113 HR 5857 IH: Infrastructure and Global Tax Competitiveness Act of 2014
U.S. House of Representatives
2014-12-11
text/xml
EN
Pursuant to Title 17 Section 105 of the United States Code, this file is not subject to copyright protection and is in the public domain.
1.
(a)This Act may be cited as the Infrastructure and Global Tax Competitiveness Act of 2014
.
(b)Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in
terms of an amendment to, or repeal of, a section or other provision, the
reference shall be considered to be made to a section or other provision
of the Internal Revenue Code of 1986.
(c)The table of contents for this Act is as follows:
Sec. 1. Short title; etc.
Title I—Deemed repatriation and investment in domestic infrastructure
Sec. 101. Elimination of incentive for corporations to continue to hold accumulated earnings
offshore.
Sec. 102. American Infrastructure Fund.
Sec. 103. Dedication of remaining revenues to highway trust fund.
Sec. 104. Highway Trust Fund Solvency Commission.
Title II—Deadline for international tax reform
Sec. 201. 18-month deadline for international tax reform.
Title III—Fallback international tax reform
Sec. 300. General effective date of title.
Subtitle A—Reform of taxation of income earned by controlled foreign corporations
Part I—General provisions
Sec. 301. Modifications to subpart F income.
Part II—Foreign tax credit limitations
Sec. 311. Reform of foreign tax credit limitation.
Sec. 312. Denial of credit and deduction for foreign taxes with respect to excluded subpart F
income.
Part III—Expense disallowance
Sec. 321. Disallowance of deduction for expenses allocable to exempt income of a controlled foreign
corporation.
Part IV—Other provisions relating to subpart F
Subpart A—Previously deferred foreign income
Sec. 331. Treatment of previously deferred foreign income.
Subpart B—Other provisions
Sec. 336. Elimination of 30-day requirement.
Sec. 337. Modification of definition of United States shareholder.
Subtitle B—Reform of foreign tax credit provisions
Sec. 341. Repeal of section 902 indirect foreign tax credits; foreign tax credit related to subpart
F income.
Sec. 342. Repeal of rule suspending foreign taxes and credits until related income is taken into
account.
<enum>I</enum><header>Deemed repatriation and investment in domestic infrastructure</header>
<section id="H8832E6181A964166AE6357E062028F5F"><enum>101.</enum><header>Elimination of incentive for corporations to continue to hold accumulated earnings offshore</header>
<subsection id="H7883E866536245E3880A8D9C7A6B3740"><enum>(a)</enum><header>In general</header><text display-inline="yes-display-inline">Section 965 is amended to read as follows:</text>
<quoted-block display-inline="no-display-inline" id="HD582854EDE16408983A610881BD6CCC9" style="OLC">
<section id="H5B687E7807324249BFB17528DC850591"><enum>965.</enum><header>Elimination of incentive to hold accumulated earnings and profits offshore</header>
<subsection id="HAFCDECF7949840C390C75B5291E6A15E"><enum>(a)</enum><header>Treatment of deferred foreign income as subpart F income</header><text display-inline="yes-display-inline">In the case of the last taxable year of a deferred foreign income corporation which begins before
January 1, 2015, the subpart F income of such foreign corporation (as
otherwise determined for such taxable year under section 952) shall be
increased by the accumulated post-1986 deferred foreign income of such
corporation determined as of the close of such taxable year.</text>
</subsection><subsection id="HC70E84F598E841618324D3450B6F8D7E"><enum>(b)</enum><header>Reduction in amounts included in gross income of United States shareholders of specified foreign
corporations with deficits in earnings and profits</header>
<paragraph id="H3DDCB56BFE364100969E1621266153AD"><enum>(1)</enum><header>In general</header><text>In the case of a taxpayer which is a United States shareholder with respect to at least one
deferred foreign income corporation and at least one E&P deficit foreign corporation, the amount which would (but for this subsection) be taken into
account under section 951(a)(1) by reason of subsection (a) as such United
States shareholder’s pro rata share of the subpart F income of each
deferred foreign income corporation shall be reduced (but not below zero)
by the amount of such United States shareholder’s aggregate foreign E&P deficit which is allocated under paragraph (2) to such deferred foreign income corporation.</text>
</paragraph><paragraph id="H95C3373EB17C4B83B7CE5F183497ED74"><enum>(2)</enum><header>Allocation of aggregate foreign E&P deficit</header><text display-inline="yes-display-inline">The aggregate foreign E&P deficit of any United States shareholder shall be allocated among the deferred foreign income
corporations of such United States shareholder in an amount which bears
the same proportion to such aggregate as—</text>
<subparagraph id="HD66ED119EF8C43FCA7D4DEBFC12C9D43"><enum>(A)</enum><text>such United States shareholder’s pro rata share of the accumulated post-1986 deferred foreign
income of each such deferred foreign income corporation, bears to</text>
</subparagraph><subparagraph id="HF770CA0F04EB4733B0035E3B7EB499FC"><enum>(B)</enum><text>the aggregate of such United States shareholder’s pro rata share of the accumulated post-1986
deferred foreign income of all deferred foreign income corporations of
such United States shareholder.</text>
</subparagraph></paragraph><paragraph id="H2A8D21DC1EB94D9BAF6BA9538FC3BB15"><enum>(3)</enum><header>Definitions related to E&P deficits</header><text>For purposes of this subsection—</text>
<subparagraph id="HB29304EA01E84373900BC7986FA1D7A6"><enum>(A)</enum><header>Aggregate foreign E&P deficit</header><text>The term <term>aggregate foreign E&P deficit</term> means, with respect to any United States shareholder, the aggregate of such shareholder’s pro rata
shares of the specified E&P deficits of the E&P deficit foreign corporations of such shareholder.</text>
</subparagraph><subparagraph id="HF6D377D077AB4FF4BA6A1F721BE78AC6"><enum>(B)</enum><header>E&P deficit foreign corporation</header><text>The term <term>E&P deficit foreign corporation</term> means, with respect to any taxpayer, any specified foreign corporation with respect to which such
taxpayer is a United States shareholder, if—</text>
<clause id="H219A36DAAEEA42F3A76C064B4B414552"><enum>(i)</enum><text>such specified foreign corporation has a deficit in post-1986 earnings and profits, and</text>
</clause><clause id="HE418433DFD6349A992781BCD37740C58"><enum>(ii)</enum><text>as of the date of the introduction of <short-title>Infrastructure and Global Tax Competitiveness Act of 2014</short-title>—</text>
<subclause id="HFAFB1E075CD248B3AEC01A619CBD09F1"><enum>(I)</enum><text>such corporation was a specified foreign corporation, and</text>
</subclause><subclause id="HB30F2FBF0CB041749389DC51BB2879C0"><enum>(II)</enum><text>such taxpayer was a United States shareholder of such corporation.</text>
</subclause></clause></subparagraph><subparagraph id="H8C8631010D3D4FB09821B02E76C59454"><enum>(C)</enum><header>Specified E&P deficit</header><text>The term <term>specified E&P deficit</term> means, with respect to any E&P deficit foreign corporation, the amount of the deficit referred to in subparagraph (B).</text>
</subparagraph></paragraph></subsection><subsection id="H99093CE04022425BAFD6FC6A1B972C9F"><enum>(c)</enum><header>Deduction for portion of included income</header><text display-inline="yes-display-inline">In the case of a United States shareholder of a deferred foreign income corporation, there shall be
allowed as a deduction for the taxable year in which an amount is included
in the gross income of such United States shareholder under section
951(a)(1) by reason of this section an amount equal to 75 percent of the
amount so included in gross income.</text>
</subsection><subsection id="H756B0BD5BAA44F40B8BD1B6D282B6910"><enum>(d)</enum><header>Deferred foreign income corporation; accumulated post-1986 deferred foreign income</header><text>For purposes of this section—</text>
<paragraph id="H82B74BE9DDFB4F988E2F2C7E14DB267A"><enum>(1)</enum><header>Deferred foreign income corporation</header><text>The term <term>deferred foreign income corporation</term> means, with respect to any United States shareholder, any specified foreign corporation of such
United States shareholder which has accumulated post-1986 deferred foreign
income (as of the close of the taxable year referred to in subsection (a))
greater than zero.</text>
</paragraph><paragraph id="HCF34A75D36CC483C94AF7568ADA057D2"><enum>(2)</enum><header>Accumulated post-1986 deferred foreign income</header><text>The term <term>accumulated post-1986 deferred foreign income</term> means the post-1986 earnings and profits except to the extent such earnings—</text>
<subparagraph id="HC5270C5B189B495390C0B603BA12F767"><enum>(A)</enum><text>are attributable to income of the specified foreign corporation which is effectively connected with
the conduct of a trade or business within the United States and subject to
tax under this chapter,</text>
</subparagraph><subparagraph id="HBD1C638290264C6CAC11156969A55879"><enum>(B)</enum><text>if distributed, would—</text>
<clause id="HE85A9D044054441791344DE8ACF6E817"><enum>(i)</enum><text>in the case of a controlled foreign corporation, be excluded from the gross income of a United
States shareholder under section 959, or</text>
</clause><clause id="HE2926678B47641E0AB364CEB435F24DB"><enum>(ii)</enum><text>in the case of any passive foreign investment company (as defined in section 1297) other than a
controlled foreign corporation, be treated as a distribution which is not
a dividend, or</text>
</clause></subparagraph><subparagraph id="HF265CC62228B47E4A005621D9925DDF0"><enum>(C)</enum><text>in the case of any passive foreign investment company (as so defined), is properly attributable to
an unreversed inclusion of a United States person under section 1296.</text></subparagraph><continuation-text continuation-text-level="paragraph">To the extent provided in regulations or other guidance prescribed by the Secretary, in the case of
any controlled foreign corporation which has shareholders which are not
United States shareholders, accumulated post-1986 deferred foreign income
shall be appropriately reduced by amounts which would be described in
subparagraph (B)(i) if such shareholders were United States shareholders.
Such regulations or other guidance may provide a similar rule for purposes
of subparagraph (B)(ii) and (C).</continuation-text></paragraph><paragraph id="H4D0058DB5EA44BB3850B972C5CB04648"><enum>(3)</enum><header>Post-1986 earnings and profits</header><text display-inline="yes-display-inline">The term <term>post-1986 earnings and profits</term> means the earnings and profits of the foreign corporation (computed in accordance with sections
964(a) and 986) accumulated in taxable years beginning after December 31,
1986, and determined—</text>
<subparagraph id="HD49DACC0EFC543989E13F7D5CF19FA2D"><enum>(A)</enum><text>as of the close the taxable year referred to in subsection (a), and</text>
</subparagraph><subparagraph id="H8FC777F657CF4EF08EDBFA65D2ED3923"><enum>(B)</enum><text display-inline="yes-display-inline">without diminution by reason of dividends distributed during such taxable year.</text>
</subparagraph></paragraph></subsection><subsection id="H1283C073A07C4826BC865D147071787D"><enum>(e)</enum><header>Specified foreign corporation</header>
<paragraph id="H197B8EDC8E47498B9C22049470667CD1"><enum>(1)</enum><header>In general</header><text display-inline="yes-display-inline">For purposes of this section, the term <term>specified foreign corporation</term> means—</text>
<subparagraph id="H5325B0313D484B4ABF2F6685EFF448BB"><enum>(A)</enum><text>any controlled foreign corporation, and</text>
</subparagraph><subparagraph id="H0BAD0D47927F48C9B5CADC33D079FFD4"><enum>(B)</enum><text>any section 902 corporation (as defined in section 909(d)(5)).</text>
</subparagraph></paragraph><paragraph id="H0C88FDC3FA4B45CBA858DB105A2AD125"><enum>(2)</enum><header>Application to section 902 corporations</header><text>For purposes of section 951, a section 902 corporation (as so defined) shall be treated as a
controlled foreign corporation solely for purposes of taking into account
the subpart F income of such corporation under subsection (a) (and for
purposes of applying subsection (f)).</text>
</paragraph></subsection><subsection id="H79410980FC204132BB7294102448838F"><enum>(f)</enum><header>Determinations of pro rata share</header><text display-inline="yes-display-inline">For purposes of this section, the determination of any United States shareholder’s pro rata share
of any amount with respect to any specified foreign corporation shall be
determined under rules similar to the rules of section 951(a)(2) by
treating such amount in the same manner as subpart F income (and by
treating such specified foreign corporation as a controlled foreign
corporation).</text>
</subsection><subsection display-inline="no-display-inline" id="HCAB720F491B348CFA78718DBC0710A8A"><enum>(g)</enum><header>Disallowance of foreign tax credit, etc</header>
<paragraph id="H2E4AC69729C1482191946A5A82702D21"><enum>(1)</enum><header>In general</header><text display-inline="yes-display-inline">No credit shall be allowed under section 901 for the applicable percentage of any taxes paid or
accrued (or treated as paid or accrued) with respect to any amount for
which a deduction is allowed under this section.</text>
</paragraph><paragraph id="H3F822DF7E4CF4860AA4C68A9C17DCD26"><enum>(2)</enum><header>Applicable percentage</header><text>For purposes of this subsection, the term <term>applicable percentage</term> means the percentage specified in subsection (c).</text>
</paragraph><paragraph id="HBC02E832F3BB49459B1ACE499486243B"><enum>(3)</enum><header>Denial of deduction</header><text display-inline="yes-display-inline">No deduction shall be allowed under this chapter for any tax for which credit is not allowable
under section 901 by reason of paragraph (1) (determined by treating the
taxpayer as having elected the benefits of subpart A of part III of
subchapter N).</text>
</paragraph><paragraph id="H32560E5EAD1049F2B0B9A9D854061127"><enum>(4)</enum><header>Coordination with section 78</header><text display-inline="yes-display-inline">Section 78 shall not apply to any tax for which credit is not allowable under section 901 by reason
of paragraph (1).</text>
</paragraph></subsection><subsection id="H59DD8BD144054B4DAE256DB687E3EEB5"><enum>(h)</enum><header>Election To Pay Liability in Installments</header>
<paragraph id="H6CD82BB11014459DB155575CD49600EA"><enum>(1)</enum><header>In general</header><text>In the case of a United States shareholder of a deferred foreign income corporation, such United
States shareholder may elect to pay the net tax liability under this
section in 8 installments of the following amounts:</text>
<subparagraph id="H6666E7555F0B4E4887C0C91D2936F44D"><enum>(A)</enum><text>8 percent of the net tax liability in the case of each of the first 5 of such installments,</text>
</subparagraph><subparagraph id="H9DDBA2BBAD2B4E1985896A1E1C6434A5"><enum>(B)</enum><text>15 percent of the net tax liability in the case of the 6th such installment,</text>
</subparagraph><subparagraph id="H73E6716A4D494B5ABE8F56E022CDD280"><enum>(C)</enum><text>20 percent of the net tax liability in the case of the 7th such installment, and</text>
</subparagraph><subparagraph id="H4B059768BFB64B67890E13C9A33CDF21"><enum>(D)</enum><text>25 percent of the net tax liability in the case of the 8th such installment.</text>
</subparagraph></paragraph><paragraph id="H2DC14B11E107435387D700EFFCE274EE"><enum>(2)</enum><header>Date for payment of installments</header><text>If an election is made under paragraph (1), the first installment shall be paid on the due date
(determined without regard to any extension of time for filing the return)
for the return of tax for the taxable year described in subsection (b) and
each succeeding installment shall be paid on the due date (as so
determined) for the return of tax for the taxable year following the
taxable year with respect to which the preceding installment was made.</text>
</paragraph><paragraph id="H8AE901BFA4F1449D9D9F24DBB51CE5D4"><enum>(3)</enum><header>Acceleration of payment</header><text>If there is an addition to tax for failure to pay timely assessed with respect to any installment
required under this subsection, a liquidation or sale of substantially all
the assets of the taxpayer (including in a title 11 or similar case), a
cessation of business by the taxpayer, or any similar circumstance, then
the unpaid portion of all remaining installments shall be due on the date
of such event (or in the case of a title 11 or similar case, the day
before the petition is filed). The preceding sentence shall not apply to
the sale of substantially all the assets of a taxpayer to a buyer if such
buyer enters into an agreement with the Secretary under which such buyer
is liable for the remaining installments due under this subsection in the
same manner as if such buyer were the taxpayer.</text>
</paragraph><paragraph id="H5C57E843A3734FCD86ECAF70B94BC300"><enum>(4)</enum><header>Proration of deficiency to installments</header><text display-inline="yes-display-inline">If an election is made under paragraph (1) to pay the net tax liability under this section in
installments and a deficiency has been assessed with respect to such net
tax liability, the deficiency shall be prorated to the installments
payable under paragraph (1). The part of the deficiency so prorated to any
installment the date for payment of which has not arrived shall be
collected at the same time as, and as a part of, such installment. The
part of the deficiency so prorated to any installment the date for payment
of which has arrived shall be paid upon notice and demand from the
Secretary. This subsection shall not apply if the deficiency is due to
negligence, to intentional disregard of rules and regulations, or to fraud
with intent to evade tax.</text>
</paragraph><paragraph id="HE8800AB0AB484AFE83D301AAED8F2A9D"><enum>(5)</enum><header>Election</header><text>Any election under paragraph (1) shall be made not later than the due date for the return of tax
for the taxable year described in subsection (a) and shall be made in such
manner as the Secretary may provide.</text>
</paragraph><paragraph id="H6F5D0C001A9247AF82A959487849BFC7"><enum>(6)</enum><header>Net tax liability under this section</header><text display-inline="yes-display-inline">For purposes of this subsection—</text>
<subparagraph id="H0ADA07F9FBFB4F46BC4654D914E35BBE"><enum>(A)</enum><header>In general</header><text>The net tax liability under this section with respect to any United States shareholder is the
excess (if any) of—</text>
<clause id="H25EA92461A194971A019E17C50904467"><enum>(i)</enum><text>such taxpayer’s net income tax for the taxable year described in subsection (a), over</text>
</clause><clause id="HFFB1F62FF52F423DB8506BBBB4D98651"><enum>(ii)</enum><text>such taxpayer’s net income tax for such taxable year determined without regard to this section.</text>
</clause></subparagraph><subparagraph id="H127ECB53EB784218825B2A994B479E35"><enum>(B)</enum><header>Net income tax</header><text>The term <term>net income tax</term> means the regular tax liability reduced by the credits allowed under subparts A, B, and D of part
IV of subchapter A.</text>
</subparagraph></paragraph></subsection><subsection id="H6FDB637A05C04087BE4CDAFB75688A6B"><enum>(i)</enum><header>Inclusion of Deferred Foreign Income Under This Section Not To Trigger Recapture of Overall Foreign
Loss</header><text>For purposes of section 904(f)(1), in the case of a United States shareholder of a deferred foreign
income corporation, such United States shareholder’s taxable income from
sources without the United States shall be determined without regard to
this section.</text>
</subsection><subsection id="H1B1783EC0CCE4222B22C1E491199B726"><enum>(j)</enum><header>Regulations</header><text display-inline="yes-display-inline">The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate
to carry out the provisions of this section.</text></subsection></section><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="H84DC45E19E2F480F9810BAD97C3F02E8"><enum>(b)</enum><header>Clerical amendment</header><text>The table of sections for subpart F of part III of subchapter N of chapter 1 of such Code is
amended
by striking the item relating to section 965 and inserting the following:</text>
<quoted-block display-inline="no-display-inline" id="H2F12EBFF36C94A0A8207E85CA013612C" style="OLC">
<toc container-level="quoted-block-container" idref="HD582854EDE16408983A610881BD6CCC9" lowest-bolded-level="division-lowest-bolded" lowest-level="section" quoted-block="no-quoted-block" regeneration="yes-regeneration">
<toc-entry idref="H5B687E7807324249BFB17528DC850591" level="section">Sec. 965. Elimination of incentive to hold accumulated earnings and profits offshore.</toc-entry></toc><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection></section><section id="HDEAC749A90CC43C3B3EFAFF134E3E86C"><enum>102.</enum><header>American Infrastructure Fund</header>
<subsection id="HFE325DCDA1824BD2B26CED702DB18C94"><enum>(a)</enum><header>American Infrastructure Fund</header>
<paragraph id="H5059428DDEC646F09B10CE72A5D35E66"><enum>(1)</enum><header>In general</header><text>There is established a wholly owned Government corporation—</text>
<subparagraph id="HC183554B2E9040C59AB9FB27AD582714"><enum>(A)</enum><text>which shall be called the American Infrastructure Fund (referred to in this Act as the <quote>AIF</quote>);</text>
</subparagraph><subparagraph id="HCED40A22CD5546C6A70A2DE2E1D6ACCD"><enum>(B)</enum><text>which shall be headed by the Board of Trustees established under subsection (b);</text>
</subparagraph><subparagraph id="H9473F77EEF6D4CB2B87DF964142A8A1F"><enum>(C)</enum><text>which may have separate subaccounts or subsidiaries for funds used to make loans, bond guarantees,
and equity investments under this section;</text>
</subparagraph><subparagraph id="H6CE1811DD7194721AEB68F3BA64CDEFB"><enum>(D)</enum><text>which shall be available to the AIF to pay for the costs of carrying out this section, including
the compensation of the Board and other employees of the AIF; and</text>
</subparagraph><subparagraph id="H676F7689B99C49DE8049D5A49F7F21F7"><enum>(E)</enum><text>the funds of which may be invested by the Board in such manner as the Board determines appropriate.</text>
</subparagraph></paragraph><paragraph id="HE30DAC92753949C4B156BCC54DC7BF78"><enum>(2)</enum><header>Deposits to aif</header><text>All funds received from bond issuances, loan payments, bond guarantee fees, and any other funds
received in carrying out this section shall be held by AIF.</text>
</paragraph><paragraph id="H1801EA7DFAE8475B9C3C2579E5F27F4A"><enum>(3)</enum><header>Limitations</header><text>The charter of the AIF shall limit its activities to those activities described as the mission of
the Board under subsection (b)(2).</text>
</paragraph><paragraph id="H02770F92BDF44977A5ABAA1626A2D4A4"><enum>(4)</enum><header>Oversight</header><text>The AIF shall register with the Securities and Exchange Commission and the Chairman shall report to
Congress annually as to whether the AIF is fulfilling the mission of the
Board under subsection (b)(2).</text>
</paragraph><paragraph id="HF357133181234A61BE93AA2162546B6B"><enum>(5)</enum><header>Treatment of aif</header>
<subparagraph id="HE0D05488B1764938B5996B887BD0588B"><enum>(A)</enum><header>Accounts</header><text>Title 31, United States Code, is amended in each of sections 9107(c)(3) and 9108(d)(2)—</text>
<clause id="H75F78B5B962B4FC3B38F416687C01494"><enum>(i)</enum><text>by inserting <quote>the American Infrastructure Fund,</quote> after <quote>the Regional Banks for Cooperatives,</quote>; and</text>
</clause><clause id="H8369CED782CA4D9BA9F0A78E55392D22"><enum>(ii)</enum><text>by striking <quote>those banks</quote> and inserting <quote>those entities</quote>.</text>
</clause></subparagraph><subparagraph id="HFA1E99F8CDB14EF8994BFEE764CC7250"><enum>(B)</enum><header>Bonds</header><text>Section 149(b)(3)(A)(i) is amended by inserting <quote>American Infrastructure Fund,</quote> after <quote>Federal Home Loan Mortgage Corporation,</quote>.</text>
</subparagraph></paragraph></subsection><subsection id="H85C93B73173A49629C41D27043865119"><enum>(b)</enum><header>Board of trustees</header>
<paragraph id="H4015C4514941442F94952FD8D9429FE0"><enum>(1)</enum><header>In general</header><text>There is established a Board of Trustees of the AIF (referred to in this subsection as the <quote>Board</quote>), which shall be composed of 9 members who—</text>
<subparagraph id="H6F7DA6E19F2645688BBFC5FB7E70E18A"><enum>(A)</enum><text>have substantial experience in bond guarantees or municipal credit; and</text>
</subparagraph><subparagraph id="H848395D2055743B5BFC6D35A5FE5A98E"><enum>(B)</enum><text>to the greatest extent practicable, have extensive experience working with municipal credit, risk
management, and infrastructure finance.</text>
</subparagraph></paragraph><paragraph id="H74EA8F235BA44B86B64AD4D7E458263A"><enum>(2)</enum><header>Mission</header><text>The mission of the Board is—</text>
<subparagraph id="H7BC48FFCDADE407F8A1F6EA837243EC3"><enum>(A)</enum><text>to operate the AIF and its subsidiaries to be a low cost provider of bond guarantees, loans, and
equity investments to State and local governments and infrastructure
providers for urban and rural infrastructure projects that—</text>
<clause id="HE0D5F983ACA0449882228E00534418A5"><enum>(i)</enum><text>provide a positive economic impact; and</text>
</clause><clause id="H2C8E0DA5FC514606BF9B4935F87D8EDC"><enum>(ii)</enum><text>meet such other standards as the Board may develop;</text>
</clause></subparagraph><subparagraph id="H077B624882BF4656BE26B972F8595E63"><enum>(B)</enum><text>to operate the AIF in a self-sustaining manner;</text>
</subparagraph><subparagraph id="H065BB0B0320F46B581163326ADEB3887"><enum>(C)</enum><text>to not have a profit motive, but to seek at all times to pursue its mission of providing low cost
bond guarantees and loans while—</text>
<clause id="H628B0FE10E324957B9240BEABAB55FC1"><enum>(i)</enum><text>covering its costs;</text>
</clause><clause id="H10A9518D81544951BF7BCF1EF289C1DC"><enum>(ii)</enum><text>maintaining such reserves as may be needed; and</text>
</clause><clause id="H072F1E51F8324623B534396A16973016"><enum>(iii)</enum><text>applying prudent underwriting standards;</text>
</clause></subparagraph><subparagraph id="HBA82BCD4646C4D409EE17F143F27530B"><enum>(D)</enum><text>to only consider projects put forth by State and local governments and not to seek projects
directly; and</text>
</subparagraph><subparagraph id="H2FA1E8B8BA55400484DED6365969AFEF"><enum>(E)</enum><text>to engage in no other activities other than those permitted under this section.</text>
</subparagraph></paragraph><paragraph id="H91E646900A3547ED9DE96183C64D1B7A"><enum>(3)</enum><header>Membership</header>
<subparagraph id="HBEF7405F645D43EFAA68AF1C22720A97"><enum>(A)</enum><header>Initial members</header>
<clause id="HFCE013FC5771478E8B7006EE9E480D4C"><enum>(i)</enum><header>Appointment</header><text>Not later than 150 days after the date of the enactment of this Act, the President shall appoint,
with the advice and consent of the Senate, as members of the Board—</text>
<subclause id="H4869F7E7652B48D8982D2E27E687318B"><enum>(I)</enum><text>2 individuals from a list of at least 5 individuals selected by the Speaker of the House of
Representatives;</text>
</subclause><subclause id="H64562ADD4FC24301959B4EB226638224"><enum>(II)</enum><text>2 individuals from a list of at least 5 individuals selected by the Minority Leader of the House of
Representatives;</text>
</subclause><subclause id="HC23EEE6FC85748A49136F35B6F5D005D"><enum>(III)</enum><text>2 individuals from a list of at least 5 individuals selected by the Majority Leader of the Senate;</text>
</subclause><subclause id="H74D6141F304A4D2EBAE6A6F0040742F1"><enum>(IV)</enum><text>2 individuals from a list of at least 5 individuals selected by the Minority Leader of the Senate;
and</text>
</subclause><subclause id="H52C4003239C540C981CF2741D46E1182"><enum>(V)</enum><text>1 individual selected at will by the President.</text>
</subclause></clause><clause id="HEE8C0832913B49EC870BB56DA9203FE9"><enum>(ii)</enum><header>Submission of lists</header><text>Each of the lists described in clause (i) shall be submitted to the President not later than 90
days after the date of the enactment of this Act. If any of such lists are
submitted after the date required under this clause, the President may
appoint the 2 members of the Board who were to be selected from such list
at will.</text>
</clause></subparagraph><subparagraph id="H5B0C17BC50EA49C2906473040E25BC0B"><enum>(B)</enum><header>Staggered terms</header><text>The members of the Board appointed pursuant to subparagraph (A)(i) shall serve staggered terms,
with 2 each of the initial members of the Board serving for terms of 5, 6,
7, and 8 years, respectively, and the initial Chair selected under
subparagraph (D) serving for 9 years. The decision of which Board members,
other than the Chair, serve for which initial terms shall be made by the
members of the Board drawing lots.</text>
</subparagraph><subparagraph id="H90CCAD2507E94C00A7720CEECA7B2D13"><enum>(C)</enum><header>Additional members</header>
<clause id="H106772CD59944519A0763EA6CF3B3FDF"><enum>(i)</enum><header>In general</header><text>Except as provided in subparagraph (A), if the term of a member of the Board expires or otherwise
becomes vacant, the President shall appoint a replacement for such member,
with the advice and consent of the Senate, from among a list of at least 5
individuals submitted by the Board.</text>
</clause><clause id="H8CF251BBAACC40B5BF93021D8CBF3702"><enum>(ii)</enum><header>Term of service</header>
<subclause id="HCABAE8F6EAE94FF0826E261BA3E6939B"><enum>(I)</enum><header>In general</header><text>Each member of the Board appointed to replace a member whose term is expiring shall serve for a
7-year term.</text>
</subclause><subclause id="H92719EAC73A64C3BA3700B261EF24998"><enum>(II)</enum><header>Vacancies</header><text>Any member of the Board appointed to fill a vacancy occurring before the expiration of the term to
which that member's predecessor was appointed shall be appointed only for
the remainder of the term.</text>
</subclause></clause></subparagraph><subparagraph id="HC27332F461534B6EB1605CE323B03299"><enum>(D)</enum><header>Chair</header><text>The members of the Board shall choose 1 member to serve as the Chair of the Board for a term of 7
years, except that the initial Chair shall serve for a term of 9 years,
pursuant to subsection (B).</text>
</subparagraph><subparagraph id="H39BBF623849A4E06A28A73FB8A1B79AE"><enum>(E)</enum><header>Continuation of service</header><text>Each member of the Board may continue to serve after the expiration of the term of office to which
that member was appointed until a successor has been appointed.</text>
</subparagraph><subparagraph id="H720736C5E1B744A5A0A9CA6BECD6518F"><enum>(F)</enum><header>Conflicts of interest</header><text>No member of the Board may have a financial interest in, or be employed by, a Qualified
Infrastructure Project (<quote>QIP</quote>) related to assistance provided under this section. Owning municipal credit of any State or local
government or owning the securities of a diversified company that engages
in infrastructure activities, provided those activities constitute less
than 20 percent of the company’s revenues, or investing in broadly held
investment funds shall not be deemed to create a conflict of interest. The
Board may issue regulations to define terms used under this subparagraph.</text>
</subparagraph></paragraph><paragraph id="H041D9FFC82064330B1455A867F7F017A"><enum>(4)</enum><header>Compensation</header><text>The members of the Board shall be compensated at an amount to be set by the Board, but under no
circumstances may such compensation be higher than the rate prescribed for
level IV of the Executive Schedule under <external-xref legal-doc="usc" parsable-cite="usc/5/5315">section 5315</external-xref> of title 5, United
States Code.</text>
</paragraph><paragraph id="H2AB6A0735E8F4485825C4A4B72AC6EAE"><enum>(5)</enum><header>Staff</header><text>The Board shall employ and set compensation for such staff as the Board determines as is necessary
to carry out the activities and mission of the AIF, and such staff may be
paid without regard to the provisions of chapter 51 and subchapter III of
chapter 53, United States Code, relating to classification and General
Schedule pay rates.</text>
</paragraph><paragraph id="H4602A8430A4C4AA1AAEC1D7346487C3D"><enum>(6)</enum><header>Procedures</header><text>The Board shall establish such procedures as are necessary to carry out this section.</text>
</paragraph><paragraph id="HCAC7C9DB26D04C1FB2C33176780CFD5B"><enum>(7)</enum><header>Corporate governance standards</header>
<subparagraph id="H505235903DFE4401A2652D19F5B8A641"><enum>(A)</enum><header>Board committees generally</header><text>The Board shall maintain all of the committees required to be maintained by the board of directors
of an issuer listed on the New York Stock Exchange as of the date of the
enactment of this section.</text>
</subparagraph><subparagraph id="H401F8F9AFE784A6FB7212B08018C0322"><enum>(B)</enum><header>Risk management committee</header><text>The Board shall maintain a risk management committee, which shall—</text>
<clause id="HF7F97578F1E448C5AB8838ACB61FE895"><enum>(i)</enum><text>employ additional staff who are certified by the Board as having significant and relevant
experience in insurance underwriting and credit risk management; and</text>
</clause><clause id="H2A244E138A2D47FDBB4DC8126DF5986E"><enum>(ii)</enum><text>establish the risk management policies used by the Board.</text>
