[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 1922 Introduced in Senate (IS)]

  1st Session
                                S. 1922

  To amend the Internal Revenue Code of 1986 to comply with the World 
  Trade Organization rulings on the FSC/ETI benefit in a manner that 
 preserves manufacturing jobs and production activities in the United 
                    States, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           November 21, 2003

 Mr. Smith (for himself and Mr. Breaux) introduced the following bill; 
     which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to comply with the World 
  Trade Organization rulings on the FSC/ETI benefit in a manner that 
 preserves manufacturing jobs and production activities in the United 
                    States, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``American 
Manufacturing Jobs Act of 2003''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

SEC. 2. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.

    (a) In General.--Section 114 is hereby repealed.
    (b) Conforming Amendments.--
            (1)(A) Subpart E of part III of subchapter N of chapter 1 
        (relating to qualifying foreign trade income) is hereby 
        repealed.
            (B) The table of subparts for such part III is amended by 
        striking the item relating to subpart E.
            (2) The table of sections for part III of subchapter B of 
        chapter 1 is amended by striking the item relating to section 
        114.
            (3) The second sentence of section 56(g)(4)(B)(i) is 
        amended by striking ``or under section 114''.
            (4) Section 275(a) is amended--
                    (A) by inserting ``or'' at the end of paragraph 
                (4)(A), by striking ``or'' at the end of paragraph 
                (4)(B) and inserting a period, and by striking 
                subparagraph (C), and
                    (B) by striking the last sentence.
            (5) Paragraph (3) of section 864(e) is amended--
                    (A) by striking:
            ``(3) Tax-exempt assets not taken into account.--
                    ``(A) In general.--For purposes of''; and 
                inserting:
            ``(3) Tax-exempt assets not taken into account.--For 
        purposes of'', and
                    (B) by striking subparagraph (B).
            (6) Section 903 is amended by striking ``114, 164(a),'' and 
        inserting ``164(a)''.
            (7) Section 999(c)(1) is amended by striking 
        ``941(a)(5),''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to transactions occurring after the date of the enactment 
        of this Act.
            (2) Binding contracts.--The amendments made by this section 
        shall not apply to any transaction in the ordinary course of a 
        trade or business which occurs pursuant to a binding contract--
                    (A) which is between the taxpayer and a person who 
                is not a related person (as defined in section 
                943(b)(3) of such Code, as in effect on the day before 
                the date of the enactment of this Act), and
                    (B) which is in effect on September 17, 2003, and 
                at all times thereafter.
    (d) Revocation of Section 943(e) Elections.--
            (1) In general.--In the case of a corporation that elected 
        to be treated as a domestic corporation under section 943(e) of 
        the Internal Revenue Code of 1986 (as in effect on the day 
        before the date of the enactment of this Act)--
                    (A) the corporation may, during the 1-year period 
                beginning on the date of the enactment of this Act, 
                revoke such election, effective as of such date of 
                enactment, and
                    (B) if the corporation does revoke such election--
                            (i) such corporation shall be treated as a 
                        domestic corporation transferring (as of such 
                        date of enactment) all of its property to a 
                        foreign corporation in connection with an 
                        exchange described in section 354 of such Code, 
                        and
                            (ii) no gain or loss shall be recognized on 
                        such transfer.
            (2) Exception.--Subparagraph (B)(ii) of paragraph (1) shall 
        not apply to gain on any asset held by the revoking corporation 
        if--
                    (A) the basis of such asset is determined in whole 
                or in part by reference to the basis of such asset in 
                the hands of the person from whom the revoking 
                corporation acquired such asset,
                    (B) the asset was acquired by transfer (not as a 
                result of the election under section 943(e) of such 
                Code) occurring on or after the 1st day on which its 
                election under section 943(e) of such Code was 
                effective, and
                    (C) a principal purpose of the acquisition was the 
                reduction or avoidance of tax (other than a reduction 
                in tax under section 114 of such Code, as in effect on 
                the day before the date of the enactment of this Act).
    (e) General Transition.--
            (1) In general.--In the case of a taxable year ending after 
        the date of the enactment of this Act and beginning before 
        January 1, 2007, for purposes of chapter 1 of such Code, a 
        current FSC/ETI beneficiary shall be allowed a deduction equal 
        to the transition amount determined under this subsection with 
        respect to such beneficiary for such year.
            (2) Current fsc/eti beneficiary.--The term ``current FSC/
        ETI beneficiary'' means any corporation which entered into one 
        or more transactions during its taxable year beginning in 
        calendar year 2002 with respect to which FSC/ETI benefits were 
        allowable.
            (3) Transition amount.--For purposes of this subsection--
                    (A) In general.--The transition amount applicable 
                to any current FSC/ETI beneficiary for any taxable year 
                is the phaseout percentage of the base period amount.
                    (B) Phaseout percentage.--
                            (i) In general.--In the case of a taxpayer 
                        using the calendar year as its taxable year, 
                        the phaseout percentage shall be determined 
                        under the following table:

