1.Short
title; amendment of 1986 Code
(a)This Act may be cited
as the Export Products Not Jobs
Act
.
(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.
<enum>I</enum><header>Foreign tax
reform and simplification</header>
<section id="idE7B0AA21A8A641DC9FFF7B776FD8EE5C"><enum>101.</enum><header>Reform and
simplification of subpart F</header>
<subsection id="idFCF1BF617E58445AABC7029DBB5A6CAD"><enum>(a)</enum><header>In
general</header><text>Subpart F of part III of subchapter N of chapter 1
(relating to controlled foreign corporations) is amended by striking sections
952, 953, and 954 and inserting the following:</text>
<quoted-block display-inline="no-display-inline" id="id05D147F39BE74C3987D27456F7B95370" style="OLC">
<section id="id0AF492B8CEBB4F78AF194E60EC5C8346"><enum>952.</enum><header>Subpart F
income defined</header>
<subsection id="id698FD5A0835846C98CAD6CE7AC78425C"><enum>(a)</enum><header>In
general</header><text>For purposes of this subpart, except as provided in this
section, the term <term>subpart F income</term> means the gross income of the
controlled foreign corporation.</text>
</subsection><subsection id="idA03268F8CEAD42E39027B7B6E456D4D5"><enum>(b)</enum><header>Exceptions for
certain types of income</header><text>Subpart F income shall not
include—</text>
<paragraph id="id0B86B95EF9CF469E8A10E6BBFDF4389C"><enum>(1)</enum><text>the active home
country income (as defined in section 953) of the controlled foreign
corporation for the taxable year, or</text>
</paragraph><paragraph id="id3EB21205197843BE90F9D9458D9D6673"><enum>(2)</enum><text>any item of
income for the taxable year from sources within the United States which is
effectively connected with the conduct by the controlled foreign corporation of
a trade or business within the United States 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.</text>
</paragraph><continuation-text continuation-text-level="subsection">For
purposes of paragraph (2), income described in paragraph (2) or (3) of section
921(d) shall be treated as derived from sources within the United States and
any exemption (or reduction) with respect to the tax imposed by section 884
shall not be taken into account.</continuation-text></subsection><subsection id="idF782FC446E1C4FFB9E4953BEE1363E5E"><enum>(c)</enum><header>Limitation
based on earnings and profits</header>
<paragraph id="idA7CD24B1854349FE9D74ACE4E06B7740"><enum>(1)</enum><header>In
general</header><text>For purposes of subsection (a), the subpart F income of
any controlled foreign corporation for any taxable year shall not exceed the
earnings and profits of such corporation for such taxable year.</text>
</paragraph><paragraph id="idD1B7CEF20472417DAEFB14467C24A1B3"><enum>(2)</enum><header>Recharacterization
in subsequent taxable years</header><text>If the subpart F income of any
controlled foreign corporation for any taxable year was reduced by reason of
paragraph (1), any excess of the earnings and profits of such corporation for
any subsequent taxable year over the subpart F income of such foreign
corporation for such taxable year shall be recharacterized as subpart F income
under rules similar to the rules applicable under section 904(f)(5).</text>
</paragraph><paragraph id="id8777157E64C04D019F203B653C10F53E"><enum>(3)</enum><header>Special rule
for determining earnings and profits</header><text>For purposes of this
subsection, 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>
</paragraph></subsection><subsection id="id6887D1AEA86F4CDE8F0E6914E02D2302"><enum>(d)</enum><header>De minimis
exception</header><text>If the subpart F income of a controlled foreign
corporation for any taxable year (determined without regard to this subsection
and section 954(a)) is less than the lesser of—</text>
<paragraph id="id897ACBA80AFF48DF85C423264962139E"><enum>(1)</enum><text>5 percent of
gross income, or</text>
</paragraph><paragraph id="id7262EFBF2D5748A9B7DFF0FC79E64591"><enum>(2)</enum><text>$1,000,000,</text>
</paragraph><continuation-text continuation-text-level="subsection">the
subpart F income of such corporation for such taxable year shall be treated as
being equal to zero.</continuation-text></subsection><subsection id="idB0B97B308F924F7C83AB845CA0685582"><enum>(e)</enum><header>Special rules
relating to boycotts, bribes, and certain foreign countries</header>
<paragraph id="idEC689EF42BDC48F7BC0E730E82023F5F"><enum>(1)</enum><header>In
general</header><text>Subpart F income of a controlled foreign corporation for
any taxable year (determined without regard to this subsection) shall be
