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"(3)
3 PERCENT
"(1)
IN GENERAL. --In the case of an individual who is
recognized by the Alaska Eskimo Whaling Commission
as a whaling captain charged with the responsibility
of maintaining and carrying out sanctioned whaling
activities and who engages in such activities during
the taxable year, the amount described in paragraph
(2) (to the extent such amount does not exceed
$10,000 for the taxable year) shall be treated for
purposes of this section as a charitable
contribution. "(2)
AMOUNT DESCRIBED. -- "(A)
IN GENERAL. --The amount described in this paragraph
is the aggregate of the reasonable and necessary
whaling expenses paid by the taxpayer during the
taxable year in carrying out sanctioned whaling
activities. "(B)
WHALING EXPENSES. --For purposes of subparagraph
(A), the term 'whaling expenses' includes expenses
for -- "(i)
the acquisition and maintenance of whaling boats,
weapons, and gear used in sanctioned whaling
activities, "(ii)
the supplying of food for the crew and other
provisions for carrying out such activities, and "(iii)
storage and distribution of the catch from such
activities. "(3)
SANCTIONED WHALING ACTIVITIES. --For purposes of
this subsection, the term 'sanctioned whaling
activities' means subsistence bowhead whale hunting
activities conducted pursuant to the management plan
of the Alaska Eskimo Whaling Commission. "(4)
SUBSTANTIATION OF EXPENSES. --The Secretary shall
issue guidance requiring that the taxpayer
substantiate the whaling expenses for which a
deduction is claimed under this subsection,
including by maintaining appropriate written records
with respect to the time, place, date, amount, and
nature of the expense, as well as the taxpayer's
eligibility for such deduction, and that (to the
extent provided by the Secretary) such
substantiation be provided as part of the taxpayer's
return of tax.".
"(C)
CERTAIN AIRCRAFT. --The term 'qualified property'
includes property -- "(i)
which meets the requirements of clauses (ii) and
(iii) of subparagraph (A), "(ii)
which is an aircraft which is not a transportation
property (as defined in subparagraph (B)(iii)) other
than for agricultural or firefighting purposes, "(iii)
which is purchased and on which such purchaser, at
the time of the contract for purchase, has made a
nonrefundable deposit of the lesser of -- "(I)
10 percent of the cost, or "(II)
$100,000, and "(iv)
which has -- "(I)
an estimated production period exceeding 4 months,
and "(II)
a cost exceeding $200,000.".
"(iv)
APPLICATION OF SUBPARAGRAPH. --This subparagraph
shall not apply to any property which is described
in subparagraph (C).".
"(1)
IN GENERAL. --For purposes of this title, the basis
of any property shall be reduced by the portion of
the cost of such property taken into account under
subsection (a). "(2)
ORDINARY INCOME RECAPTURE. --For purposes of section
1245, the amount of the deduction allowable under
subsection (a) with respect to any property which is
of a character subject to the allowance for
depreciation shall be treated as a deduction allowed
for depreciation under section 167.".
"(I)
expenditures for which a deduction is allowed under
section 179B.".
"Sec.
179B. Deduction for capital costs incurred in
complying with Environmental Protection Agency
sulfur regulations.".
"(1)
IN GENERAL. --The aggregate credit determined under
subsection (a) for any taxable year with respect to
any facility shall not exceed -- "(A)
25 percent of the qualified capital costs incurred
by the small business refiner with respect to such
facility, reduced by "(B)
the aggregate credits determined under this section
for all prior taxable years with respect to such
facility. "(2)
REDUCED PERCENTAGE. --In the case of a small
business refiner with average daily domestic
refinery runs for the 1-year period ending on
"(1)
SMALL BUSINESS REFINER. --The term 'small business
refiner' means, with respect to any taxable year, a
refiner of crude oil -- "(A)
with respect to which not more than 1,500
individuals are engaged in the refinery operations
of the business on any day during such taxable year,
and "(B)
the average daily domestic refinery run or average
retained production of which for all facilities of
the taxpayer for the 1-year period ending on "(2)
QUALIFIED CAPITAL COSTS. --The term 'qualified
capital costs' means, with respect to any facility,
those costs paid or incurred during the applicable
period for compliance with the applicable EPA
regulations with respect to such facility, including
expenditures for the construction of new process
operation units or the dismantling and
reconstruction of existing process units to be used
in the production of low sulfur diesel fuel,
associated adjacent or offsite equipment (including
tankage, catalyst, and power supply), engineering,
construction period interest, and sitework. "(3)
APPLICABLE EPA REGULATIONS. --The term 'applicable
EPA regulations' means the Highway Diesel Fuel
Sulfur Control Requirements of the Environmental
Protection Agency. "(4)
APPLICABLE PERIOD. --The term 'applicable period'
means, with respect to any facility, the period
beginning on "(5)
"(1)
REQUIRED. --No credit shall be allowed unless, not
later than the date which is 30 months after the
first day of the first taxable year in which the low
sulfur diesel fuel production credit is determined
with respect to a facility, the small business
refiner obtains certification from the Secretary,
after consultation with the Administrator of the
Environmental Protection Agency, that the taxpayer's
qualified capital costs with respect to such
facility will result in compliance with the
applicable EPA regulations. "(2)
CONTENTS OF APPLICATION. --An application for
certification shall include relevant information
regarding unit capacities and operating
characteristics sufficient for the Secretary, after
consultation with the Administrator of the
Environmental Protection Agency, to determine that
such qualified capital costs are necessary for
compliance with the applicable EPA regulations. "(3)
REVIEW PERIOD. --Any application shall be reviewed
and notice of certification, if applicable, shall be
made within 60 days of receipt of such application.