Years:                              The phaseout percentage is:
        2004...................................................     80 
        2005...................................................     80 
        2006...................................................     60.
                            (ii) Special rule for 2003.--The phaseout 
                        percentage for 2003 shall be the amount that 
                        bears the same ratio to 100 percent as the 
                        number of days after the date of the enactment 
                        of this Act bears to 365.
                            (iii) Special rule for fiscal year 
                        taxpayers.--In the case of a taxpayer not using 
                        the calendar year as its taxable year, the 
                        phaseout percentage is the weighted average of 
                        the phaseout percentages determined under the 
                        preceding provisions of this paragraph with 
                        respect to calendar years any portion of which 
                        is included in the taxpayer's taxable year. The 
                        weighted average shall be determined on the 
                        basis of the respective portions of the taxable 
                        year in each calendar year.
                    (C) Short taxable year.--The Secretary shall 
                prescribe guidance for the computation of the 
                transition amount in the case of a short taxable year.
            (4) Base period amount.--For purposes of this subsection, 
        the base period amount is the FSC/ETI benefit for the 
        taxpayer's taxable year beginning in calendar year 2002.
            (5) FSC/ETI benefit.--For purposes of this subsection, the 
        term ``FSC/ETI benefit'' means--
                    (A) amounts excludable from gross income under 
                section 114 of such Code, and
                    (B) the exempt foreign trade income of related 
                foreign sales corporations from property acquired from 
                the taxpayer (determined without regard to section 
                923(a)(5) of such Code (relating to special rule for 
                military property), as in effect on the day before the 
                date of the enactment of the FSC Repeal and 
                Extraterritorial Income Exclusion Act of 2000).
        In determining the FSC/ETI benefit there shall be excluded any 
        amount attributable to a transaction with respect to which the 
        taxpayer is the lessor unless the leased property was 
        manufactured or produced in whole or in significant part by the 
        taxpayer.
            (6) Special rule for agricultural and horticultural 
        cooperatives.--Determinations under this subsection with 
        respect to an organization described in section 943(g)(1) of 
        such Code, as in effect on the day before the date of the 
        enactment of this Act, shall be made at the cooperative level 
        and the purposes of this subsection shall be carried out in a 
        manner similar to section 199(h)(2) of such Code, as added by 
        this Act. Such determinations shall be in accordance with such 
        requirements and procedures as the Secretary may prescribe.
            (7) Certain rules to apply.--Rules similar to the rules of 
        section 41(f) of such Code shall apply for purposes of this 
        subsection.
            (8) Coordination with binding contract rule.--The deduction 
        determined under paragraph (1) for any taxable year shall be 
        reduced by the phaseout percentage of any FSC/ETI benefit 
        realized for the taxable year by reason of subsection (c)(2) or 
        section 5(c)(1)(B) of the FSC Repeal and Extraterritorial 
        Income Exclusion Act of 2000, except that for purposes of this 
        paragraph the phaseout percentage for 2003 shall be treated as 
        being equal to 100 percent.
            (9) Special rule for taxable year which includes date of 
        enactment.--In the case of a taxable year which includes the 
        date of the enactment of this Act, the deduction allowed under 
        this subsection to any current FSC/ETI beneficiary shall in no 
        event exceed--
                    (A) 100 percent of such beneficiary's base period 
                amount for calendar year 2003, reduced by
                    (B) the FSC/ETI benefit of such beneficiary with 
                respect to transactions occurring during the portion of 
                the taxable year ending on the date of the enactment of 
                this Act.

