§ 907. Special rules in case of foreign oil and gas income

Legislative history

Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.

1. 1975

   Tax Reduction Act of 1975

   Pub. L. 94–12 title VI § 601(a) · 89 Stat. 26

   Enacted · 26 U.S.C. § 907

   Added Pub. L. 94–12, title VI, § 601(a), Mar. 29, 1975, 89 Stat. 54

   Source evidence

   Code source credit
   Added Pub. L. 94–12, title VI, § 601(a), Mar. 29, 1975, 89 Stat. 54

   Enacted provision · exact public law section
   (a) In General.— Subpart A of part. HI of subchapter N of chapter 1 (relating to foreign tax credit) is amended by adding at the end thereof the following new section: “SEC. 907. SPECIAL RULES IN CASE OF FOREIGN OIL AND GAS INCOME. “(a) Reduction in Amount Allowed as Foreign Tax Under Section 901.— In applying section 901, the amount of any income, war profits, and excess profits taxes paid or accrued (or deemed to have been paid) during the taxable year with respect to foreign oil and gas extraction income which would (but for this subsection) be taken into account for purposes of section 901 shall be reduced by the amount (if any) by which the amount of such taxes exceeds the product of— “(1) the amount of the foreign oil and gas extraction income for the taxable year, multiplied by “(2) the percentage which is— “(A) in taxable years ending in 1975, 110 percent of, “(B) in taxable years ending in 1976, 105 percent of, and “(C) in taxable years ending after 1976, 2 percentage points above, the sum of the normal tax rate and the surtax rate for the taxable year 26 USC 11. 26 USC 904. specified in section 11. “(b) Application of Section 904 Limitation.— The provisions of section 904 shall be applied separately with respect to— “(1) foreign oil related income, and “(2) other taxable income. With respect to foreign oil related income, the overall limitation provided by section 904(a)(2) shall apply and the per-country limitation provided by section 904(a)(1) shall not apply. “(c) Foreign Income Definitions and Special Rules.— For purposes of this section— “(1) Foreign oil and gas extraction income.— The term ‘foreign oil and gas extraction income’ means the taxable income derived from sources without the United States and its possessions from— “(A) the extraction (by the taxpayer or any other person) of minerals from oil or gas wells, or “(B) the sale or exchange of assets used by the taxpayer in the trade or business described in subparagraph (A). “(2) Foreign oil related income.— The term ‘foreign oil related income’ means the taxable income derived from sources outside the United States and its possessions from— “(A) the extraction (by the taxpayer or any other person) of minerals from oil or gas wells, “(B) the processing of such minerals into their primary products, “(C) the transportation of such minerals or primary products, “(D) the distribution or sale of such minerals or primary products, or “(E) the sale or exchange of assets used by the taxpayer in the trade or business described in subparagraph (A). (B), (C), or (D). “(3) Dividends, interest, partnership distribution, etc.— The term ‘foreign oil and gas extraction income’ and the term ‘foreign oil related income’ include— “(A) dividends and interest from a foreign corporation in respect of which taxes are deemed paid by the taxpayer under section 902, 26 USC 904. “(B) dividends from a domestic corporation which are treated under section 861(a)(2)(A) as income from sources 26 USC 902. without the United States, “(C) amounts with respect to which taxes are deemed paid under section 960(a), and 26 USC 861. “(D) the taxpayer’s distributive share of the income of partnerships. to the extent such dividends, interest, amounts, or distributive share is attributable to foreign oil and gas extraction income, or to foreign oil related income, as the case may be; except that interest described in subparagraph (A) and dividends described in subparagraph (B) shall not be taken into account in computing foreign oil and gas extraction income, but shall be taken into account in computing foreign oil-related income. “(4) Certain losses.— If for any foreign country for any taxable year the taxpayer would have a net operating loss if only items from sources within such country (including deductions properly apportioned or allocated thereto) which relate to the extraction of minerals from oil or gas wells were taken into account, such items— “(A) shall not be taken into account in computing foreign oil and gas extraction income for such year, but “(B) shall be taken into account in computing foreign oil related income for such year. “(d) Disregard of Certain Posted Prices, Etc.— For purposes of tills chapter, in determining the amount of taxable income in the case of foreign oil and gas extraction income, if the oil or gas is disposed of, or is acquired other than from the government, of a foreign country, at a posted price (or other pricing arrangement) which differs from the fair market value for such oil or gas, such fair market value shall be used in lieu of such posted price (or other pricing arrangement). “(e) Transitional Rules.— “(1) Taxable years ending after december 31, 1074.— In applying subsections (d) and (e.) of section 904 for purposes of 26 USC 960. determining the amount which may be carried over from a taxable year ending before January 1, 1975, to any taxable year ending after December 31, 1974— “(A) subsection (a) of this section shall be deemed to have been in effect for such prior taxable year and for all taxable years thereafter, and “(B) the carryover from such prior year shall be divided (effective as of the first day of the first taxable year ending after December 31, 1974) into— “(i) a foreign oil related carryover, and “(ii) another carryover, on the, basis of the proportionate share of the foreign oil related income, or the other taxable income, as the case may be, of the total taxable income taken into account in computing the amount of such carryover. “(2) Taxable years ending after december 31, 1975.— In applying subsections (d) and (e) of section 904 for purposes of determining the amount which may be carried over from a tax-able year ending before January 1, 1976, to any taxable year ending after December 31, 1975, if the per-country limitation provided 26 USC 904. by section 904(a)(1) applied to such prior taxable year and to the taxpayer’s last taxable year ending before January 1, 1976, then in the case of any foreign oil related carryover— “(A) the first sentence of section 904(e)(2) shall not apply, but “(B) such amount may not exceed the amount which could have been used in such succeeding taxable year if the per-country limitation continued to apply. “(f) Recapture of Foreign Oil Related Loss.— “(1) General rule.— For purposes of this subpart, in the case of any taxpayer who sustains a foreign oil related loss for any taxable year— “(A) that portion of the foreign oil related income for each succeeding taxable year which is equal to the lesser of— “(i) the amount of such loss (to the extent not used under this paragraph in prior years), or “(ii) 50 percent of the foreign oil related income for such succeeding taxable year, shall be treated as income from sources within the United States (and not as income from sources without the United States), and “(B) the amount of the income, war profits, and excess profits taxes paid or accrued (or deemed to have been paid) to a foreign country for such succeeding taxable year with respect to foreign oil related income shall lie reduced by an amount which bears the same proportion to the total amount of such foreign taxes as the amount treated as income from sources within the United States under subparagraph (A) bears to the total foreign oil related income for such succeeding taxable year. For purposes of this chapter, the amount of any foreign taxes for which credit is denied under subparagraph (B) of the preceding sentence shall not be allowed as a deduction for any taxable year. For purposes of this subsection, foreign oil related income shall be determined without regard to this subsection. “(2) Foreign oil related loss defined.— For purposes of this subsection, the term ‘foreign oil related loss’ means the amount by which the gross income for the taxable year from sources without the United States and its possessions (whether or not the taxpayer chooses the benefits of this subpart for such taxable year) taken into account in determining the foreign oil related income for such year is exceeded by the sum of the deductions properly apportioned or allocated thereto, except that there shall not be taken into account— “(A) any net operating loss deduction allowable for such 26 USC 172. 26 USC 1212. year under section 172(a) or any capital loss carrybacks and carryovers to such year tinder section 1212, and “(B) any— “(i) foreign expropriation loss for such year, as defined in section 172(k)(1),or “(ii) loss for such year which arises from fire, storm, shipwreck, or other casualty, or from theft, to the extent such loss is not compensated for by insurance or otherwise. “(3) Dispositions.— “(A) In general.— For purposes of this chapter, if property used in a trade or business described in subparagraph (A), (B), (C), or (D) of subsection (c)(2) is disposed of during any taxable year— “(i) the taxpayer notwithstanding any other provision of this chapter (other than paragraph (1)) shall be deemed to have received and recognized foreign oil related income in the taxable year of the disposition, by reason of such disposition, in an amount equal to the lesser of the excess of the fair market value of such property over the taxpayer’s adjusted basis in such property or the remaining amount of the foreign oil related losses which were not used under paragraph (1) for such taxable year or any prior taxable year, and “(ii) paragraph (1) shall be applied with respect to such income by substituting ‘100 percent’ for ‘50 percent’. “(B) Disposition defined.— For purposes of this subsection, the term ‘disposition’ includes a sale, exchange, distribution, or gift of property, whether or not gain or loss is recognized on the transfer. “(C) Exceptions.— Notwithstanding subparagraph (B), the term ‘disposition’ does not include— “(i) a disposition of property which is not a material factor in the realization of income by the taxpayer, or “(ii) a disposition of property to a domestic corporation in a distribution or transfer described in section 381(a). 26 USC 381. “(g) Western Hemisphere Trade Corporations Which Are Members of an Affiliated Group.— If a Western Hemisphere trade corporation is a member of an affiliated group for the taxable year, then in applying section 901, the amount of any income, war profits, and 26 USC 901. excess profits taxes paid or accrued (or deemed to have linen paid) during the taxable year with respect to foreign oil and gas extraction income which would (but for this section and section 1503(b)) be 26 USC 1503. taken into account for purposes of section 901 shall lie reduced by the greater of— “(1) the reduction with respect to such taxes provided by subsection (a) of this section, or “(2) the reduction determined under section 1503(b) by applying section 1503(b) separately with respect to such taxes, but not by both such reductions.”

2. 1976

   Pub. L. 94–455 § 1035(a) · 90 Stat. 1520

   1. Substituted · 26 U.S.C. § 907(a)

      Pub. L. 94–455, § 1035(a), substituted “oil and gas extraction taxes” for “income, war profits, and excess profits taxes” after “the amount of any” and, in par. (2)

   2. Substituted · 26 U.S.C. § 907(a)

      Pub. L. 94–455, § 1035(a), substituted “the percentage which is the sum of the normal tax rate and the surtax rate for the taxable year specified in section 11” for provisions giving the percentage multiplier for years ending 1975, 1976, and after 1976

   Source evidence

   Code amendment note
   Subsec. (a). Pub. L. 94–455, § 1035(a), substituted “oil and gas extraction taxes” for “income, war profits, and excess profits taxes” after “the amount of any” and, in par. (2), substituted “the percentage which is the sum of the normal tax rate and the surtax rate for the taxable year specified in section 11” for provisions giving the percentage multiplier for years ending 1975, 1976, and after 1976.

   Enacted provision · exact public law section
   (a) Reduction in Limitation on Foreign Tax Credits Allowable fob Oil and Gas Extraction Income.— Subsection (a) of section 907 (relating to reduction in amounts allowable as foreign tax under section 901) is amended to read as follows: “(a) Reduction tn Amount Allowed as Foreign Tax Under Section 901.— In applying section 901, the amount of any oil and gas extraction taxes paid or accrued (or deemed to have been paid) during the taxable year which would (but for this subsection) be taken into account for purposes of section 901 shall be reduced by the amount (if any) by which the amount of such taxes exceeds the product of— “(1) the amount of the foreign oil and gas extraction income for the taxable year, multiplied by “(2) the percentage which is the sum of the normal tax rate and the surtax rate for the taxable year specified in section 11.”

3. 1976

   Pub. L. 94–455 title X · 90 Stat. 1520

   1. Inserted · 26 U.S.C. § 907(b)

      Pub. L. 94–455, §§ 1032(b)(1), 1035(b), inserted provisions making a distinction between corporations and other taxpayers and rules applicable to each and, as amended

   2. Struck · 26 U.S.C. § 907(b)

      Pub. L. 94–455, §§ 1032(b)(1), 1035(b), struck out provision requiring the overall limitation, rather than the per-country limitation, be applied in the case of a corporation to foreign oil-related income and, a taxpayer other than a corporation, to foreign oil and gas extraction income

   Source evidence

   Code amendment note
   Subsec. (b). Pub. L. 94–455, §§ 1032(b)(1), 1035(b), inserted provisions making a distinction between corporations and other taxpayers and rules applicable to each and, as amended, struck out provision requiring the overall limitation, rather than the per-country limitation, be applied in the case of a corporation to foreign oil-related income and, a taxpayer other than a corporation, to foreign oil and gas extraction income.