In the event the Secretary does not notify the
taxpayer of the results of such certification within
such period, the taxpayer may presume the
certification to be issued until so notified. "(4)
STATUTE OF LIMITATIONS. --With respect to the credit
allowed under this section -- "(A)
the statutory period for the assessment of any
deficiency attributable to such credit shall not
expire before the end of the 3-year period ending on
the date that the review period described in
paragraph (3) ends with respect to the taxpayer, and "(B)
such deficiency may be assessed before the
expiration of such 3-year period notwithstanding the
provisions of any other law or rule of law which
would otherwise prevent such assessment.
"(1)
APPORTIONMENT OF CREDIT. -- "(A)
IN GENERAL. --In the case of a cooperative
organization described in section 1381(a), any
portion of the credit determined under subsection
(a) for the taxable year may, at the election of the
organization, be apportioned among patrons eligible
to share in patronage dividends on the basis of the
quantity or value of business done with or for such
patrons for the taxable year. "(B)
"(2)
TREATMENT OF ORGANIZATIONS "(A)
ORGANIZATIONS. --The amount of the credit not
apportioned to patrons pursuant to paragraph (1)
shall be included in the amount determined under
subsection (a) for the taxable year of the
organization. "(B)
PATRONS. --The amount of the credit apportioned to
patrons pursuant to paragraph (1) shall be included
in the amount determined under subsection (a) for
the first taxable year of each patron ending on or
after the last day of the payment period (as defined
in section 1382(d)) for the taxable year of the
organization or, if earlier, for the taxable year of
each patron ending on or after the date on which the
patron receives notice from the cooperative of the
apportionment. "(3)
SPECIAL RULE. --If the amount of a credit which has
been apportioned to any patron under this subsection
is decreased for any reason -- "(A)
such amount shall not increase the tax imposed on
such patron, and "(B)
the tax imposed by this chapter on such organization
shall be increased by such amount. The
increase under subparagraph (B) shall not be treated
as tax imposed by this chapter for purposes of
determining the amount of any credit under this
chapter or for purposes of section 55.".
"(18)
the low sulfur diesel fuel production credit
determined under section 45H(a).".
"(31)
in the case of a facility with respect to which a
credit was allowed under section 45H, to the extent
provided in section 45H(d).".
"(12)
the low sulfur diesel fuel production credit
determined under section 45H(a).".
"Sec.
45H. Credit for production of low sulfur diesel
fuel.".
"(G)
ADDITIONAL CAPITAL EXPENDITURES NOT TAKEN INTO
ACCOUNT. --With respect to bonds issued after
"(1)
the credit amount, and "(2)
the qualified credit oil production and the
qualified natural gas production which is
attributable to the taxpayer.
"(1)
IN GENERAL. --The credit amount is -- "(A)
$3 per barrel of qualified crude oil production, and "(B)
50 cents per 1,000 cubic feet of qualified natural
gas production. "(2)
REDUCTION AS "(A)
IN GENERAL. --The $3 and 50 cents amounts under
paragraph (1) shall each be reduced (but not below
zero) by an amount which bears the same ratio to
such amount (determined without regard to this
paragraph) as -- "(i)
the excess (if any) of the applicable reference
price over $15 ($1.67 for qualified natural gas
production), bears to "(ii)
$3 ($0.33 for qualified natural gas production). The
applicable reference price for a taxable year is the
reference price of the calendar year preceding the
calendar year in which the taxable year begins. "(B)
INFLATION ADJUSTMENT. --In the case of any taxable
year beginning in a calendar year after 2005, each
of the dollar amounts contained in subparagraph (A)
shall be increased to an amount equal to such dollar
amount multiplied by the inflation adjustment factor
for such calendar year (determined under section
43(b)(3)(B) by substituting '2004' for '1990'). "(C)
REFERENCE PRICE. --For purposes of this paragraph,
the term 'reference price' means, with respect to
any calendar year -- "(i)
in the case of qualified crude oil production, the
reference price determined under section
29(d)(2)(C), and "(ii)
in the case of qualified natural gas production, the
Secretary's estimate of the annual average wellhead
price per 1,000 cubic feet for all domestic natural
gas.
