II 110th CONGRESS 1st Session S. 2380 IN THE SENATE OF THE UNITED STATES November 16, 2007 Mr. Smith (for himself and Ms. Cantwell) 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 modernize the application of the subpart F rules to computer software, to expand the subpart F de minimis rule, and to extend certain expiring provisions.

1.

Modernization of application of subpart F rules to rents and royalties from computer software

(a)

In general

Section 954(c)(2) of the Internal Revenue Code of 1986 (relating to exceptions from definition of foreign personal holding income) is amended by adding at the end the following new subparagraph: (D)

Rents and royalties derived in active computer software business

(i)

In general

Foreign personal holding company income shall not include rents and royalties which are attributable to computer software which— (I)is leased or licensed for use outside the United States, and (II)was developed or marketed by the controlled foreign corporation or a related person (within the meaning of subsection (d)(3)). (ii)

Development and marketing

For purposes of clause (i), a person shall be treated as— (I)developing computer software if the person creates, produces, or adds value to the computer software, including by adapting, customizing, or localizing such software or by integrating such software with other computer software created or produced by such person, and (II)marketing computer software if the person engages in sales, marketing, promotional, maintenance, or support activities, or performs other significant services, with respect to the leasing or licensing of such software. . (b)

Effective date

The amendment made by this section shall apply to taxable years of controlled foreign corporations beginning after December 31, 2007, and to taxable years of United States shareholders with or within such taxable years of such foreign corporations end.

2.

Expansion of de minimis rule under subpart F

(a)

In general

Clause (ii) of section 954(b)(3)(A) of the Internal Revenue Code of 1986 (relating to de minimis, etc., rules) is amended by striking $1,000,000 and inserting $5,000,000. (b)

Technical amendments

(1)Clause (ii) of section 864(d)(5)(A) of the Internal Revenue Code of 1986 is amended by striking $1,000,000 and inserting $5,000,000. (2)Clause (i) of section 881(c)(5)(A) of such Code is amended by striking $1,000,000 and inserting $5,000,000. (c)

Effective date

The amendments made by this section shall apply to taxable years of controlled foreign corporations beginning after December 31, 2007, and to taxable years of United States shareholders with or within such taxable years of such foreign corporations end.

3.

Permanent extension of look-thru rule for related controlled foreign corporations

Section 954(c)(6)(B) of the Internal Revenue Code of 1986 (relating to application of look-thru rule for related controlled foreign corporations) is amended by striking and before January 1, 2009,.

4.

Permanent extension of subpart F exceptions for active financing

(a)

Exempt insurance income

Section 953(e)(10) of the Internal Revenue Code of 1986 (relating to application of exception for exempt insurance income) is amended— (1)by striking and before January 1, 2009,, and (2)by striking the last sentence. (b)

Special rule for income derived in the active conduct of banking, financing, or similar businesses

Section 954(h)(9) of the Internal Revenue Code of 1986 (relating to application) is amended by striking and before January 1, 2009,.