   Enacted provision · exact public law
   TITLE X— CHANGES IN THE TREATMENT OF FOREIGN INCOME PART I— FOREIGN TAX PROVISIONS AFFECTING INDIVIDUALS ABROAD SEC. 1011. INCOME EARNED ABROAD BY UNITED STATES CITIZENS LIVING OR RESIDING ABROAD. (a) Reduction of Limitations on Amount Excludable.— Paragraph (1) of section 911(c) relating to limitations on amount of exclusion) is amended to read as follows: “(1) Limitations on amount of exclusion.— “(A) In general.— Except as provided in subparagraphs (B) and (C), the amount excluded from the gross income of an individual under subsection (a) for any taxable year shall not exceed an amount which shall be computed on a daily basis at an annual rate of $15,000. “(B) Employees of charitable organizations.— If any individual performs qualified charitable services during any taxable year, the amount of the earned income attributable to such services excluded from the gross income of the individual under subsection (a) for the taxable year shall not exceed an amount which shall be computed on a daily basis at an annual rate of $20,000. “(C) Special rule.— If any individual performs qualified charitable services and other services during any taxable year, the amount of the earned income attributable to such other services excluded from the gross income of the individual under subsection (a) for the taxable year shall not (after the application of subparagraph (A) with respect to such earned income) exceed $15,000 reduced by the amount of the earned income attributable to qualified charitable services excluded from gross income under subsection (a) for the taxable year. “(D) Qualified charitable services.— For purposes of this subsection, the term ‘qualified charitable services’ means services performed by an employee for an employer created or organized in the United States, or under the law of the United States, any State, or the District of Columbia, which meets the requirements of section 501 (c)(3).” (b) Additional Limitations on Exclusion.— (1) Disallowance of foreign tax credit with respect to excluded amounts.— The last sentence of subsection (a) of section 911 (relating to earned income from sources without the United States) is amended to read as follows: “An individual shall not be allowed as a deduction from his gross income any deductions (other than those allowed by section 151, relating to personal exemptions), or as a credit against the tax imposed by this chapter any credit for the amount of taxes paid or accrued to a foreign country or possession of the United States, to the extent that such deductions or credit is properly allocable to or chargeable against amounts excluded from gross income under this subsection.” (2) Disallowance or exclusion for income received other than in country where earned.— Section 911(c) (relating to 26 USC 911. special rules for earned income from sources without the United States) is amended by adding at the end thereof the following new paragraph: “(8) Requirement as to place of receipt.— No amount received by an individual during the taxable year which constitutes earned income (entitled to the exclusion under subsection (a)) attributable to services performed in a foreign country or countries shall be excluded under subsection (a) if such amount is received by such individual outside of the foreign country or countries where such services were performed and if one of the purposes is the avoidance of any tax imposed by such foreign country or countries on such amount.” (3) Inclusion of earned income in computation of rate of tax.— Section 911 (relating to earned income from sources without the United States) is amended by redesignating subsection (d) as subsection, (f) and by inserting after subsection (e) the following new subsections: “(d) Amount Excluded Under Subsection (a) Included in Computation of Tax.— “(1) Computation of tax.— If for any taxable year an individual has earned income which is excluded from gross income under subsection (a), the tax imposed by section 1 or section 1201 Post, p. 1786. shall be the excess of— “(A) the tax imposed by section 1 or section 1201 (whichever is applicable) on the amount of net taxable income, over “(B) the tax imposed by section 1 or section 1201 (whichever is applicable) on the amount of net excluded earned income. “(2) Definitions.— For purposes of this subsection— “(A) the term ‘net taxable income’ means an amount equal to the sum of the amount of taxable income for the taxable year plus the amount of net excluded earned income of such individual for such taxable year; and “(B) the term ‘net excluded earned income’ means the excess of the amount of earned income excluded under’ subsection (a) for the taxable year over the amount of the deductions disallowed with respect to such excluded earned income for such taxable year under subsection (a). “(e) Section Not to Apply.— “(1) In general.— An individual entitled to the benefits of this section for a taxable year may elect, in such manner and at such time as shall he prescribed by the Secretary, not to have the provisions of this section apply. “(2) Effect of election.— An election under paragraph (1) shall apply to the taxable year for which made and to all subsequent taxable years. Such election may not be revoked except with the consent of the Secretary.” (c) Allowance of Foreign Tax Credits to Individuals Taking Standard Deduction.— Section 36 (relating to credits not allowed to 26 USC 36. individuals paying optional tax or taking standard deduction) is amended by striking out “sections 32, 33, and” and inserting in lieu thereof “sections 32 and”. (d) Effective Date.— The amendments made by this section shall 26 USC 911 note. apply to taxable years beginning after December 31, 1975. SEC. 1012. INCOME TAX TREATMENT OF NONRESIDENT ALIEN INDIVIDUALS WHO ARE MARRIED TO CITIZENS OR RESIDENTS OF THE UNITED STATES. (a) Election To Be Treated as Residents of the United States.— (1) In general.— Section 6013 (relating to joint returns of income tax by husband and wife) is amended, by adding at the end thereof the following new subsections: “(g) Election To Treat Nonresident Alien Individual as Resident of the United States.— “(1) In general.— A nonresident alien individual with respect to whom this subsection is in effect for the taxable year shall be treated as a resident of the United States for purposes of chapter 1 for all of such taxable year. “(2) Individuals with respect to whom this subsection is in effect.— This subsection shall be in effect with respect to any individual who, at the time an election was made under tills subsection, was a nonresident alien individual married to a citizen or resident of the United States, if both of them made such election to have the benefits of this subsection apply to them. “(3) Duration of election.— An election under this subsection snail apply to the taxable year for which made and. to all subsequent taxable years until terminated under paragraph (4) or (5); except that any such election shall not apply for any taxable year if neither spouse is a citizen or resident of the United States at any time during such year. “(4) Termination of election.— An election under this subsection shall terminate at the earliest of the following times: “(A) Revocation by taxpayers.— If either taxpayer revokes the election, as of the first taxable year for which the last day prescribed by law for filing the return of tax under chapter 1 has not yet occurred. “(B) Death.— In the case of the death of either spouse, as of the beginning of the first taxable year of the spouse who survives following the taxable year in which such death occurred; except that if the spouse who survives is a citizen or resident of the United States who is a surviving spouse entitled to the benefits of section 2, the time provided by this subparagraph shall be as of the close of the last taxable year for which such individual is entitled to the benefits of section 2. “(C) Legal separation.— In the case of the legal separation of the couple under a decree of divorce or of separate maintenance, as of the beginning of the taxable year in which such legal separation occurs. “(D) Termination by secretary.— At the time provided in paragraph (5). “(5) Termination by secretary.— The Secretary may terminate any election under this subsection for any taxable year if he determines that either spouse has failed— “(A) to keep such books and records. “(B) to grant such access to such books and records, or “(C) to supply such other information, as may be reasonably necessary to ascertain the amount of liability for taxes under chapter 1 of either spouse for such taxable year. “(6) Only one election.— If any election under this subsection for any two individuals is terminated under paragraph (4) or (5) for any taxable year, such two individuals shall be ineligible to make an election under this subsection for any subsequent taxable year. “(h) Joint Return. Etc., for Year in Which Nonresident Alien Becomes Resident of United States.— “(1) In general.— If— “(A) any individual is a nonresident alien individual at the beginning of any taxable year but is a resident of the United States at the close of such taxable year, “(B) at the close of such taxable year, such individual is married to a citizen or resident of the United States, and “(C) both individuals elect the benefits of this subsection at the time and in the manner prescribed by the Secretary by regulation, then the individual referred to in subparagraph (A) shall be treated as a resident of the United States for purposes of chapter 1 26 USC 1. for all of such taxable year. “(2) Only one election.— If any election under this subsection applies for any 2 individuals for any taxable year, such 2 individuals shall be ineligible to make an election under this subsection for any subsequent taxable year.” (2) Clerical amendment.— Section 871(g) (relating to cross 26 USC 871. references) is amended by adding at the end thereof the following new paragraph: “(7) For election to treat married nonresident alien individual as resident of United States in certain cases, see subsections (g) and (h) of section 6013.” (b) Tax Treatment of Certain Community Income in the Case of a Resident or Citizen of the United States Who Is Married to a Nonresident Alien Individual.— (1) In general.— Subpart A of part II of subchapter N of chapter 1 (relating to nonresident alien individuals) is amended by adding at the end thereof the following new section: “SEC. 879. TAX TREATMENT OF CERTAIN COMMUNITY INCOME IN THE CASE OF A RESIDENT OR CITIZEN OF THE UNITED STATES WHO IS MARRIED TO A NONRESIDENT ALIEN INDIVIDUAL. “(a) General Rule.— In the case of a citizen or resident of the United States who is married to a nonresident alien individual and who has community income for the taxable year, such community income, shall be treated as follows: “(1) Earned income (within the meaning of section 911(b)), other than trade or business income and a partner’s distributive share of partnership income, shall be treated as the income of the spouse who rendered the personal services, “(2) Trade or business income, and a partner’s distributive share of partnership income, shall be treated as provided in section 1402(a)(5), “(3) Community income not described in paragraph (1) or (2) which is derived from the separate property (as determined under the applicable community property Jaw) of one spouse shall be treated as the income of such spouse, and “(4) All other such community income shall be treated as provided in the applicable community property law. “(b) Exception Where Election Under Section 6013(g) Is in Effect.— Subsection (a) shall not apply for any taxable year for which an election under subsection (g) or (h) of section 6013 (relating to election to treat nonresident alien individual as resident of the United States) is in effect. “(c) Definitions and Special Rules.— For purposes of this section— “(1) Community income.— The term ‘community income’ means income which, under applicable community property laws, is treated as community income. “(2) Community property laws.— The term ‘community property laws’ means the community property laws of a State, a foreign country, or a possession of the United States. “(3) Determination op marital status.— The determination of marital status shall be made under section 143(a).” (2) Repeal of section 981.— Subpart II of part III of subchapter X of chapter 1 (relating to election as to treatment of income subject to foreign community property laws) is hereby repealed, (3) Clerical amendments.— (A) The table of sections for subpart A of part II of subchapter N of chapter 1 is amended by adding at the end thereof the following new item: “Sec. 879. Tax treatment of certain community income in the case of a resident or citizen of the United States who is married to a nonresident alien individual.” (B) The table of subparts for part III of subchapter N of chapter 1 is amended by striking out the item relating to subpart G. (c) Due Date for Filing Estimated Tax Returns in the Case of Certain Nonresident Aliens.— Subsection (a) of section 6073 (relating to time for filing declarations of estimated tax by individuals) is amended by adding at the end thereof the following sentence: “In the case of a nonresident alien described in section 6072(c), the requirements of section 6015 shall be deemed to be first met no earlier than after April 1 and before June 2 of the taxable year.”. (d) Effective Dates.— The amendments made by subsection (a) shall apply to taxable years ending on or after December 31, 1975. The amendments made by subsections (b) and (c) shall apply to taxable years beginning after December 31, 1976. “SEC. 1013. FOREIGN TRUSTS HAVING ONE OR MORE UNITED STATES BENEFICIARIES TO BE TAXED CURRENTLY TO GANTOR. (a) Taxation of Income to Grantor of Trust.— Subpart E of part I of subchapter J of chapter 1 (relating to grantors and others treated as substantial owners) is amended by adding at the end thereof the following new section: “SEC. 679. FOREIGN TRUSTS HAVING ONE OR MORE UNITED STATES BENEFICIARIES. “(a) Transferor Treated as Owner.— “(1) In general.— A United States person who directly or indirectly transfer’s property to a foreign trust (other than a trust described in section 404(a)(4)) shall be treated as the owner for his taxable year of the portion of such trust attributable to such property if for such year there is a United States beneficiary of any portion of such trust. “(2) Exceptions.— Paragraph (1) shall not apply— “(A) Transits by reason of death.— To any transfer by reason of the death of the transferor. “(B) Transfers where gain is recognized to transferor.— To any sale or exchange of the property at its fair market value in a transaction in which all of the gain to the transferor is realized at the time of the transfer and is recognized either at such time or is returned as provided in section 453. “(b) Trusts Acquiring United States Beneficiaries.— If— “(1) subsection (a) applies to a trust for the transferor’s taxable year, and “(2) subsection (a) would have applied to the trust for his immediately preceding taxable year but for the fact that for such preceding taxable year there was no United States beneficiary for any portion of the trust, then, for purposes of this subtitle, the transferor shall be treated as having income for the taxable year (in addition to his other income for such year) equal to the undistributed net income (at the close of such immediately preceding taxable year) attributable to the portion of the trust referred to in subsection (a). “(c) Trusts Treated as Having a United States Beneficiary.— “(1) In general.— For purposes of this section, a trust shall be treated as having a United States beneficiary for the taxable year unless— “(A) under the terms of the trust, no part, of the income or corpus of the trust may be paid or accumulated during the taxable year to or for the benefit of a United States person, and “(B) if the trust were terminated at any time during the taxable year, no part of the income or corpus of such trust could be paid to or for the benefit of a United States person. “(2) Attribution of ownership.— For purposes of paragraph (1), an amount shall be treated as paid or accumulated to or for the benefit of a United States person if such amount is paid to or accumulated for a foreign corporation, foreign partnership, or foreign trust or estate, and— “(A) in the case of a foreign corporation, more than 50 percent of the total combined voting power of all classes of stock entitled to vote of such corporation is owned (within the meaning of section 958(a)) or is considered to be owned (within the meaning of section 958(b)) by United States shareholders (as defined in section 951(b)), “(B) in the ease of a foreign partnership, a United States person is a partner of such partnership, or “(C) in the case of a foreign trust or estate, such trust or estate has a United States beneficiary (within the meaning of paragraph (1)) (b) Grantor To Be Treated as Owner.— Subsection (b) of section 678 (relating to persons other than grantors treated as substantial 26 USC 678. owners) is amended by striking out everything after “modified,” and inserting in lieu thereof “if the grantor of the trust or a transferor (to whom section 679 applies) is otherwise treated as the owner under the provisions of this subpart other than this section.”, (c) Treatment of Capital Gains and Losses of Certain Foreign Trusts.— (1) Foreign trusts created by united states persons treated like other foreign trusts.— Subparagraph (C) of section 643 26 USC 643. (a)(6) (relating to distributable net income in ease of foreign trusts) is amended by striking out “foreign trust created by a United States person” and inserting in lieu thereof “foreign trust” (2) Transitional rule for foreign trusts.— Section 643(a)(6) 26 USC 643. is amended by adding at the end thereof the following new subparagraph: “(D) Effective for distributions made in taxable years beginning after December 31, 1975, the undistributed net income of each foreign trust for each taxable year beginning on or before December 31, 1975, remaining undistributed at the close of the last taxable year beginning on or before December 31, 1975, shall be redetermined by taking into account the deduction allowed by section 1202.” (d) Returns for Foreign Trusts Having One or More United States Beneficiaries.— (1) Section 6048 (relating to returns as to creation of or transfers to certain foreign trusts) is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: “(c) Annual Returns for Foreign Trusts Having One on More United States Beneficiaries.— Each taxpayer subject to tax under section 679 (relating to foreign trusts having one or more United States beneficiaries) for his taxable year with respect to any trust shall make a return with respect to such trust for such year at such time and in such manner, and setting forth such information, as the Secretary may by regulations prescribe”, (2) Section 6677(a) (relating to failure to file information returns with respect to certain foreign trusts) is amended by striking out “to a trust” and inserting in lieu thereof “to a trust (or, in the case of a failure with respect to section 6048(c), equal to 5 percent of the value of the corpus of the trust at the close of the taxable year)”. (e) Conforming Amendments.— (1) The table of sections for subpart E of part I of subchapter J of chapter 1 is amended by adding at the end thereof the following new item: “Sec. 679. Foreign trusts having one or more United States benefeciaries.” (2) Subsection (d) of section 643 is hereby repealed. (3) Subsection (d) of section 6048 (as redesignated by subsection (d)) is amended to read as follows: “(d) Cross Reference.— “For provisions relating to penalties for violation of this section, see sections 6677 and 7203.” (4) The heading of section 6048 is amended to read as follows: “SEC. 6048. RETURNS AS TO CERTAIN FOREIGN TRUSTS.”. (5) The table of sections for subpart B of part III of subchapter 26 USC 6041. A of chapter 61 is amended by striking out, the item relating to section 6048 and inserting in lieu thereof the following: “Sec. 6048. Retináis as to certain foreign trusts,” (f) Effective Dates.— (1) In general.— The amendments made by this section (other than subsection (c)) shall apply to taxable years ending after December 31, 1975, but only in the case of— (A) foreign trusts created after May 21, 1974, and (B) transfers of property to foreign trusts after May 21, 1974. (2) Guanoes in capital gain rules for foreign trusts.— The 26 USC 643 note. amendments made by subsection (c) shall apply to taxable years beginning after December 31, 1975. SEC. 1014. INTEREST CHARGE ON ACCUMULATION DISTRIBUTIONS FROM FOREIGN TRUSTS. (a) Tax To Include Special Interest Charge.— Section 667(a) Ante, p. 1575. Infra. (as amended by section 701 of this Act) is amended by striking out “and” at the end of paragraph (1), by striking out the period at the end of paragraph (2) and inserting in lieu thereof “, and ”, and by adding at the end thereof the following new paragraph: “(3) in the case of a foreign trust, the interest charge determined as provided in section 668.” Infra. (b) Computation of Special Interest Charge.— Subpart D of part I of subchapter J of chapter 1 (relating to treatment of excess distributions by trusts) is amended by adding at the end thereof the following new section: “SEC. 668. INTEREST CHARGE ON ACCUMULATION DISTRIBUTIONS FROM FOREIGN TRUSTS. “(a) General Rule.— For purposes of the tax determined under section 667(a), the interest charge is an amount equal to 6 percent of the partial tax computed under section 667(b) multiplied by a fraction— “(1) the numerator of which is the sum of the number of taxable years between each taxable year to which the distribution is allocated under section 666(a) and the taxable, year of the distribution (counting in each case the taxable year to which the distribution is allocated but not counting the taxable year of the distribution), and “(2) the denominator of which is the number of taxable years to which the distribution is allocated under section 666(a). “(b) Limitation.— The total amount of the interest charge shall not, when added to the total partial tax computed under section 667 (b), exceed the amount of the accumulation distribution (other than the amount of tax deemed distributed by section 666 (b) or (c)) in respect of which such partial tax was determined. “(c) Special Rules.— “(1) Interest charge not deductible.— The interest charge determined under this section shall not be allowed as a deduction for purposes of any tax imposed by this title. “(2) Transitional rule.— For purposes of this section, undistributed net income existing in a trust as of January 1, 1977, shall be treated as allocated under section 666(a) to the first taxable year beginning after December 31, 1976.” (c) Clerical Amendment.— The table of sections for subpart D of part I of subchapter J of chapter I is amended by adding at the end thereof of the following new item: Sec. 668. Interest charge on accumulation distributions from foreign trusts.” (d) Effective Date.— The amendments made by this section shall 26 USC 668 note. apply to taxable years beginning after December 31, 1976. SEC. 1015. EXCISE TAX ON TRANSFERS OF PROPERTY TO FOREIGN PERSONS TO AVOID FEDERAL INCOME TAX. (a) Amendment of Section 1491.— Section 1491 (relating to imposition 26 USC 1491. of tax) is amended to read as follows: “SEC. 1491. IMPOSITION OF TAX. “There is hereby imposed on the transfer of property by a citizen or resident of the United States, or by a domestic corporation or partnership, or by a trust which is not a foreign trust, to a foreign corporation as paid-in surplus or as a contribution to capital, or to a foreign trust, or to a foreign partnership, an excise tax equal to 35 percent of the excess of— “(1) the fair market value of the property so transferred, over “(2) the sum of— “(A) the adjusted basis (for determining gain) of such property in the hands of the transferor, plus “(B) the amount of the gain recognized to the transferor at the time of the transfer.” (b) Amendments or Section 1492.— Section 1492 (relating to non-taxable transfers) is amended— (1) by striking out in paragraph (3) “section 367(d) applies.” and inserting in lieu thereof section 367 applies; or” and (2) by adding at the end thereof the following new paragraph: “(4) To a transfer for which an election has been made under section 1057.” (c) Election To Treat as Taxable Exchange.— Part IV of subchapter O of chapter 1 (relating to special rules for determining gain or loss on disposition of property) is amended by redesignating section Ante, p. 1545. 1057 as section 1058 and by inserting after section 1056 the following new section: “SEC. 1057. ELECTION TO TREAT TRANSFER TO FOREIGN TRUST, ETC, AS TAXABLE EXCHANGE. Supra. “In lieu of payment of the tax imposed by section 1491, the tax-payer may elect (for purposes of this subtitle), at such time and in such manner as the Secretary may prescribe, to treat a transfer described in section 1491 as a sale or exchange of property for an amount equal in value to the fair market value of the property transferred and to recognize, as gain the excess of— “(1) the fair market value of the property so transferred, over “(2) the adjusted basis (for determining gain) of such property in the hands of the tranferor.”, (c) Clerical Amendment.— The table of sections for part IV of subchapter O of chapter 1 is amended by striking out the last item thereof and inserting in lieu thereof: “Sec. 1057. Election to treat transfer to foreign trust, etc., as taxable exchange. “Sec. 1058. Cross references.” (d) Effective Date.— The amendments made by this section shall apply to transfers of property after October 2, 1975. PART II— AMENDMENTS AFFECTING TAX TREATMENT OF CONTROLLED FOREIGN CORPORATIONS AND THEIR SHAREHOLDERS SEC. 1021. AMENDMENT OF PROVISION RELATING TO INVESTMENT IN UNITED STATES PROPERTY BY CONTROLLED FOREIGN CORPORATIONS. (a) Exceptions to Definition of United States Property.— Section 956(b)(2) (relating to exceptions to definition of United States property) is amended by striking out “and” at the end of sub-paragraph (E),by redesignating subparagraph (F) as subparagraph (H), and by inserting after subparagraph (E) the following new subparagraphs: “(F) the stock or obligations of a domestic corporation which is neither a United States shareholder (as defined in section 951(b)) of the controlled foreign corporation, nor a domestic corporation, 25 percent or more of the total combined voting power of which, immediately after the acquisition of any stock in such domestic corporation by the controlled foreign corporation, is owned, or is considered as being owned, by such United States shareholder’s in the aggregate; “(G) any movable property (other than a vessel or aircraft) which is used for the purpose of exploring for, developing, removing, or transporting resources from ocean waters or under such waters when used on the Continental Shelf of the United States: and”. (b) Constructive Ownership of Stock.— Section 958(b) (relating 26 USC 958. to rules for determining stock ownership) is amended— (1) by striking out “954(d)(3),” the first place it appears and inserting in lieu thereof “954(d)(3), 956(b)(2),”; (2) by striking out “954(d)(3).” the second place it appears and inserting in lieu thereof “954(d)(3), to treat the stock of a domestic corporation as owned by a United States shareholder of the controlled foreign corporation for purposes of section 956(b)(2),”; and (3) by adding at the end thereof the following new sentence: “Paragraphs (1) and (4) shall not apply for purposes of section 956(b)(2) to treat stock of a domestic corporation as not owned by a United States shareholder.” (c) Effective Date.— The amendments made by this section shall 26 USC 956 note. apply to taxable years of foreign corporations beginning after December 31, 1975, and to taxable years of United States shareholders (within the meaning of section 951 (b) of the Internal Revenue Code of 1954) within which or with which such taxable years of such foreign corporations end. in determining for purposes of any taxable year referred to in the preceding sentence the amount referred to in section 956(a)(2)(A) of the Internal Revenue Code of 1954 for the last taxable year of a corporation beginning before January 1, 1976, the amendments made by this section shall be deemed also to apply to such last taxable year. SEC. 1022. REPEAL OF EXCLUSION FOR EARNINGS OF LESS DEVELOPED COUNTRY CORPORATIONS FOR PURPOSES OF SECTION 1218. (a) Amendment of Section 1248(d).— Paragraph (3) of section 26 USC 1248. 1248 (d) (relating to exclusion from earnings and profits of gain from certain sales or exchanges of stock in certain foreign corporations) is amended to read as follows: “(3) Less developed country corporations under prior law.— Earnings and profits of a foreign corporation which were accumulated during any taxable year beginning before January 1, 1976, while such corporation was a less developed country corporation under section 902(d) as in effect before the enactment Ante, p. 1626. 26 USC 1 note. 26 USC 1248 note. of the Tax Reduction Act of 1975.”. (b) Effective Date.— The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1975. SEC. 1023. EXCLUSION FROM SUBPART F OF CERTAIN EARNINGS OF INSURANCE COMPANIES. (a) In General.— Paragraph (3) of section 954(c) (relating to foreign personal holding company income) is amended by striking out “or” at the end of subparagraph (A), by striking out the period at the end of subparagraph (B) and inserting in lieu thereof or”, and by adding at the end thereof the following new subparagraph: “(C) dividends, interest, and gains from the sale or exchange of stock or securities received from a person other than a related person (within the meaning of subsection (d)(3)) derived from investments made by an insurance company of an amount of its assets equal to one-third of its premiums earned on insurance contracts (other than life insurance and annuity contracts) during the taxable year (as defined in section 832(b)(4)) which are not directly or indirectly attributable to the insurance or reinsurance of risks of persons who are related persons (within the meaning of subsection (d)(3)).”. (b) Effective Date.— The amendment made by this section shall apply to taxable years of foreign corporations beginning after December 31, 1975, and to taxable, year’s of United States shareholders (within the meaning of section 951(b) of the Internal Revenue Code of 1954) within which or with which such taxable years of such foreign corporations end. SEC. 1021. SHIPPING PROFITS OF FOREIGN CORPORATIONS. (a) Certain Shipping Operations.— Subsection (b) of section 954 (relating to foreign base company income) is amended by adding at the end thereof the following new paragraph: “(7) Special exclusion for foreign base company shipping income.— Income of a corporation which is foreign base company shipping income under paragraph (4) of subsection (a)(determined without regard to the exclusion under paragraph (2) of this subsection) shall be excluded from foreign base company income if derived by a controlled foreign corporation from, or in connection with, the use (or hiring or leasing for use) of an aircraft or vessel in foreign commerce between two points within the foreign country in which such corporation is created or organized and such aircraft or vessel is registered.” (b) Effective Date.— The amendment made by this section shall apply to taxable years of foreign corporations beginning after December 31, 1975, and to taxable years of United States shareholders (within the meaning of section 951(b) of the Internal Revenue Code of 1954) within which or with which such taxable years of such foreign corporations end, PART III— AMENDMENTS AFFECTING TREATMENT OF FOREIGN TAXES SEC. 1031. REQUIREMENT THAT FOREIGN TAX CREDIT BE DETER. MINED ON OVERALL BASIS. (a) Overall Limitation on Foreign Tax Credit.— Section 904 (relating to limitation on foreign tax credit) is amended to read as follows: “SEC. 904. LIMITATION ON CREDIT. “(a) Limitation.— The total amount of the credit taken under section 901(a) shall not exceed the same proportion of the tax against which such credit is taken which the taxpayer’s taxable income from sources without the United States (but not in excess of the taxpayer’s entire taxable income) bears to his entire taxable income for the same taxable year. “(b) Taxable Income for Purposes of Computing Limitation.— For purposes of subsection (a), the taxable income in the case of an individual, estate, or trust shall be computed without any deduction for personal exemptions under section 151 or 642(b). 26 USC 151, 642. “(c) Carryback and Carryover of Excess Tax Paid.— Any amount by which all taxes paid or accrued to foreign countries or possessions of the United States for any taxable year fox’ which the taxpayer chooses to have the benefits of this subpart exceed the limitation under subsection (a) shall be deemed taxes paid or accrued to foreign countries or possessions of the United States in the second preceding taxable year, in the first preceding taxable year, and in the first, second, third, fourth, or fifth succeeding taxable years, in that order and to the extent not deemed taxes paid or accrued in a prior taxable year, in the amount by which the limitation under subsection (a) for such preceding or succeeding taxable year exceeds the sum of the taxes paid or accrued to foreign countries or possessions of the United States for such preceding or succeeding taxable year and the amount of the taxes for any taxable year earlier than the current taxable year which shall be deemed to have been paid or accrued in such preceding or subsequent taxable year (whether or not the taxpayer chooses to have the benefits of this subpart with respect to such earlier taxable year). Such amount deemed paid or accrued in any year may be availed of only as a tax credit and not as a deduction and only if the taxpayer for such year chooses to have the benefits of this subpart as to taxes paid or accrued for that year to foreign countries or possessions of the United States. “(d) Application of Section in Case of Certain Interest Income and Dividends From a DISC on Former DISC.— “(1) In general.— The provisions of subsections (a), (b), and (c) shall be applied separately with respect to each of the following items of income: “(A) the interest income described in paragraph (2), “(B) 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, and “(C) income other than the interest income described in paragraph (2) and dividends described in subparagraph (B). “(2) Interest in come to which applicable.— For purposes o f this subsection, the interest income described in this paragraph is in hi rest other than interest— “(A) derived from any transaction which is directly related to the active conduct by the taxpayer of a trade or business in a foreign country or a possession of the United States, “(B) derived in the conduct by the taxpayer of a banking, financing, or similar business, “(C) received from a corporation in which the taxpayer (or one or more includible corporations in an affiliated group, as defined in section 1504, of which the taxpayer is a member) owns, directly or indirectly, at least 10 percent of the voting stock, or “(D) received on obligations acquired as a result of the disposition of a trade or business actively conducted by the taxpayer in a foreign country or possession of the United States or as a result of the disposition of stock or obligations of a corporation in which the taxpayer owned at least 10 percent of the voting stock. For purposes of subparagraph (C), stock owned, directly or indirectly, by or for a foreign corporation, shall be considered as being proportionately owned by its shareholders. “(e) Transitional Rules for Carr tracks and Carryovers for Taxpayers on the Per-Country Limitation.— “(1) Application of subsection.— This subsection shall apply only to a taxpayer who is on the per-country limitation for his last taxable year beginning before January 1, 1976. “(2) Carryovers to years beginning after December 31, 1975.— In the case of any taxpayer to whom this subsection applies, any carryover from a taxable year beginning before January 1, 1976, may be used in taxable veal’s beginning after December 31, 1975, to the extent provided in subsection (c), but only to the extent such carryover could have been used in such succeeding taxable years if the per-country limitation continued to apply to all taxable years beginning after December 31, 1975. “(3) Carrybacks to years beginning before January 1, 1979.— In the case of any taxpayer to whom this subsection applies, any carryback from a taxable year beginning after December 31, 1975, may be used in taxable years beginning before January 1, 1976, to the extent provided in subsection (c), but only to the extent such carryback could have been used in such preceding taxable year if the per-country limitation continued to apply to all taxable years beginning after December 31, 1975. “(4) Application of limitations.— For purposes of this subsection— “(A) the overall limitation shall be applied before the per-country limitation, and “(B) where the amount of any carryback or carryover is reduced by the overall limitation, the reduction shall be allocated to the amounts carried from each country or possession in proportion to the taxes paid or accrued to such country or possession in the taxable, year from which such amount is being carried. “(f) Cross Reference.— “For increase of limitation under subsection (a) for taxes paid with respect to amounts received which were included in the gross income of the taxpayer for a prior taxable year as a United States shareholder with respect to a controlled foreign corporation, see section 960(b).” (b) Conforming Amendments.— (1) Sections 901 (a), 901 (b), and 960(b) are. amended by striking out “applicable limitation” each place it appears and inserting in lieu thereof “limitation”. (2) Subparagraph (B) of section 243(b)(3) is amended to read as follows: “(B) the members of such affiliated group shall be treated as one taxpayer for purposes of making the election under section 901(a) (relating to allowance of foreign tax credit), and”. (3) Paragraph (3) of section 1351(d) is amended to read as 26 USC 1351. follows: “(3) Foreign taxes.— For purposes of this subsection, any choice made under subpart A of part III of subchapter N (relating to foreign tax credit) for any taxable year may be changed.”. (4) Section 1503(b)(1) is amended by striking out “, and if 26 USC 1503. Post, p 1629. for the taxable year an election under section 904(b)(1) (relating to election of overall limitation on foreign tax credit) is in effect”. (5) Sections 383, 6038(b)(1)(A), and 6501 (i) are each Ante, p. 1605. 26 USC 6038, 6501. 26 USC 907. amended by striking out “section 904(d)” each place it appears therein and inserting in lien thereof “section 904(c)”. (6) Subsection (e) of section 907 (relating to transitional rules) is amended— (A) by striking out “(d) and (e) of section 904” in paragraphs (1) and (2) and inserting in lieu thereof “(d) and (e) of section 904 (as in effect on the day before the date of the enactment of the Tax Reform Act of 1976)”; Ante, p. 1520. (B) by striking out “section 904(a)(1)” in paragraph (2) and inserting in lien thereof “section 904(a)(1)(as so in effect)”; and (C) by striking out “section 904(c)(2)” in paragraph (2)(A) and inserting in lieu thereof “section 904(e)(2)(as so in effect)”. (c) Effective Dates.— (1) In general.— Except as provided in paragraphs (2) and (3), the amendments made by this section shall apply to taxable years beginning after December 31, 1975. (2) Exception for certain mining operations.— In the ease of a domestic corporation or includible corporation in an affiliated group (as defined in section 1504 of the Internal Revenue Code of 1954) which has as of October 1, 1975— (A) been engaged in the active conduct of the trade or business of the extraction of minerals (of a character with respect to which a deduction for depletion is allowable under section 613 of such Code) outside the United States or its possessions for less than 5 years preceding the date of enactment of this Act, (B) had deductions properly apportioned or allocated to its gross income from such trade or business in excess of such gross income in at least 2 taxable years, (C) 80 percent of its gross receipts are from the sale of such minerals, and (D) made commitments for substantial expansion of such mineral extraction activities, the amendments made by this section shall apply to taxable years beginning after December 31, 1978. in the case of losses sustained in taxable years beginning before January 1, 1979, by any corporation to which this paragraph applies, the provisions of section 904(f) of such Code shall be applied with respect to such losses under the principles of section 904 (a)(1) of such Code us in effect before the enactment of this Act. (3) Exception for income from possessions.— In the case of gross income from sources within a possession of the United States (and the deductions properly apportioned or allocated thereto), the amendments made by this section shall apply to taxable years beginning after December 31, 1978. in the case of losses sustained in a possession of the United States in taxable years beginning before January 1, 1979, the provisions of section 904(f) of such Code shall be applied with respect to such losses under the principles of section 904(a)(1) of such Code as in effect before the enactment of this Act. (4) Carrybacks and carryovers in the case of mining operations and income from a possession.— In the case of a taxpayer to whom paragraph (2) or (3) of this subsection applies, section 904(e) of such Code shall apply except that “January 1, 1979” shall be substituted for “January 1, 1976” each place it appears therein. If such a taxpayer elects the overall limitation for a taxable year beginning before January 1, 1979, such section 904(e) shall be applied by substituting “the January 1, of the last year for which such taxpayer is on the per-country limitation” for “January 1, 1976” each place it appears therein. SEC. 1032. RECAPTURE OF FOREIGN LOSSES. (a) In General.— Section 904 (as amended by section 1031 of this Act) is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection: “(f) Eecapture of Overall Foreign Lose.— “(1) General rule.— For purposes of this subpart and section 936, in the case of any taxpayer who sustains an overall foreign loss for any taxable year, that portion of the taxpayer’s taxable income from sources without 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 (or such larger percent as the taxpayer may choose) of the taxpayer’s taxable income from sources without the United States for such succeeding taxable year, shall be treated as income from sources within the United States (and not as income from sources without the United States). “(2) Overall foreign loss defined.— For purposes of this subsection, the term ‘overall foreign loss’ means the amount by which the gross income for the taxable year from sources without the United States (whether or not the taxpayer chooses the benefits of this subpart for such taxable year) for such year is exceeded by the sum of the deductions properly apportioned or allocated thereto, except that there shall not be taken into account— “(A) any net operating loss deduction allowable for such year under section 172(a) or any capital loss carrybacks and carryovers to such year under section 1212, and “(B) any— “(i) foreign expropriation loss for such year, as defined in section 172(k)(1), or “(ii) loss for such year which arises from fire, storm, shipwreck, or other casualty, or from theft, to the extent such loss is not compensated for by insurance or otherwise. “(3) Dispositions.— “(A) In general.— For purposes of this chapter, if property which has been used predominantly without the United States in a trade or business is disposed of during any taxable year— “(i) the taxpayer, notwithstanding any other provision of this chapter (other than paragraph (1)),shall be deemed to have received and recognized taxable income from sources without the United States in the taxable year of the disposition, by reason of such disposition, in an amount equal to the lesser of the excess of the fair market value of such property over the taxpayer’s adjusted basis in such property or the remaining amount of the overall foreign losses which were not used under paragraph (1) for such taxable year or any prior taxable year, and “(ii) paragraph (1) shall be applied with respect to such income by substituting ‘100 percent’ for ‘50 percent’. In determining for purposes of this subparagraph whether the predominant use of any property has been without the United States, there shall be taken into account use during the 3-y ear period ending on the date of the disposition (or, if shorter, the period during which the property has been used in the trade or business). “(B) Disposition defined and special rules.— “(i) For purposes of this subsection, the term ‘disposition’ includes a sale, exchange, distribution, or gift, of property whether or not gain or loss is recognized on the transfer. “(ii) Any taxable income recognized solely by reason of subparagraph (A) shall have the same characterization it would have had if the taxpayer had sold or exchanged the property. “(iii) The Secretary shall prescribe such regulations Regulations. as he may deem necessary to provide for adjustments to the basis of property to reflect taxable income recognized solely by reason of subparagraph (A). “(C) Exceptions.— Notwithstanding subparagraph (B), the term ‘disposition’ does not include— “(i) a disposition of property which is not a material factor in the realization of income by the taxpayer, or “(ii) a disposition of property to a domestic corporation in a distribution or transfer described in section 381(a), 26 USC 381. “(4) Determination of foreign on related loss where section 907 applies.— In the case of a corporation to which section 907 (b)(1) applies, (he foreign oil related loss shall be the amount by Post, p. 1630. which the gross income for the taxable year from sources without the United States and its possessions (whether or not the taxpayer chooses the benefits of tins subpart for such taxable year) taken into account in determining the foreign oil related income for such year is exceeded by the sum of the deductions properly apportioned or allocated thereto, except that there shall not be taken into account— “(A) any net operating loss deduction allowable for such year under section 172(a) or any capital loss carrybacks and carryovers to such year under section 1212, and “(B) any— “(i) foreign expropriation loss for such year, as defined in section 172 (k)(1) , or “(ii) loss for such year which arises from fire, storm, shipwreck, or other casually, or from theft, to the extent such loss is not compensated for by insurance or otherwise,”. (b) Coordination With Section 907.— Section 907 is amended— (1) by striking out the last sentence of subsection (b)(as amended by section 1035(b)) , and (2) by striking out subsection (f), and by redesignating subsection (g) as subsection (f). (c) Effective Dates.— (1) In general.— Except as provided in paragraphs (2) and (3), the amendments made by subsections (a) and (b)(2) shall apply to losses sustained in taxable years beginning after December 31, 1975, and the amendment made by subsection (b)(1) shall apply to taxable years beginning after December 31, 1975. (2) Obligations of foreign governments.— The amendments made by subsection (a) shall not apply to losses on the sale, exchange, or other disposition of bonds, notes, or other evidences of indebtedness issued before May 14, 1976, by a foreign government or instrumentality thereof for the acquisition of property located in that, country or stock of a corporation (created or organized in or under the laws of that foreign country) or indebtedness of such corporation. (3) Substantial worthlessness before enactment.— The amendments made by subsection (a) shall not apply to losses incurred on the loss from stock or indebtedness of a corporation in which the taxpayer owned at least 10 percent of the voting stock and which has sustained losses in 3 out of the last 5 taxable years beginning before January 1, 1976, which has sustained an overall loss for those 5 years, and with respect to which the taxpayer has terminated or will terminate all operations by reason of sale, liquidation, or other disposition before. January 1, 1977, of such corporation or its assets. (4) Limitation based on deficit in earnings and profits.— If paragraph (3) would apply to a taxpayer but for the fact that the loss is sustained after December 31, 1976, and if the loss is sustained in a taxable year beginning lief ore January 1, 1979, the amendments made by subsection (a) shall not apply to such loss to the extent that there was on December 31, 1975, a deficit in earnings and profits in the corporation from which the loss arose. SEC. 1033. DIVIDENDS FROM LESS DEVELOPED COUNTRY CORPORATIONS TO BE GROSSED UP FOR PURPOSES OF DETERMINING UNITED STATES INCOME AND FOREIGN TAX CREDIT AGAINST THAT INCOME. (a) Foreign Taxes Deemed Paid by Domestic Corporations.— Section 902 (relating to credit for corporate stockholders in foreign corporations) is amended to read as follows: “SEC. 902, CREDIT FOR CORPORATE STOCKHOLDER IN FOREIGN CORPORATION. “(a) Treatment of Taxes Paid by Foreign Corporation.— For purposes of this subpart, a domestic corporation which owns at least 10 percent of the voting stock of a foreign corporation from which it receives dividends in any taxable year shall be deemed to have paid the same proportion of any income, war profits, or excess profits taxes paid or deemed to be paid by such foreign corporation to any foreign country or to any possession of the United States, on or with respect to the accumulated profits of such foreign corporation from which such dividends were paid, which the amount of such dividends (determined without regard to section 78) bears to the amount of such accumulated profits in excess of such, income, war profits, and excess profits taxes (other than those deemed paid). “(b) Foreign Subsidiary of First and Second Foreign Corporation.— “(1) One tier.— If the foreign corporation described in subsection (a)(hereinafter in this subsection referred to as the ‘first foreign corporation’) owns 10 percent or more of the voting stock of a second foreign corporation from which it receives dividends in any taxable year, it shall be deemed to have paid the same proportion of any income, war profits, or excess profits taxes paid or deemed to be paid by such second foreign corporation to any foreign country or to any possession of the United States, on or with respect to the accumulated profits of such second foreign corporation from which such dividends were paid, which the amount of such dividends bears to the amount of such accumulated profits in excess of such income, war profits, and excess profits taxes (other than those deemed paid). “(2) Two tiers.— If such first foreign corporation owns 10 percent or more of the voting stock of a second foreign corporation which, in turn, owns 10 percent or more of the voting stock of a third foreign corporation from which the second foreign corporation receives dividends in any taxable year, the second foreign corporation shall be deemed to have paid the same proportion of any income, war profits, or excess profits taxes paid by such third foreign corporation to any foreign country or to any possession of the United States, on or with respect to the accumulated profits of such third foreign corporation from which such dividends were paid, which the amount of such dividends bears to the amount or such accumulated profits in excess of such income, war profits, and excess profits taxes. “(3) Voting stock requirement.— For purposes of this subpart— “(A) paragraph (1) shall not apply unless the percentage of voting stock owned by the domestic corporation in the first foreign corporation and the percentage of voting stock owned by the first foreign corporation in the second foreign corporation when multiplied together equal at least 5 percent, and “(B) paragraph (2) shall not apply unless the percentage arrived at for purposes of applying paragraph (I) when multiplied by the percentage of voting stock owned by the second foreign corporation in the third foreign corporation is equal to at least 5 percent. “(c) Applicable Rules.— “(1) Accumulated profits defined.— For purposes of this section. the term ‘accumulated profits’ means, with respect to any foreign corporation, (he amount of its gains, profits, or income computed without reduction by the amount, of the income, war profits, and excess profits taxes imposed on or with respect to such profits or income by any foreign country or by any possession of the United States. The Secretary shall have full power to determine from the accumulated profits of what year or years such dividends were paid, treating dividends paid in the first 60 days of any year as having been paid from the accumulated profits of the preceding year or years (unless to his satisfaction shown otherwise), and in other respects treating dividends as having been paid from the most recently accumulated gains, profits, or earnings. “(2) Accounting periods.— In the ease of a foreign corporation the income, war profits, and excess profits taxes of which are determined on the basis of an accounting period of less than 1 year, the word ‘year’ as used in this subsection, shall be construed to mean such accounting period. “(d) Cross References.— “(1) For inclusion in gross income of an amount equal to taxes deemed paid under subsection (a), see section 78. “(2) For application of subsections (a) and (b) with respect to taxes deemed paid in a prior taxable year by a United States shareholder with respect to a controlled foreign corporation, see section 960. “(3) For reduction of credit with respect to dividends paid out of accumulated profits for years for which certain information is not furnished, see section 6038.” (b) Conforming Amendments.— (1) Section 78 (relating to dividends received from certain foreign corporations) is amended— (A) by striking out “section 902(a)(1)” and inserting in lieu thereof “section 902(a)”, and (B) by striking out “section 900(a)(1)(C)” and inserting in lieu thereof “section 960(a)(1)”. (2) Paragraph (1) of section 960(a)(Mating to special rules for foreign tax credit) is amended by striking out “bears to—” and all that follows down through the period at the end of such paragraph and inserting in lieu thereof “bears to the entire amount of the earnings and profits of such foreign corporation for such taxable year.”. (3) Section 535(b)(1) (relating to accumulated taxable income) is amended by striking out “section 902(a)(1) or 960(a)(1)(C)” and inserting in lieu thereof “section 902(a) or 960(a)” (4) Section 545(b)(1) (relating to undistributed personal holding company income) is amended by striking out “section 902(a)(1) or 960(a)(1)(C)” and inserting in lieu thereof “section 902(a) or 960(a)(1)”. (c) Effective Dates.— The amendments made by this section shall apply— (1) in respect of any distribution received by a domestic corporation after December 31, 1977, and (2) in respect of any distribution received by a domestic corporation before January 1, 1978, in a taxable year of such corporation beginning after December 31, 1975, but only to the extent that such distribution is made out of the accumulated profits of a foreign corporation for a taxable year (of such foreign corporation) beginning after December 31, 1975. For purposes of paragraph (2), a distribution made by a foreign corporation out or its profits which are attributable to a distribution Post, p. 1626. received from a foreign corporation to which section 902(b) of the Internal Revenue Code of 1954 applies shall be treated as made out of the accumulated profits of a foreign corporation for a taxable year beginning before January 1, 1976, to the extent that such distribution was paid out of the accumulated profits of such foreign corporation for a taxable year beginning before January 1, 1976. SEC. 1034. TREATMENT OF CAPITAL GAINS FOR PURPOSES OF FOREIGN TAX CREDIT. (a) In General.— Section (b) of section 904 (relating to taxable 26 USC 904. income for purposes of computing the foreign tax credit imitation), as amended by section 1031 of this Act, is amended to read as follows: “(b) Taxable Income for Purpose of Computing Limitation.— “(1) Personal exemptions.— For purposes of subsection (a), tile taxable income in the case of an individual, estate, or trust shall be computed without any deduction for personal exemptions under section 151 or 642 (b). “(2) Capital gains.— For purposes of subsection (a)— “(A) Corporations.— In the case of a corporation— “(i) the taxable income of such corporation from sources without the United States shall include gain from the sale or exchange of capital assets only in an amount equal to foreign source capital gain net income reduced by three-eight is of foreign source net capital gain,. “(ii) the entire taxable income of such corporation shall include gain from the sale or exchange of capital assets only in an amount equal to capital gain net income reduced by three-eights of net capital gain, and “(iii) any net capital loss from sources without the United States to the extent taken into account in determining capital gain net income for the taxable year shall be reduced by an amount equal to three-eighths of the excess of net capital gain from sources within the United States over net capital gain. “(B) Other taxpayers.— In the case of a taxpayer other than a taxpayer described in subparagraph (A), taxable income from sources without the United States shall include gain from the sale or exchange of capital assets only to the extent of foreign source capital gain net income. “(3) Definitions.— For purposes of this subsection— “(A) Foreign source capital gain net income.— The term ‘foreign source capital gain net income’ means the lesser of— “(i) capital gain net income from sources without the United States, or “(ii) capital gain net income. “(B) Foreign source net capital gain.— The term ‘foreign source net capital gain’ means the lesser of— “(i) net capital gain from sources without the United States, or “(ii) net capital gain. “(C) Exception for gain from the sale of certain personal property.— For purposes of this paragraph, there shall be included as gain from sources within the United States any gain from sources without the United States from the sale or exchange of a capital asset which is personal property which— “(i) in the case of an individual, is sold or exchanged outside of the country (or possession) of the individual’s residence, “(ii) in the case of a corporation, is stock in a second corporation sold or exchanged other than in a country (or possession) in which such second corporation derived more than 50 percent of its gross income for the 3-year period ending with the close of such second corporation’s taxable year immediately preceding the year during which the sale or exchange occurred, or “(iii) in the case of any taxpayer, is personal property (other than stock in a corporation) sold or exchanged other than in a country (or possession) in which such property is used in a trade or business of the taxpayer or in which such taxpayer derived more than 50 percent of its gross income for the 3-year period ending with the close of its taxable year immediately preceding the year during which the sale or exchange occurred, unless such gain is subject to an income, war profits, or excess profits tax of a foreign country or possession of the United States, and the rate of tax applicable to such gain is 10 percent or more of the gain from the sale or exchange (computed under this chapter). “(D) Section 1231 gains.— The term ‘gain from the sale or exchange of capital assets’ includes any gain so treated under section 1231.” (b) Effective Dates.— The amendment made by this section shall apply to taxable years beginning after December 31, 1975, except that the provisions of section 904(b)(3)(C) shall only apply to sales or exchanges made after November 12, 1975. SEC. 1035. FOREIGN OIL AND GAS EXTRACTION INCOME. (a) Reduction in Limitation on Foreign Tax Credits Allowable fob Oil and Gas Extraction Income.— Subsection (a) of section 907 (relating to reduction in amounts allowable as foreign tax under section 901) is amended to read as follows: “(a) Reduction tn Amount Allowed as Foreign Tax Under Section 901.— In applying section 901, the amount of any oil and gas extraction taxes paid or accrued (or deemed to have been paid) during the taxable year which would (but for this subsection) be taken into account for purposes of section 901 shall be reduced by the amount (if any) by which the amount of such taxes exceeds the product of— “(1) the amount of the foreign oil and gas extraction income for the taxable year, multiplied by “(2) the percentage which is the sum of the normal tax rate and the surtax rate for the taxable year specified in section 11.” (b) Foreign Oil Related Income Earned by Individuals.— Subsection (b) of section 907 (relating to special rules in case of foreign oil and gas income) is amended to read as follows: “(b) Application of Section 904 Limitation.— “(1) Corporations.— In the ease of a corporation, the provisions of section 904 shall be applied separately with respect to— “(A) foreign oil related income, and “(B) other taxable income. “(2) Other taxpayers.— In the case of a taxpayer other than a corporation, the provisions of subsection (a) shall not apply and the provisions of section 904 shall be applied separately with respect to— “(A) foreign oil and gas extraction income, and “(B) other taxable income (including other foreign oil related income). In the ease of a corporation, with respect to foreign oil-related income, and in the case of a taxpayer other than a corporation, with respect to foreign oil and gas extraction income, the overall limitation provided by section 904(a)(2) shall apply and the per-country limitation Ante, p. 1620. provided by subsection (a)(1) shall not apply.” (c) Tax Credit for Production-Sharing Contracts.— (1) For purposes of section 901 of the Internal Revenue Code of 1954. there shall be treated as income, war profits, and excess profits taxes to betaken into account under section 907(a) of such Code amounts designated as income taxes of a foreign government by such government (which otherwise would not be treated as taxes for purposes of section 901 of such Code) with respect to production-sharing contracts for the extraction of foreign oil or gas. (2) The amounts specified in paragraph (1) shall not exceed the lesser of— (A) the product of the foreign oil and gas extraction income with respect to all such production-sharing contracts multiplied by the sum of the normal tax rate, and the surtax rate for the taxable year specified in section 11 of such Code, or (B) the excess of the total amount of foreign oil and gas extraction income (as defined in section 907(c)(1) of such Code) for the taxable year multiplied by the sum of the normal tax rate and the surtax rate for the taxable year specified in section 11 of such Code over the amount of any income, war profits, and excess profits taxes paid or accrued (or deemed to have been paid) without regard to paragraph (1) during the taxable year with respect to foreign oil and gas extraction income. (3) The production-sharing contracts taken into account for purposes of paragraph (1) shall be those contracts which were entered into before April 8, 1976, for the sharing of foreign oil and gas production with a foreign government (or an entity owned by such government) with respect to which amounts claimed as taxes paid or accrued to such foreign government for taxable years beginning before June 30, 1976, will not be disallowed as taxes. No such contract shall be taken into account for any taxable year ending after December 31, 1977. (d) Carryback and Carryover of Disallowed Credits.— (1) In general.— Section 907 (as amended by section 1033) is 26 USC 907. amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection: “(f) Carryback and Carryover of Disallowed Credits.— “(1) In general.— If the amount of the oil and gas extraction taxes paid or accrued during any taxable year exceeds the limitation provided by subsection (a) for such taxable year (hereinafter in this subsection referred to as the ‘unused credit year’), so much of such excess as does not exceed 2 percent of foreign oil and gas extraction income for such taxable year shall be deemed to be oil and gas extraction taxes paid or accrued in the second preceding taxable year, in the first preceding taxable year, and in the first, second, third, fourth, or fifth succeeding taxable year, in that order and to the extent not deemed tax paid or accrued in a prior taxable year by reason of the limitation imposed by paragraph (2). Such amount deemed paid or accrued in any taxable year may be availed of only as a tax credit and not as a deduction and only if the taxpayer for such year chooses to have the benefits of this subpart as to taxes paid or accrued for that year to foreign countries or possessions. For purposes of this subsection, the terms ‘second preceding taxable year’, and ‘first preceding taxable year’ do not include any taxable year ending before January 1, 1975. For purposes of determining the amount of such taxes which may be deemed paid or accrued in any taxable year ending in 1975, 1976, or 1977. the first sentence of this paragraph shall be applied by substituting ‘such excess’ for ‘so much of such excess as does not exceed 2 percent of the foreign oil and gas extinction income for such taxable year’. “(2) Limitation.— The amount of the unused oil and gas extraction taxes which under paragraph (1) may be deemed paid or accrued in any preceding or succeeding taxable year shall not exceed the lesser of— “(A) the amount by which the limitation provided by subsection (a) for such taxable year exceeds the sum of— “(i) the oil and gas extraction taxes paid or accrued during such taxable year, plus “(ii) the amounts of the oil and gas extraction taxes which by reason of this subsection are deemed paid or accrued in such taxable year and are attributable to taxable years preceding the unused credit year; or “(B) the amount by which the limitation provided by section 904 on taxes paid or accrued with respect to foreign oil-related income for such taxable year exceeds the sum of— “(i) the taxes paid or accrued (or deemed to have been paid under section 902 or 960) to all foreign countries and possessions of the United States with respect to such income during such taxable year, “(ii) the amount of such taxes which were deemed paid or accrued in such taxable year under section 904 (c) and which are attributable to taxable years preceding the unused credit year, plus “(iii) the amount of the oil and gas extraction taxes which by reason of this subsection are deemed paid or accrued in such taxable year and are attributable to taxable years preceding the unused credit year. “(3) Special ruins.— “(A) in the case of any taxable year which is an unused credit year under this subsection and which is an unused credit year under section 904(c) with respect to oil-related income, the provisions of this subsection shall be applied before section 904(c). “(B) For purposes of determining the amount of oil-related taxes paid or accrued in any taxable year which may be deemed paid or accrued in a preceding or succeeding taxable year under section 904(c), any tax deemed paid or accrued in such preceding or succeeding taxable year under this subsection shall be considered to be tax paid or accrued in such preceding or succeeding taxable year, “(C) For purposes of determining the amount of the unused oil and gas extraction taxes which under paragraph (1) may be deemed paid or accrued in any taxable year ending before January 1, 1977, subparagraph (A) of paragraph (2) shall be applied as if the amendment made by section 1035(a) of the Tax Reform Act of 1976 applied to such taxable year.” (2) Definition of on and gas extraction taxes.— Subsection (c) of section 907 is amended by adding at the end thereof the following new paragraph: “(5) Oil and gas extraction taxes.— The term ‘oil and gas extraction taxes’ means any income, war profits, and excess profits tax paid or accrued (or deemed to have been paid under section 902 or 960) during the taxable year with respect to foreign oil Ante, p. 1626. 26 USC 960. and gas extraction income (determined without regard to paragraph (4)) or loss which would he taken into account for purposes of section 901 without regard to this section,” (3) Technical amendment.— Subsection (i) of section 6501, as amended by section 1031, (relating to foreign tax carrybacks) is 26 USC 6501. amended— (A) by striking out “excess foreign taxes)” and inserting in lieu thereof “excess foreign taxes) or under section 907(f) Ante, p. 1631. (relating to carryback and carryover of disallowed oil and gas extraction taxes)”; and (B) by striking out “section 904(c)” the second place it appears and inserting in lieu thereof “section 904(c) or 907(f)”. (e) Effective Dates.— (1) The amendment made by subsection (a) shall apply to taxable years ending after December 31, 1976. (2) The amendment made by subsection (b) shall apply to taxable years ending after December 31, 1974; except that the last sentence of section 907(b) of the Internal Revenue Code of 1954 Ante, p. 1630. shall only apply to taxable years ending after December 31, 1975. (3) The amendment made by subsection (c) shall apply to taxable years beginning after June 29, 1976. (4) The amendments made by subsection (d) shall apply to taxes paid or accrued during taxable years ending after the date of the enactment of this Act. SEC. 1036. UNDERWRITING INCOME. (a) Treatment as Income From Sources Within the United States.— Section 861(a) (relating to gross income from sources 26 USC 861. within the United States) is amended by adding the following new paragraph: “(7) Amounts received as underwriting income (as defined in section 832(b)(3)) derived from the insurance of United States risks (as defined in section 953(a)).”. (b) Treatment as Foreign Source Income.— Section 862(a) (relating to gross income from sources without the United States) is 26 USC 862. amended by adding the following new paragraph: “(7) Underwriting income other than that derived from sources within the United States as provided in section 861(a)(7).”. (c) Effective Date.— The amendments made by tills section shall 26 USC 861 note. apply to taxable years beginning after December 31, 1976, SEC. 1037. THIRD TIER FOREIGN TAX CREDIT WHEN SECTION 951 APPLIES. (a) Foreign Taxes Deemed Paid by Foreign Corporations.— Section 960(a)(1) (relating to special rules for foreign tax credits), 26 USC 960. as amended hr section 1033, is further amended to read as follows: “(1) General rule.— For purposes of subpart A of this part, if there is included, under section 951(a), bi the gross income of a domestic corporation any amount attributable to earnings and profits— “(A) of a foreign corporation (hereafter in this subsection referred to as the ‘first foreign corporation’) at least 10 per-cent of the voting stock of which is owned by such domestic corporation, or “(B) of a second foreign corporation (hereinafter in this subsection referred to as the second foreign corporation’) at least 10 percent of the voting stock of which is owned by the first foreign corporation, or “(C) of a third foreign corporation (hereinafter in this subsection referred to as the ‘third foreign corporation’) at least 10 percent of the voting stock of which is owned by the second foreign corporation, then, under regulations prescribed by the Secretary, such domestic corporation shall be deemed to have paid the same proportion of the total income, war profits, and excess profits taxes paid (or deemed paid) by such foreign corporation to a foreign country or possession of the United States for the taxable year on or with respect to the earnings and profits of such foreign corporation which the amount of earnings and profits of such foreign corporation so included in gross income of the domestic corporation bears to the entire amount of the earnings and profits of such corporation for such taxable year. This paragraph shall not apply with respect to any amount included in the gross income of such domestic corporation attributable to earnings and profits of the second foreign corporation or of the third foreign corporation unless, in the case of the second foreign corporation, the percentage-of-voting-stock requirement of section 002(b)(3)(A) is satisfied, and in the case of the third foreign corporation, the percentage-of-voting-stock requirement of section 902(b)(3)(B) is satisfied.” (b) Effective Date.— The amendment made by this section shall apply with respect to earnings and profits of a foreign corporation included, under section 951(a) of the Internal Revenue Code of 1954, in the gross income of a domestic corporation in taxable years beginning after December 31, 1976. PART IV— MONEY OR OTHER PROPERTY MOVING OUT OF OR INTO THE UNITED STATES SEC. 1041. PORTFOLIO DEBT INVESTMENTS IN UNITED STATES OF NONRESIDENT ALIENS AND FOREIGN CORPORATIONS. 26 USC 861. The last sentence of section 861 (c) (relating to interest on deposits, etc.) is hereby repealed. SEC. 1042. CHANGES IN RULING REQUIREMENTS UNDER SECTION 367; CERTAIN CHANGES IN SECTION 1248. (a) Amendment of Section 367.— Section 367 (relating to foreign corporations) is amended to read as follows: “SEC. 367. FOREIGN CORPORATIONS. “(a) Transfers of Property From the United States.— “(1) General rule.— If, in connection with any exchange described in section 332, 351,354,355, 356, or 361, there is a transfer of property (other than stock Or securities of a foreign corporation which is a party to the exchange or a party to the reorganization) by a United States person to a foreign corporation, for purposes of determining the extent to which gain shall be recognized on such transfer, a foreign corporation shall not be considered to be a corporation unless, pursuant to a request filed not later than the close of the 183d day after the beginning of such transfer (and filed in such form and manner as may be prescribed by regulations by the Secretary), it is established to the satisfaction of the Secretary that such exchange is not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes. “(2) Exception for transactions designated by the secretary.— Paragraph (1) shall not apply to any exchange (otherwise within paragraph (1)), or to any type of property, which the Secretary by regulations designates as not requiring the filing of a request. “(b) Other Transfers.— “(1) Effect of section to be determined under regulations.— in the case of any exchange described in section 332, 351, 354, 355, 356, or 361 in connection with which there is no transfer 26 USC 332, 351, 354, 355, 356, 361. of property described in subsection (a)(1), a foreign corporation shall be considered to be a corporation except to the extent provided in regulations prescribed by the Secretary which are necessary or appropriate to prevent the avoidance of Federal income taxes. “(2) Regulations relating to sale or exchange of stock in foreign corporations.— The regulations prescribed pursuant to paragraph (1) shall include (but shall not be limited to) regulations dealing with the sale or exchange of stock or securities in a foreign corporation by a United States person, including regulations providing— “(A) the circumstances under which— “(i) gain shall be recognized currently, or amounts included in gross income currently as a dividend, or both, or “(ii) gain or other amounts may be deferred for inclusion in the gross income of a shareholder (or his successor in interest) at a later date, and “(B) the extent to which adjustments shall be made to earnings and profits, basis of stock or securities, and basis of assets, “(c) Transactions To Be Treated as Exchanges.— “(1) Section 355 distribution.— For purposes of this section, any distribution described in section 355 (or so much of section 356 as relates to section 355) shall be treated as an exchange whether or not it is an exchange. “(2) Contribution of capital to controlled corporations.— For purposes of this chapter, any transfer of property to a foreign corporation as a contribution to the capital of such corporation by one or more persons who, immediately after the transfer, own (within the meaning of section 318) stock possessing at least 80 percent of the total combined voting power of all classes of stock of such corporation entitled to vote shall be treated as an exchange of such property for stock of the foreign corporation equal in value to the fair market value of the property transferred. “(d) Transitional Rule.— In the case of any exchange beginning before January 1, 1978— “(1) subsection (a) shall be applied without regard to whether or not there is a transfer of property described in subsection (a)(1). and “(2) subsection (b) shall not apply.”. (b) Earnings and Profits of Subsidiaries of Foreign Corporations for Purposes or Section 1248.— Subparagraph (C) of section 1248 (c)(2) is amended by striking out “; and” at the end thereof and inserting in lieu thereof the following: “(or on the date of any sale or exchange of the stock of such other foreign corporation occurring during the 5-year period ending on the date of the sale or exchange of the stock of such foreign corporation, to the extent not otherwise taken into account under this section but not in excess of the fair market value of the stock of such other foreign corporation sold or exchanged over the basis of such stock (for determining gain) in the hands of the transferor); and”. (c) Certain Section 311,336, or 337 Transactions.— (1) General rule.— Section 1248 (relating to gain from certain sales or exchanges of stock in certain foreign corporations) is amended by redesignating subsections (f) and (g) as subsections (g) and (h), respectively, and by inserting after subsection (e) the following new subsection: “(f) Certain Section 311,336, or 337 Transactions.— “(1) In general.— If— “(A) a domestic corporation satisfies the stock ownership requirements of subsection (a)(2) with respect to a foreign corporation, and “(B) such domestic corporation distributes, sells, or exchanges stock of such foreign corporation in a transaction to which section 311,336, or 337 applies, then, notwithstanding any other provision of this subtitle, an amount equal to the excess of the fair market value of such stock over its adjusted basis in the hands of the domestic corporation shall be in chided in the gross income of the domestic corporation as a dividend to the extent of the earnings and profits of the foreign corporation attributable (under regulations prescribed by the Secretary) to such stock which were accumulated in taxable years of such foreign corporation beginning after December 31, 1962, and during the period or periods the stock was held by such domestic corporation while such foreign corporation was a controlled foreign corporation. For purposes of subsections (c)(2), (d), and (h), a distribution, sale, or exchange of stock to which this subsection applies shall be treated as a sale of stock to which subsection (a) applies. “(2) Exception for certain distributions.— To the case of any distribution of stock of a foreign corporation, paragraph (1) shall not apply if such distribution is to a domestic corporation— “(A) which is treated under this section as holding such stock for the period for which the stock was held by the distributing corporation, and “(B) which, immediately after the distribution, satisfies the stock ownership requirements of subsection (a)(2) with respect to such foreign corporation. “(3) Non application of paragraph (i) in certain cases.— Paragraph (1) shall not apply to a sale or exchange to which section 337 applies if— “(A) throughout the period or periods the stock of the foreign corporation was held by the domestic corporation (or predecessor referred to in paragraph (2)) all the stock of such domestic corporation was owned by United States persons who satisfied the 10-percent stock ownership require-ments of subsection (a)(2) with respect to such domestic corporation, and “(B) subsection (a) applies to the proceeds of the sale or exchange and also applied to all transactions described in subsection (e)(1) which took place during the period or periods referred to in subparagraph (A). “(4) Application to cases described in subsection (e).— To the extent that earnings and profits are taken into account under this subsection, they shall be excluded and not taken into account for purposes of subsection (e).”. (2) Interest in partnership holding stock in certain foreign corporations.— The last sentence of section 751(c) (relating 26 USC 751. to unrealized receivables) is amended— (A) by striking out “(as defined in section 1245(a)(3)),” and inserting in lieu thereof “as defined in section 1245(a)(3)), stock in certain foreign corporations (as described in section 1248),” and (B) by striking out “1245(a),” and inserting in lieu thereof “1245(a), 1248(a),”. (3) Conforming amendments.— (A) Subparagraph (A) of paragraph (2) of subsection (c) of section 1248 is amended by striking out “subsection (a) 26 USC 1248. applies to a sale or exchange” and inserting in lieu thereof “subsection (a) or (f) applies to a sale, exchange, or distribution”. (B) Subparagraph (A) of paragraph (3) of subsection (g)(as redesignated by paragraph (1) of this subsection) of section 1248 is amended to read as follows: “(A) a dividend (other than an amount, treated as a dividend under subsection (f)),”. (C) Subsection (h)(as redesignated by paragraph (1) of this subsection) of section 1248 is amended by striking out “subsection (a)” each place it appears and inserting in lieu thereof “subsection (a) or (f)”. (d) Declaratory Judgment’ Procedure for Review by the Tax Court of Section 367 Determinations.— (1) In general.— Part IV of subchapter C of chapter 76 (relating to declaratory judgments) is amended by adding at the end thereof the following new section: “SEC. 7477. DECLARATORY JUDGMENTS RELATING TO TRANSFERS OF PROPERTY FROM THE UNITED STATES. “(a) Creation or Remedy.— “(1) In general.— In a case of actual controversy involving.— “(A) a determination by the Secretary— “(i) that an exchange described in section 367(a)(1) is in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes, or “(ii) of the terms and conditions pursuant to which an exchange described in section 367(a)(1) will be determined not to be in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes, or “(B) failure by the Secretary to make a determination as to whether an exchange described in section 367(a)(1) is in pursuance of a plan Laving as one of its principal purposes the avoidance of Federal income taxes, upon the filing of an appropriate pleading, the Tax Court may make the appropriate declaration referred to in paragraph (2). Such declaration shall have the force and effect of a decision of the Tax Court and shall be reviewable as such. “(2) Scope of declaration.— The declaration referred to in paragraph (1) shall be— “(A) in the case of a determination referred to in subparagraph (A) of paragraph (1), whether or not such determination is reasonable, and, if it is not reasonable, a determination of the issue set forth in subparagraph (A)(ii) of paragraph (1), and “(B) in the case of a failure described in subparagraph (B) of paragraph (1), the determination of the issues set forth in subparagraph (A) of paragraph (1). “(b) Limitations.— “(1) Petitioner.— A pleading may be filed under this section only by a petitioner who is a transferor or transferee of stock, securities, or property transferred in an exchange described in section 367 (a)(1). “(2) Exhaustion of administrative remedies.— The Tax Court shall not issue a declaratory judgment or decree under this section in any proceeding unless it determines that the petitioner has exhausted administrative remedies available to him within the Internal Revenue Service. A petitioner shall not be deemed to have exhausted his administrative remedies with respect to a failure by the Secretary to make a determination with respect to whether or not an exchange described in section 367(a)(1) is in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes before the expiration of 270 days after the request for such determination was made. “(3) Exchange shall have begun.— No proceeding may be maintained under this section unless the exchange is described in section 367(a)(1) with respect to which a decision of the Tax Court is sought has begun before the filing of the pleading. “(4) Time for bringing action.— If the Secretary sends by certified or registered mail to the petitioners referred to in paragraph. (1) notice of his determination with respect to whether or not an exchange described in section 367(a)(1) is in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes or with respect to the terms and conditions pursuant to which such an exchange will be determined not to be made in pursuance of such a plan, no proceeding may be initiated under this section by any petitioner unless the pleading is filed before the 91st day after the day after such notice is mailed to such petitioner. “(c) Commissioners.— The chief judge of the Tax Court, may assign proceedings under this section to be heard by the commissioners of the court, and the court may authorize a commissioner to make the decision of the court with respect, to such proceeding, subject to such conditions and review as the court may by rule provide.”. (2) Technical and conforming amendments.— (A) Section 7482(b)(1) (relating to venue for review of Tax Court decisions) is amended by striking out “or” at the end of subparagraph (B), by striking out the period at the end of subparagraph (C) and inserting in lieu thereof “, or ”, and by inserting after subparagraph (C) the following new subparagraph: “(D) in the case of a person seeking a declaratory judgment under section 7477, the legal residence of such person if Ante, p. 1637. such person is not a corporation, or the principal place of business or principal office or agency of such person if such person is a corporation.”. (B) Section 7482(b)(1) is further amended— 26 USC 7482. (i) by striking out “subparagraph (A), (B),and (C) do not apply” in the second sentence and inserting in lieu thereof “no subparagraph of the preceding sentence, applies”; and (ii) by striking out “section 7176” in the last sentence and inserting in lieu thereof “section 7476 or 7477”. (C) The heading for section 7476 is amended to read as follows: “SEC. 7476. DECLARATORY JUDGMENTS RELATING TO QUALIFICATION OF CERTAIN RETIREMENT PLANS.” (D) The table of sections for part IV of subchapter C of chapter 76 is amended to read as follows: “Sec. 7476. Declaratory judgments relating to qualification of certain retirement plans. “Sec. 7477. Declaratory judgments relating to transfers of property from United States.” (E) The heading of part IV of subchapter C of chapter 76 is amended to read as follows: “PART IV— DECLARATORY JUDGMENTS”. (F) The table of parts for subchapter C of chapter 76 is amended by striking out the item relating to part IV and inserting in lieu thereof the following: “Part IV. Declaratory judgments.” (e) Effective Dates.— (1) The amendments made by this section (other than by subsection (d)) shall apply to transfers beginning after October 9, 1975, and to sales, exchanges, and distributions taking place after such date. The amendments made by subsection (d) shall apply with respect to pleadings filed with the Tux Court after the date of the enactment of this Act but only with respect to transfers beginning after October 9, 1975. (2) in the case of any exchange described in section 367 of the Internal Revenue Code of 1954 (as in effect on December 31, 1974) in any taxable year beginning after December 31, 1962, and before the date of the enactment of this Act, which does not involve the transfer of property to or from a United States person, a taxpayer shall have for purposes of such section until 183 days after the date of the enactment of this Act to file a request with the Secretary of the Treasury or his delegate seeking to establish to the satisfaction of the Secretary of the Treasury or his delegate that such exchange was not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes and that for purposes of such section a foreign corporation is to be treated as a foreign corporation. SEC. 1043. CONTIGUOUS COUNTRY BRANCHES OF DOMESTIC LIFE INSURANCE COMPANIES. (a) Amendment of Subchapter L.— Subpart E of part I of subchapter L of chapter 1 (relating to life insurance companies) is amended by inserting after section 819 the following new section: “SEC. 819A. CONTIGUOUS COUNTRY BRANCHES OF DOMESTIC LIFE INSURANCE COMPANIES. “(a) Exclusion of Items.— In the case of a domestic mutual insurance company which— “(1) is a life insurance company, “(2) has a contiguous country life insurance branch, and “(3) makes the election provided by subsection (g) with respect to such branch, there shall be excluded from each and every item involved in the determination of life insurance company taxable income the items separately accounted for in accordance with subsection (c). “(b) Contiguous Country Life Insurance Branch.— For purposes of this section, the term ‘contiguous country life insurance branch’ means a branch which— “(1) issues insurance contracts insuring risks in connection with the lives or health of residents of a country which is contiguous t o the United States, “(2) has its principal place of business in such contiguous country, and “(3) would constitute a mutual life insurance company if such branch were a separate domestic insurance company. “Insurance contract.” For purposes of this section, the term ‘insurance contract’ means any life, health, accident, or annuity contract or reinsurance contract or any contract relating thereto. “(c) Separate Accounting Required.— Any taxpayer which makes the election provided by subsection (g) shall establish and maintain a separate account for the various income, exclusion, deduction, asset, reserve, liability, and surplus items properly attributable to the contracts described in subsection (b). Such separate accounting shall be made— “(1) in accordance with the method regularly employed by such company, if such method clearly reflects income derived from, and the other items attributable to, the contracts described in subsection (b), and “(2) in all other cases, in accordance with regulations prescribed by the Secretary. “(d) Recognition of Gain on Assets in Branch Account.— If the aggregate fair market value of all the invested assets and tangible property which are separately accounted for by the domestic life insurance company in the branch account established pursuant to subsection (c) exceeds the aggregate adjusted basis of such assets for purposes of determining gain, then the domestic life insurance company shall be treated as having sold all such assets on the first day of the first taxable year for which the election is in effect at their fair market value on such first day. Notwithstanding any other provision of this chapter, the net gain shall be recognized to the domestic life insurance company on the deemed sale described in the preceding sentence. “(e) Transactions Between Contiguous Country Branch and Domestic Life Insurance Company.— “(1) Reimbursement for home office services, etc.— Any payment, transfer, reimbursement, credit, or allowance which is made from a separate account established pursuant to subsection (c) to one or more other accounts of a domestic life insurance company as reimbursement for costs incurred for or with respect to the insurance (or reinsurance) of risks accounted for in such separate account shall be taken into account by the domestic life, insurance company in the same manner as if such payment, transfer, reim-bursement, credit, or allowance had been received from a separate person. “(2) Repatriation of income.— “(A) In general.— Except as provided in subparagraph (B), any amount directly or indirectly transferred or credited from a branch account established pursuant to subsection (c) to one or more other accounts of such company shall, unless such transfer or credit is a reimbursement to which paragraph (1) applies, be added to the life insurance company taxable income of the domestic life insurance company (as computed without regard to this paragraph). “(B) Limitation.— The addition provided by subparagraph (A) for the taxable year with respect to any contiguous country life insurance branch shall not exceed the amount by which— “(i) the aggregate decrease in the life insurance company taxable income of the domestic life insurance company for the taxable year and for all prior taxable years resulting solely from the application of subsection (a) of this section with respect to such branch, exceeds “(ii) the amount of additions to life insurance company taxable income pursuant to subparagraph (A) with respect to such contiguous country branch for all prior taxable years. “(f) Other Rules.— “(1) Treatment of foreign taxes.— “(A) In general.— No income, war profits, or excess profits taxes paid or accrued to any foreign country or possession of the United States which is attributable to income excluded under subsection (a) shall be taken into account for purposes of subpart A of part 1 IT of subchapter N (relating to foreign 26 USC 901. tax credit) or allowable as a deduction. “(B) Treatment of repatriated amounts.— For purposes of sections 78 and 902, where any amount is added to the life insurance company taxable income of the domestic life insurance company by reason of subsection (e)(2), the contiguous country life insurance branch shall be treated as a foreign corporation. Any amount so added shall he treated as a dividend paid by a foreign corporation, and the taxes paid to any foreign country or possession of the United States with respect to such amount shall be deemed to have been paid by such branch. “(2) United states source income allocable to contiguous country branch.— For purposes of sections 881, 882. and 1442, each contiguous country life insurance branch shall be treated as a foreign corporation. Such sections shall be applied to each such branch in the same manner as if such sections contained the provisions of any treaty to which the United States and the contiguous country are parties, to the same extent such provisions would apply if such branch were incorporated in such contiguous country. “(g) Election.— A taxpayer may make the election provided by this subsection with respect to any contiguous country for any taxable year beginning after December 31, 1975. An election made under this subsection for any taxable year shall remain in effect for all subsequent taxable years, except that it may be revoked with the consent of the Secretary. The election provided by this subsection shall be imide lint Liter than the time prescribed by lav for filing the return for the taxable year (including extensions thereof) with respect to which such election is made, and such election and any approved revocation thereof shall be made in I be manner provided by I hr Secretary. “(h) Special Rule for Domestic Stock Life Insurance Companies.— At the election of a domestic stock life insurance company which has a contiguous country life insurance branch described in subsection (b)(without regard to the mutual requirement in subsection (b)(3)). the assets of such branch may be transferred to a foreign corporation organized under the laws of the contiguous country Ante, pp. 1634, 1617. without the application of section 367 or 1491. Subsection (a) shall apply to the stock of such foreign corpora thin as if such domestic company were a mutual company and us if the stock were tin item described in subsection (e). Subsection (e)(2) shall apply to amounts transferred or credited to such domestic company as if such domestic company and such foreign corporation constituted one domestic mutual life insurance company. The insurance cont rants which may be transferred pursuant to the subsection slut 11 include only those which are similar to the types of insurance emit t acts issued by a milt mil life insurance company. Notwithstanding the first sentence of this sub-section. if the aggregate fair market value of the invested assets and tangible property which are separately accounted for by the domestic life insurance company in the branch account exceeds the aggregate adjusted basis of such assets for purposes of determining gain, the domestic life insurance company shall he deemed to have sold all such assets on the first day Of the taxable year for which the el eel ion under this subsection applies and the net gain shall be recognized to the domestic life, insurance company on the deemed sale, but not-in excess of (be proportion of such net gain which equals the proportion which the aggregate fair market value of such assets which arc transferred pursuant to this subsection is of the aggregate fair market value of all such assets.” (b) Clerical Amendment.— The table of sections for such subpart E is amended by inserting after the item relating to section 819 the following new item: “Sec. 819A. Contiguous country branches of domestic life insurance companies.” (c) Effective Date.— The amendment made Io this section shall apply to taxable years beginning after December 31, 1975. SEC. 1044. TRANSITIONAL RULE FOR BOND, ETC., LOSSES OF FOREIGN BANKS. (a) General Rule.— Section 5S2(e) (relating to bond. etc., losses and gains of financial institutions) is amended by adding at the end thereof the following new paragraph: “(4) Transitional rule for banks.— In the case of a corporation which would be a bank except for the fact that it is a foreign corporation, the net gain, if any. for the taxable year on safes and exchanges described in paragraph (1) shall be considered as gain from the sale or exchange of a capital asset to the extent such net gain does not exceed the portion of any capital loss carryover to such taxable year which is attributable to capital losses on sales or exchanges described in paragraph (1) for n taxable year beginning before July 12, 1999. For purposes of the preceding sentence, the portion of a net capital loss for a taxable year which is attributable to capital losses on sales or exchanges described in paragraph (1) is the amount of the net capital loss on such sales or exchanges for such taxable year (but not in excess of the net capital loss for such taxable year).” (b) Effective Date.— (1) The amendment made by subsection (a) shall apply with respect, to taxable, years beginning after July 11, 1969. (2) If the refund or credit of any overpayment attributable to the application of the amendment made by subsection (a) to any taxable year is otherwise prevented by the operation of any law or rule of law (other than section 7122 of the Internal Revenue Code of 1954, relating to compromises) on the day which is one year after the date of the enactment of this Act. such credit or refund shall be nevertheless allowed or made if claim therefor is filed on or before such day. PART V— SPECIAL CATEGORIES OF FOREIGN TAX TREATMENT SEC. 1051. TAX TREATMENT OF CORPORATIONS CONDUCTING TRADE OR BUSINESS IN PUERTO RICO AND POSSESSIONS OF THE UNITED STATES. (a) Allowance of Puerto Rican and Possession Tax Credit.— Section 33 (relating to taxes of foreign countries and possessions of 26 USC 33. the United States) is amended to read as follows: “SEC. 33. TAXES OF FOREIGN COUNTRIES AND POSSESSIONS OF THE UNITED STATES; POSSESSION TAX CREDIT. “(a) Foreign Tax Credit.— The amount of taxes imposed by foreign countries and possessions of the United States shall be allowed as a credit against the tax imposed by this chapter to the extent provided in section 901. “(b) Section 936 Credit.— In the case of a domestic corporation, the amount provided by section 936 (relating to Puerto Rico and possession Infra. tax credit) shall be allowed as a credit against the tax imposed by this chapter.” (b) Rules on Possession Tax Credit.— Subpart D of part III of subchapter N of chapter 1 (relating to possessions of the United States) is amended by adding at the end thereof the following new section: “SEC. 936. PUERTO RICO AND POSSESSION TAX CREDIT. “(a) Allowance of Credit.— “(1) In general.— Except, as provided in paragraph (2), in the ease of a domestic corporation which elects the application of this section, there shall be allowed as a credit against the tax imposed, by this chapter an amount equal to the portion of the tax which is attributable, to taxable income, from sources without the. United States, from the active conduct of a trade or business within a possession of the United States, and from qualified possession source investment income, if the conditions of both subparagraph (A) and subparagraph (B) are satisfied: “(A) 3-year period.— If 80 percent or more of the gross income of such domestic corporation for the 3-year period immediately preceding the close of the taxable year (or for such part of such period immediately preceding the close of such taxable year as may be applicable) was derived from sources within a possession of the United Stales (determined without regard to section 904(f)): and Ante, p. 1624. “(B) Trade or business.— If 50 percent or more of the gross income of such domestic corporation for such period or such part thereof was derived from the active conduct of a trade or business within a possession of the United States. “(2) Credit not allowed against certain taxes.— The credit provided by paragraph (1) shall not be allowed against the tax imposed by— “(A) section 56 (relating to minimum tax), “(B) section 531 (relating to the tax on accumulated earnings), “(C) section 541 (relating to personal holding company tax), “(D) section 1333 (relating to war loss recoveries), or “(E) section 1351 (relating to recoveries of foreign expropriation losses). “(b) Amounts Received in United States.— In determining taxable income for purposes of subsection (a), there shall not be taken into account as income from sources without the United States any gross income which was received by such domestic corporation within the United States, whether derived from sources within or without the United States. “(c) Treatment of Certain Foreign Taxes.— For purposes of this title, any lax of a foreign country or a possession of the United States which is paid or accrued with respect to taxable income which is taken into account in computing the credit under subsection (n) shall not be treated as income, war profits, or excess profits taxes paid or accrued to a foreign country or possession of the United States, and no deduction shall be allowed under this title with respect to any amounts so paid or accrued. “(d) Definitions.— For purposes of this section— “(1) Possession.— The term ‘possession of the United Slates’ includes the Commonwealth of Puerto Rico, but does not include the Virgin Islands of the United States. “(2) Qualified possession source investment income.— The term ‘qualified possession source investment income’ means gross income which— “(A) is from sources within a possession of the United States in which a trade or business is actively conducted, and “(B) the taxpayer establishes to the satisfaction of the Secretary is attributable to the investment in such possession (for use therein) of funds derived from the active conduct of a trade or business in such possession, or from such investment, less the deductions properly apportioned or allocated thereto. “(e) Election.— “(1) Period of election.— The election provided tn subsection (a) shall be made at such time and in such manner as the Secretary may by regulations prescribe. Any such election shall apply to the first taxable year for which such election was made and for which the domestic corporation satisfied the conditions of subparagraphs (A) and (B) of subsection (a)(1) and for each taxable year thereafter until such election is revoked by the domestic corporation under paragraph (2). If any such election is revoked by the domestic, corporation under paragraph (2), such domestic corporation may make a subsequent election under subsection (a) for any taxable year thereafter for which such domestic cor-poration satisfies the conditions of subparagraphs (A) and (B) of subsection (a)(1) and any such subsequent election shall remain in effect until revoked by such domestic corporation under paragraph (2). “(2) Revocation.— An election under subsection (a)— “(A) may be revoked for any taxable year beginning before the expiration of the 9th taxable year following the taxable year for which such election first applies only with the consent of the Secretary; and “(B) may be revoked for any taxable year beginning after the expiration of such 9th taxable year without the consent of the Secretary. “(f) DISC or Former DISC Corporation Ineligible for Credit.— No credit shall be allowed under this section to a corporation for a taxable year for which it is a DISC or former DISC (as defined in section 992(a)) or in which it owns at any time stock in a DISC or former DISC. “(g) Exception to Accumulated Earnings Tax.— “(1) For purposes of section 535. the term ‘accumulated taxable “Accumulated taxable income.” income’ shall not include taxable income entitled to the credit under subsection (a). “(2) For purposes of section 537, the term ‘reasonable needs “Reasonable needs of the business.” of the business’ includes assets which produce income eligible for the credit under subsection (a).” (c) Amendments of Section 931.— (1) Subsection (a) of section 931 (relating to genera) rule in 26 USC 931. the case of income from sources within possessions of the United Stales) is amended to read as follows: “(a) General Rule.— In the ease of individual citizens of the United States, gross income means only gross income from sources within the United States if the conditions of both paragraph (1) and paragraph (2) arc satisfied: “(1) 3-year period.— If 80 percent or more of the gross income of such citizen (computed without the benefit of this section) for the 3-year period immediately preceding the close of the taxable year (or for such part of such period immediately preceding the close of such taxable year as may be applicable) was derived from sources within a possession of the United States; and “(2) Trade or business.— If 50 percent or more of his gross income (computed without the benefit of this section) for such period or such part thereof was derived from the active conduct of a trade or business within a possession of the United States either on his own account or as an employee or agent of another.”, (2) Subsection (e) of section 931 (defining the term “possession”) is amended to read as follows: “(c) Definition.— For purposes of this section, the term ‘possession of the United States’ does not include the Commonwealth of Puerto Rico, the Virgin Islands of the United States, or Guam.”. (3) Subsections (d). (e). and (f) of section 931 are each amended by striking out “persons” each place it appeal’s and inserting in lieu thereof “a citizen of the United States”. (d) Amendments of Section 901.— (1) Section 901 (d) (relating to certain corporations treated as 26 USC 901. foreign corporations) is amended to read as follows: “(d) Treatment of Dividends From a DISC or Former DISC.— For purposes of this subpart, dividends from a DISC or former DISC (as defined in section 992(a)) shall be treated as dividends from a foreign corporation to the extent such dividends are treated under part I as income from sources without the United States.”. (2) Section 901 (relating to tuxes of foreign countries and possessions of the United States) is amended by redesignating subsection (g) as (h) and by inserting after subsection (f) the following new subsection: “(g) Certain Taxes Paid With Respect to Distributions From Possessions Corporations.— “(1) In general.— For purposes of this chapter, any tux of a foreign country or possession of the United States which is paid or accrued with respect to any distribution from a corporation, to the extent that such distribution is attributable to periods during which such corporation is a possessions corporation, shall not be treated as income, war profits, or excess profits taxes paid or accrued to a foreign country or possession of the United States, and no deduction shall be allowed under this title with respect to any amount so paid or accrued. “(2) Possessions corporation.— For purposes of paragraph (1), a corporation shall be treated as a possessions corporation for any period during which an election under section 935 applied to such corporation or during which section 931 (as in elicit on the day before the date of the enactment of the Tax Reform Act of 1976) applied to such corporation.” (e) Amendment of Section 904(b).— Section 904(b)(as amended by sections 1031 and 1034(a) of this Act) is amended by adding at the end thereof the following new paragraph: “(4) Coordination with section 936.— For purposes of subsection (a), in the case of a corporation, the taxable income shall not include any portion thereof taken into account for purposes of the credit (if any) allowed by section 936.” (f) Dividends Received Deduction Allowed.— (1) Section 243(b)(1)(defining qualifying dividends) is amended by adding “either” at the end of subparagraph (A), by striking out the period at the end of subparagraph (B)(i) and inserting in lieu thereof a comma and “or”, and by adding at the end thereof the following new subparagraph: “(C) such dividends are paid by a corporation with respect, to which an election under section 936 is in effect for the taxable year in which such dividends are paid.”. (2) Section 243(b)(5)(defining affiliated group) is amended by inserting “. 1504(b)(4),” immediately after “1504(h)(2)”. (3) Section 246(a) (relating to dividends from certain corporations) is amended to read as follows: “(a) Deduction Not Allowed fob Dividends From Certain Corporations.— The deductions allowed by sections 243, 244, and 245 shall not apply to any dividend from a corporation which. for the taxable year of the corporation in which the distribution is made, or for the next preceding taxable year of the corporation, is a corporation exempt from tax tinder section 501 (relating to certain charitable, etc., organizations) or section 521 (relating to farmer’s” cooperative associations) (g) Consolidated Return Treatment.— Section 1504 (b) (4) (defining includible corporation) is amended to read as follows: “(4) Corporations with respect to which an election under section 936 (relating to possession tax credit) is in effect for the taxable year.”. (h) Conforming Amendment.— (1) Section 48(a)(2)(B)(vii) (relating to definition of section 26 USC 48. 38 property) is amended by striking out “(other than a corporation entitled to the benefits of section 931 or 934(b))” and inserting in lieu thereof the following: “(other than ti corporation which has an election in effect under section 936 or which is entitled to the benefits of section 934(b))”. (2) Paragraph (2) of subsection 116(b) (relating to certain 26 USC 116. dividends excluded from partial exclusion of dividends received by individuals) is amended tn read as follows: “(2) a corporation which, for the taxable year of the corporation in which the distribution is made, or for the next preceding taxable year of the corporation, is a corporation exempt from lax under section 501 (relating to certain charitable, etc., organizations) or section 521 (relating to farmers cooperative associations); or”. (3) Section 861(a)(2)(A) (relating to income from sources 26 USC 861. within the United States) is amended by striking out “other than a corporation entitled to the benefits of section 931.” and inserting in lien thereof (be following: “other than a corporation which has an election in effect under section 936,”. (4) Section 61191(b)(2)(B)(ii) (relating to place of tiling for Post, p. 1648. corporations) is amended by striking out “section 931 (relating to income from sources within possessions of the United States).” and inserting in lieu thereof the following: “section 936 (relating to possession tax credit),”. (i) Effective Date.— (1) Except as provided by paragraph (2). the amendments made by this section shall apply to taxable years beginning after December 31, 1975, except that “qualified possession source investment income” as defined in section 936(d)(2) of the Internal Revenue Code of 1954 shall include income from any source outside Ante. p. 1643. the United States if the taxpayer establishes to the satisfaction of the Secretary of the Treasury or his delegate that the income from such sources was earned before October 1, 1976. (2) The a mend ii lent made by subsection (d)(2) shall not apply to any tax imposed by a possession of the United States with respect to the complete liquidation occurring before January 1, 1979, of a corporation to the extent that such tax is attributable to earnings and profits accumulated by such corporation during periods ending before January 1, 1976. SEC. 1052. WESTERN HEMISPHERE TRADE CORPORATIONS. (a) Phaseout of Special Deduction for Western Hemisphere Trade Corporations.— Section 922 (special deduction for Western 26 USC 922. Hemisphere trade corporations) is amended by adding at the end thereof the following new subsection: “(b) Phaseout of Deduction.— In the ease of a taxable year beginning after December 31, 1975. and before January 1, 1980. the percent specified in subsection (a)(2)(A) shall be (in lieu of 14 percent) the percent specified in file following table: “For a taxable year beginning in— The percentage shall be—    1976 11        1977 8        1978 5        1979 2”    (b) Repeal of Western Hemisphere Trade Gwohatiox Deduction for Taxable Years Beginning After 1979.— Subpart C of part III of subchapter X of chapter 1 (relating to Western Hemisphere trade 26 USC 921, 922. 26 USC 922. corporations) is hereby repealed. (c) Conforming Amendments.— (1) The first sentence of section 922 (relating to special deduction) is amended by striking out “In the case of” and inserting in lieu thereof the following: “(a) General Rule.— In the ease of.” (2) Section 170(b)(2) (relating to percentage limitations on charitable contributions in the case of corporations) is amended by adding “and” at the end of subparagraph (C). by striking out subparagraph (D). and by re designating subparagraph (E) as subparagraph (D). (3) Section 172(d) (relating to modifications for purposes of the net operating loss deduction) is amended by Striking out paragraph (5) and by redesignating paragraph (6) as paragraph (5). (4) Subsection (g) of section 907 is hereby repealed. (5) Section 1503 (relating to computation and payment of tax in the case, of consolidated returns) is amended by striking out subsection (b) and by striking out “(a) General Rule.—”. (6) Section 0091 (b)(2)(B)(ii) (relating to place for filing returns of corporations) is amended to read as follows: “(ii) corporations which claim the benefits of section 936 (relating to possession tux credit), and”. (7) The table of subparts for part TH of subchapter X of chapter 1 is amended by striking out the item relating to subpart C. (d) Effective Dates.— The amendments made by subsection (a) and paragraph (1) of subsection (c) shall apply with respect to taxable years beginning after December 31, 1975. The amendments made by subsection (b) and by subsection (c)(other than paragraph (1)) shall apply with respect to taxable years beginning after December 31, 1979. SEC. 1053. REPEAL OF PROVISIONS RELATING TO CHINA TRADE ACT CORPORATIONS. (a) Phaseout of Section 941.— Section 941 (relating to special deductions for China Trade. Act corporations) is amended by adding the following new subsection: “(d) Phaseout of Deduction.— In the ease of a taxable year beginning after December 31, 1975, and before January 1, 1978, the amount of the special deduction under subsection (a)(determined without regard to this subsection) shall be reduced by the percentage reduction specified in the following table: “For a taxable year beginning in— The percentage reduction shall be—    1976 33⅓        1977 66⅔     (b) Phaseout of Section 943.— Section 943 (relating to the exclusion of certain dividends to residents of Formosa or Hong Kong) is amended by adding at the end thereof the following new sentence; “In the, case of a taxable year beginning after December 31, 1975. and before January 1, 1978, the amount of the distributions which are excludable from gross income under this section (determined without regard to this sentence) shall be reduced by the percentage reduction specified in the following table: “For a taxable year beginning in— The percentage reduction shall be—    1976 33⅓        1977 66⅔     (c) Repeal.— Subpart E of part III of subchapter N of chapter 1 26 USC 941, 942, 943. (relating to China Trade Act corporations) is hereby repealed. (d) Technical and Conforming Amendments.— (1) Section 116(b) is amended by striking out paragraph (1) 26 USC 116. and redesignating paragraphs (2) and (3) as paragraphs (1) and (2). respectively. (2) Section 1504(b) is amended by striking out paragraph (5). 26 USC 1504. 26 USC 6072. 26 USC 6091. (3) Section 6072 is amended by striking out subsection (e). (4) Section 6091(b)(2)(B)(iij is amended by striking out the comma after “trade corporations)” and inserting in lieu thereof “or” and by striking out “or section 941 (relating to the special deduction for China Trade Act corporations),”. (5) The table of subparts for part III of subchapter N of chapter 1 is amended by striking out the item relating to subpart E. (e) Effective Dates.— The amendments made by subsections (a) 26 USC 941 note. and (b) shall apply with respect to taxable years beginning after December 31, 1975. The amendments made by subsections (c) and (d) shall apply with respect to taxable years beginning after December 31, 1977. PART VI— DENIAL OF CERTAIN TAX BENEFITS FOR COOPERATION WITH OR PARTICIPATION IN INTER-NATIONAL BOYCOTTS AND IN CONNECTION WITH THE PAYMENT OF CERTAIN BRIBES SEC. 1061. DENIAL OF FOREIGN TAX CREDIT. (a) In General.— Subpart A of part III of subchapter N (relating to income from sources without the United States) is amended by adding at the end thereof the following new section: “SEC. 908. REDUCTION OF CREDIT FOR PARTICIPATION IN OR COOPERATION WITH AN INTERNATIONAL BOYCOTT. “(a) In General.— If a person, or a member of a controlled group (within the meaning of section 993(a)(3)) which includes such person, participates in or cooperates with an international boycott during the taxable, year (within the meaning of section 999(b)), the amount Post, p. 1650. of the credit allowable under section 991 to such person, or under section 902 or 960 to United States shareholders of such person, for foreign Ante, p. 1626. taxes paid during the taxable year shall be reduced by an amount equal to the product of— “(1) the amount of the credit which, but for this section, would be allowed under section 901 for the taxable year, multiplied by “(2) the international boycott factor (determined under section 999). “(b) Application With Sections 275(a)(4) and 78.— Section 275 (a)(4) and section 78 shall not apply to any amount of taxes denied credit under subsection (a).” (b) Clerical Amendment.— The table of sections for such subpart is amended by adding at the end thereof the following new item: “Sec. 908. Reduction of credit for participation in or cooperation with an international boycott.” SEC. 1062. DENIAL OF DEFERRAL OF INTERNATIONAL BOYCOTT amounts. (a) Dental of Deferral.— Section 952(a) (relating to general definition of subpart F income) is amended— (1) by striking out “and.” at the end of paragraph (1), (2) by striking out the period at the end of paragraph (2) and inserting in lieu thereof a comma, and the word “and”, and (3) by adding at the end thereof the following new paragraph: “(3) an amount equal Io the product of— “(A) the income of such corporation other than income which— “(i) is attributable to earnings and profits of the foreign corporation included in the gross income of a United States person under section 951 (other than by reason of this paragraph), or “(ii) is described in subsection (b), multiplied by “(B) the international boycott factor (as determined Infra. under section 999).” SEC. 1063. DENIAL OF DISC BENEFITS. (a) International Boycott Activity.— Subparagraph (D) of section 995(b)(1) (relating to distributions in qualified years) is amended to read as follows: “(D) the sum of— “(i) one-half of the excess of the taxable income of the DISC for the taxable year, before reduction for any distributions during the year, over the sum of the amounts deemed distributed for the taxable year under subparagraphs (A), (B), and (C), and “(ii) an amount equal to the amount determined under clause (i) multiplied by the international boycott factor determined Under section 999, and”. SEC. 1064. DETERMINATIONS AS TO PARTICIPATION IN OR COOPERATION WITH AN INTERNATIONAL BOYCOTT. (a) In General.— Subchapter N of chapter 1 (relating to tax based on income from sources within or without the United States) is amended by adding at the end thereof the following new part: “PART V— INTERNATIONAL BOYCOTT DETERMINATIONS “Sec. 969. Reports by taxpayers: determinations. “SEC. 999. REPORTS BY TAXPAYERS; DETERMINATIONS. “(a) International Boycott Reports by Taxpayers.— “(1) Report required.— If any person, or a member of a controlled group (within the meaning of section 993(a)(3)) which includes that person, has operations in, or related to— “(A) a country (or with the government, a company, or a national of a country) which is on the list maintained by the. Secretary under paragraph (3), or “(B) any other country (or with the government, a company, or a national of that country) in which such person or such member had operations during the taxable year it such person (or, if such person is a foreign corporation, any United States shareholder of that corporation) knows or has reason to know that participation in or cooperation with an international boycott is required as a condition of doing business within such country or with such government, company, or national, that person or shareholder (within the meaning of section 951 (h)) shall report such 26 USC 951. operations to the Secretary at such time and in such manner as the Secretary prescribes, except that in the ease of a foreign corporation such report shall he required only of a United States shareholder (within the meaning of such section) of such corporation. “(2) Participation and cooperation: request therefor.— A taxpayer shall report whether he, a foreign corporation of which he is a United States shareholder, or any member of a controlled group which includes the taxpayer or such foreign corporation has participated in or cooperated with an international boycott at any time during the taxable year, or has been requested to participate in or cooperate with such a boycott, and, if so, the nature of any operation in connection with which there was participation in or cooperation with such boycott (or there was a request to participate or cooperate). “(3) List to be maintained.— The Secretary shall maintain and publish not less frequently than quarterly a current list of countries which require or rutty require participation in or cooperation with an international boycott (within the meaning of subsection (b)(3)). “(b) Participation in or Cooperation With an International Boycott.— “(1) General rule.— If the person or a member of a controlled group (within the meaning of section 993(a)(3)) which includes the person participates in or cooperates with an international boycott in the taxable year, ail operations of the tax-payer or such group in that country and in any other country which requires participation in or cooperation with the boycott us a condition of doing business within that country, or with the government, a company, or a national of that country, shall be treated as operations in connection with which such participation of cooperation occurred, except to the extent that the person can clearly demonstrate that a particular operation is a clearly separate and identifiable operation in connection with which there was no participation in or cooperation with an international boycott. “(2) Special rule.— “(A) Non boycott operations.— A clearly separate and identifiable operation of a person, or of a member of the controlled croup (within the meaning of section 993(a)(3)) which includes that person, in or related to any country within the group of countries referred to in paragraph (1) shall not be treated as an operation in or related to a group of countries associated in carrying out an international boycott if the person can clearly demonstrate that he. or that such member, did not participate in or cooperate with the international boycott in connection with that operation. “(B) Separate and identifiable operations.— A taxpayer may show that different operations within the same country, or operations in different countries, are clearly separate and identifiable operations. “(3) Definition of boycott participation and cooperation.— For purposes of this section, a person participates in or cooperates with an international boycott if be agrees— “(A) as a condition of doing business directly or indirectly within a country or with the government, a company, or a national of a country— “(i) to refrain from doing business with or in a country which is the object of the boycott or with the government, companies, or nationals of that country; “(ii) to refrain from doing business with any United States person engaged in trade in a country which is the object of the boycott or with the government, companies, or nationals of that country; “(iii) to refrain from doing business with any company whose ownership or management is made up, all or in part, of individuals of a particular nationality, race, or religion, or to remove (or refrain from selecting) corporate directors who are individuals of a particular nationality, race, or religion; or “(iv) to refrain from employing individuals of a particular nationality, race, or religion; or “(B) as a condition of the sale of a product to the government, a company, or a national of a country, to refrain from shipping or insuring that product on a carrier owned, leased, or operated by a person who does not participate in or cooperate with an international boycott (within the meaning of subparagraph (A)). “(4) Compliance with certain laws.— This section shall not apply to any agreement by a person (or such member)— “(A) to meet requirements imposed by a foreign country with respect to an international boycott if United States law or regulations, or an Executive Order, sanctions participation in, or cooperation with, that international boycott, “(B) to comply with a prohibition on the importation of goods produced in whole or in part in any country which is the object of an international boycott, or “(C) to comply with a prohibition imposed by a country on the exportation of products obtained in such country to any country which is the object of an international boycott. “(c) International Boycott Factor.— “(1) International boycott factor.— For purposes of sections 908(a), 952(a)(3), and 995(b)(3), the international boycott factor is a fraction, determined under regulations prescribed by the Secretary, the numerator of which reflects the worldwide operations of a person (or, in the case of a controlled 26 USC 993. group (within the meaning of section 993(a)(3)) which includes that person, of the group) which are operations in or related to a group of countries associated in carrying out an international boycott in or with which that person or a member of that controlled group has participated or cooperated in the taxable year, and the denominator of which reflects the worldwide operations of that person or group. “(2) Specifically attributable taxes and income.— If the taxpayer clearly demonstrates that the foreign taxes paid and income earned for the taxable year are attributable to specific operations, then, in lieu of applying the international boycott factor for such taxable year, the amount of the credit disallowed under section 908(a), the addition to subpart F income under section 952(a)(3), and the amount of deemed distribution under section Ante, p. 1649. Ante, p. 1650. 995(b)(1)(D)(ii) for the taxable year, if any, shall be the amount specifically attributable to the operations in which there was participation in or cooperation with an international boycott under section 999 (b)(1). Ante, p. 1650. “(3) Worldwide operations.— For purposes of this subsection, the term ‘worldwide operations’ means operations in or related to countries other than the United States. “(d) Determinations With Respect to Particular Operations.— Upon a request made by the taxpayer, the Secretary shall issue a determination with respect to whether a particular operation of a person, or of a member of a controlled group which includes that person, constitutes participation in or cooperation with an international boycott. The Secretary may issue such a determination in advance of such operation in cases which are of such a nature that an advance determination is possible and appropriate under the circumstances. If the request, is made before the operation is commenced, or before the end of a taxable year in which the operation is carried out, the Secretary may decline to issue such a determination before close of the taxable year. “(e) Participation or Cooperation by Related Persons.— If a person controls (within the meaning of section 304(c)) a corporation— “(1) participation in or cooperation with an international boycott by such corporation shall be presumed to be such participation or cooperation by such person, and “(2) participation in or cooperation with such a boycott by such person shall be presumed to be such participation or cooperation by such corporation. “(f) Willful Failure to Report.— Any person (within the meaning of section 6671 (b)) required to report under this section who will-fully fails to make such report shall, in addition to other penalties provided by law, be fined not more than $25,000, imprisoned for not more than one year, or both.”. (b) Clerical Amendment.— The table of parts for such subchapter is amended by adding at the end thereof the following new item: “Part V. International boycott determinations.” SEC. 1065. FOREIGN BRIBES. (a) Dental of Deferral.— (1) Controlled foreign corporations.— Section 952(a) (relating 26 USC 952. to general definition of subpart F income) is amended— (A) by striking out “and” at the end of paragraph (2), (B) by striking out the period at the end of paragraph (3) and inserting in lieu thereof a comma and the word “and”, and (C) by adding at the end thereof the following new paragraph: “(4) the sum of the amounts of any illegal bribes, kickbacks, or other payments (within the meaning of section 162(c)) paid by or on behalf of the corporation during the taxable year of the corporation directly or indirectly to an official, employee, or agent in fact of a government.” (2) DISC’s.— Subparagraph (D) of section 995(b)(1) (relating to distributions in qualified years) is amended— (A) by striking out “and” at the end of clause (i), (B) by adding at the end thereof the following new clause: “(iii) any illegal bribe, kickback, or other payment (within the meaning of section 162(c)) paid by or on behalf of the DISC directly or indirectly to an official, employee, or agent in fact of a government, and”. (b) Bribes Not To Reduce Foreign Earnings and Profits.— Section 964(a) (relating to earnings and profits of foreign corporations) is amended by adding at the end thereof the following sentence,: “In determining such earnings and profits, or the deficit in such earnings and profits, the amount of any illegal bribe, kick-back, or other payment (within the meaning of section 162(c)) shall not be taken into account to decrease such earnings and profits or to increase such deficit.”. SEC. 1066. EFFECTIVE DATES. (a) International Boycotts.— (1) General rule.— The amendments made by this part (other than by section 1065) apply to participation in or cooperation with an international boycott more than 30 days after the date of enactment of this Act. (2) Existing contracts.— In the case of operations which constitute participation in or cooperation with an international boycott and which are carried out in accordance with the terms of a binding contract entered into before September 2, 1976, the amendments made by this part (other than by section 1065) apply to such participation or cooperation after December 31, 1977. (b) Foreign Bribes.— The amendments made by section 1065 apply to payments described in section 162(c) of the Internal Revenue Code of 1954 made more than 30 days after the date of enactment of this Act. SEC. 1067. REPORTS BY SECRETARY. (a) Reports to the Congress.— As soon after the close of each calendar year as the data become available, the Secretary shall transmit a report to the Committee on Ways and Means of the House of Representatives and to the Committee on Finance of the Senate setting forth, for that calendar year— (1) the number of reports filed under section 999(a) of the Internal Revenue Code of 1954 for taxable years ending with or within such taxable year, (2) the number of such reports on which the taxpayer indicated international boycott participation or cooperation (within the meaning of section 999 (b)(3) of such Code), and (3) a detailed description of the manner in which the provisions of such Code relating to international boycott activity have been administered during such calendar year. (b) Initial List.— The Secretary of the Treasury shall publish an initial list of those countries which may require participation in or cooperation with an international boycott as a condition of doing business within such country, or with the government, a company, or a national of such country (within the meaning of section 999(b) of the Internal Revenue Code of 1954) within 30 days after the enactment of this Act.

