subsection (j).
(4) Subsection (m) of section 312 is amended by striking
``, a foreign investment company (within the meaning of section
1246(b)), or a foreign personal holding company (within the
meaning of section 552)''.
(5) Subsection (e) of section 443 is amended by striking
paragraph (3) and by redesignating paragraphs (4) and (5) as
paragraphs (3) and (4), respectively.
(6) Subparagraph (B) of section 465(c)(7) is amended to by
adding ``or'' at the end of clause (i), by striking clause
(ii), and by redesignating clause (iii) as clause (ii).
(7) Paragraph (1) of section 543(b) is amended by inserting
``and'' at the end of subparagraph (A), by striking ``, and''
at the end of subparagraph (B) and inserting a period, and by
striking subparagraph (C).
(8) Paragraph (1) of section 562(b) is amended by striking
``or a foreign personal holding company described in section
552''.
(9) Section 563 is amended--
(A) by striking subsection (c),
(B) by redesignating subsection (d) as subsection
(c), and
(C) by striking ``subsection (a), (b), or (c)'' in
subsection (c) (as so redesignated) and inserting
``subsection (a) or (b)''.
(10) Subsection (d) of section 751 is amended by adding
``and'' at the end of paragraph (2), by striking paragraph (3),
by redesignating paragraph (4) as paragraph (3), and by
striking ``paragraph (1), (2), or (3)'' in paragraph (3) (as so
redesignated) and inserting paragraph (1) or (2)''.
(11) Paragraph (2) of section 864(d) is amended by striking
subparagraph (A) and by redesignating subparagraphs (B) and (C)
as subparagraphs (A) and (B), respectively.
(12)(A) Subparagraph (A) of section 898(b)(1) is amended to
read as follows:
``(A) which is treated as a controlled foreign
corporation for any purpose under subpart F of part III
of this subchapter, and''.
(B) Subparagraph (B) of section 898(b)(2) is amended by
striking ``and sections 551(f) and 554, whichever are
applicable,''.
(C) Paragraph (3) of section 898(b) is amended to read as
follows:
``(3) United states shareholder.--The term `United States
shareholder' has the meaning given to such term by section
951(b), except that, in the case of a foreign corporation
having related person insurance income (as defined in section
953(c)(2)), the Secretary may treat any person as a United
States shareholder for purposes of this section if such person
is treated as a United States shareholder under section
953(c)(1).''
(D) Subsection (c) of section 898 is amended to read as
follows:
``(c) Determination of Required Year.--
``(1) In general.--The required year is--
``(A) the majority U.S. shareholder year, or
``(B) if there is no majority U.S. shareholder
year, the taxable year prescribed under regulations.
``(2) 1-month deferral allowed.--A specified foreign
corporation may elect, in lieu of the taxable year under
paragraph (1)(A), a taxable year beginning 1 month earlier than
the majority U.S. shareholder year.
``(3) Majority u.s. shareholder year.--
``(A) In general.--For purposes of this subsection,
the term `majority U.S. shareholder year' means the
taxable year (if any) which, on each testing day,
constituted the taxable year of--
``(i) each United States shareholder
described in subsection (b)(2)(A), and
``(ii) each United States shareholder not
described in clause (i) whose stock was treated
as owned under subsection (b)(2)(B) by any
shareholder described in such clause.
``(B) Testing day.--The testing days shall be--
``(i) the first day of the corporation's
taxable year (determined without regard to this
section), or
``(ii) the days during such representative
period as the Secretary may prescribe.''
(13) Clause (ii) of section 904(d)(2) is amended to read as
follows:
``(ii) Certain amounts included.--Except as
provided in clause (iii), the term `passive
income' includes, except as provided in
subparagraph (E)(iii) or paragraph (3)(I), any
amount includible in gross income under section
1293 (relating to certain passive foreign
investment companies).''
(14)(A) Subparagraph (A) of section 904(g)(1) is amended by
adding ``or'' at the end of clause (i), by striking clause
(ii), and by redesignating clause (iii) as clause (ii).
(B) The paragraph heading of paragraph (2) of section
904(g) is amended by striking ``foreign personal holding or''.
(15) Section 951 is amended by striking subsections (c) and
(d) and by redesignating subsections (e) and (f) as subsections
(c) and (d), respectively.
(16) Paragraph (3) of section 989(b) is amended by striking
``, 551(a),''.
(17) Paragraph (5) of section 1014(b) is hereby repealed.
(18) Subsection (a) of section 1016 is amended by striking
paragraph (13) and by redesignating the following paragraphs
accordingly.
(19)(A) Paragraph (3) of section 1212(a) is amended to read
as follows:
``(3) Special rules on carrybacks.--A net capital loss of a
corporation shall not be carried back under paragraph (1)(A) to
a taxable year--
``(A) for which it is a regulated investment
company (as defined in section 851), or
``(B) for which it is a real estate investment
trust (as defined in section 856).''
(B) The amendment made by subparagraph (A) shall apply to
taxable years beginning after December 31, 2004.
(20) Section 1223 is amended by striking paragraph (10) and
by redesignating the following paragraphs accordingly.
(21) Subsection (d) of section 1248 is amended by striking
paragraph (5) and by redesignating paragraphs (6) and (7) as
paragraphs (5) and (6), respectively.
(22) Paragraph (2) of section 1260(c) is amended by
striking subparagraphs (H) and (I) and by redesignating
subparagraph (J) as subparagraph (H).
(23) Subparagraph (F) of section 1291(b)(3) is amended by
striking ``551(d), 959(a),'' and inserting ``959(a)''.
(24) Paragraph (2) of section 1294(a) is amended to read as
follows:
``(2) Election not permitted where amounts otherwise
includible under section 951.--The taxpayer may not make an
election under paragraph (1) with respect to the undistributed
PFIC earnings tax liability attributable to a qualified
electing fund for the taxable year if any amount is includible
in the gross income of the taxpayer under section 951 with
respect to such fund for such taxable year.''
(25) Section 6035 is hereby repealed.
(26) Subparagraph (D) of section 6103(e)(1) is amended by
striking clause (iv) and redesignating clauses (v) and (vi) as
clauses (iv) and (v), respectively.
(27) Subparagraph (B) of section 6501(e)(1) is amended to
read as follows:
``(B) Constructive dividends.--If the taxpayer
omits from gross income an amount properly includible
therein under section 951(a), the tax may be assessed,
or a proceeding in court for the collection of such tax
may be done without assessing, at any time within 6
years after the return was filed.''
(28) Subsection (a) of section 6679 is amended--
(A) by striking ``6035, 6046, and 6046A'' in
paragraph (1) and inserting ``6046 and 6046A'', and
(B) by striking paragraph (3).
(29) Sections 170(f)(10)(A), 508(d), 4947 and section
4948(c)(4) are each amended by striking ``556(b)(2),'' each
place it appears.