</clause></subparagraph><subparagraph id="HFE7D28F6CB194D6BA3246FF79362A01C"><enum>(C)</enum><header>Standards</header><text>The Board shall, to the extent practicable, follow all standards with respect to corporate
governance that are required to be followed by the board of directors of
an issuer listed on the New York Stock Exchange as of the date of the
enactment of this section.</text>
</subparagraph></paragraph><paragraph id="HFA3076DF795C4824B5683A30E52EF2A0"><enum>(8)</enum><header>Biennial reports</header><text>Not less frequently than once every 2 years, the Board shall produce a report that describes, of
the materials, goods, and products that were used to construct, or to
support the construction of, qualified infrastructure projects (as
described in subsection (c)) and received financing from the American
Infrastructure Fund within the most recent 2 calendar years, the
percentage of such materials, goods, and products that were created,
sourced, or manufactured in the United States.</text>
</paragraph></subsection><subsection id="HF9BD265350BA45D7B07962FC40CEA266"><enum>(c)</enum><header>Infrastructure investment</header>
<paragraph id="H71C388780EC2480FAD9F00809BAF9685"><enum>(1)</enum><header>Entities eligible for assistance</header><text>The AIF may provide assistance to State and local government entities, nonprofit infrastructure
providers, private parties, and public-private partnerships (referred to
in this section as <quote>eligible entities</quote>) to help finance qualified infrastructure projects (referred to in this subsection as <quote>QIPs</quote>).</text>
</paragraph><paragraph id="H3564A89A57564900BC622A993FF46B21"><enum>(2)</enum><header>Forms of assistance</header><text>The AIF may—</text>
<subparagraph id="HDA742F9DDB33446B8142BB0EAB096CF2"><enum>(A)</enum><text>provide bond guarantees to debt issued by eligible entities;</text>
</subparagraph><subparagraph id="H223296650DA54B699FDBC0B626A166E3"><enum>(B)</enum><text>make loans, including subordinated loans, to eligible entities; and</text>
</subparagraph><subparagraph id="HD0E3B851023C45DDB47DD5BFD27875E6"><enum>(C)</enum><text>make equity investments in QIPs.</text>
</subparagraph></paragraph><paragraph id="H7578739B459C4281A221D55D18BAE16A"><enum>(3)</enum><header>Qualified infrastructure projects</header><text>A project qualifies as a QIP under this section if—</text>
<subparagraph id="HA34A558395CA4EC8A3AD6DF89CCEBF1D"><enum>(A)</enum><text>the project is sponsored by a State or local government;</text>
</subparagraph><subparagraph id="H31531842B2D540B590BE1A453D295EEC"><enum>(B)</enum><text>the infrastructure is, or will be, owned by a State or local government;</text>
</subparagraph><subparagraph id="HC48865EED80B4341B137B68F387AA22D"><enum>(C)</enum><text>the project involves the construction, maintenance, improvement, or repair of a transportation,
energy, water, communications, or educational facility;</text>
</subparagraph><subparagraph id="H6F41A0732D4B4366B6088858F68D8030"><enum>(D)</enum><text>the recipient of bond guarantees, loans, equity investments, or any other innovative financing
technique authorized under this Act provides written assurances prescribed
by the AIF that the project will be performed in compliance with the
requirements of all Federal laws that would otherwise apply to similar
projects to which the United States is a party; and</text>
</subparagraph><subparagraph id="H7A6EE47B281247899FEBF771EE121313"><enum>(E)</enum><text display-inline="yes-display-inline">in the case of a public transportation capital project as defined in <external-xref legal-doc="usc" parsable-cite="usc/49/5302">section 5302</external-xref> of title 49,
United States Code, the recipient of bond guarantees, loans, equity
investments, or any other innovative financing technique authorized under
this Act complies with the grant requirements of section 5309 of such
title.</text>
</subparagraph></paragraph><paragraph id="HC62D9ACA912E48E7B7ADF4538F839E7F"><enum>(4)</enum><header>Application for assistance</header>
<subparagraph id="H952C3FDD6E804244B42D6CC5DF56F8DE"><enum>(A)</enum><header>In general</header><text>A State or local government that wishes to receive a loan or bond guarantee under this section
shall submit an application to the Board in such form and manner and
containing such information as the Board may require.</text>
</subparagraph><subparagraph id="H6BF891B03494485D8D20E1D4BF8CB269"><enum>(B)</enum><header>Requirement for public sponsorship of private entities</header><text>A private entity may only receive a bond guarantee, loan, or equity investment under this section
if the State or local government for the jurisdiction in which the
nonprofit infrastructure provider or private partner is located submits an
application pursuant to subparagraph (A) on behalf of such nonprofit
infrastructure provider or private partner.</text>
</subparagraph></paragraph><paragraph id="H3F6FC4AC58574D66836DE20636C4C15F"><enum>(5)</enum><header>Limitations on single state awards</header>
<subparagraph id="H7AC6F0967F744E4F92FF8C0F0B289572"><enum>(A)</enum><header>Annual limitation</header><text>The Board shall set an annual limit, as a percentage of total assistance provided under this
section during a year, on the amount of assistance a single State
(including local governments and other infrastructure providers within
such State) may receive in assistance provided under this section.</text>
</subparagraph><subparagraph id="HF31A658AB79043A5BD1D53DCB034FEFA"><enum>(B)</enum><header>Cumulative limitation</header><text>The Board shall set a limit, as a percentage of total assistance provided under this section
outstanding at any one time, on the amount of assistance a single State
(including local governments and other infrastructure providers within
such State) may receive in assistance provided under this section.</text>
</subparagraph></paragraph><paragraph id="HFB6A003922B9417D9B2782A4A4DF7146"><enum>(6)</enum><header>Loan specifications</header><text>Loans made under this section shall have such maturity and carry such interest rate as the Board
determines appropriate.</text>
</paragraph><paragraph id="HFC0ADA51DE874A2D968B8058B8E36755"><enum>(7)</enum><header>Bond guarantee</header><text>The Board shall charge such fees for Bond guarantees made under this section as the Board
determines appropriate.</text>
</paragraph><paragraph id="H511776226155463787406FAA6E545919"><enum>(8)</enum><header>Equity investments</header><text>With respect to a QIP, the amount of an equity investment made by the AIF in such QIP may not
exceed 20 percent of the total cost of the QIP.</text>
</paragraph><paragraph id="H8959237FEA1245B48231AE38B66F84DB"><enum>(9)</enum><header>Public-private partnership requirements</header><text>At least 35 percent of the assistance provided under this section shall be provided to QIPs for
which at least 10 percent of the financing for such QIPs comes from
private debt or equity.</text>
</paragraph><paragraph id="H7891A0D68FB9472BB94AC14123E29737"><enum>(10)</enum><header>Prohibition on principal forgiveness</header><text>With respect to a loan made under this section, the Board may not forgive any amount of principal
on such loan.</text>
</paragraph></subsection><subsection id="H76977BA2360A45F89E93F362CC19B967"><enum>(d)</enum><header>Definitions</header><text>For purposes of this section:</text>
<paragraph id="H6D4A1CC58D074EE7A0428C241B53186B"><enum>(1)</enum><header>Infrastructure provider</header><text>The term <term>infrastructure provider</term> means an entity that seeks to finance a QIP.</text>
</paragraph><paragraph id="HAD3C144E10D84E0C9777C8CCE18AC22B"><enum>(2)</enum><header>Secretary</header><text>The term <term>Secretary</term> means the Secretary of the Treasury.</text>
</paragraph><paragraph id="H6DC1E94FF4504677A5CEDEDAF2FBDE7A"><enum>(3)</enum><header>State</header><text>The term <term>State</term> means each of the several States, the District of Columbia, any territory or possession of the
United States, and each federally recognized Indian tribe.</text>
</paragraph></subsection><subsection id="HB45B7374E3D4404C943851FFE4BE42D5"><enum>(e)</enum><header>Appropriation</header><text display-inline="yes-display-inline">Out of money in the Treasury not otherwise appropriated, there is hereby appropriated
$50,000,000,000 to the American Infrastructure Fund. Amounts appropriated
under this subsection shall remain available without fiscal year
limitation.</text>
</subsection></section><section commented="no" id="HF0D7A5928DAA423C8FEB39107A9269C1"><enum>103.</enum><header>Dedication of remaining revenues to highway trust fund</header>
<subsection commented="no" id="H99A548E4FBC2478B9B0E720A56AE9E86"><enum>(a)</enum><header>In general</header><text>Section 9503(f) is amended by redesignating paragraph (5) as paragraph (6) and by inserting after
paragraph (4) the following new paragraph:</text>
<quoted-block display-inline="no-display-inline" id="H30432AC4563A434BAFAFEBA50F3EB63A" style="OLC">
<paragraph commented="no" id="H3AB853D0539841CD86313746F45200C6"><enum>(5)</enum><header>Appropriation of revenues attributable to section 965</header>
<subparagraph commented="no" id="HEEA6E59695844CEF8DD122DC47D432D5"><enum>(A)</enum><header>Initial appropriation</header><text>Out of money in the Treasury not otherwise appropriated, there is hereby appropriated
$100,000,000,000 to the Highway Trust Fund.</text>
</subparagraph><subparagraph commented="no" id="H127E340F27C3408589A4280FD46EA97F"><enum>(B)</enum><header>Remaining revenues</header>
<clause id="H6E9DCDA0098F4F6B990B52A3CBBD0F23"><enum>(i)</enum><header>In general</header><text>Out of money in the Treasury not otherwise appropriated, there are hereby appropriated to the
Highway Trust Fund the excess of—</text>
<subclause id="HDBD38B10C2DB425E9ABAD0FCE738AD8F"><enum>(I)</enum><text>amounts equivalent to the aggregate net tax liabilities under section 965 (as defined in such
section) received in the Treasury, over</text>
</subclause><subclause id="H948C331DDC784B568FFF63BAB1CE16C7"><enum>(II)</enum><text>$150,000,000,000.</text>
</subclause></clause><clause commented="no" id="H6E6679E778824CD293D77C40AC84A8EA"><enum>(ii)</enum><header>Additional transfers only after revenues equaling initial transfers have been received in the
Treasury</header><text>For purposes of applying section 9601 to clause (i), no transfer shall be made under clause (i)
until the Secretary estimates that the amount described in clause (i)(I)
has exceeded the amount described in clause (i)(II).</text></clause></subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" id="H321C21F114E14545AEC01C730FF3ED8B"><enum>(b)</enum><header>Transfers to Mass Transit Account</header><text>Section 9503(e)(2) of such Code is amended by striking <quote>the mass transit portion</quote> and inserting <quote>, 20 percent of the amounts appropriated to the Highway Trust Fund under subsection (f)(5), and the
mass transit portion</quote>.</text>
</subsection></section><section id="H1C509B3BA76A460CAD4A89604DF7195E"><enum>104.</enum><header>Highway Trust Fund Solvency Commission</header>
<subsection id="H34D9550C56E44F04B417D46CA03260F8"><enum>(a)</enum><header>Establishment</header><text>There is established in the legislative branch a commission to be known as the <quote>Highway Trust Fund Solvency Commission</quote> (in this section referred to as the <quote>Commission</quote>).</text>
</subsection><subsection id="H659F3BA22FBA437C8F3A3394F40684AC"><enum>(b)</enum><header>Duty of the Commission</header><text>Not later than 1 year after the initial meeting of the Commission, the Commission shall transmit to
Congress a written report that includes recommendations and proposed
legislation for achieving long-term solvency of the Highway Trust Fund.</text>
</subsection><subsection id="HD6993793CF8743A2998D92B5599BAEDC"><enum>(c)</enum><header>Members</header>
<paragraph id="HB745CBA8A493409BB21EE4B86F4872AC"><enum>(1)</enum><header>Number and appointment</header><text>The Commission shall be composed of 9 members. Of the members of the Commission—</text>
<subparagraph id="HA65C876181FF4DE1A073975206FB2662"><enum>(A)</enum><text>1 member shall be appointed by the President of the United States;</text>
</subparagraph><subparagraph id="H1BC9B8E50C654D819EA731C2B0C12BE6"><enum>(B)</enum><text display-inline="yes-display-inline">1 member shall be appointed by the chairman of the Committee on Finance of the Senate;</text>
</subparagraph><subparagraph id="HDE15A602BC39443797B907FAE9B299F6"><enum>(C)</enum><text display-inline="yes-display-inline">1 member shall be appointed by the ranking minority member of the Committee on Finance of the
Senate;</text>
</subparagraph><subparagraph id="H20D2700932A947B19328AFCEBACF750C"><enum>(D)</enum><text display-inline="yes-display-inline">1 member shall be appointed by the chairman of the Committee on Ways and Means of the House of
Representatives;</text>
</subparagraph><subparagraph id="H11C02682C0A6443B8FE00E6B6182CAA1"><enum>(E)</enum><text display-inline="yes-display-inline">1 member shall be appointed by the ranking minority member of the Committee on Ways and Means of
the House of Representatives;</text>
</subparagraph><subparagraph id="H9AD2CA2C28E94C13AE9904FDEEC7ABD6"><enum>(F)</enum><text display-inline="yes-display-inline">1 member shall be appointed by the chairman of the Committee on Environment and Public Works of the
Senate;</text>
</subparagraph><subparagraph id="HE13A8C8984154AD9A700C8D97AA758A7"><enum>(G)</enum><text display-inline="yes-display-inline">1 member shall be appointed by the ranking minority member of the Committee on Environment and
Public Works of the Senate;</text>
</subparagraph><subparagraph id="H20F25D72BA5E4BF09565067695B90AC5"><enum>(H)</enum><text display-inline="yes-display-inline">1 member shall be appointed by the chairman of the Committee on Transportation and Infrastructure
of the House of Representatives; and</text>
</subparagraph><subparagraph id="HCD00C23101F44DDEBBDD5E7441EEE4C7"><enum>(I)</enum><text display-inline="yes-display-inline">1 member shall be appointed by the ranking minority member of the Committee on Transportation and
Infrastructure of the House of Representatives.</text>
</subparagraph></paragraph><paragraph id="HF952179FD284422C829179CAEA7A92E8"><enum>(2)</enum><header>Timing of appointments</header><text>Each of the appointments made under paragraph (1) shall be made not later than 45 days after the
date of the enactment of this Act.</text>
</paragraph><paragraph id="H297260729D864433A04A9665D0A14329"><enum>(3)</enum><header>Terms; vacancies</header><text>Each member shall be appointed for the life of the Commission, and a vacancy in the Commission
shall be filled in the manner in which the original appointment was made.</text>
</paragraph><paragraph id="H020077D012B34E17B5A8E28DB9F508E8"><enum>(4)</enum><header>Compensation</header>
<subparagraph id="H904C670B5C534D0B874E85FF2BD18861"><enum>(A)</enum><header>In general</header><text display-inline="yes-display-inline">Members of the Commission shall serve without pay.</text>
</subparagraph><subparagraph id="H2B189778517B4CFDBC5D6F11644226DD"><enum>(B)</enum><header>Travel expenses</header><text>Each member shall receive travel expenses, including per diem in lieu of subsistence, in accordance
with applicable provisions under subchapter I of <external-xref legal-doc="usc-chapter" parsable-cite="usc-chapter/5/57">chapter 57</external-xref> of title 5,
United States Code.</text>
</subparagraph></paragraph></subsection><subsection id="H3201299D3306455283CD20F8CDBDFB85"><enum>(d)</enum><header>Operation and powers of the Commission</header>
<paragraph id="HE010CC0E97FF429C965706767A4342F5"><enum>(1)</enum><header>Chair</header><text display-inline="yes-display-inline">The chairperson of the Commission shall be elected by the members of the Commission.</text>
</paragraph><paragraph id="HF7678F3A70094F399C6FDBADE89A979F"><enum>(2)</enum><header>Meetings</header><text>The Commission shall meet not later than 30 days after the members of the Commission have been
appointed, and at such times thereafter as the chairperson shall
determine.</text>
</paragraph><paragraph id="H29130FBC83C94C2F9519579F2E9B818F"><enum>(3)</enum><header>Rules of procedure</header><text>The chairperson shall, with the approval of a majority of the members of the Commission, establish
written rules of procedure for the Commission, which shall include a
quorum requirement to conduct the business of the Commission.</text>
</paragraph><paragraph id="H07F6C793B2144A948F6CB5F669502AD7"><enum>(4)</enum><header>Hearings</header><text display-inline="yes-display-inline">The Commission may, for the purpose of carrying out this section, hold hearings, sit and act at
times and places, take testimony, and receive evidence as the Commission
considers appropriate.</text>
</paragraph><paragraph id="H730798D83835407AB183C9D9015764F5"><enum>(5)</enum><header>Obtaining official data</header><text display-inline="yes-display-inline">The Commission may secure directly from any department or agency of the United States, including
the Congressional Budget Office and the Government Accountability Office,
any information or technical assistance necessary to enable it to carry
out this section. Upon request of the chairperson of the Commission, the
head of that department or agency shall furnish that information or
technical assistance to the Commission.</text>
</paragraph><paragraph id="HF70ACFEC86B3480996AC1B27F7E9AF67"><enum>(6)</enum><header>Contract authority</header><text display-inline="yes-display-inline">The Commission may contract with and compensate government and private agencies or persons for any
purpose necessary to enable it to carry out this section.</text>
</paragraph><paragraph id="H722AAA4AE8F342AD8BDAE8E47DAD224E"><enum>(7)</enum><header>Mails</header><text display-inline="yes-display-inline">The Commission may use the United States mails in the same manner and under the same conditions as
other departments and agencies of the United States.</text>
</paragraph></subsection><subsection id="HC31E5A16B5B3449BB0D71069F2363388"><enum>(e)</enum><header>Personnel</header>
<paragraph id="HBA1AE16CCC054531AE3C10EBE42AF99C"><enum>(1)</enum><header>Director</header><text display-inline="yes-display-inline">The Commission shall have a Director who shall be appointed by the Commission. The Director shall
be paid at a rate of pay equivalent to the annual rate of basic pay for a
comparable position paid under the Executive Schedule, subject to the
approval of the chairperson of the Commission.</text>
</paragraph><paragraph id="H7C5A1B8A3CDA4CAA850FD3565558AC20"><enum>(2)</enum><header>Staff</header><text>The Director may appoint and fix the pay of additional staff as the Director considers appropriate.</text>
</paragraph><paragraph id="HF3843BD648824D92BEAD55CA1942AE56"><enum>(3)</enum><header>Experts and consultants</header><text display-inline="yes-display-inline">The Commission may procure temporary and intermittent services under <external-xref legal-doc="usc" parsable-cite="usc/5/3109">section 3109(b)</external-xref> of title 5,
United States Code, but at rates for individuals not to exceed the daily
equivalent of the annual rate of basic pay for a comparable position paid
under the Executive Schedule.</text>
</paragraph><paragraph id="HC503D100B85746528AAE1072DE612AE4"><enum>(4)</enum><header>Staff of Federal agencies</header><text display-inline="yes-display-inline">Upon request of the Commission, the head of any Federal department or agency may detail, without
reimbursement, any of the personnel of that department or agency to the
Commission to assist it in carrying out its duties under this section.</text>
</paragraph><paragraph id="H4D39E8CB87A5488F8D218598F1547DC3"><enum>(5)</enum><header>Administrative support services</header><text display-inline="yes-display-inline">Upon the request of the Commission, the Administrator of General Services shall provide to the
Commission, on a reimbursable basis, the administrative support services
necessary for the Commission to carry out its responsibilities under this
section.</text>
</paragraph></subsection><subsection id="H1BE0A5A73A24472C9090D630431BF456"><enum>(f)</enum><header>Termination</header><text>The Commission shall terminate not later than 60 days after the submission of the report described
in subsection (b).</text>
</subsection><subsection id="HF5B09DEB89D643B2A423DF2F9DFE11BA"><enum>(g)</enum><header>Authorization of appropriations</header><text>There is authorized to be appropriated such sums as may be necessary to carry out this section.</text>
</subsection></section><enum>II</enum><header>Deadline for international tax reform</header>
<section id="H09FA7ACD00694A09981D0CAA2E5D6A6E"><enum>201.</enum><header>18-month deadline for international tax reform</header><text display-inline="no-display-inline">Notwithstanding any provision of title III, the provisions of, and amendments made by, title III
shall not take effect if a bill which reforms the corporate international
tax system by eliminating the incentive to hold earnings in low-tax
foreign jurisdictions is enacted into law during the 18-month period which
begins on the date of the enactment of this Act.</text>
</section><enum>III</enum><header>Fallback international tax reform</header>
<section id="H8906ABC4BC59458BA2BA5BC487414E99"><enum>300.</enum><header>General effective date of title</header><text display-inline="no-display-inline">For purposes of this title, the term <term>applicable date</term> means the date which is 18 months after the date of the enactment of this Act.</text>
</section><subtitle id="H50AE5B81DEA847A6BFBFDA7EC7620564"><enum>A</enum><header>Reform of taxation of income earned by controlled foreign corporations</header>
<part id="HE50CEECAC7804B4B87097CC0452E2041" style="OLC"><enum>I</enum><header>General provisions</header>
<section id="H90526C48D0EA4372AD0A05198776878F"><enum>301.</enum><header>Modifications to subpart F income</header>
<subsection id="H53EA67BF9C26499982A8F6371A49A1A9"><enum>(a)</enum><header>In general</header><text>Subpart F of part III of subchapter N of chapter 1 is amended by striking sections 952 through 956
and inserting the following:</text>
<quoted-block display-inline="no-display-inline" id="HD43309C55E2F4491BFB1E2ED825B1093" style="OLC">
<section id="H16F37EE3E091444F9BAB7A092EC9EF75"><enum>952.</enum><header>Subpart F income defined</header>
<subsection id="H80A2F1C8C9244CA0A2467B3AE4431ABB"><enum>(a)</enum><header>In general</header><text>For purposes of this subpart, the term <term>subpart F income</term> means, with respect to any controlled foreign corporation, the sum of—</text>
<paragraph id="H1C592A33B0954073AE026E94600D3D64"><enum>(1)</enum><text>the inclusion percentage of the corporation's modified active income, plus</text>
</paragraph><paragraph id="H7178187D849A4F94881F192321BA4974"><enum>(2)</enum><text>100 percent of the corporation's modified nonactive income.</text>
</paragraph></subsection><subsection id="H88186AAE9E024BAF90AE5A9B3434BE94"><enum>(b)</enum><header>Modified active income</header>
<paragraph id="H5203F718FC1F47EDBD28A274517A8E1E"><enum>(1)</enum><header>In general</header><text>The term <term>modified active income</term> means, with respect to any controlled foreign corporation, the excess (if any) of—</text>
<subparagraph id="H3632C8F45EB94722ADBFB63F91D5D6A5"><enum>(A)</enum><text>the corporation's active foreign market income, over</text>
</subparagraph><subparagraph id="H25F4CF6A981B4F2CAEB50CCC44C8333E"><enum>(B)</enum><text>the amount of the reduction under subsection (e) for deductions properly allocable to such income.</text>
</subparagraph></paragraph><paragraph id="H5DE0ED3992294207989C682421AD7FB0"><enum>(2)</enum><header>Reduction for certain losses</header>
<subparagraph id="H22DCC720D6EB4525A1366B17AE9A01EE"><enum>(A)</enum><header>In general</header><text>The modified active income determined under paragraph (1) for any taxable year shall be reduced
(but not below zero)—</text>
<clause id="H6E12EBD70F654382B7A8DD80D291D888"><enum>(i)</enum><text>first by any active foreign market loss for any prior taxable year, and</text>
</clause><clause id="H96BDB1FC7E4049C0B9CE45C0774A0DB1"><enum>(ii)</enum><text>then by any qualified loss for such taxable year (or for any prior taxable year to the extent
provided in subsection (c)(3)(B)).</text>
</clause></subparagraph><subparagraph id="H971AA56814224F31B4574D8578D152A6"><enum>(B)</enum><header>Limitation</header><text>An active foreign market loss or qualified loss for any prior taxable year shall only be taken into
account under subparagraph (A)—</text>
<clause id="HFB5AAA5B769F4D8BB54274DBD0CF6F1E"><enum>(i)</enum><text>if the prior taxable year is a taxable year which begins on or after the applicable date (as
defined in section 300 of the <short-title>Infrastructure and Global Tax Competitiveness Act of 2014</short-title>), and for which the controlled foreign corporation was a controlled foreign corporation, and</text>
</clause><clause id="HA45265BFC6C244E9A14B53CDF7945C6F"><enum>(ii)</enum><text>to the extent such loss has not been previously taken into account under this subsection.</text>
</clause></subparagraph></paragraph><paragraph id="H682F645D1F254199B3B815D42985C223"><enum>(3)</enum><header>Active foreign market loss</header><text>The term <term>active foreign market loss</term> means, with respect to any taxable year, the amount by which the amount determined under paragraph
(1)(B) exceeds the amount determined under paragraph (1)(A).</text>
</paragraph></subsection><subsection id="H8EAA904D48CD4030A401C3DA75B9FFE8"><enum>(c)</enum><header>Modified nonactive income</header>
<paragraph id="HD9FDCB9111AB436CBEEEC4136219E839"><enum>(1)</enum><header>In general</header><text>The term <term>modified nonactive income</term> means, with respect to any controlled foreign corporation, the excess (if any) of—</text>
<subparagraph id="H2DD386B97E6E41DE9DB26C6219C47799"><enum>(A)</enum><text>the corporation's gross income determined without regard to active foreign market income, over</text>
</subparagraph><subparagraph id="HFAECD1D984174B20BDDA3FC2DFAACDBD"><enum>(B)</enum><text>the amount of the reduction under subsection (e) for deductions properly allocable to such gross
income.</text>
</subparagraph></paragraph><paragraph id="HAE65F090B4924741B93D6572F7EECFF3"><enum>(2)</enum><header>Reduction for qualified losses</header><text display-inline="yes-display-inline">The amount determined under paragraph (1) for any taxable year shall be reduced (but not below
zero) by any qualified loss for any prior taxable year beginning on or
after the applicable date (as defined in section 300 of the <short-title>Infrastructure and Global Tax Competitiveness Act of 2014</short-title>), for which the controlled foreign corporation was a controlled foreign corporation, but only to
the extent such loss has not been previously taken into account under
subsection (b)(2) or this subsection.</text>
</paragraph><paragraph id="H68D2481426A641E6A9A1F193B3535DD1"><enum>(3)</enum><header>Qualified loss</header><text>For purposes of this section—</text>
<subparagraph id="HB7543FAB4EB84829B541A3050ACD313B"><enum>(A)</enum><header>In general</header><text>The term <term>qualified loss</term> means, with respect to any taxable year, the amount by which the amount determined under paragraph
(1)(B) exceeds the amount determined under paragraph (1)(A).</text>
</subparagraph><subparagraph id="H286B84A61E614C6CBCE9BAF01FCD6FCA"><enum>(B)</enum><header>Ordering rule for losses carried from prior taxable years</header><text>In the case of any qualified losses carried to a taxable year from 1 or more prior taxable years,
such losses shall be taken into account—</text>
<clause id="H3D5D7F7DDAF4496A8ED58F36DB3049A3"><enum>(i)</enum><text>first under paragraph (2), and</text>
</clause><clause id="H7CD117F1A44C41F0B44F488709DBBAA1"><enum>(ii)</enum><text>then under subsection (b)(2)(B) to the extent such losses exceed the amount determined under
paragraph (1).</text>
</clause></subparagraph></paragraph></subsection><subsection id="H2B886F4BFF9445CC89C66F78A0F87F2B"><enum>(d)</enum><header>Inclusion percentage</header><text>For purposes of this section—</text>
<paragraph id="H43269160D9634B0A907825F40DEDB95F"><enum>(1)</enum><header>In general</header><text>The term <term>inclusion percentage</term> means 20 percent increased by the number of percentage points (if any) determined under paragraph
(2).</text>
</paragraph><paragraph id="H26BDC96965A545D7A78C3EB2530A183D"><enum>(2)</enum><header>Additional inclusion for earnings not subject to OECD average foreign tax</header><text>The number of percentage points determined under this paragraph with respect to any controlled
foreign corporation for any taxable year, is the number of percentage
points (not less than zero nor more than 15) which bears the same ratio to
15 as—</text>
<subparagraph id="HF1BB1DE690674C42A1F79587042FA7F0"><enum>(A)</enum><text>the number of percentage points by which 25 percent exceeds the aggregate foreign rate of tax
imposed on the modified active income of such controlled foreign
corporation for such taxable year, bears to</text>
</subparagraph><subparagraph id="HD7E36C3AE63140E5AF0A2ED3C8AE97A9"><enum>(B)</enum><text>25.</text>
</subparagraph></paragraph></subsection><subsection id="H5527A98EA2E747AA814F20002A83A777"><enum>(e)</enum><header>Exclusion of United States income</header><text>For purposes of this subpart, any item of income of the controlled foreign corporation which is
effectively connected with the conduct by such corporation of a trade or
business within the United States shall not be taken into account in
computing the subpart F income of such corporation unless such item is
exempt from taxation (or is subject to a reduced rate of tax) pursuant to
a treaty obligation of the United States. For purposes of this subsection,
any exemption (or reductions) with respect to the tax imposed by section
884 shall not be taken into account.</text>
</subsection><subsection id="H50BB80D1293F410E971E8F1ECC1C6F1C"><enum>(f)</enum><header>Deductions</header><text>For purposes of subsections (b)(1)(B) and (c)(1)(B), the active foreign market income, and gross
income other than active foreign market income, of a controlled foreign
corporation shall each be reduced, under regulations prescribed by the
Secretary, by any deductions (including taxes) of such corporation
properly allocable to items of income taken into account in computing such
income.</text>
</subsection></section><section id="H419547A66678423B93D2F3B69AE8EE49"><enum>953.</enum><header>Active foreign market income</header>
<subsection id="HF8B31870006C4F4D902487EB4FE97FE7"><enum>(a)</enum><header>Active foreign market income defined</header><text display-inline="yes-display-inline">For purposes of this subpart, the term <term>active foreign market income</term> means, with respect to any controlled foreign corporation, the aggregate of all items of income
which are—</text>
<paragraph id="H1EF70B56893A4209BB3E7AA667752101"><enum>(1)</enum><text display-inline="yes-display-inline">attributable to economically significant activities with respect to a qualified trade or business,
and</text>
</paragraph><paragraph id="HCE9A52CC13634A75A8FF4C0AB1CB73C0"><enum>(2)</enum><text>derived in connection with—</text>
<subparagraph id="H3CD2B41353C94981855B9B97CDF3FFF5"><enum>(A)</enum><text>property which is sold, exchanged, or otherwise disposed of for use, consumption, or disposition
outside of the United States, or</text>
</subparagraph><subparagraph id="HB5043962F0A84CF9B0E4B519B0A3345F"><enum>(B)</enum><text>services which are provided outside of the United States with respect to persons or property
located outside of the United States.</text>
</subparagraph></paragraph></subsection><subsection id="H3F7C9BCB4B2C489EA6303551CBE7F5E4"><enum>(b)</enum><header>Treatment of passive income</header>
<paragraph id="H1904DD65EE864A1292382ED33E87F486"><enum>(1)</enum><header>In general</header><text>Except as otherwise provided in this subsection, the term <term>active foreign market income</term> shall not include the passive income (as defined in section 954) of a controlled foreign
corporation.</text>
</paragraph><paragraph id="H888590E132934424B5D009F1B372F2EB"><enum>(2)</enum><header>Active foreign market income includes certain income</header><text>The term <term>active foreign market income</term> shall include—</text>
<subparagraph id="H7CFEFB41A7EB47BEBE4808D464B70474"><enum>(A)</enum><text>if the controlled foreign corporation or a qualified business unit of the corporation is an
eligible controlled foreign corporation (as defined in section 954(c)),
any item of income of the corporation or unit which is qualified banking
or financing income (as so defined),</text>
</subparagraph><subparagraph id="HD38B155BEB4D4369894E2CCF34F43C4C"><enum>(B)</enum><text>if the controlled foreign corporation or a qualified business unit of the corporation is a
qualifying insurance company (as defined in section 954(d)) or a
qualifying insurance company branch (as so defined), any item of income of
the corporation or unit which is qualified insurance income (as so
defined),</text>
</subparagraph><subparagraph id="H4750D119BE874425AD7E7A81A34F890D"><enum>(C)</enum><text>any item of income which is rents or royalties derived from the ownership and operation (including
leasing) of real or personal property which is not treated as passive
income under section 954(a)(2)(A), and</text>
</subparagraph><subparagraph id="HA0B94869E65944D1BADC92D474779F76"><enum>(D)</enum><text>in the case of a regular dealer in property which is property described in section 954(a)(1)(B),
forward contracts, option contracts, or similar financial instruments
(including notional principal contracts and all instruments referenced to
commodities), any item of income from any transaction (including hedging
transactions and transactions involving physical settlement) entered into
in the ordinary course of such dealer's trade or business as such a
dealer.</text>
