|
SEC
.
333. REDUCTION OF EXCISE TAX ON FISHING TACKLE
BOXES.
(a) IN GENERAL. --Subsection (a) of section 4161
(relating to sport fishing equipment) is amended by
redesignating paragraph (3) as paragraph (4) and by
inserting after paragraph (2) the following new
paragraph:
"(3)
3 PERCENT
RATE
OF TAX FOR TACKLE BOXES. --In the case of fishing
tackle boxes, paragraph (1) shall be applied by
substituting '3 percent' for '10 percent'.".
(b) EFFECTIVE DATE. --The amendments made this
section shall apply to articles sold by the
manufacturer, producer, or importer after
December 31, 2004
.
SEC
. 334. SONAR DEVICES SUITABLE FOR FINDING FISH.
(a) NOT TREATED AS SPORT FISHING EQUIPMENT.
--Subsection (a) of section 4162 (relating to sport
fishing equipment defined) is amended by inserting
"and" at the end of paragraph (8), by
striking ", and" at the end of paragraph
(9) and inserting a period, and by striking
paragraph (10).
(b) CONFORMING AMENDMENT. --Section 4162 is amended
by striking subsection (b) and by redesignating
subsection (c) as subsection (b).
(c) EFFECTIVE DATE. --The amendments made this
section shall apply to articles sold by the
manufacturer, producer, or importer after
December 31, 2004
.
SEC
. 335. CHARITABLE CONTRIBUTION DEDUCTION FOR
CERTAIN EXPENSES INCURRED IN SUPPORT OF NATIVE
ALASKAN SUBSISTENCE WHALING.
(a) IN GENERAL. --Section 170 (relating to
charitable, etc., contributions and gifts), as
amended by this Act, is amended by redesignating
subsection (n) as subsection (o) and by inserting
after subsection (m) the following new subsection:
"(n) EXPENSES PAID BY CERTAIN WHALING CAPTAINS
IN SUPPORT OF NATIVE ALASKAN SUBSISTENCE WHALING. --
"(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.".
(b) EFFECTIVE DATE. --The amendments made by
subsection (a) shall apply to contributions made
after
December 31, 2004
.
SEC
. 336. MODIFICATION OF DEPRECIATION ALLOWANCE FOR
AIRCRAFT.
(a) AIRCRAFT TREATED AS QUALIFIED PROPERTY. --
(1) IN GENERAL. --Paragraph (2) of section 168(k) is
amended by redesignating subparagraphs (C) through
(F) as subparagraphs (D) through (G), respectively,
and by inserting after subparagraph (B) the
following new subparagraph:
"(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.".
(2) PLACED IN SERVICE DATE. --Clause (iv) of section
168(k)(2)(A) is amended by striking
"subparagraph (B)" and inserting
"subparagraphs (B) and (C)".
(b) CONFORMING AMENDMENTS. --
(1) Section 168(k)(2)(B) is amended by adding at the
end the following new clause:
"(iv)
APPLICATION OF SUBPARAGRAPH. --This subparagraph
shall not apply to any property which is described
in subparagraph (C).".
(2) Section 168(k)(4)(A)(ii) is amended by striking
"paragraph (2)(C)" and inserting
"paragraph (2)(D)".
(3) Section 168(k)(4)(B)(iii) is amended by
inserting "and paragraph (2)(C)" after
"of this paragraph)".
(4) Section 168(k)(4)(C) is amended by striking
"subparagraphs (B) and (D)" and inserting
"subparagraphs (B), (C), and (E)".
(5) Section 168(k)(4)(D) is amended by striking
"Paragraph (2)(E)" and inserting
"Paragraph (2)(F)".
(c) EFFECTIVE DATE. --The amendments made by this
section shall take effect as if included in the
amendments made by section 101 of the Job Creation
and Worker Assistance Act of 2002.
SEC
. 337. MODIFICATION OF PLACED IN SERVICE RULE FOR
BONUS DEPRECIATION PROPERTY.
(a) IN GENERAL. --Subclause (II) of section
168(k)(2)(E)(iii) (relating to syndication), as
amended by the Working Families Tax Relief Act of
2004 and as redesignated by this Act, is amended by
inserting before the comma at the end the following:
"(or, in the case of multiple units of property
subject to the same lease, within 3 months after the
date the final unit is placed in service, so long as
the period between the time the first unit is placed
in service and the time the last unit is placed in
service does not exceed 12 months)".
(b) EFFECTIVE DATE. --The amendment made by this
section shall apply to property sold after June 4,
2004.
SEC
. 338. EXPENSING OF CAPITAL COSTS INCURRED IN
COMPLYING WITH ENVIRONMENTAL PROTECTION AGENCY
SULFUR REGULATIONS.
(a) IN GENERAL. --Part VI of subchapter B of chapter
1 (relating to itemized deductions for individuals
and corporations) is amended by inserting after
section 179A the following new section:
"
SEC
. 179B. DEDUCTION FOR CAPITAL COSTS INCURRED IN
COMPLYING WITH ENVIRONMENTAL PROTECTION AGENCY
SULFUR REGULATIONS.
"(a) ALLOWANCE OF DEDUCTION. --In the case of a
small business refiner (as defined in section
45H(c)(1)) which elects the application of this
section, there shall be allowed as a deduction an
amount equal to 75 percent of qualified capital
costs (as defined in section 45H(c)(2)) which are
paid or incurred by the taxpayer during the taxable
year.