(30) The table of parts for subchapter G of chapter 1 is
amended by striking the item relating to part III.
(31) The table of sections for part IV of subchapter P of
chapter 1 is amended by striking the items relating to sections
1246 and 1247.
(32) The table of sections for subpart A of part III of
subchapter A of chapter 61 of such Code is amended by striking
the item relating to section 6035.
SEC. 105. DETERMINATION OF FOREIGN PERSONAL HOLDING COMPANY INCOME WITH
RESPECT TO TRANSACTIONS IN COMMODITIES.
(a) In General.--Clauses (i) and (ii) of section 954(c)(1)(C)
(relating to commodity transactions) are amended to read as follows:
``(i) arise out of commodity hedging
transactions (as defined in paragraph (5)(A)),
``(ii) are active business gains or losses
from the sale of commodities, but only if
substantially all of the controlled foreign
corporation's commodities are property
described in paragraph (1), (2) or (8) of
section 1221(a), or''.
(b) Definition and Special Rules.--Subsection (c) of section 954 is
amended by adding after paragraph (4) the following new paragraph:
``(5) Definition and special rules relating to commodity
transactions.--
``(A) Commodity hedging transactions.--For purposes
of paragraph (1)(C)(i), the term `commodity hedging
transaction' means any transaction with respect to a
commodity if such transaction--
``(i) is a hedging transaction as defined
in section 1221(b)(2), determined--
``(I) without regard to
subparagraph (A)(ii) thereof,
``(II) by applying subparagraph
(A)(i) thereof by substituting
`ordinary property or property
described in section 1231(b)' for
`ordinary property', and
``(III) by substituting 'controlled
foreign corporation' for `taxpayer'
each place it appears, and
``(ii) is clearly identified as such in
accordance with section 1221(a)(7).
``(B) Regulations.--The Secretary shall prescribe
such regulations as are appropriate to carry out the
purposes of paragraph (1)(C) in the case of
transactions involving related parties.''
(c) Effective Date.--The amendments made by this section shall
apply to commodity hedging transactions entered into on or after the
date of enactment of this Act.
SEC. 106. STUDY OF PROPER TREATMENT OF EUROPEAN UNION UNDER SAME
COUNTRY EXCEPTIONS.
(a) Study.--The Secretary of the Treasury or the Secretary's
delegate shall conduct a study on the feasibility of treating all
countries included in the European Union as 1 country for purposes of
applying the same country exceptions under subpart F of part III of
subchapter N of chapter 1 of the Internal Revenue Code of 1986. Such
study shall include consideration of methods of ensuring that taxpayers
are subject to a substantial effective rate of foreign tax in such
countries if such treatment is adopted.
(b) Report.--Not later than 6 months after the date of the
enactment of this Act, the Secretary of the Treasury shall report to
the Committee on Ways and Means of the House of Representatives and the
Committee on Finance of the Senate the results of the study conducted
under subsection (a), including recommendations (if any) for
legislation.
SEC. 107. EFFECTIVE DATE.
Except as otherwise provided in this title, the amendments made by
this title shall apply to taxable years of foreign corporations
beginning after December 31, 2002, and taxable years of United States
persons owning stock in such corporations with or within which such
corporations' taxable years end.
TITLE II--PROVISIONS RELATING TO FOREIGN TAX CREDIT
SEC. 201. RECHARACTERIZATION OF OVERALL DOMESTIC LOSS.
(a) General Rule.--Section 904 is amended by redesignating
subsections (g), (h), (i), (j), and (k) as subsections (h), (i), (j),
(k), and (l) respectively, and by inserting after subsection (f) the
following new subsection:
``(g) Recharacterization of Overall Domestic Loss.--
``(1) General rule.--For purposes of this subpart, in the
case of any taxpayer who sustains an overall domestic loss for
any taxable year beginning after December 31, 2002, that
portion of the taxpayer's taxable income from sources within
the United States for each succeeding taxable year which is
equal to the lesser of--
``(A) the amount of such loss (to the extent not
used under this paragraph in prior taxable years), or
``(B) 50 percent of the taxpayer's taxable income
from sources within the United States for such
succeeding taxable year,
shall be treated as income from sources without the United
States (and not as income from sources within the United
States).
``(2) Overall domestic loss defined.--For purposes of this
subsection and section 936--
``(A) In general.--The term `overall domestic loss'
means any domestic loss to the extent such loss offsets
taxable income from sources without the United States
for the taxable year or for any preceding taxable year
by reason of a carryback. For purposes of the preceding
sentence, the term `domestic loss' means the amount by
which the gross income for the taxable year from
sources within the United States is exceeded by the sum
of the deductions properly apportioned or allocated
thereto (determined without regard to any carryback
from a subsequent taxable year).
``(B) Taxpayer must have elected foreign tax credit
for year of loss.--The term `overall domestic loss'
shall not include any loss for any taxable year unless
the taxpayer chose the benefits of this subpart for
such taxable year.
``(3) Characterization of subsequent income.--
``(A) In general.--Any income from sources within
the United States that is treated as income from
sources without the United States under paragraph (1)
shall be allocated among and increase the income
categories in proportion to the loss from sources
within the United States previously allocated to those
income categories.
``(B) Income category.--For purposes of this
paragraph, the term `income category' has the meaning
given such term by subsection (f)(5)(E)(i).
``(4) Coordination with subsection (f).--The Secretary
shall prescribe such regulations as may be necessary to
coordinate the provisions of this subsection with the
provisions of subsection (f).''
(b) Conforming Amendments.--
(1) Section 535(d)(2) is amended by striking ``section
904(g)(6)'' and inserting ``section 904(h)(6)''.
(2) Subparagraph (A) of section 936(a)(2) is amended by
striking ``section 904(f)'' and inserting ``subsections (f) and
(g) of section 904''.
(c) Effective Date.--The amendments made by this section shall
apply to losses for taxable years beginning after December 31, 2002.
SEC. 202. SPECIAL RULES RELATING TO FINANCIAL SERVICES INCOME.
(a) Exception for Interest on Certain Securities.--Section
904(d)(2)(B) (relating to high withholding tax interest) is amended by
redesignating clause (iii) as clause (iv) and by inserting after clause
(ii) the following new clause:
``(iii) Exception for interest on dealer
property.--The term `high withholding tax
interest' shall not include any interest on a
security (within the meaning of section
475(c)(2)) which is received or accrued by a
person that holds the security in connection
with the holder's activities as a dealer in
securities (within the meaning of section
475(c)(1)).''
(b) Financial Services Income in Excess of 80 Percent of Gross
Income.--Section 904(d)(2)(C) (relating to financial services income)
is amended by adding at the end the following new clause:
``(iv) Income exceeding 80 percent of gross
income.--If the financial services income (as
defined in clause (i)) of any person exceeds 80
percent of gross income, the entire gross
income for the taxable year shall be treated as
financial services income.''