</subparagraph></paragraph><paragraph id="HB7B3ECEFA4D743188996F0C49BC304E9"><enum>(3)</enum><header>Gain or loss from sales of stock in other CFCs</header><text>If a controlled foreign corporation sells, exchanges, or otherwise disposes of stock in another
controlled foreign corporation which is a related person to the selling
corporation—</text>
<subparagraph id="H9549B90D6E284393980C9B170134E160"><enum>(A)</enum><text>gain from such sale, exchange, or disposition shall be treated as active foreign market income to
the extent that such gain would have been excluded from gross income under
section 1203 if the selling corporation were a United States shareholder
in the other controlled foreign corporation, and</text>
</subparagraph><subparagraph id="H29E979BDC84B41EFB9A33E8985E52269"><enum>(B)</enum><text>loss from such sale, exchange, or disposition shall not be allowed to the extent such loss would
have been disallowed under section 1213 if the selling corporation were a
United States shareholder in the other controlled foreign corporation.</text>
</subparagraph></paragraph><paragraph commented="no" id="HFF1339B430C9463288B4837980DE20F2"><enum>(4)</enum><header>Gain or loss from sales of interests in 25-percent owned partnerships</header>
<subparagraph commented="no" id="HD5F8AE50FDFA4EED9F8B32D960FD9071"><enum>(A)</enum><header>In general</header>
<clause commented="no" id="HC8BCD071C17946FA86B704A257A563DF"><enum>(i)</enum><header>Portion treated as active foreign market income</header><text>In the case of any sale or exchange by a controlled foreign corporation of an interest in a
partnership with respect to which such corporation is a 25-percent owner,
gain or loss on such sale shall be taken into account in determining
active foreign market income in the amount which bears the same ratio to
the amount of such gain or loss as the controlled foreign corporation's
distributable share of the active foreign market income from the
partnership over the applicable period bears to the controlled foreign
corporation's distributable share of gross income from the partnership
over such period. The Secretary shall prescribe such regulations as may be
appropriate to prevent abuse of the purposes of this paragraph, including
regulations providing for coordination of this paragraph with the
provisions of subchapter K.</text>
</clause><clause id="HB2EBA0722ACD4DBE956B4D928F6A933F"><enum>(ii)</enum><header>Applicable period</header><text display-inline="yes-display-inline">For purposes of this subparagraph, the term <term>applicable period</term> means, with respect to any interest in a partnership, the shorter of the 3-taxable year period
immediately preceding the taxable year of the sale or exchange or the
controlled foreign corporation's holding period in the interest. In no
event shall the applicable period include any portion of any taxable year
beginning before the applicable date (as defined in section 300 of the <short-title>Infrastructure and Global Tax Competitiveness Act of 2014</short-title>).</text>
</clause></subparagraph><subparagraph id="H051A9E9587064E098A16EF04F09DC087"><enum>(B)</enum><header>25-Percent owner</header><text>For purposes of this paragraph, the term <term>25-percent owner</term> means a controlled foreign corporation which owns directly 25 percent or more of the capital or
profits interest in a partnership. For purposes of the preceding sentence,
if a controlled foreign corporation is a shareholder or partner of a
corporation or a partnership, the controlled foreign corporation shall be
treated as owning directly its proportionate share of any capital or
profits interest in any partnership held directly or indirectly by such
corporation or partnership. If a controlled foreign corporation is treated
as owning a capital or profits interest in a partnership under
constructive ownership rules similar to the rules of section 958(b), the
controlled foreign corporation shall be treated as owning such interest
directly for purposes of this subparagraph.</text>
</subparagraph></paragraph></subsection><subsection commented="no" id="H0308A12B5F4A45039EBC18FBAA9993AF"><enum>(c)</enum><header>Treatment of insurance income</header>
<paragraph commented="no" id="H4708D65119894F73888301D6C7215CB3"><enum>(1)</enum><header>In general</header><text>Except as otherwise provided in this subsection, the term <term>active foreign market income</term> shall not include the insurance income (as defined in section 955(a)) of a controlled foreign
corporation.</text>
</paragraph><paragraph commented="no" id="HDECE58BD41DA4D409F6629E96045C9E5"><enum>(2)</enum><header>Active foreign market income includes exempt insurance income</header><text>The term <term>active foreign market income</term> shall include exempt insurance income (as defined in section 955(c)) shall be treated as active
foreign market income.</text>
</paragraph></subsection><subsection id="H57F7887A2DC843F2B2EEA6F6C6938AF7"><enum>(d)</enum><header>Treatment of income from property used, consumed, or disposed of in the United States</header><text>For purposes of subsection (a)(2)(A)—</text>
<paragraph id="HA20A3CA1374444509686BFDEF8961ED1"><enum>(1)</enum><header>In general</header><text>The term <term>active foreign market income</term> shall not include income derived in connection with property which is sold, exchanged, or
otherwise disposed of to any person if it was reasonable for the
controlled foreign corporation (or a related person) to expect that—</text>
<subparagraph commented="no" id="H1643554AF2914F2192BF1C010A3B636C"><enum>(A)</enum><text>such property would be used, consumed, or disposed of in the United States, or</text>
</subparagraph><subparagraph commented="no" id="H01898D5634F64FC4B042098D343DC26F"><enum>(B)</enum><text>such property would be used in the manufacture or production of, or as a component part in, other
property which would be used, consumed, or disposed of in the United
States.</text>
</subparagraph></paragraph><paragraph id="H590B6E19F268498A8215844FD95708D1"><enum>(2)</enum><header>Chain of related persons</header><text>If—</text>
<subparagraph id="H12E4067A6B37430D8ABDE8006A6D9C34"><enum>(A)</enum><text>property is ultimately used, consumed, or disposed of as described in subparagraph (A) or (B) of
paragraph (1), and</text>
</subparagraph><subparagraph id="HDABDF4E7EA61428E9498DDACF8BE008E"><enum>(B)</enum><text>all sales, exchanges, or dispositions of such property (or of the other property described in
paragraph (1)(B)) before the sale for use, consumption, or disposition in
the United States are between related persons,</text></subparagraph><continuation-text continuation-text-level="paragraph">then, for purposes of paragraph (1), there shall be deemed to have been a reasonable expectation
that the property (or the other property described in paragraph (1)(B))
would be used, consumed, or disposed of in the United States.</continuation-text></paragraph><paragraph commented="no" id="H2E4E7BC2FD174666882F3C1EDD740926"><enum>(3)</enum><header>Exception for property subsequently exported</header><text>Paragraphs (1) and (2) shall not apply with respect to property which, after entry into the United
States is—</text>
<subparagraph commented="no" id="HFBBB5510794B4969B02814A07861061C"><enum>(A)</enum><text>sold, leased, rented, or licensed by the controlled foreign corporation or a related person for
direct use, consumption, or disposition outside the United States, or</text>
</subparagraph><subparagraph commented="no" id="H5DDD16045B2B41BA937DDD0B64C4F49D"><enum>(B)</enum><text>used by the controlled foreign corporation or a related person as a component in other property
which is so sold, leased, rented, or licensed.</text>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="HF7C7D41417AE4180AF7EBA84E5F7F922"><enum>(4)</enum><header display-inline="yes-display-inline">Related person defined</header><text display-inline="yes-display-inline">For purposes of this subsection, the term <term>related person</term> has the meaning given such term under section 954(b).</text>
</paragraph></subsection><subsection id="H1561443583D9464F89277A8E6016037B"><enum>(e)</enum><header>Economically significant activities</header><text>For purposes of this section, the term <term>economically significant activities</term> means, with respect to any item of income, activities—</text>
<paragraph id="H3CD3055582EE475E8D757DFF060B87B7"><enum>(1)</enum><text>performed outside the United States,</text>
</paragraph><paragraph id="H442A0B3D704B48BDB9968939E63AE9AC"><enum>(2)</enum><text>performed by officers or employees of the controlled foreign corporation which are part of the
management and operational functions of the corporation, and</text>
</paragraph><paragraph id="H13792E094F974C4380ECBAC3493DD3B9"><enum>(3)</enum><text>which make a substantial contribution to the production of such item of income.</text>
</paragraph></subsection><subsection id="H6020D9799B0D4D10BCE2D33B2C66D3DA"><enum>(f)</enum><header>Qualified trade or business</header><text>For purposes of this section—</text>
<paragraph id="H7B86752C39FC4F0E90A82108941FC680"><enum>(1)</enum><header>In general</header><text>The term <term>qualified trade or business</term> means any trade or business which consists of—</text>
<subparagraph id="HA3AC25EEB59E41F8B0977AB11FD0D98C"><enum>(A)</enum><text>manufacturing, producing, growing, or extracting property outside of the United States, or</text>
</subparagraph><subparagraph id="HC6CFB945DAC44E39B86A82AE89F00AFD"><enum>(B)</enum><text>providing services outside of the United States.</text>
</subparagraph></paragraph><paragraph id="H92F5175A6EFF4EC59F5037254C12C358"><enum>(2)</enum><header>Special rule for substantial contributions to manufacturing and services</header><text>If a trade or business consists of making a substantial contribution through the activities of the
officers and employees of the controlled foreign corporation to a
qualified trade or business which is described in subparagraph (A) or (B)
of paragraph (1) of another person, then the trade or business shall be
treated as a qualified trade or business described in subparagraph (A) or
(B) of paragraph (1), whichever is applicable.</text>
</paragraph></subsection></section><section id="H3BC048A7714D4F17B7103EB8A95F0B5A"><enum>954.</enum><header>Definition of passive income</header>
<subsection id="HC85E242B24DE4C439188E090045CC229"><enum>(a)</enum><header>Passive income</header>
<paragraph id="H8AE66D20827846A3B1BF36EB54DF4BE0"><enum>(1)</enum><header>In general</header><text>For purposes of this part, the term <term>passive income</term> means the portion of the gross income which consists of:</text>
<subparagraph id="H53AAE2A0EEB9453CB445E82086912789"><enum>(A)</enum><header>Dividends, etc</header><text>Dividends, interest, royalties, rents, and annuities.</text>
</subparagraph><subparagraph id="HAD5507E48C734996972C1FA35CD1F7E3"><enum>(B)</enum><header>Certain property transactions</header><text>The excess of gains over losses from the sale or exchange of property—</text>
<clause id="H2EE350FD92F4461CB30ADA565AD3B431"><enum>(i)</enum><text>which gives rise to income described in subparagraph (A) (after application of paragraph (2)(A))
other than property which gives rise to income not treated as passive
income by reason of subsection (c) or (d) for the taxable year,</text>
</clause><clause id="HED69CFDE844145A6B6EBAD65C1E8EBFF"><enum>(ii)</enum><text>which is an interest in a trust, partnership, or REMIC, or</text>
</clause><clause id="HE926413BDC3E497E9E8BD6FF1F33EC62"><enum>(iii)</enum><text>which does not give rise to any income.</text></clause><continuation-text continuation-text-level="subparagraph">Gains and losses from the sale or exchange of any property which, in the hands of the controlled
foreign corporation, is property described in section 1221(a)(1) shall not
be taken into account under this subparagraph.</continuation-text></subparagraph><subparagraph id="H762DCC1C47D04A5C8374C23F6D6F7100"><enum>(C)</enum><header>Commodities transactions</header><text>The excess of gains over losses from transactions (including futures, forward, and similar
transactions) in any commodities. This subparagraph shall not apply to
gains or losses which—</text>
<clause id="H3AEF8A6A23B849238BB63FA76B835BC0"><enum>(i)</enum><text>arise out of commodity hedging transactions (as defined in paragraph (5)(A)),</text>
</clause><clause id="H24E7FCD451D34984AEFE511DD682F2C9"><enum>(ii)</enum><text>are active business gains or losses from the sale of commodities, but only if substantially all of
the controlled foreign corporation's commodities are property described in
paragraph (1), (2), or (8) of section 1221(a), or</text>
</clause><clause id="H0623ADF3E6684E079E156194A6698219"><enum>(iii)</enum><text>are foreign currency gains or losses (as defined in section 988(b)) attributable to any section 988
transactions.</text>
</clause></subparagraph><subparagraph id="HAA76BC368BB746E7A6187D8BE1BA7FA0"><enum>(D)</enum><header>Foreign currency gains</header><text>The excess of foreign currency gains over foreign currency losses (as defined in section 988(b))
attributable to any section 988 transactions. This subparagraph shall not
apply in the case of any transaction, other than a borrowing, directly
related to the business needs of the controlled foreign corporation.</text>
</subparagraph><subparagraph id="HC22C77B1DFE44926A0DBDB60D95AD754"><enum>(E)</enum><header>Income equivalent to interest</header><text>Any income equivalent to interest, including income from commitment fees (or similar amounts) for
loans actually made.</text>
</subparagraph><subparagraph id="H3CBDDEE5D2C4470FAF21A221B799C0A9"><enum>(F)</enum><header>Income from notional principal contracts</header>
<clause id="H4F9F22B780C44FFA9B11AC92813FC196"><enum>(i)</enum><header>In general</header><text>Net income from notional principal contracts.</text>
</clause><clause id="H891A3908201B4DCE986D86B9BF986627"><enum>(ii)</enum><header>Coordination with other categories of passive income</header><text>Any item of income, gain, deduction, or loss from a notional principal contract entered into for
purposes of hedging any item described in any preceding subparagraph shall
not be taken into account for purposes of this subparagraph but shall be
taken into account under such other subparagraph.</text>
</clause></subparagraph><subparagraph id="H71A65A3B9DE8455EA325C9A46CFA6A08"><enum>(G)</enum><header>Payments in lieu of dividends</header><text>Payments in lieu of dividends which are made pursuant to an agreement to which section 1058
applies.</text>
</subparagraph><subparagraph id="H2360D626B399494B94B86B6338A4F60D"><enum>(H)</enum><header>Personal service contracts</header>
<clause id="HD6005BEA27F945748A462CA28333B400"><enum>(i)</enum><text>Amounts received under a contract under which the corporation is to furnish personal services if—</text>
<subclause id="HFD53B93359734852A6DF7C4958E24074"><enum>(I)</enum><text>some person other than the corporation has the right to designate (by name or by description) the
individual who is to perform the services, or</text>
</subclause><subclause id="H3915C1190AF54543BBA8247567C1F138"><enum>(II)</enum><text>the individual who is to perform the services is designated (by name or by description) in the
contract, and</text>
</subclause></clause><clause id="H54F783A46BC2465AA63B2D450D982941"><enum>(ii)</enum><text>amounts received from the sale or other disposition of such a contract.</text></clause><continuation-text continuation-text-level="subparagraph">This subparagraph shall apply with respect to amounts received for services under a particular
contract only if at some time during the taxable year 25 percent or more
in value of the outstanding stock of the corporation is owned, directly or
indirectly, by or for the individual who has performed, is to perform, or
may be designated (by name or by description) as the one to perform, such
services.</continuation-text></subparagraph></paragraph><paragraph id="HB256FEDBC38B4B6286A069E2212BC554"><enum>(2)</enum><header>Exception for certain amounts</header>
<subparagraph id="H5B8E80D799AF4376A9C78B68593A4926"><enum>(A)</enum><header>Rents and royalties derived in active business</header><text>Passive income shall not include rents and royalties which are derived in the active conduct of a
trade or business and which are received from a person other than a
related person. For purposes of the preceding sentence, rents derived from
leasing an aircraft or vessel in foreign commerce shall not fail to be
treated as derived in the active conduct of a trade or business if, as
determined under regulations prescribed by the Secretary, the active
leasing expenses are not less than 10 percent of the profit on the lease.</text>
</subparagraph><subparagraph id="H997FD317A2764D2AB0CCE3EE2AF39AD7"><enum>(B)</enum><header>Exception for dealers</header><text>Except as provided by regulations, in the case of a regular dealer in property which is property
described in paragraph (1)(B), forward contracts, option contracts, or
similar financial instruments (including notional principal contracts and
all instruments referenced to commodities), there shall not be taken into
account in computing passive income any item of income, gain, deduction,
or loss from any transaction (including hedging transactions and
transactions involving physical settlement) entered into in the ordinary
course of such dealer's trade or business as such a dealer.</text>
</subparagraph></paragraph><paragraph id="H647B8910D1814DF780288EEDD7805B95"><enum>(3)</enum><header>Look-thru rule for certain partnership sales</header>
<subparagraph id="HE959FFC307C5455790A612A1B891EDFE"><enum>(A)</enum><header>In general</header><text>In the case of any sale or exchange by a controlled foreign corporation of an interest in a
partnership with respect to which such corporation is a 25-percent owner,
gain or loss on such sale shall be treated as being described in paragraph
(1)(B)(ii) in the amount which bears the same ratio to the amount of such
gain or loss as the controlled foreign corporation's distributable share
of passive income from the partnership over the applicable period (as
defined in section 953(b)(4)(A)(ii)) bears to the controlled foreign
corporation's distributable share of gross income from the partnership
over such period. The Secretary shall prescribe such regulations as may be
appropriate to prevent abuse of the purposes of this paragraph, including
regulations providing for the coordination of this paragraph with the
provisions of subchapter K.</text>
</subparagraph><subparagraph id="H4904AA740F034CF58F46B1B36C751965"><enum>(B)</enum><header>25-Percent owner</header><text>For purposes of this paragraph, the term <term>25-percent owner</term> has the meaning given such term under section 953(b)(4)(B).</text>
</subparagraph></paragraph><paragraph id="H0A2534896FE44E66939CB5B3C58BC62B"><enum>(4)</enum><header>Definition and special rules relating to commodity transactions</header>
<subparagraph id="H6748A0AE5AB341F4810370B0528F4BE3"><enum>(A)</enum><header>Commodity hedging transactions</header><text>For purposes of paragraph (1)(C)(i), the term <term>commodity hedging transaction</term> means any transaction with respect to a commodity if such transaction—</text>
<clause id="H1BB2252300064C3C95F782BD92812D8C"><enum>(i)</enum><text>is a hedging transaction as defined in section 1221(b)(2), determined—</text>
<subclause id="H8F6506568B12462E8CE9A0B1520FCB95"><enum>(I)</enum><text>without regard to subparagraph (A)(ii) thereof,</text>
</subclause><subclause id="H9429845EA87D40A3A73EFD9FEF0B21FF"><enum>(II)</enum><text>by applying subparagraph (A)(i) thereof by substituting <quote>ordinary property or property described in section 1231(b)</quote> for <quote>ordinary property</quote>, and</text>
</subclause><subclause id="HE8BDCFAF223A48AF957C55CE3AE6143F"><enum>(III)</enum><text>by substituting <quote>controlled foreign corporation</quote> for <quote>taxpayer</quote> each place it appears, and</text>
</subclause></clause><clause id="H9041EE564FF342B2AB54310C6AC79E07"><enum>(ii)</enum><text>is clearly identified as such in accordance with section 1221(a)(7).</text>
</clause></subparagraph><subparagraph id="HAB751175DA4A4546AD3864A9CFCA6A01"><enum>(B)</enum><header>Treatment of dealer activities under paragraph (1)(c)</header><text>Commodities with respect to which gains and losses are not taken into account under paragraph
(2)(B) in computing a controlled foreign corporation's passive income
shall not be taken into account in applying the substantially all test
under paragraph (1)(C)(ii) to such corporation.</text>
</subparagraph><subparagraph id="HBCDBE4663EC74BD9A2C46794E6C92BEE"><enum>(C)</enum><header>Regulations</header><text>The Secretary shall prescribe such regulations as are appropriate to carry out the purposes of
paragraph (1)(C) in the case of transactions involving related persons.</text>
</subparagraph></paragraph></subsection><subsection id="H9BF136E9D67B48D7A816F2B0AB671617"><enum>(b)</enum><header>Related person defined</header><text>For purposes of this section, a person is a related person with respect to a controlled foreign
corporation, if—</text>
<paragraph id="HC32C1E4A1BAE4405AC751386F29769A8"><enum>(1)</enum><text>such person is an individual, corporation, partnership, trust, or estate which controls, or is
controlled by, the controlled foreign corporation, or</text>
</paragraph><paragraph id="H1D0DD30F14A9403280BA510A48367731"><enum>(2)</enum><text>such person is a corporation, partnership, trust, or estate which is controlled by the same person
or persons which control the controlled foreign corporation.</text></paragraph><continuation-text continuation-text-level="subsection">For purposes of the preceding sentence, control means, with respect to a corporation, the
ownership, directly or indirectly, of stock possessing more than 50
percent of the total voting power of all classes of stock entitled to vote
or of the total value of stock of such corporation. In the case of a
partnership, trust, or estate, control means the ownership, directly or
indirectly, of more than 50 percent (by value) of the beneficial interests
in such partnership, trust, or estate. For purposes of this subsection,
rules similar to the rules of section 958 shall apply.</continuation-text></subsection><subsection id="H05859930952F459C86FDB4C3F8A0F649"><enum>(c)</enum><header>Special rule for income derived in the active conduct of banking, financing, or similar businesses</header>
<paragraph id="H212D4FD0B4404A82A34A06713C43AB46"><enum>(1)</enum><header>In general</header><text>For purposes of subsection (a)(1), passive income shall not include qualified banking or financing
income of an eligible controlled foreign corporation.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="H3948A34074D34FC38DFE8817F8DC686E"><enum>(2)</enum><header>Eligible controlled foreign corporation</header><text>For purposes of this subsection, the term <term>eligible controlled foreign corporation</term> means any controlled foreign corporation if—</text>
<subparagraph id="HC26AB372A7D24CAB9D2F73F0AED464F5"><enum>(A)</enum><text>more than 80 percent of the gross income of the controlled foreign corporation is derived directly
from the active and regular conduct of a lending, finance, or financial
services business from transactions with customers which are located
outside the United States and are not related persons, or</text>
</subparagraph><subparagraph id="H92BF99ADC31B413BB630554B5B3E27D2"><enum>(B)</enum><text>it is a regulated financial institution.</text>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="H58D107A05D23481B95C21C7F73E27313"><enum>(3)</enum><header display-inline="yes-display-inline">Qualified banking or financing income</header><text display-inline="yes-display-inline">For purposes of this subsection—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="H4A9A8B5EAA6942368D3E8A786A35D695"><enum>(A)</enum><header>In general</header><text>The term <term>qualified banking or financing income</term> means income of an eligible controlled foreign corporation which—</text>
<clause id="HE6CBAC7B5D5544AC85DB1048EAD4F366"><enum>(i)</enum><text>is derived in the active conduct of a banking, financing, or similar business by such eligible
controlled foreign corporation,</text>
</clause><clause id="H1688ED66AE1747A6BF45E8C1C2F53F99"><enum>(ii)</enum><text>is derived from one or more transactions—</text>
<subclause id="HB8A3D3B9D20C47A2898D62939507AE64"><enum>(I)</enum><text>with customers located in a country other than the United States, and</text>
</subclause><subclause id="H90F2ED7FEF45450781F38659DD23A241"><enum>(II)</enum><text>substantially all of the activities in connection with which are conducted directly by the
corporation in its home country, and</text>
</subclause></clause><clause id="HD2F9713E2ADD4CAD9DEFC949C0BB616C"><enum>(iii)</enum><text>is treated as earned by such corporation in its home country for purposes of such country's tax
laws.</text>
</clause></subparagraph><subparagraph id="HB041E1EBE92D45C4B2EE8876C9461CEA"><enum>(B)</enum><header>Income derived from customers to include certain investment income</header><text>For purposes of subparagraph (A), in the case of a regulated financial institution, income derived
from customers includes income derived from—</text>
<clause id="H9FF45FC0DCBA467BB8B61AF7A2E7F996"><enum>(i)</enum><text>reserves that are required to be held pursuant to banking regulations,</text>
</clause><clause id="H0110FF43DF1B4670A025CC8186D06F5F"><enum>(ii)</enum><text>deposits placed with the central bank (or equivalent thereof) in the corporation’s home country,
and</text>
</clause><clause id="HE1AAAA28F9324C27AE987A6DC2B14540"><enum>(iii)</enum><text>investments in debt instruments issued by the home country.</text>
</clause></subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="HACA5D08DEB52479BB71FC33DB01B7054"><enum>(C)</enum><header>Substantial activity requirement for cross border income</header><text>The term <term>qualified banking or financing income</term> shall not include income derived from 1 or more transactions with customers located in a country
other than the home country of the eligible controlled foreign corporation
unless such corporation conducts substantial activity with respect to a
banking, financing, or similar business in its home country.</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="HB9E45EF6FCD64D428C453479FC2B2D05"><enum>(D)</enum><header>Direct conduct of activities</header><text>For purposes of subparagraph (A)(ii)(II), an activity shall be treated as conducted directly by an
eligible controlled foreign corporation in its home country if the
activity is performed by employees of a related person and—</text>
<clause id="HA44FBEA2417542718BE70D9234152083"><enum>(i)</enum><text>the related person is a resident subject to tax under the laws of the home country of the
corporation to which subparagraph (A)(ii)(II) is being applied,</text>
</clause><clause id="H6E7622D82B614D59A1A89110687A616C"><enum>(ii)</enum><text>the activity is performed in such home country, and</text>
</clause><clause id="H1F77EA9004C141CB83F0E0BB3666B948"><enum>(iii)</enum><text>the related person is compensated on an arm's-length basis for the performance of the activity by
its employees and such compensation is treated as earned by such person in
such home country for purposes of the home country's tax laws.</text>
</clause></subparagraph></paragraph><paragraph id="H3F07EF4B4B05478DA2888868DF795063"><enum>(4)</enum><header>Lending, finance, or financial services business</header><text>For purposes of this subsection, except as provided in regulations, the term <term>lending, finance, or financial services business</term> means the business of—</text>
<subparagraph id="H71DBBFABD88E4346926EB3EA2F2FABFF"><enum>(A)</enum><text>making loans,</text>
</subparagraph><subparagraph id="HC7E2D3725E3444579CCE5E5FCB510EDA"><enum>(B)</enum><text>purchasing, selling, discounting, or negotiating on a regular basis accounts receivable, notes, or
installment obligations,</text>
</subparagraph><subparagraph id="H5814813E6D464B4AAF49A16B0A828293"><enum>(C)</enum><text>engaging in leasing (including entering into leases and purchasing, servicing, and disposing of
leases and leased assets),</text>
</subparagraph><subparagraph id="H3AD67CB999214C878AF9AF9CEAE2C5B6"><enum>(D)</enum><text>issuing letters of credit or providing guarantees,</text>
</subparagraph><subparagraph id="H9779E3C6850E4CF3A73DE7A40776F8A9"><enum>(E)</enum><text>providing charge and credit card services,</text>
</subparagraph><subparagraph id="H3B5A03A2873C4CACACA0F161DA6D2903"><enum>(F)</enum><text>performing trust services, including as a fiduciary, agent, or custodian, other than trust services
provided by a broker or dealer in stock, securities, or other financial
instruments,</text>
</subparagraph><subparagraph id="H75B279D6E49643E7B97C4AA18367B7AC"><enum>(G)</enum><text>arranging interest rate or currency futures, forwards, options, or notional principal contracts
for, or entering into such transactions with, customers,</text>
</subparagraph><subparagraph id="HE49BE43ADA644514BD19FBED84647244"><enum>(H)</enum><text>providing traveler’s check and money order services for customers,</text>
</subparagraph><subparagraph id="H15ACE1F37C47457B8FFEBD8303AA5200"><enum>(I)</enum><text>providing correspondent bank services for customers,</text>
</subparagraph><subparagraph id="HC693C31C0E1D40D69F71DACAD077648B"><enum>(J)</enum><text>engaging in hedging activities directly related to an activity described in any other subparagraph
of this paragraph,</text>
</subparagraph><subparagraph id="HD9E815C0420C447C8F67A3612172E75E"><enum>(K)</enum><text>underwriting issues of stock, debt, or other securities for customers,</text>
</subparagraph><subparagraph id="H19CE9FCAF18F46F2B013BDB8E21E32F0"><enum>(L)</enum><text>providing financial, investment advisory, or investment management services,</text>
</subparagraph><subparagraph id="HBBCEFF74207444049D7F91583C1021B7"><enum>(M)</enum><text>purchasing or selling stock, debt instruments, interest rate or currency futures, or other
securities or derivative financial products (including notional principal
contracts) from or to customers and holding such stock, debt instruments,
futures, or other securities or products as inventory for sale to
customers, unless such stock, debt instruments, futures, or other
securities or products are not held in a dealer capacity,</text>
</subparagraph><subparagraph id="H9BBF863DB1EC41148461391C4C74C887"><enum>(N)</enum><text>effecting transactions in securities for customers as a securities broker, or</text>
</subparagraph><subparagraph id="H9C1DF95A7D6C4B6BBFB54EB927935C08"><enum>(O)</enum><text>rendering services or making facilities available in connection with activities described in
subparagraphs (A) through (N) carried on by—</text>
<clause id="HEFA161CDF4A0456E9609118535371609"><enum>(i)</enum><text>the corporation rendering services or making facilities available, or</text>
</clause><clause id="H5AAA9F35E8F84516824C259B4EC8DDA8"><enum>(ii)</enum><text>another corporation which is a member of the same affiliated group (as defined in section 1504, but
determined without regard to section 1504(b)(3)).</text>
</clause></subparagraph></paragraph><paragraph id="H0206377C019447F69E45EAAE5B381211"><enum>(5)</enum><header>Other definitions</header><text>For purposes of this subsection—</text>
<subparagraph id="HB70859F771204DA8910D8CE643BED4AB"><enum>(A)</enum><header>Customer</header><text>The term <term>customer</term> means, with respect to any controlled foreign corporation, any person which has a customer
relationship with such corporation and which is acting in its capacity as
such.</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="H356D90D05B504DDCAC2F1D535BDE56B3"><enum>(B)</enum><header display-inline="yes-display-inline">Home country</header><text display-inline="yes-display-inline">Except as provided in regulations, the term <term>home country</term> means, with respect to any entity, the country with respect to which the entity is a resident for
purposes of the country's income tax laws.</text>
</subparagraph><subparagraph id="H9E74AB44E54145D5AE316B972D96D3AC"><enum>(C)</enum><header>Located</header><text>Except as provided in regulations, for purposes of paragraph (3)(A)—</text>
<clause id="H8F8D4C6FF1E443D6A7D508D946A10E81"><enum>(i)</enum><text>if a customer is a natural person, the customer is considered to be located in the country in which
the customer is physically located when entering into the transaction, and</text>
</clause><clause id="H82B47C5B4BD04B45B526A048D022040F"><enum>(ii)</enum><text>if a customer is not a natural person, the customer is considered to be located in the country from
which the customer enters into the transaction.</text>
</clause></subparagraph><subparagraph id="H4268DC5706E64407B617CCE44ABFF520"><enum>(D)</enum><header>Qualified business unit</header><text>The term <term>qualified business unit</term> has the meaning given such term by section 989(a).</text>
</subparagraph><subparagraph id="H7E2551CF32F9401B860D3B7E1F4DBC0E"><enum>(E)</enum><header>Regulated financial institution</header><text>Except as provided in regulations, the term <term>regulated financial institution</term> means a controlled foreign corporation which—</text>
<clause id="H01C2BD61C1B44C1FBCD66220C5F365DC"><enum>(i)</enum><text>is engaged in the active conduct of a banking business and is an institution licensed to do
business as a bank in the United States (or is any other corporation not
so licensed which is specified by the Secretary in regulations), or</text>
</clause><clause id="H274B122E485141B382D51D2E45106741"><enum>(ii)</enum><text>satisfies each of the following conditions:</text>
<subclause id="H48A953E92305445DA3FC5E4F51139CAB"><enum>(I)</enum><text>The corporation is directly or indirectly wholly owned by a domestic corporation that is a bank (as
defined in section 581) or a depository institution holding company (as
defined in section 3(w)(1) of the Federal Deposit Insurance Act (12 U.S.C.