"(b) REDUCED PERCENTAGE. --In the case of a
small business refiner with average daily domestic
refinery runs for the 1-year period ending on
December 31, 2002, in excess of 155,000 barrels, the
number of percentage points described in subsection
(a) shall be reduced (not below zero) by the product
of such number (before the application of this
subsection) and the ratio of such excess to 50,000
barrels.
"(c) BASIS REDUCTION. --
"(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.".
"(d) COORDINATION WITH OTHER PROVISIONS.
--Section 280B shall not apply to amounts which are
treated as expenses under this section.".
(b) CONFORMING AMENDMENTS. --
(1) Section 263(a)(1), as amended by this Act, is
amended by striking "or" at the end of
subparagraph (G), by striking the period at the end
of subparagraph (H) and inserting ", or",
and by adding at the end the following new
subparagraph:
"(I)
expenditures for which a deduction is allowed under
section 179B.".
(2) Section 263A(c)(3) is amended by inserting
"179B," after "section".
(3) Section 312(k)(3)(B) is amended by striking
"or 179A" each place it appears in the
heading and text and inserting "179A, or
179B".
(4) Section 1016(a) is amended by striking
"and" at the end of paragraph (28), by
striking the period at the end of paragraph (29) and
inserting ", and", and by inserting after
paragraph (29) the following new paragraph:
"(30) to the extent provided in section
179B(c).".
(5) Paragraphs (2)(C) and (3)(C) of section 1245(a)
are each amended by inserting "179B,"
after "179A,".
(6) The table of sections for part VI of subchapter
B of chapter 1, as amended by this Act, is amended
by inserting after the item relating to section 179A
the following new item:
"Sec.
179B. Deduction for capital costs incurred in
complying with Environmental Protection Agency
sulfur regulations.".
(c) EFFECTIVE DATE. --The amendment made by this
section shall apply to expenses paid or incurred
after
December 31, 2002
, in taxable years ending after such date.
SEC
. 339. CREDIT FOR PRODUCTION OF
LOW
SULFUR DIESEL
FUEL
.
(a) IN GENERAL. --Subpart D of part IV of subchapter
A of chapter 1 (relating to business-related
credits), as amended by this Act, is amended by
inserting after section 45G the following new
section:
"
SEC
. 45H. CREDIT FOR PRODUCTION OF
LOW
SULFUR DIESEL
FUEL
.
"(a) IN GENERAL. --For purposes of section 38,
the amount of the low sulfur diesel fuel production
credit determined under this section with respect to
any facility of a small business refiner is an
amount equal to 5 cents for each gallon of low
sulfur diesel fuel produced during the taxable year
by such small business refiner at such facility.
"(b) MAXIMUM CREDIT. --
"(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
December 31, 2002
, in excess of 155,000 barrels, the number of
percentage points described in paragraph (1) shall
be reduced (not below zero) by the product of such
number (before the application of this paragraph)
and the ratio of such excess to 50,000 barrels.
"(c) DEFINITIONS
AND
SPECIAL RULE. --For purposes of this section --
"(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
December 31, 2002
, did not exceed 205,000 barrels.
"(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
January 1, 2003
, and ending on the earlier of the date which is 1
year after the date on which the taxpayer must
comply with the applicable EPA regulations with
respect to such facility or
December 31, 2009
.
"(5)
LOW
SULFUR DIESEL
FUEL
. --The term 'low sulfur diesel fuel' means diesel
fuel with a sulfur content of 15 parts per million
or less.
"(d) REDUCTION IN BASIS. --For purposes of this
subtitle, if a credit is determined under this
section for any expenditure with respect to any
property, the increase in basis of such property
which would (but for this subsection) result from
such expenditure shall be reduced by the amount of
the credit so determined.
"(e) SPECIAL RULE FOR DETERMINATION OF REFINERY
RUNS. --For purposes this section and section
179B(b), in the calculation of average daily
domestic refinery run or retained production, only
refineries which on
April 1, 2003
, were refineries of the refiner or a related person
(within the meaning of section 613A(d)(3)), shall be
taken into account.
"(f) CERTIFICATION. --
"(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.
"(g) COOPERATIVE ORGANIZATIONS. --
"(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)
FORM
AND
EFFECT OF ELECTION. --An election under subparagraph
(A) for any taxable year shall be made on a timely
filed return for such year. Such election, once
made, shall be irrevocable for such taxable year.
"(2)
TREATMENT OF ORGANIZATIONS
AND
PATRONS. --
"(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.".
(b) CREDIT MADE PART OF GENERAL BUSINESS CREDIT.
--Subsection (b) of section 38 (relating to general
business credit), as amended by this Act, is amended
by striking "plus" at the end of paragraph
(16), by striking the period at the end of paragraph
(17) and inserting ", plus", and by
inserting after paragraph (17) the following new
paragraph:
"(18)
the low sulfur diesel fuel production credit
determined under section 45H(a).".
(c) DENIAL OF DOUBLE BENEFIT. --Section 280C
(relating to certain expenses for which credits are
allowable) is amended by adding at the end the
following new subsection:
"(d)
LOW
SULFUR DIESEL
FUEL
PRODUCTION CREDIT. --No deduction shall be allowed
for that portion of the expenses otherwise allowable
as a deduction for the taxable year which is equal
to the amount of the credit determined for the
taxable year under section 45H(a).".