(c) Exception for Income on Dealer Property.--Subsection 904(g)
(relating to source rules in case of United States-owned foreign
corporations) is amended by redesignating paragraph (11) as paragraph
(12) and by adding after paragraph (10) the following new paragraph:
``(11) Exception for income on dealer property.--Paragraph
(1) shall not apply to any amount derived from a United States-
owned foreign corporation that is derived from income on a
security (within the meaning of section 475(c)(2)) which is
received or accrued by a person that holds the security in
connection with the holder's activities as a dealer in
securities (within the meaning of section 475(c)(1)).''
(d) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
(2) Deemed paid credits.--In the case of any credit under
section 901 of the Internal Revenue Code of 1986 by reason of
section 902 or 960 of such Code, the amendments made by this
section shall apply to taxable years of foreign corporations
beginning after December 31, 2002, and to taxable years of
United States shareholders in such corporations with or within
which such taxable years of foreign corporations end.
SEC. 203. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM NONCONTROLLED
SECTION 902 CORPORATIONS.
(a) In General.--Section 904(d)(4) (relating to look-thru rules
apply to dividends from noncontrolled section 902 corporations) is
amended to read as follows:
``(4) Look-thru applies to dividends from noncontrolled
section 902 corporations.--
``(A) In general.--For purposes of this subsection,
any dividend from a noncontrolled section 902
corporation with respect to the taxpayer shall be
treated as income in a separate category in proportion
to the ratio of--
``(i) the portion of earnings and profits
attributable to income in such category, to
``(ii) the total amount of earnings and
profits.
``(B) Special rules.--For purposes of this
paragraph--
``(i) In general.--Rules similar to the
rules of paragraph (3)(F) shall apply.
``(ii) Earnings and profits.--
``(I) In general.--The rules of
section 316 shall apply.
``(II) Regulations.--The Secretary
may prescribe regulations regarding the
treatment of distributions out of
earnings and profits for periods before
the taxpayer's acquisition of the stock
to which the distributions relate.
``(iii) Dividends not allocable to separate
category.--The portion of any dividend from a
noncontrolled section 902 corporation which is
not treated as income in a separate category
under subparagraph (A) shall be treated as a
dividend to which subparagraph (A) does not
apply.
``(iv) Look-thru with respect to
carryforwards of credit.--Rules similar to
subparagraph (A) also shall apply to any
carryforward under subsection (c) from a
taxable year beginning before January 1, 2002,
of tax allocable to a dividend from a
noncontrolled section 902 corporation with
respect to the taxpayer.''.
(b) Conforming Amendments.--
(1) Subparagraph (E) of section 904(d)(1), as in effect
both before and after the amendments made by section 1105 of
the Taxpayer Relief Act of 1997, is hereby repealed.
(2) Section 904(d)(2)(C)(iii), as so in effect, is amended
by striking subclause (II) and by redesignating subclause (III)
as subclause (II).
(3) The last sentence of section 904(d)(2)(D), as so in
effect, is amended to read as follows: ``Such term does not
include any financial services income.''
(4) Section 904(d)(2)(E) is amended by striking clauses
(ii) and (iv) and by redesignating clause (iii) as clause (ii).
(5) Section 904(d)(3)(F) is amended by striking ``(D), or
(E)'' and inserting ``or (D)''.
(6) Section 864(d)(5)(A)(i) is amended by striking
``(C)(iii)(III)'' and inserting ``(C)(iii)(II)''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2001.
SEC. 204. APPLICATION OF LOOK-THRU RULES TO FOREIGN TAX CREDIT.
(a) Interest, Rents, and Royalties.--
(1) Noncontrolled section 902 corporation.--Section
904(d)(4)(A), as amended by section 203, is amended to read as
follows:
``(A) In general.--For purposes of this
subsection--
``(i) any applicable dividend shall be
treated as income in a separate category in
proportion to the ratio of--
``(I) the portion of the earnings
and profits attributable to income in
such category, to
``(II) the total amount of earnings
and profits, and
``(ii) any interest, rent, or royalty which
is received or accrued from a noncontrolled
section 902 corporation with respect to the
taxpayer shall be treated as income in a
separate category to the extent it is properly
allocable (under regulations prescribed by the
Secretary) to income of such corporation in
such category.''
(2) Partnerships.--Section 904(d)(6)(C) (relating to
regulations) is amended--
(A) by inserting ``or (4)(A)(ii)'' after
``paragraph (3)(C)'', and
(B) by inserting ``or noncontrolled section 902
corporations, whichever is applicable'' after
``controlled foreign corporations''.
(3) Conforming amendment.--The heading for section
904(d)(4), as amended by section 203, is amended by inserting
``, interest, rents, or royalties'' after ``dividends''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
SEC. 205. ORDERING RULES FOR FOREIGN TAX CARRYOVERS; 10-YEAR
CARRYFORWARD.
(a) In General.--Section 904(c) (relating to carryback and
carryover of excess tax paid) is amended to read as follows:
``(c) Carryback and Carryforward of Excess Foreign Taxes.--
``(1) Carryforwards used first.--If, for any taxable year
for which the taxpayer elects to have the benefits of this
subpart apply, the sum of--
``(A) the foreign tax carryforwards under this
subsection to such taxable year, and
``(B) the amount of foreign taxes paid or accrued
for the taxable year,
exceeds the limitation under subsection (a), such excess (to
the extent attributable to the taxes described in subparagraph
(B)) shall be a foreign tax carryback to each of the 2
preceding taxable years and a foreign tax carryforward to each
of the 10 following taxable years.
``(2) Amounts carried to earliest years.--The entire amount
of the excess described in paragraph (1) for any taxable year
shall be carried to the earliest of the 12 taxable years to
which (by reason of paragraph (1)) such excess may be carried.
The amount of such excess shall be carried to each of the other
11 taxable years to the extent that such excess may not be
taken into account under subsection (a) for a prior taxable
year because of the limitations of paragraph (3).
``(3) Ordering rules.--For purposes of determining under
this subsection whether foreign taxes are taken into account
for a taxable year or as a carryback or carryforward, such
taxes shall be treated as taken into account in the order of
the taxable years in which such taxes were actually paid or
accrued, beginning with the earliest such year.
``(4) Limitations.--
``(A) Carrybacks used last.--The excess described
in paragraph (1) for any taxable year (hereafter in
this paragraph referred to as the `current taxable
year') which is carried to any preceding taxable year
shall not exceed the amount by which the limitation
under subsection (a) for such preceding taxable year
exceeds the sum of--
``(i) the foreign taxes paid or accrued for
such preceding taxable year, and
``(ii) the amount of the foreign taxes paid
or accrued for any taxable year earlier than
the current taxable year which have been
carried to such preceding taxable year (whether
or not the taxpayer chooses to have the
benefits of this subpart with respect to such
earlier taxable year).