1813(w)(1))).</text>
</subclause><subclause id="H84411AE6201F44B38B49D0A3CEABBF3F"><enum>(II)</enum><text>The corporation is subject to bank regulatory supervision in a jurisdiction the central bank of
which (or equivalent thereof) is a member of the Basel Committee on
Banking Supervision.</text>
</subclause><subclause id="H4BF4667B3CD842499C28B24C813E7F37"><enum>(III)</enum><text>The corporation is licensed and regulated in such jurisdiction as a bank.</text>
</subclause></clause></subparagraph></paragraph><paragraph id="HB6E3B73B654147EFB21D1CBA5AAE642B"><enum>(6)</enum><header>Separate application to qualified business units</header>
<subparagraph id="HC67221537470448EAE32CA440E1CF8D1"><enum>(A)</enum><header>In general</header><text>If a controlled foreign corporation has 1 or more qualified business units—</text>
<clause id="H2168CE221A204611ACF9BC40102288DA"><enum>(i)</enum><text>this subsection shall be applied separately to each such unit in the same manner as if it were a
controlled foreign corporation, and</text>
</clause><clause id="H924FDA4294E541B899771F891E52AD59"><enum>(ii)</enum><text>if any such unit is treated as an eligible controlled foreign corporation after application of
clause (i), the qualified banking or financing income of such unit shall
be treated as qualified banking or financing income of the controlled
foreign corporation of which such unit is a part.</text>
</clause></subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="H95B31ECC9B014E338957A4E240B7C993"><enum>(B)</enum><header display-inline="yes-display-inline">Determinations made separately</header><text display-inline="yes-display-inline">For purposes of the separate application of this subsection to a controlled foreign corporation and
its qualified business units—</text>
<clause commented="no" display-inline="no-display-inline" id="H72E47070F03B471D91D8DADF9CA173A5"><enum>(i)</enum><text>in the case of the controlled foreign corporation, only activities and items of income, deduction,
gain, or loss and activities of such corporation not properly allocable or
attributable to any qualified business unit of such corporation shall be
taken into account, and</text>
</clause><clause commented="no" display-inline="no-display-inline" id="HFE2CDD6A1E6A42FFA3CE2B8A38065D64"><enum>(ii)</enum><text>in the case of a qualified business unit, only activities and items of income, deduction, gain, or
loss and activities properly allocable or attributable to such unit shall
be taken into account.</text>
</clause></subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="H9908D0217AB2429B99344C2BF551D413"><enum>(C)</enum><header display-inline="yes-display-inline">Home country</header><text display-inline="yes-display-inline">For purposes of this subsection, except as provided in regulations, notwithstanding paragraph
(5)(B), the home country with respect to any qualified business unit
treated as a controlled foreign corporation under subparagraph (A) shall
be the country in which such unit maintains its principal office.</text>
</subparagraph></paragraph><paragraph id="H8ECF80E87ED445E08F2FDFAF6D76390A"><enum>(7)</enum><header>Anti-abuse rules</header><text>For purposes of applying this subsection—</text>
<subparagraph id="H8D8FDDAF42294F23B7AD251E18B969D3"><enum>(A)</enum><text>there shall be disregarded any item of income, gain, loss, or deduction with respect to any
transaction or series of transactions one of the principal purposes of
which is qualifying income or gain for the exclusion under this section,
including any transaction or series of transactions a principal purpose of
which is the acceleration or deferral of any item in order to claim the
benefits of such exclusion through the application of this subsection,</text>
</subparagraph><subparagraph id="HB7C9495FBDCA4B9BA882AECBF5637CFF"><enum>(B)</enum><text>there shall be disregarded any item of income, gain, loss, or deduction of an entity which is not
engaged in regular and continuous transactions with customers which are
not related persons,</text>
</subparagraph><subparagraph id="HDB028E151FE64CEFB552A8DE95037C0F"><enum>(C)</enum><text>there shall be disregarded any item of income, gain, loss, or deduction with respect to any
transaction or series of transactions utilizing, or doing business with—</text>
<clause id="H42FD940D31634E629BD17A8410DAD7C2"><enum>(i)</enum><text>one or more entities in order to satisfy any home country requirement under this subsection, or</text>
</clause><clause id="HF638ED101147490E9312D59F50B6F890"><enum>(ii)</enum><text>a special purpose entity or arrangement, including a securitization, financing, or similar entity
or arrangement,</text></clause><continuation-text continuation-text-level="subparagraph">if one of the principal purposes of such transaction or series of transactions is qualifying income
or gain for the exclusion under this subsection, and</continuation-text></subparagraph><subparagraph id="H32A98E3B12C546CF9E80D8FFE3406C8A"><enum>(D)</enum><text>a related person, an officer, a director, or an employee with respect to any controlled foreign
corporation which would otherwise be treated as a customer of such
corporation with respect to any transaction shall not be so treated if a
principal purpose of such transaction is to satisfy any requirement of
this subsection.</text>
</subparagraph></paragraph><paragraph id="H7785497DFE604B39B1F69FE876B8457A"><enum>(8)</enum><header>Regulations</header><text>The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the
purposes of this subsection and subsection (a)(1)(B)(i).</text>
</paragraph></subsection><subsection id="HD490F1D3B8AC4FDE820E19C0BB8F703C"><enum>(d)</enum><header>Special rule for income derived in the active conduct of insurance business</header>
<paragraph id="H3493F4B5379E4973AE3B89A6A371E865"><enum>(1)</enum><header>In general</header><text>For purposes of subsection (a)(1), passive income shall not include qualified insurance income of a
qualifying insurance company.</text>
</paragraph><paragraph id="H8F341587C38243A5930EF5C01F5A7B5A"><enum>(2)</enum><header>Qualified insurance income</header><text>For purposes of this subsection, the term <term>qualified insurance income</term> means income of a qualifying insurance company which is—</text>
<subparagraph id="H783184664D7F4DD696C8F687A1B541B0"><enum>(A)</enum><text>received from a person other than a related person and derived from the investments made by a
qualifying insurance company or a qualifying insurance company branch of
its reserves allocable to exempt contracts or of 80 percent of its
unearned premiums from exempt contracts (as both are determined in the
manner prescribed under paragraph (4)), or</text>
</subparagraph><subparagraph id="H62C4BA4C369943BA98F1065C24E26FBC"><enum>(B)</enum><text>received from a person other than a related person and derived from investments made by a
qualifying insurance company or a qualifying insurance company branch of
an amount of its assets allocable to exempt contracts equal to—</text>
<clause id="H6365D8F142DB4F6DBA477D945829804A"><enum>(i)</enum><text>in the case of property, casualty, or health insurance contracts, one-third of its premiums earned
on such insurance contracts during the taxable year (as defined in section
832(b)(4)), and</text>
</clause><clause id="H78D35AD0FD1C42139097FAB4DB691296"><enum>(ii)</enum><text>in the case of life insurance or annuity contracts, 10 percent of the reserves described in
subparagraph (A) for such contracts.</text>
</clause></subparagraph></paragraph><paragraph id="HDA892B21844C4DC1AA9FCADE5FD6A622"><enum>(3)</enum><header>Principles for determining qualified insurance income</header><text>Except as provided by the Secretary, for purposes of subparagraphs (A) and (B) of paragraph (2)—</text>
<subparagraph id="HE696818741D44493BD73DC95A52B042F"><enum>(A)</enum><text>in the case of any contract which is a separate account-type contract (including any variable
contract not meeting the requirements of section 817), income credited
under such contract shall be allocable only to such contract, and</text>
</subparagraph><subparagraph id="HFE23AAB9A62A406BA5F7E73DC96FECC0"><enum>(B)</enum><text>income not allocable under subparagraph (A) shall be allocated ratably among contracts not
described in subparagraph (A).</text>
</subparagraph></paragraph><paragraph id="HDC1104DB36B4490698014C61FB82B9B7"><enum>(4)</enum><header>Methods for determining unearned premiums and reserves</header><text>For purposes of paragraph (2)(A)—</text>
<subparagraph id="HA395FD40BE3B4F1DA2C244F9544F85C2"><enum>(A)</enum><header>Property and casualty contracts</header><text>The unearned premiums and reserves of a qualifying insurance company or a qualifying insurance
company branch with respect to property, casualty, or health insurance
contracts shall be determined using the same methods and interest rates
which would be used if such company or branch were subject to tax under
subchapter L, except that—</text>
<clause id="H0D2C27AA1F5748D6A818FE03EE8D4C2B"><enum>(i)</enum><text>the interest rate determined for the functional currency of the company or branch, and which,
except as provided by the Secretary, is calculated in the same manner as
the Federal mid-term rate under section 1274(d), shall be substituted for
the applicable Federal interest rate, and</text>
</clause><clause id="H3BDE8635C8CD4537B71BBDCAD8A5CEA5"><enum>(ii)</enum><text>such company or branch shall use the appropriate foreign loss payment pattern.</text>
</clause></subparagraph><subparagraph id="H76AE8127A0CB4D28952C9E9DB1E46A41"><enum>(B)</enum><header>Life insurance and annuity contracts</header>
<clause id="H279A5B1FC88B4973B6176FB8628F6C2A"><enum>(i)</enum><header>In general</header><text>Except as provided in clause (ii), the amount of the reserve of a qualifying insurance company or
qualifying insurance company branch for any life insurance or annuity
contract shall be equal to the greater of—</text>
<subclause id="H55C5E107C81F46A188F7806D56FFBD81"><enum>(I)</enum><text>the net surrender value of such contract (as defined in section 807(e)(1)(A)), or</text>
</subclause><subclause id="H5BB5D9F2FE6A4C15AD137D057F057278"><enum>(II)</enum><text>the reserve determined under paragraph (5).</text>
</subclause></clause><clause id="HA070209C366A486BBB94571412AE3175"><enum>(ii)</enum><header>Ruling request, etc</header><text>The amount of the reserve under clause (i) shall be the foreign statement reserve for the contract
(less any catastrophe, deficiency, equalization, or similar reserves), if,
pursuant to a ruling request submitted by the taxpayer or as provided in
published guidance, the Secretary determines that the factors taken into
account in determining the foreign statement reserve provide an
appropriate means of measuring income.</text>
</clause></subparagraph><subparagraph id="HCE9F64FB54D74CA69AD811CBF0F02171"><enum>(C)</enum><header>Limitation on reserves</header><text>In no event shall the reserve determined under this paragraph for any contract as of any time
exceed the amount which would be taken into account with respect to such
contract as of such time in determining foreign statement reserves (less
any catastrophe, deficiency, equalization, or similar reserves).</text>
</subparagraph></paragraph><paragraph id="HF42C7A12DC6F416DBD5C71DB3EB644CC"><enum>(5)</enum><header>Amount of reserve</header><text>The amount of the reserve determined under this paragraph with respect to any contract shall be
determined in the same manner as it would be determined if the qualifying
insurance company or qualifying insurance company branch were subject to
tax under subchapter L, except that in applying such subchapter—</text>
<subparagraph id="H18B5FF9A341A4365A7B504608FF74DCE"><enum>(A)</enum><text>the interest rate determined for the functional currency of the company or branch, and which,
except as provided by the Secretary, is calculated in the same manner as
the Federal mid-term rate under section 1274(d), shall be substituted for
the applicable Federal interest rate,</text>
</subparagraph><subparagraph id="H4666B30BDA63415D84E9DFBB3B362811"><enum>(B)</enum><text>the highest assumed interest rate permitted to be used in determining foreign statement reserves
shall be substituted for the prevailing State assumed interest rate, and</text>
</subparagraph><subparagraph id="HF32D9D3D59584090B31E0EA3AE9960C6"><enum>(C)</enum><text>tables for mortality and morbidity which reasonably reflect the current mortality and morbidity
risks in the company's or branch's home country shall be substituted for
the mortality and morbidity tables otherwise used for such subchapter.</text></subparagraph><continuation-text continuation-text-level="paragraph">The Secretary may provide that the interest rate and mortality and morbidity tables of a qualifying
insurance company may be used for 1 or more of its qualifying insurance
company branches when appropriate.</continuation-text></paragraph><paragraph commented="no" display-inline="no-display-inline" id="HA9E56FFA34DA4D929FA7FE1DA749711D"><enum>(6)</enum><header display-inline="yes-display-inline">Definitions</header><text display-inline="yes-display-inline">For purposes of this section, any term used in this subsection which is also used in section 955(c)
shall have the meaning given such term under section 955(c).</text>
</paragraph></subsection></section><section commented="no" display-inline="no-display-inline" id="H4AEF8875CAFB49BBB00825AD1EF29E5F" section-type="subsequent-section"><enum>955.</enum><header display-inline="yes-display-inline">Definition of insurance income</header>
<subsection commented="no" display-inline="no-display-inline" id="H739D7A349B104FEAA376F0F70400D2E7"><enum>(a)</enum><header>Insurance income</header>
<paragraph id="HC8EAF8BD27F143ED896D0AB74F6290CD"><enum>(1)</enum><header>In general</header><text>For purposes of section 953(c), the term <term>insurance income</term> means the gross income which—</text>
<subparagraph id="H417B60F63E8841C9B1ECE181A4D5E9B6"><enum>(A)</enum><text>is attributable to the issuing (or reinsuring) of an insurance or annuity contract, and</text>
</subparagraph><subparagraph id="HAC130BE4FC3F451D90BAFB6BA06CF25F"><enum>(B)</enum><text>is of a kind that would be subject to tax under subchapter L of this chapter if such income were
the income of a domestic insurance company.</text>
</subparagraph></paragraph><paragraph id="HA7F523054CDC454B90CB7FD330C0A033"><enum>(2)</enum><header>Exception</header><text>Such term shall not include any exempt insurance income (as defined in subsection (c)).</text>
</paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="H90EFDE0D3CD9462F82EB06459CC9F786"><enum>(b)</enum><header>Special rules for determination of gross income and allocable deductions</header><text>For purposes of determining gross income under subsection (a) and deductions allocable to insurance
income under section 952(e), the following rules shall apply:</text>
<paragraph id="H48ACBFF12A8144278F50DFFF97B5E84F"><enum>(1)</enum><header>Certain deductions not allowed</header><text>The following provisions of subchapter L shall not apply:</text>
<subparagraph id="H8DB002B7D8394A2BA027D2E5526EA40B"><enum>(A)</enum><text>The small life insurance company deduction.</text>
</subparagraph><subparagraph id="H90B214C3636C4C93ADA91115F814DE21"><enum>(B)</enum><text>Section 805(a)(5) (relating to operations loss deduction).</text>
</subparagraph><subparagraph id="H3C9120566D7C4FD9B95F3C44DF7C25BE"><enum>(C)</enum><text>Section 832(c)(5) (relating to certain capital losses).</text>
</subparagraph></paragraph><paragraph id="H6D2CBDF9796946DDAD98C95C32DBF836"><enum>(2)</enum><header>Special rules for amounts included in income</header><text>The items referred to in—</text>
<subparagraph id="HE66D1D58092D49F6890AB83187639C49"><enum>(A)</enum><text>section 803(a)(1) (relating to gross amount of premiums and other considerations),</text>
</subparagraph><subparagraph id="H2B9B15D8709548BD81E5D216096E730F"><enum>(B)</enum><text>section 803(a)(2) (relating to net decrease in reserves),</text>
</subparagraph><subparagraph id="H09B75BC84FAA414C8C4B69D7B56BD0F7"><enum>(C)</enum><text>section 805(a)(2) (relating to net increase in reserves), and</text>
</subparagraph><subparagraph id="H77A579BCBC4F4540A965A234B15BCEFC"><enum>(D)</enum><text>section 832(b)(4) (relating to premiums earned on insurance contracts),</text></subparagraph><continuation-text continuation-text-level="paragraph">shall be taken into account only to the extent they are in respect of any reinsurance or the
issuing of any insurance or annuity contract described in subsection
(a)(1).</continuation-text></paragraph><paragraph id="HE8A809D4DCCD40428656C0A8349EB738"><enum>(3)</enum><header>Treatment of reserves</header><text>Reserves for any insurance or annuity contract shall be determined in the same manner as under
section 954(d).</text>
</paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="HBC595AF75DBB4B6997D8AA39C49DA47A"><enum>(c)</enum><header display-inline="yes-display-inline">Exempt insurance income</header><text display-inline="yes-display-inline">For purposes of this section—</text>
<paragraph commented="no" display-inline="no-display-inline" id="H774855CB48894DA6B7132430D223AE5D"><enum>(1)</enum><header>Exempt insurance income defined</header>
<subparagraph id="H5E1DA51F6FF74FCCBA19F28708A79214"><enum>(A)</enum><header>In general</header><text>The term <term>exempt insurance income</term> means income derived by a qualifying insurance company which—</text>
<clause id="HBED637B851B3449C9D81C08FE26E6949"><enum>(i)</enum><text>is attributable to the issuing (or reinsuring) of an exempt contract by such company or a
qualifying insurance company branch of such company, and</text>
</clause><clause id="HD4421D7CA3FC4B7FA4C3E2642CDE4999"><enum>(ii)</enum><text>is treated as earned by such company or branch in its home country for purposes of such country's
tax laws.</text>
</clause></subparagraph><subparagraph id="H7599C32E9D0D43CCB966836A25F5F4BE"><enum>(B)</enum><header>Exception for certain arrangements</header><text>Such term shall not include income attributable to the issuing (or reinsuring) of an exempt
contract as the result of any arrangement whereby another corporation
receives a substantially equal amount of premiums or other consideration
in respect of issuing (or reinsuring) a contract which is not an exempt
contract.</text>
</subparagraph><subparagraph id="H0EE71393A9964960B1D70459EAE9D428"><enum>(C)</enum><header>Determinations made separately</header><text>For purposes of this subsection and section 954(d), the exempt insurance income and exempt
contracts of a qualifying insurance company or any qualifying insurance
company branch of such company shall be determined separately for such
company and each such branch by taking into account—</text>
<clause id="HC9423E6D6F1A4959AF254440C913F9F6"><enum>(i)</enum><text>in the case of the qualifying insurance company, only items of income, deduction, gain, or loss,
and activities of such company not properly allocable or attributable to
any qualifying insurance company branch of such company, and</text>
</clause><clause id="HE6B40A4D4DC84468B914F6BDCC365E12"><enum>(ii)</enum><text>in the case of a qualifying insurance company branch, only items of income, deduction, gain, or
loss and activities properly allocable or attributable to such branch.</text>
</clause></subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="HFB7B3767E822408799B9D5217C391670"><enum>(2)</enum><header>Exempt contract</header>
<subparagraph id="HFB618DDADC5843359787D5BE54E3C1D8"><enum>(A)</enum><header>In general</header><text>The term <term>exempt contract</term> means an insurance or annuity contract issued or reinsured by a qualifying insurance company or
qualifying insurance company branch in connection with property in,
liability arising out of activity in, or the lives or health of residents
of, a country other than the United States.</text>
</subparagraph><subparagraph id="H4DF7AD3CAA704C69BB92E9ADF790CA73"><enum>(B)</enum><header>Minimum non-related income required</header><text>No contract of a qualifying insurance company or of a qualifying insurance company branch shall be
treated as an exempt contract unless such company or branch derives more
than 30 percent of its net written premiums from exempt contracts
(determined without regard to this subparagraph) with respect to which no
policyholder, insured, annuitant, or beneficiary is a related person (as
defined in section 954(b)).</text>
</subparagraph><subparagraph id="H4EA358BBAE6D4D2E872982C54D17F865"><enum>(C)</enum><header>Substantial activity requirements</header><text>A contract issued by a qualifying insurance company or qualifying insurance company branch shall
not be treated as an exempt contract unless such company or branch, as the
case may be—</text>
<clause id="H2FDEAFEFEDDE4129955F59DCCAFADFAA"><enum>(i)</enum><text>conducts substantial activity with respect to an insurance business in its home country, and</text>
</clause><clause id="HAB5AEEF835CD4F0BB3C1A6DA5E9347FC"><enum>(ii)</enum><text>performs in its home country substantially all of the activities necessary to give rise to the
income generated by such contract.</text>
</clause></subparagraph></paragraph><paragraph id="H6D194B3A16F945E68DC07A4A1798FCE3"><enum>(3)</enum><header>Qualifying insurance company</header>
<subparagraph id="HA411481EA34B4450879EF5CF96A0A115"><enum>(A)</enum><header>In general</header><text>The term <term>qualifying insurance company</term> means any controlled foreign corporation—</text>
<clause id="H0E64A7DC8E92455DB81D399288E6539E"><enum>(i)</enum><text>which—</text>
<subclause id="H8F906D9AFA4D4380B952BEA2A5160EB5"><enum>(I)</enum><text>is subject to regulation as an insurance (or reinsurance) company by its home country, and is
licensed, authorized, or regulated by the applicable insurance regulatory
body for its home country to sell insurance, reinsurance, or annuity
contracts to persons other than related persons (within the meaning of
section 954(b)) in such home country, and</text>
</subclause><subclause id="H9DAA91F77F7748969886A64E6940DBC4"><enum>(II)</enum><text>is engaged in the insurance business and would be subject to tax under subchapter L if it were a
domestic corporation,</text>
</subclause></clause><clause id="HE35DDAFE2A6241E3AF3095B42D0D5D99"><enum>(ii)</enum><text>which derives more than 50 percent of its aggregate net written premiums from the issuance or
reinsurance by such controlled foreign corporation and each of its
qualifying insurance company branches of contracts with respect to which
no policyholder, insured, annuitant, or beneficiary is a related person
(as defined in section 954(b)), except that in the case of a branch, such
premiums shall only be taken into account to the extent such premiums are
treated as earned by such branch in its home country for purposes of such
country’s tax laws,</text>
</clause><clause id="H87E3892C105A48738887BD7BDE91A5FC"><enum>(iii)</enum><text>more than 50 percent of the gross receipts of which for the taxable year—</text>
<subclause id="H84793D8CF9884B06B1E606765F0E8CC1"><enum>(I)</enum><text>consist of premiums for insurance or reinsurance in connection with property, liability, or the
lives or health of individuals, and</text>
</subclause><subclause id="H328A5D2A77F14CF891D5B311BE6C8282"><enum>(II)</enum><text>are treated as earned by such controlled foreign corporation in its home country for purposes of
such country’s tax laws, and</text>
</subclause></clause><clause id="HDE16FF5B2A964412A442E8D76E442A9D"><enum>(iv)</enum><text>the applicable insurance liabilities of which constitute more than 35 percent of its total assets
as reported on the company’s applicable financial statement for the year
with which or in which the taxable year ends.</text>
</clause></subparagraph><subparagraph id="HDA2655718B264A1D97C658D83246360B"><enum>(B)</enum><header>Applicable insurance liabilities</header><text>For purposes of subparagraph (A)(iv), the term <term>applicable insurance liabilities</term> means—</text>
<clause id="H1611FA6C31F2488E9A49AAA034F6CCF4"><enum>(i)</enum><text>loss and loss adjustment expenses,</text>
</clause><clause id="HA0D9FDE5B4F14F0A8DA4D8AF13AD98C1"><enum>(ii)</enum><text>unearned premiums, and</text>
</clause><clause id="HED136609507E4CCB873D084ABB2240D5"><enum>(iii)</enum><text>reserves (other than any catastrophe, deficiency, equalization, or similar reserves) for life and
health insurance risks and life and health insurance claims with respect
to contracts providing coverage for mortality or morbidity risks (not to
exceed the amount of such reserve that is required to be reported to the
home country insurance regulatory body).</text>
</clause></subparagraph><subparagraph id="H8A21272229F746FBBCF27992CFE1DE90"><enum>(C)</enum><header>Applicable financial statement</header><text>For purposes of subparagraph (A)(iv), the term <term>applicable financial statement</term> means a statement for financial reporting purposes which—</text>
<clause id="H73336134529A44219186D7113E778017"><enum>(i)</enum><text>is made on the basis of generally accepted accounting principles,</text>
</clause><clause id="H1DC6501D32934FA9BDBC99FD7B57F3EA"><enum>(ii)</enum><text>is made on the basis of international financial reporting standards, but only if there is no
statement that meets the requirement of clause (i), or</text>
</clause><clause id="HC6AAAF51BF464C24AB1C788936734DFC"><enum>(iii)</enum><text>except as otherwise provided by the Secretary in regulations, is the annual statement which is
required to be filed with the home country insurance regulatory body, but
only if there is no statement which meets the requirements of clause (i)
or (ii).</text>
</clause></subparagraph><subparagraph id="HDB6BC793A067400084AD9146C498A812"><enum>(D)</enum><header>Regulations</header><text>The Secretary shall prescribe such regulations as necessary to carry out the purposes of this
paragraph.</text>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="H1D1175792AC64D89A9F0B3B2ADFB078F"><enum>(4)</enum><header>Qualifying insurance company branch</header><text>The term <term>qualifying insurance company branch</term> means a qualified business unit (within the meaning of section 989(a)) of a controlled foreign
corporation if—</text>
<subparagraph id="H420B3888C57F404FA3CB91C96CB348EA"><enum>(A)</enum><text>such unit is licensed, authorized, or regulated by the applicable insurance regulatory body for its
home country to sell insurance, reinsurance, or annuity contracts to
persons other than related persons (within the meaning of section 954(b))
in such home country, and</text>
</subparagraph><subparagraph id="H90A94637767E4004A9FA02587AA11C63"><enum>(B)</enum><text>such controlled foreign corporation is a qualifying insurance company, determined under paragraph
(3) as if such unit were a qualifying insurance company branch.</text>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="HB3B1165F3F9A4C48994B1F27CE18A49A"><enum>(5)</enum><header>Life insurance or annuity contract</header><text>For purposes of this section and section 954, the determination of whether a contract issued by a
controlled foreign corporation or a qualifying insurance company branch is
a life insurance contract or an annuity contract shall be made without
regard to sections 72(s), 101(f), 817(h), and 7702 if—</text>
<subparagraph id="H67B9C18AA25D489097B58449F815A491"><enum>(A)</enum><text>such contract is regulated as a life insurance or annuity contract by the corporation's or branch's
home country, and</text>
</subparagraph><subparagraph id="HEC420B6F0C3E4DA89E32C5BF75ED84A6"><enum>(B)</enum><text>no policyholder, insured, annuitant, or beneficiary with respect to the contract is a United States
person.</text>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="H0B1F8CB2658246688D993CAE31F570B5"><enum>(6)</enum><header>Home country</header><text>For purposes of this subsection, except as provided in regulations—</text>
<subparagraph id="H861884BC6E814E91BA31A91BF85AEAB1"><enum>(A)</enum><header>Controlled foreign corporation</header><text>The term <term>home country</term> means, with respect to a controlled foreign corporation, the country in which such corporation is
created or organized.</text>
</subparagraph><subparagraph id="H12EC4E76CEA747728B8C759B62BD98F4"><enum>(B)</enum><header>Qualifying insurance company branch</header><text>The term <term>home country</term> means, with respect to a qualifying insurance company branch, the country in which the principal
office of such branch is located and in which such branch is licensed,
authorized, or regulated by the applicable insurance regulatory body to
sell insurance, reinsurance, or annuity contracts to persons other than