(d) BASIS ADJUSTMENT. --Section 1016(a) (relating to
adjustments to basis), as amended by this Act, is
amended by striking "and" at the end of
paragraph (29), by striking the period at the end of
paragraph (30) and inserting ", and", and
by inserting after paragraph (30) the following new
paragraph:
"(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).".
(e) DEDUCTION FOR CERTAIN UNUSED BUSINESS CREDITS.
--Section 196(c) (defining qualified business
credits), as amended by this Act, is amended by
striking "and" at the end of paragraph
(10), by striking the period at the end of paragraph
(11) and inserting ", and", and by adding
after paragraph (11) the following new paragraph:
"(12)
the low sulfur diesel fuel production credit
determined under section 45H(a).".
(e) CLERICAL AMENDMENT. --The table of sections for
subpart D of part IV of subchapter A of chapter 1,
as amended by this Act, is amended by inserting
after the item relating to section 45G the following
new item:
"Sec.
45H. Credit for production of low sulfur diesel
fuel.".
(f) EFFECTIVE DATE. --The amendments made by this
section shall apply to expenses paid or incurred
after
December 31, 2002
, in taxable years ending after such date.
SEC
. 340. EXPANSION OF QUALIFIED SMALL-ISSUE BOND
PROGRAM.
(a) IN GENERAL. --Section 144(a)(4) (relating to
$10,000,000 limit in certain cases) is amended by
adding at the end the following new subparagraph:
"(G)
ADDITIONAL CAPITAL EXPENDITURES NOT TAKEN INTO
ACCOUNT. --With respect to bonds issued after
September 30, 2009
, in addition to any capital expenditure described
in subparagraph (C), capital expenditures of not to
exceed $10,000,000 shall not be taken into account
for purposes of applying subparagraph (A)(ii).".
(b) CONFORMING AMENDMENT. --Subparagraph (F) of
section 144(a)(4) is amended by adding at the end
the following new sentence: "This subparagraph
shall not apply to bonds issued after
September 30, 2009
.".
SEC
. 341.
OIL
AND
GAS
FROM MARGINAL WELLS.
(a) IN GENERAL. --Subpart D of part IV of subchapter
A of chapter 1 (relating to business credits), as
amended by this Act, is amended by inserting after
section 45H the following:
"
SEC
. 45I. CREDIT FOR PRODUCING
OIL
AND
GAS
FROM MARGINAL WELLS.
"(a) GENERAL RULE. --For purposes of section
38, the marginal well production credit for any
taxable year is an amount equal to the product of --
"(1)
the credit amount, and
"(2)
the qualified credit oil production and the
qualified natural gas production which is
attributable to the taxpayer.
"(b) CREDIT AMOUNT. --For purposes of this
section --
"(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
OIL
AND
GAS
PRICES INCREASE. --
"(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.
"(c) QUALIFIED CRUDE
OIL
AND
NATURAL
GAS
PRODUCTION. --For purposes of this section --
"(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
MAY
QUALIFY. --
"(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
WELL
. --The term 'qualified marginal well' means a
domestic well --
"(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
OIL
,
ETC
. --The terms 'crude oil', 'natural gas',
'domestic', and 'barrel' have the meanings given
such terms by section 613A(e).
"(d) OTHER RULES. --
"(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.".
(b) CREDIT TREATED AS BUSINESS CREDIT. --Section
38(b), as amended by this Act, is amended by
striking "plus" at the end of paragraph
(17), by striking the period at the end of paragraph
(18) and inserting ", plus", and by
inserting after paragraph (18) the following:
"(19)
the marginal oil and gas well production credit
determined under section 45I(a).".
(c) CARRYBACK. --Subsection (a) of section 39
(relating to carryback and carryforward of unused
credits generally) is amended by adding at the end
the following:
"(3)
5-YEAR CARRYBACK FOR MARGINAL
OIL
AND
GAS
WELL
PRODUCTION CREDIT. --Notwithstanding subsection (d),
in the case of the marginal oil and gas well
production credit --
"(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.".
(d) CLERICAL AMENDMENT. --The table of sections for
subpart D of part IV of subchapter A of chapter 1,
as amended by this Act, is amended by inserting
after section 45H the following:
PL,
P.L. 108-357, American Jobs Creation Act of
2004, Enrolled, , (October 21, 2004), Part 02
of 04
|
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.".
(e) EFFECTIVE DATE. --The amendments made by this
section shall apply to production in taxable years
beginning after
December 31, 2004
.
TITLE IV --TAX REFORM
AND
SIMPLIFICATION FOR UNITED STATES BUSINESSES
SEC
. 401. INTEREST EXPENSE ALLOCATION RULES.
(a) ELECTION TO ALLOCATE ON WORLDWIDE BASIS.
--Section 864 is amended by redesignating subsection
(f) as subsection (g) and by inserting after
subsection (e) the following new subsection:
"(f) ELECTION TO ALLOCATE INTEREST,
ETC
. ON WORLDWIDE BASIS. --For purposes of this
subchapter, at the election of the worldwide
affiliated group --
"(1)
ALLOCATION
AND
APPORTIONMENT OF INTEREST EXPENSE. --
"(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
AND
APPORTIONMENT OF OTHER EXPENSES. --Expenses other
than interest which are not directly allocable or
apportioned to any specific income producing
activity shall be allocated and apportioned as if
all members of the affiliated group were a single
corporation. For purposes of the preceding sentence,
the term 'affiliated group' has the meaning given
such term by section 1504 (determined without regard
to paragraph (4) of section 1504(b)).