``(B) Credit only.--Taxes may be carried to a
taxable year under this subsection only if the taxpayer
chooses for such taxable year to have the benefits of
this subpart apply to foreign taxes paid or accrued for
such year. Any amount so carried may be availed of only
as a credit and not a deduction.
``(C) Carryforwards.--The excess described in
paragraph (1) for a taxable year which is carried to
any succeeding taxable year shall not exceed the amount
by which the limitation under subsection (a) for such
succeeding taxable year exceeds the sum of the amounts
which, by reason of this subsection, are carried to
such succeeding taxable year and are attributable to
taxable years preceding the taxable year of such
excess.
``(5) Foreign taxes.--For purposes of this subsection, the
term `foreign taxes' means taxes paid or accrued to foreign
countries or any possessions of the United States.''
(b) Effective Date.--The amendment made by this section shall apply
to taxes paid or accrued for taxable years beginning after December 31,
2002, and to carryforwards of taxes from taxable years beginning after
December 31, 1997.
SEC. 206. REPEAL OF LIMITATION OF FOREIGN TAX CREDIT UNDER ALTERNATIVE
MINIMUM TAX.
(a) In General.--Section 59(a) (relating to alternative minimum tax
foreign tax credit) is amended by striking paragraph (2) and by
redesignating paragraphs (3) and (4) as paragraphs (2) and (3),
respectively.
(b) Conforming Amendment.--Section 53(d)(1)(B)(i)(II) is amended by
striking ``and if section 59(a)(2) did not apply''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
SEC. 207. ATTRIBUTION OF STOCK OWNERSHIP THROUGH PARTNERSHIPS TO APPLY
IN DETERMINING SECTION 902 AND 960 CREDITS.
(a) In General.--Subsection (c) of section 902 is amended by
redesignating paragraph (7) as paragraph (8) and by inserting after
paragraph (6) the following new paragraph:
``(7) Constructive ownership through partnerships.--Stock
owned, directly or indirectly, by or for a partnership shall be
considered as being owned proportionately by its partners.
Stock considered to be owned by a person by reason of the
preceding sentence shall, for purposes of applying such
sentence, be treated as actually owned by such person. The
Secretary may prescribe such regulations as may be necessary to
carry out the purposes of this paragraph, including rules to
account for special partnership allocations of dividends,
credits, and other incidents of ownership of stock in
determining proportionate ownership.''
(b) Effective Date.--The amendment made by this section shall apply
to taxes of foreign corporations for taxable years of such corporations
beginning after December 31, 2002.
SEC. 208. REPEAL OF SPECIAL RULES FOR APPLYING FOREIGN TAX CREDIT IN
CASE OF FOREIGN OIL AND GAS INCOME.
(a) In General.--Section 907 (relating to special rules in case of
foreign oil and gas income) is repealed.
(b) Conforming Amendments.--
(1) Each of the following provisions are amended by
striking ``907,'':
(A) Section 245(a)(10).
(B) Section 865(h)(1)(B).
(C) Section 904(d)(1).
(D) Section 904(g)(10)(A).
(2) Section 904(f)(5)(E)(iii) is amended by inserting ``,
as in effect before its repeal by the Fairness, Simplification
and Competitiveness for American Business Act of 2002'' after
``section 907(c)(4)(B)''.
(3) Section 954(g)(1) is amended by inserting ``, as in
effect before its repeal by the Fairness, Simplification and
Competitiveness for American Business Act of 2002'' after
``907(c)''.
(4) Section 6501(i) is amended--
(A) by striking ``, or under section 907(f)
(relating to carryback and carryover of disallowed oil
and gas extraction taxes)'', and
(B) by striking ``or 907(f)''.
(5) The table of sections for subpart A of part III of
subchapter N of chapter 1 is amended by striking the item
relating to section 907.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
TITLE III--OTHER PROVISIONS
SEC. 301. DEDUCTION FOR DIVIDENDS RECEIVED FROM CERTAIN FOREIGN
CORPORATIONS.
(a) Constructive Ownership Rules To Apply in Determining 80-Percent
Ownership.--Section 245 (a)(5) (relating to post-1986 undistributed
U.S. earnings) is amended by adding at the end the following flush
sentence:
``Section 318(a) shall apply for purposes of subparagraph
(B).''
(b) Dividends To Include Subpart F Distributions.--Section 245(a)
(relating to dividends from 10-percent owned foreign corporations) is
amended by adding at the end the following new paragraph:
``(12) Subpart f inclusions treated as dividends.--For
purposes of this subsection, the term `dividend' shall include
any amount the taxpayer is required to include in gross income
for the taxable year under section 951(a).''
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
SEC. 302. APPLICATION OF UNIFORM CAPITALIZATION RULES TO FOREIGN
PERSONS.
(a) In General.--Section 263A(c) (relating to exceptions) is
amended by adding at the end the following new paragraph:
``(7) Foreign persons.--Except for purposes of applying
sections 871(b)(1) and 882(a)(1), this section shall not apply
to any taxpayer who is not a United States person if such
taxpayer capitalizes costs of produced property or property
acquired for resale by applying the method used to ascertain
the income, profit, or loss for purposes of reports or
statements to shareholders, partners, other proprietors, or
beneficiaries, or for credit purposes.''
(b) Effective Date.--The amendment made by subsection (a) shall
apply to taxable years beginning after December 31, 2002. Section 481
of the Internal Revenue Code of 1986 shall not apply to any change in a
method of accounting by reason of such amendment.
SEC. 303. UNITED STATES PROPERTY NOT TO INCLUDE CERTAIN ASSETS ACQUIRED
BY DEALERS IN ORDINARY COURSE OF TRADE OR BUSINESS.
(a) In General.--Section 956(c)(2) (relating to exceptions from
property treated as United States property) is amended by striking
``and'' at the end of subparagraph (J), by striking the period at the
end of subparagraph (K) and inserting ``; and'', and by adding at the
end the following new subparagraph:
``(L) securities acquired and held by a controlled
foreign corporation in the ordinary course of its
business as a dealer in securities if (i) the dealer
accounts for the securities as securities held
primarily for sale to customers in the ordinary course
of business, and (ii) the dealer disposes of the
securities (or such securities mature while held by the
dealer) within a period consistent with the holding of
securities for sale to customers in the ordinary course
of business.''
(b) Conforming Amendment.--Section 956(c)(2) is amended by striking
``and (K)'' in the last sentence and inserting ``, (K), and (L)''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after December
31, 2002, and to taxable years of United States shareholders with or
within which such taxable years of foreign corporations end.
SEC. 304. TREATMENT OF CERTAIN DIVIDENDS OF REGULATED INVESTMENT
COMPANIES.
(a) Treatment of Certain Dividends.--
(1) Nonresident alien individuals.--Section 871 (relating
to tax on nonresident alien individuals) is amended by
redesignating subsection (k) as subsection (l) and by inserting
after subsection (j) the following new subsection:
``(k) Exemption for Certain Dividends of Regulated Investment
Companies.--
``(1) Interest-related dividends.--
``(A) In general.--Except as provided in
subparagraph (B), no tax shall be imposed under
paragraph (1)(A) of subsection (a) on any interest-
related dividend received from a regulated investment
company.