related persons (as defined in section 954(b)) in such country.</text>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="H010998C5D90D4AB78649FF8A89301B5D"><enum>(7)</enum><header>Anti-abuse rules</header><text>For purposes of applying this subsection and section 954(d)—</text>
<subparagraph id="H2868F543ADC34F2F942EB3636C0D0CE7"><enum>(A)</enum><text>the rules of section 954(c)(7) (other than subparagraph (B) thereof) shall apply,</text>
</subparagraph><subparagraph id="HB1F502126CC647D88793B28E848A8BEB"><enum>(B)</enum><text>there shall be disregarded any item of income, gain, loss, or deduction of, or derived from, an
entity which is not engaged in regular and continuous transactions with
persons which are not related persons,</text>
</subparagraph><subparagraph id="H3EB4C8796A774C2495A0BEE3B337C984"><enum>(C)</enum><text>there shall be disregarded any change in the method of computing reserves a principal purpose of
which is the acceleration or deferral of any item in order to claim the
benefits of this subsection or section 954(d),</text>
</subparagraph><subparagraph id="H3C25811980A8498FB2CBBA8AC48D5D8D"><enum>(D)</enum><text>a contract of insurance or reinsurance shall not be treated as an exempt contract (and premiums
from such contract shall not be taken into account for purposes of
paragraph (2)(B) or (3)) if—</text>
<clause id="H1D641AAE4C084525B4B88B762C216BF2"><enum>(i)</enum><text>any policyholder, insured, annuitant, or beneficiary is a resident of the United States and such
contract was marketed to such resident and was written to cover a risk
outside the United States, or</text>
</clause><clause id="H59746BCC943147F490E4E2CB51DC9002"><enum>(ii)</enum><text>the contract covers risks located within and without the United States and the qualifying insurance
company or qualifying insurance company branch does not maintain such
contemporaneous records, and file such reports, with respect to such
contract as the Secretary may require,</text>
</clause></subparagraph><subparagraph id="H30F9FECA97684A9E9622DD67A10C7DFC"><enum>(E)</enum><text>the Secretary may prescribe rules for the allocation of contracts (and income from contracts) among
2 or more qualifying insurance company branches of a qualifying insurance
company in order to clearly reflect the income of such branches, and</text>
</subparagraph><subparagraph id="H84ECB5809CBB40AFB93E3CA9C6C86897"><enum>(F)</enum><text>premiums from a contract shall not be taken into account for purposes of paragraph (2)(B) or (3) if
such contract reinsures a contract issued or reinsured by a related person
(as defined in section 954(b)).</text>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="H9C31829D1E87439391C5BC10FECD857B"><enum>(8)</enum><header>Coordination with section <enum-in-header>956(a)</enum-in-header></header>
<subparagraph commented="no" display-inline="no-display-inline" id="H3EE61143C19E44199DFBCA8CADD9F991"><enum>(A)</enum><header>In general</header><text>In determining insurance income for purposes of section 956(a), exempt insurance income shall not
include income derived from exempt contracts which cover risks other than
applicable home country risks.</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="HA900BD7E33204496897C0D85D7970DC3"><enum>(B)</enum><header>Applicable home country risks</header><text>For purposes of subparagraph (A), the term <term>applicable home country risks</term> means risks in connection with property in, liability arising out of activity in, or the lives or
health of residents of, the home country of the qualifying insurance
company or qualifying insurance company branch, as the case may be,
issuing or reinsuring the contract covering the risks.</text>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="HE7CCF59F76DD4DC2A6F8F68CA6EA5FC3"><enum>(9)</enum><header>Regulations</header><text>The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the
purposes of this subsection and section 954(d).</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="H2517B22D1A78400F9D6C3D9DF77B15AC"><enum>(10)</enum><header>Cross reference</header><text>For treatment of certain investment income derived by qualifying insurance companies, see section
954(d).</text>
</paragraph></subsection></section><section commented="no" display-inline="no-display-inline" id="HC5792CA951A744798E544A81258E70F6"><enum>956.</enum><header>Special rule for certain captive insurance companies</header>
<subsection commented="no" display-inline="no-display-inline" id="H8800273B90724A868F3B4AD2922E9BD9"><enum>(a)</enum><header>Treatment as controlled foreign corporations and United States shareholders</header>
<paragraph commented="no" display-inline="no-display-inline" id="H2F00853514F542E4A15681526420366F"><enum>(1)</enum><header display-inline="yes-display-inline">In general</header><text display-inline="yes-display-inline">For purposes only of taking into account related person insurance income—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="H42190BCA14D44654A04C83AADF082B44"><enum>(A)</enum><text>the term <term>United States shareholder</term> means, with respect to any foreign corporation, a United States person (as defined in section
957(c)) who owns (within the meaning of section 958(a)) any stock of the
foreign corporation,</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="HDF247BB276FA4C19BD35461E4178A5CA"><enum>(B)</enum><text>the term <term>controlled foreign corporation</term> has the meaning given to such term by section 957(a) determined by substituting <quote>25 percent or more</quote> for <quote>more than 50 percent</quote>, and</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="H8F18CA9BBF794F4D81F973529CF0B3D5"><enum>(C)</enum><text>the pro rata share referred to in section 951(a)(1) shall be determined under paragraph (5) of this
subsection.</text>
</subparagraph></paragraph><paragraph id="H2211C01AAA874B6CB21D29634B534C38"><enum>(2)</enum><header>Related person insurance income</header><text>For purposes of this subsection, the term <term>related person insurance income</term> means any insurance income (within the meaning of section 955(a)) attributable to a policy of
insurance or reinsurance with respect to which the person (directly or
indirectly) insured is a United States shareholder in the foreign
corporation or a related person to such a shareholder.</text>
</paragraph><paragraph id="HC8B5AE0DA70B49C1AE2952DA36172C08"><enum>(3)</enum><header>Exceptions</header>
<subparagraph id="H4CA0040348824809BBE59179BA1CF74A"><enum>(A)</enum><header>Corporations not held by insured</header><text>Paragraph (1) shall not apply to any foreign corporation if at all times during the taxable year of
such foreign corporation—</text>
<clause id="HC04B482870274ECFA34C1FA271EC78F0"><enum>(i)</enum><text>less than 20 percent of the total combined voting power of all classes of stock of such corporation
entitled to vote, and</text>
</clause><clause id="H0D437671CC6548D4AA6AB7C94EF9C39C"><enum>(ii)</enum><text>less than 20 percent of the total value of such corporation,</text></clause><continuation-text continuation-text-level="subparagraph">is owned (directly or indirectly under the principles of section 883(c)(4)) by persons who are
(directly or indirectly) insured under any policy of insurance or
reinsurance issued by such corporation or who are related persons to any
such person.</continuation-text></subparagraph><subparagraph id="HD26C51FD8E664809A2E8D7046E3A0E6D"><enum>(B)</enum><header>De minimis exception</header><text>Paragraph (1) shall not apply to any foreign corporation for a taxable year of such corporation if
the related person insurance income (determined on a gross basis) of such
corporation for such taxable year is less than 20 percent of its insurance
income (as so determined) for such taxable year.</text>
</subparagraph><subparagraph id="HEFF9587EAF644EECB9F839D1F24DB191"><enum>(C)</enum><header>Election to treat income as effectively connected</header><text>Paragraph (1) shall not apply to any foreign corporation for any taxable year if—</text>
<clause id="H68341C2322E6425BBB38EDD3B612F78F"><enum>(i)</enum><text>such corporation elects (at such time and in such manner as the Secretary may prescribe)—</text>
<subclause id="H91660F4CD3CF4AC29E51374FDB7E392B"><enum>(I)</enum><text>to treat its related person insurance income for such taxable year as income effectively connected
with the conduct of a trade or business in the United States, and</text>
</subclause><subclause id="H074E9BF5F37E4D65B3C157A06E4AB6D6"><enum>(II)</enum><text>to waive all benefits (other than with respect to section 884) with respect to related person
insurance income granted by the United States under any treaty between the
United States and any foreign country, and</text>
</subclause></clause><clause id="HFC48EF3BB0E94FB3B2E7109D6C3FE5FA"><enum>(ii)</enum><text>such corporation meets such requirements as the Secretary shall prescribe to ensure that the tax
imposed by this chapter on such income is paid.</text></clause><continuation-text continuation-text-level="subparagraph">An election under this subparagraph made for any taxable year shall not be effective if the
corporation (or any predecessor thereof) was a disqualified corporation
for the taxable year for which the election was made or for any prior
taxable year beginning after 1986.</continuation-text></subparagraph><subparagraph id="H7012BC981F1D4B4C85659AF5BE54EC92"><enum>(D)</enum><header>Special rules for subparagraph <enum-in-header>(C)</enum-in-header></header>
<clause id="H093DFEB7183A43C2B3A7BA39B4594509"><enum>(i)</enum><header>Period during which election in effect</header>
<subclause id="HB8FF7E9ADAB94051A9CB0C5DEF65C3A2"><enum>(I)</enum><header>In general</header><text>Except as provided in subclause (II), any election under subparagraph (C) shall apply to the
taxable year for which made and all subsequent taxable years unless
revoked with the consent of the Secretary.</text>
</subclause><subclause id="H4DE47B60CD4141D7AC7AF2FDF1611E8A"><enum>(II)</enum><header>Termination</header><text>If a foreign corporation which made an election under subparagraph (C) for any taxable year is a
disqualified corporation for any subsequent taxable year, such election
shall not apply to any taxable year beginning after such subsequent
taxable year.</text>
</subclause></clause><clause id="H6F7A540BB7FA4883ACD2E85569A64C9D"><enum>(ii)</enum><header>Exemption from tax imposed by section 4371</header><text>The tax imposed by section 4371 shall not apply with respect to any related person insurance income
treated as effectively connected with the conduct of a trade or business
within the United States under subparagraph (C).</text>
</clause></subparagraph><subparagraph id="HB3B808EFE49642769C6DC2F0A221DCFC"><enum>(E)</enum><header>Disqualified corporation</header><text>For purposes of this paragraph the term <term>disqualified corporation</term> means, with respect to any taxable year, any foreign corporation which is a controlled foreign
corporation at any time during such taxable year (determined without
regard to this subsection) but only if a United States shareholder
(determined without regard to this subsection) owns (within the meaning of
section 958(a)) stock in such corporation at some time during such taxable
year.</text>
</subparagraph></paragraph><paragraph id="H95CCE1C230404AA9A1B4B34BF66C4AC9"><enum>(4)</enum><header>Treatment of mutual insurance companies</header><text>In the case of a mutual insurance company—</text>
<subparagraph id="H2E2EACB020C34D499C67878E54EF4964"><enum>(A)</enum><text>this subsection shall apply,</text>
</subparagraph><subparagraph id="H5A6C470BD8D84D0D85524B140EEC06CD"><enum>(B)</enum><text>policyholders of such company shall be treated as shareholders, and</text>
</subparagraph><subparagraph id="H05C77AEADADE4662B1B04719D49BD087"><enum>(C)</enum><text>appropriate adjustments in the application of this subpart shall be made under regulations
prescribed by the Secretary.</text>
</subparagraph></paragraph><paragraph id="H6E8C0449F89A4498BB914DE9DF76C9BA"><enum>(5)</enum><header>Determination of pro rata share</header>
<subparagraph id="H64FC65B233394B3686D9A26FCE8E1895"><enum>(A)</enum><header>In general</header><text>The pro rata share determined under this paragraph for any United States shareholder is the lesser
of—</text>
<clause id="HAFB74DC77E78438A849FBADB1E16EC75"><enum>(i)</enum><text>the amount which would be determined under paragraph (2) of section 951(a) if—</text>
<subclause id="H60A0ED50F2CC4622BCB3C31739FEB20A"><enum>(I)</enum><text>only related person insurance income were taken into account,</text>
</subclause><subclause id="HFF222AE96C834430822CB36F590CC414"><enum>(II)</enum><text>stock owned (within the meaning of section 958(a)) by United States shareholders on the last day of
the taxable year were the only stock in the foreign corporation, and</text>
</subclause><subclause id="HE845C59F40244EF3B06D8D31E6B1319B"><enum>(III)</enum><text>only distributions received by United States shareholders were taken into account under
subparagraph (B) of such paragraph (2), or</text>
</subclause></clause><clause id="H0B800BD3661E4D2E95BECE63E8438B05"><enum>(ii)</enum><text>the amount which would be determined under paragraph (2) of section 951(a) if the entire earnings
and profits of the foreign corporation for the taxable year were subpart F
income.</text>
</clause></subparagraph><subparagraph id="H9FC90826D10C47B2A9534746F4000D28"><enum>(B)</enum><header>Coordination with other provisions</header><text>The Secretary shall prescribe regulations providing for such modifications to the provisions of
this subpart as may be necessary or appropriate by reason of subparagraph
(A).</text>
</subparagraph></paragraph><paragraph id="H41A23C79C6AF4DB78B4359F95F4331CF"><enum>(6)</enum><header>Related person</header><text>For purposes of this subsection—</text>
<subparagraph id="H65E54C02606542DC998D080C1713214D"><enum>(A)</enum><header>In general</header><text>Except as provided in subparagraph (B), the term <term>related person</term> has the meaning given such term by section 954(b).</text>
</subparagraph><subparagraph id="H625D88218E914D8B95E951AF3C90F8D2"><enum>(B)</enum><header>Treatment of certain liability insurance policies</header><text>In the case of any policy of insurance covering liability arising from services performed as a
director, officer, or employee of a corporation or as a partner or
employee of a partnership, the person performing such services and the
entity for which such services are performed shall be treated as related
persons.</text>
</subparagraph></paragraph><paragraph id="H247611ABAB1A4F579F60CC052746D361"><enum>(7)</enum><header>Regulations</header><text>The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of
this subsection, including—</text>
<subparagraph id="H264CCEE96D5E43AE90682E2C2D72D6DD"><enum>(A)</enum><text>regulations preventing the avoidance of this subsection through cross insurance arrangements or
otherwise, and</text>
</subparagraph><subparagraph id="HD87F2A24AC6748008799B4CAA4AE5ACC"><enum>(B)</enum><text>regulations which may provide that a person will not be treated as a United States shareholder
under paragraph (1) with respect to any foreign corporation if neither
such person (nor any related person to such person) is (directly or
indirectly) insured under any policy of insurance or reinsurance issued by
such foreign corporation.</text>
</subparagraph></paragraph></subsection><subsection id="H9347C4F98E384163A8E2C12E10702488"><enum>(b)</enum><header>Election by Foreign Insurance Company To Be Treated as Domestic Corporation</header>
<paragraph id="HE381A21C5FD242F2B7EAF0AAD3D7C912"><enum>(1)</enum><header>In general</header><text>If—</text>
<subparagraph id="H19CDBD7C4AF9434DBCDBA47A9C83A605"><enum>(A)</enum><text>a foreign corporation is a controlled foreign corporation (as defined in section 957(a) by
substituting <quote>25 percent or more</quote> for <quote>more than 50 percent</quote> and by using the definition of United States shareholder under subsection (a)(1)(B)),</text>
</subparagraph><subparagraph id="HBAF505EE5BFB4CEE88281BFEEEAFAA16"><enum>(B)</enum><text>such foreign corporation would qualify under part I or II of subchapter L for the taxable year if
it were a domestic corporation,</text>
</subparagraph><subparagraph id="HEBF0C810AB944B728E20143193C310AF"><enum>(C)</enum><text>such foreign corporation meets such requirements as the Secretary shall prescribe to ensure that
the taxes imposed by this chapter on such foreign corporation are paid,
and</text>
</subparagraph><subparagraph id="H4632D0E461CD4EF89DB37C9B1D09FC0D"><enum>(D)</enum><text>such foreign corporation makes an election to have this paragraph apply and waives all benefits to
such corporation granted by the United States under any treaty,</text></subparagraph><continuation-text continuation-text-level="paragraph">for purposes of this title, such corporation shall be treated as a domestic corporation.</continuation-text></paragraph><paragraph id="H83F9183AAFB44CECA864DAF4B694750B"><enum>(2)</enum><header>Period during which election is in effect</header>
<subparagraph id="HD2BA377770A24E3C9CB56C2F933E4751"><enum>(A)</enum><header>In general</header><text>Except as provided in subparagraph (B), an election under paragraph (1) shall apply to the taxable
year for which made and all subsequent taxable years unless revoked with
the consent of the Secretary.</text>
</subparagraph><subparagraph id="HEEB0E2A1FA704CBDA1CC3F4C38C7A19F"><enum>(B)</enum><header>Termination</header><text>If a corporation which made an election under paragraph (1) for any taxable year fails to meet the
requirements of subparagraphs (A), (B), and (C) of paragraph (1) for any
subsequent taxable year, such election shall not apply to any taxable year
beginning after such subsequent taxable year.</text>
</subparagraph></paragraph><paragraph id="H397C6F282A594AF78FE5432F68A88788"><enum>(3)</enum><header>Effect of election</header>
<subparagraph id="H44CB6C8AFEE648CDB9383B93EB67BA32"><enum>(A)</enum><header>In general</header><text>For purposes of section 367, any foreign corporation making an election under paragraph (1) shall
be treated as transferring (as of the 1st day of the 1st taxable year to
which such election applies) all of its assets to a domestic corporation
in connection with an exchange to which section 354 applies.</text>
</subparagraph><subparagraph id="H6F0150B30806425CADEF61447DD57CB1"><enum>(B)</enum><header>Exception for pre-1988 earnings and profits</header>
<clause id="HDEDB4893BD114952B3BA745D5BF5635A"><enum>(i)</enum><header>In general</header><text>Earnings and profits of the foreign corporation accumulated in taxable years beginning before
January 1, 1988, shall not be included in the gross income of the persons
holding stock in such corporation by reason of subparagraph (A).</text>
</clause><clause id="H0DCA5C95947247659535EA29EF6B4292"><enum>(ii)</enum><header>Treatment of distributions</header><text>For purposes of this title, any distribution made by a corporation to which an election under
paragraph (1) applies out of earnings and profits accumulated in taxable
years beginning before January 1, 1988, shall be treated as a distribution
made by a foreign corporation.</text>
</clause><clause id="H372E8E8B8EB048DF83AABDA2EAC1EC8C"><enum>(iii)</enum><header>Certain rules to continue to apply to pre-1988 earnings</header><text>Section 884 to the extent the foreign corporation reinvested 1987 earnings and profits in United
States assets shall be applied without regard to paragraph (1), except
that, in the case of a corporation to which an election under paragraph
(1) applies, only earnings and profits accumulated in taxable years
beginning before January 1, 1988, shall be taken into account.</text>
</clause></subparagraph></paragraph><paragraph id="H51F75726CF804D9F96328B720843E274"><enum>(4)</enum><header>Effect of termination</header><text>For purposes of section 367, if—</text>
<subparagraph id="H085E98FC3C2B4870A07065986B0533B4"><enum>(A)</enum><text>an election is made by a corporation under paragraph (1) for any taxable year, and</text>
</subparagraph><subparagraph id="H159EC963C2434FC58FF7F53B464B8829"><enum>(B)</enum><text>such election ceases to apply for any subsequent taxable year,</text></subparagraph><continuation-text continuation-text-level="paragraph">such corporation shall be treated as a domestic corporation transferring (as of the 1st day of such
subsequent taxable year) all of its property to a foreign corporation in
connection with an exchange to which section 354 applies.</continuation-text></paragraph><paragraph id="HF2D60DF0328A4A41BB8210074239173F"><enum>(5)</enum><header>Additional tax on corporation making election</header>
<subparagraph id="HB2723CFEE6A44443AFC7BBADBFDB8090"><enum>(A)</enum><header>In general</header><text>If a corporation makes an election under paragraph (1), the amount of tax imposed by this chapter
for the 1st taxable year to which such election applies shall be increased
by the amount determined under subparagraph (B).</text>
</subparagraph><subparagraph id="H85AC86C655504F8EA5812DED74BCFDF2"><enum>(B)</enum><header>Amount of tax</header><text>The amount of tax determined under this paragraph shall be equal to the lesser of—</text>
<clause id="H94CF4333238B465CBA0030E2D44B6BB4"><enum>(i)</enum><text><fraction>3/4</fraction> of 1 percent of the aggregate amount of capital and accumulated surplus of the corporation as
of December 31, 1987, or</text>
</clause><clause id="H032FBBFB138F4801AE39FF6294AC47E3"><enum>(ii)</enum><text>$1,500,000.</text></clause></subparagraph></paragraph></subsection></section><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" id="H3E84ECB020AF42F09B5788A8004DC366"><enum>(b)</enum><header>Treatment of certain excluded subpart F income as previously taxed income</header><text>Section 959(g), as added by section 331, is amended to read as follows:</text>
<quoted-block display-inline="no-display-inline" id="HB7EAA252C87F4BFB9CF4680668E477EA" style="OLC">
<subsection commented="no" id="H75138E2B3FE34F5C85E637CEA6CB9D79"><enum>(g)</enum><header>Special rules for nontaxed portion of certain income</header><text>For purposes of this section—</text>
<paragraph commented="no" id="H2D21B3F8C6B1449DA1C2D1019CC1BB9F"><enum>(1)</enum><header>In general</header><text>A United States shareholder's pro rata share of the excludable portion of the controlled foreign
corporation's subpart F income shall be treated as an amount which has
been included in gross income under section 951(a).</text>
</paragraph><paragraph commented="no" id="HC34CC40075F34C48976F17F03E76784B"><enum>(2)</enum><header>Ordering rule</header><text>Notwithstanding subsection (c), for purposes of subsections (a) and (b), section 316(a) shall be
applied by applying paragraph (2) thereof and then paragraph (1) thereof—</text>
<subparagraph id="H2D914E9CB06D471690D9DC78C0D38CAC"><enum>(A)</enum><text>first to the deductible portion (as defined in section 965(c)(3)) of the increase in subpart F
income described in section 965(a)(1) included in the gross income of
United States shareholders under section 951(a)(1) (after application of
section 965(a)(2)(A)),</text>
</subparagraph><subparagraph commented="no" id="H5FF4B2AD7B7C4239BE901A396EEA84E2"><enum>(B)</enum><text>second to the excludable portion of the controlled foreign corporation's subpart F income, and</text>
</subparagraph><subparagraph commented="no" id="HD2618DCDAFD44372B704893A1A28E4B2"><enum>(C)</enum><text>then to the amounts described in paragraphs (1), (2), or (3) of subsection (c) in accordance with
the provisions of subsection (c).</text>
</subparagraph></paragraph><paragraph id="HBED71FBF7A714C46882EB1513C4BC3F2"><enum>(3)</enum><header>Definitions</header><text>For purposes of this subsection—</text>
<subparagraph id="H18B99BCB10DF4CB184ED766FB9E60BE4"><enum>(A)</enum><header>Deductible portion</header><text>The term <term>deductible portion</term> has the meaning given such term by section 965(c)(3).</text>
</subparagraph><subparagraph id="H9FEE8E3261AB47C99B4A0E1E255387DD"><enum>(B)</enum><header>Excludable portion</header><text display-inline="yes-display-inline">The term <term>excludable portion</term> means, with respect to the subpart F income of a controlled foreign corporation, so much of such
controlled foreign corporation’s modified active income as is not taken
into account in computing subpart F income under section 952(a)(1).</text></subparagraph></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="H1556071C8A45435791492097AAA1D964"><enum>(c)</enum><header>Gains and losses from the sale of CFC stock</header>
<paragraph id="HD7CAAB7FB60F4C3D8887C9516680E083"><enum>(1)</enum><header>Gains</header>
<subparagraph id="HF6B55D2A7C3144A88707A95C648F96D5"><enum>(A)</enum><header>In general</header><text>Part I of subchapter P of chapter 1 is amended by adding at the end the following new section:</text>
<quoted-block display-inline="no-display-inline" id="H7B6344F0A2554D10885E35C285A822D4" style="OLC">
<section id="HCFA5E707656D49C09565ADA97EC63D59"><enum>1203.</enum><header>Gains from sales or exchanges of stock in controlled foreign corporations</header>
<subsection id="HE0AF70171D794E0D82FE6F60BE3CE9FC"><enum>(a)</enum><header>In general</header><text>In the case of a United States shareholder (as defined in section 951), there shall be excluded
from gross income an amount equal to the applicable portion of the amount
of any gain recognized from the sale or exchange of stock in a controlled
foreign corporation.</text>
</subsection><subsection id="H894ADED4ECCA439B864806F6A72E496D"><enum>(b)</enum><header>Applicable portion</header><text>For purposes of this section—</text>
<paragraph id="H656E192B979D4A1C80170AD08F0DA967"><enum>(1)</enum><header>In general</header><text>The term <term>applicable portion</term> means the amount which bears the same ratio to the gain recognized from such sale or exchange as—</text>
<subparagraph id="H425A489730DB483F854D248913DBCD49"><enum>(A)</enum><text>the shareholder's pro rata share (determined under section 951(a)(2)) of the excludable portion of
the aggregate subpart F income of the controlled foreign corporation for
the applicable period, bears to</text>
</subparagraph><subparagraph id="H4FD0B4E697DB4459B8BFF62C4C2126BE"><enum>(B)</enum><text>the sum of the amount determined under subparagraph (A) plus the shareholder's pro rata share
(determined under section 951(a)(2)) of the aggregate subpart F income of
the controlled foreign corporation for the applicable period.</text>
</subparagraph></paragraph><paragraph id="H2155F8F25FBB4EF6827345C6F849EE7F"><enum>(2)</enum><header>Excludable portion</header><text>For purposes of this section, the term <term>excludable portion</term> has the meaning given such term by section 959(g)(3)(B).</text>
</paragraph><paragraph id="H04DFDAB991CE498CA3B13ED26B9C3806"><enum>(3)</enum><header>Applicable period</header><text display-inline="yes-display-inline">The term <term>applicable period</term> means, with respect to any stock, the shorter of the 3-taxable year period immediately preceding
the taxable year of the sale or exchange or the shareholder's holding
period in the stock. In no event shall the applicable period include any
portion of any taxable year beginning before the applicable date (as
defined in section 300 of the <short-title>Infrastructure and Global Tax Competitiveness Act of 2014</short-title>).</text></paragraph></subsection></section><after-quoted-block>.</after-quoted-block></quoted-block>
</subparagraph><subparagraph id="HD801565F28B74AF3B6B488A1B2F8FDFA"><enum>(B)</enum><header>Clerical amendment</header><text>The table of sections for part I of subchapter P of chapter 1 is amended by adding at the end the
following new item:</text>
<quoted-block id="HC422EC0620174AE89B848F8E1DD8820E" style="OLC">
<toc>
<toc-entry idref="HCFA5E707656D49C09565ADA97EC63D59" level="section">Sec. 1203. Gains from sales or exchanges of stock in controlled foreign corporations.</toc-entry></toc><after-quoted-block>.</after-quoted-block></quoted-block>
</subparagraph></paragraph><paragraph id="H8AFED5C4EAEB4379B026EFFCD8AEF2C5"><enum>(2)</enum><header>Losses</header>
<subparagraph id="HDF9908E499384DE190914CE1EF4F157B"><enum>(A)</enum><header>In general</header><text>Part II of subchapter P of chapter 1 is amended by adding at the end the following new section:</text>
<quoted-block display-inline="no-display-inline" id="HE6F063111EFF40809EA7C2D9F8CC7E25" style="OLC">
<section id="H073EC468998649D09683A312F321CEF9"><enum>1213.</enum><header>Losses from sales or exchanges of stock in controlled foreign corporations</header>