"(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
AND
FINANCIAL HOLDING COMPANIES. --To the extent
provided in regulations --
"(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
December 31, 2008
, in which such affiliated group includes 1 or more
financial corporations. Such an election, once made,
shall apply to all financial corporations which are
members of the electing financial institution group
for such taxable year and all subsequent years
unless revoked with the consent of the Secretary.
"(E)
DEFINITIONS RELATING TO GROUPS. --For purposes of
this paragraph --
"(i)
PRE
-ELECTION WORLDWIDE AFFILIATED GROUP. --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 paragraph) be a
member for purposes of applying paragraph (1).
"(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
December 31, 2008
, in which a worldwide affiliated group exists which
includes such affiliated group and at least 1
foreign corporation. 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) EXPANSION OF REGULATORY AUTHORITY. --Paragraph
(7) of section 864(e) is amended --
(1) by inserting before the comma at the end of
subparagraph (B) "and in other circumstances
where such allocation would be appropriate to carry
out the purposes of this subsection", and
(2) by striking "and" at the end of
subparagraph (E), by redesignating subparagraph (F)
as subparagraph (G), and by inserting after
subparagraph (E) the following new subparagraph:
"(F)
preventing assets or interest expense from being
taken into account more than once, and".
(c) EFFECTIVE DATE. --The amendments made by this
section shall apply to taxable years beginning after
December 31, 2008
.
SEC
. 402. 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 and
section 936, in the case of any taxpayer who
sustains an overall domestic loss for any taxable
year beginning after
December 31, 2006
, 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 --
"(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, 2006
.
SEC
. 403.
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 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
AND
PROFITS OF CONTROLLED FOREIGN CORPORATIONS. --In the
case of any distribution from a controlled foreign
corporation to a United States shareholder, rules
similar to the rules of subparagraph (A) shall apply
in determining the extent to which earnings and
profits of the controlled foreign corporation which
are attributable to dividends received from a
noncontrolled section 902 corporation may be treated
as income in a separate category.
"(C)
SPECIAL RULES. --For purposes of this paragraph --
"(i)
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.
"(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)
LOOK
-THRU WITH RESPECT TO CARRYOVER OF CREDIT. --Rules
similar to subparagraph (A) also shall apply to any
carryforward under subsection (c) from a taxable
year beginning before
January 1, 2003
, of tax allocable to a dividend from a
noncontrolled section 902 corporation with respect
to the taxpayer. The Secretary may by regulations
provide for the allocation of any carryback of tax
allocable to a dividend from a noncontrolled section
902 corporation from a taxable year beginning on or
after
January 1, 2003
, to a taxable year beginning before such date for
purposes of allocating such dividend among the
separate categories in effect for the taxable year
to which carried.".
(b) CONFORMING AMENDMENTS. --
(1) Subparagraph (E) of section 904(d)(1) is hereby
repealed.
(2) Section 904(d)(2)(C)(iii) is amended by adding
"and" at the end of subclause (I), by
striking subclause (II), and by redesignating
subclause (
III
) as subclause (II).
(3) The last sentence of section 904(d)(2)(D) is
amended to read as follows: "Such term does not
include any financial services income.".
(4) Section 904(d)(2)(E) is amended --
(A) by inserting "or (4)" after
"paragraph (3)" in clause (i), and
(B) 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, 2002
.
SEC
. 404. REDUCTION TO 2 FOREIGN TAX CREDIT BASKETS.
(a) IN GENERAL. --Paragraph (1) of section 904(d)
(relating to separate application of section with
respect to certain categories of income) is amended
to read as follows:
"(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.".
(b) CATEGORIES. --Paragraph (2) of section 904(d) is
amended by striking subparagraph (B), by
redesignating subparagraph (A) as subparagraph (B),
and by inserting before subparagraph (B) (as so
redesignated) the following new subparagraph:
"(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.".
(c) SPECIFIED PASSIVE CATEGORY INCOME.
--Subparagraph (B) of section 904(d)(2), as so
redesignated, is amended by adding at the end the
following new clause:
"(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
"(
III
) distributions from a FSC (or a former FSC) out of
earnings and profits attributable to foreign trade
income (within the meaning of section 923(b)) or
interest or carrying charges (as defined in section
927(d)(1)) derived from a transaction which results
in foreign trade income (as defined in section
923(b)).".
(d) TREATMENT OF FINANCIAL SERVICES. --Paragraph (2)
of section 904(d), as amended by section 403(b)(3),
is amended by striking subparagraph (D), by
redesignating subparagraph (C) as subparagraph (D),
and by inserting before subparagraph (D) (as so
redesignated) the following new subparagraph:
"(C)
TREATMENT OF FINANCIAL SERVICES INCOME
AND
COMPANIES. --
"(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.".
(e) TREATMENT OF INCOME TAX BASE DIFFERENCES.
--Paragraph (2) of section 904(d) is amended by
redesignating subparagraphs (H) and (I) as
subparagraphs (I) and (J), respectively, and by
inserting after subparagraph (G) the following new
subparagraph:
"(H)
TREATMENT OF INCOME TAX BASE DIFFERENCES. --
"(i)
IN GENERAL. --In the case of taxable years beginning
after
December 31, 2006
, tax imposed under the law of a foreign country or
possession of the United States on an amount which
does not constitute income under United States tax
principles shall be treated as imposed on income
described in paragraph (1)(B).