"(1)
IN GENERAL. --The terms 'qualified crude oil
production' and 'qualified natural gas production'
mean domestic crude oil or natural gas which is
produced from a qualified marginal well. "(2)
LIMITATION ON AMOUNT OF PRODUCTION WHICH "(A)
IN GENERAL. --Crude oil or natural gas produced
during any taxable year from any well shall not be
treated as qualified crude oil production or
qualified natural gas production to the extent
production from the well during the taxable year
exceeds 1,095 barrels or barrel-of-oil equivalents
(as defined in section 29(d)(5)). "(B)
PROPORTIONATE REDUCTIONS. -- "(i)
SHORT TAXABLE YEARS. --In the case of a short
taxable year, the limitations under this paragraph
shall be proportionately reduced to reflect the
ratio which the number of days in such taxable year
bears to 365. "(ii)
WELLS NOT IN PRODUCTION ENTIRE YEAR. --In the case
of a well which is not capable of production during
each day of a taxable year, the limitations under
this paragraph applicable to the well shall be
proportionately reduced to reflect the ratio which
the number of days of production bears to the total
number of days in the taxable year. "(3)
DEFINITIONS. -- "(A)
QUALIFIED MARGINAL "(i)
the production from which during the taxable year is
treated as marginal production under section
613A(c)(6), or "(ii)
which, during the taxable year -- "(I)
has average daily production of not more than 25
barrel-of-oil equivalents (as so defined), and "(II)
produces water at a rate not less than 95 percent of
total well effluent. "(B)
CRUDE
"(1)
PRODUCTION ATTRIBUTABLE TO THE TAXPAYER. --In the
case of a qualified marginal well in which there is
more than one owner of operating interests in the
well and the crude oil or natural gas production
exceeds the limitation under subsection (c)(2),
qualifying crude oil production or qualifying
natural gas production attributable to the taxpayer
shall be determined on the basis of the ratio which
taxpayer's revenue interest in the production bears
to the aggregate of the revenue interests of all
operating interest owners in the production. "(2)
OPERATING INTEREST REQUIRED. --Any credit under this
section may be claimed only on production which is
attributable to the holder of an operating interest. "(3)
PRODUCTION FROM NONCONVENTIONAL SOURCES EXCLUDED.
--In the case of production from a qualified
marginal well which is eligible for the credit
allowed under section 29 for the taxable year, no
credit shall be allowable under this section unless
the taxpayer elects not to claim the credit under
section 29 with respect to the well.".
"(19)
the marginal oil and gas well production credit
determined under section 45I(a).".
"(3)
5-YEAR CARRYBACK FOR MARGINAL "(A)
this section shall be applied separately from the
business credit (other than the marginal oil and gas
well production credit), "(B)
paragraph (1) shall be applied by substituting '5
taxable years' for '1 taxable years' in subparagraph
(A) thereof, and "(C)
paragraph (2) shall be applied -- "(i)
by substituting '25 taxable years' for '21 taxable
years' in subparagraph (A) thereof, and "(ii)
by substituting '24 taxable years' for '20 taxable
years' in subparagraph (B) thereof.".
This document is divided into multiple parts. To reach other
parts, please use READ. You have reached Part 02 "Sec.
45I. Credit for producing oil and gas from marginal
wells.".
"(1)
ALLOCATION "(A)
IN GENERAL. --The taxable income of each domestic
corporation which is a member of a worldwide
affiliated group shall be determined by allocating
and apportioning interest expense of each member as
if all members of such group were a single
corporation. "(B)
TREATMENT OF WORLDWIDE AFFILIATED GROUP. --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. "(C)
WORLDWIDE AFFILIATED GROUP. --For purposes of this
paragraph, the term 'worldwide affiliated group'
means a group consisting of -- "(i)
the includible members of an affiliated group (as
defined in section 1504(a), determined without
regard to paragraphs (2) and (4) of section
1504(b)), and "(ii)
all controlled foreign corporations in which such
members in the aggregate meet the ownership
requirements of section 1504(a)(2) either directly
or indirectly through applying paragraph (2) of
section 958(a) or through applying rules similar to
the rules of such paragraph to stock owned directly
or indirectly by domestic partnerships, trusts, or
estates. "(2)
ALLOCATION "(3)
TREATMENT OF TAX-EXEMPT ASSETS; BASIS OF STOCK IN
NONAFFILIATED 10-PERCENT OWNED CORPORATIONS. --The
rules of paragraphs (3) and (4) of subsection (e)
shall apply for purposes of this subsection, except
that paragraph (4) shall be applied on a worldwide
affiliated group basis. "(4)
TREATMENT OF CERTAIN FINANCIAL INSTITUTIONS. -- "(A)
IN GENERAL. --For purposes of paragraph (1), any
corporation described in subparagraph (B) shall be
treated as an includible corporation for purposes of
section 1504 only for purposes of applying this
subsection separately to corporations so described. "(B)
DESCRIPTION. --A corporation is described in this
subparagraph if -- "(i)
such corporation is a financial institution
described in section 581 or 591, "(ii)
the business of such financial institution is
predominantly with persons other than related
persons (within the meaning of subsection (d)(4)) or
their customers, and "(iii)
such financial institution is required by State or
Federal law to be operated separately from any other
entity which is not such an institution. "(C)
TREATMENT OF BANK "(i)
a bank holding company (within the meaning of
section 2(a) of the Bank Holding Company Act of 1956
(12 U.S.C. 1841(a)), "(ii)
a financial holding company (within the meaning of
section 2(p) of the Bank Holding Company Act of 1956
(12 U.S.C. 1841(p)), and "(iii)
any subsidiary of a financial institution described
in section 581 or 591, or of any such bank or
financial holding company, if such subsidiary is
predominantly engaged (directly or indirectly) in
the active conduct of a banking, financing, or
similar business, shall
be treated as a corporation described in
subparagraph (B). "(5)