increased by the sum of—</text>
<subparagraph id="id47D91BF1C5D54FC29CE19EF02793E25E"><enum>(A)</enum><text>the product
of—</text>
<clause id="idB32B914BCBB94B02911F576882890BDC"><enum>(i)</enum><text>the gross income
of the corporation reduced by its subpart F income (as so determined),
and</text>
</clause><clause id="idBFC3C0EEEA72410DB7D9907ADBFBB7E0"><enum>(ii)</enum><text>the
international boycott factor (as determined under section 999),</text>
</clause></subparagraph><subparagraph id="id600BB228F92D4810A7318A6C021366A4"><enum>(B)</enum><text>the sum of the
amounts of any illegal bribes, kickbacks, or other payments (within the meaning
of section 162(c)) paid by or on behalf of the corporation during the taxable
year of the corporation directly or indirectly to an official, employee, or
agent in fact of a government, and</text>
</subparagraph><subparagraph id="idEE568B683BC242B7A4AB83860A162330"><enum>(C)</enum><text>the gross income
of such corporation which is derived from any foreign country during any period
during which section 901(j) applies to such foreign country and which is not
otherwise treated as subpart F income (as so determined).</text>
</subparagraph></paragraph><paragraph id="id3CF85A3E97C34394AF195D53202DDC06"><enum>(2)</enum><header>Special rule
for illegal payments</header><text>The payments referred to in paragraph (1)(B)
are payments which would be unlawful under the Foreign Corrupt Practices Act of
1977 if the payor were a United States person.</text>
</paragraph><paragraph id="idC2E507DDCD544640B77AFB4BB6E8692A"><enum>(3)</enum><header>Income derived
from foreign country</header><text>The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out the purposes of
paragraph (1)(C), including regulations which treat income paid through 1 or
more entities as derived from a foreign country to which section 901(j) applies
if such income was, without regard to such entities, derived from such
country.</text>
</paragraph></subsection></section><section id="id63826E92AF014BDEABE0BA8477D92CE2"><enum>953.</enum><header>Active home
country income</header>
<subsection id="id150AF52C1FF249E997EFF028B21955CB"><enum>(a)</enum><header>In
general</header><text>For purposes of section 952(b), the term <term>active
home country income</term> means, with respect to any controlled foreign
corporation, income derived from the active and regular conduct of 1 or more
trades or businesses within the home country of such corporation which
constitutes—</text>
<paragraph id="id7EF70BCD04494E09AC3F25F7A5F5AC42"><enum>(1)</enum><text>qualified
property income, or</text>
</paragraph><paragraph id="idDF4131C6075F418C91DDD6C54839B254"><enum>(2)</enum><text>qualified
services income.</text>
</paragraph></subsection><subsection id="idC9A4E33C9E8E4008992DAF48126971BB"><enum>(b)</enum><header>Qualified
property income</header><text>For purposes of this section—</text>
<paragraph id="id811F6EE14E644841AF7A25494F191478"><enum>(1)</enum><header>In
general</header><text>The term <term>qualified property income</term> means
income derived in connection with—</text>
<subparagraph id="idF039D971B290485A85EF5BC9BD044681"><enum>(A)</enum><text>the manufacture,
production, growth, or extraction (in whole or in substantial part)of any
personal property within the home country of the controlled foreign
corporation, or</text>
</subparagraph><subparagraph id="id6D470CD2867D4A789A98A6D83CFB2CB5"><enum>(B)</enum><text>the resale by the
controlled foreign corporation within its home country of personal property
manufactured, produced, grown, or extracted (in whole or in substantial part)
within that home country.</text>
</subparagraph></paragraph><paragraph id="id12443DC748F94DA8AA4D7158B4D0E86B"><enum>(2)</enum><header>Property must
be used or consumed in home country</header><text>Paragraph (1) shall only
apply to income if the personal property is sold for use or consumption within
the home country.</text>
</paragraph></subsection><subsection id="id5F0D1C60EB7945EB8EDDEC7FB74C39CB"><enum>(c)</enum><header>Qualified
services income</header><text>For purposes of this section—</text>
<paragraph id="id203F369238D84C578CE0FF89EDEDBD35"><enum>(1)</enum><header>In
general</header><text>The term <term>qualified services income</term> means
income (other than qualified property income) derived in connection with the
providing of services in transactions with customers which, at the time the
services are provided, are located in the home country of such
corporation.</text>
</paragraph><paragraph id="id5E254EF7ED814D83B1E4062163AB4BB4"><enum>(2)</enum><header>Services must