<subsection id="HE3C124FB1C9C43F6B882F5D9B2119125"><enum>(a)</enum><header>In general</header><text>In the case of a United States shareholder (as defined in section 951), any loss from the sale or
exchange of stock in a controlled foreign corporation shall be reduced
(but not below zero) by an amount equal to the shareholder's aggregate pro
rata share (determined under section 951(a)(2)) of the excludable portion
of the subpart F income of the controlled foreign corporation during the
shareholder's holding period in the stock.</text>
</subsection><subsection id="H491E587B9CDF438FA4BDEB52FD2EBE86"><enum>(b)</enum><header>Excludable portion</header><text>For purposes of this section, the term <term>excludable portion</term> has the meaning given such term by section 959(g)(3)(B).</text></subsection></section><after-quoted-block>.</after-quoted-block></quoted-block>
</subparagraph><subparagraph id="H39218EF82E4648E29D4B03ED6CD8BAA8"><enum>(B)</enum><header>Clerical amendment</header><text>The table of sections for part I of subchapter P of chapter 1 is amended by adding at the end the
following new item:</text>
<quoted-block id="HDD8F70EB17514976A53D50850296C8DB" style="OLC">
<toc>
<toc-entry idref="H073EC468998649D09683A312F321CEF9" level="section">Sec. 1213. Losses from sales or exchanges of stock in controlled foreign corporations.</toc-entry></toc><after-quoted-block>.</after-quoted-block></quoted-block>
</subparagraph></paragraph></subsection><subsection id="H15A0A8ED112448D3B04510C49CB5E681"><enum>(d)</enum><header>Repeal of ordinary income treatment for gains from the sale of stock in certain foreign
corporations</header>
<paragraph id="HD5532BC14F274E9383DE4EEA44B156F2"><enum>(1)</enum><header>In general</header><text>Part IV of subchapter P of chapter 1 is amended by striking section 1248.</text>
</paragraph><paragraph id="HE45B70272A6540C9862A1DA571AA2F21"><enum>(2)</enum><header>Conforming amendments</header>
<subparagraph id="HA0F04475F8EA4B8BB44C1E4916DA052F"><enum>(A)</enum><text>Section (a) is amended by striking paragraph (11).</text>
</subparagraph><subparagraph id="HB0A0D7B7312A4C66A510BB0E74DB9B79"><enum>(B)</enum><text>Section 338(h) is amended—</text>
<clause id="H53F05C01125649808E6979B7372A762E"><enum>(i)</enum><text>in paragraph (6)(B)(ii), by striking <quote>or described in section 1248(e)</quote>, and</text>
</clause><clause id="H46EE6A954BDA44369D782A784B387AD8"><enum>(ii)</enum><text>in paragraph (16), by striking the second sentence.</text>
</clause></subparagraph><subparagraph id="HB61D9814844D40C3AF8CE8553B7D6D98"><enum>(C)</enum><text>Section 751 is amended—</text>
<clause id="H7DFD28EE5F7F4907AB744D8E24BECB00"><enum>(i)</enum><text>in subsection (c), by striking <quote>stock in certain foreign corporations (as described in section 1248),</quote>, and</text>
</clause><clause id="H3FCEE89CA2E346AB95A4E6E77D46131B"><enum>(ii)</enum><text>by striking subsection (e) and redesignating subsection (f) as subsection (e).</text>
</clause></subparagraph><subparagraph id="H5AAA7AF56363421C9EC091719A65315A"><enum>(D)</enum><text>Section 865(k) is amended to read as follows:</text>
<quoted-block display-inline="no-display-inline" id="H813A17321A0F4D16A077E1C9899D3D4A" style="OLC">
<subsection id="H7C108069032A4F408943726E5380D042"><enum>(k)</enum><header>Cross reference</header><text>For sourcing of income from certain foreign currency transactions, see section 988.</text></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subparagraph><subparagraph id="HE7835BF36D9841F9AEC00B75DE26448B"><enum>(E)</enum><text>Section 904(h)(7) is amended by striking <quote>or as a dividend under section 1248</quote>.</text>
</subparagraph><subparagraph id="HE0A05992D02F45CE8EF14E489CAB59B5"><enum>(F)</enum><text>Section 951(a)(2) is amended by striking the last sentence thereof.</text>
</subparagraph><subparagraph commented="no" id="HE72CB528679546A2B7B2E5500EE2C7D4"><enum>(G)</enum><text>Section 964 is amended by striking subsection (e).</text>
</subparagraph><subparagraph commented="no" id="H13F10D10EBD6451096578E848B9472CB"><enum>(H)</enum><text>Section 989(b) is amended by striking paragraph (2) and by redesignating paragraphs (3) and (4) as
paragraphs (2) and (3), respectively.</text>
</subparagraph></paragraph></subsection><subsection id="H5E2C795802A547B08BC17AC77A9C3CEA"><enum>(e)</enum><header>Coordination with amounts included in gross income of United States shareholders</header>
<paragraph id="H70095217D19145FD8D43FEC731130A6B"><enum>(1)</enum><header>In general</header><text>Paragraph (1) of section 951(a) is amended by striking <quote>such taxable year of the corporation ends—</quote> and all that follows through the end period and inserting: <quote>such taxable year of the corporation ends, the shareholder's pro rata share (determined under
paragraph (2)) of the corporation's subpart F income for such taxable
year.</quote>.</text>
</paragraph><paragraph id="H99601599A6114B96BFF5DC2822F8DFE1"><enum>(2)</enum><header>Conforming amendments</header>
<subparagraph id="HC38F04E561DE44E8AC7D47389DA6627B"><enum>(A)</enum><text>Section 951(a) is amended—</text>
<clause id="H94A840921F2C4D708AA5CA10D6F6B583"><enum>(i)</enum><text>by striking <quote>paragraph (1)(A)(i)</quote> in paragraph (2) and inserting <quote>paragraph (1)</quote>, and</text>
</clause><clause id="HE3766CFC00C04F9D93A1BF79F05AE440"><enum>(ii)</enum><text>by striking paragraph (3).</text>
</clause></subparagraph><subparagraph id="H867DD930E18D46D8A470FF022F9A899A"><enum>(B)</enum><text>Subparagraph (A) of section 512(b)(17) is amended by striking <quote>951(a)(1)(A)</quote> and inserting <quote>951(a)(1)</quote>.</text>
</subparagraph><subparagraph id="H20D607AB8A55470C8B98ADCFFA691D9D"><enum>(C)</enum><text>Section 851(b) is amended by striking <quote>951(a)(1)(A)(i)</quote> in the first sentence following paragraph (3) and inserting <quote>951(a)(1)</quote>.</text>
</subparagraph><subparagraph id="H2BC60FF2DAC84C4FB0D0B298220DE395"><enum>(D)</enum><text>Section 959(a) is amended—</text>
<clause id="H120EDC4A0DA64BD99D9B03CED8165143"><enum>(i)</enum><text>by striking <quote>shall not, when</quote> and all that follows through <quote>such shareholder</quote> and inserting <quote>shall not, when actually distributed to such shareholder</quote>, and</text>
</clause><clause id="H891F95CF1F394F169FA9A73353A97B00"><enum>(ii)</enum><text>by striking <quote>and the rules of subsection (f) shall apply for purposes of paragraph (2) of this subsection</quote>.</text>
</clause></subparagraph><subparagraph id="H38B6B3CAC77041BC9B24428D3D32C5DA"><enum>(E)</enum><text>Section 959(c) is amended by adding at the end the following: <quote>References in this subsection and subsection (f) to section 951(a)(1)(B) shall be treated as
references to such provisions as in effect on the day before the enactment
of the <short-title>Infrastructure and Global Tax Competitiveness Act of 2014</short-title>.</quote>.</text>
</subparagraph><subparagraph id="HFC4FA46B671042388942BC0F212647F0"><enum>(F)</enum><text>Section 959(e) is amended by striking <quote>951(a)(1)(A)</quote> and inserting <quote>951(a)(1)</quote>.</text>
</subparagraph><subparagraph id="HC846104274A94FBD9D3693B2D08F04CB"><enum>(G)</enum><text>Section 989(b)(3) is amended by striking <quote>951(a)(1)(A)</quote> and inserting <quote>951(a)(1)</quote>.</text>
</subparagraph><subparagraph id="H65B6D653C8BA4A7F8874CAA4CA3A43B7"><enum>(H)</enum><text>Section 1298(b) is amended by striking paragraph (8).</text>
</subparagraph></paragraph></subsection><subsection id="H72B7755B3F074EECB9B43F8D4615C309"><enum>(f)</enum><header>Application of anti-Loss importation rules</header><text>Section 362(e)(1)(B) is amended by adding at the end the following new sentence: <quote>For purposes of clause (i), except as provided under regulations, a controlled foreign corporation
shall be considered to be subject to tax under this subtitle.</quote>.</text>
</subsection><subsection commented="no" display-inline="no-display-inline" id="H450CB98AB2AB4AEFBAB02EF859273E9F"><enum>(g)</enum><header>Other conforming amendments</header>
<paragraph id="HE6D8C2DA29234EEB96864E54E579F1FC"><enum>(1)</enum><text>Sections 163(e)(3)(B)(i) and 267(a)(3)(B)(i) are each amended by striking <quote>and qualified deficits under section 952(c)(1)(B)</quote> and inserting <quote>and loss carryforwards under sections 952(d) and 953(b)</quote>.</text>
</paragraph><paragraph commented="no" id="H12D265661C9D4CF29C226F3E572C3B03"><enum>(2)</enum><text>Section 304(b)(5)(B)(ii) is amended by striking <quote>953(c)</quote> and inserting <quote>956(a)</quote>.</text>
</paragraph><paragraph commented="no" id="H083D90B106474FAD91FEEAC961570E45"><enum>(3)</enum><text>Section 355(g)(2)(B)(ii)(I) is amended by striking <quote>section 954(h)(4)</quote> and inserting <quote>section 954(c)(4)</quote>.</text>
</paragraph><paragraph commented="no" id="HB031284D00B546FF8EFCEF682EFDC0F0"><enum>(4)</enum><text>Section 512(b)(17) is amended by striking <quote>953</quote> and inserting <quote>section 955</quote>.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="H3E6A41F86F7741DA81B7FA0B3E865990"><enum>(5)</enum><text>Section 864(d)(8) is amended by striking <quote>or section 956(b)(3)</quote>.</text>
</paragraph><paragraph id="H921E4956383E4C4FAA41F06701C9AF67"><enum>(6)</enum><text>Section 864(d)(5)(A) is amended—</text>
<subparagraph id="H23CCEF7EFB594D6BA69D281E894880F1"><enum>(A)</enum><text>by striking clause (iii) and redesignating clause (iv) as clause (iii), and</text>
</subparagraph><subparagraph id="HCD7CFD6F08D94F66A4F7417F12B21DBC"><enum>(B)</enum><text>by striking <quote>954(c)(3)(A)</quote> in clause (iii) (as redesignated by subparagraph (A)) and inserting <quote>954(a)(3)(A)</quote>.</text>
</subparagraph></paragraph><paragraph id="H360469B2F6C347A093C21DBB271D86A9"><enum>(7)</enum><text>Section 864(d)(7)(B) is amended by striking <quote>foreign base company income (as defined in section 954(a), determined without regard to section
954(b)(3)(A))</quote> and inserting <quote>passive income (as defined in section 954(a))</quote>.</text>
</paragraph><paragraph id="H74C8CB3158CA4EC090F38A79662A5053"><enum>(8)</enum><text>Section 881(c)(5)(A)(iii) is amended by striking <quote>954(c)(3)(A)</quote> and inserting <quote>954(a)(3)(A)</quote>.</text>
</paragraph><paragraph id="HDEF5C3BF0D9F437DBD9FD703044CB610"><enum>(9)</enum><text>Section 884(d)(2)(D) is amended by striking <quote>953(c)(3)(C)</quote> and inserting <quote>956(a)(3)(C)</quote>.</text>
</paragraph><paragraph id="HABE23D0362BC40B2942C034BF1910A6C"><enum>(10)</enum><text>Section 898(b)(3) is amended—</text>
<subparagraph id="HC9B6F9CBED024BB0B8BFA5A1AF935EA5"><enum>(A)</enum><text>by striking <quote>953(c)(2)</quote> and inserting <quote>956(a)(2)</quote>, and</text>
</subparagraph><subparagraph id="HBB9FE365BD5646DC84E8FA29E531CDE0"><enum>(B)</enum><text>by striking <quote>953(c)(1)</quote> and inserting <quote>956(a)(1)</quote>.</text>
</subparagraph></paragraph><paragraph id="HE28D62DA8CDF49BB9E2EA8A170848806"><enum>(11)</enum><text>Section 936(h)(5) is amended—</text>
<subparagraph id="H60C9EF259DC14CDDA789803B5A5C7BFB"><enum>(A)</enum><text>by inserting <quote>(as in effect on the day before the enactment of the <short-title>Infrastructure and Global Tax Competitiveness Act of 2014</short-title>)</quote> after <quote>section 954</quote> in the last sentence of subparagraph (B)(ii), and</text>
</subparagraph><subparagraph id="H8FF3EF821B3346AEA9F175FAFE67C9A2"><enum>(B)</enum><text>in subparagraph (F)(iv)(II)—</text>
<clause id="HFFE5E2E6FD4A4A529C5191A75A600BB2"><enum>(i)</enum><text>by inserting <quote>(as in effect on the day before the enactment of the <short-title>Infrastructure and Global Tax Competitiveness Act of 2014</short-title>)</quote> after <quote>section 954</quote>, and</text>
</clause><clause id="HF0132D9DB2B44E2AA493B1E567EB2F86"><enum>(ii)</enum><text>by inserting <quote>(as so in effect)</quote> after <quote>section 954(a)</quote>.</text>
</clause></subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="HD4F3CBFB78B340DDADC96511C14F4B4D"><enum>(12)</enum><text>Section 957(b) is amended—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="HED9C4E6D777344639777B670C2BF7F1D"><enum>(A)</enum><text>by striking <quote>income described in section 953(a)</quote> and inserting <quote>income described in section 955(a)</quote>, and</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="H4EA2E486E16840B18218A7DE40300876"><enum>(B)</enum><text>by striking <quote>contracts described in section 953(a)(1)</quote> and inserting <quote>contracts described in section 955(a)(1)</quote>.</text>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="H9473D4F146C5463CBA9D920D930FA6E0"><enum>(13)</enum><text>Section 958(b) is amended—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="H1F5466FA608641FD95C604512E296CAE"><enum>(A)</enum><text>by striking <quote>956(c)(2),</quote> before <quote>and 957</quote>,</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="HCDD0B5187083488F92C944100E9AFF18"><enum>(B)</enum><text>by striking <quote>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(c)(2),</quote>, and</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="H472978E5D3E044928CC5414C0AF4BAA8"><enum>(C)</enum><text>by striking the last sentence.</text>
</subparagraph></paragraph><paragraph id="HE7593177D4A346F1AE2A9B44ACE64FA0"><enum>(14)</enum><text>Section 964(b) is amended by striking <quote>sections 952, 955, and 956</quote> and inserting <quote>section 952</quote>.</text>
</paragraph><paragraph id="HAD521C33BB03404CA930816E06B502E4"><enum>(15)</enum><text>Section 964(e)(2) is amended by striking <quote>954(c)(3)(A)</quote> and inserting <quote>954(a)(3)(A)</quote>.</text>
</paragraph><paragraph id="H8442E7202C4F4CFFB868E72AD49C87F3"><enum>(16)</enum>
<subparagraph commented="no" display-inline="yes-display-inline" id="H2142EF7CB3F541ACA16E5617D8D90125"><enum>(A)</enum><text>Part III of subchapter N of chapter 1 is amended by striking subpart G.</text>
</subparagraph><subparagraph id="H46A0075AAB2E4CD1B2E43649B1519A74" indent="up1"><enum>(B)</enum><text>Section 865(e)(2)(A) is amended by striking the last sentence.</text>
</subparagraph><subparagraph id="H22ADB427D7264702A7D4AC74C3926B41" indent="up1"><enum>(C)</enum><text>The table of subparts for part III of subchapter N of chapter 1 is amended by striking the item
relating to subpart G.</text>
</subparagraph></paragraph><paragraph id="H391351F5700142FBA011EE68768103D1"><enum>(17)</enum><text>Section 999(c) is amended—</text>
<subparagraph id="HFBB5593F265A4E42A7AA29A3694484C4"><enum>(A)</enum><text>by striking <quote>, 952(a)(3)</quote> in paragraph (1), and</text>
</subparagraph><subparagraph id="HCEC245F16D4C4B42BEB3BBF9478A71FB"><enum>(B)</enum><text>by striking <quote>, the addition to subpart F income under section 952(a)(3),</quote> in paragraph (2).</text>
</subparagraph></paragraph><paragraph id="H16D74E9447C24BDD998CE76C8D7C54F4"><enum>(18)</enum><text>Section 1296(f)(2) is amended—</text>
<subparagraph id="HCE9B1AD85B5F47EF93575662FA41B0F6"><enum>(A)</enum><text>by striking <quote>foreign personal holding company income described in section 954(c)(1)(A)</quote> in subparagraph (A) and inserting <quote>passive income (as defined in section 954(a))</quote>, and</text>
</subparagraph><subparagraph id="H20E42B8657584C8EA1A91CE3D60F8EDC"><enum>(B)</enum><text>by striking <quote>foreign personal holding company income so described</quote> and inserting <quote>such passive income</quote>.</text>
</subparagraph></paragraph><paragraph id="H4367153B935E42B195480A900F98565A"><enum>(19)</enum><text>Section 1297(b) is amended to read as follows:</text>
<quoted-block display-inline="no-display-inline" id="HFFC95C0CA3F14987A08C9B058B53AF79" style="OLC">
<subsection id="H89B3876B956C4B67B7FFBF3DB86AC2C2"><enum>(b)</enum><header>Passive income</header>
<paragraph id="HACC28EB88E4A4875A246E965F7E1834B"><enum>(1)</enum><header>In general</header><text>Except as provided in paragraph (2), the term <term>passive income</term> means any income received or accrued by any foreign corporation which is of a kind which would be
passive income as defined in section 954 if the foreign corporation were a
controlled foreign corporation.</text>
</paragraph><paragraph id="H5191C95BCC724AE89A2D4856732DA2D1"><enum>(2)</enum><header>Exception</header><text>Except as provided in regulations, the term <term>passive income</term> does not include any income which is interest, a dividend, or a rent or royalty, which is received
or accrued from a related person (within the meaning of section 954(b)) to
the extent that such amount is properly allocable (under regulations
prescribed by the Secretary) to income of such related person which is not
passive income.</text></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="H576332B8D9A844A2A6F54BEFB4D55437"><enum>(20)</enum><text>Section 2057(e)(2)(D)(ii) is amended by striking <quote>section 954(c)(1)</quote> and inserting <quote>section 954(a)(1)</quote>.</text>
</paragraph><paragraph id="HA60F869EF8D34D79B39188CBF490DBB9"><enum>(21)</enum><text>The following sections are amended by striking <quote>954(d)(3)</quote> each place it appears and inserting <quote>954(b)</quote>:</text>
<subparagraph id="HC7174CFF356146A99431C4CD28260DEB"><enum>(A)</enum><text>Section 861(c)(2)(B).</text>
</subparagraph><subparagraph commented="no" id="H22E91B2281304E43893C9DA6D4060227"><enum>(B)</enum><text>Section 958(b).</text>
</subparagraph><subparagraph id="H85F446E0084841DCA32CFA16FA177E98"><enum>(C)</enum><text>Section 988(a)(3)(C).</text>
</subparagraph><subparagraph id="H626694B056DE40669BEA0EF61C37AA11"><enum>(D)</enum><text>Subsections (d)(3)(A) and (e)(2)(B)(i) of section 1298.</text>
</subparagraph><subparagraph commented="no" id="HDE9A300166814B1383D5486D9A454BDF"><enum>(E)</enum><text>Section 1471(e)(2).</text>
</subparagraph><subparagraph commented="no" id="HBF314981599040C6AC775D289B792C87"><enum>(F)</enum><text>Section 3121(z)(2).</text>
</subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="HB277D64AC30841FBB972255D45AC45BD"><enum>(22)</enum><text>The table of sections for subpart F of part III of subchapter 1 is amended by striking the items
relating to sections 952 through 956 and inserting the following:</text>
<quoted-block id="H3953D038D9FB4CA99586F05E3CA19679" style="OLC">
<toc>
<toc-entry level="section">Sec. 952. Subpart F income defined.</toc-entry>
<toc-entry idref="H419547A66678423B93D2F3B69AE8EE49" level="section">Sec. 953. Active foreign market income.</toc-entry>
<toc-entry idref="H3BC048A7714D4F17B7103EB8A95F0B5A" level="section">Sec. 954. Definition of passive income.</toc-entry>
<toc-entry idref="H4AEF8875CAFB49BBB00825AD1EF29E5F" level="section">Sec. 955. Definition of insurance income.</toc-entry>
<toc-entry idref="HC5792CA951A744798E544A81258E70F6" level="section">Sec. 956. Special rule for certain captive insurance companies.</toc-entry></toc><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></subsection><subsection id="HB21368957A254231A5C9667D3A4485E8"><enum>(h)</enum><header>Effective dates</header>
<paragraph id="H762AB42D87994BE398D8BBD518F88A34"><enum>(1)</enum><header>In general</header><text>Except as provided in paragraph (2), the amendments made by this section shall apply to taxable
years of foreign corporations beginning on or after the applicable date,
and to taxable years of United States shareholders with or within which
such taxable years of foreign corporations end.</text>
</paragraph><paragraph id="HE74B48FB8EC841FE8361B335FB0EAC13"><enum>(2)</enum><header>Gains and losses from the sale of CFC stock; Repeal of section 1248</header><text>The amendments made by subsections (c) and (d) shall apply to sales or exchanges on or after the
applicable date.</text>
</paragraph></subsection></section></part><part id="H202EACD10BE249D2BFF07073DE58A992"><enum>II</enum><header>Foreign tax credit limitations</header>
<section id="H6CDDF0C536C340F199D3E5558EE11188"><enum>311.</enum><header>Reform of foreign tax credit limitation</header>
<subsection id="HBA529778685B4473904C88040BEEAF72"><enum>(a)</enum><header>In general</header><text>Subsection (d) of section 904 is amended to read as follows:</text>
<quoted-block display-inline="no-display-inline" id="H08A85E4F2A80475D8C349A04D5DA9350" style="OLC">
<subsection id="H9665614FDFE947C4951C7A8AEFA39B6D"><enum>(d)</enum><header>Separate application of section with respect to certain categories of income</header>
<paragraph id="HBBCE937DE2884BFF9BA6DA0FE6A28189"><enum>(1)</enum><header>In general</header><text>The provisions of subsections (a), (b), and (c) and section 907 and 960 shall be applied separately
with respect to—</text>
<subparagraph id="HE7150EF787404B83A74726266B12A403"><enum>(A)</enum><text>amounts included under section 951(a) which are attributable to active foreign market income (as
defined in section 953),</text>
</subparagraph><subparagraph id="H383E707EAC7E43918E02EE76D203151B"><enum>(B)</enum><text>passive category income, and</text>
</subparagraph><subparagraph id="HC6A76E2540E248D69BCA2677221CBE3A"><enum>(C)</enum><text>income other than income described in either of the preceding subparagraphs.</text>
</subparagraph></paragraph><paragraph id="H729FB1127E6848E1B09557B314891C80"><enum>(2)</enum><header>Definitions and special rules</header>
<subparagraph id="H901C1DEEB7DE4852A39629CE4C07691A"><enum>(A)</enum><header>Passive category income</header>
<clause id="H9E79B8F5E4264953BD89BA67A08B89AA"><enum>(i)</enum><header>In general</header><text>The term <term>passive category income</term> means—</text>
<subclause id="HBEFB023318034EE2ABF969B72206A551"><enum>(I)</enum><text>United States taxpayer passive income described in subparagraph (B), and</text>
</subclause><subclause commented="no" id="H39AEAB0AE1994528BD0C604E11AD8E31"><enum>(II)</enum><text>income which is included in gross income of the taxpayer under section 951(a)(1) to the extent such
income is attributable to passive income (as defined in section 954(a)).</text>
</subclause></clause><clause id="HB12D1499855648E79DE6C15109754150"><enum>(ii)</enum><header>Exception for high-taxed income</header><text>Passive category income shall not include any high-taxed income.</text>
</clause><clause commented="no" id="H917737BCC7E045A9A0E75C47F4F1307D"><enum>(iii)</enum><header>Clarification of application of section <enum-in-header>864(d)(6)</enum-in-header></header><text>In determining whether any income is passive category income, the rules of section 864(d)(6) shall
apply only in the case of income of a controlled foreign corporation.</text>
</clause></subparagraph><subparagraph id="HC4D8BAF304EC4FA38191B0C46C893C83"><enum>(B)</enum><header>United States taxpayer passive income</header><text>United States taxpayer passive income described in this subparagraph is income received or accrued
by the taxpayer which is of a kind that would be passive income as defined
under section 954(a) if such taxpayer were a controlled foreign
corporation.</text>
</subparagraph><subparagraph id="HC2D9E137FAE349DEA8E4C5A7AB191FB2"><enum>(C)</enum><header>Treatment of financial services income and companies</header>
<clause id="H0D5D0210B6804924BBBC5B56C51188DD"><enum>(i)</enum><header>In general</header><text>Financial services income which is not active foreign market category income shall be treated as
income described in paragraph (1)(C) in the case of—</text>
<subclause id="HECF189BE4A8C430FBBDDC4D5BBAD63F4"><enum>(I)</enum><text>a member of a financial services group, and</text>
</subclause><subclause id="H3D27B4D385FF4642890606DDCE2B06A5"><enum>(II)</enum><text>any other person if such person is predominantly engaged in the active conduct of a banking,
insurance, financing, or similar business.</text>
</subclause></clause><clause id="HA65EF7D1C17E434EB05B57B1AD7A46B0"><enum>(ii)</enum><header>Financial services group</header><text>The term <term>financial services group</term> means any affiliated group (as defined in section 1504(a) without regard to paragraphs (2) and (3)
of section 1504(b)) which is predominantly engaged in the active conduct
of a banking, insurance, financing, or similar business. In determining
whether such a group is so engaged, there shall be taken into account only
the income of members of the group that are—</text>
<subclause id="H04519A7C041E4B78A8D0063C3FF4552C"><enum>(I)</enum><text>United States corporations, or</text>
</subclause><subclause id="HBB39A08E546F4C279A10F169D264CD00"><enum>(II)</enum><text>controlled foreign corporations in which such United States corporations own, directly or
indirectly, at least 80 percent of the total voting power and value of the
stock.</text>
</subclause></clause><clause id="H89FF93CFA1414F54ABF886A25C6E89C2"><enum>(iii)</enum><header>Pass-thru entities</header><text>The Secretary shall by regulation specify for purposes of this subparagraph the treatment of
financial services income received or accrued by partnerships and by other
pass-thru entities which are not members of a financial services group.</text>
</clause></subparagraph><subparagraph id="H75597C4F03A14A6EA3F848C46D15BC77"><enum>(D)</enum><header>Financial services income</header>
<clause id="HE97D2BD9DAC84FA48EF2FCA383FA0E65"><enum>(i)</enum><header>In general</header><text>Except as otherwise provided in this subparagraph, the term <term>financial services income</term> means any income which is received or accrued by any person predominantly engaged in the active
conduct of a banking, insurance, financing, or similar business, and which
is—</text>
<subclause id="H1A0428665D6F48C9A3547F469FDF887C"><enum>(I)</enum><text>described in clause (ii), or</text>
</subclause><subclause id="H4CF20418F36343FBBE42FF7F41E55304"><enum>(II)</enum><text>United States taxpayer passive income (determined without regard to subparagraph (A)(ii)).</text>
</subclause></clause><clause id="H761D80B6346F44B0B6B5F12E1B04236D"><enum>(ii)</enum><header>General description of financial services income</header><text>Income is described in this clause if such income is—</text>
<subclause id="HE693CE287B7448FABFAD7ACCB980C334"><enum>(I)</enum><text>derived in the active conduct of a banking, financing, or similar business,</text>
</subclause><subclause id="H9C672957ED0E4FB3914DB57631769B27"><enum>(II)</enum><text>derived from the investment by an insurance company of its unearned premiums or reserves ordinary
and necessary for the proper conduct of its insurance business, or</text>
</subclause><subclause id="HDEC996BFEBEC48D3BE7735BEFC8A8D2D"><enum>(III)</enum><text>of a kind which would be insurance income as defined in section 955(a).</text>
</subclause></clause></subparagraph><subparagraph id="HD461F521266F4907A0569CAB8952DC01"><enum>(E)</enum><header>High-taxed income</header><text>The term <term>high-taxed income</term> means any income which (but for this subparagraph) would be passive category income if the sum of—</text>
<clause id="H98821788044C4CCFB25B2CA24E4A5790"><enum>(i)</enum><text>the foreign income taxes paid or accrued by the taxpayer with respect to such income, and</text>
</clause><clause id="H4E0C5ACD6BCC493A91218FF81437C449"><enum>(ii)</enum><text>the foreign income taxes deemed paid by the taxpayer with respect to such income under section 960,</text></clause><continuation-text continuation-text-level="subparagraph">exceeds the highest rate of tax specified in section 1 or 11 (whichever applies) multiplied by the
amount of such income (determined with regard to section 78). For purposes
of the preceding sentence, the term <term>foreign income taxes</term> means any income, war profits, or excess profits tax imposed by any foreign country or possession
of the United States.</continuation-text></subparagraph><subparagraph commented="no" id="HEBB6F63D212D4E0CBBD37B1A722E9BAB"><enum>(F)</enum><header>Treatment of income tax base differences</header>
<clause commented="no" id="H77596A7DFDE044C49EDD47D72CE43346"><enum>(i)</enum><header>In general</header><text>In the case of taxable years beginning after December 31, 2006, tax imposed under the law of a
foreign country or possession of the United States on an amount which does
not constitute income under United States tax principles shall be treated
as imposed on income described in paragraph (1)(C).</text>
</clause><clause commented="no" id="HC11679007AA341DE91AEAF38244B29D9"><enum>(ii)</enum><header>Special rules for years after 2006 and before the applicable date</header><text display-inline="yes-display-inline">In the case of taxable years beginning after December 31, 2006, and on or before the applicable
date (as defined in section 300 of the <short-title>Infrastructure and Global Tax Competitiveness Act of 2014</short-title>), tax imposed under the law of a foreign country or possession of the United States on an amount