``(B) Exceptions.--Subparagraph (A) shall not
apply--
``(i) to any interest-related dividend
received from a regulated investment company by
a person to the extent such dividend is
attributable to interest (other than interest
described in subparagraph (E) (i) or (iii))
received by such company on indebtedness issued
by such person or by any corporation or
partnership with respect to which such person
is a 10-percent shareholder,
``(ii) to any interest-related dividend
with respect to stock of a regulated investment
company unless the person who would otherwise
be required to deduct and withhold tax from
such dividend under chapter 3 receives a
statement (which meets requirements similar to
the requirements of subsection (h)(5)) that the
beneficial owner of such stock is not a United
States person, and
``(iii) to any interest-related dividend
paid to any person within a foreign country (or
any interest-related dividend payment addressed
to, or for the account of, persons within such
foreign country) during any period described in
subsection (h)(6) with respect to such country.
Clause (iii) shall not apply to any dividend with
respect to any stock which was acquired on or before
the date of the publication of the Secretary's
determination under subsection (h)(6).
``(C) Interest-related dividend.--For purposes of
this paragraph, an interest-related dividend is any
dividend (or part thereof) which is designated by the
regulated investment company as an interest-related
dividend in a written notice mailed to its shareholders
not later than 60 days after the close of its taxable
year. If the aggregate amount so designated with
respect to a taxable year of the company (including
amounts so designated with respect to dividends paid
after the close of the taxable year described in
section 855) is greater than the qualified net interest
income of the company for such taxable year, the
portion of each distribution which shall be an
interest-related dividend shall be only that portion of
the amounts so designated which such qualified net
interest income bears to the aggregate amount so
designated.
``(D) Qualified net interest income.--For purposes
of subparagraph (C), the term `qualified net interest
income' means the qualified interest income of the
regulated investment company reduced by the deductions
properly allocable to such income.
``(E) Qualified interest income.--For purposes of
subparagraph (D), the term `qualified interest income'
means the sum of the following amounts derived by the
regulated investment company from sources within the
United States:
``(i) Any amount includible in gross income
as original issue discount (within the meaning
of section 1273) on an obligation payable 183
days or less from the date of original issue
(without regard to the period held by the
company).
``(ii) Any interest includible in gross
income (including amounts recognized as
ordinary income in respect of original issue
discount or market discount or acquisition
discount under part V of subchapter P and such
other amounts as regulations may provide) on an
obligation which is in registered form; except
that this clause shall not apply to--
``(I) any interest on an obligation
issued by a corporation or partnership
if the regulated investment company is
a 10-percent shareholder in such
corporation or partnership, and
``(II) any interest which is
treated as not being portfolio interest
under the rules of subsection (h)(4).
``(iii) Any interest referred to in
subsection (i)(2)(A) (without regard to the
trade or business of the regulated investment
company).
``(iv) Any interest-related dividend
includable in gross income with respect to
stock of another regulated investment company.
``(F) 10-percent shareholder.--For purposes of this
paragraph, the term `10-percent shareholder' has the
meaning given such term by subsection (h)(3)(B).
``(2) Short-term capital gain dividends.--
``(A) In general.--Except as provided in
subparagraph (B), no tax shall be imposed under
paragraph (1)(A) of subsection (a) on any short-term
capital gain dividend received from a regulated
investment company.
``(B) Exception for aliens taxable under subsection
(a)(2).--In the case of dividends received from a
regulated investment company before January 1, 2003,
subparagraph (A) shall not apply in the case of any
nonresident alien individual subject to tax under
subsection (a)(2).
``(C) Short-term capital gain dividend.--For
purposes of this paragraph, a short-term capital gain
dividend is any dividend (or part thereof) which is
designated by the regulated investment company as a
short-term capital gain dividend in a written notice
mailed to its shareholders not later than 60 days after
the close of its taxable year. If the aggregate amount
so designated with respect to a taxable year of the
company (including amounts so designated with respect
to dividends paid after the close of the taxable year
described in section 855) is greater than the qualified
short-term gain of the company for such taxable year,
the portion of each distribution which shall be a
short-term capital gain dividend shall be only that
portion of the amounts so designated which such
qualified short-term gain bears to the aggregate amount so designated.
``(D) Qualified short-term gain.--For purposes of
subparagraph (C), the term `qualified short-term gain'
means the excess of the net short-term capital gain of
the regulated investment company for the taxable year
over the net long-term capital loss (if any) of such
company for such taxable year. For purposes of this
subparagraph--
``(i) the net short-term capital gain of
the regulated investment company shall be
computed by treating any short-term capital
gain dividend includible in gross income with
respect to stock of another regulated
investment company as a short-term capital
gain, and
``(ii) the excess of the net short-term
capital gain for a taxable year over the net
long-term capital loss for a taxable year (to
which an election under section 4982(e)(4) does
not apply) shall be determined without regard
to any net capital loss or net short-term
capital loss attributable to transactions after
October 31 of such year, and any such net
capital loss or net short-term capital loss
shall be treated as arising on the 1st day of
the next taxable year.
To the extent provided in regulations, clause (ii)
shall apply also for purposes of computing the taxable
income of the regulated investment company.''
(2) Foreign corporations.--Section 881 (relating to tax on
income of foreign corporations not connected with United States
business) is amended by redesignating subsection (e) as
subsection (f) and by inserting after subsection (d) the
following new subsection:
``(e) Tax Not To Apply to Certain Dividends of Regulated Investment
Companies.--
``(1) Interest-related dividends.--
``(A) In general.--Except as provided in
subparagraph (B), no tax shall be imposed under
paragraph (1) of subsection (a) on any interest-related
dividend (as defined in section 871(k)(1)) received
from a regulated investment company.
``(B) Exception.--Subparagraph (A) shall not
apply--
``(i) to any dividend referred to in
section 871(k)(1)(B), and
``(ii) to any interest-related dividend
received by a controlled foreign corporation
(within the meaning of section 957(a)) to the
extent such dividend is attributable to
interest received by the regulated investment
company from a person who is a related person
(within the meaning of section 864(d)(4)) with
respect to such controlled foreign corporation.
``(C) Treatment of dividends received by controlled
foreign corporations.--The rules of subsection
(c)(5)(A) shall apply to any interest-related dividend
received by a controlled foreign corporation (within
the meaning of section 957(a)) to the extent such
dividend is attributable to interest received by the
regulated investment company which is described in
clause (ii) of section 871(k)(1)(E) (and not described
in clause (i) or (iii) of such section).
``(2) Short-term capital gain dividends.--No tax shall be
imposed under paragraph (1) of subsection (a) on any short-term
capital gain dividend (as defined in section 871(k)(2))
received from a regulated investment company.''