SEC. 3. DEDUCTION RELATING TO INCOME ATTRIBUTABLE TO UNITED STATES 
              PRODUCTION ACTIVITIES.

    (a) In General.--Part VI of subchapter B of chapter 1 (relating to 
itemized deductions for individuals and corporations) is amended by 
adding at the end the following new section:

``SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES.

    ``(a) Allowance of Deduction.--
            ``(1) In general.--There shall be allowed as a deduction an 
        amount equal to 9 percent of the qualified production 
        activities income of the taxpayer for the taxable year.
            ``(2) Phasein.--In the case of taxable years beginning in 
        2003, 2004, 2005, 2006, 2007, or 2008, paragraph (1) shall be 
        applied by substituting for the percentage contained therein 
        the transition percentage determined under the following table:

``Taxable years beginning in:       The transition percentage is:
        2003 or 2004...........................................      1 
        2005...................................................      2 
        2006...................................................      3 
        2007 or 2008...........................................      6.
    ``(b) Deduction Limited to Wages Paid.--
            ``(1) In general.--The amount of the deduction allowable 
        under subsection (a) for any taxable year shall not exceed 50 
        percent of the W-2 wages of the employer for the taxable year.
            ``(2) W-2 wages.--For purposes of paragraph (1), the term 
        `W-2 wages' means the sum of the aggregate amounts the taxpayer 
        is required to include on statements under paragraphs (3) and 
        (8) of section 6051(a) with respect to employment of employees 
        of the taxpayer during the taxpayer's taxable year.
            ``(3) Special rules.--
                    ``(A) Pass-thru entities.--In the case of an S 
                corporation, partnership, estate or trust, or other 
                pass-thru entity, the limitation under this subsection 
                shall apply at the entity level.
                    ``(B) Acquisitions and dispositions.--The Secretary 
                shall provide for the application of this subsection in 
                cases where the taxpayer acquires, or disposes of, the 
                major portion of a trade or business or the major 
                portion of a separate unit of a trade or business 
                during the taxable year.
    ``(c) Qualified Production Activities Income.--For purposes of this 
section, the term `qualified production activities income' means an 
amount equal to the portion of the modified taxable income of the 
taxpayer which is attributable to domestic production activities.
    ``(d) Determination of Income Attributable to Domestic Production 
Activities.--For purposes of this section--
            ``(1) In general.--The portion of the modified taxable 
        income which is attributable to domestic production activities 
        is so much of the modified taxable income for the taxable year 
        as does not exceed--
                    ``(A) the taxpayer's domestic production gross 
                receipts for such taxable year, reduced by
                    ``(B) the sum of--
                            ``(i) the costs of goods sold that are 
                        allocable to such receipts,
                            ``(ii) other deductions, expenses, or 
                        losses directly allocable to such receipts, and
                            ``(iii) a proper share of other deductions, 
                        expenses, and losses that are not directly 
                        allocable to such receipts or another class of 
                        income.
            ``(2) Allocation method.--The Secretary shall prescribe 
        rules for the proper allocation of items of income, deduction, 
        expense, and loss for purposes of determining income 
        attributable to domestic production activities.
            ``(3) Special rules for determining costs.--
                    ``(A) In general.--For purposes of determining 
                costs under clause (i) of paragraph (1)(B), any item or 
                service brought into the United States shall be treated 
                as acquired by purchase, and its cost shall be treated 
                as not less than its fair market value immediately 
                after it entered the United States. A similar rule 
                shall apply in determining the adjusted basis of leased 
                or rented property where the lease or rental gives rise 
                to domestic production gross receipts.
                    ``(B) Exports for further manufacture.--In the case 
                of any property described in subparagraph (A) that had 
                been exported by the taxpayer for further manufacture, 
                the increase in cost or adjusted basis under 
                subparagraph (A) shall not exceed the difference 
                between the value of the property when exported and the 
                value of the property when brought back into the United 
                States after the further manufacture.