4. 1976

   Pub. L. 94–455 § 1035(d)(2) · 90 Stat. 1520

   Added · 26 U.S.C. § 907(c)(5)

   Pub. L. 94–455, § 1035(d)(2), added par. (5)

   Source evidence

   Code amendment note
   Subsec. (c)(5). Pub. L. 94–455, § 1035(d)(2), added par. (5).

   Enacted provision · exact public law section
   (2) Definition of on and gas extraction taxes.— Subsection (c) of section 907 is amended by adding at the end thereof the following new paragraph: “(5) Oil and gas extraction taxes.— The term ‘oil and gas extraction taxes’ means any income, war profits, and excess profits tax paid or accrued (or deemed to have been paid under section 902 or 960) during the taxable year with respect to foreign oil Ante, p. 1626. 26 USC 960. and gas extraction income (determined without regard to paragraph (4)) or loss which would he taken into account for purposes of section 901 without regard to this section,”

5. 1976

   Pub. L. 94–455 § 1031(b)(6)(A) · 90 Stat. 1520

   Substituted · 26 U.S.C. § 907(e)(1)

   Pub. L. 94–455, § 1031(b)(6)(A), substituted “(d) and (e) of section 904 (as in effect on the day before the date of enactment of the Tax Reform Act of 1976)” for “(d) and (e) of section 904” after “In applying subsections”

   Source evidence

   Code amendment note
   Subsec. (e)(1). Pub. L. 94–455, § 1031(b)(6)(A), substituted “(d) and (e) of section 904 (as in effect on the day before the date of enactment of the Tax Reform Act of 1976)” for “(d) and (e) of section 904” after “In applying subsections”.

   Enacted provision · exact public law section
   (A) by striking out “(d) and (e) of section 904” in paragraphs (1) and (2) and inserting in lieu thereof “(d) and (e) of section 904 (as in effect on the day before the date of the enactment of the Tax Reform Act of 1976)”; Ante, p. 1520.

6. 1976

   Pub. L. 94–455 § 1031(b)(6) · 90 Stat. 1520

   1. Substituted · 26 U.S.C. § 907(e)(2)

      Pub. L. 94–455, § 1031(b)(6), substituted “(d) and (e) of section 904 (as in effect on the day before the date of enactment of the Tax Reform Act of 1976)” for “(d) and (e) of section 904” after “sentence of section”

   2. Substituted · 26 U.S.C. § 907(e)(2)

      Pub. L. 94–455, § 1031(b)(6), substituted “section 904(a)(1) (as so in effect)” for “section 904(a)(1)” after “sentence of section”

   3. Substituted · 26 U.S.C. § 907(e)(2)

      Pub. L. 94–455, § 1031(b)(6), substituted “section 904(e)(2) (as so in effect)” for “section 904(e)(2)” after “sentence of section”

   Source evidence

   Code amendment note
   Subsec. (e)(2). Pub. L. 94–455, § 1031(b)(6), substituted “(d) and (e) of section 904 (as in effect on the day before the date of enactment of the Tax Reform Act of 1976)” for “(d) and (e) of section 904” after “In applying subsections”, “section 904(a)(1) (as so in effect)” for “section 904(a)(1)” after “provided by section” and, in subpar. (A), “section 904(e)(2) (as so in effect)” for “section 904(e)(2)” after “sentence of section”.

   Enacted provision · exact public law section
   (6) Subsection (e) of section 907 (relating to transitional rules) is amended— (A) by striking out “(d) and (e) of section 904” in paragraphs (1) and (2) and inserting in lieu thereof “(d) and (e) of section 904 (as in effect on the day before the date of the enactment of the Tax Reform Act of 1976)”; Ante, p. 1520. (B) by striking out “section 904(a)(1)” in paragraph (2) and inserting in lien thereof “section 904(a)(1)(as so in effect)”; and (C) by striking out “section 904(c)(2)” in paragraph (2)(A) and inserting in lieu thereof “section 904(e)(2)(as so in effect)”.

7. 1976

   Pub. L. 94–455 title X · 90 Stat. 1520

   Struck · 26 U.S.C. § 907(f)

   Pub. L. 94–455, §§ 1032(b)(2), 1035(d)(1), added subsec. (f). Former subsec. (f), relating to recapture of foreign oil related loss, was struck out

   Source evidence

   Code amendment note
   Subsec. (f). Pub. L. 94–455, §§ 1032(b)(2), 1035(d)(1), added subsec. (f). Former subsec. (f), relating to recapture of foreign oil related loss, was struck out.