(3) Withholding taxes.--
(A) Section 1441(c) (relating to exceptions) is
amended by adding at the end the following new
paragraph:
``(12) Certain dividends received from regulated investment
companies.--
``(A) In general.--No tax shall be required to be
deducted and withheld under subsection (a) from any
amount exempt from the tax imposed by section
871(a)(1)(A) by reason of section 871(k).
``(B) Special rule.--For purposes of subparagraph
(A), clause (i) of section 871(k)(1)(B) shall not apply
to any dividend unless the regulated investment company
knows that such dividend is a dividend referred to in
such clause. A similar rule shall apply with respect to
the exception contained in section 871(k)(2)(B).''
(B) Section 1442(a) (relating to withholding of tax
on foreign corporations) is amended--
(i) by striking ``and the reference in
section 1441(c)(10)'' and inserting ``the
reference in section 1441(c)(10)'', and
(ii) by inserting before the period at the
end the following: ``, and the references in
section 1441(c)(12) to sections 871(a) and
871(k) shall be treated as referring to
sections 881(a) and 881(e) (except that for
purposes of applying subparagraph (A) of
section 1441(c)(12), as so modified, clause
(ii) of section 881(e)(1)(B) shall not apply to
any dividend unless the regulated investment
company knows that such dividend is a dividend
referred to in such clause)''.
(b) Estate Tax Treatment of Interest in Certain Regulated
Investment Companies.--Section 2105 (relating to property without the
United States for estate tax purposes) is amended by adding at the end
the following new subsection:
``(d) Stock in a RIC.--
``(1) In general.--For purposes of this subchapter, stock
in a regulated investment company (as defined in section 851)
owned by a nonresident not a citizen of the United States shall
not be deemed property within the United States in the
proportion that, at the end of the quarter of such investment
company's taxable year immediately preceding a decedent's date
of death (or at such other time as the Secretary may designate
in regulations), the assets of the investment company that were
qualifying assets with respect to the decedent bore to the
total assets of the investment company.
``(2) Qualifying assets.--For purposes of this subsection,
qualifying assets with respect to a decedent are assets that,
if owned directly by the decedent, would have been--
``(A) amounts, deposits, or debt obligations
described in subsection (b) of this section,
``(B) debt obligations described in the last
sentence of section 2104(c), or
``(C) other property not within the United
States.''
(c) Treatment of Regulated Investment Companies Under Section
897.--
(1) Paragraph (1) of section 897(h) is amended by striking
``REIT'' each place it appears and inserting ``qualified
investment entity''.
(2) Paragraphs (2) and (3) of section 897(h) are amended to
read as follows:
``(2) Sale of stock in domestically controlled entity not
taxed.--The term `United States real property interest' does
not include any interest in a domestically controlled qualified
investment entity.
``(3) Distributions by domestically controlled qualified
investment entities.--In the case of a domestically controlled
qualified investment entity, rules similar to the rules of
subsection (d) shall apply to the foreign ownership percentage
of any gain.''
(3) Subparagraphs (A) and (B) of section 897(h)(4) are
amended to read as follows:
``(A) Qualified investment entity.--The term
`qualified investment entity' means any real estate
investment trust and any regulated investment company.
``(B) Domestically controlled.--The term
`domestically controlled qualified investment entity'
means any qualified investment entity in which at all
times during the testing period less than 50 percent in
value of the stock was held directly or indirectly by
foreign persons.''
(4) Subparagraphs (C) and (D) of section 897(h)(4) are each
amended by striking ``REIT'' and inserting ``qualified
investment entity''.
(5) The subsection heading for subsection (h) of section
897 is amended by striking ``REITS'' and inserting ``Certain
Investment Entities''.
(d) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
dividends with respect to taxable years of regulated investment
companies beginning after the date of the enactment of this
Act.
(2) Estate tax treatment.--The amendment made by subsection
(b) shall apply to estates of decedents dying after the date of
the enactment of this Act.
(3) Certain other provisions.--The amendments made by
subsection (c) (other than paragraph (1) thereof) shall take
effect on the date of the enactment of this Act.
SEC. 305. AIRLINE MILEAGE AWARDS TO CERTAIN FOREIGN PERSONS.
(a) In General.--The last sentence of section 4261(e)(3)(C)
(relating to regulations) is amended by inserting ``and mileage awards
which are issued to individuals whose mailing addresses on record with
the person providing the right to air transportation are outside the
United States'' before the period at the end thereof.
(b) Effective Date.--The amendment made by this section shall apply
to amounts paid, and benefits provided, after December 31, 2002.
SEC. 306. INTEREST PAYMENTS DEDUCTIBLE WHERE DISQUALIFIED GUARANTEE HAS
ECONOMIC EFFECT.
(a) In General.--Section 163(j)(6)(D)(ii) (relating to exceptions
to disqualified guarantee) is amended--
(1) by striking ``or'' at the end of subclause (I),
(2) by striking the period at the end of subclause (II) and
inserting ``, or'',
(3) by inserting after subclause (II) the following new
subclause:
``(III) if, in the case of a
guarantee by a foreign person, the
taxpayer establishes to the
satisfaction of the Secretary that the
taxpayer could have borrowed
substantially the same principal amount
from an unrelated person without the
guarantee.'', and
(4) by adding at the end the following new sentence: ``For
purposes of subclause (III), to the extent provided in
regulations, the Secretary may reject a showing that a taxpayer
could have borrowed substantially the same principal amount if
such borrowing is on terms substantially dissimilar to those of
the actual loan.''
(b) Effective Date.--The amendments made by this section shall
apply to guarantees issued on and after the date of the enactment of
this Act.
SEC. 307. MODIFICATIONS OF REPORTING REQUIREMENTS FOR CERTAIN FOREIGN-
OWNED CORPORATIONS.
(a) De Minimis Exception.--Section 6038A(b) (relating to required
information) is amended by adding at the end the following new flush
sentence:
``The Secretary shall not require the reporting corporation to report
any information with respect to any foreign person which is a related
person if the aggregate value of the transactions between the
corporation and the related person (and any person related to such
person) during the taxable year does not exceed $5,000,000.''
(b) Time for Providing Translations of Specific Documents.--
Notwithstanding Internal Revenue Service Regulation Sec. 1.6038A-
3(f)(2), a taxpayer shall have at least 60 days to provide translations
of specific documents it is requested to translate. Nothing in this
subsection shall limit the right of a taxpayer to file a written
request for an extension of time to comply with the request.
(c) Effective Dates.--
(1) Exception.--The amendment made by subsection (a) shall
apply to taxable years beginning after December 31, 2002.
(2) Translations.--Subsection (b) shall apply to requests
made by the Internal Revenue Service after December 31, 2002.
SEC. 308. ELECTION NOT TO USE AVERAGE EXCHANGE RATE FOR FOREIGN TAX
PAID OTHER THAN IN FUNCTIONAL CURRENCY.