            ``(4) Modified taxable income.--The term `modified taxable 
        income' means taxable income computed without regard to the 
        deduction allowable under this section.
    ``(e) Domestic Production Gross Receipts.--For purposes of this 
section--
            ``(1) In general.--The term `domestic production gross 
        receipts' means the gross receipts of the taxpayer which are 
        derived from--
                    ``(A) any sale, exchange, or other disposition of, 
                or
                    ``(B) any lease, rental, or license of,
        qualifying production property which was manufactured, 
        produced, grown, or extracted in whole or in significant part 
        by the taxpayer within the United States.
            ``(2) Special rules for certain property.--In the case of 
        any qualifying production property described in subsection 
        (f)(1)(C)--
                    ``(A) such property shall be treated for purposes 
                of paragraph (1) as produced in significant part by the 
                taxpayer within the United States if more than 50 
                percent of the aggregate development and production 
                costs are incurred by the taxpayer within the United 
                States, and
                    ``(B) if a taxpayer acquires such property before 
                such property begins to generate substantial gross 
                receipts, any development or production costs incurred 
                before the acquisition shall be treated as incurred by 
                the taxpayer for purposes of subparagraph (A) and 
                paragraph (1).
    ``(f) Qualifying Production Property.--For purposes of this 
section--
            ``(1) In general.--Except as otherwise provided in this 
        paragraph, the term `qualifying production property' means--
                    ``(A) any tangible personal property,
                    ``(B) any computer software, and
                    ``(C) any property described in section 168(f) (3) 
                or (4), including any underlying copyright or 
                trademark.
            ``(2) Exclusions from qualifying production property.--The 
        term `qualifying production property' shall not include--
                    ``(A) consumable property that is sold, leased, or 
                licensed by the taxpayer as an integral part of the 
                provision of services,
                    ``(B) oil or gas,
                    ``(C) electricity,
                    ``(D) water supplied by pipeline to the consumer,
                    ``(E) utility services, or
                    ``(F) any film, tape, recording, book, magazine, 
                newspaper, or similar property the market for which is 
                primarily topical or otherwise essentially transitory 
                in nature.
    ``(g) Definitions and Special Rules.--
            ``(1) Application of section to pass-thru entities.--In the 
        case of an S corporation, partnership, estate or trust, or 
        other pass-thru entity--
                    ``(A) subject to the provisions of paragraph (2) 
                and subsection (b)(3)(A), this section shall be applied 
                at the shareholder, partner, or similar level, and
                    ``(B) the Secretary shall prescribe rules for the 
                application of this section, including rules relating 
                to--
                            ``(i) restrictions on the allocation of the 
                        deduction to taxpayers at the partner or 
                        similar level, and
                            ``(ii) additional reporting requirements.
            ``(2) Exclusion for patrons of agricultural and 
        horticultural cooperatives.--
                    ``(A) In general.--If any amount described in 
                paragraph (1) or (3) of section 1385(a)--
                            ``(i) is received by a person from an 
                        organization to which part I of subchapter T 
                        applies which is engaged in the marketing of 
                        agricultural or horticultural products, and
                            ``(ii) is allocable to the portion of the 
                        qualified production activities income of the 
                        organization which is deductible under 
                        subsection (a) and designated as such by the 
                        organization in a written notice mailed to its 
                        patrons during the payment period described in 
                        section 1382(d),
                then such person shall be allowed an exclusion from 
                gross income with respect to such amount. The taxable 
                income of the organization shall not be reduced under 
                section 1382 by the portion of any such amount with 
                respect to which an exclusion is allowable to a person 
                by reason of this paragraph.
                    ``(B) Special rules.--For purposes of applying 
                subparagraph (A), in determining the qualified 
                production activities income of the organization under 