   Enacted provision · exact public law
   TITLE X— CHANGES IN THE TREATMENT OF FOREIGN INCOME PART I— FOREIGN TAX PROVISIONS AFFECTING INDIVIDUALS ABROAD SEC. 1011. INCOME EARNED ABROAD BY UNITED STATES CITIZENS LIVING OR RESIDING ABROAD. (a) Reduction of Limitations on Amount Excludable.— Paragraph (1) of section 911(c) relating to limitations on amount of exclusion) is amended to read as follows: “(1) Limitations on amount of exclusion.— “(A) In general.— Except as provided in subparagraphs (B) and (C), the amount excluded from the gross income of an individual under subsection (a) for any taxable year shall not exceed an amount which shall be computed on a daily basis at an annual rate of $15,000. “(B) Employees of charitable organizations.— If any individual performs qualified charitable services during any taxable year, the amount of the earned income attributable to such services excluded from the gross income of the individual under subsection (a) for the taxable year shall not exceed an amount which shall be computed on a daily basis at an annual rate of $20,000. “(C) Special rule.— If any individual performs qualified charitable services and other services during any taxable year, the amount of the earned income attributable to such other services excluded from the gross income of the individual under subsection (a) for the taxable year shall not (after the application of subparagraph (A) with respect to such earned income) exceed $15,000 reduced by the amount of the earned income attributable to qualified charitable services excluded from gross income under subsection (a) for the taxable year. “(D) Qualified charitable services.— For purposes of this subsection, the term ‘qualified charitable services’ means services performed by an employee for an employer created or organized in the United States, or under the law of the United States, any State, or the District of Columbia, which meets the requirements of section 501 (c)(3).” (b) Additional Limitations on Exclusion.— (1) Disallowance of foreign tax credit with respect to excluded amounts.— The last sentence of subsection (a) of section 911 (relating to earned income from sources without the United States) is amended to read as follows: “An individual shall not be allowed as a deduction from his gross income any deductions (other than those allowed by section 151, relating to personal exemptions), or as a credit against the tax imposed by this chapter any credit for the amount of taxes paid or accrued to a foreign country or possession of the United States, to the extent that such deductions or credit is properly allocable to or chargeable against amounts excluded from gross income under this subsection.” (2) Disallowance or exclusion for income received other than in country where earned.— Section 911(c) (relating to 26 USC 911. special rules for earned income from sources without the United States) is amended by adding at the end thereof the following new paragraph: “(8) Requirement as to place of receipt.— No amount received by an individual during the taxable year which constitutes earned income (entitled to the exclusion under subsection (a)) attributable to services performed in a foreign country or countries shall be excluded under subsection (a) if such amount is received by such individual outside of the foreign country or countries where such services were performed and if one of the purposes is the avoidance of any tax imposed by such foreign country or countries on such amount.” (3) Inclusion of earned income in computation of rate of tax.— Section 911 (relating to earned income from sources without the United States) is amended by redesignating subsection (d) as subsection, (f) and by inserting after subsection (e) the following new subsections: “(d) Amount Excluded Under Subsection (a) Included in Computation of Tax.— “(1) Computation of tax.— If for any taxable year an individual has earned income which is excluded from gross income under subsection (a), the tax imposed by section 1 or section 1201 Post, p. 1786. shall be the excess of— “(A) the tax imposed by section 1 or section 1201 (whichever is applicable) on the amount of net taxable income, over “(B) the tax imposed by section 1 or section 1201 (whichever is applicable) on the amount of net excluded earned income. “(2) Definitions.— For purposes of this subsection— “(A) the term ‘net taxable income’ means an amount equal to the sum of the amount of taxable income for the taxable year plus the amount of net excluded earned income of such individual for such taxable year; and “(B) the term ‘net excluded earned income’ means the excess of the amount of earned income excluded under’ subsection (a) for the taxable year over the amount of the deductions disallowed with respect to such excluded earned income for such taxable year under subsection (a). “(e) Section Not to Apply.— “(1) In general.— An individual entitled to the benefits of this section for a taxable year may elect, in such manner and at such time as shall he prescribed by the Secretary, not to have the provisions of this section apply. “(2) Effect of election.— An election under paragraph (1) shall apply to the taxable year for which made and to all subsequent taxable years. Such election may not be revoked except with the consent of the Secretary.” (c) Allowance of Foreign Tax Credits to Individuals Taking Standard Deduction.— Section 36 (relating to credits not allowed to 26 USC 36. individuals paying optional tax or taking standard deduction) is amended by striking out “sections 32, 33, and” and inserting in lieu thereof “sections 32 and”. (d) Effective Date.— The amendments made by this section shall 26 USC 911 note. apply to taxable years beginning after December 31, 1975. SEC. 1012. INCOME TAX TREATMENT OF NONRESIDENT ALIEN INDIVIDUALS WHO ARE MARRIED TO CITIZENS OR RESIDENTS OF THE UNITED STATES. (a) Election To Be Treated as Residents of the United States.— (1) In general.— Section 6013 (relating to joint returns of income tax by husband and wife) is amended, by adding at the end thereof the following new subsections: “(g) Election To Treat Nonresident Alien Individual as Resident of the United States.— “(1) In general.— A nonresident alien individual with respect to whom this subsection is in effect for the taxable year shall be treated as a resident of the United States for purposes of chapter 1 for all of such taxable year. “(2) Individuals with respect to whom this subsection is in effect.— This subsection shall be in effect with respect to any individual who, at the time an election was made under tills subsection, was a nonresident alien individual married to a citizen or resident of the United States, if both of them made such election to have the benefits of this subsection apply to them. “(3) Duration of election.— An election under this subsection snail apply to the taxable year for which made and. to all subsequent taxable years until terminated under paragraph (4) or (5); except that any such election shall not apply for any taxable year if neither spouse is a citizen or resident of the United States at any time during such year. “(4) Termination of election.— An election under this subsection shall terminate at the earliest of the following times: “(A) Revocation by taxpayers.— If either taxpayer revokes the election, as of the first taxable year for which the last day prescribed by law for filing the return of tax under chapter 1 has not yet occurred. “(B) Death.— In the case of the death of either spouse, as of the beginning of the first taxable year of the spouse who survives following the taxable year in which such death occurred; except that if the spouse who survives is a citizen or resident of the United States who is a surviving spouse entitled to the benefits of section 2, the time provided by this subparagraph shall be as of the close of the last taxable year for which such individual is entitled to the benefits of section 2. “(C) Legal separation.— In the case of the legal separation of the couple under a decree of divorce or of separate maintenance, as of the beginning of the taxable year in which such legal separation occurs. “(D) Termination by secretary.— At the time provided in paragraph (5). “(5) Termination by secretary.— The Secretary may terminate any election under this subsection for any taxable year if he determines that either spouse has failed— “(A) to keep such books and records. “(B) to grant such access to such books and records, or “(C) to supply such other information, as may be reasonably necessary to ascertain the amount of liability for taxes under chapter 1 of either spouse for such taxable year. “(6) Only one election.— If any election under this subsection for any two individuals is terminated under paragraph (4) or (5) for any taxable year, such two individuals shall be ineligible to make an election under this subsection for any subsequent taxable year. “(h) Joint Return. Etc., for Year in Which Nonresident Alien Becomes Resident of United States.— “(1) In general.— If— “(A) any individual is a nonresident alien individual at the beginning of any taxable year but is a resident of the United States at the close of such taxable year, “(B) at the close of such taxable year, such individual is married to a citizen or resident of the United States, and “(C) both individuals elect the benefits of this subsection at the time and in the manner prescribed by the Secretary by regulation, then the individual referred to in subparagraph (A) shall be treated as a resident of the United States for purposes of chapter 1 26 USC 1. for all of such taxable year. “(2) Only one election.— If any election under this subsection applies for any 2 individuals for any taxable year, such 2 individuals shall be ineligible to make an election under this subsection for any subsequent taxable year.” (2) Clerical amendment.— Section 871(g) (relating to cross 26 USC 871. references) is amended by adding at the end thereof the following new paragraph: “(7) For election to treat married nonresident alien individual as resident of United States in certain cases, see subsections (g) and (h) of section 6013.” (b) Tax Treatment of Certain Community Income in the Case of a Resident or Citizen of the United States Who Is Married to a Nonresident Alien Individual.— (1) In general.— Subpart A of part II of subchapter N of chapter 1 (relating to nonresident alien individuals) is amended by adding at the end thereof the following new section: “SEC. 879. TAX TREATMENT OF CERTAIN COMMUNITY INCOME IN THE CASE OF A RESIDENT OR CITIZEN OF THE UNITED STATES WHO IS MARRIED TO A NONRESIDENT ALIEN INDIVIDUAL. “(a) General Rule.— In the case of a citizen or resident of the United States who is married to a nonresident alien individual and who has community income for the taxable year, such community income, shall be treated as follows: “(1) Earned income (within the meaning of section 911(b)), other than trade or business income and a partner’s distributive share of partnership income, shall be treated as the income of the spouse who rendered the personal services, “(2) Trade or business income, and a partner’s distributive share of partnership income, shall be treated as provided in section 1402(a)(5), “(3) Community income not described in paragraph (1) or (2) which is derived from the separate property (as determined under the applicable community property Jaw) of one spouse shall be treated as the income of such spouse, and “(4) All other such community income shall be treated as provided in the applicable community property law. “(b) Exception Where Election Under Section 6013(g) Is in Effect.— Subsection (a) shall not apply for any taxable year for which an election under subsection (g) or (h) of section 6013 (relating to election to treat nonresident alien individual as resident of the United States) is in effect. “(c) Definitions and Special Rules.— For purposes of this section— “(1) Community income.— The term ‘community income’ means income which, under applicable community property laws, is treated as community income. “(2) Community property laws.— The term ‘community property laws’ means the community property laws of a State, a foreign country, or a possession of the United States. “(3) Determination op marital status.— The determination of marital status shall be made under section 143(a).” (2) Repeal of section 981.— Subpart II of part III of subchapter X of chapter 1 (relating to election as to treatment of income subject to foreign community property laws) is hereby repealed, (3) Clerical amendments.— (A) The table of sections for subpart A of part II of subchapter N of chapter 1 is amended by adding at the end thereof the following new item: “Sec. 879. Tax treatment of certain community income in the case of a resident or citizen of the United States who is married to a nonresident alien individual.” (B) The table of subparts for part III of subchapter N of chapter 1 is amended by striking out the item relating to subpart G. (c) Due Date for Filing Estimated Tax Returns in the Case of Certain Nonresident Aliens.— Subsection (a) of section 6073 (relating to time for filing declarations of estimated tax by individuals) is amended by adding at the end thereof the following sentence: “In the case of a nonresident alien described in section 6072(c), the requirements of section 6015 shall be deemed to be first met no earlier than after April 1 and before June 2 of the taxable year.”. (d) Effective Dates.— The amendments made by subsection (a) shall apply to taxable years ending on or after December 31, 1975. The amendments made by subsections (b) and (c) shall apply to taxable years beginning after December 31, 1976. “SEC. 1013. FOREIGN TRUSTS HAVING ONE OR MORE UNITED STATES BENEFICIARIES TO BE TAXED CURRENTLY TO GANTOR. (a) Taxation of Income to Grantor of Trust.— Subpart E of part I of subchapter J of chapter 1 (relating to grantors and others treated as substantial owners) is amended by adding at the end thereof the following new section: “SEC. 679. FOREIGN TRUSTS HAVING ONE OR MORE UNITED STATES BENEFICIARIES. “(a) Transferor Treated as Owner.— “(1) In general.— A United States person who directly or indirectly transfer’s property to a foreign trust (other than a trust described in section 404(a)(4)) shall be treated as the owner for his taxable year of the portion of such trust attributable to such property if for such year there is a United States beneficiary of any portion of such trust. “(2) Exceptions.— Paragraph (1) shall not apply— “(A) Transits by reason of death.— To any transfer by reason of the death of the transferor. “(B) Transfers where gain is recognized to transferor.— To any sale or exchange of the property at its fair market value in a transaction in which all of the gain to the transferor is realized at the time of the transfer and is recognized either at such time or is returned as provided in section 453. “(b) Trusts Acquiring United States Beneficiaries.— If— “(1) subsection (a) applies to a trust for the transferor’s taxable year, and “(2) subsection (a) would have applied to the trust for his immediately preceding taxable year but for the fact that for such preceding taxable year there was no United States beneficiary for any portion of the trust, then, for purposes of this subtitle, the transferor shall be treated as having income for the taxable year (in addition to his other income for such year) equal to the undistributed net income (at the close of such immediately preceding taxable year) attributable to the portion of the trust referred to in subsection (a). “(c) Trusts Treated as Having a United States Beneficiary.— “(1) In general.— For purposes of this section, a trust shall be treated as having a United States beneficiary for the taxable year unless— “(A) under the terms of the trust, no part, of the income or corpus of the trust may be paid or accumulated during the taxable year to or for the benefit of a United States person, and “(B) if the trust were terminated at any time during the taxable year, no part of the income or corpus of such trust could be paid to or for the benefit of a United States person. “(2) Attribution of ownership.— For purposes of paragraph (1), an amount shall be treated as paid or accumulated to or for the benefit of a United States person if such amount is paid to or accumulated for a foreign corporation, foreign partnership, or foreign trust or estate, and— “(A) in the case of a foreign corporation, more than 50 percent of the total combined voting power of all classes of stock entitled to vote of such corporation is owned (within the meaning of section 958(a)) or is considered to be owned (within the meaning of section 958(b)) by United States shareholders (as defined in section 951(b)), “(B) in the ease of a foreign partnership, a United States person is a partner of such partnership, or “(C) in the case of a foreign trust or estate, such trust or estate has a United States beneficiary (within the meaning of paragraph (1)) (b) Grantor To Be Treated as Owner.— Subsection (b) of section 678 (relating to persons other than grantors treated as substantial 26 USC 678. owners) is amended by striking out everything after “modified,” and inserting in lieu thereof “if the grantor of the trust or a transferor (to whom section 679 applies) is otherwise treated as the owner under the provisions of this subpart other than this section.”, (c) Treatment of Capital Gains and Losses of Certain Foreign Trusts.— (1) Foreign trusts created by united states persons treated like other foreign trusts.— Subparagraph (C) of section 643 26 USC 643. (a)(6) (relating to distributable net income in ease of foreign trusts) is amended by striking out “foreign trust created by a United States person” and inserting in lieu thereof “foreign trust” (2) Transitional rule for foreign trusts.— Section 643(a)(6) 26 USC 643. is amended by adding at the end thereof the following new subparagraph: “(D) Effective for distributions made in taxable years beginning after December 31, 1975, the undistributed net income of each foreign trust for each taxable year beginning on or before December 31, 1975, remaining undistributed at the close of the last taxable year beginning on or before December 31, 1975, shall be redetermined by taking into account the deduction allowed by section 1202.” (d) Returns for Foreign Trusts Having One or More United States Beneficiaries.— (1) Section 6048 (relating to returns as to creation of or transfers to certain foreign trusts) is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: “(c) Annual Returns for Foreign Trusts Having One on More United States Beneficiaries.— Each taxpayer subject to tax under section 679 (relating to foreign trusts having one or more United States beneficiaries) for his taxable year with respect to any trust shall make a return with respect to such trust for such year at such time and in such manner, and setting forth such information, as the Secretary may by regulations prescribe”, (2) Section 6677(a) (relating to failure to file information returns with respect to certain foreign trusts) is amended by striking out “to a trust” and inserting in lieu thereof “to a trust (or, in the case of a failure with respect to section 6048(c), equal to 5 percent of the value of the corpus of the trust at the close of the taxable year)”. (e) Conforming Amendments.— (1) The table of sections for subpart E of part I of subchapter J of chapter 1 is amended by adding at the end thereof the following new item: “Sec. 679. Foreign trusts having one or more United States benefeciaries.” (2) Subsection (d) of section 643 is hereby repealed. (3) Subsection (d) of section 6048 (as redesignated by subsection (d)) is amended to read as follows: “(d) Cross Reference.— “For provisions relating to penalties for violation of this section, see sections 6677 and 7203.” (4) The heading of section 6048 is amended to read as follows: “SEC. 6048. RETURNS AS TO CERTAIN FOREIGN TRUSTS.”. (5) The table of sections for subpart B of part III of subchapter 26 USC 6041. A of chapter 61 is amended by striking out, the item relating to section 6048 and inserting in lieu thereof the following: “Sec. 6048. Retináis as to certain foreign trusts,” (f) Effective Dates.— (1) In general.— The amendments made by this section (other than subsection (c)) shall apply to taxable years ending after December 31, 1975, but only in the case of— (A) foreign trusts created after May 21, 1974, and (B) transfers of property to foreign trusts after May 21, 1974. (2) Guanoes in capital gain rules for foreign trusts.— The 26 USC 643 note. amendments made by subsection (c) shall apply to taxable years beginning after December 31, 1975. SEC. 1014. INTEREST CHARGE ON ACCUMULATION DISTRIBUTIONS FROM FOREIGN TRUSTS. (a) Tax To Include Special Interest Charge.— Section 667(a) Ante, p. 1575. Infra. (as amended by section 701 of this Act) is amended by striking out “and” at the end of paragraph (1), by striking out the period at the end of paragraph (2) and inserting in lieu thereof “, and ”, and by adding at the end thereof the following new paragraph: “(3) in the case of a foreign trust, the interest charge determined as provided in section 668.” Infra. (b) Computation of Special Interest Charge.— Subpart D of part I of subchapter J of chapter 1 (relating to treatment of excess distributions by trusts) is amended by adding at the end thereof the following new section: “SEC. 668. INTEREST CHARGE ON ACCUMULATION DISTRIBUTIONS FROM FOREIGN TRUSTS. “(a) General Rule.— For purposes of the tax determined under section 667(a), the interest charge is an amount equal to 6 percent of the partial tax computed under section 667(b) multiplied by a fraction— “(1) the numerator of which is the sum of the number of taxable years between each taxable year to which the distribution is allocated under section 666(a) and the taxable, year of the distribution (counting in each case the taxable year to which the distribution is allocated but not counting the taxable year of the distribution), and “(2) the denominator of which is the number of taxable years to which the distribution is allocated under section 666(a). “(b) Limitation.— The total amount of the interest charge shall not, when added to the total partial tax computed under section 667 (b), exceed the amount of the accumulation distribution (other than the amount of tax deemed distributed by section 666 (b) or (c)) in respect of which such partial tax was determined. “(c) Special Rules.— “(1) Interest charge not deductible.— The interest charge determined under this section shall not be allowed as a deduction for purposes of any tax imposed by this title. “(2) Transitional rule.— For purposes of this section, undistributed net income existing in a trust as of January 1, 1977, shall be treated as allocated under section 666(a) to the first taxable year beginning after December 31, 1976.” (c) Clerical Amendment.— The table of sections for subpart D of part I of subchapter J of chapter I is amended by adding at the end thereof of the following new item: Sec. 668. Interest charge on accumulation distributions from foreign trusts.” (d) Effective Date.— The amendments made by this section shall 26 USC 668 note. apply to taxable years beginning after December 31, 1976. SEC. 1015. EXCISE TAX ON TRANSFERS OF PROPERTY TO FOREIGN PERSONS TO AVOID FEDERAL INCOME TAX. (a) Amendment of Section 1491.— Section 1491 (relating to imposition 26 USC 1491. of tax) is amended to read as follows: “SEC. 1491. IMPOSITION OF TAX. “There is hereby imposed on the transfer of property by a citizen or resident of the United States, or by a domestic corporation or partnership, or by a trust which is not a foreign trust, to a foreign corporation as paid-in surplus or as a contribution to capital, or to a foreign trust, or to a foreign partnership, an excise tax equal to 35 percent of the excess of— “(1) the fair market value of the property so transferred, over “(2) the sum of— “(A) the adjusted basis (for determining gain) of such property in the hands of the transferor, plus “(B) the amount of the gain recognized to the transferor at the time of the transfer.” (b) Amendments or Section 1492.— Section 1492 (relating to non-taxable transfers) is amended— (1) by striking out in paragraph (3) “section 367(d) applies.” and inserting in lieu thereof section 367 applies; or” and (2) by adding at the end thereof the following new paragraph: “(4) To a transfer for which an election has been made under section 1057.” (c) Election To Treat as Taxable Exchange.— Part IV of subchapter O of chapter 1 (relating to special rules for determining gain or loss on disposition of property) is amended by redesignating section Ante, p. 1545. 1057 as section 1058 and by inserting after section 1056 the following new section: “SEC. 1057. ELECTION TO TREAT TRANSFER TO FOREIGN TRUST, ETC, AS TAXABLE EXCHANGE. Supra. “In lieu of payment of the tax imposed by section 1491, the tax-payer may elect (for purposes of this subtitle), at such time and in such manner as the Secretary may prescribe, to treat a transfer described in section 1491 as a sale or exchange of property for an amount equal in value to the fair market value of the property transferred and to recognize, as gain the excess of— “(1) the fair market value of the property so transferred, over “(2) the adjusted basis (for determining gain) of such property in the hands of the tranferor.”, (c) Clerical Amendment.— The table of sections for part IV of subchapter O of chapter 1 is amended by striking out the last item thereof and inserting in lieu thereof: “Sec. 1057. Election to treat transfer to foreign trust, etc., as taxable exchange. “Sec. 1058. Cross references.” (d) Effective Date.— The amendments made by this section shall apply to transfers of property after October 2, 1975. PART II— AMENDMENTS AFFECTING TAX TREATMENT OF CONTROLLED FOREIGN CORPORATIONS AND THEIR SHAREHOLDERS SEC. 1021. AMENDMENT OF PROVISION RELATING TO INVESTMENT IN UNITED STATES PROPERTY BY CONTROLLED FOREIGN CORPORATIONS. (a) Exceptions to Definition of United States Property.— Section 956(b)(2) (relating to exceptions to definition of United States property) is amended by striking out “and” at the end of sub-paragraph (E),by redesignating subparagraph (F) as subparagraph (H), and by inserting after subparagraph (E) the following new subparagraphs: “(F) the stock or obligations of a domestic corporation which is neither a United States shareholder (as defined in section 951(b)) of the controlled foreign corporation, nor a domestic corporation, 25 percent or more of the total combined voting power of which, immediately after the acquisition of any stock in such domestic corporation by the controlled foreign corporation, is owned, or is considered as being owned, by such United States shareholder’s in the aggregate; “(G) any movable property (other than a vessel or aircraft) which is used for the purpose of exploring for, developing, removing, or transporting resources from ocean waters or under such waters when used on the Continental Shelf of the United States: and”. (b) Constructive Ownership of Stock.— Section 958(b) (relating 26 USC 958. to rules for determining stock ownership) is amended— (1) by striking out “954(d)(3),” the first place it appears and inserting in lieu thereof “954(d)(3), 956(b)(2),”; (2) by striking out “954(d)(3).” the second place it appears and inserting in lieu thereof “954(d)(3), to treat the stock of a domestic corporation as owned by a United States shareholder of the controlled foreign corporation for purposes of section 956(b)(2),”; and (3) by adding at the end thereof the following new sentence: “Paragraphs (1) and (4) shall not apply for purposes of section 956(b)(2) to treat stock of a domestic corporation as not owned by a United States shareholder.” (c) Effective Date.— The amendments made by this section shall 26 USC 956 note. apply to taxable years of foreign corporations beginning after December 31, 1975, and to taxable years of United States shareholders (within the meaning of section 951 (b) of the Internal Revenue Code of 1954) within which or with which such taxable years of such foreign corporations end. in determining for purposes of any taxable year referred to in the preceding sentence the amount referred to in section 956(a)(2)(A) of the Internal Revenue Code of 1954 for the last taxable year of a corporation beginning before January 1, 1976, the amendments made by this section shall be deemed also to apply to such last taxable year. SEC. 1022. REPEAL OF EXCLUSION FOR EARNINGS OF LESS DEVELOPED COUNTRY CORPORATIONS FOR PURPOSES OF SECTION 1218. (a) Amendment of Section 1248(d).— Paragraph (3) of section 26 USC 1248. 1248 (d) (relating to exclusion from earnings and profits of gain from certain sales or exchanges of stock in certain foreign corporations) is amended to read as follows: “(3) Less developed country corporations under prior law.— Earnings and profits of a foreign corporation which were accumulated during any taxable year beginning before January 1, 1976, while such corporation was a less developed country corporation under section 902(d) as in effect before the enactment Ante, p. 1626. 26 USC 1 note. 26 USC 1248 note. of the Tax Reduction Act of 1975.”. (b) Effective Date.— The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1975. SEC. 1023. EXCLUSION FROM SUBPART F OF CERTAIN EARNINGS OF INSURANCE COMPANIES. (a) In General.— Paragraph (3) of section 954(c) (relating to foreign personal holding company income) is amended by striking out “or” at the end of subparagraph (A), by striking out the period at the end of subparagraph (B) and inserting in lieu thereof or”, and by adding at the end thereof the following new subparagraph: “(C) dividends, interest, and gains from the sale or exchange of stock or securities received from a person other than a related person (within the meaning of subsection (d)(3)) derived from investments made by an insurance company of an amount of its assets equal to one-third of its premiums earned on insurance contracts (other than life insurance and annuity contracts) during the taxable year (as defined in section 832(b)(4)) which are not directly or indirectly attributable to the insurance or reinsurance of risks of persons who are related persons (within the meaning of subsection (d)(3)).”. (b) Effective Date.— The amendment made by this section shall apply to taxable years of foreign corporations beginning after December 31, 1975, and to taxable, year’s of United States shareholders (within the meaning of section 951(b) of the Internal Revenue Code of 1954) within which or with which such taxable years of such foreign corporations end. SEC. 1021. SHIPPING PROFITS OF FOREIGN CORPORATIONS. (a) Certain Shipping Operations.— Subsection (b) of section 954 (relating to foreign base company income) is amended by adding at the end thereof the following new paragraph: “(7) Special exclusion for foreign base company shipping income.— Income of a corporation which is foreign base company shipping income under paragraph (4) of subsection (a)(determined without regard to the exclusion under paragraph (2) of this subsection) shall be excluded from foreign base company income if derived by a controlled foreign corporation from, or in connection with, the use (or hiring or leasing for use) of an aircraft or vessel in foreign commerce between two points within the foreign country in which such corporation is created or organized and such aircraft or vessel is registered.” (b) Effective Date.— The amendment made by this section shall apply to taxable years of foreign corporations beginning after December 31, 1975, and to taxable years of United States shareholders (within the meaning of section 951(b) of the Internal Revenue Code of 1954) within which or with which such taxable years of such foreign corporations end, PART III— AMENDMENTS AFFECTING TREATMENT OF FOREIGN TAXES SEC. 1031. REQUIREMENT THAT FOREIGN TAX CREDIT BE DETER. MINED ON OVERALL BASIS. (a) Overall Limitation on Foreign Tax Credit.— Section 904 (relating to limitation on foreign tax credit) is amended to read as follows: “SEC. 904. LIMITATION ON CREDIT. “(a) Limitation.— The total amount of the credit taken under section 901(a) shall not exceed the same proportion of the tax against which such credit is taken which the taxpayer’s taxable income from sources without the United States (but not in excess of the taxpayer’s entire taxable income) bears to his entire taxable income for the same taxable year. “(b) Taxable Income for Purposes of Computing Limitation.— For purposes of subsection (a), the taxable income in the case of an individual, estate, or trust shall be computed without any deduction for personal exemptions under section 151 or 642(b). 26 USC 151, 642. “(c) Carryback and Carryover of Excess Tax Paid.— Any amount by which all taxes paid or accrued to foreign countries or possessions of the United States for any taxable year fox’ which the taxpayer chooses to have the benefits of this subpart exceed the limitation under subsection (a) shall be deemed taxes paid or accrued to foreign countries or possessions of the United States in the second preceding taxable year, in the first preceding taxable year, and in the first, second, third, fourth, or fifth succeeding taxable years, in that order and to the extent not deemed taxes paid or accrued in a prior taxable year, in the amount by which the limitation under subsection (a) for such preceding or succeeding taxable year exceeds the sum of the taxes paid or accrued to foreign countries or possessions of the United States for such preceding or succeeding taxable year and the amount of the taxes for any taxable year earlier than the current taxable year which shall be deemed to have been paid or accrued in such preceding or subsequent taxable year (whether or not the taxpayer chooses to have the benefits of this subpart with respect to such earlier taxable year). Such amount deemed paid or accrued in any year may be availed of only as a tax credit and not as a deduction and only if the taxpayer for such year chooses to have the benefits of this subpart as to taxes paid or accrued for that year to foreign countries or possessions of the United States. “(d) Application of Section in Case of Certain Interest Income and Dividends From a DISC on Former DISC.— “(1) In general.— The provisions of subsections (a), (b), and (c) shall be applied separately with respect to each of the following items of income: “(A) the interest income described in paragraph (2), “(B) 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, and “(C) income other than the interest income described in paragraph (2) and dividends described in subparagraph (B). “(2) Interest in come to which applicable.— For purposes o f this subsection, the interest income described in this paragraph is in hi rest other than interest— “(A) derived from any transaction which is directly related to the active conduct by the taxpayer of a trade or business in a foreign country or a possession of the United States, “(B) derived in the conduct by the taxpayer of a banking, financing, or similar business, “(C) received from a corporation in which the taxpayer (or one or more includible corporations in an affiliated group, as defined in section 1504, of which the taxpayer is a member) owns, directly or indirectly, at least 10 percent of the voting stock, or “(D) received on obligations acquired as a result of the disposition of a trade or business actively conducted by the taxpayer in a foreign country or possession of the United States or as a result of the disposition of stock or obligations of a corporation in which the taxpayer owned at least 10 percent of the voting stock. For purposes of subparagraph (C), stock owned, directly or indirectly, by or for a foreign corporation, shall be considered as being proportionately owned by its shareholders. “(e) Transitional Rules for Carr tracks and Carryovers for Taxpayers on the Per-Country Limitation.— “(1) Application of subsection.— This subsection shall apply only to a taxpayer who is on the per-country limitation for his last taxable year beginning before January 1, 1976. “(2) Carryovers to years beginning after December 31, 1975.— In the case of any taxpayer to whom this subsection applies, any carryover from a taxable year beginning before January 1, 1976, may be used in taxable veal’s beginning after December 31, 1975, to the extent provided in subsection (c), but only to the extent such carryover could have been used in such succeeding taxable years if the per-country limitation continued to apply to all taxable years beginning after December 31, 1975. “(3) Carrybacks to years beginning before January 1, 1979.— In the case of any taxpayer to whom this subsection applies, any carryback from a taxable year beginning after December 31, 1975, may be used in taxable years beginning before January 1, 1976, to the extent provided in subsection (c), but only to the extent such carryback could have been used in such preceding taxable year if the per-country limitation continued to apply to all taxable years beginning after December 31, 1975. “(4) Application of limitations.— For purposes of this subsection— “(A) the overall limitation shall be applied before the per-country limitation, and “(B) where the amount of any carryback or carryover is reduced by the overall limitation, the reduction shall be allocated to the amounts carried from each country or possession in proportion to the taxes paid or accrued to such country or possession in the taxable, year from which such amount is being carried. “(f) Cross Reference.— “For increase of limitation under subsection (a) for taxes paid with respect to amounts received which were included in the gross income of the taxpayer for a prior taxable year as a United States shareholder with respect to a controlled foreign corporation, see section 960(b).” (b) Conforming Amendments.— (1) Sections 901 (a), 901 (b), and 960(b) are. amended by striking out “applicable limitation” each place it appears and inserting in lieu thereof “limitation”. (2) Subparagraph (B) of section 243(b)(3) is amended to read as follows: “(B) the members of such affiliated group shall be treated as one taxpayer for purposes of making the election under section 901(a) (relating to allowance of foreign tax credit), and”. (3) Paragraph (3) of section 1351(d) is amended to read as 26 USC 1351. follows: “(3) Foreign taxes.— For purposes of this subsection, any choice made under subpart A of part III of subchapter N (relating to foreign tax credit) for any taxable year may be changed.”. (4) Section 1503(b)(1) is amended by striking out “, and if 26 USC 1503. Post, p 1629. for the taxable year an election under section 904(b)(1) (relating to election of overall limitation on foreign tax credit) is in effect”. (5) Sections 383, 6038(b)(1)(A), and 6501 (i) are each Ante, p. 1605. 26 USC 6038, 6501. 26 USC 907. amended by striking out “section 904(d)” each place it appears therein and inserting in lien thereof “section 904(c)”. (6) Subsection (e) of section 907 (relating to transitional rules) is amended— (A) by striking out “(d) and (e) of section 904” in paragraphs (1) and (2) and inserting in lieu thereof “(d) and (e) of section 904 (as in effect on the day before the date of the enactment of the Tax Reform Act of 1976)”; Ante, p. 1520. (B) by striking out “section 904(a)(1)” in paragraph (2) and inserting in lien thereof “section 904(a)(1)(as so in effect)”; and (C) by striking out “section 904(c)(2)” in paragraph (2)(A) and inserting in lieu thereof “section 904(e)(2)(as so in effect)”. (c) Effective Dates.— (1) In general.— Except as provided in paragraphs (2) and (3), the amendments made by this section shall apply to taxable years beginning after December 31, 1975. (2) Exception for certain mining operations.— In the ease of a domestic corporation or includible corporation in an affiliated group (as defined in section 1504 of the Internal Revenue Code of 1954) which has as of October 1, 1975— (A) been engaged in the active conduct of the trade or business of the extraction of minerals (of a character with respect to which a deduction for depletion is allowable under section 613 of such Code) outside the United States or its possessions for less than 5 years preceding the date of enactment of this Act, (B) had deductions properly apportioned or allocated to its gross income from such trade or business in excess of such gross income in at least 2 taxable years, (C) 80 percent of its gross receipts are from the sale of such minerals, and (D) made commitments for substantial expansion of such mineral extraction activities, the amendments made by this section shall apply to taxable years beginning after December 31, 1978. in the case of losses sustained in taxable years beginning before January 1, 1979, by any corporation to which this paragraph applies, the provisions of section 904(f) of such Code shall be applied with respect to such losses under the principles of section 904 (a)(1) of such Code us in effect before the enactment of this Act. (3) Exception for income from possessions.— In the case of gross income from sources within a possession of the United States (and the deductions properly apportioned or allocated thereto), the amendments made by this section shall apply to taxable years beginning after December 31, 1978. in the case of losses sustained in a possession of the United States in taxable years beginning before January 1, 1979, the provisions of section 904(f) of such Code shall be applied with respect to such losses under the principles of section 904(a)(1) of such Code as in effect before the enactment of this Act. (4) Carrybacks and carryovers in the case of mining operations and income from a possession.— In the case of a taxpayer to whom paragraph (2) or (3) of this subsection applies, section 904(e) of such Code shall apply except that “January 1, 1979” shall be substituted for “January 1, 1976” each place it appears therein. If such a taxpayer elects the overall limitation for a taxable year beginning before January 1, 1979, such section 904(e) shall be applied by substituting “the January 1, of the last year for which such taxpayer is on the per-country limitation” for “January 1, 1976” each place it appears therein. SEC. 1032. RECAPTURE OF FOREIGN LOSSES. (a) In General.— Section 904 (as amended by section 1031 of this Act) is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection: “(f) Eecapture of Overall Foreign Lose.— “(1) General rule.— For purposes of this subpart and section 936, in the case of any taxpayer who sustains an overall foreign loss for any taxable year, that portion of the taxpayer’s taxable income from sources without 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 (or such larger percent as the taxpayer may choose) of the taxpayer’s taxable income from sources without the United States for such succeeding taxable year, shall be treated as income from sources within the United States (and not as income from sources without the United States). “(2) Overall foreign loss defined.— For purposes of this subsection, the term ‘overall foreign loss’ means the amount by which the gross income for the taxable year from sources without the United States (whether or not the taxpayer chooses the benefits of this subpart for such taxable year) for such year is exceeded by the sum of the deductions properly apportioned or allocated thereto, except that there shall not be taken into account— “(A) any net operating loss deduction allowable for such year under section 172(a) or any capital loss carrybacks and carryovers to such year under section 1212, and “(B) any— “(i) foreign expropriation loss for such year, as defined in section 172(k)(1), or “(ii) loss for such year which arises from fire, storm, shipwreck, or other casualty, or from theft, to the extent such loss is not compensated for by insurance or otherwise. “(3) Dispositions.— “(A) In general.— For purposes of this chapter, if property which has been used predominantly without the United States in a trade or business is disposed of during any taxable year— “(i) the taxpayer, notwithstanding any other provision of this chapter (other than paragraph (1)),shall be deemed to have received and recognized taxable income from sources without the United States in the taxable year of the disposition, by reason of such disposition, in an amount equal to the lesser of the excess of the fair market value of such property over the taxpayer’s adjusted basis in such property or the remaining amount of the overall foreign losses which were not used under paragraph (1) for such taxable year or any prior taxable year, and “(ii) paragraph (1) shall be applied with respect to such income by substituting ‘100 percent’ for ‘50 percent’. In determining for purposes of this subparagraph whether the predominant use of any property has been without the United States, there shall be taken into account use during the 3-y ear period ending on the date of the disposition (or, if shorter, the period during which the property has been used in the trade or business). “(B) Disposition defined and special rules.— “(i) For purposes of this subsection, the term ‘disposition’ includes a sale, exchange, distribution, or gift, of property whether or not gain or loss is recognized on the transfer. “(ii) Any taxable income recognized solely by reason of subparagraph (A) shall have the same characterization it would have had if the taxpayer had sold or exchanged the property. “(iii) The Secretary shall prescribe such regulations Regulations. as he may deem necessary to provide for adjustments to the basis of property to reflect taxable income recognized solely by reason of subparagraph (A). “(C) Exceptions.— Notwithstanding subparagraph (B), the term ‘disposition’ does not include— “(i) a disposition of property which is not a material factor in the realization of income by the taxpayer, or “(ii) a disposition of property to a domestic corporation in a distribution or transfer described in section 381(a), 26 USC 381. “(4) Determination of foreign on related loss where section 907 applies.— In the case of a corporation to which section 907 (b)(1) applies, (he foreign oil related loss shall be the amount by Post, p. 1630. which the gross income for the taxable year from sources without the United States and its possessions (whether or not the taxpayer chooses the benefits of tins subpart for such taxable year) taken into account in determining the foreign oil related income for such year is exceeded by the sum of the deductions properly apportioned or allocated thereto, except that there shall not be taken into account— “(A) any net operating loss deduction allowable for such year under section 172(a) or any capital loss carrybacks and carryovers to such year under section 1212, and “(B) any— “(i) foreign expropriation loss for such year, as defined in section 172 (k)(1) , or “(ii) loss for such year which arises from fire, storm, shipwreck, or other casually, or from theft, to the extent such loss is not compensated for by insurance or otherwise,”. (b) Coordination With Section 907.— Section 907 is amended— (1) by striking out the last sentence of subsection (b)(as amended by section 1035(b)) , and (2) by striking out subsection (f), and by redesignating subsection (g) as subsection (f). (c) Effective Dates.— (1) In general.— Except as provided in paragraphs (2) and (3), the amendments made by subsections (a) and (b)(2) shall apply to losses sustained in taxable years beginning after December 31, 1975, and the amendment made by subsection (b)(1) shall apply to taxable years beginning after December 31, 1975. (2) Obligations of foreign governments.— The amendments made by subsection (a) shall not apply to losses on the sale, exchange, or other disposition of bonds, notes, or other evidences of indebtedness issued before May 14, 1976, by a foreign government or instrumentality thereof for the acquisition of property located in that, country or stock of a corporation (created or organized in or under the laws of that foreign country) or indebtedness of such corporation. (3) Substantial worthlessness before enactment.— The amendments made by subsection (a) shall not apply to losses incurred on the loss from stock or indebtedness of a corporation in which the taxpayer owned at least 10 percent of the voting stock and which has sustained losses in 3 out of the last 5 taxable years beginning before January 1, 1976, which has sustained an overall loss for those 5 years, and with respect to which the taxpayer has terminated or will terminate all operations by reason of sale, liquidation, or other disposition before. January 1, 1977, of such corporation or its assets. (4) Limitation based on deficit in earnings and profits.— If paragraph (3) would apply to a taxpayer but for the fact that the loss is sustained after December 31, 1976, and if the loss is sustained in a taxable year beginning lief ore January 1, 1979, the amendments made by subsection (a) shall not apply to such loss to the extent that there was on December 31, 1975, a deficit in earnings and profits in the corporation from which the loss arose. SEC. 1033. DIVIDENDS FROM LESS DEVELOPED COUNTRY CORPORATIONS TO BE GROSSED UP FOR PURPOSES OF DETERMINING UNITED STATES INCOME AND FOREIGN TAX CREDIT AGAINST THAT INCOME. (a) Foreign Taxes Deemed Paid by Domestic Corporations.— Section 902 (relating to credit for corporate stockholders in foreign corporations) is amended to read as follows: “SEC. 902, CREDIT FOR CORPORATE STOCKHOLDER IN FOREIGN CORPORATION. “(a) Treatment of Taxes Paid by Foreign Corporation.— For purposes of this subpart, a domestic corporation which owns at least 10 percent of the voting stock of a foreign corporation from which it receives dividends in any taxable year shall be deemed to have paid the same proportion of any income, war profits, or excess profits taxes paid or deemed to be paid by such foreign corporation to any foreign country or to any possession of the United States, on or with respect to the accumulated profits of such foreign corporation from which such dividends were paid, which the amount of such dividends (determined without regard to section 78) bears to the amount of such accumulated profits in excess of such, income, war profits, and excess profits taxes (other than those deemed paid). “(b) Foreign Subsidiary of First and Second Foreign Corporation.— “(1) One tier.— If the foreign corporation described in subsection (a)(hereinafter in this subsection referred to as the ‘first foreign corporation’) owns 10 percent or more of the voting stock of a second foreign corporation from which it receives dividends in any taxable year, it shall be deemed to have paid the same proportion of any income, war profits, or excess profits taxes paid or deemed to be paid by such second foreign corporation to any foreign country or to any possession of the United States, on or with respect to the accumulated profits of such second foreign corporation from which such dividends were paid, which the amount of such dividends bears to the amount of such accumulated profits in excess of such income, war profits, and excess profits taxes (other than those deemed paid). “(2) Two tiers.— If such first foreign corporation owns 10 percent or more of the voting stock of a second foreign corporation which, in turn, owns 10 percent or more of the voting stock of a third foreign corporation from which the second foreign corporation receives dividends in any taxable year, the second foreign corporation shall be deemed to have paid the same proportion of any income, war profits, or excess profits taxes paid by such third foreign corporation to any foreign country or to any possession of the United States, on or with respect to the accumulated profits of such third foreign corporation from which such dividends were paid, which the amount of such dividends bears to the amount or such accumulated profits in excess of such income, war profits, and excess profits taxes. “(3) Voting stock requirement.— For purposes of this subpart— “(A) paragraph (1) shall not apply unless the percentage of voting stock owned by the domestic corporation in the first foreign corporation and the percentage of voting stock owned by the first foreign corporation in the second foreign corporation when multiplied together equal at least 5 percent, and “(B) paragraph (2) shall not apply unless the percentage arrived at for purposes of applying paragraph (I) when multiplied by the percentage of voting stock owned by the second foreign corporation in the third foreign corporation is equal to at least 5 percent. “(c) Applicable Rules.— “(1) Accumulated profits defined.— For purposes of this section. the term ‘accumulated profits’ means, with respect to any foreign corporation, (he amount of its gains, profits, or income computed without reduction by the amount, of the income, war profits, and excess profits taxes imposed on or with respect to such profits or income by any foreign country or by any possession of the United States. The Secretary shall have full power to determine from the accumulated profits of what year or years such dividends were paid, treating dividends paid in the first 60 days of any year as having been paid from the accumulated profits of the preceding year or years (unless to his satisfaction shown otherwise), and in other respects treating dividends as having been paid from the most recently accumulated gains, profits, or earnings. “(2) Accounting periods.— In the ease of a foreign corporation the income, war profits, and excess profits taxes of which are determined on the basis of an accounting period of less than 1 year, the word ‘year’ as used in this subsection, shall be construed to mean such accounting period. “(d) Cross References.— “(1) For inclusion in gross income of an amount equal to taxes deemed paid under subsection (a), see section 78. “(2) For application of subsections (a) and (b) with respect to taxes deemed paid in a prior taxable year by a United States shareholder with respect to a controlled foreign corporation, see section 960. “(3) For reduction of credit with respect to dividends paid out of accumulated profits for years for which certain information is not furnished, see section 6038.” (b) Conforming Amendments.— (1) Section 78 (relating to dividends received from certain foreign corporations) is amended— (A) by striking out “section 902(a)(1)” and inserting in lieu thereof “section 902(a)”, and (B) by striking out “section 900(a)(1)(C)” and inserting in lieu thereof “section 960(a)(1)”. (2) Paragraph (1) of section 960(a)(Mating to special rules for foreign tax credit) is amended by striking out “bears to—” and all that follows down through the period at the end of such paragraph and inserting in lieu thereof “bears to the entire amount of the earnings and profits of such foreign corporation for such taxable year.”. (3) Section 535(b)(1) (relating to accumulated taxable income) is amended by striking out “section 902(a)(1) or 960(a)(1)(C)” and inserting in lieu thereof “section 902(a) or 960(a)” (4) Section 545(b)(1) (relating to undistributed personal holding company income) is amended by striking out “section 902(a)(1) or 960(a)(1)(C)” and inserting in lieu thereof “section 902(a) or 960(a)(1)”. (c) Effective Dates.— The amendments made by this section shall apply— (1) in respect of any distribution received by a domestic corporation after December 31, 1977, and (2) in respect of any distribution received by a domestic corporation before January 1, 1978, in a taxable year of such corporation beginning after December 31, 1975, but only to the extent that such distribution is made out of the accumulated profits of a foreign corporation for a taxable year (of such foreign corporation) beginning after December 31, 1975. For purposes of paragraph (2), a distribution made by a foreign corporation out or its profits which are attributable to a distribution Post, p. 1626. received from a foreign corporation to which section 902(b) of the Internal Revenue Code of 1954 applies shall be treated as made out of the accumulated profits of a foreign corporation for a taxable year beginning before January 1, 1976, to the extent that such distribution was paid out of the accumulated profits of such foreign corporation for a taxable year beginning before January 1, 1976. SEC. 1034. TREATMENT OF CAPITAL GAINS FOR PURPOSES OF FOREIGN TAX CREDIT. (a) In General.— Section (b) of section 904 (relating to taxable 26 USC 904. income for purposes of computing the foreign tax credit imitation), as amended by section 1031 of this Act, is amended to read as follows: “(b) Taxable Income for Purpose of Computing Limitation.— “(1) Personal exemptions.— For purposes of subsection (a), tile taxable income in the case of an individual, estate, or trust shall be computed without any deduction for personal exemptions under section 151 or 642 (b). “(2) Capital gains.— For purposes of subsection (a)— “(A) Corporations.— In the case of a corporation— “(i) the taxable income of such corporation from sources without the United States shall include gain from the sale or exchange of capital assets only in an amount equal to foreign source capital gain net income reduced by three-eight is of foreign source net capital gain,. “(ii) the entire taxable income of such corporation shall include gain from the sale or exchange of capital assets only in an amount equal to capital gain net income reduced by three-eights of net capital gain, and “(iii) any net capital loss from sources without the United States to the extent taken into account in determining capital gain net income for the taxable year shall be reduced by an amount equal to three-eighths of the excess of net capital gain from sources within the United States over net capital gain. “(B) Other taxpayers.— In the case of a taxpayer other than a taxpayer described in subparagraph (A), taxable income from sources without the United States shall include gain from the sale or exchange of capital assets only to the extent of foreign source capital gain net income. “(3) Definitions.— For purposes of this subsection— “(A) Foreign source capital gain net income.— The term ‘foreign source capital gain net income’ means the lesser of— “(i) capital gain net income from sources without the United States, or “(ii) capital gain net income. “(B) Foreign source net capital gain.— The term ‘foreign source net capital gain’ means the lesser of— “(i) net capital gain from sources without the United States, or “(ii) net capital gain. “(C) Exception for gain from the sale of certain personal property.— For purposes of this paragraph, there shall be included as gain from sources within the United States any gain from sources without the United States from the sale or exchange of a capital asset which is personal property which— “(i) in the case of an individual, is sold or exchanged outside of the country (or possession) of the individual’s residence, “(ii) in the case of a corporation, is stock in a second corporation sold or exchanged other than in a country (or possession) in which such second corporation derived more than 50 percent of its gross income for the 3-year period ending with the close of such second corporation’s taxable year immediately preceding the year during which the sale or exchange occurred, or “(iii) in the case of any taxpayer, is personal property (other than stock in a corporation) sold or exchanged other than in a country (or possession) in which such property is used in a trade or business of the taxpayer or in which such taxpayer derived more than 50 percent of its gross income for the 3-year period ending with the close of its taxable year immediately preceding the year during which the sale or exchange occurred, unless such gain is subject to an income, war profits, or excess profits tax of a foreign country or possession of the United States, and the rate of tax applicable to such gain is 10 percent or more of the gain from the sale or exchange (computed under this chapter). “(D) Section 1231 gains.— The term ‘gain from the sale or exchange of capital assets’ includes any gain so treated under section 1231.” (b) Effective Dates.— The amendment made by this section shall apply to taxable years beginning after December 31, 1975, except that the provisions of section 904(b)(3)(C) shall only apply to sales or exchanges made after November 12, 1975. SEC. 1035. FOREIGN OIL AND GAS EXTRACTION INCOME. (a) Reduction in Limitation on Foreign Tax Credits Allowable fob Oil and Gas Extraction Income.— Subsection (a) of section 907 (relating to reduction in amounts allowable as foreign tax under section 901) is amended to read as follows: “(a) Reduction tn Amount Allowed as Foreign Tax Under Section 901.— In applying section 901, the amount of any oil and gas extraction taxes paid or accrued (or deemed to have been paid) during the taxable year which would (but for this subsection) be taken into account for purposes of section 901 shall be reduced by the amount (if any) by which the amount of such taxes exceeds the product of— “(1) the amount of the foreign oil and gas extraction income for the taxable year, multiplied by “(2) the percentage which is the sum of the normal tax rate and the surtax rate for the taxable year specified in section 11.” (b) Foreign Oil Related Income Earned by Individuals.— Subsection (b) of section 907 (relating to special rules in case of foreign oil and gas income) is amended to read as follows: “(b) Application of Section 904 Limitation.— “(1) Corporations.— In the ease of a corporation, the provisions of section 904 shall be applied separately with respect to— “(A) foreign oil related income, and “(B) other taxable income. “(2) Other taxpayers.— In the case of a taxpayer other than a corporation, the provisions of subsection (a) shall not apply and the provisions of section 904 shall be applied separately with respect to— “(A) foreign oil and gas extraction income, and “(B) other taxable income (including other foreign oil related income). In the ease of a corporation, with respect to foreign oil-related income, and in the case of a taxpayer other than a corporation, with respect to foreign oil and gas extraction income, the overall limitation provided by section 904(a)(2) shall apply and the per-country limitation Ante, p. 1620. provided by subsection (a)(1) shall not apply.” (c) Tax Credit for Production-Sharing Contracts.— (1) For purposes of section 901 of the Internal Revenue Code of 1954. there shall be treated as income, war profits, and excess profits taxes to betaken into account under section 907(a) of such Code amounts designated as income taxes of a foreign government by such government (which otherwise would not be treated as taxes for purposes of section 901 of such Code) with respect to production-sharing contracts for the extraction of foreign oil or gas. (2) The amounts specified in paragraph (1) shall not exceed the lesser of— (A) the product of the foreign oil and gas extraction income with respect to all such production-sharing contracts multiplied by the sum of the normal tax rate, and the surtax rate for the taxable year specified in section 11 of such Code, or (B) the excess of the total amount of foreign oil and gas extraction income (as defined in section 907(c)(1) of such Code) for the taxable year multiplied by the sum of the normal tax rate and the surtax rate for the taxable year specified in section 11 of such Code over the amount of any income, war profits, and excess profits taxes paid or accrued (or deemed to have been paid) without regard to paragraph (1) during the taxable year with respect to foreign oil and gas extraction income. (3) The production-sharing contracts taken into account for purposes of paragraph (1) shall be those contracts which were entered into before April 8, 1976, for the sharing of foreign oil and gas production with a foreign government (or an entity owned by such government) with respect to which amounts claimed as taxes paid or accrued to such foreign government for taxable years beginning before June 30, 1976, will not be disallowed as taxes. No such contract shall be taken into account for any taxable year ending after December 31, 1977. (d) Carryback and Carryover of Disallowed Credits.— (1) In general.— Section 907 (as amended by section 1033) is 26 USC 907. amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection: “(f) Carryback and Carryover of Disallowed Credits.— “(1) In general.— If the amount of the oil and gas extraction taxes paid or accrued during any taxable year exceeds the limitation provided by subsection (a) for such taxable year (hereinafter in this subsection referred to as the ‘unused credit year’), so much of such excess as does not exceed 2 percent of foreign oil and gas extraction income for such taxable year shall be deemed to be oil and gas extraction taxes paid or accrued in the second preceding taxable year, in the first preceding taxable year, and in the first, second, third, fourth, or fifth succeeding taxable year, in that order and to the extent not deemed tax paid or accrued in a prior taxable year by reason of the limitation imposed by paragraph (2). Such amount deemed paid or accrued in any taxable year may be availed of only as a tax credit and not as a deduction and only if the taxpayer for such year chooses to have the benefits of this subpart as to taxes paid or accrued for that year to foreign countries or possessions. For purposes of this subsection, the terms ‘second preceding taxable year’, and ‘first preceding taxable year’ do not include any taxable year ending before January 1, 1975. For purposes of determining the amount of such taxes which may be deemed paid or accrued in any taxable year ending in 1975, 1976, or 1977. the first sentence of this paragraph shall be applied by substituting ‘such excess’ for ‘so much of such excess as does not exceed 2 percent of the foreign oil and gas extinction income for such taxable year’. “(2) Limitation.— The amount of the unused oil and gas extraction taxes which under paragraph (1) may be deemed paid or accrued in any preceding or succeeding taxable year shall not exceed the lesser of— “(A) the amount by which the limitation provided by subsection (a) for such taxable year exceeds the sum of— “(i) the oil and gas extraction taxes paid or accrued during such taxable year, plus “(ii) the amounts of the oil and gas extraction taxes which by reason of this subsection are deemed paid or accrued in such taxable year and are attributable to taxable years preceding the unused credit year; or “(B) the amount by which the limitation provided by section 904 on taxes paid or accrued with respect to foreign oil-related income for such taxable year exceeds the sum of— “(i) the taxes paid or accrued (or deemed to have been paid under section 902 or 960) to all foreign countries and possessions of the United States with respect to such income during such taxable year, “(ii) the amount of such taxes which were deemed paid or accrued in such taxable year under section 904 (c) and which are attributable to taxable years preceding the unused credit year, plus “(iii) the amount of the oil and gas extraction taxes which by reason of this subsection are deemed paid or accrued in such taxable year and are attributable to taxable years preceding the unused credit year. “(3) Special ruins.