ELECTION TO EXPAND FINANCIAL INSTITUTION GROUP OF
WORLDWIDE GROUP. -- "(A)
IN GENERAL. --If a worldwide affiliated group elects
the application of this subsection, all financial
corporations which -- "(i)
are members of such worldwide affiliated group, but "(ii)
are not corporations described in paragraph (4)(B), shall
be treated as described in paragraph (4)(B) for
purposes of applying paragraph (4)(A). This
subsection (other than this paragraph) shall apply
to any such group in the same manner as this
subsection (other than this paragraph) applies to
the pre-election worldwide affiliated group of which
such group is a part. "(B)
FINANCIAL CORPORATION. --For purposes of this
paragraph, the term 'financial corporation' means
any corporation if at least 80 percent of its gross
income is income described in section 904(d)(2)(D)(ii)
and the regulations thereunder which is derived from
transactions with persons who are not related
(within the meaning of section 267(b) or 707(b)(1))
to the corporation. For purposes of the preceding
sentence, 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)
ANTI-ABUSE RULES. --In the case of a corporation
which is a member of an electing financial
institution 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 financial institution
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), an
amount of indebtedness of the electing financial
institution group 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 paragraph as indebtedness of the
worldwide affiliated group (excluding the electing
financial institution group). 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. "(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 "(E)
DEFINITIONS RELATING TO GROUPS. --For purposes of
this paragraph -- "(i)
"(ii)
ELECTING FINANCIAL INSTITUTION GROUP. --The term
'electing financial institution group' means the
group of corporations to which this subsection
applies separately by reason of the application of
paragraph (4)(A) and which includes financial
corporations by reason of an election under
subparagraph (A). "(F)
REGULATIONS. --The Secretary shall prescribe such
regulations as may be appropriate to carry out this
subsection, including regulations -- "(i)
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, "(ii)
preventing assets or interest expense from being
taken into account more than once, and "(iii)
dealing with changes in members of any group
(through acquisitions or otherwise) treated under
this paragraph as an affiliated group for purposes
of this subsection. "(6)
ELECTION. --An election to have this subsection
apply with respect to any worldwide affiliated group
may be made only by the common parent of the
domestic affiliated group referred to in paragraph
(1)(C) and may be made only for the first taxable
year beginning after
"(F)
preventing assets or interest expense from being
taken into account more than once, and".
"(1)
GENERAL RULE. --For purposes of this subpart and
section 936, in the case of any taxpayer who
sustains an overall domestic loss for any taxable
year beginning after "(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 -- "(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).".
"(4)
"(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 described in a subparagraph of
paragraph (1) in proportion to the ratio of -- "(i)
the portion of earnings and profits attributable to
income described in such subparagraph, to "(ii)
the total amount of earnings and profits. "(B)
EARNINGS "(C)
SPECIAL RULES. --For purposes of this paragraph -- "(i)
EARNINGS "(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. "(ii)
INADEQUATE SUBSTANTIATION. --If the Secretary
determines that the proper subparagraph of paragraph
(1) in which a dividend is described has not been
substantiated, such dividend shall be treated as
income described in paragraph (1)(A). "(iii)
COORDINATION WITH HIGH-TAXED INCOME PROVISIONS.
--Rules similar to the rules of paragraph (3)(F)
shall apply for purposes of this paragraph. "(iv)
"(1)
IN GENERAL. --The provisions of subsections (a),
(b), and (c) and sections 902, 907, and 960 shall be
applied separately with respect to -- "(A)
passive category income, and "(B)
general category income.".
"(A)
CATEGORIES. -- "(i)
PASSIVE CATEGORY INCOME. --The term 'passive
category income' means passive income and specified
passive category income. "(ii)
GENERAL CATEGORY INCOME. --The term 'general
category income' means income other than passive
category income.".
"(v)
SPECIFIED PASSIVE CATEGORY INCOME. --The term
'specified passive category income' means -- "(I)
dividends from a DISC or former DISC (as defined in
section 992(a)) to the extent such dividends are
treated as income from sources without the United
States, "(II)
taxable income attributable to foreign trade income
(within the meaning of section 923(b)), and "(
"(C)
TREATMENT OF FINANCIAL SERVICES INCOME "(i)
IN GENERAL. --Financial services income shall be
treated as general category income in the case of -- "(I)
a member of a financial services group, and "(II)
any other person if such person is predominantly
engaged in the active conduct of a banking,
insurance, financing, or similar business. "(ii)
FINANCIAL SERVICES GROUP. --The term 'financial
services group' means any affiliated group (as
defined in section 1504(a) without regard to
paragraphs (2) and (3) of section 1504(b)) which is
predominantly engaged in the active conduct of a
banking, insurance, financing, or similar business.
In determining whether such a group is so engaged,
there shall be taken into account only the income of
members of the group that are -- "(I)
United States corporations, or "(II)
controlled foreign corporations in which such United
States corporations own, directly or indirectly, at
least 80 percent of the total voting power and value
of the stock. "(iii)
PASS-THRU ENTITIES. --The Secretary shall by
regulation specify for purposes of this subparagraph
the treatment of financial services income received
or accrued by partnerships and by other pass-thru
entities which are not members of a financial
services group.".