"(ii)
SPECIAL RULE FOR YEARS BEFORE 2007. --
"(I)
IN GENERAL. --In the case of taxes paid or accrued
in taxable years beginning after
December 31, 2004
, and before
January 1, 2007
, a taxpayer may elect to treat tax imposed under
the law of a foreign country or possession of the
United States on an amount which does not constitute
income under United States tax principles as tax
imposed on income described in subparagraph (C) or
(I) of paragraph (1).
"(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.".
(f) CONFORMING AMENDMENTS. --
(1) Clause (iii) of section 904(d)(2)(B) (relating
to exceptions from passive income), as so
redesignated, is amended by striking subclause (I)
and by redesignating subclauses (II) and (
III
) as subclauses (I) and (II), respectively.
(2) Clause (i) of section 904(d)(2)(D) (defining
financial services income), as so redesignated, is
amended by adding "or" at the end of
subclause (I) and by striking subclauses (II) and (
III
) and inserting the following new subclause:
"(II)
passive income (determined without regard to
subparagraph (B)(iii)(II)).".
(3) Section 904(d)(2)(D) (defining financial
services income), as so redesignated and amended by
section 404(b)(3), is amended by striking clause
(iii).
(4) Paragraph (3) of section 904(d) is amended to
read as follows:
"(3)
LOOK
-THRU IN CASE OF CONTROLLED FOREIGN CORPORATIONS. --
"(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,
AND
ROYALTIES. --Any interest, rent, or royalty which is
received or accrued from a controlled foreign
corporation in which the taxpayer is a United States
shareholder shall be treated as passive category
income to the extent it is properly allocable (under
regulations prescribed by the Secretary) to passive
category income of the controlled foreign
corporation.
"(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)
LOOK
-THRU APPLIES ONLY WHERE SUBPART F APPLIES. --If a
controlled foreign corporation meets the
requirements of section 954(b)(3)(A) (relating to de
minimis rule) for any taxable year, for purposes of
this paragraph, none of its foreign base company
income (as defined in section 954(a) without regard
to section 954(b)(5)) and none of its gross
insurance income (as defined in section
954(b)(3)(C)) for such taxable year shall be treated
as passive category income, except that this
sentence shall not apply to any income which
(without regard to this sentence) would be treated
as financial services income. Solely for purposes of
applying subparagraph (D), passive income of a
controlled foreign corporation shall not be treated
as passive category income if the requirements of
section 954(b)(4) are met with respect to such
income.
"(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)
LOOK
-THRU APPLIES TO PASSIVE FOREIGN INVESTMENT COMPANY
INCLUSION. --If --
"(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.".
(5) Paragraph (2) of section 904(d) is amended by
adding at the end the following new subparagraph:
"(K)
TRANSITIONAL RULES FOR 2007 CHANGES. --For purposes
of paragraph (1) --
"(i)
taxes carried from any taxable year beginning before
January 1, 2007
, to any taxable year beginning on or after such
date, with respect to any item of income, shall be
treated as described in the subparagraph of
paragraph (1) in which such income would be
described were such taxes paid or accrued in a
taxable year beginning on or after such date, and
"(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
January 1, 2007
, to a taxable year beginning before such date for
purposes of allocating such income among the
separate categories in effect for the taxable year
to which carried.".
(6) Section 904(j)(3)(A)(i) is amended by striking
"subsection (d)(2)(A)" and inserting
"subsection (d)(2)(B)".
(g) EFFECTIVE DATES. --
(1) IN GENERAL. --The amendments made by this
section shall apply to taxable years beginning after
December 31, 2006
.
(2) TRANSITIONAL RULE RELATING TO INCOME TAX BASE
DIFFERENCE. --Section 904(d)(2)(H)(ii) of the
Internal Revenue Code of 1986, as added by
subsection (e), shall apply to taxable years
beginning after
December 31, 2004
.
SEC
. 405. 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) CLARIFICATION OF COMPARABLE ATTRIBUTION UNDER
SECTION 901(b)(5). --Paragraph (5) of section 901(b)
is amended by striking "any individual"
and inserting "any person".
(c) EFFECTIVE DATE. --The amendments made by this
section shall apply to taxes of foreign corporations
for taxable years of such corporations beginning
after the date of the enactment of this Act.
SEC
. 406. CLARIFICATION OF TREATMENT OF CERTAIN
TRANSFERS OF INTANGIBLE PROPERTY.
(a) IN GENERAL. --Subparagraph (C) of section
367(d)(2) is amended by adding at the end the
following new sentence: "For purposes of
applying section 904(d), any such amount shall be
treated in the same manner as if such amount were a
royalty.".
(b) EFFECTIVE DATE. --The amendment made by this
section shall apply to amounts treated as received
pursuant to section 367(d)(2) of the Internal
Revenue Code of 1986 on or after
August 5, 1997
.
SEC
. 407. UNITED STATES PROPERTY NOT TO INCLUDE
CERTAIN ASSETS OF CONTROLLED FOREIGN CORPORATION.
(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 a
semicolon, and by adding at the end the following
new subparagraphs:
"(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.".
(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, 2004
, and to taxable years of United States shareholders
with or within which such taxable years of foreign
corporations end.
SEC
. 408. TRANSLATION OF FOREIGN TAXES.
(a) ELECTIVE EXCEPTION FOR TAXES PAID OTHER THAN IN
FUNCTIONAL CURRENCY. --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) SPECIAL RULE FOR REGULATED INVESTMENT COMPANIES.
--
(1) IN GENERAL. --Section 986(a)(1), as amended by
subsection (a), is amended by redesignating
subparagraph (E) as subparagraph (F) and by
inserting after subparagraph (D) the following:
"(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.".