— “(A) in the case of any taxable year which is an unused credit year under this subsection and which is an unused credit year under section 904(c) with respect to oil-related income, the provisions of this subsection shall be applied before section 904(c). “(B) For purposes of determining the amount of oil-related taxes paid or accrued in any taxable year which may be deemed paid or accrued in a preceding or succeeding taxable year under section 904(c), any tax deemed paid or accrued in such preceding or succeeding taxable year under this subsection shall be considered to be tax paid or accrued in such preceding or succeeding taxable year, “(C) For purposes of determining the amount of the unused oil and gas extraction taxes which under paragraph (1) may be deemed paid or accrued in any taxable year ending before January 1, 1977, subparagraph (A) of paragraph (2) shall be applied as if the amendment made by section 1035(a) of the Tax Reform Act of 1976 applied to such taxable year.” (2) Definition of on and gas extraction taxes.— Subsection (c) of section 907 is amended by adding at the end thereof the following new paragraph: “(5) Oil and gas extraction taxes.— The term ‘oil and gas extraction taxes’ means any income, war profits, and excess profits tax paid or accrued (or deemed to have been paid under section 902 or 960) during the taxable year with respect to foreign oil Ante, p. 1626. 26 USC 960. and gas extraction income (determined without regard to paragraph (4)) or loss which would he taken into account for purposes of section 901 without regard to this section,” (3) Technical amendment.— Subsection (i) of section 6501, as amended by section 1031, (relating to foreign tax carrybacks) is 26 USC 6501. amended— (A) by striking out “excess foreign taxes)” and inserting in lieu thereof “excess foreign taxes) or under section 907(f) Ante, p. 1631. (relating to carryback and carryover of disallowed oil and gas extraction taxes)”; and (B) by striking out “section 904(c)” the second place it appears and inserting in lieu thereof “section 904(c) or 907(f)”. (e) Effective Dates.— (1) The amendment made by subsection (a) shall apply to taxable years ending after December 31, 1976. (2) The amendment made by subsection (b) shall apply to taxable years ending after December 31, 1974; except that the last sentence of section 907(b) of the Internal Revenue Code of 1954 Ante, p. 1630. shall only apply to taxable years ending after December 31, 1975. (3) The amendment made by subsection (c) shall apply to taxable years beginning after June 29, 1976. (4) The amendments made by subsection (d) shall apply to taxes paid or accrued during taxable years ending after the date of the enactment of this Act. SEC. 1036. UNDERWRITING INCOME. (a) Treatment as Income From Sources Within the United States.— Section 861(a) (relating to gross income from sources 26 USC 861. within the United States) is amended by adding the following new paragraph: “(7) Amounts received as underwriting income (as defined in section 832(b)(3)) derived from the insurance of United States risks (as defined in section 953(a)).”. (b) Treatment as Foreign Source Income.— Section 862(a) (relating to gross income from sources without the United States) is 26 USC 862. amended by adding the following new paragraph: “(7) Underwriting income other than that derived from sources within the United States as provided in section 861(a)(7).”. (c) Effective Date.— The amendments made by tills section shall 26 USC 861 note. apply to taxable years beginning after December 31, 1976, SEC. 1037. THIRD TIER FOREIGN TAX CREDIT WHEN SECTION 951 APPLIES. (a) Foreign Taxes Deemed Paid by Foreign Corporations.— Section 960(a)(1) (relating to special rules for foreign tax credits), 26 USC 960. as amended hr section 1033, is further amended to read as follows: “(1) General rule.— For purposes of subpart A of this part, if there is included, under section 951(a), bi the gross income of a domestic corporation any amount attributable to earnings and profits— “(A) of a foreign corporation (hereafter in this subsection referred to as the ‘first foreign corporation’) at least 10 per-cent of the voting stock of which is owned by such domestic corporation, or “(B) of a second foreign corporation (hereinafter in this subsection referred to as the second foreign corporation’) at least 10 percent of the voting stock of which is owned by the first foreign corporation, or “(C) of a third foreign corporation (hereinafter in this subsection referred to as the ‘third foreign corporation’) at least 10 percent of the voting stock of which is owned by the second foreign corporation, then, under regulations prescribed by the Secretary, such domestic corporation shall be deemed to have paid the same proportion of the total income, war profits, and excess profits taxes paid (or deemed paid) by such foreign corporation to a foreign country or possession of the United States for the taxable year on or with respect to the earnings and profits of such foreign corporation which the amount of earnings and profits of such foreign corporation so included in gross income of the domestic corporation bears to the entire amount of the earnings and profits of such corporation for such taxable year. This paragraph shall not apply with respect to any amount included in the gross income of such domestic corporation attributable to earnings and profits of the second foreign corporation or of the third foreign corporation unless, in the case of the second foreign corporation, the percentage-of-voting-stock requirement of section 002(b)(3)(A) is satisfied, and in the case of the third foreign corporation, the percentage-of-voting-stock requirement of section 902(b)(3)(B) is satisfied.” (b) Effective Date.— The amendment made by this section shall apply with respect to earnings and profits of a foreign corporation included, under section 951(a) of the Internal Revenue Code of 1954, in the gross income of a domestic corporation in taxable years beginning after December 31, 1976. PART IV— MONEY OR OTHER PROPERTY MOVING OUT OF OR INTO THE UNITED STATES SEC. 1041. PORTFOLIO DEBT INVESTMENTS IN UNITED STATES OF NONRESIDENT ALIENS AND FOREIGN CORPORATIONS. 26 USC 861. The last sentence of section 861 (c) (relating to interest on deposits, etc.) is hereby repealed. SEC. 1042. CHANGES IN RULING REQUIREMENTS UNDER SECTION 367; CERTAIN CHANGES IN SECTION 1248. (a) Amendment of Section 367.— Section 367 (relating to foreign corporations) is amended to read as follows: “SEC. 367. FOREIGN CORPORATIONS. “(a) Transfers of Property From the United States.— “(1) General rule.— If, in connection with any exchange described in section 332, 351,354,355, 356, or 361, there is a transfer of property (other than stock Or securities of a foreign corporation which is a party to the exchange or a party to the reorganization) by a United States person to a foreign corporation, for purposes of determining the extent to which gain shall be recognized on such transfer, a foreign corporation shall not be considered to be a corporation unless, pursuant to a request filed not later than the close of the 183d day after the beginning of such transfer (and filed in such form and manner as may be prescribed by regulations by the Secretary), it is established to the satisfaction of the Secretary that such exchange is not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes. “(2) Exception for transactions designated by the secretary.— Paragraph (1) shall not apply to any exchange (otherwise within paragraph (1)), or to any type of property, which the Secretary by regulations designates as not requiring the filing of a request. “(b) Other Transfers.— “(1) Effect of section to be determined under regulations.— in the case of any exchange described in section 332, 351, 354, 355, 356, or 361 in connection with which there is no transfer 26 USC 332, 351, 354, 355, 356, 361. of property described in subsection (a)(1), a foreign corporation shall be considered to be a corporation except to the extent provided in regulations prescribed by the Secretary which are necessary or appropriate to prevent the avoidance of Federal income taxes. “(2) Regulations relating to sale or exchange of stock in foreign corporations.— The regulations prescribed pursuant to paragraph (1) shall include (but shall not be limited to) regulations dealing with the sale or exchange of stock or securities in a foreign corporation by a United States person, including regulations providing— “(A) the circumstances under which— “(i) gain shall be recognized currently, or amounts included in gross income currently as a dividend, or both, or “(ii) gain or other amounts may be deferred for inclusion in the gross income of a shareholder (or his successor in interest) at a later date, and “(B) the extent to which adjustments shall be made to earnings and profits, basis of stock or securities, and basis of assets, “(c) Transactions To Be Treated as Exchanges.— “(1) Section 355 distribution.— For purposes of this section, any distribution described in section 355 (or so much of section 356 as relates to section 355) shall be treated as an exchange whether or not it is an exchange. “(2) Contribution of capital to controlled corporations.— For purposes of this chapter, any transfer of property to a foreign corporation as a contribution to the capital of such corporation by one or more persons who, immediately after the transfer, own (within the meaning of section 318) stock possessing at least 80 percent of the total combined voting power of all classes of stock of such corporation entitled to vote shall be treated as an exchange of such property for stock of the foreign corporation equal in value to the fair market value of the property transferred. “(d) Transitional Rule.— In the case of any exchange beginning before January 1, 1978— “(1) subsection (a) shall be applied without regard to whether or not there is a transfer of property described in subsection (a)(1). and “(2) subsection (b) shall not apply.”. (b) Earnings and Profits of Subsidiaries of Foreign Corporations for Purposes or Section 1248.— Subparagraph (C) of section 1248 (c)(2) is amended by striking out “; and” at the end thereof and inserting in lieu thereof the following: “(or on the date of any sale or exchange of the stock of such other foreign corporation occurring during the 5-year period ending on the date of the sale or exchange of the stock of such foreign corporation, to the extent not otherwise taken into account under this section but not in excess of the fair market value of the stock of such other foreign corporation sold or exchanged over the basis of such stock (for determining gain) in the hands of the transferor); and”. (c) Certain Section 311,336, or 337 Transactions.— (1) General rule.— Section 1248 (relating to gain from certain sales or exchanges of stock in certain foreign corporations) is amended by redesignating subsections (f) and (g) as subsections (g) and (h), respectively, and by inserting after subsection (e) the following new subsection: “(f) Certain Section 311,336, or 337 Transactions.— “(1) In general.— If— “(A) a domestic corporation satisfies the stock ownership requirements of subsection (a)(2) with respect to a foreign corporation, and “(B) such domestic corporation distributes, sells, or exchanges stock of such foreign corporation in a transaction to which section 311,336, or 337 applies, then, notwithstanding any other provision of this subtitle, an amount equal to the excess of the fair market value of such stock over its adjusted basis in the hands of the domestic corporation shall be in chided in the gross income of the domestic corporation as a dividend to the extent of the earnings and profits of the foreign corporation attributable (under regulations prescribed by the Secretary) to such stock which were accumulated in taxable years of such foreign corporation beginning after December 31, 1962, and during the period or periods the stock was held by such domestic corporation while such foreign corporation was a controlled foreign corporation. For purposes of subsections (c)(2), (d), and (h), a distribution, sale, or exchange of stock to which this subsection applies shall be treated as a sale of stock to which subsection (a) applies. “(2) Exception for certain distributions.— To the case of any distribution of stock of a foreign corporation, paragraph (1) shall not apply if such distribution is to a domestic corporation— “(A) which is treated under this section as holding such stock for the period for which the stock was held by the distributing corporation, and “(B) which, immediately after the distribution, satisfies the stock ownership requirements of subsection (a)(2) with respect to such foreign corporation. “(3) Non application of paragraph (i) in certain cases.— Paragraph (1) shall not apply to a sale or exchange to which section 337 applies if— “(A) throughout the period or periods the stock of the foreign corporation was held by the domestic corporation (or predecessor referred to in paragraph (2)) all the stock of such domestic corporation was owned by United States persons who satisfied the 10-percent stock ownership require-ments of subsection (a)(2) with respect to such domestic corporation, and “(B) subsection (a) applies to the proceeds of the sale or exchange and also applied to all transactions described in subsection (e)(1) which took place during the period or periods referred to in subparagraph (A). “(4) Application to cases described in subsection (e).— To the extent that earnings and profits are taken into account under this subsection, they shall be excluded and not taken into account for purposes of subsection (e).”. (2) Interest in partnership holding stock in certain foreign corporations.— The last sentence of section 751(c) (relating 26 USC 751. to unrealized receivables) is amended— (A) by striking out “(as defined in section 1245(a)(3)),” and inserting in lieu thereof “as defined in section 1245(a)(3)), stock in certain foreign corporations (as described in section 1248),” and (B) by striking out “1245(a),” and inserting in lieu thereof “1245(a), 1248(a),”. (3) Conforming amendments.— (A) Subparagraph (A) of paragraph (2) of subsection (c) of section 1248 is amended by striking out “subsection (a) 26 USC 1248. applies to a sale or exchange” and inserting in lieu thereof “subsection (a) or (f) applies to a sale, exchange, or distribution”. (B) Subparagraph (A) of paragraph (3) of subsection (g)(as redesignated by paragraph (1) of this subsection) of section 1248 is amended to read as follows: “(A) a dividend (other than an amount, treated as a dividend under subsection (f)),”. (C) Subsection (h)(as redesignated by paragraph (1) of this subsection) of section 1248 is amended by striking out “subsection (a)” each place it appears and inserting in lieu thereof “subsection (a) or (f)”. (d) Declaratory Judgment’ Procedure for Review by the Tax Court of Section 367 Determinations.— (1) In general.— Part IV of subchapter C of chapter 76 (relating to declaratory judgments) is amended by adding at the end thereof the following new section: “SEC. 7477. DECLARATORY JUDGMENTS RELATING TO TRANSFERS OF PROPERTY FROM THE UNITED STATES. “(a) Creation or Remedy.— “(1) In general.— In a case of actual controversy involving.— “(A) a determination by the Secretary— “(i) that an exchange described in section 367(a)(1) is in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes, or “(ii) of the terms and conditions pursuant to which an exchange described in section 367(a)(1) will be determined not to be in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes, or “(B) failure by the Secretary to make a determination as to whether an exchange described in section 367(a)(1) is in pursuance of a plan Laving as one of its principal purposes the avoidance of Federal income taxes, upon the filing of an appropriate pleading, the Tax Court may make the appropriate declaration referred to in paragraph (2). Such declaration shall have the force and effect of a decision of the Tax Court and shall be reviewable as such. “(2) Scope of declaration.— The declaration referred to in paragraph (1) shall be— “(A) in the case of a determination referred to in subparagraph (A) of paragraph (1), whether or not such determination is reasonable, and, if it is not reasonable, a determination of the issue set forth in subparagraph (A)(ii) of paragraph (1), and “(B) in the case of a failure described in subparagraph (B) of paragraph (1), the determination of the issues set forth in subparagraph (A) of paragraph (1). “(b) Limitations.— “(1) Petitioner.— A pleading may be filed under this section only by a petitioner who is a transferor or transferee of stock, securities, or property transferred in an exchange described in section 367 (a)(1). “(2) Exhaustion of administrative remedies.— The Tax Court shall not issue a declaratory judgment or decree under this section in any proceeding unless it determines that the petitioner has exhausted administrative remedies available to him within the Internal Revenue Service. A petitioner shall not be deemed to have exhausted his administrative remedies with respect to a failure by the Secretary to make a determination with respect to whether or not an exchange described in section 367(a)(1) is in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes before the expiration of 270 days after the request for such determination was made. “(3) Exchange shall have begun.— No proceeding may be maintained under this section unless the exchange is described in section 367(a)(1) with respect to which a decision of the Tax Court is sought has begun before the filing of the pleading. “(4) Time for bringing action.— If the Secretary sends by certified or registered mail to the petitioners referred to in paragraph. (1) notice of his determination with respect to whether or not an exchange described in section 367(a)(1) is in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes or with respect to the terms and conditions pursuant to which such an exchange will be determined not to be made in pursuance of such a plan, no proceeding may be initiated under this section by any petitioner unless the pleading is filed before the 91st day after the day after such notice is mailed to such petitioner. “(c) Commissioners.— The chief judge of the Tax Court, may assign proceedings under this section to be heard by the commissioners of the court, and the court may authorize a commissioner to make the decision of the court with respect, to such proceeding, subject to such conditions and review as the court may by rule provide.”. (2) Technical and conforming amendments.— (A) Section 7482(b)(1) (relating to venue for review of Tax Court decisions) is amended by striking out “or” at the end of subparagraph (B), by striking out the period at the end of subparagraph (C) and inserting in lieu thereof “, or ”, and by inserting after subparagraph (C) the following new subparagraph: “(D) in the case of a person seeking a declaratory judgment under section 7477, the legal residence of such person if Ante, p. 1637. such person is not a corporation, or the principal place of business or principal office or agency of such person if such person is a corporation.”. (B) Section 7482(b)(1) is further amended— 26 USC 7482. (i) by striking out “subparagraph (A), (B),and (C) do not apply” in the second sentence and inserting in lieu thereof “no subparagraph of the preceding sentence, applies”; and (ii) by striking out “section 7176” in the last sentence and inserting in lieu thereof “section 7476 or 7477”. (C) The heading for section 7476 is amended to read as follows: “SEC. 7476. DECLARATORY JUDGMENTS RELATING TO QUALIFICATION OF CERTAIN RETIREMENT PLANS.” (D) The table of sections for part IV of subchapter C of chapter 76 is amended to read as follows: “Sec. 7476. Declaratory judgments relating to qualification of certain retirement plans. “Sec. 7477. Declaratory judgments relating to transfers of property from United States.” (E) The heading of part IV of subchapter C of chapter 76 is amended to read as follows: “PART IV— DECLARATORY JUDGMENTS”. (F) The table of parts for subchapter C of chapter 76 is amended by striking out the item relating to part IV and inserting in lieu thereof the following: “Part IV. Declaratory judgments.” (e) Effective Dates.— (1) The amendments made by this section (other than by subsection (d)) shall apply to transfers beginning after October 9, 1975, and to sales, exchanges, and distributions taking place after such date. The amendments made by subsection (d) shall apply with respect to pleadings filed with the Tux Court after the date of the enactment of this Act but only with respect to transfers beginning after October 9, 1975. (2) in the case of any exchange described in section 367 of the Internal Revenue Code of 1954 (as in effect on December 31, 1974) in any taxable year beginning after December 31, 1962, and before the date of the enactment of this Act, which does not involve the transfer of property to or from a United States person, a taxpayer shall have for purposes of such section until 183 days after the date of the enactment of this Act to file a request with the Secretary of the Treasury or his delegate seeking to establish to the satisfaction of the Secretary of the Treasury or his delegate that such exchange was not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes and that for purposes of such section a foreign corporation is to be treated as a foreign corporation. SEC. 1043. CONTIGUOUS COUNTRY BRANCHES OF DOMESTIC LIFE INSURANCE COMPANIES. (a) Amendment of Subchapter L.— Subpart E of part I of subchapter L of chapter 1 (relating to life insurance companies) is amended by inserting after section 819 the following new section: “SEC. 819A. CONTIGUOUS COUNTRY BRANCHES OF DOMESTIC LIFE INSURANCE COMPANIES. “(a) Exclusion of Items.— In the case of a domestic mutual insurance company which— “(1) is a life insurance company, “(2) has a contiguous country life insurance branch, and “(3) makes the election provided by subsection (g) with respect to such branch, there shall be excluded from each and every item involved in the determination of life insurance company taxable income the items separately accounted for in accordance with subsection (c). “(b) Contiguous Country Life Insurance Branch.— For purposes of this section, the term ‘contiguous country life insurance branch’ means a branch which— “(1) issues insurance contracts insuring risks in connection with the lives or health of residents of a country which is contiguous t o the United States, “(2) has its principal place of business in such contiguous country, and “(3) would constitute a mutual life insurance company if such branch were a separate domestic insurance company. “Insurance contract.” For purposes of this section, the term ‘insurance contract’ means any life, health, accident, or annuity contract or reinsurance contract or any contract relating thereto. “(c) Separate Accounting Required.— Any taxpayer which makes the election provided by subsection (g) shall establish and maintain a separate account for the various income, exclusion, deduction, asset, reserve, liability, and surplus items properly attributable to the contracts described in subsection (b). Such separate accounting shall be made— “(1) in accordance with the method regularly employed by such company, if such method clearly reflects income derived from, and the other items attributable to, the contracts described in subsection (b), and “(2) in all other cases, in accordance with regulations prescribed by the Secretary. “(d) Recognition of Gain on Assets in Branch Account.— If the aggregate fair market value of all the invested assets and tangible property which are separately accounted for by the domestic life insurance company in the branch account established pursuant to subsection (c) exceeds the aggregate adjusted basis of such assets for purposes of determining gain, then the domestic life insurance company shall be treated as having sold all such assets on the first day of the first taxable year for which the election is in effect at their fair market value on such first day. Notwithstanding any other provision of this chapter, the net gain shall be recognized to the domestic life insurance company on the deemed sale described in the preceding sentence. “(e) Transactions Between Contiguous Country Branch and Domestic Life Insurance Company.— “(1) Reimbursement for home office services, etc.— Any payment, transfer, reimbursement, credit, or allowance which is made from a separate account established pursuant to subsection (c) to one or more other accounts of a domestic life insurance company as reimbursement for costs incurred for or with respect to the insurance (or reinsurance) of risks accounted for in such separate account shall be taken into account by the domestic life, insurance company in the same manner as if such payment, transfer, reim-bursement, credit, or allowance had been received from a separate person. “(2) Repatriation of income.— “(A) In general.— Except as provided in subparagraph (B), any amount directly or indirectly transferred or credited from a branch account established pursuant to subsection (c) to one or more other accounts of such company shall, unless such transfer or credit is a reimbursement to which paragraph (1) applies, be added to the life insurance company taxable income of the domestic life insurance company (as computed without regard to this paragraph). “(B) Limitation.— The addition provided by subparagraph (A) for the taxable year with respect to any contiguous country life insurance branch shall not exceed the amount by which— “(i) the aggregate decrease in the life insurance company taxable income of the domestic life insurance company for the taxable year and for all prior taxable years resulting solely from the application of subsection (a) of this section with respect to such branch, exceeds “(ii) the amount of additions to life insurance company taxable income pursuant to subparagraph (A) with respect to such contiguous country branch for all prior taxable years. “(f) Other Rules.— “(1) Treatment of foreign taxes.— “(A) In general.— No income, war profits, or excess profits taxes paid or accrued to any foreign country or possession of the United States which is attributable to income excluded under subsection (a) shall be taken into account for purposes of subpart A of part 1 IT of subchapter N (relating to foreign 26 USC 901. tax credit) or allowable as a deduction. “(B) Treatment of repatriated amounts.— For purposes of sections 78 and 902, where any amount is added to the life insurance company taxable income of the domestic life insurance company by reason of subsection (e)(2), the contiguous country life insurance branch shall be treated as a foreign corporation. Any amount so added shall he treated as a dividend paid by a foreign corporation, and the taxes paid to any foreign country or possession of the United States with respect to such amount shall be deemed to have been paid by such branch. “(2) United states source income allocable to contiguous country branch.— For purposes of sections 881, 882. and 1442, each contiguous country life insurance branch shall be treated as a foreign corporation. Such sections shall be applied to each such branch in the same manner as if such sections contained the provisions of any treaty to which the United States and the contiguous country are parties, to the same extent such provisions would apply if such branch were incorporated in such contiguous country. “(g) Election.— A taxpayer may make the election provided by this subsection with respect to any contiguous country for any taxable year beginning after December 31, 1975. An election made under this subsection for any taxable year shall remain in effect for all subsequent taxable years, except that it may be revoked with the consent of the Secretary. The election provided by this subsection shall be imide lint Liter than the time prescribed by lav for filing the return for the taxable year (including extensions thereof) with respect to which such election is made, and such election and any approved revocation thereof shall be made in I be manner provided by I hr Secretary. “(h) Special Rule for Domestic Stock Life Insurance Companies.— At the election of a domestic stock life insurance company which has a contiguous country life insurance branch described in subsection (b)(without regard to the mutual requirement in subsection (b)(3)). the assets of such branch may be transferred to a foreign corporation organized under the laws of the contiguous country Ante, pp. 1634, 1617. without the application of section 367 or 1491. Subsection (a) shall apply to the stock of such foreign corpora thin as if such domestic company were a mutual company and us if the stock were tin item described in subsection (e). Subsection (e)(2) shall apply to amounts transferred or credited to such domestic company as if such domestic company and such foreign corporation constituted one domestic mutual life insurance company. The insurance cont rants which may be transferred pursuant to the subsection slut 11 include only those which are similar to the types of insurance emit t acts issued by a milt mil life insurance company. Notwithstanding the first sentence of this sub-section. if the aggregate fair market value of the invested assets and tangible property which are separately accounted for by the domestic life insurance company in the branch account exceeds the aggregate adjusted basis of such assets for purposes of determining gain, the domestic life insurance company shall he deemed to have sold all such assets on the first day Of the taxable year for which the el eel ion under this subsection applies and the net gain shall be recognized to the domestic life, insurance company on the deemed sale, but not-in excess of (be proportion of such net gain which equals the proportion which the aggregate fair market value of such assets which arc transferred pursuant to this subsection is of the aggregate fair market value of all such assets.” (b) Clerical Amendment.— The table of sections for such subpart E is amended by inserting after the item relating to section 819 the following new item: “Sec. 819A. Contiguous country branches of domestic life insurance companies.” (c) Effective Date.— The amendment made Io this section shall apply to taxable years beginning after December 31, 1975. SEC. 1044. TRANSITIONAL RULE FOR BOND, ETC., LOSSES OF FOREIGN BANKS. (a) General Rule.— Section 5S2(e) (relating to bond. etc., losses and gains of financial institutions) is amended by adding at the end thereof the following new paragraph: “(4) Transitional rule for banks.— In the case of a corporation which would be a bank except for the fact that it is a foreign corporation, the net gain, if any. for the taxable year on safes and exchanges described in paragraph (1) shall be considered as gain from the sale or exchange of a capital asset to the extent such net gain does not exceed the portion of any capital loss carryover to such taxable year which is attributable to capital losses on sales or exchanges described in paragraph (1) for n taxable year beginning before July 12, 1999. For purposes of the preceding sentence, the portion of a net capital loss for a taxable year which is attributable to capital losses on sales or exchanges described in paragraph (1) is the amount of the net capital loss on such sales or exchanges for such taxable year (but not in excess of the net capital loss for such taxable year).” (b) Effective Date.— (1) The amendment made by subsection (a) shall apply with respect, to taxable, years beginning after July 11, 1969. (2) If the refund or credit of any overpayment attributable to the application of the amendment made by subsection (a) to any taxable year is otherwise prevented by the operation of any law or rule of law (other than section 7122 of the Internal Revenue Code of 1954, relating to compromises) on the day which is one year after the date of the enactment of this Act. such credit or refund shall be nevertheless allowed or made if claim therefor is filed on or before such day. PART V— SPECIAL CATEGORIES OF FOREIGN TAX TREATMENT SEC. 1051. TAX TREATMENT OF CORPORATIONS CONDUCTING TRADE OR BUSINESS IN PUERTO RICO AND POSSESSIONS OF THE UNITED STATES. (a) Allowance of Puerto Rican and Possession Tax Credit.— Section 33 (relating to taxes of foreign countries and possessions of 26 USC 33. the United States) is amended to read as follows: “SEC. 33. TAXES OF FOREIGN COUNTRIES AND POSSESSIONS OF THE UNITED STATES; POSSESSION TAX CREDIT. “(a) Foreign Tax Credit.— The amount of taxes imposed by foreign countries and possessions of the United States shall be allowed as a credit against the tax imposed by this chapter to the extent provided in section 901. “(b) Section 936 Credit.— In the case of a domestic corporation, the amount provided by section 936 (relating to Puerto Rico and possession Infra. tax credit) shall be allowed as a credit against the tax imposed by this chapter.” (b) Rules on Possession Tax Credit.— Subpart D of part III of subchapter N of chapter 1 (relating to possessions of the United States) is amended by adding at the end thereof the following new section: “SEC. 936. PUERTO RICO AND POSSESSION TAX CREDIT. “(a) Allowance of Credit.— “(1) In general.— Except, as provided in paragraph (2), in the ease of a domestic corporation which elects the application of this section, there shall be allowed as a credit against the tax imposed, by this chapter an amount equal to the portion of the tax which is attributable, to taxable income, from sources without the. United States, from the active conduct of a trade or business within a possession of the United States, and from qualified possession source investment income, if the conditions of both subparagraph (A) and subparagraph (B) are satisfied: “(A) 3-year period.— If 80 percent or more of the gross income of such domestic corporation for the 3-year period immediately preceding the close of the taxable year (or for such part of such period immediately preceding the close of such taxable year as may be applicable) was derived from sources within a possession of the United Stales (determined without regard to section 904(f)): and Ante, p. 1624. “(B) Trade or business.— If 50 percent or more of the gross income of such domestic corporation for such period or such part thereof was derived from the active conduct of a trade or business within a possession of the United States. “(2) Credit not allowed against certain taxes.— The credit provided by paragraph (1) shall not be allowed against the tax imposed by— “(A) section 56 (relating to minimum tax), “(B) section 531 (relating to the tax on accumulated earnings), “(C) section 541 (relating to personal holding company tax), “(D) section 1333 (relating to war loss recoveries), or “(E) section 1351 (relating to recoveries of foreign expropriation losses). “(b) Amounts Received in United States.— In determining taxable income for purposes of subsection (a), there shall not be taken into account as income from sources without the United States any gross income which was received by such domestic corporation within the United States, whether derived from sources within or without the United States. “(c) Treatment of Certain Foreign Taxes.— For purposes of this title, any lax of a foreign country or a possession of the United States which is paid or accrued with respect to taxable income which is taken into account in computing the credit under subsection (n) shall not be treated as income, war profits, or excess profits taxes paid or accrued to a foreign country or possession of the United States, and no deduction shall be allowed under this title with respect to any amounts so paid or accrued. “(d) Definitions.— For purposes of this section— “(1) Possession.— The term ‘possession of the United Slates’ includes the Commonwealth of Puerto Rico, but does not include the Virgin Islands of the United States. “(2) Qualified possession source investment income.— The term ‘qualified possession source investment income’ means gross income which— “(A) is from sources within a possession of the United States in which a trade or business is actively conducted, and “(B) the taxpayer establishes to the satisfaction of the Secretary is attributable to the investment in such possession (for use therein) of funds derived from the active conduct of a trade or business in such possession, or from such investment, less the deductions properly apportioned or allocated thereto. “(e) Election.— “(1) Period of election.— The election provided tn subsection (a) shall be made at such time and in such manner as the Secretary may by regulations prescribe. Any such election shall apply to the first taxable year for which such election was made and for which the domestic corporation satisfied the conditions of subparagraphs (A) and (B) of subsection (a)(1) and for each taxable year thereafter until such election is revoked by the domestic corporation under paragraph (2). If any such election is revoked by the domestic, corporation under paragraph (2), such domestic corporation may make a subsequent election under subsection (a) for any taxable year thereafter for which such domestic cor-poration satisfies the conditions of subparagraphs (A) and (B) of subsection (a)(1) and any such subsequent election shall remain in effect until revoked by such domestic corporation under paragraph (2). “(2) Revocation.— An election under subsection (a)— “(A) may be revoked for any taxable year beginning before the expiration of the 9th taxable year following the taxable year for which such election first applies only with the consent of the Secretary; and “(B) may be revoked for any taxable year beginning after the expiration of such 9th taxable year without the consent of the Secretary. “(f) DISC or Former DISC Corporation Ineligible for Credit.— No credit shall be allowed under this section to a corporation for a taxable year for which it is a DISC or former DISC (as defined in section 992(a)) or in which it owns at any time stock in a DISC or former DISC. “(g) Exception to Accumulated Earnings Tax.— “(1) For purposes of section 535. the term ‘accumulated taxable “Accumulated taxable income.” income’ shall not include taxable income entitled to the credit under subsection (a). “(2) For purposes of section 537, the term ‘reasonable needs “Reasonable needs of the business.” of the business’ includes assets which produce income eligible for the credit under subsection (a).” (c) Amendments of Section 931.— (1) Subsection (a) of section 931 (relating to genera) rule in 26 USC 931. the case of income from sources within possessions of the United Stales) is amended to read as follows: “(a) General Rule.— In the ease of individual citizens of the United States, gross income means only gross income from sources within the United States if the conditions of both paragraph (1) and paragraph (2) arc satisfied: “(1) 3-year period.— If 80 percent or more of the gross income of such citizen (computed without the benefit of this section) for the 3-year period immediately preceding the close of the taxable year (or for such part of such period immediately preceding the close of such taxable year as may be applicable) was derived from sources within a possession of the United States; and “(2) Trade or business.— If 50 percent or more of his gross income (computed without the benefit of this section) for such period or such part thereof was derived from the active conduct of a trade or business within a possession of the United States either on his own account or as an employee or agent of another.”, (2) Subsection (e) of section 931 (defining the term “possession”) is amended to read as follows: “(c) Definition.— For purposes of this section, the term ‘possession of the United States’ does not include the Commonwealth of Puerto Rico, the Virgin Islands of the United States, or Guam.”. (3) Subsections (d). (e). and (f) of section 931 are each amended by striking out “persons” each place it appeal’s and inserting in lieu thereof “a citizen of the United States”. (d) Amendments of Section 901.— (1) Section 901 (d) (relating to certain corporations treated as 26 USC 901. foreign corporations) is amended to read as follows: “(d) Treatment of Dividends From a DISC or Former DISC.— For purposes of this subpart, dividends from a DISC or former DISC (as defined in section 992(a)) shall be treated as dividends from a foreign corporation to the extent such dividends are treated under part I as income from sources without the United States.”. (2) Section 901 (relating to tuxes of foreign countries and possessions of the United States) is amended by redesignating subsection (g) as (h) and by inserting after subsection (f) the following new subsection: “(g) Certain Taxes Paid With Respect to Distributions From Possessions Corporations.— “(1) In general.— For purposes of this chapter, any tux of a foreign country or possession of the United States which is paid or accrued with respect to any distribution from a corporation, to the extent that such distribution is attributable to periods during which such corporation is a possessions corporation, shall not be treated as income, war profits, or excess profits taxes paid or accrued to a foreign country or possession of the United States, and no deduction shall be allowed under this title with respect to any amount so paid or accrued. “(2) Possessions corporation.— For purposes of paragraph (1), a corporation shall be treated as a possessions corporation for any period during which an election under section 935 applied to such corporation or during which section 931 (as in elicit on the day before the date of the enactment of the Tax Reform Act of 1976) applied to such corporation.” (e) Amendment of Section 904(b).— Section 904(b)(as amended by sections 1031 and 1034(a) of this Act) is amended by adding at the end thereof the following new paragraph: “(4) Coordination with section 936.— For purposes of subsection (a), in the case of a corporation, the taxable income shall not include any portion thereof taken into account for purposes of the credit (if any) allowed by section 936.” (f) Dividends Received Deduction Allowed.— (1) Section 243(b)(1)(defining qualifying dividends) is amended by adding “either” at the end of subparagraph (A), by striking out the period at the end of subparagraph (B)(i) and inserting in lieu thereof a comma and “or”, and by adding at the end thereof the following new subparagraph: “(C) such dividends are paid by a corporation with respect, to which an election under section 936 is in effect for the taxable year in which such dividends are paid.”. (2) Section 243(b)(5)(defining affiliated group) is amended by inserting “. 1504(b)(4),” immediately after “1504(h)(2)”. (3) Section 246(a) (relating to dividends from certain corporations) is amended to read as follows: “(a) Deduction Not Allowed fob Dividends From Certain Corporations.— The deductions allowed by sections 243, 244, and 245 shall not apply to any dividend from a corporation which. for the taxable year of the corporation in which the distribution is made, or for the next preceding taxable year of the corporation, is a corporation exempt from tax tinder section 501 (relating to certain charitable, etc., organizations) or section 521 (relating to farmer’s” cooperative associations) (g) Consolidated Return Treatment.— Section 1504 (b) (4) (defining includible corporation) is amended to read as follows: “(4) Corporations with respect to which an election under section 936 (relating to possession tax credit) is in effect for the taxable year.”. (h) Conforming Amendment.— (1) Section 48(a)(2)(B)(vii) (relating to definition of section 26 USC 48. 38 property) is amended by striking out “(other than a corporation entitled to the benefits of section 931 or 934(b))” and inserting in lieu thereof the following: “(other than ti corporation which has an election in effect under section 936 or which is entitled to the benefits of section 934(b))”. (2) Paragraph (2) of subsection 116(b) (relating to certain 26 USC 116. dividends excluded from partial exclusion of dividends received by individuals) is amended tn read as follows: “(2) a corporation which, for the taxable year of the corporation in which the distribution is made, or for the next preceding taxable year of the corporation, is a corporation exempt from lax under section 501 (relating to certain charitable, etc., organizations) or section 521 (relating to farmers cooperative associations); or”. (3) Section 861(a)(2)(A) (relating to income from sources 26 USC 861. within the United States) is amended by striking out “other than a corporation entitled to the benefits of section 931.” and inserting in lien thereof (be following: “other than a corporation which has an election in effect under section 936,”. (4) Section 61191(b)(2)(B)(ii) (relating to place of tiling for Post, p. 1648. corporations) is amended by striking out “section 931 (relating to income from sources within possessions of the United States).” and inserting in lieu thereof the following: “section 936 (relating to possession tax credit),”. (i) Effective Date.— (1) Except as provided by paragraph (2). the amendments made by this section shall apply to taxable years beginning after December 31, 1975, except that “qualified possession source investment income” as defined in section 936(d)(2) of the Internal Revenue Code of 1954 shall include income from any source outside Ante. p. 1643. the United States if the taxpayer establishes to the satisfaction of the Secretary of the Treasury or his delegate that the income from such sources was earned before October 1, 1976. (2) The a mend ii lent made by subsection (d)(2) shall not apply to any tax imposed by a possession of the United States with respect to the complete liquidation occurring before January 1, 1979, of a corporation to the extent that such tax is attributable to earnings and profits accumulated by such corporation during periods ending before January 1, 1976. SEC. 1052. WESTERN HEMISPHERE TRADE CORPORATIONS. (a) Phaseout of Special Deduction for Western Hemisphere Trade Corporations.— Section 922 (special deduction for Western 26 USC 922. Hemisphere trade corporations) is amended by adding at the end thereof the following new subsection: “(b) Phaseout of Deduction.— In the ease of a taxable year beginning after December 31, 1975. and before January 1, 1980. the percent specified in subsection (a)(2)(A) shall be (in lieu of 14 percent) the percent specified in file following table: “For a taxable year beginning in— The percentage shall be—    1976 11        1977 8        1978 5        1979 2”    (b) Repeal of Western Hemisphere Trade Gwohatiox Deduction for Taxable Years Beginning After 1979.— Subpart C of part III of subchapter X of chapter 1 (relating to Western Hemisphere trade 26 USC 921, 922. 26 USC 922. corporations) is hereby repealed. (c) Conforming Amendments.— (1) The first sentence of section 922 (relating to special deduction) is amended by striking out “In the case of” and inserting in lieu thereof the following: “(a) General Rule.— In the ease of.” (2) Section 170(b)(2) (relating to percentage limitations on charitable contributions in the case of corporations) is amended by adding “and” at the end of subparagraph (C). by striking out subparagraph (D). and by re designating subparagraph (E) as subparagraph (D). (3) Section 172(d) (relating to modifications for purposes of the net operating loss deduction) is amended by Striking out paragraph (5) and by redesignating paragraph (6) as paragraph (5). (4) Subsection (g) of section 907 is hereby repealed. (5) Section 1503 (relating to computation and payment of tax in the case, of consolidated returns) is amended by striking out subsection (b) and by striking out “(a) General Rule.—”. (6) Section 0091 (b)(2)(B)(ii) (relating to place for filing returns of corporations) is amended to read as follows: “(ii) corporations which claim the benefits of section 936 (relating to possession tux credit), and”. (7) The table of subparts for part TH of subchapter X of chapter 1 is amended by striking out the item relating to subpart C. (d) Effective Dates.— The amendments made by subsection (a) and paragraph (1) of subsection (c) shall apply with respect to taxable years beginning after December 31, 1975. The amendments made by subsection (b) and by subsection (c)(other than paragraph (1)) shall apply with respect to taxable years beginning after December 31, 1979. SEC. 1053. REPEAL OF PROVISIONS RELATING TO CHINA TRADE ACT CORPORATIONS. (a) Phaseout of Section 941.— Section 941 (relating to special deductions for China Trade. Act corporations) is amended by adding the following new subsection: “(d) Phaseout of Deduction.— In the ease of a taxable year beginning after December 31, 1975, and before January 1, 1978, the amount of the special deduction under subsection (a)(determined without regard to this subsection) shall be reduced by the percentage reduction specified in the following table: “For a taxable year beginning in— The percentage reduction shall be—    1976 33⅓        1977 66⅔     (b) Phaseout of Section 943.— Section 943 (relating to the exclusion of certain dividends to residents of Formosa or Hong Kong) is amended by adding at the end thereof the following new sentence; “In the, case of a taxable year beginning after December 31, 1975. and before January 1, 1978, the amount of the distributions which are excludable from gross income under this section (determined without regard to this sentence) shall be reduced by the percentage reduction specified in the following table: “For a taxable year beginning in— The percentage reduction shall be—    1976 33⅓        1977 66⅔     (c) Repeal.— Subpart E of part III of subchapter N of chapter 1 26 USC 941, 942, 943. (relating to China Trade Act corporations) is hereby repealed. (d) Technical and Conforming Amendments.— (1) Section 116(b) is amended by striking out paragraph (1) 26 USC 116. and redesignating paragraphs (2) and (3) as paragraphs (1) and (2). respectively. (2) Section 1504(b) is amended by striking out paragraph (5). 26 USC 1504. 26 USC 6072. 26 USC 6091. (3) Section 6072 is amended by striking out subsection (e). (4) Section 6091(b)(2)(B)(iij is amended by striking out the comma after “trade corporations)” and inserting in lieu thereof “or” and by striking out “or section 941 (relating to the special deduction for China Trade Act corporations),”. (5) The table of subparts for part III of subchapter N of chapter 1 is amended by striking out the item relating to subpart E. (e) Effective Dates.— The amendments made by subsections (a) 26 USC 941 note. and (b) shall apply with respect to taxable years beginning after December 31, 1975. The amendments made by subsections (c) and (d) shall apply with respect to taxable years beginning after December 31, 1977. PART VI— DENIAL OF CERTAIN TAX BENEFITS FOR COOPERATION WITH OR PARTICIPATION IN INTER-NATIONAL BOYCOTTS AND IN CONNECTION WITH THE PAYMENT OF CERTAIN BRIBES SEC. 1061. DENIAL OF FOREIGN TAX CREDIT. (a) In General.— Subpart A of part III of subchapter N (relating to income from sources without the United States) is amended by adding at the end thereof the following new section: “SEC. 908. REDUCTION OF CREDIT FOR PARTICIPATION IN OR COOPERATION WITH AN INTERNATIONAL BOYCOTT. “(a) In General.— If a person, or a member of a controlled group (within the meaning of section 993(a)(3)) which includes such person, participates in or cooperates with an international boycott during the taxable, year (within the meaning of section 999(b)), the amount Post, p. 1650. of the credit allowable under section 991 to such person, or under section 902 or 960 to United States shareholders of such person, for foreign Ante, p. 1626. taxes paid during the taxable year shall be reduced by an amount equal to the product of— “(1) the amount of the credit which, but for this section, would be allowed under section 901 for the taxable year, multiplied by “(2) the international boycott factor (determined under section 999). “(b) Application With Sections 275(a)(4) and 78.— Section 275 (a)(4) and section 78 shall not apply to any amount of taxes denied credit under subsection (a).” (b) Clerical Amendment.— The table of sections for such subpart is amended by adding at the end thereof the following new item: “Sec. 908. Reduction of credit for participation in or cooperation with an international boycott.” SEC. 1062. DENIAL OF DEFERRAL OF INTERNATIONAL BOYCOTT amounts. (a) Dental of Deferral.— Section 952(a) (relating to general definition of subpart F income) is amended— (1) by striking out “and.” at the end of paragraph (1), (2) by striking out the period at the end of paragraph (2) and inserting in lieu thereof a comma, and the word “and”, and (3) by adding at the end thereof the following new paragraph: “(3) an amount equal Io the product of— “(A) the income of such corporation other than income which— “(i) is attributable to earnings and profits of the foreign corporation included in the gross income of a United States person under section 951 (other than by reason of this paragraph), or “(ii) is described in subsection (b), multiplied by “(B) the international boycott factor (as determined Infra. under section 999).” SEC. 1063. DENIAL OF DISC BENEFITS. (a) International Boycott Activity.— Subparagraph (D) of section 995(b)(1) (relating to distributions in qualified years) is amended to read as follows: “(D) the sum of— “(i) one-half of the excess of the taxable income of the DISC for the taxable year, before reduction for any distributions during the year, over the sum of the amounts deemed distributed for the taxable year under subparagraphs (A), (B), and (C), and “(ii) an amount equal to the amount determined under clause (i) multiplied by the international boycott factor determined Under section 999, and”. SEC. 1064. DETERMINATIONS AS TO PARTICIPATION IN OR COOPERATION WITH AN INTERNATIONAL BOYCOTT. (a) In General.— Subchapter N of chapter 1 (relating to tax based on income from sources within or without the United States) is amended by adding at the end thereof the following new part: “PART V— INTERNATIONAL BOYCOTT DETERMINATIONS “Sec. 969. Reports by taxpayers: determinations. “SEC. 999. REPORTS BY TAXPAYERS; DETERMINATIONS. “(a) International Boycott Reports by Taxpayers.— “(1) Report required.— If any person, or a member of a controlled group (within the meaning of section 993(a)(3)) which includes that person, has operations in, or related to— “(A) a country (or with the government, a company, or a national of a country) which is on the list maintained by the. Secretary under paragraph (3), or “(B) any other country (or with the government, a company, or a national of that country) in which such person or such member had operations during the taxable year it such person (or, if such person is a foreign corporation, any United States shareholder of that corporation) knows or has reason to know that participation in or cooperation with an international boycott is required as a condition of doing business within such country or with such government, company, or national, that person or shareholder (within the meaning of section 951 (h)) shall report such 26 USC 951. operations to the Secretary at such time and in such manner as the Secretary prescribes, except that in the ease of a foreign corporation such report shall he required only of a United States shareholder (within the meaning of such section) of such corporation. “(2) Participation and cooperation: request therefor.— A taxpayer shall report whether he, a foreign corporation of which he is a United States shareholder, or any member of a controlled group which includes the taxpayer or such foreign corporation has participated in or cooperated with an international boycott at any time during the taxable year, or has been requested to participate in or cooperate with such a boycott, and, if so, the nature of any operation in connection with which there was participation in or cooperation with such boycott (or there was a request to participate or cooperate). “(3) List to be maintained.— The Secretary shall maintain and publish not less frequently than quarterly a current list of countries which require or rutty require participation in or cooperation with an international boycott (within the meaning of subsection (b)(3)). “(b) Participation in or Cooperation With an International Boycott.— “(1) General rule.— If the person or a member of a controlled group (within the meaning of section 993(a)(3)) which includes the person participates in or cooperates with an international boycott in the taxable year, ail operations of the tax-payer or such group in that country and in any other country which requires participation in or cooperation with the boycott us a condition of doing business within that country, or with the government, a company, or a national of that country, shall be treated as operations in connection with which such participation of cooperation occurred, except to the extent that the person can clearly demonstrate that a particular operation is a clearly separate and identifiable operation in connection with which there was no participation in or cooperation with an international boycott. “(2) Special rule.— “(A) Non boycott operations.— A clearly separate and identifiable operation of a person, or of a member of the controlled croup (within the meaning of section 993(a)(3)) which includes that person, in or related to any country within the group of countries referred to in paragraph (1) shall not be treated as an operation in or related to a group of countries associated in carrying out an international boycott if the person can clearly demonstrate that he. or that such member, did not participate in or cooperate with the international boycott in connection with that operation. “(B) Separate and identifiable operations.— A taxpayer may show that different operations within the same country, or operations in different countries, are clearly separate and identifiable operations. “(3) Definition of boycott participation and cooperation.— For purposes of this section, a person participates in or cooperates with an international boycott if be agrees— “(A) as a condition of doing business directly or indirectly within a country or with the government, a company, or a national of a country— “(i) to refrain from doing business with or in a country which is the object of the boycott or with the government, companies, or nationals of that country; “(ii) to refrain from doing business with any United States person engaged in trade in a country which is the object of the boycott or with the government, companies, or nationals of that country; “(iii) to refrain from doing business with any company whose ownership or management is made up, all or in part, of individuals of a particular nationality, race, or religion, or to remove (or refrain from selecting) corporate directors who are individuals of a particular nationality, race, or religion; or “(iv) to refrain from employing individuals of a particular nationality, race, or religion; or “(B) as a condition of the sale of a product to the government, a company, or a national of a country, to refrain from shipping or insuring that product on a carrier owned, leased, or operated by a person who does not participate in or cooperate with an international boycott (within the meaning of subparagraph (A)). “(4) Compliance with certain laws.— This section shall not apply to any agreement by a person (or such member)— “(A) to meet requirements imposed by a foreign country with respect to an international boycott if United States law or regulations, or an Executive Order, sanctions participation in, or cooperation with, that international boycott, “(B) to comply with a prohibition on the importation of goods produced in whole or in part in any country which is the object of an international boycott, or “(C) to comply with a prohibition imposed by a country on the exportation of products obtained in such country to any country which is the object of an international boycott. “(c) International Boycott Factor.— “(1) International boycott factor.— For purposes of sections 908(a), 952(a)(3), and 995(b)(3), the international boycott factor is a fraction, determined under regulations prescribed by the Secretary, the numerator of which reflects the worldwide operations of a person (or, in the case of a controlled 26 USC 993. group (within the meaning of section 993(a)(3)) which includes that person, of the group) which are operations in or related to a group of countries associated in carrying out an international boycott in or with which that person or a member of that controlled group has participated or cooperated in the taxable year, and the denominator of which reflects the worldwide operations of that person or group. “(2) Specifically attributable taxes and income.— If the taxpayer clearly demonstrates that the foreign taxes paid and income earned for the taxable year are attributable to specific operations, then, in lieu of applying the international boycott factor for such taxable year, the amount of the credit disallowed under section 908(a), the addition to subpart F income under section 952(a)(3), and the amount of deemed distribution under section Ante, p. 1649. Ante, p. 1650. 995(b)(1)(D)(ii) for the taxable year, if any, shall be the amount specifically attributable to the operations in which there was participation in or cooperation with an international boycott under section 999 (b)(1). Ante, p. 1650. “(3) Worldwide operations.— For purposes of this subsection, the term ‘worldwide operations’ means operations in or related to countries other than the United States. “(d) Determinations With Respect to Particular Operations.— Upon a request made by the taxpayer, the Secretary shall issue a determination with respect to whether a particular operation of a person, or of a member of a controlled group which includes that person, constitutes participation in or cooperation with an international boycott. The Secretary may issue such a determination in advance of such operation in cases which are of such a nature that an advance determination is possible and appropriate under the circumstances. If the request, is made before the operation is commenced, or before the end of a taxable year in which the operation is carried out, the Secretary may decline to issue such a determination before close of the taxable year. “(e) Participation or Cooperation by Related Persons.— If a person controls (within the meaning of section 304(c)) a corporation— “(1) participation in or cooperation with an international boycott by such corporation shall be presumed to be such participation or cooperation by such person, and “(2) participation in or cooperation with such a boycott by such person shall be presumed to be such participation or cooperation by such corporation. “(f) Willful Failure to Report.— Any person (within the meaning of section 6671 (b)) required to report under this section who will-fully fails to make such report shall, in addition to other penalties provided by law, be fined not more than $25,000, imprisoned for not more than one year, or both.”. (b) Clerical Amendment.— The table of parts for such subchapter is amended by adding at the end thereof the following new item: “Part V. International boycott determinations.” SEC. 1065. FOREIGN BRIBES. (a) Dental of Deferral.— (1) Controlled foreign corporations.— Section 952(a) (relating 26 USC 952. to general definition of subpart F income) is amended— (A) by striking out “and” at the end of paragraph (2), (B) by striking out the period at the end of paragraph (3) and inserting in lieu thereof a comma and the word “and”, and (C) by adding at the end thereof the following new paragraph: “(4) the sum of the amounts of any illegal bribes, kickbacks, or other payments (within the meaning of section 162(c)) paid by or on behalf of the corporation during the taxable year of the corporation directly or indirectly to an official, employee, or agent in fact of a government.” (2) DISC’s.— Subparagraph (D) of section 995(b)(1) (relating to distributions in qualified years) is amended— (A) by striking out “and” at the end of clause (i), (B) by adding at the end thereof the following new clause: “(iii) any illegal bribe, kickback, or other payment (within the meaning of section 162(c)) paid by or on behalf of the DISC directly or indirectly to an official, employee, or agent in fact of a government, and”. (b) Bribes Not To Reduce Foreign Earnings and Profits.— Section 964(a) (relating to earnings and profits of foreign corporations) is amended by adding at the end thereof the following sentence,: “In determining such earnings and profits, or the deficit in such earnings and profits, the amount of any illegal bribe, kick-back, or other payment (within the meaning of section 162(c)) shall not be taken into account to decrease such earnings and profits or to increase such deficit.”. SEC. 1066. EFFECTIVE DATES. (a) International Boycotts.— (1) General rule.— The amendments made by this part (other than by section 1065) apply to participation in or cooperation with an international boycott more than 30 days after the date of enactment of this Act. (2) Existing contracts.— In the case of operations which constitute participation in or cooperation with an international boycott and which are carried out in accordance with the terms of a binding contract entered into before September 2, 1976, the amendments made by this part (other than by section 1065) apply to such participation or cooperation after December 31, 1977. (b) Foreign Bribes.— The amendments made by section 1065 apply to payments described in section 162(c) of the Internal Revenue Code of 1954 made more than 30 days after the date of enactment of this Act. SEC. 1067. REPORTS BY SECRETARY. (a) Reports to the Congress.— As soon after the close of each calendar year as the data become available, the Secretary shall transmit a report to the Committee on Ways and Means of the House of Representatives and to the Committee on Finance of the Senate setting forth, for that calendar year— (1) the number of reports filed under section 999(a) of the Internal Revenue Code of 1954 for taxable years ending with or within such taxable year, (2) the number of such reports on which the taxpayer indicated international boycott participation or cooperation (within the meaning of section 999 (b)(3) of such Code), and (3) a detailed description of the manner in which the provisions of such Code relating to international boycott activity have been administered during such calendar year. (b) Initial List.— The Secretary of the Treasury shall publish an initial list of those countries which may require participation in or cooperation with an international boycott as a condition of doing business within such country, or with the government, a company, or a national of such country (within the meaning of section 999(b) of the Internal Revenue Code of 1954) within 30 days after the enactment of this Act.