which does not constitute income under United States tax principles shall
be treated as imposed on income described in paragraph (1)(B) (as in
effect for taxable years beginning the day before such applicable date).</text>
</clause><clause commented="no" id="H4D2D6F08FEF64AC284F9F157D53A9FBE"><enum>(iii)</enum><header>Special rule for years before 2007</header>
<subclause commented="no" id="H6451B09BF03A4DDDAB9996B1787AC953"><enum>(I)</enum><header>In general</header><text>In the case of taxes paid or accrued in taxable years beginning after December 31, 2004, and before
January 1, 2007, a taxpayer may elect to treat tax imposed under the law
of a foreign country or possession of the United States on an amount which
does not constitute income under United States tax principles as tax
imposed on income described in subparagraph (C) or (I) of paragraph (1)
(as in effect for taxable years beginning in 2006).</text>
</subclause><subclause commented="no" id="H443F90680C0A49FABFC0EAFA87B33567"><enum>(II)</enum><header>Revocation</header><text>Any such election shall apply to the taxable year for which made and all subsequent taxable years
described in subclause (I) unless revoked with the consent of the
Secretary.</text>
</subclause></clause></subparagraph><subparagraph commented="no" id="H4DBBD1EB35C145A8BA3E5A56FED79784"><enum>(G)</enum><header>Transition rules for certain carryforwards and carrybacks</header><text>For purposes of paragraph (1)—</text>
<clause commented="no" id="HE6CD78CA177A425383FEDB34C2FF6D6F"><enum>(i)</enum><text display-inline="yes-display-inline">in the case of any taxes carried from any taxable year beginning before the applicable date (as
defined in section 300 of the <short-title>Infrastructure and Global Tax Competitiveness Act of 2014</short-title>), to any taxable year beginning on or after such date—</text>
<subclause commented="no" id="H2F8983410A1D4005A160D2EF9B5BA0DF"><enum>(I)</enum><text>if such taxes were treated as attributable to income described in paragraph (1)(A) (as in effect
for taxable years beginning the day before such applicable date), such
taxes shall be treated as attributable to income described in paragraph
(1)(B), and</text>
</subclause><subclause commented="no" id="H2D92D04F9ECF4C1D95411B295B4DDB09"><enum>(II)</enum><text>if such taxes were treated as attributable to income described in paragraph (1)(B) (as in effect
for taxable years beginning the day before such applicable date), such
taxes shall be treated as attributable to income described in paragraph
(1)(C), and</text>
</subclause></clause><clause id="HCFFF110C79F24B0AA73E80EBB3B9B102"><enum>(ii)</enum><text>the Secretary may by regulations provide for the allocation of any carryback of taxes with respect
to income from a taxable year beginning on or after such applicable date,
to a taxable year beginning before such date for purposes of allocating
such income among the separate categories in effect for the taxable year
to which carried.</text>
</clause></subparagraph></paragraph><paragraph id="H73BBB7CA32D14DCE8AE38C1114A672E2"><enum>(3)</enum><header>Controlled foreign corporation; United States shareholder</header><text>For purposes of this subsection—</text>
<subparagraph id="HF291083624454E2C98F139ECEA5FA6C3"><enum>(A)</enum><header>Controlled foreign corporation</header><text>The term <term>controlled foreign corporation</term> has the meaning given such term by section 957 (taking into account section 956(a)).</text>
</subparagraph><subparagraph id="H0CB8C85FCE4C4CC5963DF16B7EBE7A80"><enum>(B)</enum><header>United States shareholder</header><text>The term <term>United States shareholder</term> has the meaning given such term by section 951(b) (taking into account section 956(a)).</text>
</subparagraph></paragraph><paragraph id="H730418AAC24342BB94D5DC7DDCBFAC38"><enum>(4)</enum><header>Separate application to items resourced under treaties</header>
<subparagraph id="H77AC85B125354C129540DBE4C51BFC7B"><enum>(A)</enum><header>In general</header><text>If—</text>
<clause id="H3625C391A3D34C59B1E12F7569BD18F9"><enum>(i)</enum><text>without regard to any treaty obligation of the United States, any item of income would be treated
as derived from sources within the United States,</text>
</clause><clause id="HC6E3DBFB3EB7459CB70B7BBED4EA5EB6"><enum>(ii)</enum><text>under a treaty obligation of the United States, such item would be treated as arising from sources
outside the United States, and</text>
</clause><clause id="H968BE3C48AEE4D248ECFCBB9B83734E2"><enum>(iii)</enum><text>the taxpayer chooses the benefits of such treaty obligation,</text></clause><continuation-text continuation-text-level="subparagraph">subsections (a), (b), and (c) of this section and sections 907 and 960 shall be applied separately
with respect to each such item.</continuation-text></subparagraph><subparagraph id="H2FB51697948949ECB3AEEC33BBD3D8B1"><enum>(B)</enum><header>Coordination with other provisions</header><text>This paragraph shall not apply to any item of income to which subsection (h)(10) or section 865(h)
applies.</text>
</subparagraph><subparagraph id="HB10BB5895B584FE599BB9F6937E8B296"><enum>(C)</enum><header>Regulations</header><text>The Secretary may issue such regulations as may be necessary or appropriate to carry out the
purposes of this paragraph, including regulations which provide that
related items of income may be aggregated for purposes of this paragraph.</text>
</subparagraph></paragraph><paragraph id="HE61918A19C5D45E88D1FB5780EFE5988"><enum>(5)</enum><header>Regulations</header><text>The Secretary shall prescribe such regulations as may be necessary or appropriate for the purposes
of this subsection, including preventing the manipulation of the character
of income the effect of which is to avoid the purposes of this subsection.</text></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="H2FA1CC664D38433281DA50908D350921"><enum>(b)</enum><header>Application of per country limitation</header><text>Section 904 is amended by inserting after subsection (d) the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="HA2C1EE4D18204CE182995AF72FC7AB60" style="OLC">
<subsection id="H5363B2913965420DABA98832C8552F48"><enum>(e)</enum><header>Limitations applied on a per country basis</header><text display-inline="yes-display-inline">The provisions of subsections (a), (b), (c), and (d) and sections 907 and 960 shall be applied
separately with respect to each foreign country or possession with respect
to which taxes described in section 901(b) are paid or accrued.</text></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="H3CFB33B2638C400D9BAEAD61974E3E03"><enum>(c)</enum><header>Effective date</header><text>The amendment made by this section shall apply to taxable years beginning on or after the
applicable date.</text>
</subsection></section><section id="H7F98718680D4455E958287C89AE4A306"><enum>312.</enum><header>Denial of credit and deduction for foreign taxes with respect to excluded subpart F income</header>
<subsection id="HD6C0DCA7B538493083F231265FBA0AC5"><enum>(a)</enum><header>In general</header><text display-inline="yes-display-inline">Section 901 is amended by redesignating subsection (n) as subsection (o) and by inserting after
subsection (m) the following:</text>
<quoted-block display-inline="no-display-inline" id="H5AF346CCEB3046B282556B8FB4406671" style="OLC">
<subsection id="HE8238C715521402DABC2F32F8DDFCB7B"><enum>(n)</enum><header>Denial of foreign tax credit and deduction with respect to excluded subpart F income</header>
<paragraph id="H8A2E34CA1681492BA03FCE835C27F0CA"><enum>(1)</enum><header>In general</header><text>Notwithstanding section 960(b), no credit shall be allowed under subsection (a) for any income, war
profits, or excess profits taxes paid or accrued (or deemed paid or
accrued under section 960) with respect to the excludable portion of
subpart F income or any distribution received by a United States
shareholder (as defined in section 951(b)) which is properly attributable
to such excludable portion. No deduction shall be allowed to a taxpayer
under this chapter for any tax for which a credit is not allowable by
reason of the preceding sentence.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="H0239AE550BB3417BAEB6B403D11A1BC0"><enum>(2)</enum><header display-inline="yes-display-inline">Excludable portion</header><text display-inline="yes-display-inline">The term <term>excludable portion</term> has the meaning given such term by section 959(g)(3)(B).</text>
</paragraph><paragraph id="H8F9CD56DDCB546B796FCAC45BECF74F0"><enum>(3)</enum><header>Coordination with section 78</header><text>Section 78 shall not apply to any tax which is not allowable as a credit under this section by
reason of this subsection.</text></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" display-inline="no-display-inline" id="HC1182F7469E94CE292277C8D6BECAF4B"><enum>(b)</enum><header>Effective date</header><text>The amendments made by this section shall apply to taxable years of foreign corporations beginning
on or after the applicable date, and to taxable years of United States
shareholders with or within which such taxable years of foreign
corporations end.</text>
</subsection></section></part><part id="H752C91AC0D014866A2671F0A9096940D" style="OLC"><enum>III</enum><header>Expense disallowance</header>
<section id="H213DD15CCC224584B299B1BE5D517185"><enum>321.</enum><header>Disallowance of deduction for expenses allocable to exempt income of a controlled foreign
corporation</header>
<subsection id="HAE1EEECF984545CA8CD1A9CC430E941F"><enum>(a)</enum><header>In general</header><text>Part IX of subchapter B of chapter 1 is amended by adding at the end the following:</text>
<quoted-block display-inline="no-display-inline" id="H265B98CF2B6A4DCD8C14D97F329C2200" style="OLC">
<section id="H4FEE48E42E5C4C0C82F28AE976F2AAEA"><enum>265A.</enum><header>Expenses allocable to exempt income of a controlled foreign corporation</header>
<subsection id="HF9AE8B8DEC0A4E6692485F72BDB5E29B"><enum>(a)</enum><header>In general</header><text>In the case of a United States shareholder of a controlled foreign corporation for any taxable
year, no deduction shall be allowed under this chapter for—</text>
<paragraph id="HE1EAAC2CED3C4B13A382C309791DF67F"><enum>(1)</enum><text>the disallowed portion of any allocable CFC interest, or</text>
</paragraph><paragraph id="H04EF37C547C9479D8B3C98C2D8C16EC2"><enum>(2)</enum><text>expenses directly allocable to the excludable portion of subpart F income (as defined in section
959(g)(3)(B)).</text>
</paragraph></subsection><subsection id="H43DFB1CFE45C4D46B51739D32167C848"><enum>(b)</enum><header>Disallowed portion</header><text>For purposes of this section—</text>
<paragraph id="H4AF7F55D398E4FD19768DA384CC4F12D"><enum>(1)</enum><header>In general</header><text>The term <term>disallowed portion</term> means, with respect to any allocable CFC interest in connection with a controlled foreign
corporation, the exclusion percentage of the amount which bears the same
ratio to the amount of such interest as—</text>
<subparagraph id="HFA8CFACBB0F446419FF9558E53626007"><enum>(A)</enum><text>the corporation's modified active income (as defined in section 952) for the applicable taxable
year, bears to</text>
</subparagraph><subparagraph id="H5F9BB025D05941C2BFFE67FB02F9B63B"><enum>(B)</enum><text>the corporation's current earnings and profits.</text>
</subparagraph></paragraph><paragraph id="HE086369FEA8D4295937DEF16CDB6F603"><enum>(2)</enum><header>Current earnings and profits</header><text>For purposes of this subsection—</text>
<subparagraph id="H46C2E6C3B2D84125BFEF9605C6BB6D74"><enum>(A)</enum><header>In general</header><text>The term <term>current earnings and profits</term> means the earnings and profits of the controlled foreign corporation for the applicable taxable
year, without diminution by reason of distributions made during the
taxable year.</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="H6292DD68E1E6483E888CC7D9C76D0258"><enum>(B)</enum><header display-inline="yes-display-inline">Special rule for determining earnings and profits</header><text display-inline="yes-display-inline">Earnings and profits of any controlled foreign corporation shall be determined without regard to
paragraphs (4), (5), and (6) of section 312(n). Under regulations, the
preceding sentence shall not apply to the extent it would increase
earnings and profits by an amount which was previously distributed by the
controlled foreign corporation.</text>
</subparagraph></paragraph><paragraph id="H1F5CB53F988943B68D37C4244F6D8F36"><enum>(3)</enum><header>Exclusion percentage</header><text>The term <term>exclusion percentage</term> means, with respect to any controlled foreign corporation for any taxable year, the number of
percentage points by which 100 percent exceeds the inclusion percentage
determined under section 952(d) with respect to such controlled foreign
corporation for such taxable year.</text>
</paragraph></subsection><subsection id="H17A5956E1D30444B8EF4B848BB46116B"><enum>(c)</enum><header>Definitions and special rules</header><text>For purposes of this section—</text>
<paragraph id="HAE71008A68E84667BEB73BF7E90DFDA7"><enum>(1)</enum><header>Allocable CFC interest</header><text>The term <term>allocable CFC interest</term> means any interest expense paid or accrued during the taxable year by a United States shareholder
of a controlled foreign corporation which under section 861, and
subsection (e) or (f) of section 864 (whichever is applicable), is
apportioned to income of the controlled foreign corporation.</text>
</paragraph><paragraph id="H8402E7D95C7D47C9A2B4B1CD76E7D18E"><enum>(2)</enum><header>Applicable taxable year</header><text>The term <term>applicable taxable year</term> means, with respect to any controlled foreign corporation, the taxable year of such corporation
which ends with or within the taxable year of the United States
shareholder described in subsection (a).</text>
</paragraph><paragraph id="HC5C342DFC8104B0BA630D9BE680E2364"><enum>(3)</enum><header>United States shareholder; controlled foreign corporation</header><text>The term <term>United States shareholder</term> has the meaning given such term by section 951(b) and the term <term>controlled foreign corporation</term> shall have the meaning given such term by section 957(a).</text>
</paragraph><paragraph id="HCD6FB02EF9D2452E9D129F00C7D13E21"><enum>(4)</enum><header>Special rule for members of an affiliated group</header><text>If a United States shareholder to which subsection (a) applies is a domestic corporation which is a
member of a group all members of which are treated as a single corporation
under subsection (e) or (f) of section 864, whichever is applicable, all
domestic corporations which are members of such group shall be treated as
a single corporation for purposes of this section.</text>
</paragraph><paragraph id="HCA6114CDED8C488F92BB7F5B9638FF5E"><enum>(5)</enum><header>Special rules</header>
<subparagraph id="H5A17D24116FC4143B24B5E1AAE660A03"><enum>(A)</enum><header>Coordination with other provisions</header><text>Except as provided in regulations, this section shall be applied before any other provision of this
chapter limiting the deductibility of any allocable CFC interest.</text>
</subparagraph><subparagraph id="H5B68485F21B04615987EAA0D97BD3C9F"><enum>(B)</enum><header>Separate application to income in separate baskets</header><text>This section shall be applied separately with respect to the categories of income under section
904(d)(1).</text>
</subparagraph></paragraph></subsection><subsection id="H79E3AEE432414E8BA78A71E9510B25F1"><enum>(d)</enum><header>Regulations</header><text>The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of
this section, including regulations providing—</text>
<paragraph id="HC3C8BF0233C5427EA7ED66D5C44DD329"><enum>(1)</enum><text>for the sharing of information between shareholders if necessary to carry out the provisions of
this section,</text>
</paragraph><paragraph id="HA5736495DCFC4D87B2D1FC1A2A084E24"><enum>(2)</enum><text>for directly associating interest or other expenses disallowed under this section with income of a
controlled foreign corporation and for coordinating this section with
other provisions of this chapter limiting the deductibility of interest or
other expenses, and</text>
</paragraph><paragraph id="H603902F9E3874B1BA09F8C3DF2DE6F24"><enum>(3)</enum><text>for the proper application of this section with respect to the taxpayer’s share of net operating
losses of a controlled foreign corporation.</text></paragraph></subsection></section><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="H33BF53FC8F6D4937A11BCD939B5B0273"><enum>(b)</enum><header>Conforming amendment</header><text>The table of sections for part IX of subchapter B of chapter 1 is amended by inserting after the
item relating to section 265 the following:</text>
<quoted-block display-inline="no-display-inline" id="HFBF8A8C41D5F41B8BDC4EBA62BAF2026" style="OLC">
<toc>
<toc-entry bold="off" level="section">Sec. 265A. Expense allocable to exempt income of a controlled foreign corporation.</toc-entry></toc><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="HB6E99F1A707D47028980905A0A5B0C95"><enum>(c)</enum><header>Effective date</header><text>The amendments made by this section shall apply to taxable years of foreign corporations beginning
on or after the applicable date, and to taxable years of United States
shareholders with or within which such taxable years of foreign
corporations end.</text>
</subsection></section></part><part id="H6B415C80A1B8447BBEAD1B45D64446D1" style="OLC"><enum>IV</enum><header>Other provisions relating to subpart F</header>
<subpart id="H62B7C8748E58453E94848905699C0D7D" style="OLC"><enum>A</enum><header>Previously deferred foreign income</header>
<section id="H7D0BEB838DCD4C00A581CF941A454D92"><enum>331.</enum><header>Treatment of previously deferred foreign income</header>
<subsection id="H0DA86369F0FD4A09A89F5D345DC5F794"><enum>(a)</enum><header>In general</header><text display-inline="yes-display-inline">Subpart F of part III of subchapter N of chapter 1 is amended by adding at the end the following
new section:</text>
<quoted-block display-inline="no-display-inline" id="HDFC7D9B85B414F9995B34D848A47E9A7" style="OLC">
<section id="H3B415691197047B48B7AC1CE635C6AC3"><enum>966.</enum><header>Inclusion of previously deferred foreign income</header>
<subsection id="HA9CC5DCBFBB0478F97A35DC9F3452DBA"><enum>(a)</enum><header>Inclusion as subpart F income</header>
<paragraph id="H68D9A35D044F49A09A23480FF62DC30D"><enum>(1)</enum><header>In general</header><text display-inline="yes-display-inline">Subject to the provisions of paragraph (2), the subpart F income (determined under section 952
without regard to this section) of a controlled foreign corporation for
its last taxable year beginning before the applicable date (as defined in
section 300 of the <short-title>Infrastructure and Global Tax Competitiveness Act of 2014</short-title>), shall be increased by the accumulated deferred foreign income of the corporation.</text>
</paragraph><paragraph id="HEF381AB4440C4F8C88647C87B9331803"><enum>(2)</enum><header>Inclusion only to apply to domestic corporations</header><text>In the case of any increase in subpart F income of a controlled foreign corporation by reason of
paragraph (1)—</text>
<subparagraph id="H5F8C1E9F2C06499DA44B29F49FC5B29A"><enum>(A)</enum><text>notwithstanding section 951(a)(1), the inclusion in gross income under such section of a United
States shareholder's pro rata portion (as determined under section
951(a)(2)) of such increased subpart F income shall only apply if the
United States shareholder is a domestic corporation, and</text>
</subparagraph><subparagraph id="H57DEA220374F40DFBAFBEFE55CB91C79"><enum>(B)</enum><text>there shall be allowed as a deduction for the taxable year of such United States shareholder in
which such increased subpart F income is included in such shareholder's
gross income under section 951(a)(1) an amount equal to the applicable
percentage of the amount of the income so included.</text>
</subparagraph></paragraph></subsection><subsection id="H4BBC14BEA023449DB78A0A16F57E6085"><enum>(b)</enum><header>Accumulated deferred foreign income</header><text>For purposes of this section—</text>
<paragraph id="H12E205F3B6474A8680F3EA789C921E3E"><enum>(1)</enum><header>In general</header><text>The term <term>accumulated deferred foreign income</term> means the excess of—</text>
<subparagraph id="HAF2A164866294E9C91D9414B4E39E4AA"><enum>(A)</enum><text>the undistributed earnings of the controlled foreign corporation, over</text>
</subparagraph><subparagraph id="H975388D7F0A147F4AB1070DA492C2609"><enum>(B)</enum><text>the undistributed U.S. earnings of such controlled foreign corporation.</text>
</subparagraph></paragraph><paragraph id="H6CC57539F84E4FF0A990916193C6F65C"><enum>(2)</enum><header>Undistributed earnings</header>
<subparagraph id="H877C1144995D40B783F1E2CE2E88E60E"><enum>(A)</enum><header>In general</header><text>The term <term>undistributed earnings</term> means the earnings and profits of the controlled foreign corporation described in section
959(c)(3), determined—</text>
<clause id="H47F253C465BD43E49BCBC997684579F1"><enum>(i)</enum><text>as of the close of the taxable year described in subsection (a)(1),</text>
</clause><clause id="H5277663039DE4362964F69ABDA7051EE"><enum>(ii)</enum><text>without diminution by reason of distributions made during such taxable year, and</text>
</clause><clause id="H33A69BFD7B6F4CA994DF537B9D5D1EB3"><enum>(iii)</enum><text>without regard to this section.</text>
</clause></subparagraph><subparagraph id="HAB835518D2254681A034BD2BDFEC5A5B"><enum>(B)</enum><header>Special rule for current year distributions</header><text>For purposes of this chapter, any determination with respect to the treatment of distributions
described in subparagraph (A)(ii) shall be made after the application of
this section to the earnings and profits described in subparagraph (A).</text>
</subparagraph></paragraph><paragraph id="HD87350DD5B7540299A7E4324725A95E6"><enum>(3)</enum><header>Undistributed U.S. earnings</header><text display-inline="yes-display-inline">The term <term>undistributed U.S. earnings</term> has the meaning given the term <term>post-1986 undistributed U.S. earnings</term> in section 245(a)(5) (as in effect for taxable years beginning the day before the applicable date
(as defined in section 300 of the <short-title>Infrastructure and Global Tax Competitiveness Act of 2014</short-title>)), determined—</text>
<subparagraph id="H6F6858B8253C4B66A35F0D6B3E885098"><enum>(A)</enum><text>without regard to <quote>post-1986</quote> each place it appears in the matter before subparagraph (A), and</text>
</subparagraph><subparagraph id="H3D7B118041AE4581984A845A30BAC1A2"><enum>(B)</enum><text>without regard to the last sentence thereof.</text>
</subparagraph></paragraph></subsection><subsection display-inline="no-display-inline" id="H0E42717703F34563B066DA405944C743"><enum>(c)</enum><header>Disallowance of foreign tax credit, etc</header>
<paragraph id="H3D39042E8F4C4B82BE283D8BCD057519"><enum>(1)</enum><header>In general</header><text display-inline="yes-display-inline">No credit shall be allowed under section 901 to a United States shareholder of a controlled foreign
corporation for any taxes paid or accrued (or treated as paid or accrued)
with respect to the deductible portion of—</text>
<subparagraph id="H967CA58610DD4CF2A9C00791766D75FB"><enum>(A)</enum><text display-inline="yes-display-inline">the increased subpart F income of the corporation included in the gross income of the shareholder
under subsection (a)(2)(A), or</text>
</subparagraph><subparagraph id="H50AFDAE4C0B54C8CA799EF174C0B4216"><enum>(B)</enum><text>any distribution received by the shareholder which is properly attributable to such increased
subpart F income.</text>
</subparagraph></paragraph><paragraph id="HFFD3A64863A645F5A44BC236425C646C"><enum>(2)</enum><header>Denial of deduction</header><text>No deduction shall be allowed under this chapter to a United States shareholder of a controlled
foreign corporation for any tax for which a credit is not allowable under
section 901 by reason of paragraph (1).</text>
</paragraph><paragraph id="H3F94F5D149A248DCA93C294320486E5E"><enum>(3)</enum><header>Deductible portion</header><text>For purposes of this subsection, the term <term>deductible portion</term> means, with respect to the increased subpart F income of the corporation included in the gross
income of the shareholder under subsection (a)(2)(A), the applicable
percentage of such income with respect to which a deduction is allowable
under subsection (a)(2)(B).</text>
</paragraph><paragraph id="HEC928DD09A4D449DA90827F9CF1E10DE"><enum>(4)</enum><header>Coordination with section 78</header><text display-inline="yes-display-inline">Section 78 shall not apply to the portion of any tax for which credit is not allowable under
section 901 by reason of paragraph (1).</text>
</paragraph></subsection><subsection id="H30468244E4F64CCE9D6B4C9DD8903AD8"><enum>(d)</enum><header>Applicable percentage</header><text>For purposes of this section, the term <term>applicable percentage</term> means the percentage which is equal to the ratio of—</text>
<paragraph id="H7333A72FA6EE46A98A48ADEEF0474A53"><enum>(1)</enum><text>the excess of—</text>
<subparagraph id="HDACDF1CB4F3E4289B83DB4CD4D70ACEE"><enum>(A)</enum><text>the highest rate of tax in effect under section 11(b) for the taxable year of the United States
shareholder described in subsection (a)(2)(B), over</text>
</subparagraph><subparagraph id="HDAA0EF3ACC8D47279310F8510E0D69E4"><enum>(B)</enum><text>20 percent, to</text>
</subparagraph></paragraph><paragraph id="HEE9B7B5DF2AF46EDBBBCD83B4DB325C8"><enum>(2)</enum><text>the highest rate of tax in effect under section 11(b) for the taxable year of the United States
shareholder described in subsection (a)(2)(B).</text></paragraph><continuation-text continuation-text-level="subsection">The percentage determined under the preceding sentence shall be rounded to the nearest whole
percentage point.</continuation-text></subsection><subsection id="H603A26F05C9747D4B9F28864E4C72168"><enum>(e)</enum><header>Election To pay liability in installments</header>
<paragraph id="HD8C903A5274D4220ACE630C45BFAF3BC"><enum>(1)</enum><header>In general</header><text>In the case of a United States shareholder with respect to one or more controlled foreign
corporations to which subsection (a) applies, such United States
shareholder may elect to pay the net tax liability under this section in 2
or more (but not exceeding 8) equal installments.</text>
</paragraph><paragraph id="HA97812830CDC41DAACC21D2F666F47E2"><enum>(2)</enum><header>Date for payment of installments</header><text>If an election is made under paragraph (1), the due date for the first installment shall be the due
date (determined without regard to any extension of time for filing the
return) for the return of tax for the taxable year described in subsection
(a)(2)(B) and the due date for each succeeding installment shall be the
due date (as so determined) for the return of tax for the taxable year
following the taxable year with respect to which the preceding installment
was made.</text>
</paragraph><paragraph id="H588920335E6A49888A00F3E930CD272A"><enum>(3)</enum><header>Acceleration of payment</header><text>If there is—</text>
<subparagraph id="H3D9B9F32AB6F43AD9DAA84E6010B744E"><enum>(A)</enum><text>an assessment of an addition to tax for failure to pay timely with respect to any installment
required under this subsection,</text>
</subparagraph><subparagraph id="H9F242283515E4BB8A7667088D9E1F4A3"><enum>(B)</enum><text>a liquidation or sale of substantially all the assets of the taxpayer (including in a title 11 or
similar case),</text>
</subparagraph><subparagraph id="H41F07DC9B0DF485CBFABEEC992557472"><enum>(C)</enum><text>a cessation of business by the taxpayer, or</text>
</subparagraph><subparagraph id="H8FBBF4B0FB02436791F7994D99DD8FB7"><enum>(D)</enum><text>any similar circumstance,</text></subparagraph><continuation-text continuation-text-level="paragraph">then the unpaid portion of all remaining installments shall be due on the date of such event (or in
the case of a title 11 or similar case, the day before the petition is
filed).</continuation-text></paragraph><paragraph id="H1718D6FD0BCF4D9780D667A15E9BF433"><enum>(4)</enum><header>Proration of deficiency to installments</header><text display-inline="yes-display-inline">If an election is made under paragraph (1) to pay the net tax liability under this section in