(2) CONFORMING AMENDMENT. --Section 986(a)(2) is
amended by inserting "or (E)" after
"subparagraph (A)".
(c) EFFECTIVE DATE. --The amendments made by this
section shall apply to taxable years beginning after
December 31, 2004
.
SEC
. 409. 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 which are
treated under section 861(a)(2)(B) as income from
sources within the United States.".
(b) EFFECTIVE DATE. --The amendment made by this
section shall apply to payments made after
December 31, 2004
.
SEC
. 410. EQUAL TREATMENT OF INTEREST PAID BY
FOREIGN PARTNERSHIPS
AND
FOREIGN CORPORATIONS.
(a) IN GENERAL. --Paragraph (1) of section 861(a) is
amended by striking "and" at the end of
subparagraph (A), by striking the period at the end
of subparagraph (B) and inserting ", and",
and by adding at the end the following new
subparagraph:
"(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.".
(b) EFFECTIVE DATE. --The amendments made by this
section shall apply to taxable years beginning after
December 31, 2003
.
SEC
. 411. 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, 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
December 31, 2007
.
"(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). --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
December 31, 2007
.
"(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.".
(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 (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.".
(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.
"(3)
TERMINATION. --This subsection shall not apply to
estates of decedents dying after
December 31, 2007
.".
(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. --
"(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
December 31, 2007
.
"(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
December 31, 2004
.
(2) ESTATE TAX TREATMENT. --The amendment made by
subsection (b) shall apply to estates of decedents
dying after
December 31, 2004
.
(3) CERTAIN OTHER PROVISIONS. --The amendments made
by subsection (c) (other than paragraph (1) thereof)
shall take effect after
December 31, 2004
.
SEC
. 412.
LOOK
-THRU TREATMENT FOR SALES OF PARTNERSHIP INTERESTS.
(a) IN GENERAL. --Section 954(c) (defining foreign
personal holding company income) is amended by
adding after paragraph (3) the following new
paragraph:
"(4)
LOOK
-THRU 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. 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.".
(b) EFFECTIVE DATE. --The amendment made by this
section shall apply to taxable years of foreign
corporations beginning after
December 31, 2004
, and to taxable years of United States shareholders
with or within which such taxable years of foreign
corporations end.
SEC
. 413. 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:
"(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.".
(c) CONFORMING AMENDMENTS. --
(1) Section 1(h) is amended --
(A) in paragraph (10), by inserting "and"
at the end of subparagraph (F), by striking
subparagraph (G), and by redesignating subparagraph
(H) as subparagraph (G), and
(B) by striking "a foreign personal holding
company (as defined in section 552), a foreign
investment company (as defined in section 1246(b)),
or" in paragraph (11)(C)(iii).
(2) 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 foreign personal holding
company".
(3) Paragraph (2) of section 245(a) is amended by
striking "foreign personal holding company
or".
(4) Section 312 is amended by striking subsection
(j).
(5) 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)".
(6) Subsection (e) of section 443 is amended by
striking paragraph (3) and by redesignating
paragraphs (4) and (5) as paragraphs (3) and (4),
respectively.
(7) Subparagraph (B) of section 465(c)(7) is amended
by adding "or" at the end of clause (i),
by striking clause (ii), and by redesignating clause
(iii) as clause (ii).
(8) 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).
(9) Paragraph (1) of section 562(b) is amended by
striking "or a foreign personal holding company
described in section 552".
(10) 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)".
(11) 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)".
(12) 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.
(13)(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.".
(14) Clause (ii) of section 904(d)(2)(A) 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).".
(15)(A) Subparagraph (A) of section 904(h)(1), as
redesignated by this Act, 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(h), as so redesignated, is amended by
striking "FOREIGN PERSONAL HOLDING OR".
(16) Section 951 is amended by striking subsections
(c) and (d) and by redesignating subsections (e) and
(f) as subsections (c) and (d), respectively.
(17) Paragraph (3) of section 989(b) is amended by
striking ", 551(a),".
(18) Paragraph (5) of section 1014(b) is amended by
inserting "and before
January 1, 2005
," after "August 26, 1937,".
(19) Subsection (a) of section 1016 is amended by
striking paragraph (13).
(20)(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
.
(21) Section 1223 is amended by striking paragraph
(10) and by redesignating the following paragraphs
accordingly.
(22) Subsection (d) of section 1248 is amended by
striking paragraph (5) and by redesignating
paragraphs (6) and (7) as paragraphs (5) and (6),
respectively.
(23) Paragraph (2) of section 1260(c) is amended by
striking subparagraphs (H) and (I) and by
redesignating subparagraph (J) as subparagraph (H).
(24)(A) Subparagraph (F) of section 1291(b)(3) is
amended by striking "551(d), 959(a)," and
inserting "959(a)".
(B) Subsection (e) of section 1291 is amended by
inserting "(as in effect on the day before the
date of the enactment of the American Jobs Creation
Act of 2004)" after "section 1246".
(25) 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.".
(26) Section 6035 is hereby repealed.
(27) 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.
(28) 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.".
(29) 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).
(30) Sections 170(f)(10)(A), 508(d), 4947, and
4948(c)(4) are each amended by striking
"556(b)(2)," each place it appears.
(31) The table of parts for subchapter G of chapter
1 is amended by striking the item relating to part
III
.
(32) 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.