8. 1976

   Pub. L. 94–455 title X · 90 Stat. 1520

   Struck · 26 U.S.C. § 907(g)

   Pub. L. 94–455, §§ 1032(b)(2), 1035(d)(1), 1052(c)(4), struck out subsec. (g) relating to Western Hemisphere trade corporations which are members of an affiliated group

   Source evidence

   Code amendment note
   Subsec. (g). Pub. L. 94–455, §§ 1032(b)(2), 1035(d)(1), 1052(c)(4), struck out subsec. (g) relating to Western Hemisphere trade corporations which are members of an affiliated group.

   Enacted provision · exact public law
   TITLE X— CHANGES IN THE TREATMENT OF FOREIGN INCOME PART I— FOREIGN TAX PROVISIONS AFFECTING INDIVIDUALS ABROAD SEC. 1011. INCOME EARNED ABROAD BY UNITED STATES CITIZENS LIVING OR RESIDING ABROAD. (a) Reduction of Limitations on Amount Excludable.— Paragraph (1) of section 911(c) relating to limitations on amount of exclusion) is amended to read as follows: “(1) Limitations on amount of exclusion.— “(A) In general.— Except as provided in subparagraphs (B) and (C), the amount excluded from the gross income of an individual under subsection (a) for any taxable year shall not exceed an amount which shall be computed on a daily basis at an annual rate of $15,000. “(B) Employees of charitable organizations.— If any individual performs qualified charitable services during any taxable year, the amount of the earned income attributable to such services excluded from the gross income of the individual under subsection (a) for the taxable year shall not exceed an amount which shall be computed on a daily basis at an annual rate of $20,000. “(C) Special rule.— If any individual performs qualified charitable services and other services during any taxable year, the amount of the earned income attributable to such other services excluded from the gross income of the individual under subsection (a) for the taxable year shall not (after the application of subparagraph (A) with respect to such earned income) exceed $15,000 reduced by the amount of the earned income attributable to qualified charitable services excluded from gross income under subsection (a) for the taxable year. “(D) Qualified charitable services.— For purposes of this subsection, the term ‘qualified charitable services’ means services performed by an employee for an employer created or organized in the United States, or under the law of the United States, any State, or the District of Columbia, which meets the requirements of section 501 (c)(3).” (b) Additional Limitations on Exclusion.— (1) Disallowance of foreign tax credit with respect to excluded amounts.— The last sentence of subsection (a) of section 911 (relating to earned income from sources without the United States) is amended to read as follows: “An individual shall not be allowed as a deduction from his gross income any deductions (other than those allowed by section 151, relating to personal exemptions), or as a credit against the tax imposed by this chapter any credit for the amount of taxes paid or accrued to a foreign country or possession of the United States, to the extent that such deductions or credit is properly allocable to or chargeable against amounts excluded from gross income under this subsection.” (2) Disallowance or exclusion for income received other than in country where earned.— Section 911(c) (relating to 26 USC 911. special rules for earned income from sources without the United States) is amended by adding at the end thereof the following new paragraph: “(8) Requirement as to place of receipt.— No amount received by an individual during the taxable year which constitutes earned income (entitled to the exclusion under subsection (a)) attributable to services performed in a foreign country or countries shall be excluded under subsection (a) if such amount is received by such individual outside of the foreign country or countries where such services were performed and if one of the purposes is the avoidance of any tax imposed by such foreign country or countries on such amount.” (3) Inclusion of earned income in computation of rate of tax.— Section 911 (relating to earned income from sources without the United States) is amended by redesignating subsection (d) as subsection, (f) and by inserting after subsection (e) the following new subsections: “(d) Amount Excluded Under Subsection (a) Included in Computation of Tax.— “(1) Computation of tax.— If for any taxable year an individual has earned income which is excluded from gross income under subsection (a), the tax imposed by section 1 or section 1201 Post, p. 1786. shall be the excess of— “(A) the tax imposed by section 1 or section 1201 (whichever is applicable) on the amount of net taxable income, over “(B) the tax imposed by section 1 or section 1201 (whichever is applicable) on the amount of net excluded earned income. “(2) Definitions.— For purposes of this subsection— “(A) the term ‘net taxable income’ means an amount equal to the sum of the amount of taxable income for the taxable year plus the amount of net excluded earned income of such individual for such taxable year; and “(B) the term ‘net excluded earned income’ means the excess of the amount of earned income excluded under’ subsection (a) for the taxable year over the amount of the deductions disallowed with respect to such excluded earned income for such taxable year under subsection (a). “(e) Section Not to Apply.— “(1) In general.— An individual entitled to the benefits of this section for a taxable year may elect, in such manner and at such time as shall he prescribed by the Secretary, not to have the provisions of this section apply. “(2) Effect of election.— An election under paragraph (1) shall apply to the taxable year for which made and to all subsequent taxable years. Such election may not be revoked except with the consent of the Secretary.” (c) Allowance of Foreign Tax Credits to Individuals Taking Standard Deduction.— Section 36 (relating to credits not allowed to 26 USC 36. individuals paying optional tax or taking standard deduction) is amended by striking out “sections 32, 33, and” and inserting in lieu thereof “sections 32 and”. (d) Effective Date.— The amendments made by this section shall 26 USC 911 note. apply to taxable years beginning after December 31, 1975. SEC. 1012. INCOME TAX TREATMENT OF NONRESIDENT ALIEN INDIVIDUALS WHO ARE MARRIED TO CITIZENS OR RESIDENTS OF THE UNITED STATES. (a) Election To Be Treated as Residents of the United States.— (1) In general.— Section 6013 (relating to joint returns of income tax by husband and wife) is amended, by adding at the end thereof the following new subsections: “(g) Election To Treat Nonresident Alien Individual as Resident of the United States.— “(1) In general.— A nonresident alien individual with respect to whom this subsection is in effect for the taxable year shall be treated as a resident of the United States for purposes of chapter 1 for all of such taxable year. “(2) Individuals with respect to whom this subsection is in effect.— This subsection shall be in effect with respect to any individual who, at the time an election was made under tills subsection, was a nonresident alien individual married to a citizen or resident of the United States, if both of them made such election to have the benefits of this subsection apply to them. “(3) Duration of election.— An election under this subsection snail apply to the taxable year for which made and. to all subsequent taxable years until terminated under paragraph (4) or (5); except that any such election shall not apply for any taxable year if neither spouse is a citizen or resident of the United States at any time during such year. “(4) Termination of election.— An election under this subsection shall terminate at the earliest of the following times: “(A) Revocation by taxpayers.— If either taxpayer revokes the election, as of the first taxable year for which the last day prescribed by law for filing the return of tax under chapter 1 has not yet occurred. “(B) Death.— In the case of the death of either spouse, as of the beginning of the first taxable year of the spouse who survives following the taxable year in which such death occurred; except that if the spouse who survives is a citizen or resident of the United States who is a surviving spouse entitled to the benefits of section 2, the time provided by this subparagraph shall be as of the close of the last taxable year for which such individual is entitled to the benefits of section 2. “(C) Legal separation.— In the case of the legal separation of the couple under a decree of divorce or of separate maintenance, as of the beginning of the taxable year in which such legal separation occurs. “(D) Termination by secretary.— At the time provided in paragraph (5). “(5) Termination by secretary.— The Secretary may terminate any election under this subsection for any taxable year if he determines that either spouse has failed— “(A) to keep such books and records. “(B) to grant such access to such books and records, or “(C) to supply such other information, as may be reasonably necessary to ascertain the amount of liability for taxes under chapter 1 of either spouse for such taxable year. “(6) Only one election.— If any election under this subsection for any two individuals is terminated under paragraph (4) or (5) for any taxable year, such two individuals shall be ineligible to make an election under this subsection for any subsequent taxable year. “(h) Joint Return. Etc., for Year in Which Nonresident Alien Becomes Resident of United States.— “(1) In general.— If— “(A) any individual is a nonresident alien individual at the beginning of any taxable year but is a resident of the United States at the close of such taxable year, “(B) at the close of such taxable year, such individual is married to a citizen or resident of the United States, and “(C) both individuals elect the benefits of this subsection at the time and in the manner prescribed by the Secretary by regulation, then the individual referred to in subparagraph (A) shall be treated as a resident of the United States for purposes of chapter 1 26 USC 1. for all of such taxable year. “(2) Only one election.— If any election under this subsection applies for any 2 individuals for any taxable year, such 2 individuals shall be ineligible to make an election under this subsection for any subsequent taxable year.” (2) Clerical amendment.— Section 871(g) (relating to cross 26 USC 871. references) is amended by adding at the end thereof the following new paragraph: “(7) For election to treat married nonresident alien individual as resident of United States in certain cases, see subsections (g) and (h) of section 6013.” (b) Tax Treatment of Certain Community Income in the Case of a Resident or Citizen of the United States Who Is Married to a Nonresident Alien Individual.— (1) In general.— Subpart A of part II of subchapter N of chapter 1 (relating to nonresident alien individuals) is amended by adding at the end thereof the following new section: “SEC. 879. TAX TREATMENT OF CERTAIN COMMUNITY INCOME IN THE CASE OF A RESIDENT OR CITIZEN OF THE UNITED STATES WHO IS MARRIED TO A NONRESIDENT ALIEN INDIVIDUAL. “(a) General Rule.— In the case of a citizen or resident of the United States who is married to a nonresident alien individual and who has community income for the taxable year, such community income, shall be treated as follows: “(1) Earned income (within the meaning of section 911(b)), other than trade or business income and a partner’s distributive share of partnership income, shall be treated as the income of the spouse who rendered the personal services, “(2) Trade or business income, and a partner’s distributive share of partnership income, shall be treated as provided in section 1402(a)(5), “(3) Community income not described in paragraph (1) or (2) which is derived from the separate property (as determined under the applicable community property Jaw) of one spouse shall be treated as the income of such spouse, and “(4) All other such community income shall be treated as provided in the applicable community property law. “(b) Exception Where Election Under Section 6013(g) Is in Effect.— Subsection (a) shall not apply for any taxable year for which an election under subsection (g) or (h) of section 6013 (relating to election to treat nonresident alien individual as resident of the United States) is in effect. “(c) Definitions and Special Rules.— For purposes of this section— “(1) Community income.— The term ‘community income’ means income which, under applicable community property laws, is treated as community income. “(2) Community property laws.— The term ‘community property laws’ means the community property laws of a State, a foreign country, or a possession of the United States. “(3) Determination op marital status.— The determination of marital status shall be made under section 143(a).” (2) Repeal of section 981.— Subpart II of part III of subchapter X of chapter 1 (relating to election as to treatment of income subject to foreign community property laws) is hereby repealed, (3) Clerical amendments.— (A) The table of sections for subpart A of part II of subchapter N of chapter 1 is amended by adding at the end thereof the following new item: “Sec. 879. Tax treatment of certain community income in the case of a resident or citizen of the United States who is married to a nonresident alien individual.” (B) The table of subparts for part III of subchapter N of chapter 1 is amended by striking out the item relating to subpart G. (c) Due Date for Filing Estimated Tax Returns in the Case of Certain Nonresident Aliens.— Subsection (a) of section 6073 (relating to time for filing declarations of estimated tax by individuals) is amended by adding at the end thereof the following sentence: “In the case of a nonresident alien described in section 6072(c), the requirements of section 6015 shall be deemed to be first met no earlier than after April 1 and before June 2 of the taxable year.”. (d) Effective Dates.— The amendments made by subsection (a) shall apply to taxable years ending on or after December 31, 1975. The amendments made by subsections (b) and (c) shall apply to taxable years beginning after December 31, 1976. “SEC. 1013. FOREIGN TRUSTS HAVING ONE OR MORE UNITED STATES BENEFICIARIES TO BE TAXED CURRENTLY TO GANTOR. (a) Taxation of Income to Grantor of Trust.— Subpart E of part I of subchapter J of chapter 1 (relating to grantors and others treated as substantial owners) is amended by adding at the end thereof the following new section: “SEC. 679. FOREIGN TRUSTS HAVING ONE OR MORE UNITED STATES BENEFICIARIES. “(a) Transferor Treated as Owner.— “(1) In general.— A United States person who directly or indirectly transfer’s property to a foreign trust (other than a trust described in section 404(a)(4)) shall be treated as the owner for his taxable year of the portion of such trust attributable to such property if for such year there is a United States beneficiary of any portion of such trust. “(2) Exceptions.— Paragraph (1) shall not apply— “(A) Transits by reason of death.— To any transfer by reason of the death of the transferor. “(B) Transfers where gain is recognized to transferor.— To any sale or exchange of the property at its fair market value in a transaction in which all of the gain to the transferor is realized at the time of the transfer and is recognized either at such time or is returned as provided in section 453. “(b) Trusts Acquiring United States Beneficiaries.— If— “(1) subsection (a) applies to a trust for the transferor’s taxable year, and “(2) subsection (a) would have applied to the trust for his immediately preceding taxable year but for the fact that for such preceding taxable year there was no United States beneficiary for any portion of the trust, then, for purposes of this subtitle, the transferor shall be treated as having income for the taxable year (in addition to his other income for such year) equal to the undistributed net income (at the close of such immediately preceding taxable year) attributable to the portion of the trust referred to in subsection (a). “(c) Trusts Treated as Having a United States Beneficiary.— “(1) In general.— For purposes of this section, a trust shall be treated as having a United States beneficiary for the taxable year unless— “(A) under the terms of the trust, no part, of the income or corpus of the trust may be paid or accumulated during the taxable year to or for the benefit of a United States person, and “(B) if the trust were terminated at any time during the taxable year, no part of the income or corpus of such trust could be paid to or for the benefit of a United States person. “(2) Attribution of ownership.— For purposes of paragraph (1), an amount shall be treated as paid or accumulated to or for the benefit of a United States person if such amount is paid to or accumulated for a foreign corporation, foreign partnership, or foreign trust or estate, and— “(A) in the case of a foreign corporation, more than 50 percent of the total combined voting power of all classes of stock entitled to vote of such corporation is owned (within the meaning of section 958(a)) or is considered to be owned (within the meaning of section 958(b)) by United States shareholders (as defined in section 951(b)), “(B) in the ease of a foreign partnership, a United States person is a partner of such partnership, or “(C) in the case of a foreign trust or estate, such trust or estate has a United States beneficiary (within the meaning of paragraph (1)) (b) Grantor To Be Treated as Owner.— Subsection (b) of section 678 (relating to persons other than grantors treated as substantial 26 USC 678. owners) is amended by striking out everything after “modified,” and inserting in lieu thereof “if the grantor of the trust or a transferor (to whom section 679 applies) is otherwise treated as the owner under the provisions of this subpart other than this section.”, (c) Treatment of Capital Gains and Losses of Certain Foreign Trusts.— (1) Foreign trusts created by united states persons treated like other foreign trusts.— Subparagraph (C) of section 643 26 USC 643. (a)(6) (relating to distributable net income in ease of foreign trusts) is amended by striking out “foreign trust created by a United States person” and inserting in lieu thereof “foreign trust” (2) Transitional rule for foreign trusts.— Section 643(a)(6) 26 USC 643. is amended by adding at the end thereof the following new subparagraph: “(D) Effective for distributions made in taxable years beginning after December 31, 1975, the undistributed net income of each foreign trust for each taxable year beginning on or before December 31, 1975, remaining undistributed at the close of the last taxable year beginning on or before December 31, 1975, shall be redetermined by taking into account the deduction allowed by section 1202.” (d) Returns for Foreign Trusts Having One or More United States Beneficiaries.— (1) Section 6048 (relating to returns as to creation of or transfers to certain foreign trusts) is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: “(c) Annual Returns for Foreign Trusts Having One on More United States Beneficiaries.— Each taxpayer subject to tax under section 679 (relating to foreign trusts having one or more United States beneficiaries) for his taxable year with respect to any trust shall make a return with respect to such trust for such year at such time and in such manner, and setting forth such information, as the Secretary may by regulations prescribe”, (2) Section 6677(a) (relating to failure to file information returns with respect to certain foreign trusts) is amended by striking out “to a trust” and inserting in lieu thereof “to a trust (or, in the case of a failure with respect to section 6048(c), equal to 5 percent of the value of the corpus of the trust at the close of the taxable year)”. (e) Conforming Amendments.— (1) The table of sections for subpart E of part I of subchapter J of chapter 1 is amended by adding at the end thereof the following new item: “Sec. 679. Foreign trusts having one or more United States benefeciaries.” (2) Subsection (d) of section 643 is hereby repealed. (3) Subsection (d) of section 6048 (as redesignated by subsection (d)) is amended to read as follows: “(d) Cross Reference.— “For provisions relating to penalties for violation of this section, see sections 6677 and 7203.” (4) The heading of section 6048 is amended to read as follows: “SEC. 6048. RETURNS AS TO CERTAIN FOREIGN TRUSTS.”. (5) The table of sections for subpart B of part III of subchapter 26 USC 6041. A of chapter 61 is amended by striking out, the item relating to section 6048 and inserting in lieu thereof the following: “Sec. 6048. Retináis as to certain foreign trusts,” (f) Effective Dates.— (1) In general.— The amendments made by this section (other than subsection (c)) shall apply to taxable years ending after December 31, 1975, but only in the case of— (A) foreign trusts created after May 21, 1974, and (B) transfers of property to foreign trusts after May 21, 1974. (2) Guanoes in capital gain rules for foreign trusts.— The 26 USC 643 note. amendments made by subsection (c) shall apply to taxable years beginning after December 31, 1975. SEC. 1014. INTEREST CHARGE ON ACCUMULATION DISTRIBUTIONS FROM FOREIGN TRUSTS. (a) Tax To Include Special Interest Charge.— Section 667(a) Ante, p. 1575. Infra. (as amended by section 701 of this Act) is amended by striking out “and” at the end of paragraph (1), by striking out the period at the end of paragraph (2) and inserting in lieu thereof “, and ”, and by adding at the end thereof the following new paragraph: “(3) in the case of a foreign trust, the interest charge determined as provided in section 668.” Infra. (b) Computation of Special Interest Charge.— Subpart D of part I of subchapter J of chapter 1 (relating to treatment of excess distributions by trusts) is amended by adding at the end thereof the following new section: “SEC. 668. INTEREST CHARGE ON ACCUMULATION DISTRIBUTIONS FROM FOREIGN TRUSTS. “(a) General Rule.— For purposes of the tax determined under section 667(a), the interest charge is an amount equal to 6 percent of the partial tax computed under section 667(b) multiplied by a fraction— “(1) the numerator of which is the sum of the number of taxable years between each taxable year to which the distribution is allocated under section 666(a) and the taxable, year of the distribution (counting in each case the taxable year to which the distribution is allocated but not counting the taxable year of the distribution), and “(2) the denominator of which is the number of taxable years to which the distribution is allocated under section 666(a). “(b) Limitation.— The total amount of the interest charge shall not, when added to the total partial tax computed under section 667 (b), exceed the amount of the accumulation distribution (other than the amount of tax deemed distributed by section 666 (b) or (c)) in respect of which such partial tax was determined. “(c) Special Rules.— “(1) Interest charge not deductible.— The interest charge determined under this section shall not be allowed as a deduction for purposes of any tax imposed by this title. “(2) Transitional rule.— For purposes of this section, undistributed net income existing in a trust as of January 1, 1977, shall be treated as allocated under section 666(a) to the first taxable year beginning after December 31, 1976.” (c) Clerical Amendment.— The table of sections for subpart D of part I of subchapter J of chapter I is amended by adding at the end thereof of the following new item: Sec. 668. Interest charge on accumulation distributions from foreign trusts.” (d) Effective Date.— The amendments made by this section shall 26 USC 668 note. apply to taxable years beginning after December 31, 1976. SEC. 1015. EXCISE TAX ON TRANSFERS OF PROPERTY TO FOREIGN PERSONS TO AVOID FEDERAL INCOME TAX. (a) Amendment of Section 1491.— Section 1491 (relating to imposition 26 USC 1491. of tax) is amended to read as follows: “SEC. 1491. IMPOSITION OF TAX. “There is hereby imposed on the transfer of property by a citizen or resident of the United States, or by a domestic corporation or partnership, or by a trust which is not a foreign trust, to a foreign corporation as paid-in surplus or as a contribution to capital, or to a foreign trust, or to a foreign partnership, an excise tax equal to 35 percent of the excess of— “(1) the fair market value of the property so transferred, over “(2) the sum of— “(A) the adjusted basis (for determining gain) of such property in the hands of the transferor, plus “(B) the amount of the gain recognized to the transferor at the time of the transfer.” (b) Amendments or Section 1492.— Section 1492 (relating to non-taxable transfers) is amended— (1) by striking out in paragraph (3) “section 367(d) applies.” and inserting in lieu thereof section 367 applies; or” and (2) by adding at the end thereof the following new paragraph: “(4) To a transfer for which an election has been made under section 1057.” (c) Election To Treat as Taxable Exchange.— Part IV of subchapter O of chapter 1 (relating to special rules for determining gain or loss on disposition of property) is amended by redesignating section Ante, p. 1545. 1057 as section 1058 and by inserting after section 1056 the following new section: “SEC. 1057. ELECTION TO TREAT TRANSFER TO FOREIGN TRUST, ETC, AS TAXABLE EXCHANGE. Supra. “In lieu of payment of the tax imposed by section 1491, the tax-payer may elect (for purposes of this subtitle), at such time and in such manner as the Secretary may prescribe, to treat a transfer described in section 1491 as a sale or exchange of property for an amount equal in value to the fair market value of the property transferred and to recognize, as gain the excess of— “(1) the fair market value of the property so transferred, over “(2) the adjusted basis (for determining gain) of such property in the hands of the tranferor.”, (c) Clerical Amendment.— The table of sections for part IV of subchapter O of chapter 1 is amended by striking out the last item thereof and inserting in lieu thereof: “Sec. 1057. Election to treat transfer to foreign trust, etc., as taxable exchange. “Sec. 1058. Cross references.” (d) Effective Date.— The amendments made by this section shall apply to transfers of property after October 2, 1975. PART II— AMENDMENTS AFFECTING TAX TREATMENT OF CONTROLLED FOREIGN CORPORATIONS AND THEIR SHAREHOLDERS SEC. 1021. AMENDMENT OF PROVISION RELATING TO INVESTMENT IN UNITED STATES PROPERTY BY CONTROLLED FOREIGN CORPORATIONS. (a) Exceptions to Definition of United States Property.— Section 956(b)(2) (relating to exceptions to definition of United States property) is amended by striking out “and” at the end of sub-paragraph (E),by redesignating subparagraph (F) as subparagraph (H), and by inserting after subparagraph (E) the following new subparagraphs: “(F) the stock or obligations of a domestic corporation which is neither a United States shareholder (as defined in section 951(b)) of the controlled foreign corporation, nor a domestic corporation, 25 percent or more of the total combined voting power of which, immediately after the acquisition of any stock in such domestic corporation by the controlled foreign corporation, is owned, or is considered as being owned, by such United States shareholder’s in the aggregate; “(G) any movable property (other than a vessel or aircraft) which is used for the purpose of exploring for, developing, removing, or transporting resources from ocean waters or under such waters when used on the Continental Shelf of the United States: and”. (b) Constructive Ownership of Stock.— Section 958(b) (relating 26 USC 958. to rules for determining stock ownership) is amended— (1) by striking out “954(d)(3),” the first place it appears and inserting in lieu thereof “954(d)(3), 956(b)(2),”; (2) by striking out “954(d)(3).” the second place it appears and inserting in lieu thereof “954(d)(3), to treat the stock of a domestic corporation as owned by a United States shareholder of the controlled foreign corporation for purposes of section 956(b)(2),”; and (3) by adding at the end thereof the following new sentence: “Paragraphs (1) and (4) shall not apply for purposes of section 956(b)(2) to treat stock of a domestic corporation as not owned by a United States shareholder.” (c) Effective Date.— The amendments made by this section shall 26 USC 956 note. apply to taxable years of foreign corporations beginning after December 31, 1975, and to taxable years of United States shareholders (within the meaning of section 951 (b) of the Internal Revenue Code of 1954) within which or with which such taxable years of such foreign corporations end. in determining for purposes of any taxable year referred to in the preceding sentence the amount referred to in section 956(a)(2)(A) of the Internal Revenue Code of 1954 for the last taxable year of a corporation beginning before January 1, 1976, the amendments made by this section shall be deemed also to apply to such last taxable year. SEC. 1022. REPEAL OF EXCLUSION FOR EARNINGS OF LESS DEVELOPED COUNTRY CORPORATIONS FOR PURPOSES OF SECTION 1218. (a) Amendment of Section 1248(d).— Paragraph (3) of section 26 USC 1248. 1248 (d) (relating to exclusion from earnings and profits of gain from certain sales or exchanges of stock in certain foreign corporations) is amended to read as follows: “(3) Less developed country corporations under prior law.— Earnings and profits of a foreign corporation which were accumulated during any taxable year beginning before January 1, 1976, while such corporation was a less developed country corporation under section 902(d) as in effect before the enactment Ante, p. 1626. 26 USC 1 note. 26 USC 1248 note. of the Tax Reduction Act of 1975.”. (b) Effective Date.— The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1975. SEC. 1023. EXCLUSION FROM SUBPART F OF CERTAIN EARNINGS OF INSURANCE COMPANIES. (a) In General.— Paragraph (3) of section 954(c) (relating to foreign personal holding company income) is amended by striking out “or” at the end of subparagraph (A), by striking out the period at the end of subparagraph (B) and inserting in lieu thereof or”, and by adding at the end thereof the following new subparagraph: “(C) dividends, interest, and gains from the sale or exchange of stock or securities received from a person other than a related person (within the meaning of subsection (d)(3)) derived from investments made by an insurance company of an amount of its assets equal to one-third of its premiums earned on insurance contracts (other than life insurance and annuity contracts) during the taxable year (as defined in section 832(b)(4)) which are not directly or indirectly attributable to the insurance or reinsurance of risks of persons who are related persons (within the meaning of subsection (d)(3)).”. (b) Effective Date.— The amendment made by this section shall apply to taxable years of foreign corporations beginning after December 31, 1975, and to taxable, year’s of United States shareholders (within the meaning of section 951(b) of the Internal Revenue Code of 1954) within which or with which such taxable years of such foreign corporations end. SEC. 1021. SHIPPING PROFITS OF FOREIGN CORPORATIONS. (a) Certain Shipping Operations.— Subsection (b) of section 954 (relating to foreign base company income) is amended by adding at the end thereof the following new paragraph: “(7) Special exclusion for foreign base company shipping income.— Income of a corporation which is foreign base company shipping income under paragraph (4) of subsection (a)(determined without regard to the exclusion under paragraph (2) of this subsection) shall be excluded from foreign base company income if derived by a controlled foreign corporation from, or in connection with, the use (or hiring or leasing for use) of an aircraft or vessel in foreign commerce between two points within the foreign country in which such corporation is created or organized and such aircraft or vessel is registered.” (b) Effective Date.— The amendment made by this section shall apply to taxable years of foreign corporations beginning after December 31, 1975, and to taxable years of United States shareholders (within the meaning of section 951(b) of the Internal Revenue Code of 1954) within which or with which such taxable years of such foreign corporations end, PART III— AMENDMENTS AFFECTING TREATMENT OF FOREIGN TAXES SEC. 1031. REQUIREMENT THAT FOREIGN TAX CREDIT BE DETER. MINED ON OVERALL BASIS. (a) Overall Limitation on Foreign Tax Credit.— Section 904 (relating to limitation on foreign tax credit) is amended to read as follows: “SEC. 904. LIMITATION ON CREDIT. “(a) Limitation.— The total amount of the credit taken under section 901(a) shall not exceed the same proportion of the tax against which such credit is taken which the taxpayer’s taxable income from sources without the United States (but not in excess of the taxpayer’s entire taxable income) bears to his entire taxable income for the same taxable year. “(b) Taxable Income for Purposes of Computing Limitation.— For purposes of subsection (a), the taxable income in the case of an individual, estate, or trust shall be computed without any deduction for personal exemptions under section 151 or 642(b). 26 USC 151, 642. “(c) Carryback and Carryover of Excess Tax Paid.— Any amount by which all taxes paid or accrued to foreign countries or possessions of the United States for any taxable year fox’ which the taxpayer chooses to have the benefits of this subpart exceed the limitation under subsection (a) shall be deemed taxes paid or accrued to foreign countries or possessions of the United States in the second preceding taxable year, in the first preceding taxable year, and in the first, second, third, fourth, or fifth succeeding taxable years, in that order and to the extent not deemed taxes paid or accrued in a prior taxable year, in the amount by which the limitation under subsection (a) for such preceding or succeeding taxable year exceeds the sum of the taxes paid or accrued to foreign countries or possessions of the United States for such preceding or succeeding taxable year and the amount of the taxes for any taxable year earlier than the current taxable year which shall be deemed to have been paid or accrued in such preceding or subsequent taxable year (whether or not the taxpayer chooses to have the benefits of this subpart with respect to such earlier taxable year). Such amount deemed paid or accrued in any year may be availed of only as a tax credit and not as a deduction and only if the taxpayer for such year chooses to have the benefits of this subpart as to taxes paid or accrued for that year to foreign countries or possessions of the United States. “(d) Application of Section in Case of Certain Interest Income and Dividends From a DISC on Former DISC.— “(1) In general.— The provisions of subsections (a), (b), and (c) shall be applied separately with respect to each of the following items of income: “(A) the interest income described in paragraph (2), “(B) 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, and “(C) income other than the interest income described in paragraph (2) and dividends described in subparagraph (B). “(2) Interest in come to which applicable.— For purposes o f this subsection, the interest income described in this paragraph is in hi rest other than interest— “(A) derived from any transaction which is directly related to the active conduct by the taxpayer of a trade or business in a foreign country or a possession of the United States, “(B) derived in the conduct by the taxpayer of a banking, financing, or similar business, “(C) received from a corporation in which the taxpayer (or one or more includible corporations in an affiliated group, as defined in section 1504, of which the taxpayer is a member) owns, directly or indirectly, at least 10 percent of the voting stock, or “(D) received on obligations acquired as a result of the disposition of a trade or business actively conducted by the taxpayer in a foreign country or possession of the United States or as a result of the disposition of stock or obligations of a corporation in which the taxpayer owned at least 10 percent of the voting stock. For purposes of subparagraph (C), stock owned, directly or indirectly, by or for a foreign corporation, shall be considered as being proportionately owned by its shareholders. “(e) Transitional Rules for Carr tracks and Carryovers for Taxpayers on the Per-Country Limitation.— “(1) Application of subsection.— This subsection shall apply only to a taxpayer who is on the per-country limitation for his last taxable year beginning before January 1, 1976. “(2) Carryovers to years beginning after December 31, 1975.— In the case of any taxpayer to whom this subsection applies, any carryover from a taxable year beginning before January 1, 1976, may be used in taxable veal’s beginning after December 31, 1975, to the extent provided in subsection (c), but only to the extent such carryover could have been used in such succeeding taxable years if the per-country limitation continued to apply to all taxable years beginning after December 31, 1975. “(3) Carrybacks to years beginning before January 1, 1979.— In the case of any taxpayer to whom this subsection applies, any carryback from a taxable year beginning after December 31, 1975, may be used in taxable years beginning before January 1, 1976, to the extent provided in subsection (c), but only to the extent such carryback could have been used in such preceding taxable year if the per-country limitation continued to apply to all taxable years beginning after December 31, 1975. “(4) Application of limitations.— For purposes of this subsection— “(A) the overall limitation shall be applied before the per-country limitation, and “(B) where the amount of any carryback or carryover is reduced by the overall limitation, the reduction shall be allocated to the amounts carried from each country or possession in proportion to the taxes paid or accrued to such country or possession in the taxable, year from which such amount is being carried. “(f) Cross Reference.— “For increase of limitation under subsection (a) for taxes paid with respect to amounts received which were included in the gross income of the taxpayer for a prior taxable year as a United States shareholder with respect to a controlled foreign corporation, see section 960(b).” (b) Conforming Amendments.— (1) Sections 901 (a), 901 (b), and 960(b) are. amended by striking out “applicable limitation” each place it appears and inserting in lieu thereof “limitation”. (2) Subparagraph (B) of section 243(b)(3) is amended to read as follows: “(B) the members of such affiliated group shall be treated as one taxpayer for purposes of making the election under section 901(a) (relating to allowance of foreign tax credit), and”. (3) Paragraph (3) of section 1351(d) is amended to read as 26 USC 1351. follows: “(3) Foreign taxes.— For purposes of this subsection, any choice made under subpart A of part III of subchapter N (relating to foreign tax credit) for any taxable year may be changed.”. (4) Section 1503(b)(1) is amended by striking out “, and if 26 USC 1503. Post, p 1629. for the taxable year an election under section 904(b)(1) (relating to election of overall limitation on foreign tax credit) is in effect”. (5) Sections 383, 6038(b)(1)(A), and 6501 (i) are each Ante, p. 1605. 26 USC 6038, 6501. 26 USC 907. amended by striking out “section 904(d)” each place it appears therein and inserting in lien thereof “section 904(c)”. (6) Subsection (e) of section 907 (relating to transitional rules) is amended— (A) by striking out “(d) and (e) of section 904” in paragraphs (1) and (2) and inserting in lieu thereof “(d) and (e) of section 904 (as in effect on the day before the date of the enactment of the Tax Reform Act of 1976)”; Ante, p. 1520. (B) by striking out “section 904(a)(1)” in paragraph (2) and inserting in lien thereof “section 904(a)(1)(as so in effect)”; and (C) by striking out “section 904(c)(2)” in paragraph (2)(A) and inserting in lieu thereof “section 904(e)(2)(as so in effect)”. (c) Effective Dates.— (1) In general.— Except as provided in paragraphs (2) and (3), the amendments made by this section shall apply to taxable years beginning after December 31, 1975. (2) Exception for certain mining operations.— In the ease of a domestic corporation or includible corporation in an affiliated group (as defined in section 1504 of the Internal Revenue Code of 1954) which has as of October 1, 1975— (A) been engaged in the active conduct of the trade or business of the extraction of minerals (of a character with respect to which a deduction for depletion is allowable under section 613 of such Code) outside the United States or its possessions for less than 5 years preceding the date of enactment of this Act, (B) had deductions properly apportioned or allocated to its gross income from such trade or business in excess of such gross income in at least 2 taxable years, (C) 80 percent of its gross receipts are from the sale of such minerals, and (D) made commitments for substantial expansion of such mineral extraction activities, the amendments made by this section shall apply to taxable years beginning after December 31, 1978. in the case of losses sustained in taxable years beginning before January 1, 1979, by any corporation to which this paragraph applies, the provisions of section 904(f) of such Code shall be applied with respect to such losses under the principles of section 904 (a)(1) of such Code us in effect before the enactment of this Act. (3) Exception for income from possessions.— In the case of gross income from sources within a possession of the United States (and the deductions properly apportioned or allocated thereto), the amendments made by this section shall apply to taxable years beginning after December 31, 1978. in the case of losses sustained in a possession of the United States in taxable years beginning before January 1, 1979, the provisions of section 904(f) of such Code shall be applied with respect to such losses under the principles of section 904(a)(1) of such Code as in effect before the enactment of this Act. (4) Carrybacks and carryovers in the case of mining operations and income from a possession.— In the case of a taxpayer to whom paragraph (2) or (3) of this subsection applies, section 904(e) of such Code shall apply except that “January 1, 1979” shall be substituted for “January 1, 1976” each place it appears therein. If such a taxpayer elects the overall limitation for a taxable year beginning before January 1, 1979, such section 904(e) shall be applied by substituting “the January 1, of the last year for which such taxpayer is on the per-country limitation” for “January 1, 1976” each place it appears therein. SEC. 1032. RECAPTURE OF FOREIGN LOSSES. (a) In General.— Section 904 (as amended by section 1031 of this Act) is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection: “(f) Eecapture of Overall Foreign Lose.— “(1) General rule.— For purposes of this subpart and section 936, in the case of any taxpayer who sustains an overall foreign loss for any taxable year, that portion of the taxpayer’s taxable income from sources without 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 (or such larger percent as the taxpayer may choose) of the taxpayer’s taxable income from sources without the United States for such succeeding taxable year, shall be treated as income from sources within the United States (and not as income from sources without the United States). “(2) Overall foreign loss defined.— For purposes of this subsection, the term ‘overall foreign loss’ means the amount by which the gross income for the taxable year from sources without the United States (whether or not the taxpayer chooses the benefits of this subpart for such taxable year) for such year is exceeded by the sum of the deductions properly apportioned or allocated thereto, except that there shall not be taken into account— “(A) any net operating loss deduction allowable for such year under section 172(a) or any capital loss carrybacks and carryovers to such year under section 1212, and “(B) any— “(i) foreign expropriation loss for such year, as defined in section 172(k)(1), or “(ii) loss for such year which arises from fire, storm, shipwreck, or other casualty, or from theft, to the extent such loss is not compensated for by insurance or otherwise. “(3) Dispositions.— “(A) In general.— For purposes of this chapter, if property which has been used predominantly without the United States in a trade or business is disposed of during any taxable year— “(i) the taxpayer, notwithstanding any other provision of this chapter (other than paragraph (1)),shall be deemed to have received and recognized taxable income from sources without the United States in the taxable year of the disposition, by reason of such disposition, in an amount equal to the lesser of the excess of the fair market value of such property over the taxpayer’s adjusted basis in such property or the remaining amount of the overall foreign losses which were not used under paragraph (1) for such taxable year or any prior taxable year, and “(ii) paragraph (1) shall be applied with respect to such income by substituting ‘100 percent’ for ‘50 percent’. In determining for purposes of this subparagraph whether the predominant use of any property has been without the United States, there shall be taken into account use during the 3-y ear period ending on the date of the disposition (or, if shorter, the period during which the property has been used in the trade or business). “(B) Disposition defined and special rules.— “(i) For purposes of this subsection, the term ‘disposition’ includes a sale, exchange, distribution, or gift, of property whether or not gain or loss is recognized on the transfer. “(ii) Any taxable income recognized solely by reason of subparagraph (A) shall have the same characterization it would have had if the taxpayer had sold or exchanged the property. “(iii) The Secretary shall prescribe such regulations Regulations. as he may deem necessary to provide for adjustments to the basis of property to reflect taxable income recognized solely by reason of subparagraph (A). “(C) Exceptions.— Notwithstanding subparagraph (B), the term ‘disposition’ does not include— “(i) a disposition of property which is not a material factor in the realization of income by the taxpayer, or “(ii) a disposition of property to a domestic corporation in a distribution or transfer described in section 381(a), 26 USC 381. “(4) Determination of foreign on related loss where section 907 applies.— In the case of a corporation to which section 907 (b)(1) applies, (he foreign oil related loss shall be the amount by Post, p. 1630. which the gross income for the taxable year from sources without the United States and its possessions (whether or not the taxpayer chooses the benefits of tins subpart for such taxable year) taken into account in determining the foreign oil related income for such year is exceeded by the sum of the deductions properly apportioned or allocated thereto, except that there shall not be taken into account— “(A) any net operating loss deduction allowable for such year under section 172(a) or any capital loss carrybacks and carryovers to such year under section 1212, and “(B) any— “(i) foreign expropriation loss for such year, as defined in section 172 (k)(1) , or “(ii) loss for such year which arises from fire, storm, shipwreck, or other casually, or from theft, to the extent such loss is not compensated for by insurance or otherwise,”. (b) Coordination With Section 907.— Section 907 is amended— (1) by striking out the last sentence of subsection (b)(as amended by section 1035(b)) , and (2) by striking out subsection (f), and by redesignating subsection (g) as subsection (f). (c) Effective Dates.— (1) In general.— Except as provided in paragraphs (2) and (3), the amendments made by subsections (a) and (b)(2) shall apply to losses sustained in taxable years beginning after December 31, 1975, and the amendment made by subsection (b)(1) shall apply to taxable years beginning after December 31, 1975. (2) Obligations of foreign governments.— The amendments made by subsection (a) shall not apply to losses on the sale, exchange, or other disposition of bonds, notes, or other evidences of indebtedness issued before May 14, 1976, by a foreign government or instrumentality thereof for the acquisition of property located in that, country or stock of a corporation (created or organized in or under the laws of that foreign country) or indebtedness of such corporation. (3) Substantial worthlessness before enactment.— The amendments made by subsection (a) shall not apply to losses incurred on the loss from stock or indebtedness of a corporation in which the taxpayer owned at least 10 percent of the voting stock and which has sustained losses in 3 out of the last 5 taxable years beginning before January 1, 1976, which has sustained an overall loss for those 5 years, and with respect to which the taxpayer has terminated or will terminate all operations by reason of sale, liquidation, or other disposition before. January 1, 1977, of such corporation or its assets. (4) Limitation based on deficit in earnings and profits.— If paragraph (3) would apply to a taxpayer but for the fact that the loss is sustained after December 31, 1976, and if the loss is sustained in a taxable year beginning lief ore January 1, 1979, the amendments made by subsection (a) shall not apply to such loss to the extent that there was on December 31, 1975, a deficit in earnings and profits in the corporation from which the loss arose. SEC. 1033. DIVIDENDS FROM LESS DEVELOPED COUNTRY CORPORATIONS TO BE GROSSED UP FOR PURPOSES OF DETERMINING UNITED STATES INCOME AND FOREIGN TAX CREDIT AGAINST THAT INCOME. (a) Foreign Taxes Deemed Paid by Domestic Corporations.— Section 902 (relating to credit for corporate stockholders in foreign corporations) is amended to read as follows: “SEC. 902, CREDIT FOR CORPORATE STOCKHOLDER IN FOREIGN CORPORATION. “(a) Treatment of Taxes Paid by Foreign Corporation.— For purposes of this subpart, a domestic corporation which owns at least 10 percent of the voting stock of a foreign corporation from which it receives dividends in any taxable year shall be deemed to have paid the same proportion of any income, war profits, or excess profits taxes paid or deemed to be paid by such foreign corporation to any foreign country or to any possession of the United States, on or with respect to the accumulated profits of such foreign corporation from which such dividends were paid, which the amount of such dividends (determined without regard to section 78) bears to the amount of such accumulated profits in excess of such, income, war profits, and excess profits taxes (other than those deemed paid). “(b) Foreign Subsidiary of First and Second Foreign Corporation.— “(1) One tier.— If the foreign corporation described in subsection (a)(hereinafter in this subsection referred to as the ‘first foreign corporation’) owns 10 percent or more of the voting stock of a second foreign corporation from which it receives dividends in any taxable year, it shall be deemed to have paid the same proportion of any income, war profits, or excess profits taxes paid or deemed to be paid by such second foreign corporation to any foreign country or to any possession of the United States, on or with respect to the accumulated profits of such second foreign corporation from which such dividends were paid, which the amount of such dividends bears to the amount of such accumulated profits in excess of such income, war profits, and excess profits taxes (other than those deemed paid). “(2) Two tiers.— If such first foreign corporation owns 10 percent or more of the voting stock of a second foreign corporation which, in turn, owns 10 percent or more of the voting stock of a third foreign corporation from which the second foreign corporation receives dividends in any taxable year, the second foreign corporation shall be deemed to have paid the same proportion of any income, war profits, or excess profits taxes paid by such third foreign corporation to any foreign country or to any possession of the United States, on or with respect to the accumulated profits of such third foreign corporation from which such dividends were paid, which the amount of such dividends bears to the amount or such accumulated profits in excess of such income, war profits, and excess profits taxes. “(3) Voting stock requirement.— For purposes of this subpart— “(A) paragraph (1) shall not apply unless the percentage of voting stock owned by the domestic corporation in the first foreign corporation and the percentage of voting stock owned by the first foreign corporation in the second foreign corporation when multiplied together equal at least 5 percent, and “(B) paragraph (2) shall not apply unless the percentage arrived at for purposes of applying paragraph (I) when multiplied by the percentage of voting stock owned by the second foreign corporation in the third foreign corporation is equal to at least 5 percent. “(c) Applicable Rules.— “(1) Accumulated profits defined.— For purposes of this section. the term ‘accumulated profits’ means, with respect to any foreign corporation, (he amount of its gains, profits, or income computed without reduction by the amount, of the income, war profits, and excess profits taxes imposed on or with respect to such profits or income by any foreign country or by any possession of the United States. The Secretary shall have full power to determine from the accumulated profits of what year or years such dividends were paid, treating dividends paid in the first 60 days of any year as having been paid from the accumulated profits of the preceding year or years (unless to his satisfaction shown otherwise), and in other respects treating dividends as having been paid from the most recently accumulated gains, profits, or earnings. “(2) Accounting periods.— In the ease of a foreign corporation the income, war profits, and excess profits taxes of which are determined on the basis of an accounting period of less than 1 year, the word ‘year’ as used in this subsection, shall be construed to mean such accounting period. “(d) Cross References.— “(1) For inclusion in gross income of an amount equal to taxes deemed paid under subsection (a), see section 78. “(2) For application of subsections (a) and (b) with respect to taxes deemed paid in a prior taxable year by a United States shareholder with respect to a controlled foreign corporation, see section 960. “(3) For reduction of credit with respect to dividends paid out of accumulated profits for years for which certain information is not furnished, see section 6038.” (b) Conforming Amendments.— (1) Section 78 (relating to dividends received from certain foreign corporations) is amended— (A) by striking out “section 902(a)(1)” and inserting in lieu thereof “section 902(a)”, and (B) by striking out “section 900(a)(1)(C)” and inserting in lieu thereof “section 960(a)(1)”. (2) Paragraph (1) of section 960(a)(Mating to special rules for foreign tax credit) is amended by striking out “bears to—” and all that follows down through the period at the end of such paragraph and inserting in lieu thereof “bears to the entire amount of the earnings and profits of such foreign corporation for such taxable year.”. (3) Section 535(b)(1) (relating to accumulated taxable income) is amended by striking out “section 902(a)(1) or 960(a)(1)(C)” and inserting in lieu thereof “section 902(a) or 960(a)” (4) Section 545(b)(1) (relating to undistributed personal holding company income) is amended by striking out “section 902(a)(1) or 960(a)(1)(C)” and inserting in lieu thereof “section 902(a) or 960(a)(1)”. (c) Effective Dates.— The amendments made by this section shall apply— (1) in respect of any distribution received by a domestic corporation after December 31, 1977, and (2) in respect of any distribution received by a domestic corporation before January 1, 1978, in a taxable year of such corporation beginning after December 31, 1975, but only to the extent that such distribution is made out of the accumulated profits of a foreign corporation for a taxable year (of such foreign corporation) beginning after December 31, 1975. For purposes of paragraph (2), a distribution made by a foreign corporation out or its profits which are attributable to a distribution Post, p. 1626. received from a foreign corporation to which section 902(b) of the Internal Revenue Code of 1954 applies shall be treated as made out of the accumulated profits of a foreign corporation for a taxable year beginning before January 1, 1976, to the extent that such distribution was paid out of the accumulated profits of such foreign corporation for a taxable year beginning before January 1, 1976. SEC. 1034. TREATMENT OF CAPITAL GAINS FOR PURPOSES OF FOREIGN TAX CREDIT. (a) In General.— Section (b) of section 904 (relating to taxable 26 USC 904. income for purposes of computing the foreign tax credit imitation), as amended by section 1031 of this Act, is amended to read as follows: “(b) Taxable Income for Purpose of Computing Limitation.— “(1) Personal exemptions.— For purposes of subsection (a), tile taxable income in the case of an individual, estate, or trust shall be computed without any deduction for personal exemptions under section 151 or 642 (b). “(2) Capital gains.— For purposes of subsection (a)— “(A) Corporations.— In the case of a corporation— “(i) the taxable income of such corporation from sources without the United States shall include gain from the sale or exchange of capital assets only in an amount equal to foreign source capital gain net income reduced by three-eight is of foreign source net capital gain,. “(ii) the entire taxable income of such corporation shall include gain from the sale or exchange of capital assets only in an amount equal to capital gain net income reduced by three-eights of net capital gain, and “(iii) any net capital loss from sources without the United States to the extent taken into account in determining capital gain net income for the taxable year shall be reduced by an amount equal to three-eighths of the excess of net capital gain from sources within the United States over net capital gain. “(B) Other taxpayers.— In the case of a taxpayer other than a taxpayer described in subparagraph (A), taxable income from sources without the United States shall include gain from the sale or exchange of capital assets only to the extent of foreign source capital gain net income. “(3) Definitions.— For purposes of this subsection— “(A) Foreign source capital gain net income.— The term ‘foreign source capital gain net income’ means the lesser of— “(i) capital gain net income from sources without the United States, or “(ii) capital gain net income. “(B) Foreign source net capital gain.— The term ‘foreign source net capital gain’ means the lesser of— “(i) net capital gain from sources without the United States, or “(ii) net capital gain. “(C) Exception for gain from the sale of certain personal property.— For purposes of this paragraph, there shall be included as gain from sources within the United States any gain from sources without the United States from the sale or exchange of a capital asset which is personal property which— “(i) in the case of an individual, is sold or exchanged outside of the country (or possession) of the individual’s residence, “(ii) in the case of a corporation, is stock in a second corporation sold or exchanged other than in a country (or possession) in which such second corporation derived more than 50 percent of its gross income for the 3-year period ending with the close of such second corporation’s taxable year immediately preceding the year during which the sale or exchange occurred, or “(iii) in the case of any taxpayer, is personal property (other than stock in a corporation) sold or exchanged other than in a country (or possession) in which such property is used in a trade or business of the taxpayer or in which such taxpayer derived more than 50 percent of its gross income for the 3-year period ending with the close of its taxable year immediately preceding the year during which the sale or exchange occurred, unless such gain is subject to an income, war profits, or excess profits tax of a foreign country or possession of the United States, and the rate of tax applicable to such gain is 10 percent or more of the gain from the sale or exchange (computed under this chapter). “(D) Section 1231 gains.— The term ‘gain from the sale or exchange of capital assets’ includes any gain so treated under section 1231.” (b) Effective Dates.— The amendment made by this section shall apply to taxable years beginning after December 31, 1975, except that the provisions of section 904(b)(3)(C) shall only apply to sales or exchanges made after November 12, 1975. SEC. 1035. FOREIGN OIL AND GAS EXTRACTION INCOME. (a) Reduction in Limitation on Foreign Tax Credits Allowable fob Oil and Gas Extraction Income.— Subsection (a) of section 907 (relating to reduction in amounts allowable as foreign tax under section 901) is amended to read as follows: “(a) Reduction tn Amount Allowed as Foreign Tax Under Section 901.— In applying section 901, the amount of any oil and gas extraction taxes paid or accrued (or deemed to have been paid) during the taxable year which would (but for this subsection) be taken into account for purposes of section 901 shall be reduced by the amount (if any) by which the amount of such taxes exceeds the product of— “(1) the amount of the foreign oil and gas extraction income for the taxable year, multiplied by “(2) the percentage which is the sum of the normal tax rate and the surtax rate for the taxable year specified in section 11.” (b) Foreign Oil Related Income Earned by Individuals.— Subsection (b) of section 907 (relating to special rules in case of foreign oil and gas income) is amended to read as follows: “(b) Application of Section 904 Limitation.— “(1) Corporations.— In the ease of a corporation, the provisions of section 904 shall be applied separately with respect to— “(A) foreign oil related income, and “(B) other taxable income. “(2) Other taxpayers.— In the case of a taxpayer other than a corporation, the provisions of subsection (a) shall not apply and the provisions of section 904 shall be applied separately with respect to— “(A) foreign oil and gas extraction income, and “(B) other taxable income (including other foreign oil related income). In the ease of a corporation, with respect to foreign oil-related income, and in the case of a taxpayer other than a corporation, with respect to foreign oil and gas extraction income, the overall limitation provided by section 904(a)(2) shall apply and the per-country limitation Ante, p. 1620. provided by subsection (a)(1) shall not apply.” (c) Tax Credit for Production-Sharing Contracts.— (1) For purposes of section 901 of the Internal Revenue Code of 1954. there shall be treated as income, war profits, and excess profits taxes to betaken into account under section 907(a) of such Code amounts designated as income taxes of a foreign government by such government (which otherwise would not be treated as taxes for purposes of section 901 of such Code) with respect to production-sharing contracts for the extraction of foreign oil or gas. (2) The amounts specified in paragraph (1) shall not exceed the lesser of— (A) the product of the foreign oil and gas extraction income with respect to all such production-sharing contracts multiplied by the sum of the normal tax rate, and the surtax rate for the taxable year specified in section 11 of such Code, or (B) the excess of the total amount of foreign oil and gas extraction income (as defined in section 907(c)(1) of such Code) for the taxable year multiplied by the sum of the normal tax rate and the surtax rate for the taxable year specified in section 11 of such Code over the amount of any income, war profits, and excess profits taxes paid or accrued (or deemed to have been paid) without regard to paragraph (1) during the taxable year with respect to foreign oil and gas extraction income. (3) The production-sharing contracts taken into account for purposes of paragraph (1) shall be those contracts which were entered into before April 8, 1976, for the sharing of foreign oil and gas production with a foreign government (or an entity owned by such government) with respect to which amounts claimed as taxes paid or accrued to such foreign government for taxable years beginning before June 30, 1976, will not be disallowed as taxes. No such contract shall be taken into account for any taxable year ending after December 31, 1977. (d) Carryback and Carryover of Disallowed Credits.— (1) In general.— Section 907 (as amended by section 1033) is 26 USC 907. amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection: “(f) Carryback and Carryover of Disallowed Credits.— “(1) In general.— If the amount of the oil and gas extraction taxes paid or accrued during any taxable year exceeds the limitation provided by subsection (a) for such taxable year (hereinafter in this subsection referred to as the ‘unused credit year’), so much of such excess as does not exceed 2 percent of foreign oil and gas extraction income for such taxable year shall be deemed to be oil and gas extraction taxes paid or accrued in the second preceding taxable year, in the first preceding taxable year, and in the first, second, third, fourth, or fifth succeeding taxable year, in that order and to the extent not deemed tax paid or accrued in a prior taxable year by reason of the limitation imposed by paragraph (2). Such amount deemed paid or accrued in any taxable year may be availed of only as a tax credit and not as a deduction and only if the taxpayer for such year chooses to have the benefits of this subpart as to taxes paid or accrued for that year to foreign countries or possessions. For purposes of this subsection, the terms ‘second preceding taxable year’, and ‘first preceding taxable year’ do not include any taxable year ending before January 1, 1975. For purposes of determining the amount of such taxes which may be deemed paid or accrued in any taxable year ending in 1975, 1976, or 1977. the first sentence of this paragraph shall be applied by substituting ‘such excess’ for ‘so much of such excess as does not exceed 2 percent of the foreign oil and gas extinction income for such taxable year’. “(2) Limitation.— The amount of the unused oil and gas extraction taxes which under paragraph (1) may be deemed paid or accrued in any preceding or succeeding taxable year shall not exceed the lesser of— “(A) the amount by which the limitation provided by subsection (a) for such taxable year exceeds the sum of— “(i) the oil and gas extraction taxes paid or accrued during such taxable year, plus “(ii) the amounts of the oil and gas extraction taxes which by reason of this subsection are deemed paid or accrued in such taxable year and are attributable to taxable years preceding the unused credit year; or “(B) the amount by which the limitation provided by section 904 on taxes paid or accrued with respect to foreign oil-related income for such taxable year exceeds the sum of— “(i) the taxes paid or accrued (or deemed to have been paid under section 902 or 960) to all foreign countries and possessions of the United States with respect to such income during such taxable year, “(ii) the amount of such taxes which were deemed paid or accrued in such taxable year under section 904 (c) and which are attributable to taxable years preceding the unused credit year, plus “(iii) the amount of the oil and gas extraction taxes which by reason of this subsection are deemed paid or accrued in such taxable year and are attributable to taxable years preceding the unused credit year. “(3) Special ruins.