"(H)
TREATMENT OF INCOME TAX BASE DIFFERENCES. -- "(i)
IN GENERAL. --In the case of taxable years beginning
after "(ii)
SPECIAL RULE FOR YEARS BEFORE 2007. -- "(I)
IN GENERAL. --In the case of taxes paid or accrued
in taxable years beginning after "(II)
ELECTION IRREVOCABLE. --Any such election shall
apply to the taxable year for which made and all
subsequent taxable years described in subclause (I)
unless revoked with the consent of the
Secretary.".
"(II)
passive income (determined without regard to
subparagraph (B)(iii)(II)).".
"(A)
IN GENERAL. --Except as otherwise provided in this
paragraph, dividends, interest, rents, and royalties
received or accrued by the taxpayer from a
controlled foreign corporation in which the taxpayer
is a United States shareholder shall not be treated
as passive category income. "(B)
SUBPART F INCLUSIONS. --Any amount included in gross
income under section 951(a)(1)(A) shall be treated
as passive category income to the extent the amount
so included is attributable to passive category
income. "(C)
INTEREST, RENTS, "(D)
DIVIDENDS. --Any dividend paid out of the earnings
and profits of any controlled foreign corporation in
which the taxpayer is a United States shareholder
shall be treated as passive category income in
proportion to the ratio of -- "(i)
the portion of the earnings and profits attributable
to passive category income, to "(ii)
the total amount of earnings and profits. "(E)
"(F)
COORDINATION WITH HIGH-TAXED INCOME PROVISIONS. -- "(i)
In determining whether any income of a controlled
foreign corporation is passive category income,
subclause (II) of paragraph (2)(B)(iii) shall not
apply. "(ii)
Any income of the taxpayer which is treated as
passive category income under this paragraph shall
be so treated notwithstanding any provision of
paragraph (2); except that the determination of
whether any amount is high-taxed income shall be
made after the application of this paragraph. "(G)
DIVIDEND. --For purposes of this paragraph, the term
'dividend' includes any amount included in gross
income in section 951(a)(1)(B). Any amount included
in gross income under section 78 to the extent
attributable to amounts included in gross income in
section 951(a)(1)(A) shall not be treated as a
dividend but shall be treated as included in gross
income under section 951(a)(1)(A). "(H)
"(i)
a passive foreign investment company is a controlled
foreign corporation, and "(ii)
the taxpayer is a United States shareholder in such
controlled foreign corporation, any
amount included in gross income under section 1293
shall be treated as income in a separate category to
the extent such amount is attributable to income in
such category.".
"(K)
TRANSITIONAL RULES FOR 2007 CHANGES. --For purposes
of paragraph (1) -- "(i)
taxes carried from any taxable year beginning before
"(ii)
the Secretary may by regulations provide for the
allocation of any carryback of taxes with respect to
income from a taxable year beginning on or after
"(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.".
"(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; and "(M)
an obligation of a United States person which -- "(i)
is not a domestic corporation, and "(ii)
is not -- "(I)
a United States shareholder (as defined in section
951(b)) of the controlled foreign corporation, or "(II)
a partnership, estate, or trust in which the
controlled foreign corporation, or any related
person (as defined in section 954(d)(3)), is a
partner, beneficiary, or trustee immediately after
the acquisition of any obligation of such
partnership, estate, or trust by the controlled
foreign corporation.".
"(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.".
"(E)
SPECIAL RULE FOR REGULATED INVESTMENT COMPANIES.
--In the case of a regulated investment company
which takes into account income on an accrual basis,
subparagraphs (A) through (D) shall not apply and
foreign income taxes paid or accrued with respect to
such income shall be translated into dollars using
the exchange rate as of the date the income
accrues.".
"(D)
Dividends paid by a foreign corporation which are
treated under section 861(a)(2)(B) as income from
sources within the United States.".
"(C)
in the case of a foreign partnership, which is
predominantly engaged in the active conduct of a
trade or business outside the United States, any
interest not paid by a trade or business engaged in
by the partnership in the United States and not
allocable to income which is effectively connected
(or treated as effectively connected) with the
conduct of a trade or business in the United
States.".
"(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, the term 'interest-related dividend'
means 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.
Such term shall not include any dividend with
respect to any taxable year of the company beginning
after "(D)
QUALIFIED "(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). --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, the term 'short-term capital gain
dividend' means 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. Such term shall not include any dividend
with respect to any taxable year of the company
beginning after "(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 shortterm 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.".
"(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 (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
shortterm capital gain dividend (as defined in
section 871(k)(2)) received from a regulated
investment company.".
"(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).".
"(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. "(3)
TERMINATION. --This subsection shall not apply to
estates of decedents dying after
"(A)
QUALIFIED INVESTMENT ENTITY. -- "(i)
IN GENERAL. --The term 'qualified investment entity'
means -- "(I)
any real estate investment trust, and "(II)
any regulated investment company. "(ii)
TERMINATION. --Clause (i)(II) shall not apply after "(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)
"(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. The
Secretary shall prescribe such regulations as may be
appropriate to prevent abuse of the purposes of this
paragraph, including regulations providing for
coordination of this paragraph with the provisions
of subchapter K. "(B)
25-PERCENT OWNER. --For purposes of this paragraph,
the term '25-percent owner' means a controlled
foreign corporation which owns directly 25 percent
or more of the capital or profits interest in a
partnership. For purposes of the preceding sentence,
if a controlled foreign corporation is a shareholder
or partner of a corporation or partnership, the
controlled foreign corporation shall be treated as
owning directly its proportionate share of any such
capital or profits interest held directly or
indirectly by such corporation or
partnership.".