(33) The table of sections for subpart A of part
III
of subchapter A of chapter 61 is amended by striking
the item relating to section 6035.
(d) EFFECTIVE DATES. --
(1) IN GENERAL. --Except as provided in paragraph
(2), the amendments made by this section shall apply
to taxable years of foreign corporations beginning
after
December 31, 2004
, and to taxable years of United States shareholders
with or within which such taxable years of foreign
corporations end.
(2) SUBSECTION (c)(27). --The amendments made by
subsection (c)(27) shall apply to disclosures of
return or return information with respect to taxable
years beginning after
December 31, 2004
.
SEC
. 414. 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 (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".
(b) DEFINITION
AND
SPECIAL RULES. --Subsection (c) of section 954, as
amended by this Act, 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)
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.".
(c) MODIFICATION OF EXCEPTION FOR DEALERS. --Clause
(i) of section 954(c)(2)(C) is amended by inserting
"and transactions involving physical
settlement" after "(including hedging
transactions".
(d) EFFECTIVE DATE. --The amendments made by this
section shall apply to transactions entered into
after December 31, 2004.
SEC
. 415. MODIFICATIONS TO TREATMENT OF AIRCRAFT
LEASING
AND
SHIPPING INCOME.
(a) ELIMINATION OF FOREIGN BASE COMPANY SHIPPING
INCOME. --Section 954 (relating to foreign base
company income) is amended --
(1) by striking paragraph (4) of subsection (a)
(relating to foreign base company shipping income),
and
(2) by striking subsection (f) (relating to foreign
base company shipping income).
(b)
SAFE
HARBOR FOR CERTAIN LEASING ACTIVITIES.
--Subparagraph (A) of section 954(c)(2) is amended
by adding at the end the following new sentence:
"For purposes of the preceding sentence, rents
derived from leasing an aircraft or vessel in
foreign commerce shall not fail to be treated as
derived in the active conduct of a trade or business
if, as determined under regulations prescribed by
the Secretary, the active leasing expenses are not
less than 10 percent of the profit on the
lease.".
(c) CONFORMING AMENDMENTS. --
(1) Section 952(c)(1)(B)(iii) is amended by striking
subclause (I) and redesignating subclauses (II)
through (VI) as subclauses (I) through (V),
respectively.
(2) Subsection (b) of section 954 is amended --
(A) by striking "the foreign base company
shipping income," in paragraph (5),
(B) by striking paragraphs (6) and (7), and
(C) by redesignating paragraph (8) as paragraph (6).
(d) EFFECTIVE DATE. --The amendments made by this
section shall apply to taxable years of foreign
corporations beginning after December 31, 2004, and
to taxable years of United States shareholders with
or within which such taxable years of foreign
corporations end.
SEC
. 416. MODIFICATION OF EXCEPTIONS UNDER SUBPART F
FOR ACTIVE FINANCING.
(a) IN GENERAL. --Section 954(h)(3) is amended by
adding at the end the following:
"(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.".
(b) EFFECTIVE DATE. --The amendment made by this
section shall apply to taxable years of such foreign
corporations beginning after December 31, 2004, and
to taxable years of United States shareholders with
or within which such taxable years of such foreign
corporations end.
SEC
. 417. 10-YEAR FOREIGN TAX CREDIT CARRYOVER;
1-YEAR FOREIGN TAX CREDIT CARRYBACK.
(a) GENERAL RULE. --Section 904(c) (relating to
carryback and carryover of excess tax paid) is
amended --
(1) by striking "in the second preceding
taxable year,", and
(2) by striking ", and in the first, second,
third, fourth, or fifth" and inserting
"and in any of the first 10".
(b) EXCESS EXTRACTION TAXES. --Paragraph (1) of
section 907(f) is amended --
(1) by striking "in the second preceding
taxable year,",
(2) by striking ", and in the first, second,
third, fourth, or fifth" and inserting
"and in any of the first 10", and
(3) by striking the last sentence.
(c) EFFECTIVE DATE. --
(1) CARRYBACK. --The amendments made by subsections
(a)(1) and (b)(1) shall apply to excess foreign
taxes arising in taxable years beginning after the
date of the enactment of this Act.
(2) CARRYOVER. --The amendments made by subsections
(a)(2) and (b)(2) shall apply to excess foreign
taxes which (without regard to the amendments made
by this section) may be carried to any taxable year
ending after the date of the enactment of this Act.
SEC
. 418. MODIFICATION OF THE TREATMENT OF CERTAIN
REIT DISTRIBUTIONS ATTRIBUTABLE TO GAIN FROM SALES
OR EXCHANGES OF UNITED STATES
REAL
PROPERTY INTERESTS.
(a) IN GENERAL. --Paragraph (1) of section 897(h)
(relating to look-through of distributions) is
amended by adding at the end the following new
sentence: "Notwithstanding the preceding
sentence, any distribution by a REIT with respect to
any class of stock which is regularly traded on an
established securities market located in the United
States shall not be treated as gain recognized from
the sale or exchange of a United States real
property interest if the shareholder did not own
more than 5 percent of such class of stock at any
time during the taxable year.".
(b) CONFORMING AMENDMENT. --Paragraph (3) of section
857(b) (relating to capital gains) is amended by
adding at the end the following new subparagraph:
"(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.".
(c) EFFECTIVE DATE. --The amendments made by this
section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC
. 419. EXCLUSION OF INCOME DERIVED FROM CERTAIN
WAGERS ON HORSE RACES
AND
DOG RACES FROM GROSS INCOME OF NONRESIDENT ALIEN
INDIVIDUALS.