— “(A) in the case of any taxable year which is an unused credit year under this subsection and which is an unused credit year under section 904(c) with respect to oil-related income, the provisions of this subsection shall be applied before section 904(c). “(B) For purposes of determining the amount of oil-related taxes paid or accrued in any taxable year which may be deemed paid or accrued in a preceding or succeeding taxable year under section 904(c), any tax deemed paid or accrued in such preceding or succeeding taxable year under this subsection shall be considered to be tax paid or accrued in such preceding or succeeding taxable year, “(C) For purposes of determining the amount of the unused oil and gas extraction taxes which under paragraph (1) may be deemed paid or accrued in any taxable year ending before January 1, 1977, subparagraph (A) of paragraph (2) shall be applied as if the amendment made by section 1035(a) of the Tax Reform Act of 1976 applied to such taxable year.” (2) Definition of on and gas extraction taxes.— Subsection (c) of section 907 is amended by adding at the end thereof the following new paragraph: “(5) Oil and gas extraction taxes.— The term ‘oil and gas extraction taxes’ means any income, war profits, and excess profits tax paid or accrued (or deemed to have been paid under section 902 or 960) during the taxable year with respect to foreign oil Ante, p. 1626. 26 USC 960. and gas extraction income (determined without regard to paragraph (4)) or loss which would he taken into account for purposes of section 901 without regard to this section,” (3) Technical amendment.— Subsection (i) of section 6501, as amended by section 1031, (relating to foreign tax carrybacks) is 26 USC 6501. amended— (A) by striking out “excess foreign taxes)” and inserting in lieu thereof “excess foreign taxes) or under section 907(f) Ante, p. 1631. (relating to carryback and carryover of disallowed oil and gas extraction taxes)”; and (B) by striking out “section 904(c)” the second place it appears and inserting in lieu thereof “section 904(c) or 907(f)”. (e) Effective Dates.— (1) The amendment made by subsection (a) shall apply to taxable years ending after December 31, 1976. (2) The amendment made by subsection (b) shall apply to taxable years ending after December 31, 1974; except that the last sentence of section 907(b) of the Internal Revenue Code of 1954 Ante, p. 1630. shall only apply to taxable years ending after December 31, 1975. (3) The amendment made by subsection (c) shall apply to taxable years beginning after June 29, 1976. (4) The amendments made by subsection (d) shall apply to taxes paid or accrued during taxable years ending after the date of the enactment of this Act. SEC. 1036. UNDERWRITING INCOME. (a) Treatment as Income From Sources Within the United States.— Section 861(a) (relating to gross income from sources 26 USC 861. within the United States) is amended by adding the following new paragraph: “(7) Amounts received as underwriting income (as defined in section 832(b)(3)) derived from the insurance of United States risks (as defined in section 953(a)).”. (b) Treatment as Foreign Source Income.— Section 862(a) (relating to gross income from sources without the United States) is 26 USC 862. amended by adding the following new paragraph: “(7) Underwriting income other than that derived from sources within the United States as provided in section 861(a)(7).”. (c) Effective Date.— The amendments made by tills section shall 26 USC 861 note. apply to taxable years beginning after December 31, 1976, SEC. 1037. THIRD TIER FOREIGN TAX CREDIT WHEN SECTION 951 APPLIES. (a) Foreign Taxes Deemed Paid by Foreign Corporations.— Section 960(a)(1) (relating to special rules for foreign tax credits), 26 USC 960. as amended hr section 1033, is further amended to read as follows: “(1) General rule.— For purposes of subpart A of this part, if there is included, under section 951(a), bi the gross income of a domestic corporation any amount attributable to earnings and profits— “(A) of a foreign corporation (hereafter in this subsection referred to as the ‘first foreign corporation’) at least 10 per-cent of the voting stock of which is owned by such domestic corporation, or “(B) of a second foreign corporation (hereinafter in this subsection referred to as the second foreign corporation’) at least 10 percent of the voting stock of which is owned by the first foreign corporation, or “(C) of a third foreign corporation (hereinafter in this subsection referred to as the ‘third foreign corporation’) at least 10 percent of the voting stock of which is owned by the second foreign corporation, then, under regulations prescribed by the Secretary, such domestic corporation shall be deemed to have paid the same proportion of the total income, war profits, and excess profits taxes paid (or deemed paid) by such foreign corporation to a foreign country or possession of the United States for the taxable year on or with respect to the earnings and profits of such foreign corporation which the amount of earnings and profits of such foreign corporation so included in gross income of the domestic corporation bears to the entire amount of the earnings and profits of such corporation for such taxable year. This paragraph shall not apply with respect to any amount included in the gross income of such domestic corporation attributable to earnings and profits of the second foreign corporation or of the third foreign corporation unless, in the case of the second foreign corporation, the percentage-of-voting-stock requirement of section 002(b)(3)(A) is satisfied, and in the case of the third foreign corporation, the percentage-of-voting-stock requirement of section 902(b)(3)(B) is satisfied.” (b) Effective Date.— The amendment made by this section shall apply with respect to earnings and profits of a foreign corporation included, under section 951(a) of the Internal Revenue Code of 1954, in the gross income of a domestic corporation in taxable years beginning after December 31, 1976. PART IV— MONEY OR OTHER PROPERTY MOVING OUT OF OR INTO THE UNITED STATES SEC. 1041. PORTFOLIO DEBT INVESTMENTS IN UNITED STATES OF NONRESIDENT ALIENS AND FOREIGN CORPORATIONS. 26 USC 861. The last sentence of section 861 (c) (relating to interest on deposits, etc.) is hereby repealed. SEC. 1042. CHANGES IN RULING REQUIREMENTS UNDER SECTION 367; CERTAIN CHANGES IN SECTION 1248. (a) Amendment of Section 367.— Section 367 (relating to foreign corporations) is amended to read as follows: “SEC. 367. FOREIGN CORPORATIONS. “(a) Transfers of Property From the United States.— “(1) General rule.— If, in connection with any exchange described in section 332, 351,354,355, 356, or 361, there is a transfer of property (other than stock Or securities of a foreign corporation which is a party to the exchange or a party to the reorganization) by a United States person to a foreign corporation, for purposes of determining the extent to which gain shall be recognized on such transfer, a foreign corporation shall not be considered to be a corporation unless, pursuant to a request filed not later than the close of the 183d day after the beginning of such transfer (and filed in such form and manner as may be prescribed by regulations by the Secretary), it is established to the satisfaction of the Secretary that such exchange is not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes. “(2) Exception for transactions designated by the secretary.— Paragraph (1) shall not apply to any exchange (otherwise within paragraph (1)), or to any type of property, which the Secretary by regulations designates as not requiring the filing of a request. “(b) Other Transfers.— “(1) Effect of section to be determined under regulations.— in the case of any exchange described in section 332, 351, 354, 355, 356, or 361 in connection with which there is no transfer 26 USC 332, 351, 354, 355, 356, 361. of property described in subsection (a)(1), a foreign corporation shall be considered to be a corporation except to the extent provided in regulations prescribed by the Secretary which are necessary or appropriate to prevent the avoidance of Federal income taxes. “(2) Regulations relating to sale or exchange of stock in foreign corporations.— The regulations prescribed pursuant to paragraph (1) shall include (but shall not be limited to) regulations dealing with the sale or exchange of stock or securities in a foreign corporation by a United States person, including regulations providing— “(A) the circumstances under which— “(i) gain shall be recognized currently, or amounts included in gross income currently as a dividend, or both, or “(ii) gain or other amounts may be deferred for inclusion in the gross income of a shareholder (or his successor in interest) at a later date, and “(B) the extent to which adjustments shall be made to earnings and profits, basis of stock or securities, and basis of assets, “(c) Transactions To Be Treated as Exchanges.— “(1) Section 355 distribution.— For purposes of this section, any distribution described in section 355 (or so much of section 356 as relates to section 355) shall be treated as an exchange whether or not it is an exchange. “(2) Contribution of capital to controlled corporations.— For purposes of this chapter, any transfer of property to a foreign corporation as a contribution to the capital of such corporation by one or more persons who, immediately after the transfer, own (within the meaning of section 318) stock possessing at least 80 percent of the total combined voting power of all classes of stock of such corporation entitled to vote shall be treated as an exchange of such property for stock of the foreign corporation equal in value to the fair market value of the property transferred. “(d) Transitional Rule.— In the case of any exchange beginning before January 1, 1978— “(1) subsection (a) shall be applied without regard to whether or not there is a transfer of property described in subsection (a)(1). and “(2) subsection (b) shall not apply.”. (b) Earnings and Profits of Subsidiaries of Foreign Corporations for Purposes or Section 1248.— Subparagraph (C) of section 1248 (c)(2) is amended by striking out “; and” at the end thereof and inserting in lieu thereof the following: “(or on the date of any sale or exchange of the stock of such other foreign corporation occurring during the 5-year period ending on the date of the sale or exchange of the stock of such foreign corporation, to the extent not otherwise taken into account under this section but not in excess of the fair market value of the stock of such other foreign corporation sold or exchanged over the basis of such stock (for determining gain) in the hands of the transferor); and”. (c) Certain Section 311,336, or 337 Transactions.— (1) General rule.— Section 1248 (relating to gain from certain sales or exchanges of stock in certain foreign corporations) is amended by redesignating subsections (f) and (g) as subsections (g) and (h), respectively, and by inserting after subsection (e) the following new subsection: “(f) Certain Section 311,336, or 337 Transactions.— “(1) In general.— If— “(A) a domestic corporation satisfies the stock ownership requirements of subsection (a)(2) with respect to a foreign corporation, and “(B) such domestic corporation distributes, sells, or exchanges stock of such foreign corporation in a transaction to which section 311,336, or 337 applies, then, notwithstanding any other provision of this subtitle, an amount equal to the excess of the fair market value of such stock over its adjusted basis in the hands of the domestic corporation shall be in chided in the gross income of the domestic corporation as a dividend to the extent of the earnings and profits of the foreign corporation attributable (under regulations prescribed by the Secretary) to such stock which were accumulated in taxable years of such foreign corporation beginning after December 31, 1962, and during the period or periods the stock was held by such domestic corporation while such foreign corporation was a controlled foreign corporation. For purposes of subsections (c)(2), (d), and (h), a distribution, sale, or exchange of stock to which this subsection applies shall be treated as a sale of stock to which subsection (a) applies. “(2) Exception for certain distributions.— To the case of any distribution of stock of a foreign corporation, paragraph (1) shall not apply if such distribution is to a domestic corporation— “(A) which is treated under this section as holding such stock for the period for which the stock was held by the distributing corporation, and “(B) which, immediately after the distribution, satisfies the stock ownership requirements of subsection (a)(2) with respect to such foreign corporation. “(3) Non application of paragraph (i) in certain cases.— Paragraph (1) shall not apply to a sale or exchange to which section 337 applies if— “(A) throughout the period or periods the stock of the foreign corporation was held by the domestic corporation (or predecessor referred to in paragraph (2)) all the stock of such domestic corporation was owned by United States persons who satisfied the 10-percent stock ownership require-ments of subsection (a)(2) with respect to such domestic corporation, and “(B) subsection (a) applies to the proceeds of the sale or exchange and also applied to all transactions described in subsection (e)(1) which took place during the period or periods referred to in subparagraph (A). “(4) Application to cases described in subsection (e).— To the extent that earnings and profits are taken into account under this subsection, they shall be excluded and not taken into account for purposes of subsection (e).”. (2) Interest in partnership holding stock in certain foreign corporations.— The last sentence of section 751(c) (relating 26 USC 751. to unrealized receivables) is amended— (A) by striking out “(as defined in section 1245(a)(3)),” and inserting in lieu thereof “as defined in section 1245(a)(3)), stock in certain foreign corporations (as described in section 1248),” and (B) by striking out “1245(a),” and inserting in lieu thereof “1245(a), 1248(a),”. (3) Conforming amendments.— (A) Subparagraph (A) of paragraph (2) of subsection (c) of section 1248 is amended by striking out “subsection (a) 26 USC 1248. applies to a sale or exchange” and inserting in lieu thereof “subsection (a) or (f) applies to a sale, exchange, or distribution”. (B) Subparagraph (A) of paragraph (3) of subsection (g)(as redesignated by paragraph (1) of this subsection) of section 1248 is amended to read as follows: “(A) a dividend (other than an amount, treated as a dividend under subsection (f)),”. (C) Subsection (h)(as redesignated by paragraph (1) of this subsection) of section 1248 is amended by striking out “subsection (a)” each place it appears and inserting in lieu thereof “subsection (a) or (f)”. (d) Declaratory Judgment’ Procedure for Review by the Tax Court of Section 367 Determinations.— (1) In general.— Part IV of subchapter C of chapter 76 (relating to declaratory judgments) is amended by adding at the end thereof the following new section: “SEC. 7477. DECLARATORY JUDGMENTS RELATING TO TRANSFERS OF PROPERTY FROM THE UNITED STATES. “(a) Creation or Remedy.— “(1) In general.— In a case of actual controversy involving.— “(A) a determination by the Secretary— “(i) that an exchange described in section 367(a)(1) is in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes, or “(ii) of the terms and conditions pursuant to which an exchange described in section 367(a)(1) will be determined not to be in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes, or “(B) failure by the Secretary to make a determination as to whether an exchange described in section 367(a)(1) is in pursuance of a plan Laving as one of its principal purposes the avoidance of Federal income taxes, upon the filing of an appropriate pleading, the Tax Court may make the appropriate declaration referred to in paragraph (2). Such declaration shall have the force and effect of a decision of the Tax Court and shall be reviewable as such. “(2) Scope of declaration.— The declaration referred to in paragraph (1) shall be— “(A) in the case of a determination referred to in subparagraph (A) of paragraph (1), whether or not such determination is reasonable, and, if it is not reasonable, a determination of the issue set forth in subparagraph (A)(ii) of paragraph (1), and “(B) in the case of a failure described in subparagraph (B) of paragraph (1), the determination of the issues set forth in subparagraph (A) of paragraph (1). “(b) Limitations.— “(1) Petitioner.— A pleading may be filed under this section only by a petitioner who is a transferor or transferee of stock, securities, or property transferred in an exchange described in section 367 (a)(1). “(2) Exhaustion of administrative remedies.— The Tax Court shall not issue a declaratory judgment or decree under this section in any proceeding unless it determines that the petitioner has exhausted administrative remedies available to him within the Internal Revenue Service. A petitioner shall not be deemed to have exhausted his administrative remedies with respect to a failure by the Secretary to make a determination with respect to whether or not an exchange described in section 367(a)(1) is in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes before the expiration of 270 days after the request for such determination was made. “(3) Exchange shall have begun.— No proceeding may be maintained under this section unless the exchange is described in section 367(a)(1) with respect to which a decision of the Tax Court is sought has begun before the filing of the pleading. “(4) Time for bringing action.— If the Secretary sends by certified or registered mail to the petitioners referred to in paragraph. (1) notice of his determination with respect to whether or not an exchange described in section 367(a)(1) is in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes or with respect to the terms and conditions pursuant to which such an exchange will be determined not to be made in pursuance of such a plan, no proceeding may be initiated under this section by any petitioner unless the pleading is filed before the 91st day after the day after such notice is mailed to such petitioner. “(c) Commissioners.— The chief judge of the Tax Court, may assign proceedings under this section to be heard by the commissioners of the court, and the court may authorize a commissioner to make the decision of the court with respect, to such proceeding, subject to such conditions and review as the court may by rule provide.”. (2) Technical and conforming amendments.— (A) Section 7482(b)(1) (relating to venue for review of Tax Court decisions) is amended by striking out “or” at the end of subparagraph (B), by striking out the period at the end of subparagraph (C) and inserting in lieu thereof “, or ”, and by inserting after subparagraph (C) the following new subparagraph: “(D) in the case of a person seeking a declaratory judgment under section 7477, the legal residence of such person if Ante, p. 1637. such person is not a corporation, or the principal place of business or principal office or agency of such person if such person is a corporation.”. (B) Section 7482(b)(1) is further amended— 26 USC 7482. (i) by striking out “subparagraph (A), (B),and (C) do not apply” in the second sentence and inserting in lieu thereof “no subparagraph of the preceding sentence, applies”; and (ii) by striking out “section 7176” in the last sentence and inserting in lieu thereof “section 7476 or 7477”. (C) The heading for section 7476 is amended to read as follows: “SEC. 7476. DECLARATORY JUDGMENTS RELATING TO QUALIFICATION OF CERTAIN RETIREMENT PLANS.” (D) The table of sections for part IV of subchapter C of chapter 76 is amended to read as follows: “Sec. 7476. Declaratory judgments relating to qualification of certain retirement plans. “Sec. 7477. Declaratory judgments relating to transfers of property from United States.” (E) The heading of part IV of subchapter C of chapter 76 is amended to read as follows: “PART IV— DECLARATORY JUDGMENTS”. (F) The table of parts for subchapter C of chapter 76 is amended by striking out the item relating to part IV and inserting in lieu thereof the following: “Part IV. Declaratory judgments.” (e) Effective Dates.— (1) The amendments made by this section (other than by subsection (d)) shall apply to transfers beginning after October 9, 1975, and to sales, exchanges, and distributions taking place after such date. The amendments made by subsection (d) shall apply with respect to pleadings filed with the Tux Court after the date of the enactment of this Act but only with respect to transfers beginning after October 9, 1975. (2) in the case of any exchange described in section 367 of the Internal Revenue Code of 1954 (as in effect on December 31, 1974) in any taxable year beginning after December 31, 1962, and before the date of the enactment of this Act, which does not involve the transfer of property to or from a United States person, a taxpayer shall have for purposes of such section until 183 days after the date of the enactment of this Act to file a request with the Secretary of the Treasury or his delegate seeking to establish to the satisfaction of the Secretary of the Treasury or his delegate that such exchange was not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes and that for purposes of such section a foreign corporation is to be treated as a foreign corporation. SEC. 1043. CONTIGUOUS COUNTRY BRANCHES OF DOMESTIC LIFE INSURANCE COMPANIES. (a) Amendment of Subchapter L.— Subpart E of part I of subchapter L of chapter 1 (relating to life insurance companies) is amended by inserting after section 819 the following new section: “SEC. 819A. CONTIGUOUS COUNTRY BRANCHES OF DOMESTIC LIFE INSURANCE COMPANIES. “(a) Exclusion of Items.— In the case of a domestic mutual insurance company which— “(1) is a life insurance company, “(2) has a contiguous country life insurance branch, and “(3) makes the election provided by subsection (g) with respect to such branch, there shall be excluded from each and every item involved in the determination of life insurance company taxable income the items separately accounted for in accordance with subsection (c). “(b) Contiguous Country Life Insurance Branch.— For purposes of this section, the term ‘contiguous country life insurance branch’ means a branch which— “(1) issues insurance contracts insuring risks in connection with the lives or health of residents of a country which is contiguous t o the United States, “(2) has its principal place of business in such contiguous country, and “(3) would constitute a mutual life insurance company if such branch were a separate domestic insurance company. “Insurance contract.” For purposes of this section, the term ‘insurance contract’ means any life, health, accident, or annuity contract or reinsurance contract or any contract relating thereto. “(c) Separate Accounting Required.— Any taxpayer which makes the election provided by subsection (g) shall establish and maintain a separate account for the various income, exclusion, deduction, asset, reserve, liability, and surplus items properly attributable to the contracts described in subsection (b). Such separate accounting shall be made— “(1) in accordance with the method regularly employed by such company, if such method clearly reflects income derived from, and the other items attributable to, the contracts described in subsection (b), and “(2) in all other cases, in accordance with regulations prescribed by the Secretary. “(d) Recognition of Gain on Assets in Branch Account.— If the aggregate fair market value of all the invested assets and tangible property which are separately accounted for by the domestic life insurance company in the branch account established pursuant to subsection (c) exceeds the aggregate adjusted basis of such assets for purposes of determining gain, then the domestic life insurance company shall be treated as having sold all such assets on the first day of the first taxable year for which the election is in effect at their fair market value on such first day. Notwithstanding any other provision of this chapter, the net gain shall be recognized to the domestic life insurance company on the deemed sale described in the preceding sentence. “(e) Transactions Between Contiguous Country Branch and Domestic Life Insurance Company.— “(1) Reimbursement for home office services, etc.— Any payment, transfer, reimbursement, credit, or allowance which is made from a separate account established pursuant to subsection (c) to one or more other accounts of a domestic life insurance company as reimbursement for costs incurred for or with respect to the insurance (or reinsurance) of risks accounted for in such separate account shall be taken into account by the domestic life, insurance company in the same manner as if such payment, transfer, reim-bursement, credit, or allowance had been received from a separate person. “(2) Repatriation of income.— “(A) In general.— Except as provided in subparagraph (B), any amount directly or indirectly transferred or credited from a branch account established pursuant to subsection (c) to one or more other accounts of such company shall, unless such transfer or credit is a reimbursement to which paragraph (1) applies, be added to the life insurance company taxable income of the domestic life insurance company (as computed without regard to this paragraph). “(B) Limitation.— The addition provided by subparagraph (A) for the taxable year with respect to any contiguous country life insurance branch shall not exceed the amount by which— “(i) the aggregate decrease in the life insurance company taxable income of the domestic life insurance company for the taxable year and for all prior taxable years resulting solely from the application of subsection (a) of this section with respect to such branch, exceeds “(ii) the amount of additions to life insurance company taxable income pursuant to subparagraph (A) with respect to such contiguous country branch for all prior taxable years. “(f) Other Rules.— “(1) Treatment of foreign taxes.— “(A) In general.— No income, war profits, or excess profits taxes paid or accrued to any foreign country or possession of the United States which is attributable to income excluded under subsection (a) shall be taken into account for purposes of subpart A of part 1 IT of subchapter N (relating to foreign 26 USC 901. tax credit) or allowable as a deduction. “(B) Treatment of repatriated amounts.— For purposes of sections 78 and 902, where any amount is added to the life insurance company taxable income of the domestic life insurance company by reason of subsection (e)(2), the contiguous country life insurance branch shall be treated as a foreign corporation. Any amount so added shall he treated as a dividend paid by a foreign corporation, and the taxes paid to any foreign country or possession of the United States with respect to such amount shall be deemed to have been paid by such branch. “(2) United states source income allocable to contiguous country branch.— For purposes of sections 881, 882. and 1442, each contiguous country life insurance branch shall be treated as a foreign corporation. Such sections shall be applied to each such branch in the same manner as if such sections contained the provisions of any treaty to which the United States and the contiguous country are parties, to the same extent such provisions would apply if such branch were incorporated in such contiguous country. “(g) Election.— A taxpayer may make the election provided by this subsection with respect to any contiguous country for any taxable year beginning after December 31, 1975. An election made under this subsection for any taxable year shall remain in effect for all subsequent taxable years, except that it may be revoked with the consent of the Secretary. The election provided by this subsection shall be imide lint Liter than the time prescribed by lav for filing the return for the taxable year (including extensions thereof) with respect to which such election is made, and such election and any approved revocation thereof shall be made in I be manner provided by I hr Secretary. “(h) Special Rule for Domestic Stock Life Insurance Companies.— At the election of a domestic stock life insurance company which has a contiguous country life insurance branch described in subsection (b)(without regard to the mutual requirement in subsection (b)(3)). the assets of such branch may be transferred to a foreign corporation organized under the laws of the contiguous country Ante, pp. 1634, 1617. without the application of section 367 or 1491. Subsection (a) shall apply to the stock of such foreign corpora thin as if such domestic company were a mutual company and us if the stock were tin item described in subsection (e). Subsection (e)(2) shall apply to amounts transferred or credited to such domestic company as if such domestic company and such foreign corporation constituted one domestic mutual life insurance company. The insurance cont rants which may be transferred pursuant to the subsection slut 11 include only those which are similar to the types of insurance emit t acts issued by a milt mil life insurance company. Notwithstanding the first sentence of this sub-section. if the aggregate fair market value of the invested assets and tangible property which are separately accounted for by the domestic life insurance company in the branch account exceeds the aggregate adjusted basis of such assets for purposes of determining gain, the domestic life insurance company shall he deemed to have sold all such assets on the first day Of the taxable year for which the el eel ion under this subsection applies and the net gain shall be recognized to the domestic life, insurance company on the deemed sale, but not-in excess of (be proportion of such net gain which equals the proportion which the aggregate fair market value of such assets which arc transferred pursuant to this subsection is of the aggregate fair market value of all such assets.” (b) Clerical Amendment.— The table of sections for such subpart E is amended by inserting after the item relating to section 819 the following new item: “Sec. 819A. Contiguous country branches of domestic life insurance companies.” (c) Effective Date.— The amendment made Io this section shall apply to taxable years beginning after December 31, 1975. SEC. 1044. TRANSITIONAL RULE FOR BOND, ETC., LOSSES OF FOREIGN BANKS. (a) General Rule.— Section 5S2(e) (relating to bond. etc., losses and gains of financial institutions) is amended by adding at the end thereof the following new paragraph: “(4) Transitional rule for banks.— In the case of a corporation which would be a bank except for the fact that it is a foreign corporation, the net gain, if any. for the taxable year on safes and exchanges described in paragraph (1) shall be considered as gain from the sale or exchange of a capital asset to the extent such net gain does not exceed the portion of any capital loss carryover to such taxable year which is attributable to capital losses on sales or exchanges described in paragraph (1) for n taxable year beginning before July 12, 1999. For purposes of the preceding sentence, the portion of a net capital loss for a taxable year which is attributable to capital losses on sales or exchanges described in paragraph (1) is the amount of the net capital loss on such sales or exchanges for such taxable year (but not in excess of the net capital loss for such taxable year).” (b) Effective Date.— (1) The amendment made by subsection (a) shall apply with respect, to taxable, years beginning after July 11, 1969. (2) If the refund or credit of any overpayment attributable to the application of the amendment made by subsection (a) to any taxable year is otherwise prevented by the operation of any law or rule of law (other than section 7122 of the Internal Revenue Code of 1954, relating to compromises) on the day which is one year after the date of the enactment of this Act. such credit or refund shall be nevertheless allowed or made if claim therefor is filed on or before such day. PART V— SPECIAL CATEGORIES OF FOREIGN TAX TREATMENT SEC. 1051. TAX TREATMENT OF CORPORATIONS CONDUCTING TRADE OR BUSINESS IN PUERTO RICO AND POSSESSIONS OF THE UNITED STATES. (a) Allowance of Puerto Rican and Possession Tax Credit.— Section 33 (relating to taxes of foreign countries and possessions of 26 USC 33. the United States) is amended to read as follows: “SEC. 33. TAXES OF FOREIGN COUNTRIES AND POSSESSIONS OF THE UNITED STATES; POSSESSION TAX CREDIT. “(a) Foreign Tax Credit.— The amount of taxes imposed by foreign countries and possessions of the United States shall be allowed as a credit against the tax imposed by this chapter to the extent provided in section 901. “(b) Section 936 Credit.— In the case of a domestic corporation, the amount provided by section 936 (relating to Puerto Rico and possession Infra. tax credit) shall be allowed as a credit against the tax imposed by this chapter.” (b) Rules on Possession Tax Credit.— Subpart D of part III of subchapter N of chapter 1 (relating to possessions of the United States) is amended by adding at the end thereof the following new section: “SEC. 936. PUERTO RICO AND POSSESSION TAX CREDIT. “(a) Allowance of Credit.— “(1) In general.— Except, as provided in paragraph (2), in the ease of a domestic corporation which elects the application of this section, there shall be allowed as a credit against the tax imposed, by this chapter an amount equal to the portion of the tax which is attributable, to taxable income, from sources without the. United States, from the active conduct of a trade or business within a possession of the United States, and from qualified possession source investment income, if the conditions of both subparagraph (A) and subparagraph (B) are satisfied: “(A) 3-year period.— If 80 percent or more of the gross income of such domestic corporation for the 3-year period immediately preceding the close of the taxable year (or for such part of such period immediately preceding the close of such taxable year as may be applicable) was derived from sources within a possession of the United Stales (determined without regard to section 904(f)): and Ante, p. 1624. “(B) Trade or business.— If 50 percent or more of the gross income of such domestic corporation for such period or such part thereof was derived from the active conduct of a trade or business within a possession of the United States. “(2) Credit not allowed against certain taxes.— The credit provided by paragraph (1) shall not be allowed against the tax imposed by— “(A) section 56 (relating to minimum tax), “(B) section 531 (relating to the tax on accumulated earnings), “(C) section 541 (relating to personal holding company tax), “(D) section 1333 (relating to war loss recoveries), or “(E) section 1351 (relating to recoveries of foreign expropriation losses). “(b) Amounts Received in United States.— In determining taxable income for purposes of subsection (a), there shall not be taken into account as income from sources without the United States any gross income which was received by such domestic corporation within the United States, whether derived from sources within or without the United States. “(c) Treatment of Certain Foreign Taxes.— For purposes of this title, any lax of a foreign country or a possession of the United States which is paid or accrued with respect to taxable income which is taken into account in computing the credit under subsection (n) shall not be treated as income, war profits, or excess profits taxes paid or accrued to a foreign country or possession of the United States, and no deduction shall be allowed under this title with respect to any amounts so paid or accrued. “(d) Definitions.— For purposes of this section— “(1) Possession.— The term ‘possession of the United Slates’ includes the Commonwealth of Puerto Rico, but does not include the Virgin Islands of the United States. “(2) Qualified possession source investment income.— The term ‘qualified possession source investment income’ means gross income which— “(A) is from sources within a possession of the United States in which a trade or business is actively conducted, and “(B) the taxpayer establishes to the satisfaction of the Secretary is attributable to the investment in such possession (for use therein) of funds derived from the active conduct of a trade or business in such possession, or from such investment, less the deductions properly apportioned or allocated thereto. “(e) Election.— “(1) Period of election.— The election provided tn subsection (a) shall be made at such time and in such manner as the Secretary may by regulations prescribe. Any such election shall apply to the first taxable year for which such election was made and for which the domestic corporation satisfied the conditions of subparagraphs (A) and (B) of subsection (a)(1) and for each taxable year thereafter until such election is revoked by the domestic corporation under paragraph (2). If any such election is revoked by the domestic, corporation under paragraph (2), such domestic corporation may make a subsequent election under subsection (a) for any taxable year thereafter for which such domestic cor-poration satisfies the conditions of subparagraphs (A) and (B) of subsection (a)(1) and any such subsequent election shall remain in effect until revoked by such domestic corporation under paragraph (2). “(2) Revocation.— An election under subsection (a)— “(A) may be revoked for any taxable year beginning before the expiration of the 9th taxable year following the taxable year for which such election first applies only with the consent of the Secretary; and “(B) may be revoked for any taxable year beginning after the expiration of such 9th taxable year without the consent of the Secretary. “(f) DISC or Former DISC Corporation Ineligible for Credit.— No credit shall be allowed under this section to a corporation for a taxable year for which it is a DISC or former DISC (as defined in section 992(a)) or in which it owns at any time stock in a DISC or former DISC. “(g) Exception to Accumulated Earnings Tax.— “(1) For purposes of section 535. the term ‘accumulated taxable “Accumulated taxable income.” income’ shall not include taxable income entitled to the credit under subsection (a). “(2) For purposes of section 537, the term ‘reasonable needs “Reasonable needs of the business.” of the business’ includes assets which produce income eligible for the credit under subsection (a).” (c) Amendments of Section 931.— (1) Subsection (a) of section 931 (relating to genera) rule in 26 USC 931. the case of income from sources within possessions of the United Stales) is amended to read as follows: “(a) General Rule.— In the ease of individual citizens of the United States, gross income means only gross income from sources within the United States if the conditions of both paragraph (1) and paragraph (2) arc satisfied: “(1) 3-year period.— If 80 percent or more of the gross income of such citizen (computed without the benefit of this section) for the 3-year period immediately preceding the close of the taxable year (or for such part of such period immediately preceding the close of such taxable year as may be applicable) was derived from sources within a possession of the United States; and “(2) Trade or business.— If 50 percent or more of his gross income (computed without the benefit of this section) for such period or such part thereof was derived from the active conduct of a trade or business within a possession of the United States either on his own account or as an employee or agent of another.”, (2) Subsection (e) of section 931 (defining the term “possession”) is amended to read as follows: “(c) Definition.— For purposes of this section, the term ‘possession of the United States’ does not include the Commonwealth of Puerto Rico, the Virgin Islands of the United States, or Guam.”. (3) Subsections (d). (e). and (f) of section 931 are each amended by striking out “persons” each place it appeal’s and inserting in lieu thereof “a citizen of the United States”. (d) Amendments of Section 901.— (1) Section 901 (d) (relating to certain corporations treated as 26 USC 901. foreign corporations) is amended to read as follows: “(d) Treatment of Dividends From a DISC or Former DISC.— For purposes of this subpart, dividends from a DISC or former DISC (as defined in section 992(a)) shall be treated as dividends from a foreign corporation to the extent such dividends are treated under part I as income from sources without the United States.”. (2) Section 901 (relating to tuxes of foreign countries and possessions of the United States) is amended by redesignating subsection (g) as (h) and by inserting after subsection (f) the following new subsection: “(g) Certain Taxes Paid With Respect to Distributions From Possessions Corporations.— “(1) In general.— For purposes of this chapter, any tux of a foreign country or possession of the United States which is paid or accrued with respect to any distribution from a corporation, to the extent that such distribution is attributable to periods during which such corporation is a possessions corporation, shall not be treated as income, war profits, or excess profits taxes paid or accrued to a foreign country or possession of the United States, and no deduction shall be allowed under this title with respect to any amount so paid or accrued. “(2) Possessions corporation.— For purposes of paragraph (1), a corporation shall be treated as a possessions corporation for any period during which an election under section 935 applied to such corporation or during which section 931 (as in elicit on the day before the date of the enactment of the Tax Reform Act of 1976) applied to such corporation.” (e) Amendment of Section 904(b).— Section 904(b)(as amended by sections 1031 and 1034(a) of this Act) is amended by adding at the end thereof the following new paragraph: “(4) Coordination with section 936.— For purposes of subsection (a), in the case of a corporation, the taxable income shall not include any portion thereof taken into account for purposes of the credit (if any) allowed by section 936.” (f) Dividends Received Deduction Allowed.— (1) Section 243(b)(1)(defining qualifying dividends) is amended by adding “either” at the end of subparagraph (A), by striking out the period at the end of subparagraph (B)(i) and inserting in lieu thereof a comma and “or”, and by adding at the end thereof the following new subparagraph: “(C) such dividends are paid by a corporation with respect, to which an election under section 936 is in effect for the taxable year in which such dividends are paid.”. (2) Section 243(b)(5)(defining affiliated group) is amended by inserting “. 1504(b)(4),” immediately after “1504(h)(2)”. (3) Section 246(a) (relating to dividends from certain corporations) is amended to read as follows: “(a) Deduction Not Allowed fob Dividends From Certain Corporations.— The deductions allowed by sections 243, 244, and 245 shall not apply to any dividend from a corporation which. for the taxable year of the corporation in which the distribution is made, or for the next preceding taxable year of the corporation, is a corporation exempt from tax tinder section 501 (relating to certain charitable, etc., organizations) or section 521 (relating to farmer’s” cooperative associations) (g) Consolidated Return Treatment.— Section 1504 (b) (4) (defining includible corporation) is amended to read as follows: “(4) Corporations with respect to which an election under section 936 (relating to possession tax credit) is in effect for the taxable year.”. (h) Conforming Amendment.— (1) Section 48(a)(2)(B)(vii) (relating to definition of section 26 USC 48. 38 property) is amended by striking out “(other than a corporation entitled to the benefits of section 931 or 934(b))” and inserting in lieu thereof the following: “(other than ti corporation which has an election in effect under section 936 or which is entitled to the benefits of section 934(b))”. (2) Paragraph (2) of subsection 116(b) (relating to certain 26 USC 116. dividends excluded from partial exclusion of dividends received by individuals) is amended tn read as follows: “(2) a corporation which, for the taxable year of the corporation in which the distribution is made, or for the next preceding taxable year of the corporation, is a corporation exempt from lax under section 501 (relating to certain charitable, etc., organizations) or section 521 (relating to farmers cooperative associations); or”. (3) Section 861(a)(2)(A) (relating to income from sources 26 USC 861. within the United States) is amended by striking out “other than a corporation entitled to the benefits of section 931.” and inserting in lien thereof (be following: “other than a corporation which has an election in effect under section 936,”. (4) Section 61191(b)(2)(B)(ii) (relating to place of tiling for Post, p. 1648. corporations) is amended by striking out “section 931 (relating to income from sources within possessions of the United States).” and inserting in lieu thereof the following: “section 936 (relating to possession tax credit),”. (i) Effective Date.— (1) Except as provided by paragraph (2). the amendments made by this section shall apply to taxable years beginning after December 31, 1975, except that “qualified possession source investment income” as defined in section 936(d)(2) of the Internal Revenue Code of 1954 shall include income from any source outside Ante. p. 1643. the United States if the taxpayer establishes to the satisfaction of the Secretary of the Treasury or his delegate that the income from such sources was earned before October 1, 1976. (2) The a mend ii lent made by subsection (d)(2) shall not apply to any tax imposed by a possession of the United States with respect to the complete liquidation occurring before January 1, 1979, of a corporation to the extent that such tax is attributable to earnings and profits accumulated by such corporation during periods ending before January 1, 1976. SEC. 1052. WESTERN HEMISPHERE TRADE CORPORATIONS. (a) Phaseout of Special Deduction for Western Hemisphere Trade Corporations.— Section 922 (special deduction for Western 26 USC 922. Hemisphere trade corporations) is amended by adding at the end thereof the following new subsection: “(b) Phaseout of Deduction.— In the ease of a taxable year beginning after December 31, 1975. and before January 1, 1980. the percent specified in subsection (a)(2)(A) shall be (in lieu of 14 percent) the percent specified in file following table: “For a taxable year beginning in— The percentage shall be—    1976 11        1977 8        1978 5        1979 2”    (b) Repeal of Western Hemisphere Trade Gwohatiox Deduction for Taxable Years Beginning After 1979.— Subpart C of part III of subchapter X of chapter 1 (relating to Western Hemisphere trade 26 USC 921, 922. 26 USC 922. corporations) is hereby repealed. (c) Conforming Amendments.— (1) The first sentence of section 922 (relating to special deduction) is amended by striking out “In the case of” and inserting in lieu thereof the following: “(a) General Rule.— In the ease of.” (2) Section 170(b)(2) (relating to percentage limitations on charitable contributions in the case of corporations) is amended by adding “and” at the end of subparagraph (C). by striking out subparagraph (D). and by re designating subparagraph (E) as subparagraph (D). (3) Section 172(d) (relating to modifications for purposes of the net operating loss deduction) is amended by Striking out paragraph (5) and by redesignating paragraph (6) as paragraph (5). (4) Subsection (g) of section 907 is hereby repealed. (5) Section 1503 (relating to computation and payment of tax in the case, of consolidated returns) is amended by striking out subsection (b) and by striking out “(a) General Rule.—”. (6) Section 0091 (b)(2)(B)(ii) (relating to place for filing returns of corporations) is amended to read as follows: “(ii) corporations which claim the benefits of section 936 (relating to possession tux credit), and”. (7) The table of subparts for part TH of subchapter X of chapter 1 is amended by striking out the item relating to subpart C. (d) Effective Dates.— The amendments made by subsection (a) and paragraph (1) of subsection (c) shall apply with respect to taxable years beginning after December 31, 1975. The amendments made by subsection (b) and by subsection (c)(other than paragraph (1)) shall apply with respect to taxable years beginning after December 31, 1979. SEC. 1053. REPEAL OF PROVISIONS RELATING TO CHINA TRADE ACT CORPORATIONS. (a) Phaseout of Section 941.— Section 941 (relating to special deductions for China Trade. Act corporations) is amended by adding the following new subsection: “(d) Phaseout of Deduction.— In the ease of a taxable year beginning after December 31, 1975, and before January 1, 1978, the amount of the special deduction under subsection (a)(determined without regard to this subsection) shall be reduced by the percentage reduction specified in the following table: “For a taxable year beginning in— The percentage reduction shall be—    1976 33⅓        1977 66⅔     (b) Phaseout of Section 943.— Section 943 (relating to the exclusion of certain dividends to residents of Formosa or Hong Kong) is amended by adding at the end thereof the following new sentence; “In the, case of a taxable year beginning after December 31, 1975. and before January 1, 1978, the amount of the distributions which are excludable from gross income under this section (determined without regard to this sentence) shall be reduced by the percentage reduction specified in the following table: “For a taxable year beginning in— The percentage reduction shall be—    1976 33⅓        1977 66⅔     (c) Repeal.— Subpart E of part III of subchapter N of chapter 1 26 USC 941, 942, 943. (relating to China Trade Act corporations) is hereby repealed. (d) Technical and Conforming Amendments.— (1) Section 116(b) is amended by striking out paragraph (1) 26 USC 116. and redesignating paragraphs (2) and (3) as paragraphs (1) and (2). respectively. (2) Section 1504(b) is amended by striking out paragraph (5). 26 USC 1504. 26 USC 6072. 26 USC 6091. (3) Section 6072 is amended by striking out subsection (e). (4) Section 6091(b)(2)(B)(iij is amended by striking out the comma after “trade corporations)” and inserting in lieu thereof “or” and by striking out “or section 941 (relating to the special deduction for China Trade Act corporations),”. (5) The table of subparts for part III of subchapter N of chapter 1 is amended by striking out the item relating to subpart E. (e) Effective Dates.— The amendments made by subsections (a) 26 USC 941 note. and (b) shall apply with respect to taxable years beginning after December 31, 1975. The amendments made by subsections (c) and (d) shall apply with respect to taxable years beginning after December 31, 1977. PART VI— DENIAL OF CERTAIN TAX BENEFITS FOR COOPERATION WITH OR PARTICIPATION IN INTER-NATIONAL BOYCOTTS AND IN CONNECTION WITH THE PAYMENT OF CERTAIN BRIBES SEC. 1061. DENIAL OF FOREIGN TAX CREDIT. (a) In General.— Subpart A of part III of subchapter N (relating to income from sources without the United States) is amended by adding at the end thereof the following new section: “SEC. 908. REDUCTION OF CREDIT FOR PARTICIPATION IN OR COOPERATION WITH AN INTERNATIONAL BOYCOTT. “(a) In General.— If a person, or a member of a controlled group (within the meaning of section 993(a)(3)) which includes such person, participates in or cooperates with an international boycott during the taxable, year (within the meaning of section 999(b)), the amount Post, p. 1650. of the credit allowable under section 991 to such person, or under section 902 or 960 to United States shareholders of such person, for foreign Ante, p. 1626. taxes paid during the taxable year shall be reduced by an amount equal to the product of— “(1) the amount of the credit which, but for this section, would be allowed under section 901 for the taxable year, multiplied by “(2) the international boycott factor (determined under section 999). “(b) Application With Sections 275(a)(4) and 78.— Section 275 (a)(4) and section 78 shall not apply to any amount of taxes denied credit under subsection (a).” (b) Clerical Amendment.— The table of sections for such subpart is amended by adding at the end thereof the following new item: “Sec. 908. Reduction of credit for participation in or cooperation with an international boycott.” SEC. 1062. DENIAL OF DEFERRAL OF INTERNATIONAL BOYCOTT amounts. (a) Dental of Deferral.— Section 952(a) (relating to general definition of subpart F income) is amended— (1) by striking out “and.” at the end of paragraph (1), (2) by striking out the period at the end of paragraph (2) and inserting in lieu thereof a comma, and the word “and”, and (3) by adding at the end thereof the following new paragraph: “(3) an amount equal Io the product of— “(A) the income of such corporation other than income which— “(i) is attributable to earnings and profits of the foreign corporation included in the gross income of a United States person under section 951 (other than by reason of this paragraph), or “(ii) is described in subsection (b), multiplied by “(B) the international boycott factor (as determined Infra. under section 999).” SEC. 1063. DENIAL OF DISC BENEFITS. (a) International Boycott Activity.— Subparagraph (D) of section 995(b)(1) (relating to distributions in qualified years) is amended to read as follows: “(D) the sum of— “(i) one-half of the excess of the taxable income of the DISC for the taxable year, before reduction for any distributions during the year, over the sum of the amounts deemed distributed for the taxable year under subparagraphs (A), (B), and (C), and “(ii) an amount equal to the amount determined under clause (i) multiplied by the international boycott factor determined Under section 999, and”. SEC. 1064. DETERMINATIONS AS TO PARTICIPATION IN OR COOPERATION WITH AN INTERNATIONAL BOYCOTT. (a) In General.— Subchapter N of chapter 1 (relating to tax based on income from sources within or without the United States) is amended by adding at the end thereof the following new part: “PART V— INTERNATIONAL BOYCOTT DETERMINATIONS “Sec. 969. Reports by taxpayers: determinations. “SEC. 999. REPORTS BY TAXPAYERS; DETERMINATIONS. “(a) International Boycott Reports by Taxpayers.— “(1) Report required.— If any person, or a member of a controlled group (within the meaning of section 993(a)(3)) which includes that person, has operations in, or related to— “(A) a country (or with the government, a company, or a national of a country) which is on the list maintained by the. Secretary under paragraph (3), or “(B) any other country (or with the government, a company, or a national of that country) in which such person or such member had operations during the taxable year it such person (or, if such person is a foreign corporation, any United States shareholder of that corporation) knows or has reason to know that participation in or cooperation with an international boycott is required as a condition of doing business within such country or with such government, company, or national, that person or shareholder (within the meaning of section 951 (h)) shall report such 26 USC 951. operations to the Secretary at such time and in such manner as the Secretary prescribes, except that in the ease of a foreign corporation such report shall he required only of a United States shareholder (within the meaning of such section) of such corporation. “(2) Participation and cooperation: request therefor.— A taxpayer shall report whether he, a foreign corporation of which he is a United States shareholder, or any member of a controlled group which includes the taxpayer or such foreign corporation has participated in or cooperated with an international boycott at any time during the taxable year, or has been requested to participate in or cooperate with such a boycott, and, if so, the nature of any operation in connection with which there was participation in or cooperation with such boycott (or there was a request to participate or cooperate). “(3) List to be maintained.— The Secretary shall maintain and publish not less frequently than quarterly a current list of countries which require or rutty require participation in or cooperation with an international boycott (within the meaning of subsection (b)(3)). “(b) Participation in or Cooperation With an International Boycott.— “(1) General rule.— If the person or a member of a controlled group (within the meaning of section 993(a)(3)) which includes the person participates in or cooperates with an international boycott in the taxable year, ail operations of the tax-payer or such group in that country and in any other country which requires participation in or cooperation with the boycott us a condition of doing business within that country, or with the government, a company, or a national of that country, shall be treated as operations in connection with which such participation of cooperation occurred, except to the extent that the person can clearly demonstrate that a particular operation is a clearly separate and identifiable operation in connection with which there was no participation in or cooperation with an international boycott. “(2) Special rule.— “(A) Non boycott operations.— A clearly separate and identifiable operation of a person, or of a member of the controlled croup (within the meaning of section 993(a)(3)) which includes that person, in or related to any country within the group of countries referred to in paragraph (1) shall not be treated as an operation in or related to a group of countries associated in carrying out an international boycott if the person can clearly demonstrate that he. or that such member, did not participate in or cooperate with the international boycott in connection with that operation. “(B) Separate and identifiable operations.— A taxpayer may show that different operations within the same country, or operations in different countries, are clearly separate and identifiable operations. “(3) Definition of boycott participation and cooperation.— For purposes of this section, a person participates in or cooperates with an international boycott if be agrees— “(A) as a condition of doing business directly or indirectly within a country or with the government, a company, or a national of a country— “(i) to refrain from doing business with or in a country which is the object of the boycott or with the government, companies, or nationals of that country; “(ii) to refrain from doing business with any United States person engaged in trade in a country which is the object of the boycott or with the government, companies, or nationals of that country; “(iii) to refrain from doing business with any company whose ownership or management is made up, all or in part, of individuals of a particular nationality, race, or religion, or to remove (or refrain from selecting) corporate directors who are individuals of a particular nationality, race, or religion; or “(iv) to refrain from employing individuals of a particular nationality, race, or religion; or “(B) as a condition of the sale of a product to the government, a company, or a national of a country, to refrain from shipping or insuring that product on a carrier owned, leased, or operated by a person who does not participate in or cooperate with an international boycott (within the meaning of subparagraph (A)). “(4) Compliance with certain laws.— This section shall not apply to any agreement by a person (or such member)— “(A) to meet requirements imposed by a foreign country with respect to an international boycott if United States law or regulations, or an Executive Order, sanctions participation in, or cooperation with, that international boycott, “(B) to comply with a prohibition on the importation of goods produced in whole or in part in any country which is the object of an international boycott, or “(C) to comply with a prohibition imposed by a country on the exportation of products obtained in such country to any country which is the object of an international boycott. “(c) International Boycott Factor.— “(1) International boycott factor.— For purposes of sections 908(a), 952(a)(3), and 995(b)(3), the international boycott factor is a fraction, determined under regulations prescribed by the Secretary, the numerator of which reflects the worldwide operations of a person (or, in the case of a controlled 26 USC 993. group (within the meaning of section 993(a)(3)) which includes that person, of the group) which are operations in or related to a group of countries associated in carrying out an international boycott in or with which that person or a member of that controlled group has participated or cooperated in the taxable year, and the denominator of which reflects the worldwide operations of that person or group. “(2) Specifically attributable taxes and income.— If the taxpayer clearly demonstrates that the foreign taxes paid and income earned for the taxable year are attributable to specific operations, then, in lieu of applying the international boycott factor for such taxable year, the amount of the credit disallowed under section 908(a), the addition to subpart F income under section 952(a)(3), and the amount of deemed distribution under section Ante, p. 1649. Ante, p. 1650. 995(b)(1)(D)(ii) for the taxable year, if any, shall be the amount specifically attributable to the operations in which there was participation in or cooperation with an international boycott under section 999 (b)(1). Ante, p. 1650. “(3) Worldwide operations.— For purposes of this subsection, the term ‘worldwide operations’ means operations in or related to countries other than the United States. “(d) Determinations With Respect to Particular Operations.— Upon a request made by the taxpayer, the Secretary shall issue a determination with respect to whether a particular operation of a person, or of a member of a controlled group which includes that person, constitutes participation in or cooperation with an international boycott. The Secretary may issue such a determination in advance of such operation in cases which are of such a nature that an advance determination is possible and appropriate under the circumstances. If the request, is made before the operation is commenced, or before the end of a taxable year in which the operation is carried out, the Secretary may decline to issue such a determination before close of the taxable year. “(e) Participation or Cooperation by Related Persons.— If a person controls (within the meaning of section 304(c)) a corporation— “(1) participation in or cooperation with an international boycott by such corporation shall be presumed to be such participation or cooperation by such person, and “(2) participation in or cooperation with such a boycott by such person shall be presumed to be such participation or cooperation by such corporation. “(f) Willful Failure to Report.— Any person (within the meaning of section 6671 (b)) required to report under this section who will-fully fails to make such report shall, in addition to other penalties provided by law, be fined not more than $25,000, imprisoned for not more than one year, or both.”. (b) Clerical Amendment.— The table of parts for such subchapter is amended by adding at the end thereof the following new item: “Part V. International boycott determinations.” SEC. 1065. FOREIGN BRIBES. (a) Dental of Deferral.— (1) Controlled foreign corporations.— Section 952(a) (relating 26 USC 952. to general definition of subpart F income) is amended— (A) by striking out “and” at the end of paragraph (2), (B) by striking out the period at the end of paragraph (3) and inserting in lieu thereof a comma and the word “and”, and (C) by adding at the end thereof the following new paragraph: “(4) the sum of the amounts of any illegal bribes, kickbacks, or other payments (within the meaning of section 162(c)) paid by or on behalf of the corporation during the taxable year of the corporation directly or indirectly to an official, employee, or agent in fact of a government.” (2) DISC’s.— Subparagraph (D) of section 995(b)(1) (relating to distributions in qualified years) is amended— (A) by striking out “and” at the end of clause (i), (B) by adding at the end thereof the following new clause: “(iii) any illegal bribe, kickback, or other payment (within the meaning of section 162(c)) paid by or on behalf of the DISC directly or indirectly to an official, employee, or agent in fact of a government, and”. (b) Bribes Not To Reduce Foreign Earnings and Profits.— Section 964(a) (relating to earnings and profits of foreign corporations) is amended by adding at the end thereof the following sentence,: “In determining such earnings and profits, or the deficit in such earnings and profits, the amount of any illegal bribe, kick-back, or other payment (within the meaning of section 162(c)) shall not be taken into account to decrease such earnings and profits or to increase such deficit.”. SEC. 1066. EFFECTIVE DATES. (a) International Boycotts.— (1) General rule.— The amendments made by this part (other than by section 1065) apply to participation in or cooperation with an international boycott more than 30 days after the date of enactment of this Act. (2) Existing contracts.— In the case of operations which constitute participation in or cooperation with an international boycott and which are carried out in accordance with the terms of a binding contract entered into before September 2, 1976, the amendments made by this part (other than by section 1065) apply to such participation or cooperation after December 31, 1977. (b) Foreign Bribes.— The amendments made by section 1065 apply to payments described in section 162(c) of the Internal Revenue Code of 1954 made more than 30 days after the date of enactment of this Act. SEC. 1067. REPORTS BY SECRETARY. (a) Reports to the Congress.— As soon after the close of each calendar year as the data become available, the Secretary shall transmit a report to the Committee on Ways and Means of the House of Representatives and to the Committee on Finance of the Senate setting forth, for that calendar year— (1) the number of reports filed under section 999(a) of the Internal Revenue Code of 1954 for taxable years ending with or within such taxable year, (2) the number of such reports on which the taxpayer indicated international boycott participation or cooperation (within the meaning of section 999 (b)(3) of such Code), and (3) a detailed description of the manner in which the provisions of such Code relating to international boycott activity have been administered during such calendar year. (b) Initial List.— The Secretary of the Treasury shall publish an initial list of those countries which may require participation in or cooperation with an international boycott as a condition of doing business within such country, or with the government, a company, or a national of such country (within the meaning of section 999(b) of the Internal Revenue Code of 1954) within 30 days after the enactment of this Act.