                this section--
                            ``(i) there shall not be taken into account 
                        in computing the organization's modified 
                        taxable income any deduction allowable under 
                        subsection (b) or (c) of section 1382 (relating 
                        to patronage dividends, per-unit retain 
                        allocations, and nonpatronage distributions), 
                        and
                            ``(ii) the organization shall be treated as 
                        having manufactured, produced, grown, or 
                        extracted in whole or significant part any 
                        qualifying production property marketed by the 
                        organization which its patrons have so 
                        manufactured, produced, grown, or extracted.
            ``(3) Special rule for affiliated groups.--
                    ``(A) In general.--All members of an expanded 
                affiliated group shall be treated as a single 
                corporation for purposes of this section.
                    ``(B) Expanded affiliated group.--The term 
                `expanded affiliated group' means an affiliated group 
                as defined in section 1504(a), determined--
                            ``(i) by substituting `50 percent' for `80 
                        percent' each place it appears, and
                            ``(ii) without regard to paragraphs (2) and 
                        (4) of section 1504(b).
            ``(4) Coordination with minimum tax.--The deduction under 
        this section shall be allowed for purposes of the tax imposed 
        by section 55; except that for purposes of section 55, 
        alternative minimum taxable income shall be taken into account 
        in determining the deduction under this section.
            ``(5) Ordering rule.--The amount of any other deduction 
        allowable under this chapter shall be determined as if this 
        section had not been enacted.
            ``(6) Trade or business requirement.--This section shall be 
        applied by only taking into account items which are 
        attributable to the actual conduct of a trade or business.
            ``(7) Possessions, etc.--
                    ``(A) In general.--For purposes of subsections (d) 
                and (e), the term `United States' includes the 
                Commonwealth of Puerto Rico, Guam, American Samoa, the 
                Commonwealth of the Northern Mariana Islands, and the 
                Virgin Islands of the United States.
                    ``(B) Special rules for applying wage limitation.--
                For purposes of applying the limitation under 
                subsection (b) for any taxable year--
                            ``(i) the determination of W-2 wages of a 
                        taxpayer shall be made without regard to any 
                        exclusion under section 3401(a)(8) for 
                        remuneration paid for services performed in a 
                        jurisdiction described in subparagraph (A), and
                            ``(ii) in determining the amount of any 
                        credit allowable under section 30A or 936 for 
                        the taxable year, there shall not be taken into 
                        account any wages which are taken into account 
                        in applying such limitation.
            ``(8) Coordination with transition rules.--For purposes of 
        this section--
                    ``(A) domestic production gross receipts shall not 
                include gross receipts from any transaction if the 
                binding contract transition relief of section 2(c)(2) 
                of the American Manufacturing Jobs Act of 2003 applies 
                to such transaction, and
                    ``(B) any deduction allowed under section 2(e) of 
                such Act shall be disregarded in determining the 
                portion of the taxable income which is attributable to 
                domestic production gross receipts.''.
    (b) Minimum Tax.--Section 56(g)(4)(C) (relating to disallowance of 
items not deductible in computing earnings and profits) is amended by 
adding at the end the following new clause:
                            ``(v) Deduction for domestic production.--
                        Clause (i) shall not apply to any amount 
                        allowable as a deduction under section 199.''.
    (c) Clerical Amendment.--The table of sections for part VI of 
subchapter B of chapter 1 is amended by adding at the end the following 
new item:

                              ``Sec. 199. Income attributable to 
                                        domestic production 
                                        activities.''.
    (d) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years ending after the date of the enactment 
        of this Act.
            (2) Application of section 15.--Section 15 of the Internal 
        Revenue Code of 1986 shall apply to the amendments made by this 
        section as if they were changes in a rate of tax.
                                 <all>