(a) IN GENERAL. --Subsection (b) of section 872
(relating to exclusions) is amended by redesignating
paragraphs (5), (6), and (7) as paragraphs (6), (7),
and (8), respectively, and inserting after paragraph
(4) the following new paragraph:
"(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.".
(b) CONFORMING AMENDMENT. --Section 883(a)(4) is
amended by striking "(5), (6), and (7)"
and inserting "(6), (7), and (8)".
(c) EFFECTIVE DATE. --The amendments made by this
section shall apply to wagers made after the date of
the enactment of this Act.
SEC
. 420. LIMITATION OF WITHHOLDING TAX FOR PUERTO
RICO CORPORATIONS.
(a) IN GENERAL. --Subsection (b) of section 881 is
amended by redesignating paragraph (2) as paragraph
(3) and by inserting after paragraph (1) the
following new paragraph:
"(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.".
(b) WITHHOLDING. --Subsection (c) of section 1442
(relating to withholding of tax on foreign
corporations) is amended --
(1) by striking "For purposes" and
inserting the following:
"(1) GUAM, AMERICAN SAMOA, THE NORTHERN MARIANA
ISLANDS,
AND
THE VIRGIN ISLANDS. --For purposes", and
(2) by adding at the end the following new
paragraph:
"(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 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.".
(c) CONFORMING AMENDMENTS. --
(1) Subsection (b) of section 881 is amended by
striking "GUAM
AND
VIRGIN ISLANDS CORPORATIONS" in the heading and
inserting "POSSESSIONS".
(2) Paragraph (1) of section 881(b) is amended by
striking "IN GENERAL" in the heading and
inserting "GUAM, AMERICAN SAMOA, THE NORTHERN
MARIANA ISLANDS,
AND
THE VIRGIN ISLANDS".
(d) EFFECTIVE DATE. --The amendments made by this
section shall apply to dividends paid after the date
of the enactment of this Act.
SEC
. 421. FOREIGN TAX CREDIT UNDER ALTERNATIVE
MINIMUM TAX.
(a) IN GENERAL. --
(1) Subsection (a) of section 59 is amended by
striking paragraph (2) and by redesignating
paragraphs (3) and (4) as paragraphs (2) and (3),
respectively.
(2) Section 53(d)(1)(B)(i)(II) is amended by
striking "and if section 59(a)(2) did not
apply".
(b) EFFECTIVE DATE. --The amendments made by this
section shall apply to taxable years beginning after
December 31, 2004.
SEC
. 422. INCENTIVES TO REINVEST FOREIGN EARNINGS IN
UNITED STATES.
(a) IN GENERAL. --Subpart F of part
III
of subchapter N of chapter 1 (relating to controlled
foreign corporations) is amended by adding at the
end the following new section:
"
SEC
. 965. TEMPORARY DIVIDENDS RECEIVED DEDUCTION.
"(a) DEDUCTION. --
"(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.
"(b) LIMITATIONS. --
"(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
June 30, 2003
, shall not be taken into account.
"(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
October 3, 2004
.
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.
"(c) DEFINITIONS
AND
SPECIAL RULES. --For purposes of this section --
"(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
June 30, 2003
, as being prepared in accordance with generally
accepted accounting principles, and
"(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
June 30, 2003
.
"(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
June 30, 2003
, and
"(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
June 30, 2003
, then in lieu of applying subparagraph (A), the
base period years shall include all the taxable
years of the taxpayer ending on or before
June 30, 2003
.
"(C)
MERGERS, ACQUISITIONS,
ETC
. --
"(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,
ETC
. --If there is a distribution to which section 355
(or so much of section 356 as relates to section
355) applies during the 5-year period referred to in
subparagraph (A)(i) and the controlled corporation
(within the meaning of section 355) is a United
States shareholder --
"(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.
"(d) DENIAL OF FOREIGN TAX CREDIT; DENIAL OF
CERTAIN EXPENSES. --
"(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.
"(e) INCREASE IN TAX ON INCLUDED AMOUNTS NOT
REDUCED BY CREDITS,
ETC
. --
"(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,
ETC
. --
"(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.
"(f) ELECTION. --The taxpayer may elect to
apply this section to --
"(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.
Such election may be made for a taxable year only if
made before the due date (including extensions) for
filing the return of tax for such taxable
year.".
(b) ALTERNATIVE MINIMUM TAX. --Subparagraph (C) of
section 56(g)(4) is amended by inserting after
clause (v) the following new clause:
"(vi)
SPECIAL RULE FOR CERTAIN DISTRIBUTIONS FROM
CONTROLLED FOREIGN CORPORATIONS. --Clause (i) shall
not apply to any deduction allowable under section
965.".
(c) CLERICAL AMENDMENT. --The table of sections for
subpart F of part
III
of subchapter N of chapter 1 is amended by adding at
the end the following new item:
"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.
SEC
. 423. DELAY IN EFFECTIVE DATE OF FINAL
REGULATIONS GOVERNING EXCLUSION OF INCOME FROM
INTERNATIONAL OPERATION OF SHIPS OR AIRCRAFT.
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
September 24, 2004
.
SEC
. 424. STUDY OF EARNINGS STRIPPING PROVISIONS.
(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
June 30, 2005
, the Secretary shall submit to the Congress a
report of the study conducted under this section,
including specific recommendations as to how to
improve the provisions of such Code applicable to
earnings stripping.
.
|