9. 1978

   Pub. L. 95–600 title III § 301(b)(14) · 92 Stat. 2763

   1. Amended · 26 U.S.C. § 907(a)(2)

      Pub. L. 95–600, §§ 301(b)(14), 701(u)(8)(A), designated existing provisions as subpar. (A)

   2. Inserted · 26 U.S.C. § 907(a)(2)

      Pub. L. 95–600, §§ 301(b)(14), 701(u)(8)(A), inserted applicability to corporations and generally reworked applicable formula

   3. Added · 26 U.S.C. § 907(a)(2)

      Pub. L. 95–600, §§ 301(b)(14), 701(u)(8)(A), added subpar. (B)

   Source evidence

   Code amendment note
   Subsec. (a)(2). Pub. L. 95–600, §§ 301(b)(14), 701(u)(8)(A), designated existing provisions as subpar. (A), inserted applicability to corporations and generally reworked applicable formula, and added subpar. (B).

   Enacted provision · exact public law section
   (14) 26 USC 907. Foreign tax credit.— Paragraph (2) of section 907(a) (relating to reduction in amount allowed as foreign tax under 26 USC 901. section 901) is amended to read as follows: “(2) the percentage which is equal to the highest rate of tax specified in section 11(b).”

10. 1978

    Pub. L. 95–600 § 701(u)(8)(B) · 92 Stat. 2763

    Substituted · 26 U.S.C. § 907(b)

    Pub. L. 95–600, § 701(u)(8)(B), substituted provisions relating to applicability of section 904 separately to foreign oil related income and other taxable income for provisions relating to applicability of section 904 to corporations and other taxpayers

    Source evidence

    Code amendment note
    Subsec. (b). Pub. L. 95–600, § 701(u)(8)(B), substituted provisions relating to applicability of section 904 separately to foreign oil related income and other taxable income for provisions relating to applicability of section 904 to corporations and other taxpayers.

    Enacted provision · exact public law section
    (B) 26 USC 904. Application of section 904 separately to foreign oil related income of individuals.— Subsection (b) of section 26 USC 907, 904. 907 (relating to application of section 904 limitation) is amended to read as follows: “(b) Application of Section 904 Limitation.— The provisions of section 904 shall be applied separately with respect to— “(1) foreign oil related income, and “(2) other taxable income.”

11. 1982

    Pub. L. 97–248 § 211(c)(1) · 96 Stat. 324

    Struck · 26 U.S.C. § 907(b)

    Pub. L. 97–248, § 211(c)(1), added subsec. (b). Former subsec. (b), which had provided that section 904 be applied separately with respect to foreign oil related income and other taxable income, was struck out

    Source evidence

    Code amendment note
    Subsec. (b). Pub. L. 97–248, § 211(c)(1), added subsec. (b). Former subsec. (b), which had provided that section 904 be applied separately with respect to foreign oil related income and other taxable income, was struck out.

    Enacted provision · exact public law section
    (1) In general.— Subsection (b) of section 907 (relating to special rules in case of foreign oil and gas income) is amended to read as follows:

12. 1982

    Pub. L. 97–248 § 211(b) · 96 Stat. 324

    1. Substituted · 26 U.S.C. § 907(c)(2)

       Pub. L. 97–248, § 211(b), in subpar. (A) substituted “the processing of minerals extracted (by the taxpayer or by any other person) from oil or gas wells into their primary products” for “the extraction (by the taxpayer or any other person) of minerals from oil or gas wells”, deleted subpar. (B) which had provided that foreign oil related income meant the taxable income derived from sources outside the United States and its possessions from the processing of minerals from oil or gas wells into their primary products

    2. Redesignated · 26 U.S.C. § 907(c)(2)

       Pub. L. 97–248, § 211(b), in subpar. (A) redesignated subpar. (C) as (B)

    3. Redesignated · 26 U.S.C. § 907(c)(2)

       Pub. L. 97–248, § 211(b), in subpar. (A) redesignated subpar. (D) as (C) and in subpar. (C) as so redesignated struck out “or” at the end

    4. Redesignated · 26 U.S.C. § 907(c)(2)

       Pub. L. 97–248, § 211(b), in subpar. (A) redesignated subpar. (E) as (D) and in subpar. (D) as so redesignated substituted “disposition” for “sale or exchange”, and “or (C), or” for “(C), or (D)”

    5. Struck · 26 U.S.C. § 907(c)(2)

       Pub. L. 97–248, § 211(b), in subpar. (A) struck out the period at the end

    6. Added · 26 U.S.C. § 907(c)(2)

       Pub. L. 97–248, § 211(b), in subpar. (A) added subpar. (E)

    Source evidence

    Code amendment note
    Subsec. (c)(2). Pub. L. 97–248, § 211(b), in subpar. (A) substituted “the processing of minerals extracted (by the taxpayer or by any other person) from oil or gas wells into their primary products” for “the extraction (by the taxpayer or any other person) of minerals from oil or gas wells”, deleted subpar. (B) which had provided that foreign oil related income meant the taxable income derived from sources outside the United States and its possessions from the processing of minerals from oil or gas wells into their primary products, redesignated subpar. (C) as (B), redesignated subpar. (D) as (C) and in subpar. (C) as so redesignated struck out “or” at the end, redesignated subpar. (E) as (D) and in subpar. (D) as so redesignated substituted “disposition” for “sale or exchange”, and “or (C), or” for “(C), or (D)”, struck out the period at the end, and added subpar. (E).

    Enacted provision · exact public law section
    (b) Extraction income removed from foreign oil related income.— Paragraph (2) of section 907(c) (defining foreign oil related 26 USC 907. income) is amended to read as follows: “(2) Foreign oil related income.— The term ‘foreign oil related income’ means the taxable income derived from sources outside the United States and its possessions from— “(A) the processing of minerals extracted (by the taxpayer or by any other person) from oil or gas wells into their primary products, “(B) the transportation of such minerals or primary products, “(C) the distribution or sale of such minerals or primary products, “(D) the disposition of assets used by the taxpayer in the trade or business described in subparagraph (A), (B), or (C), or “(E) the performance of any other related service.”

13. 1982

    Pub. L. 97–248 § 211(a) · 96 Stat. 324

    Substituted · 26 U.S.C. § 907(c)(4)

    Pub. L. 97–248, § 211(a), substituted provisions regarding the recapture of foreign oil and gas extraction losses by recharacterization of later extraction income for provisions that if, for any foreign country for any taxable year, the taxpayer would have had a net operating loss if only items from sources within such country (including deductions properly apportioned or allocated thereto) which related to the extraction of minerals from oil or gas wells had been taken into account, such items would not be taken into account in computing foreign oil and gas extraction income for such year, but would be taken into account in computing foreign oil related income for such year

    Source evidence

    Code amendment note
    Subsec. (c)(4). Pub. L. 97–248, § 211(a), substituted provisions regarding the recapture of foreign oil and gas extraction losses by recharacterization of later extraction income for provisions that if, for any foreign country for any taxable year, the taxpayer would have had a net operating loss if only items from sources within such country (including deductions properly apportioned or allocated thereto) which related to the extraction of minerals from oil or gas wells had been taken into account, such items would not be taken into account in computing foreign oil and gas extraction income for such year, but would be taken into account in computing foreign oil related income for such year.

    Enacted provision · exact public law section
    (a) Amendment of Section 907(C)(4) to Recapture Foreign Oil and Gas Extraction Losses by Recharacterizing Later Extraction Income.— Paragraph (4) of section 907(c) (relating to certain 26 USC 907. losses) is amended to read as follows: “(4) Recapture of foreign oil and gas extraction losses by recharacterizing later extraction income.— “(A) In general.— That portion of the income of the taxpayer for the taxable year which (but for this paragraph) would be treated as foreign oil and gas extraction income shall be treated as income (from sources without the United States) which is not foreign oil and gas extraction income to the extent of the excess of— “(i) the aggregate amount of foreign oil extraction losses for preceding taxable years beginning after December 31, 1982, over “(ii) so much of such aggregate amount as was recharacterized under this subparagraph for preceding taxable years beginning after December 31, 1982. “(B) Foreign oil extraction loss defined.— “(i) In general.— For purposes of this paragraph, the term ‘foreign oil extraction loss’ means the amount by which— “(I) the gross income for the taxable year from sources without the United States and its possessions (whether or not the taxpayer chooses the benefits of this subpart for such taxable year) taken into account in determining the foreign oil and gas extraction income for such year, is exceeded by “(II) the sum of the deductions properly apportioned or allocated thereto. “(ii) Net operating loss deduction not taken into account.— For purposes of clause (i), the net operating loss deduction allowable for the taxable year under section 172(a) shall not be taken into account. 26 USC 172. “(iii) Expropriation and casualty losses not taken into account.— For purposes of clause (i), there shall not be taken into account— “(I) any foreign expropriation loss (as defined in section 172(h)) for the taxable year, or “(II) any loss for the taxable year which arises from fire, storm, shipwreck, or other casualty, or from theft, to the extent such loss is not compensated for by insurance or otherwise.”

14. 1982

    Pub. L. 97–248 § 211(d)(1) · 96 Stat. 324

    Substituted · 26 U.S.C. § 907(e)

    Pub. L. 97–248, § 211(d)(1), substituted rules regarding credits arising in taxable years beginning before Jan. 1, 1983, for rules regarding taxable years ending after Dec. 31, 1974, in par. (1), and in par. (2) substituted rules regarding carryback of credits arising in taxable years beginning after Dec. 31, 1982, for rules regarding taxable years ending after Dec. 31, 1975

    Source evidence

    Code amendment note
    Subsec. (e). Pub. L. 97–248, § 211(d)(1), substituted rules regarding credits arising in taxable years beginning before Jan. 1, 1983, for rules regarding taxable years ending after Dec. 31, 1974, in par. (1), and in par. (2) substituted rules regarding carryback of credits arising in taxable years beginning after Dec. 31, 1982, for rules regarding taxable years ending after Dec. 31, 1975.

    Enacted provision · exact public law section
    (1) Transitional rules.— Subsection (e) of section 907 (relating 26 USC 907. to transitional rules) is amended to read as follows:

15. 1982

    Pub. L. 97–248 § 211(d)(2)(A) · 96 Stat. 324

    1. Substituted · 26 U.S.C. § 907(f)(1)

       Pub. L. 97–248, § 211(d)(2)(A), substituted “such excess” for “so much of such excess as does not exceed 2 percent of foreign oil and gas extraction income for such taxable year” in first sentence

    2. Substituted · 26 U.S.C. § 907(f)(1)

       Pub. L. 97–248, § 211(d)(2)(A), struck out former provision that had directed that the above substitution be made regarding taxes deemed paid or accrued in any taxable year which ended in 1975, 1976, or 1977

    Source evidence

    Code amendment note
    Subsec. (f)(1). Pub. L. 97–248, § 211(d)(2)(A), substituted “such excess” for “so much of such excess as does not exceed 2 percent of foreign oil and gas extraction income for such taxable year” in first sentence, and struck out former provision that had directed that the above substitution be made regarding taxes deemed paid or accrued in any taxable year which ended in 1975, 1976, or 1977.

    Enacted provision · exact public law section
    (A) In general.— Paragraph (1) of section 907(f) (relating to carryback and carryover of disallowed credits) is amended— (i) by striking out “so much of such excess as does not exceed 2 percent of foreign oil and gas extraction income for such taxable year” and inserting in lieu thereof “such excess”, (ii) by striking out the last sentence.

16. 1982

    Pub. L. 97–248 § 211(d)(2)(B)(i) · 96 Stat. 324

    1. Substituted · 26 U.S.C. § 907(f)(2)(B)

       Pub. L. 97–248, § 211(d)(2)(B)(i), substituted “provided by section 904 for such taxable year” for “provided by section 904 on taxes paid or accrued with respect to foreign oil-related income for such taxable year”

    2. Substituted · 26 U.S.C. § 907(f)(2)(B)

       Pub. L. 97–248, § 211(d)(2)(B)(i), substituted “the United States during such taxable year” for “the United States with respect to such income during such taxable year”

    Source evidence

    Code amendment note
    Subsec. (f)(2)(B). Pub. L. 97–248, § 211(d)(2)(B)(i), substituted “provided by section 904 for such taxable year” for “provided by section 904 on taxes paid or accrued with respect to foreign oil-related income for such taxable year” in the introductory provisions, and in cl. (i) substituted “the United States during such taxable year” for “the United States with respect to such income during such taxable year”.

    Enacted provision · exact public law section
    (i) Subparagraph (B) of section 907(f)(2) is amended— (I) by striking out “on taxes paid or accrued with respect to foreign oil related income”, and (II) by striking out “with respect to such income” in clause (i).

17. 1982

    Pub. L. 97–248 § 211(d)(2)(B)(ii) · 96 Stat. 324

    Substituted · 26 U.S.C. § 907(f)(3)(A)

    Pub. L. 97–248, § 211(d)(2)(B)(ii), substituted “section 904(c)” for “section 904(c) with respect to oil-related income”

    Source evidence

    Code amendment note
    Subsec. (f)(3)(A). Pub. L. 97–248, § 211(d)(2)(B)(ii), substituted “section 904(c)” for “section 904(c) with respect to oil-related income”.

    Enacted provision · exact public law section
    (ii) Subparagraph (A) of section 907(f)(3) is amended by striking out “with respect to oil-related income”.

18. 1982

    Pub. L. 97–248 § 211(d)(2)(B)(iii) · 96 Stat. 324

    Struck · 26 U.S.C. § 907(f)(3)(B)

    Pub. L. 97–248, § 211(d)(2)(B)(iii), struck out “oil-related” after “determining the amount of”

    Source evidence

    Code amendment note
    Subsec. (f)(3)(B). Pub. L. 97–248, § 211(d)(2)(B)(iii), struck out “oil-related” after “determining the amount of”.

    Enacted provision · exact public law section
    (iii) Subparagraph (B) of section 907(f)(3) is amended by striking out “oil-related”.

19. 1988

    Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1012(g)(6)(B) · 102 Stat. 3342

    Struck · 26 U.S.C. § 907(c)(3)

    Pub. L. 100–647, § 1012(g)(6)(B), struck out “and dividends described in subparagraph (B)” after “described in subparagraph (A)” in closing provisions

    Source evidence

    Code amendment note
    Subsec. (c)(3). Pub. L. 100–647, § 1012(g)(6)(B), struck out “and dividends described in subparagraph (B)” after “described in subparagraph (A)” in closing provisions.

    Enacted provision · exact public law section
    (B) by striking out “and dividends described in subparagraph (B)”.

20. 1988

    Technical and Miscellaneous Revenue Act of 1988

    Pub. L. 100–647 § 1012(g)(6)(A) · 102 Stat. 3342

    1. Redesignated · 26 U.S.C. § 907(c)(3)(B)(D)

       Pub. L. 100–647, § 1012(g)(6)(A), redesignated subpars. (C) and (D) as (B) and (C), respectively

    2. Struck · 26 U.S.C. § 907(c)(3)(B)(D)

       Pub. L. 100–647, § 1012(g)(6)(A), struck out former subpar. (B) which read as follows: “dividends from a domestic corporation which are treated under section 861(a)(2)(A) as income from sources without the United States,”

    Source evidence

    Code amendment note
    Subsec. (c)(3)(B) to (D). Pub. L. 100–647, § 1012(g)(6)(A), redesignated subpars. (C) and (D) as (B) and (C), respectively, and struck out former subpar. (B) which read as follows: “dividends from a domestic corporation which are treated under section 861(a)(2)(A) as income from sources without the United States,”.

    Enacted provision · exact public law section
    (A) by striking out subparagraph (B) and redesignating subparagraphs (CD and (D) as subparagraphs (B) and (C), respectively, and

21. 1990

    Revenue Reconciliation Act of 1990

    Pub. L. 101–508 § 11801(a)(32) · 104 Stat. 1388

    Struck · 26 U.S.C. § 907(e)

    Pub. L. 101–508, § 11801(a)(32), struck out subsec. (e) which read as follows:

    Source evidence

    Code amendment note
    Subsec. (e). Pub. L. 101–508, § 11801(a)(32), struck out subsec. (e) which read as follows:

    “(1) Credits arising in taxable years beginning before january 1, 1983.—The amount of taxes paid or accrued in any taxable year beginning before January 1, 1983 (hereinafter in this paragraph referred to as the ‘excess credit year’) which under section 904(c) or 907(f) may be deemed paid or accrued in a taxable year beginning after December 31, 1982, shall not exceed the amount which could have been deemed paid or accrued if sections 907(b), 907(f), and 904(f)(4) (as in effect on the day before the date of the enactment of the Tax Equity and Fiscal Responsibility Act of 1982) remained in effect for taxable years beginning after December 31, 1982. “(2) Carryback of credits arising in taxable years beginning after december 31, 1982.—The amount of the taxes paid or accrued in a taxable year beginning after December 31, 1982, which may be deemed paid or accrued under section 904(c) or 907(f) in a taxable year beginning before January 1, 1983, shall not exceed the amount which could have been deemed paid or accrued if sections 907(b), 907(f), and 904(f)(4) (as in effect on the day before the date of the enactment of the Tax Equity and Fiscal Responsibility Act of 1982) remained in effect for taxable years beginning after December 31, 1982.”

    Enacted provision · exact public law section
    (32) Subsections (e) and (f)(S)(C) of section 907 (relating to transitional rules).

22. 1990

    Revenue Reconciliation Act of 1990

    Pub. L. 101–508 § 11801(a)(32) · 104 Stat. 1388

    Struck · 26 U.S.C. § 907(f)(3)(C)

    Pub. L. 101–508, § 11801(a)(32), struck out subpar. (C) which read as follows: “For purposes of determining the amount of the unused oil and gas extraction taxes which under paragraph (1) may be deemed paid or accrued in any taxable year ending before January 1, 1977, subparagraph (A) of paragraph (2) shall be applied as if the amendment made by section 1035(a) of the Tax Reform Act of 1976 applied to such taxable year.”

    Source evidence

    Code amendment note
    Subsec. (f)(3)(C). Pub. L. 101–508, § 11801(a)(32), struck out subpar. (C) which read as follows: “For purposes of determining the amount of the unused oil and gas extraction taxes which under paragraph (1) may be deemed paid or accrued in any taxable year ending before January 1, 1977, subparagraph (A) of paragraph (2) shall be applied as if the amendment made by section 1035(a) of the Tax Reform Act of 1976 applied to such taxable year.”

    Enacted provision · exact public law section
    (32) Subsections (e) and (f)(S)(C) of section 907 (relating to transitional rules).

23. 1993

    Revenue Reconciliation Act of 1993

    Pub. L. 103–66 title XIII § 13235(a)(1) · 107 Stat. 312

    Inserted · 26 U.S.C. § 907(c)(1); 26 U.S.C. § 907(c)(2)

    Pub. L. 103–66 inserted concluding provisions

    Source evidence

    Code amendment note
    Subsec. (c)(1), (2). Pub. L. 103–66 inserted concluding provisions.

    Enacted provision · exact public law section
    (1) Amendments to section 907.— (A) Paragraph (1) of section 907(c) is amended by adding at the end thereof the following new flush sentence: “Such term does not include any dividend or interest income which is passive income (as defined in section 904(d)(2)(A)).”. (B) Paragraph (2) of section 907(c) is amended by adding at the end thereof the following new flush sentence: “Such term does not include any dividend or interest income which is passive income (as defined in section 904(d)(2)(A)).”.

24. 1996

    Small Business Job Protection Act of 1996

    Pub. L. 104–188 title I § 1704(t)(36) · 110 Stat. 1755

    Inserted · 26 U.S.C. § 907(c)(4)(B)(iii)(I)

    Pub. L. 104–188 inserted “(as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990)” after “section 172(h)”

    Source evidence

    Code amendment note
    Subsec. (c)(4)(B)(iii)(I). Pub. L. 104–188 inserted “(as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990)” after “section 172(h)”.

    Enacted provision · exact public law section
    (36) Sections 904(f)(2)(B)(i) and 907(c)(4)(B)(iii) are each amended by inserting “(as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990)” after “section 172(h)”.

25. 2004

    Pub. L. 108–357 § 417(b)(3) · 118 Stat. 1418

    Struck · 26 U.S.C. § 907(f)(1)

    Pub. L. 108–357, § 417(b)(3), struck out at end “For purposes of this subsection, the terms ‘second preceding taxable year’, and ‘first preceding taxable year’ do not include any taxable year ending before January 1, 1975.”

    Source evidence

    Code amendment note
    Subsec. (f)(1). Pub. L. 108–357, § 417(b)(3), struck out at end “For purposes of this subsection, the terms ‘second preceding taxable year’, and ‘first preceding taxable year’ do not include any taxable year ending before January 1, 1975.”

    Enacted provision · exact public law section
    (3) by striking the last sentence.

26. 2004

    Pub. L. 108–357 § 417(b)(2) · 118 Stat. 1418

    Substituted · 26 U.S.C. § 907(f)(1)

    Pub. L. 108–357, § 417(b)(2), substituted “and in any of the first 10” for “, and in the first, second, third, fourth, or fifth”

    Target inherited from the preceding amendment note.

    Source evidence

    Code amendment note
    Pub. L. 108–357, § 417(b)(2), substituted “and in any of the first 10” for “, and in the first, second, third, fourth, or fifth”.

    Enacted provision · exact public law section
    (2) by striking “, and in the first, second, third, fourth, or fifth” and inserting “and in any of the first 10”, and

27. 2004

    Pub. L. 108–357 § 417(b)(1) · 118 Stat. 1418

    Struck · 26 U.S.C. § 907(f)(1)

    Pub. L. 108–357, § 417(b)(1), struck out “in the second preceding taxable year,” before “in the first preceding taxable year”

    Target inherited from the preceding amendment note.

    Source evidence

    Code amendment note
    Pub. L. 108–357, § 417(b)(1), struck out “in the second preceding taxable year,” before “in the first preceding taxable year”.

    Enacted provision · exact public law section
    (1) by striking “in the second preceding taxable year,”,

28. 2008

    Energy Improvement and Extension Act of 2008

    Pub. L. 110–343 § 402(a) · 122 Stat. 3765

    Amended · 26 U.S.C. § 907(a); 26 U.S.C. § 907(b)

    Pub. L. 110–343, § 402(a), amended subsecs. (a) and (b) generally. Prior to amendment, subsec. (a) related to reduction in amount of oil and gas extraction taxes paid or accrued for purposes of section 901 and subsec. (b) excepted certain amounts of foreign oil related income taxes paid or accrued to any foreign country from the definition of “income, war profits, and excess profits taxes”

    Source evidence

    Code amendment note
    Subsecs. (a), (b). Pub. L. 110–343, § 402(a), amended subsecs. (a) and (b) generally. Prior to amendment, subsec. (a) related to reduction in amount of oil and gas extraction taxes paid or accrued for purposes of section 901 and subsec. (b) excepted certain amounts of foreign oil related income taxes paid or accrued to any foreign country from the definition of “income, war profits, and excess profits taxes”.

    Enacted provision · exact public law section
    (a) In General.— Subsections (a) and (b) of section 907 26 USC 907. (relating to special rules in case of foreign oil and gas income) are amended to read as follows: “(a) Reduction in Amount Allowed as Foreign Tax Under Section 901.— In applying section 901, the amount of any foreign oil and gas taxes paid or accrued (or deemed to have been paid) during the taxable year which would (but for this subsection) be taken into account for purposes of section 901 shall be reduced by the amount (if any) by which the amount of such taxes exceeds the product of— “(1) the amount of the combined foreign oil and gas income for the taxable year, “(2) multiplied by— “(A) in the case of a corporation, the percentage which is equal to the highest rate of tax specified under section 11(b), or “(B) in the case of an individual, a fraction the numerator of which is the tax against which the credit under section 901(a) is taken and the denominator of which is the taxpayer’s entire taxable income. “(b) Combined Foreign Oil and Gas Income; Foreign Oil and Gas Taxes.— For purposes of this section— “(1) Combined foreign oil and gas income.— The term ‘combined foreign oil and gas income’ means, with respect to any taxable year, the sum of— “(A) foreign oil and gas extraction income, and “(B) foreign oil related income. “(2) Foreign oil and gas taxes.— The term ‘foreign oil and gas taxes’ means, with respect to any taxable year, the sum of— “(A) oil and gas extraction taxes, and “(B) any income, war profits, and excess profits taxes paid or accrued (or deemed to have been paid or accrued under section 902 or 960) during the taxable year with respect to foreign oil related income (determined without regard to subsection (c)(4)) or loss which would be taken into account for purposes of section 901 without regard to this section.” .

29. 2008

    Energy Improvement and Extension Act of 2008

    Pub. L. 110–343 § 402(b) · 122 Stat. 3765

    Amended · 26 U.S.C. § 907(c)(4)

    Pub. L. 110–343, § 402(b), amended par. (4) generally. Prior to amendment, par. (4) provided for recapture of foreign oil and gas extraction losses by recharacterizing later extraction income

    Source evidence

    Code amendment note
    Subsec. (c)(4). Pub. L. 110–343, § 402(b), amended par. (4) generally. Prior to amendment, par. (4) provided for recapture of foreign oil and gas extraction losses by recharacterizing later extraction income.

    Enacted provision · exact public law section
    (b) Recapture of Foreign Oil and Gas Losses.— Paragraph (4) of section 907(c) (relating to recapture of foreign oil and gas extraction losses by recharacterizing later extraction income) is amended to read as follows: “(4) Recapture of foreign oil and gas losses by recharacterizing later combined foreign oil and gas income.— “(A) In general.— The combined foreign oil and gas income of a taxpayer for a taxable year (determined without regard to this paragraph) shall be reduced— “(i) first by the amount determined under subparagraph (B), and “(ii) then by the amount determined under subparagraph (C). The aggregate amount of such reductions shall be treated as income (from sources without the United States) which is not combined foreign oil and gas income. “(B) Reduction for pre-2009 foreign oil extraction losses.— The reduction under this paragraph shall be equal to the lesser of— “(i) the foreign oil and gas extraction income of the taxpayer for the taxable year (determined without regard to this paragraph), or “(ii) the excess of— “(I) the aggregate amount of foreign oil extraction losses for preceding taxable years beginning after December 31, 1982, and before January 1, 2009, over “(II) so much of such aggregate amount as was recharacterized under this paragraph (as in effect before and after the date of the enactment of the Energy Improvement and Extension Act of 2008) for preceding taxable years beginning after December 31, 1982. “(C) Reduction for post-2008 foreign oil and gas losses.— The reduction under this paragraph shall be equal to the lesser of— “(i) the combined foreign oil and gas income of the taxpayer for the taxable year (determined without regard to this paragraph), reduced by an amount equal to the reduction under subparagraph (A) for the taxable year, or “(ii) the excess of— “(I) the aggregate amount of foreign oil and gas losses for preceding taxable years beginning after December 31, 2008, over “(II) so much of such aggregate amount as was recharacterized under this paragraph for preceding taxable years beginning after December 31, 2008. “(D) Foreign oil and gas loss defined.— “(i) In general.— For purposes of this paragraph, the term ‘foreign oil and gas loss’ means the amount by which— “(I) the gross income for the taxable year from sources without the United States and its possessions (whether or not the taxpayer chooses the benefits of this subpart for such taxable year) taken into account in determining the combined foreign oil and gas income for such year, is exceeded by “(II) the sum of the deductions properly apportioned or allocated thereto. “(ii) Net operating loss deduction not taken into account.— For purposes of clause (i), the net operating loss deduction allowable for the taxable year under section 172(a) shall not be taken into account. “(iii) Expropriation and casualty losses not taken into account.— For purposes of clause (i), there shall not be taken into account— “(I) any foreign expropriation loss (as defined in section 172(h) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990)) for the taxable year, or “(II) any loss for the taxable year which arises from fire, storm, shipwreck, or other casualty, or from theft, to the extent such loss is not compensated for by insurance or otherwise. “(iv) Foreign oil extraction loss.— For purposes of subparagraph (B)(ii)(I), foreign oil extraction losses shall be determined under this paragraph as in effect on the day before the date of the enactment of the Energy Improvement and Extension Act of 2008.” .

30. 2008

    Energy Improvement and Extension Act of 2008

    Pub. L. 110–343 § 402(c)(1) · 122 Stat. 3765

    Substituted · 26 U.S.C. § 907(f)

    Pub. L. 110–343, § 402(c)(1), substituted “foreign oil and gas taxes” for “oil and gas extraction taxes” wherever appearing

    Source evidence

    Code amendment note
    Subsec. (f). Pub. L. 110–343, § 402(c)(1), substituted “foreign oil and gas taxes” for “oil and gas extraction taxes” wherever appearing.

    Enacted provision · exact public law section
    (1) by striking “oil and gas extraction taxes” each place it appears and inserting “foreign oil and gas taxes”, and

31. 2008

    Energy Improvement and Extension Act of 2008

    Pub. L. 110–343 § 402(c)(2) · 122 Stat. 3765

    Added · 26 U.S.C. § 907(f)(4)

    Pub. L. 110–343, § 402(c)(2), added par. (4)

    Source evidence

    Code amendment note
    Subsec. (f)(4). Pub. L. 110–343, § 402(c)(2), added par. (4).

    Enacted provision · exact public law section
    (2) by adding at the end the following new paragraph: “(4) Transition rules for pre-2009 and 2009 disallowed credits.— “(A) Pre-2009 credits.— In the case of any unused credit year beginning before January 1, 2009, this subsection shall be applied to any unused oil and gas extraction taxes carried from such unused credit year to a year beginning after December 31, 2008— “(i) by substituting ‘oil and gas extraction taxes’ for ‘foreign oil and gas taxes’ each place it appears in paragraphs (1), (2), and (3), and “(ii) by computing, for purposes of paragraph (2)(A), the limitation under subparagraph (A) for the year to which such taxes are carried by substituting ‘foreign oil and gas extraction income’ for ‘foreign oil and gas income’ in subsection (a). “(B) 2009 credits.— In the case of any unused credit year beginning in 2009, the amendments made to this subsection by the Energy Improvement and Extension Act of 2008 shall be treated as being in effect for any preceding year beginning before January 1, 2009, solely for purposes of determining how much of the unused foreign oil and gas taxes for such unused credit year may be deemed paid or accrued in such preceding year.” .

32. 2014

    Tax Technical Corrections Act of 2014

    Pub. L. 113–295 div. A title II § 210(e) · 128 Stat. 4010

    Substituted · 26 U.S.C. § 907(f)(4)(A)

    Pub. L. 113–295 substituted “this subsection, as in effect on the day before the date of the enactment of the Energy Improvement and Extension Act of 2008, shall apply to unused oil and gas extraction taxes carried from such unused credit year to a taxable year beginning after December 31, 2008.” for “this subsection shall be applied to any unused oil and gas extraction taxes carried from such unused credit year to a year beginning after December 31, 2008—

    Source evidence

    Code amendment note
    Subsec. (f)(4)(A). Pub. L. 113–295 substituted “this subsection, as in effect on the day before the date of the enactment of the Energy Improvement and Extension Act of 2008, shall apply to unused oil and gas extraction taxes carried from such unused credit year to a taxable year beginning after December 31, 2008.” for “this subsection shall be applied to any unused oil and gas extraction taxes carried from such unused credit year to a year beginning after December 31, 2008—

    “(i) by substituting ‘oil and gas extraction taxes’ for ‘foreign oil and gas taxes’ each place it appears in paragraphs (1), (2), and (3), and “(ii) by computing, for purposes of paragraph (2)(A), the limitation under subparagraph (A) for the year to which such taxes are carried by substituting ‘foreign oil and gas extraction income’ for ‘foreign oil and gas income’ in subsection (a).”

    Enacted provision · exact public law section
    (e) Amendment Relating to Section 402.— Subparagraph (A) of section 907(f)(4) is amended by striking “this subsection shall be applied” and all that follows through the period at the end and inserting the following: “this subsection, as in effect on the day before the date of the enactment of the Energy Improvement and Extension Act of 2008, shall apply to unused oil and gas extraction taxes carried from such unused credit year to a taxable year beginning after December 31, 2008.”.

33. 2017

    Pub. L. 115–97 § 14301(c)(24) · 131 Stat. 2054

    Struck · 26 U.S.C. § 907(b)(2)(B)

    Pub. L. 115–97, § 14301(c)(24), struck out “902 or” after “under section”

    Source evidence

    Code amendment note
    Subsec. (b)(2)(B). Pub. L. 115–97, § 14301(c)(24), struck out “902 or” after “under section”.

    Enacted provision · exact public law section
    (24) Section 907(b)(2)(B) is amended by striking “902 or”.

    Effective date note
    Amendment by Pub. L. 115–97 applicable to taxable years of foreign corporations beginning after Dec. 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, see section 14301(d) of Pub. L. 115–97, set out as a note under section 78 of this title.

34. 2017

    Pub. L. 115–97 § 14301(c)(25)(A) · 131 Stat. 2054

    1. Added · 26 U.S.C. § 907(c)(3)(A)

       Pub. L. 115–97, § 14301(c)(25)(A), added subpar. (A)

    2. Struck · 26 U.S.C. § 907(c)(3)(A)

       Pub. L. 115–97, § 14301(c)(25)(A), struck out former subpar. (A) which read as follows: “dividends and interest from a foreign corporation in respect of which taxes are deemed paid by the taxpayer under section 902,”

    Source evidence

    Code amendment note
    Subsec. (c)(3)(A). Pub. L. 115–97, § 14301(c)(25)(A), added subpar. (A) and struck out former subpar. (A) which read as follows: “dividends and interest from a foreign corporation in respect of which taxes are deemed paid by the taxpayer under section 902,”.

    Enacted provision · exact public law section
    (A) by striking subparagraph (A) and inserting the following: “(A) interest, to the extent the category of income of such interest is determined under section 904(d)(3),” , and

    Effective date note
    Amendment by Pub. L. 115–97 applicable to taxable years of foreign corporations beginning after Dec. 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, see section 14301(d) of Pub. L. 115–97, set out as a note under section 78 of this title.

35. 2017

    Pub. L. 115–97 § 14301(c)(25)(B) · 131 Stat. 2054

    Substituted · 26 U.S.C. § 907(c)(3)(B)

    Pub. L. 115–97, § 14301(c)(25)(B), substituted “section 960” for “section 960(a)”

    Source evidence

    Code amendment note
    Subsec. (c)(3)(B). Pub. L. 115–97, § 14301(c)(25)(B), substituted “section 960” for “section 960(a)”.

    Enacted provision · exact public law section
    (B) by striking “section 960(a)” in subparagraph (B) and inserting “section 960”.

    Effective date note
    Amendment by Pub. L. 115–97 applicable to taxable years of foreign corporations beginning after Dec. 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, see section 14301(d) of Pub. L. 115–97, set out as a note under section 78 of this title.

36. 2017

    Pub. L. 115–97 § 14301(c)(26) · 131 Stat. 2054

    Struck · 26 U.S.C. § 907(c)(5)

    Pub. L. 115–97, § 14301(c)(26), struck out “902 or” after “under section”

    Source evidence

    Code amendment note
    Subsec. (c)(5). Pub. L. 115–97, § 14301(c)(26), struck out “902 or” after “under section”.

    Enacted provision · exact public law section
    (26) Section 907(c)(5) is amended by striking “902 or”.

    Effective date note
    Amendment by Pub. L. 115–97 applicable to taxable years of foreign corporations beginning after Dec. 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, see section 14301(d) of Pub. L. 115–97, set out as a note under section 78 of this title.

37. 2017

    Pub. L. 115–97 § 14301(c)(27) · 131 Stat. 2054

    Struck · 26 U.S.C. § 907(f)(2)(B)(i)

    Pub. L. 115–97, § 14301(c)(27), struck out “902 or” after “under section”

    Source evidence

    Code amendment note
    Subsec. (f)(2)(B)(i). Pub. L. 115–97, § 14301(c)(27), struck out “902 or” after “under section”.

    Enacted provision · exact public law section
    (27) Section 907(f)(2)(B)(i) is amended by striking “902 or”.

    Effective date note
    Amendment by Pub. L. 115–97 applicable to taxable years of foreign corporations beginning after Dec. 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, see section 14301(d) of Pub. L. 115–97, set out as a note under section 78 of this title.

38. 2018

    Energy and Water Development and Related Agencies Appropriations Act, 2018

    Pub. L. 115–141 § 401(a)(158) · 132 Stat. 348

    Substituted · 26 U.S.C. § 907(c)(3)(C)

    Pub. L. 115–141, § 401(a)(158), substituted comma for period at end

    Source evidence

    Code amendment note
    Subsec. (c)(3)(C). Pub. L. 115–141, § 401(a)(158), substituted comma for period at end.

    Enacted provision · exact public law section
    Sec. 401. The Nuclear Regulatory Commission shall comply with the July 5, 2011, version of Chapter VI of its Internal Commission Procedures when responding to Congressional requests for information.

39. 2018

    Energy and Water Development and Related Agencies Appropriations Act, 2018

    Pub. L. 115–141 § 401(a)(159) · 132 Stat. 348

    Substituted · 26 U.S.C. § 907(f)(1)

    Pub. L. 115–141, § 401(a)(159), substituted “years,” for “year,”

    Source evidence

    Code amendment note
    Subsec. (f)(1). Pub. L. 115–141, § 401(a)(159), substituted “years,” for “year,”.

    Enacted provision · exact public law section
    Sec. 401. The Nuclear Regulatory Commission shall comply with the July 5, 2011, version of Chapter VI of its Internal Commission Procedures when responding to Congressional requests for information.

50 of 54 references resolved to an enrolled provision · 4 partial