(a) In General.--Paragraph (1) of section 986(a) (relating to
determination of foreign taxes and foreign corporation's earnings and
profits) is amended by redesignating subparagraph (D) as subparagraph
(E) and by inserting after subparagraph (C) the following new
subparagraph:
``(D) Elective exception for taxes paid other than
in functional currency.--
``(i) In general.--At the election of the
taxpayer, subparagraph (A) shall not apply to
any foreign income taxes the liability for
which is denominated in any currency other than
in the taxpayer's functional currency.
``(ii) Application to qualified business
units.--An election under this subparagraph may
apply to foreign income taxes attributable to a
qualified business unit in accordance with
regulations prescribed by the Secretary.
``(iii) Election.--Any such election shall
apply to the taxable year for which made and
all subsequent taxable years unless revoked
with the consent of the Secretary.''
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2002.
SEC. 309. REPEAL OF SPECIAL CAPITAL GAINS TAX ON ALIENS PRESENT IN THE
UNITED STATES FOR 183 DAYS OR MORE.
(a) In General.--Subsection (a) of section 871 is amended by
striking paragraph (2) and by redesignating paragraph (3) as paragraph
(2).
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2002.
SEC. 310. REPEAL OF WITHHOLDING TAX ON DIVIDENDS FROM CERTAIN FOREIGN
CORPORATIONS.
(a) In General.--Paragraph (2) of section 871(i) (relating to tax
not to apply to certain interest and dividends) is amended by adding at
the end the following new subparagraph:
``(D) Dividends paid by a foreign corporation.''.
(b) Effective Date.--The amendment made by this section shall apply
to payments made after December 31, 2002.
SEC. 311. INTEREST ALLOCATION RULES.
(a) Election To Allocate Interest on a Worldwide Basis.--Subsection
(e) of section 864 (relating to rules for allocating interest, etc.) is
amended by redesignating paragraphs (6) and (7) as paragraphs (7) and
(8), respectively, and by inserting after paragraph (5) the following
new paragraph:
``(6) Election to allocate interest on a worldwide basis.--
``(A) In general.--Except as provided in this
paragraph, this subsection shall be applied by treating
a worldwide affiliated group for which an election
under this paragraph is in effect as an affiliated
group solely for purposes of allocating and
apportioning interest expense of each domestic
corporation which is a member of such group.
``(B) Worldwide affiliated group.--For purposes of
this paragraph, the term `worldwide affiliated group'
means the group of corporations which consists of--
``(i) all corporations in an affiliated
group (as defined in section 1504 without
regard to paragraphs (2) and (4) of section
1504(b)), and
``(ii) all foreign corporations (other than
a FSC, as defined in section 922(a) as in
effect on the day before the date of the
enactment of the FSC Repeal and
Extraterritorial Income Exclusion Act of 2000)
with respect to which corporations described in
clause (i) own stock meeting the ownership
requirements of section 957(a).
For purposes of clause (ii), ownership shall be
determined under section 958; except that paragraphs
(3) and (4) of section 318(a) shall not apply for
purposes of section 958(b).
``(C) Treatment of worldwide affiliated group.--For
purposes of applying paragraph (1), the taxable income
of the domestic members of a worldwide affiliated group
from sources outside the United States shall be
determined by allocating and apportioning the interest
expense of such domestic members to such income in an
amount equal to the excess (if any) of--
``(i) the total interest expense of the
worldwide affiliated group multiplied by the
ratio which the foreign assets of the worldwide
affiliated group bears to all the assets of the
worldwide affiliated group, over
``(ii) the interest expense of all foreign
corporations which are members of the worldwide
affiliated group to the extent such interest
expense of such foreign corporations would have
been allocated and apportioned to foreign
source income if this subsection were applied
to a group consisting of all the foreign
corporations in such worldwide affiliated
group.
``(D) Assets and interest expense of foreign
corporations.--
``(i) In general.--For purposes of
subparagraph (C), only the applicable
percentage of the interest expense and assets
of a foreign corporation described in
subparagraph (B)(ii) shall be taken into
account.
``(ii) Applicable percentage.--For purposes
of this paragraph, the term `applicable
percentage' means, with respect to any foreign
corporation, the percentage equal to the ratio
which the value of the stock in such
corporation taken into account under
subparagraph (B)(ii) (without regard to stock
considered as owned under section 958(b)) bears
to the aggregate value of all stock in such
corporation.
``(E) Election.--An election under this paragraph
with respect to any worldwide affiliated group may be
made only by the common parent of the affiliated group
referred to in subparagraph (B)(i) and may be made only
for the first taxable year beginning after December 31,
2001, in which a worldwide affiliated group exists
which includes such affiliated group and at least one
corporation described in subparagraph (B)(ii). Such an
election, once made, shall apply to such common parent
and all other corporations which are members of such
worldwide affiliated group for such taxable year and
all subsequent years unless revoked with the consent of
the Secretary.''.
(b) Election To Allocate Interest Within Financial Institution
Groups and Subsidiary Groups.--Section 864 is amended by redesignating
subsection (f) as subsection (g) and by inserting after subsection (e)
the following new subsection:
``(f) Election To Apply Subsection (e) on Basis of Financial
Institution Group and Subsidiary Groups.--
``(1) In general.--In the case of a worldwide affiliated
group for which an election under subsection (e)(6) is in
effect, subsection (e) shall be applied--
``(A) by treating an electing financial institution
group as if it were a separate worldwide affiliated
group, and
``(B) by treating each electing subsidiary group as
if it were a separate worldwide affiliated group for
purposes of allocating interest expense with respect to
qualified indebtedness of members of an electing
subsidiary group.
Subsection (e) shall apply to any such electing group in the
same manner as subsection (e) applies to the pre-election
worldwide affiliated group of which such electing group is a
part.
``(2) Electing financial institution group.--For purposes
of this subsection--
``(A) In general.--The term `electing financial
institution group' means any group of corporations if--
``(i) such group consists only of all of
the financial corporations in the pre-election
worldwide affiliated group, and
``(ii) an election under this paragraph is
in effect for such group of corporations.
``(B) Financial corporation.--
``(i) In general.--The term `financial
corporation' means any corporation if at least
80 percent of its gross income is income
described in section 904(d)(2)(C)(ii) and the
regulations thereunder which is derived from
transactions with unrelated persons.
``(ii) Income from related financial
corporations.--Dividend income, and income
described in section 904(d)(2)(C)(ii) and the
regulations thereunder, which is derived
directly or indirectly from a financial
corporation (as defined in clause (i) without
regard to this clause) which is not an
unrelated person shall be treated as income
described in clause (i).
``(iii) Bank holding companies.--To the
extent provided in regulations prescribed by
the Secretary, a bank holding company (within
the meaning of section 2(a) of the Bank Holding
Company Act of 1956) shall be treated as a
corporation meeting the requirements of clause
(i).