"(I)
PERSONAL SERVICE CONTRACTS. -- "(i)
Amounts received under a contract under which the
corporation is to furnish personal services if -- "(I)
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 "(II)
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.".
"(A)
which is treated as a controlled foreign corporation
for any purpose under subpart F of part
"(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 "(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.".
"(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).".
"(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)
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.".
"(i)
arise out of commodity hedging transactions (as
defined in paragraph (4)(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".
"(5)
DEFINITION "(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 "( "(ii)
is clearly identified as such in accordance with
section 1221(a)(7). "(B)
TREATMENT OF DEALER ACTIVITIES UNDER PARAGRAPH
(1)(C). --Commodities with respect to which gains
and losses are not taken into account under
paragraph (2)(C) in computing a controlled foreign
corporation's foreign personal holding company
income shall not be taken into account in applying
the substantially all test under paragraph (1)(C)(ii)
to such corporation. "(C)
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.".
"(E)
DIRECT CONDUCT OF ACTIVITIES. --For purposes of
subparagraph (A)(ii)(II), an activity shall be
treated as conducted directly by an eligible
controlled foreign corporation or qualified business
unit in its home country if the activity is
performed by employees of a related person and -- "(i)
the related person is an eligible controlled foreign
corporation the home country of which is the same as
the home country of the corporation or unit to which
subparagraph (A)(ii)(II) is being applied, "(ii)
the activity is performed in the home country of the
related person, and "(iii)
the related person is compensated on an arm's-length
basis for the performance of the activity by its
employees and such compensation is treated as earned
by such person in its home country for purposes of
the home country's tax laws.".
"(F)
CERTAIN DISTRIBUTIONS. --In the case of a
shareholder of a real estate investment trust to
whom section 897 does not apply by reason of the
second sentence of section 897(h)(1), the amount
which would be included in computing long-term
capital gains for such shareholder under
subparagraph (B) or (D) (without regard to this
subparagraph) -- "(i)
shall not be included in computing such
shareholder's long-term capital gains, and "(ii)
shall be included in such shareholder's gross income
as a dividend from the real estate investment
trust.".
"(5)
INCOME DERIVED FROM WAGERING TRANSACTIONS IN CERTAIN
PARIMUTUEL POOLS. --Gross income derived by a
nonresident alien individual from a legal wagering
transaction initiated outside the United States in a
parimutuel pool with respect to a live horse race or
dog race in the United States.".
"(2)
COMMONWEALTH OF PUERTO RICO. -- "(A)
IN GENERAL. --If dividends are received during a
taxable year by a corporation -- "(i)
created or organized in, or under the law of, the
Commonwealth of Puerto Rico, and "(ii)
with respect to which the requirements of
subparagraphs (A), (B), and (C) of paragraph (1) are
met for the taxable year, subsection
(a) shall be applied for such taxable year by
substituting '10 percent' for '30 percent'. "(B)
APPLICABILITY. --If, on or after the date of the
enactment of this paragraph, an increase in the rate
of the Commonwealth of Puerto Rico's withholding tax
which is generally applicable to dividends paid to
United States corporations not engaged in a trade or
business in the Commonwealth to a rate greater than
10 percent takes effect, this paragraph shall not
apply to dividends received on or after the
effective date of the increase.".
"(A)
IN GENERAL. --If dividends are received during a
taxable year by a corporation -- "(i)
created or organized in, or under the law of, the
Commonwealth of Puerto Rico, and "(ii)
with respect to which the requirements of
subparagraphs (A), (B), and (C) of section 881(b)(1)
are met for the taxable year, subsection
(a) shall be applied for such taxable year by
substituting '10 percent' for '30 percent'. "(B)
APPLICABILITY. --If, on or after the date of the
enactment of this paragraph, an increase in the rate
of the Commonwealth of Puerto Rico's withholding tax
which is generally applicable to dividends paid to
United States corporations not engaged in a trade or
business in the Commonwealth to a rate greater than
10 percent takes effect, this paragraph shall not
apply to dividends received on or after the
effective date of the increase.".
"(1)
IN GENERAL. --In the case of a corporation which is
a United States shareholder and for which the
election under this section is in effect for the
taxable year, there shall be allowed as a deduction
an amount equal to 85 percent of the cash dividends
which are received during such taxable year by such
shareholder from controlled foreign corporations. "(2)
DIVIDENDS PAID INDIRECTLY FROM CONTROLLED FOREIGN
CORPORATIONS. --If, within the taxable year for
which the election under this section is in effect,
a United States shareholder receives a cash
distribution from a controlled foreign corporation
which is excluded from gross income under section
959(a), such distribution shall be treated for
purposes of this section as a cash dividend to the
extent of any amount included in income by such
United States shareholder under section 951(a)(1)(A)
as a result of any cash dividend during such taxable
year to -- "(A)
such controlled foreign corporation from another
controlled foreign corporation that is in a chain of
ownership described in section 958(a), or "(B)
any other controlled foreign corporation in such
chain of ownership, but only to the extent of cash
distributions described in section 959(b) which are
made during such taxable year to the controlled
foreign corporation from which such United States
shareholder received such distribution.