installments and a deficiency has been assessed, the deficiency shall be
prorated to the installments payable under paragraph (1). The part of the
deficiency so prorated to any installment the date for payment of which
has not arrived shall be collected at the same time as, and as a part of,
such installment. The part of the deficiency so prorated to any
installment the date for payment of which has arrived shall be paid upon
notice and demand from the Secretary. This paragraph shall not apply if
the deficiency is due to negligence, to intentional disregard of rules and
regulations, or to fraud with intent to evade tax.</text>
</paragraph><paragraph id="HB471DC631F4242A18F07D48E7BC4C939"><enum>(5)</enum><header>Rules relating to interest</header>
<subparagraph id="H76167730B68F481FA9FF7F699B20E210"><enum>(A)</enum><header>In general</header><text>In the case of any net tax liability prorated to an installment under this subsection, the last
date prescribed for payment of the tax for purposes of section 6601(a)
shall be the last date for payment of the installment rather than the last
date for payment of tax for the taxable year in which the net tax
liability arose.</text>
</subparagraph><subparagraph id="H7ED12FDF1F3B4D14A4ED491A0597D05F"><enum>(B)</enum><header>Special rules for deficiencies</header>
<clause id="HBD8207486E1C4802BB2D36F575E7705E"><enum>(i)</enum><header>Interest payable for entire period</header><text>Subparagraph (A) shall not apply to any deficiency prorated to an installment under paragraph (4).</text>
</clause><clause id="HAA24FFD576914D4AB8C9B4286C16C6A7"><enum>(ii)</enum><header>Payment of interest attributable to prior periods</header><text>In the case of a deficiency to which paragraph (4) applies, interest with respect to such
deficiency which is assigned under paragraph (4) to any installment the
date for payment of which has arrived on or before the date of the
assessment of the deficiency, shall be paid upon notice and demand from
the Secretary.</text>
</clause></subparagraph></paragraph><paragraph id="HCEA5F8BCEB9D4553A316EE2397328C9A"><enum>(6)</enum><header>Period of assessment</header><text>Notwithstanding section 6501, the period for assessing the net tax liability under this section for
which an election is made under paragraph (1) shall not expire before the
due date for the last installment.</text>
</paragraph><paragraph id="H5AA89DF44BD348D492C9564FD2D7F2C4"><enum>(7)</enum><header>Election</header><text>Any election under paragraph (1) shall be made not later than the due date for the return of tax
for the taxable year of the United States shareholder described in
subsection (a)(2)(B) and shall be made in such manner as the Secretary may
provide.</text>
</paragraph><paragraph commented="no" id="H8862F70697CE4B74933FB33ABE46EADE"><enum>(8)</enum><header>Net tax liability under this section</header><text display-inline="yes-display-inline">For purposes of this subsection—</text>
<subparagraph commented="no" id="HC032F58641FE4B82BACB8B361CCBBFCB"><enum>(A)</enum><header>In general</header><text>The net tax liability under this section with respect to any United States shareholder is the
excess (if any) of—</text>
<clause commented="no" id="H6668C101D6BF4012B48DCC734D68B8AB"><enum>(i)</enum><text>such taxpayer’s net income tax for the taxable year, over</text>
</clause><clause commented="no" id="HA8C42815436244EB82051000E28BC065"><enum>(ii)</enum><text>such taxpayer’s net income tax for such taxable year determined without regard to this section.</text>
</clause></subparagraph><subparagraph commented="no" id="H5B6EAC5510574FA697DD371BF1A0B9F6"><enum>(B)</enum><header>Net income tax</header><text>The term <term>net income tax</term> means the net income tax (as defined in section 38(c)(1)) reduced by the credit allowed under
section 38.</text>
</subparagraph><subparagraph commented="no" id="H9D41DA34CC084DF0AD275E83285C8427"><enum>(C)</enum><header>Regulations</header><text>The Secretary shall prescribe such regulations as may be necessary for the determination under this
subsection of the net tax liability under this section in the case of any
pass-thru entity.</text>
</subparagraph></paragraph></subsection><subsection commented="no" id="H020BBDD2085747D78097A8060176CA13"><enum>(f)</enum><header>Regulations</header><text>The Secretary shall promulgate such regulations as necessary to carry out the purposes of this
section, including regulations for the application of this section to
pass-through entities all or part of which are owned by 1 or more domestic
corporations.</text></subsection></section><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="HD68BB1953601427FAE6DAF2EA42103F3"><enum>(b)</enum><header>Ordering rule for purposes of treatment of previously taxed income</header>
<paragraph id="HA69BE913B9BA484480B8D5E6C6F2D1CE"><enum>(1)</enum><header>In general</header><text>Section 959 is amended by adding at the end the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="H2B2C881DDFAF4B148361B80A6EFE60AC" style="OLC">
<subsection id="H95ACF8551FE54D7FA5D9840A68E14DEC"><enum>(g)</enum><header>Special ordering rule</header><text>Notwithstanding subsection (c), for purposes of subsections (a) and (b), section 316(a) shall be
applied by applying paragraph (2) thereof and then paragraph (1) thereof—</text>
<paragraph id="H458D7B6865C7469EAC1F143E77172CE6"><enum>(1)</enum><text>first to the deductible portion (as defined in section 965(c)(3)) of the increase in subpart F
income described in section 965(a)(1) included in the gross income of
United States shareholders under section 951(a)(1) (after application of
section 965(a)(2)(A)), and</text>
</paragraph><paragraph id="H4C821A40E5D24B9CA700CAE0CBCF5464"><enum>(2)</enum><text>then to amounts described in paragraphs (1), (2), or (3) of subsection (c).</text></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="H6BA3E3D2CC5240C896C449107E9B8482"><enum>(2)</enum><header>Conforming amendment</header><text>Section 959(c) is amended by inserting <quote>except as provided in subsection (g),</quote> after <quote>subsections (a) and (b),</quote>.</text>
</paragraph></subsection><subsection id="H10402AD37948456698EB66A3CF94F586"><enum>(c)</enum><header>Conforming amendments</header>
<paragraph id="H872BF5B180454A6D9AD1CD1D69188B8F"><enum>(1)</enum><text>Clause (vi) of section 56(g)(4)(C) is amended—</text>
<subparagraph id="HCFBF8B7109C64CBBB1B64DD5E2813462"><enum>(A)</enum><text>by inserting <quote>or section 966(a)(2)</quote> after <quote>section 965</quote>, and</text>
</subparagraph><subparagraph id="HE58ADCBD74F54021B224CCF3BB19199C"><enum>(B)</enum><text display-inline="yes-display-inline">by inserting <quote><header-in-text level="clause" style="OLC">and inclusions</header-in-text></quote> after <quote><header-in-text level="clause" style="OLC">certain distributions</header-in-text></quote> in the heading thereof.</text>
</subparagraph></paragraph><paragraph id="HBB2207C3D50D4F3692461196BF0F7502"><enum>(2)</enum><text>Paragraph (3) of section 245(a) is amended—</text>
<subparagraph id="H11F802F45C434EBE93F4BAB6E7595DC4"><enum>(A)</enum><text>by striking <quote>post-1986</quote> in subparagraph (A), and</text>
</subparagraph><subparagraph id="H2608B505FBB84C86B49BF3C5DC98B488"><enum>(B)</enum><text>by striking <quote>total post-1986</quote> in subparagraph (B).</text>
</subparagraph></paragraph><paragraph id="H9ED90F225D8F4055BC3C953DFB726F14"><enum>(3)</enum><text>Paragraph (4) of section 245(a) is amended to read as follows:</text>
<quoted-block display-inline="no-display-inline" id="H8EB91BB954F84F4BBF44B652BD80BF9E" style="OLC">
<paragraph display-inline="no-display-inline" id="H1F9456BA44BF469F87905FEC943AF44E"><enum>(4)</enum><header>Undistributed earnings</header><text display-inline="yes-display-inline">The term <term>undistributed earnings</term> means the amount of the earnings and profits of the controlled foreign corporation (computed in
accordance with sections 964(a) and 986)—</text>
<subparagraph id="H30CD8D8DB4A74E28A9DB6C0A417C3EBC"><enum>(A)</enum><text>as of the close of the taxable year of the controlled foreign corporation in which the dividend is
distributed, and</text>
</subparagraph><subparagraph id="H32784D1E72DC42EAB1A345A3CE1F94F5"><enum>(B)</enum><text>without diminution by reason of dividends distributed during such taxable year.</text></subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="HA3DEF59CFB9E4C2D89A3E8A7BF7DBF7C"><enum>(4)</enum><text>Paragraph (5) of section 245(a) is amended—</text>
<subparagraph id="H1EAC0FA5EE774038B3611F58ABE25CB9"><enum>(A)</enum><text>by striking <quote>post-1986</quote> both places it appears in the matter preceding subparagraph (A), and</text>
</subparagraph><subparagraph id="HDB3856A3E0D64086AEC0264CD2902513"><enum>(B)</enum><text>by striking <quote><header-in-text level="paragraph" style="OLC">Post-<enum-in-header>1986</enum-in-header> undistributed</header-in-text></quote> in the heading thereof and inserting <quote><header-in-text level="paragraph" style="OLC">Undistributed</header-in-text></quote>.</text>
</subparagraph></paragraph><paragraph id="H27F61989769345768A497095ED87086D"><enum>(5)</enum><text>Paragraph (6) of section 245(a) is amended—</text>
<subparagraph id="HCB5386124D3E40D892E469BF561B9A0F"><enum>(A)</enum><text>by striking <quote>beginning after December 31, 1986</quote> and inserting <quote>which is after the first taxable year of such corporation</quote>, and</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="HBDE52E7C6EF54346AB863CE3BEE87D34"><enum>(B)</enum><text display-inline="yes-display-inline">by striking <quote>post-1986</quote> both places it appears.</text>
</subparagraph></paragraph><paragraph id="HE4C952247E354410A3004168544EB170"><enum>(6)</enum><text>Paragraph (2) of section 6601(b) is amended—</text>
<subparagraph id="HE19015C6523B424E900418B3878D24D0"><enum>(A)</enum><text>by striking <quote>section 6156(a)</quote> in the matter preceding subparagraph (A) and inserting <quote>section 965(d)(1) or 6156(a)</quote>, and</text>
</subparagraph><subparagraph id="HAA8E4F8EBB3B4120A1A50F5700DA082F"><enum>(B)</enum><text>by striking <quote>section 6156(b)</quote> in subparagraph (A) and inserting <quote>section 965(d)(2) or 6156(b), as the case may be</quote>.</text>
</subparagraph></paragraph><paragraph id="HBA69226A1B7C4EDDB8803D16B5C87C26"><enum>(7)</enum><text>The table of sections for subpart F of part III of subchapter N of chapter 1 is amended by striking
the item relating to section 965 and inserting the following:</text>
<quoted-block id="H1DCA5A5A6F6A4077A21B46F86A2CC1FE" style="OLC">
<toc>
<toc-entry idref="H3B415691197047B48B7AC1CE635C6AC3" level="section">Sec. 965. Inclusion of previously deferred foreign income.</toc-entry></toc><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></subsection><subsection id="HCBBF685C8F5F4DCC8FE140F799F62C89"><enum>(d)</enum><header>Effective date</header>
<paragraph id="H6720248256234CE7B795B4703DDFADAE"><enum>(1)</enum><header>In general</header><text>Except as provided in paragraph (2), the amendments made by this section shall apply to the last
taxable year of foreign corporations beginning before the applicable date,
and to taxable years of United States shareholders with or within which
such taxable years of foreign corporations end.</text>
</paragraph><paragraph id="HFBEF2FF37AB14812B30C997D1D68CB6E"><enum>(2)</enum><header>Conforming amendments related to section 245</header><text>The amendments made by paragraphs (2), (3), (4), and (5) of subsection (c) shall apply to taxable
years of foreign corporations beginning on or after the applicable date,
and to taxable years of United States shareholders with or within which
such taxable years of foreign corporations end.</text>
</paragraph></subsection></section></subpart><subpart id="H19FDBF8C6E5A4896A088536D9ED34D09" style="OLC"><enum>B</enum><header>Other provisions</header>
<section id="H7A3313B963D34CD4BB3718713B817CDD"><enum>336.</enum><header>Elimination of 30-day requirement</header>
<subsection id="HDD2AB97A57014CA7A49E9606D967006D"><enum>(a)</enum><header>In general</header><text display-inline="yes-display-inline">Section 951(a)(1) is amended by striking <quote>for an uninterrupted period of 30 days or more</quote> and inserting <quote>at any time</quote>.</text>
</subsection><subsection id="H90774B1649C644BB85EF8C2D229CC24B"><enum>(b)</enum><header>Effective date</header><text display-inline="yes-display-inline">The amendment made by this section shall apply to taxable years of foreign corporations beginning
on or after the applicable date, and to taxable years of United States
shareholders with or within which such taxable years of foreign
corporations end.</text>
</subsection></section><section id="H93F45B7C6762409EBCF855B750B46293"><enum>337.</enum><header>Modification of definition of United States shareholder</header>
<subsection id="HD5150453B11D4518BB960E2C2DD93D94"><enum>(a)</enum><header>In general</header><text display-inline="yes-display-inline">Section 951(b) is amended by inserting <quote>, or 10 percent or more of the total value of shares of all classes of stock of such foreign
corporation</quote> after <quote>such foreign corporation</quote>.</text>
</subsection><subsection id="HAC510521474F41488A0442D19CCB2F7B"><enum>(b)</enum><header>Effective date</header><text>The amendment made by this section shall apply to taxable years of foreign corporations beginning
on or after the applicable date, and to taxable years of United States
shareholders with or within which such taxable years of foreign
corporations end.</text>
</subsection></section></subpart></part></subtitle><subtitle id="H8DA1D6757474431989FC7698B827DEB6"><enum>B</enum><header>Reform of foreign tax credit provisions </header>
<section commented="no" id="HB0AB0ECD0EB948CC87FC98050B30746C"><enum>341.</enum><header>Repeal of section 902 indirect foreign tax credits; foreign tax credit related to subpart F income</header>
<subsection commented="no" id="HF33123CAB9884479BA6D9D7875022E44"><enum>(a)</enum><header>Repeal of section 902 indirect foreign tax credits</header><text display-inline="yes-display-inline">Subpart A of part III of subchapter N of chapter 1 is amended by striking section 902.</text>
</subsection><subsection id="H9F37D397BF30409EA9837F9D5F5576E8"><enum>(b)</enum><header>Foreign tax credit related to subpart F income</header>
<paragraph id="H1B622227D17E444986707F2DEC5B2CB2"><enum>(1)</enum><header>In general</header><text display-inline="yes-display-inline">Section 960 is amended by redesignating subsections (b) and (c) as subsections (c) and (d),
respectively, and by striking subsection (a) and inserting the following:</text>
<quoted-block display-inline="no-display-inline" id="HF59AD51B31C44AB9BCB873044DBF0F89" style="OLC">
<subsection commented="no" id="H73C187C9DA9142DA949609A257E479F4"><enum>(a)</enum><header>Determination of credit on current year basis</header><text display-inline="yes-display-inline">For purposes of this subpart, if there is included in the gross income of a domestic corporation
any amount under section 951(a) with respect to any controlled foreign
corporation with respect to which such domestic corporation is a United
States shareholder, such domestic corporation shall be deemed to have paid
so much of such foreign corporation’s foreign income taxes as are properly
attributable to the amount so included.</text>
</subsection><subsection commented="no" id="H949F8ED2F5494AAFA059E06BBCB73D52"><enum>(b)</enum><header>Treatment of foreign taxes not previously deemed paid</header><text>For purposes of this subpart—</text>
<paragraph commented="no" id="H6A3AFBF206C34073BFB8757E7995E008"><enum>(1)</enum><header>In general</header><text>If any portion of a distribution from a controlled foreign corporation received by a domestic
corporation is excluded from gross income under section 959(a), such
domestic corporation shall be deemed to have paid so much of such foreign
corporation’s foreign income taxes as are properly attributable to the
amount so excluded to the extent such taxes were not deemed paid by the
domestic corporation under this section for any prior taxable year.</text>
</paragraph><paragraph commented="no" id="H6B225814075242B1BC9B87B4AF5A1EEA"><enum>(2)</enum><header>Taxes of lower-tier CFCs</header><text>If a controlled foreign corporation receives a distribution any portion of which is described in
section 959(b) from another controlled foreign corporation, such foreign
corporation shall be deemed to have paid so much of such other foreign
corporation’s foreign income taxes as are properly attributable to the
amount so described to the extent such taxes were not deemed paid by a
domestic corporation under this section for any prior taxable year.</text></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="HC70E94B2459F4DEB8385EE23D3163936"><enum>(2)</enum><header>Application with respect to foreign tax credit limitation</header><text>Section 960(c), as redesignated by paragraph (1), is amended by adding at the end the following new
paragraph:</text>
<quoted-block display-inline="no-display-inline" id="H31425A1FECBE47498FDDF3B440EDA2D8" style="OLC">
<paragraph id="H70F60DFF7B274EA58FFAF43E2C4A86C3"><enum>(6)</enum><header>Application with respect to foreign tax credit limitation</header><text>This subsection shall be applied separately with respect to each category of income described in
section 904(d)(1).</text></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph commented="no" id="HDD3D84F3AA1B4B219C419C2ECA194578"><enum>(3)</enum><header>Conforming amendments</header>
<subparagraph commented="no" id="HD84D8A75D52A4BD6B2ED3FD6C94AB96F"><enum>(A)</enum><text>Section 960 is amended by striking subsection (d), as redesignated by paragraph (1), and inserting
the following:</text>
<quoted-block display-inline="no-display-inline" id="H2BB47E4FF6E9485F8DEAA1CA486BC826" style="OLC">
<subsection commented="no" id="H6CFA87489C5D47B59B3DAC8C2A834FDC"><enum>(d)</enum><header>Foreign income taxes</header><text>For purposes of this section, the term <term>foreign income taxes</term> means any income, war profits, or excess profits taxes paid or accrued by a foreign corporation to
any foreign country or possession of the United States.</text>
</subsection><subsection commented="no" id="HF95EB27BEC2F429881BD217E0CB50F23"><enum>(e)</enum><header>Regulations</header><text display-inline="yes-display-inline">The Secretary shall provide such regulations as may be necessary or appropriate to carry out the
provisions of this section, including rules for the application of this
section to domestic partnerships with partners that are domestic
corporations.</text></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subparagraph><subparagraph commented="no" id="H9FE89AAB30574F4E92F2D8A7099CBE91"><enum>(B)</enum><text>Section 960 is amended by striking the heading and inserting <quote><header-in-text level="section" style="OLC">Deemed paid credit for subpart F inclusions</header-in-text></quote>.</text>
</subparagraph></paragraph></subsection><subsection id="H7F6CA046B1AD4DF9A361890F384751CF"><enum>(c)</enum><header>Modification to section 78 gross Up</header><text>Section 78 is amended to read as follows:</text>
<quoted-block display-inline="no-display-inline" id="H9C5C737A2A224DF0AEDDCB16DB66095C" style="OLC">
<section id="H859C118FE4CC47008FA88EF2BF699F6C"><enum>78.</enum><header>Amounts received from certain foreign corporations by domestic corporations choosing foreign tax
credit</header><text display-inline="no-display-inline">If a domestic corporation which is a United States shareholder chooses to have the benefits of
subpart A of part III of subchapter N (relating to foreign tax credits)
for any taxable year, an amount equal to the taxes deemed to be paid by
such corporation under section 960 for such taxable year—</text>
<paragraph id="HEA62678DE4034146B36D4AFB19E50578"><enum>(1)</enum><text display-inline="yes-display-inline">shall be treated as an amount included in the gross income under section 951(a), and</text>
</paragraph><paragraph id="H96F97C038EC94656BC2FCD2A6D071A03"><enum>(2)</enum><text display-inline="yes-display-inline">for purposes of section 904, shall be deemed to be attributable to the same category of income
described in section 904(d)(1) as the income which gave rise to the taxes
deemed paid by such corporation.</text></paragraph></section><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="HB05FB9C8F1F54B028A20DD746B629B9D"><enum>(d)</enum><header>Conforming amendments</header>
<paragraph id="H918393FE79F24382B0687A100042FE8E"><enum>(1)</enum><text display-inline="yes-display-inline">Subclause (III) of section 56(g)(4)(C)(iii) is amended by inserting <quote>as in effect before its repeal</quote> after <quote>section 902</quote>.</text>
</paragraph><paragraph id="H07E57B1D67A44F27A3ABB14D7022DB93"><enum>(2)</enum><text>Sections 535(b)(1) and 545(b)(1) are each amended by striking <quote>section 902(a) or 960(a)(1)</quote> and inserting <quote>section 960</quote>.</text>
</paragraph><paragraph id="H1C391979138E454E9F3F8902858744A8"><enum>(3)</enum><text>Subparagraph (B) of section 814(f)(1) is repealed.</text>
</paragraph><paragraph id="H42D1825E4C0A42EFA076A89830B90D34"><enum>(4)</enum><text>Subsection (a) of section 901 is amended by striking <quote>sections 902 and 960</quote> and inserting <quote>section 960</quote>.</text>
</paragraph><paragraph id="H19D1BD94F9B74459AAC3F4C121427DC5"><enum>(5)</enum><text>Paragraph (2) of section 901(e) is amended by striking <quote>but is not limited to—</quote> and all that follows through <quote>that portion</quote> and inserting <quote>but is not limited to that portion</quote>.</text>
</paragraph><paragraph id="HCD84BB2819AE408F938A984A2AA4893D"><enum>(6)</enum><text>Subsection (f) of section 901 is amended by striking <quote>sections 902 and 960</quote> and inserting <quote>section 960</quote>.</text>
</paragraph><paragraph id="H897CD3236D1A47798E3A1B103C73933A"><enum>(7)</enum><text>Subparagraph (A) of section 901(j)(1) is amended by striking <quote>902 or</quote>.</text>
</paragraph><paragraph id="HE841EBBB24A4438A88A983B97A00A49A"><enum>(8)</enum><text>Subparagraph (A) of section 904(h)(10) is amended by striking <quote>sections 902, 907, and 960</quote> and inserting <quote>sections 907 and 960</quote>.</text>
</paragraph><paragraph id="H0660D8E5D56B493A88A96780AA82E710"><enum>(9)</enum><text>Subsection (k) of section 904 is amended to read as follows:</text>
<quoted-block display-inline="no-display-inline" id="H178BAD26706845C2891CFFD0A553B970" style="OLC">
<subsection id="HE6CAD8E40D314963BF0EF295F2AA9EF2"><enum>(k)</enum><header>Cross reference</header><text display-inline="yes-display-inline">For modification of limitation under subsection (a) for purposes of determining the amount of
credit which can be taken against the alternative minimum tax, see section
59(a).</text></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="HA44CD5EBDC994123863B5E6F24E347EF"><enum>(10)</enum><text>Paragraph (1) of section 905(c) is amended by striking the last sentence.</text>
</paragraph><paragraph id="H87C84A54634C4DADB579E9E86788D14B"><enum>(11)</enum><text>Subclause (I) of section 905(c)(2)(B) is amended by striking <quote>902 or</quote>.</text>
</paragraph><paragraph id="H74A9725162E94F42BF67B2F0EF1D42EA"><enum>(12)</enum><text>Subsection (a) of section 906 is amended by striking <quote>(or deemed, under section 902, paid or accrued during the taxable year)</quote>.</text>
</paragraph><paragraph id="H881A7E4C214040ED99349F9189C5E090"><enum>(13)</enum><text>Subsection (b) of section 906 is amended by striking paragraphs (4) and (5).</text>
</paragraph><paragraph display-inline="no-display-inline" id="HD4DA8B5B32A64B53ACE90D0FD197CFF1"><enum>(14)</enum><text>Subparagraph (B) of section 907(b)(2) is amended by striking <quote>902 or</quote>.</text>
</paragraph><paragraph id="H7BC832E55F8E40EE925E75B34228BA14"><enum>(15)</enum><text>Paragraph (3) of section 907(c) is amended—</text>
<subparagraph id="H90E160E31162475E983A56B26AA32385"><enum>(A)</enum><text>by striking subparagraph (A) and redesignating subparagraphs (B) and (C) as subparagraphs (A) and
(B), respectively, and</text>
</subparagraph><subparagraph id="H26FD0C0A644742BFA7AEEC678ED3FC58"><enum>(B)</enum><text>by striking <quote>section 960(a)</quote> in subparagraph (A) (as so redesignated) and inserting <quote>section 960</quote>.</text>
</subparagraph></paragraph><paragraph id="H1A5EFEA7231C42FBA854F671A12B1541"><enum>(16)</enum><text>Paragraph (5) of section 907(c) is amended by striking <quote>902 or</quote>.</text>
</paragraph><paragraph id="H3F9C8B926CB3431C98A7EECC9D1C1DED"><enum>(17)</enum><text>Clause (i) of section 907(f)(2)(B) is amended by striking <quote>902 or</quote>.</text>
</paragraph><paragraph id="HDB60200BF3C94FE79DA016A36D23145B"><enum>(18)</enum><text>Subsection (a) of section 908 is amended by striking <quote>902 or</quote>.</text>
</paragraph><paragraph commented="no" id="HF2A343E25B404E419BEE60C3FC0F9BEB"><enum>(19)</enum><text>Paragraph (1) of section 958(a) is amended by striking <quote>960(a)(1)</quote> and inserting <quote>960</quote>.</text>
</paragraph><paragraph id="H0B11287322E54051AB7C6835791E1AD4"><enum>(20)</enum><text>Subparagraph (B) of section 6038(c)(1) is amended by striking <quote>sections 902 (relating to foreign tax credit for corporate stockholder in foreign corporation) and
960 (relating to special rules for foreign tax credit)</quote> and inserting <quote>section 960</quote>.</text>
</paragraph><paragraph id="H978E775DF7AC435FA06B60163455039F"><enum>(21)</enum><text>Paragraph (4) of section 6038(c) is amended by striking subparagraph (C).</text>
</paragraph><paragraph id="HE935A5377BE041FDB9EF981BFF850F4D"><enum>(22)</enum><text display-inline="yes-display-inline">The table of sections for subpart A of part III of subchapter N of chapter 1 is amended by striking
the item relating to section 902.</text>
</paragraph><paragraph id="H2A4440CA64FA48CB8E99085859F26118"><enum>(23)</enum><text>The table of sections for part II of subchapter B of chapter 1 is amended by striking <quote>Dividends</quote> in the item relating to section 78 and inserting <quote>Amounts</quote>.</text>
</paragraph><paragraph id="H55D6C2111DB8480E8F853661EBE4A161"><enum>(24)</enum><text display-inline="yes-display-inline">The table of sections for subpart F of part III of subchapter N of chapter 1 is amended by striking
the item relating to section 960 and inserting the following:</text>
<quoted-block display-inline="no-display-inline" id="H0C108849F47A423AB0AF7190D22D7A70" style="OLC">
<toc container-level="quoted-block-container" idref="HF59AD51B31C44AB9BCB873044DBF0F89" lowest-bolded-level="division-lowest-bolded" lowest-level="section" quoted-block="no-quoted-block" regeneration="yes-regeneration">
<toc-entry level="section">Sec. 960. Deemed paid credit for subpart F inclusions.</toc-entry></toc><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="H4B95D53B57794A36A81710E9CF7F7B37"><enum>(e)</enum><header>Effective date</header><text display-inline="yes-display-inline">The amendments made by this section shall apply to taxable years of foreign corporations beginning
on or after the applicable date, and to taxable years of United States
shareholders with or within which such taxable years of foreign
corporations end.</text>
</subsection></section><section id="HFB4E16A05CBE4D2FBF37E239533939B0"><enum>342.</enum><header>Repeal of rule suspending foreign taxes and credits until related income is taken into account</header>
<subsection id="H5E36FAEF4CAB4BE195C8126BF4A0E570"><enum>(a)</enum><header>In general</header><text>Subpart A of part III of subchapter N of chapter 1 is amended by striking section 909.</text>
</subsection><subsection id="H119F2CD445534E568229ECE5B418F0AA"><enum>(b)</enum><header>Conforming amendments</header>
<paragraph commented="no" id="HF52547E40D774119BC350B12D96FB96B"><enum>(1)</enum><text>Section 901(m)(1)(B) is amended by striking <quote>a section 902 corporation (as defined in section 909(d)(5))</quote> and inserting <quote>a controlled foreign corporation (as defined in section 957(a))</quote>.</text>
</paragraph><paragraph id="H76164E45DBA74596BF41E6400EB0E450"><enum>(2)</enum><text>The table of sections of subpart A of part III of subchapter N of chapter 1 is amended by striking
the item relating to section 909.</text>
</paragraph></subsection><subsection commented="no" id="H5DCC02A991E74D4CA2B18D31E9586040"><enum>(c)</enum><header>Effective date</header><text>The amendments made by this section shall apply to foreign taxes paid or accrued in taxable years
beginning on or after the applicable date.</text>
</subsection></section></subtitle>