``(iv) Antiabuse rule.--For purposes of
this subparagraph, there shall be disregarded
any item of income or gain from a transaction
or series of transactions a principal purpose
of which is the qualification of any
corporation as a financial corporation.
``(C) Effect of certain transactions.--Rules
similar to the rules of paragraph (3)(D) shall apply to
transactions between any member of the electing
financial institution group and any member of the pre-
election worldwide affiliated group (other than a
member of the electing financial institution group).
``(D) Election.--An election under this paragraph
with respect to any financial institution group may be
made only by the common parent of the pre-election
worldwide affiliated group and may be made only for the
first taxable year beginning after December 31, 2001,
in which such affiliated group includes one or more
financial corporations described in subparagraph (B).
Such an election, once made, shall apply to such
taxable year and all subsequent years unless revoked
with the consent of the Secretary.
``(3) Electing subsidiary groups.--
``(A) In general.--The term `electing subsidiary
group' means any group of corporations if--
``(i) such group consists only of
corporations in the pre-election worldwide
affiliated group,
``(ii) such group includes--
``(I) a domestic corporation (which
is not the common parent of the pre-
election worldwide affiliated group or
a member of an electing financial
institution group) which incurs
interest expense with respect to
qualified indebtedness, and
``(II) every other corporation
(other than a member of an electing
financial institution group) which is
in the pre-election worldwide
affiliated group and which would be a
member of an affiliated group having
such domestic corporation as the common
parent, and
``(iii) an election under this paragraph is
in effect for such group.
``(B) Equalization rule.--All interest expense of a
domestic corporation which is a member of a pre-
election worldwide affiliated group (other than
subsidiary group interest expense) shall be treated as
allocated to foreign source income to the extent such
expense does not exceed the excess (if any) of--
``(i) the interest expense of the pre-
election worldwide affiliated group (including
subsidiary group interest expense) which would
(but for any election under this paragraph) be
allocated to foreign source income, over
``(ii) the subsidiary group interest
expense allocated to foreign source income.
For purposes of the preceding sentence, the subsidiary
group interest expense is the interest expense to which
subsection (e) applies separately by reason of
paragraph (1)(B).
``(C) Qualified indebtedness.--For purposes of this
subsection, the term `qualified indebtedness' means any
indebtedness of a domestic corporation--
``(i) which is held by an unrelated person,
and
``(ii) which is not guaranteed (or
otherwise supported) by any corporation which
is a member of the pre-election worldwide
affiliated group other than a corporation which
is a member of the electing subsidiary group.
``(D) Effect of certain transactions on qualified
indebtedness.--In the case of a corporation which is a
member of an electing subsidiary group, to the extent
that such corporation--
``(i) distributes dividends or makes other
distributions with respect to its stock after
the date of the enactment of this paragraph to
any member of the pre-election worldwide
affiliated group (other than to a member of the
electing subsidiary group) in excess of the
greater of--
``(I) its average annual dividend
(expressed as a percentage of current
earnings and profits) during the 5-
taxable-year period ending with the
taxable year preceding the taxable
year, or
``(II) 25 percent of its average
annual earnings and profits for such 5
taxable year period, or
``(ii) deals with any person in any manner
not clearly reflecting the income of the
corporation (as determined under principles
similar to the principles of section 482),
except as provided by the Secretary, an amount of
qualified indebtedness equal to the excess distribution
or the understatement or overstatement of income, as
the case may be, shall be recharacterized (for the
taxable year and subsequent taxable years) for purposes
of this subsection as indebtedness which is not
qualified indebtedness. If a corporation has not been
in existence for 5 taxable years, this subparagraph
shall be applied with respect to the period it was in
existence.
``(E) Election.--An election under this paragraph
with respect to any electing subsidiary group may be
made only by the common parent of the pre-election
worldwide affiliated group. Such an election, once
made, shall apply to the taxable year for which made
and the 4 succeeding taxable years unless revoked with
the consent of the Secretary. No election may be made
under this paragraph if the effect of the election
would be to have the same member of the pre-election
worldwide affiliated group included in more than one
electing subsidiary group.
``(4) Pre-election worldwide affiliated group.--For
purposes of this subsection, the term `pre-election worldwide
affiliated group' means, with respect to a corporation, the
worldwide affiliated group of which such corporation would (but
for an election under this subsection) be a member for purposes
of applying subsection (e).
``(5) Unrelated person.--For purposes of this subsection,
the term `unrelated person' means any person not bearing a
relationship specified in section 267(b) or 707(b)(1) to the
corporation.
``(6) Regulations.--The Secretary shall prescribe such
regulations as may be appropriate to carry out this subsection
and subsection (e), including regulations--
``(A) providing for the direct allocation of
interest expense in other circumstances where such
allocation would be appropriate to carry out the
purposes of this subsection,
``(B) preventing assets or interest expense from
being taken into account more than once, and
``(C) dealing with changes in members of any group
(through acquisitions or otherwise) treated under this
subsection as an affiliated group for purposes of
subsection (e).''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
SEC. 312. PERMANENT EXTENSION OF SUBPART F EXEMPTION FOR ACTIVE
FINANCING.
(a) In General.--
(1) Section 953(e)(10) is amended--
(A) by striking ``, and before January 1, 2007,'',
and
(B) by striking the second sentence.
(2) Section 954(h)(9) is amended by striking ``, and before
January 1, 2007,''.
(b) Effective Date.--The amendments made by subsection (a) shall
apply to taxable years beginning after December 31, 2002.
SEC. 313. REPEAL OF TREATMENT OF EXTRATERRITORIAL INCOME.
(a) In General.--Part III of subchapter B of chapter 1 (relating to
items specifically excluded from gross income) is amended by striking
section 114 (relating to treatment of extraterritorial income).
(b) Technical Amendments.--
(1) Part III of subchapter N of chapter 1 is amended by
striking subpart E.
(2) The second sentence of section 56(g)(4)(B)(i) is
amended by striking ``or under section 114''.
(3) Section 275(a) is amended by adding ``or'' at the end
of paragraph (4)(A), by striking ``, or'' at the end of
paragraph (4)(B) and inserting a period, by striking
subparagraph (4)(C), and by striking the last sentence.
(4) Paragraph (3) of section 864(e) is amended by striking
``(A) In general.--For purposes of'' and inserting ``For
purposes of'' and by striking subparagraph (B).
(5) Section 903 is amended by striking ``114,''.
(6) Section 999(c)(1) is amended by striking
``941(a)(5),''.
(7) The table of sections for part III of subchapter B of
chapter 1 is amended by striking the item relating to section
114.
(8) The table of subparts for part III of subchapter N of
chapter 1 is amended by striking the item relating to subpart
E.
(c) Effective Date.--The amendments made by this Act shall apply to
transactions after December 31, 2002.
<all>
Introduced in House
Introduced in House
Sponsor introductory remarks on measure. (CR E485)
Referred to the House Committee on Ways and Means.
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