"(1)
IN GENERAL. --The amount of dividends taken into
account under subsection (a) shall not exceed the
greater of -- "(A)
$500,000,000, "(B)
the amount shown on the applicable financial
statement as earnings permanently reinvested outside
the United States, or "(C)
in the case of an applicable financial statement
which fails to show a specific amount of earnings
permanently reinvested outside the United States and
which shows a specific amount of tax liability
attributable to such earnings, the amount equal to
the amount of such liability divided by 0.35. The
amounts described in subparagraphs (B) and (C) shall
be treated as being zero if there is no such
statement or such statement fails to show a specific
amount of such earnings or liability, as the case
may be. "(2)
DIVIDENDS MUST BE EXTRAORDINARY. --The amount of
dividends taken into account under subsection (a)
shall not exceed the excess (if any) of -- "(A)
the dividends received during the taxable year by
such shareholder from controlled foreign
corporations, over "(B)
the annual average for the base period years of -- "(i)
the dividends received during each base period year
by such shareholder from controlled foreign
corporations, "(ii)
the amounts includible in such shareholder's gross
income for each base period year under section
951(a)(1)(B) with respect to controlled foreign
corporations, and "(iii)
the amounts that would have been included for each
base period year but for section 959(a) with respect
to controlled foreign corporations. The
amount taken into account under clause (iii) for any
base period year shall not include any amount which
is not includible in gross income by reason of an
amount described in clause (ii) with respect to a
prior taxable year. Amounts described in
subparagraph (B) for any base period year shall be
such amounts as shown on the most recent return
filed for such year; except that amended returns
filed after "(3)
REDUCTION OF BENEFIT IF INCREASE IN RELATED PARTY
INDEBTEDNESS. --The amount of dividends which would
(but for this paragraph) be taken into account under
subsection (a) shall be reduced by the excess (if
any) of -- "(A)
the amount of indebtedness of the controlled foreign
corporation to any related person (as defined in
section 954(d)(3)) as of the close of the taxable
year for which the election under this section is in
effect, over "(B)
the amount of indebtedness of the controlled foreign
corporation to any related person (as so defined) as
of the close of All
controlled foreign corporations with respect to
which the taxpayer is a United States shareholder
shall be treated as 1 controlled foreign corporation
for purposes of this paragraph. "(4)
REQUIREMENT TO INVEST IN UNITED STATES. --Subsection
(a) shall not apply to any dividend received by a
United States shareholder unless the amount of the
dividend is invested in the United States pursuant
to a domestic reinvestment plan which -- "(A)
is approved by the taxpayer's president, chief
executive officer, or comparable official before the
payment of such dividend and subsequently approved
by the taxpayer's board of directors, management
committee, executive committee, or similar body, and "(B)
provides for the reinvestment of such dividend in
the United States (other than as payment for
executive compensation), including as a source for
the funding of worker hiring and training,
infrastructure, research and development, capital
investments, or the financial stabilization of the
corporation for the purposes of job retention or
creation.
"(1)
APPLICABLE FINANCIAL STATEMENT. --The term
'applicable financial statement' means, with respect
to a United States shareholder, the most recently
audited financial statement (including notes and
other documents which accompany such statement)
which includes such shareholder -- "(A)
which is certified on or before "(B)
which is used for the purposes of a statement or
report -- "(i)
to creditors, "(ii)
to shareholders, or "(iii)
for any other substantial nontax purpose. In
the case of a corporation required to file a
financial statement with the Securities and Exchange
Commission, such term means the most recent such
statement filed on or before "(2)
BASE PERIOD YEARS. -- "(A)
IN GENERAL. --The base period years are the 3
taxable years -- "(i)
which are among the 5 most recent taxable years
ending on or before "(ii)
which are determined by disregarding -- "(I)
1 taxable year for which the sum of the amounts
described in clauses (i), (ii), and (iii) of
subsection (b)(2)(B) is the largest, and "(II)
1 taxable year for which such sum is the smallest. "(B)
SHORTER PERIOD. --If the taxpayer has fewer than 5
taxable years ending on or before "(C)
MERGERS, ACQUISITIONS, "(i)
IN GENERAL. --Rules similar to the rules of
subparagraphs (A) and (B) of section 41(f)(3) shall
apply for purposes of this paragraph. "(ii)
SPIN-OFFS, "(I)
the controlled corporation shall be treated as being
in existence during the period that the distributing
corporation (within the meaning of section 355) is
in existence, and "(II)
for purposes of applying subsection (b)(2) to the
controlled corporation and the distributing
corporation, amounts described in subsection
(b)(2)(B) which are received or includible by the
distributing corporation or controlled corporation
(as the case may be) before the distribution
referred to in subclause (I) from a controlled
foreign corporation shall be allocated between such
corporations in proportion to their respective
interests as United States shareholders of such
controlled foreign corporation immediately after
such distribution. Subclause
(II) shall not apply if neither the controlled
corporation nor the distributing corporation is a
United States shareholder of such controlled foreign
corporation immediately after such distribution. "(3)
DIVIDEND. --The term 'dividend' shall not include
amounts includible in gross income as a dividend
under section 78, 367, or 1248. In the case of a
liquidation under section 332 to which section
367(b) applies, the preceding sentence shall not
apply to the extent the United States shareholder
actually receives cash as part of the liquidation. "(4)
COORDINATION WITH DIVIDENDS RECEIVED DEDUCTION. --No
deduction shall be allowed under section 243 or 245
for any dividend for which a deduction is allowed
under this section. "(5)
CONTROLLED GROUPS. -- "(A)
IN GENERAL. --All United States shareholders which
are members of an affiliated group filing a
consolidated return under section 1501 shall be
treated as one United States shareholder. "(B)
APPLICATION OF $500,000,000 LIMIT. --All
corporations which are treated as a single employer
under section 52(a) shall be limited to one
$500,000,000 amount in subsection (b)(1)(A), and
such amount shall be divided among such corporations
under regulations prescribed by the Secretary. "(C)
PERMANENTLY REINVESTED EARNINGS. --If a financial
statement is an applicable financial statement for
more than 1 United States shareholder, the amount
applicable under subparagraph (B) or (C) of
subsection (b)(1) shall be divided among such
shareholders under regulations prescribed by the
Secretary.
"(1)
FOREIGN TAX CREDIT. --No credit shall be allowed
under section 901 for any taxes paid or accrued (or
treated as paid or accrued) with respect to the
deductible portion of -- "(A)
any dividend, or "(B)
any amount described in subsection (a)(2) which is
included in income under section 951(a)(1)(A). No
deduction shall be allowed under this chapter for
any tax for which credit is not allowable by reason
of the preceding sentence. "(2)
EXPENSES. --No deduction shall be allowed for
expenses properly allocated and apportioned to the
deductible portion described in paragraph (1). "(3)
DEDUCTIBLE PORTION. --For purposes of paragraph (1),
unless the taxpayer otherwise specifies, the
deductible portion of any dividend or other amount
is the amount which bears the same ratio to the
amount of such dividend or other amount as the
amount allowed as a deduction under subsection (a)
for the taxable year bears to the amount described
in subsection (b)(2)(A) for such year.
"(1)
IN GENERAL. --Any tax under this chapter by reason
of nondeductible CFC dividends shall not be treated
as tax imposed by this chapter for purposes of
determining -- "(A)
the amount of any credit allowable under this
chapter, or "(B)
the amount of the tax imposed by section 55.
Subparagraph (A) shall not apply to the credit under
section 53 or to the credit under section 27(a) with
respect to taxes attributable to such dividends. "(2)
LIMITATION ON REDUCTION IN TAXABLE INCOME, "(A)
IN GENERAL. --The taxable income of any United
States shareholder for any taxable year shall in no
event be less than the amount of nondeductible CFC
dividends received during such year. "(B)
COORDINATION WITH SECTION 172. --The nondeductible
CFC dividends for any taxable year shall not be
taken into account -- "(i)
in determining under section 172 the amount of any
net operating loss for such taxable year, and "(ii)
in determining taxable income for such taxable year
for purposes of the 2nd sentence of section
172(b)(2). "(3)
NONDEDUCTIBLE CFC DIVIDENDS. --For purposes of this
subsection, the term 'nondeductible CFC dividends'
means the excess of the amount of dividends taken
into account under subsection (a) over the deduction
allowed under subsection (a) for such dividends.
"(1)
the taxpayer's last taxable year which begins before
the date of the enactment of this section, or "(2)
the taxpayer's first taxable year which begins
during the 1-year period beginning on such date.
"(vi)
SPECIAL RULE FOR CERTAIN DISTRIBUTIONS FROM
CONTROLLED FOREIGN CORPORATIONS. --Clause (i) shall
not apply to any deduction allowable under section
965.".
"Sec.
965. Temporary dividends received deduction.". (d) EFFECTIVE DATE. --The amendments made by this section shall apply to taxable years ending on or after the date of the enactment of this Act. Notwithstanding the provisions of Treasury regulation § 1.883-5, the final regulations issued by the Secretary of the Treasury relating to income derived by foreign corporations from the international operation of ships or aircraft (Treasury regulations § 1.883-1 through § 1.883-5) shall apply to taxable years of a foreign corporation seeking qualified foreign corporation status beginning after (a) IN GENERAL. --The Secretary of the Treasury or the Secretary's delegate shall conduct a study of the effectiveness of the provisions of the Internal Revenue Code of 1986 applicable to earnings stripping, including a study of -- (1) the effectiveness of section 163(j) of such Code in preventing the shifting of income outside the United States, (2) whether any deficiencies of such provisions place United States-based businesses at a competitive disadvantage relative to foreign-based businesses, (3) the impact of earnings stripping activities on the United States tax base, (4) whether laws of foreign countries facilitate stripping of earnings out of the United States, and (5) whether changes to the earning stripping rules would affect jobs in the United States. (b) REPORT. --Not later than . |
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