be used in home country</header><text>Paragraph (1) shall only apply to income
if the services—</text>
<subparagraph id="id3808368A29C3406D876931E35E065EC4"><enum>(A)</enum><text>are used or
consumed in the home country of the controlled foreign corporation, or</text>
</subparagraph><subparagraph id="idEDAD92B720F34308A4D7DB99BDA980FA"><enum>(B)</enum><text>are used in the
active conduct of a trade or business by the recipient and substantially all of
the activities in connection with the trade or business are conducted by the
recipient in such home country.</text>
</subparagraph></paragraph><paragraph id="idC9A25E2BC4DE4C7BBEA7DFEDD7BC6DF9"><enum>(3)</enum><header>Special rule
for insurance income</header><text>If income of a controlled foreign
corporation—</text>
<subparagraph id="id916506BB2FD54B8590BCE82DE13D240F"><enum>(A)</enum><text>is attributable
to the issuing (or reinsuring) of an insurance or annuity contract, and</text>
</subparagraph><subparagraph id="id912023FC7D874788ACB453988402BD4C"><enum>(B)</enum><text>would (subject to
the modifications under section 954(c)(2)(B)) be taxed under subchapter L of
this chapter if such income were the income of a domestic corporation,</text>
</subparagraph><continuation-text continuation-text-level="paragraph">such
income shall be treated as qualified services income only if the contract
covers only risks in connection with property in, liability arising out of
activity in, or lives or health of residents of, the home country of such
corporation.</continuation-text></paragraph><paragraph id="idDA115A21CE424FF083DD16B7195BD63A"><enum>(4)</enum><header>Anti-abuse
rule</header><text>For purposes of this subsection, there shall be disregarded
any item of income of a controlled foreign corporation derived in connection
with any trade or business if, in the conduct of the trade or business, the
corporation is not engaged in regular and continuous transactions with
customers which are not related persons.</text>
</paragraph></subsection><subsection id="id5C951E35E0914FE8BCF6590248DACB7E"><enum>(d)</enum><header>Home
country</header><text>For purposes of this section, 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>
</subsection></section><section id="id8128A3A342DB4FB893A1319D282503B5"><enum>954.</enum><header>Other rules
and definitions relating to subpart F income</header>
<subsection id="id3B5115E9F4814630A9EF3F02B6127781"><enum>(a)</enum><header>Deductions To
be taken into account</header><text>For purposes of determining the subpart F
income of a controlled foreign corporation for any taxable year, gross income,
and any category of income described in subsection (b) or (c) of section 953,
shall be reduced by deductions (including taxes) properly allocable to such
income or category. The Secretary shall prescribe regulations for the
application of this subsection.</text>
</subsection><subsection id="id6ACCBD7D824C4079963C5E59EB80FB26"><enum>(b)</enum><header>Election by
controlled foreign corporation To be treated as domestic corporation</header>
<paragraph id="ID3e942c6c861a4affb1ba7552b5cd9c9c"><enum>(1)</enum><header>In
general</header><text>If—</text>
<subparagraph id="IDb7a2cb27b3dd42aaa8f8e4bcd93e13e7"><enum>(A)</enum><text>a foreign
corporation is a controlled foreign corporation which makes an election to have
this subsection apply and waives all benefits to such corporation granted by
the United States under any treaty, and</text>
</subparagraph><subparagraph id="ID9e5c180c121d41928edf601bce6fd77b"><enum>(B)</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,</text>
</subparagraph><continuation-text continuation-text-level="paragraph">such
corporation shall be treated as a domestic corporation for purposes of this
title.</continuation-text></paragraph><paragraph id="ID542a24d5dcf643628d918da0f6a44e07"><enum>(2)</enum><header>Period during
which election is in effect</header>
<subparagraph id="ID6773961fd4734f6492855c17593d0718"><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="IDe0dffcf616734fe0a00209b4c111dc73"><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 subparagraph (B) of paragraph (1) for any
subsequent taxable year, such election shall not apply to such subsequent
taxable year and all succeeding taxable years.</text>
</subparagraph></paragraph><paragraph id="IDf89f0847e67741ba81eacb9534161992"><enum>(3)</enum><header>Treatment of
losses</header><text>If any corporation treated as a domestic corporation under
this subsection is treated as a member of an affiliated group for purposes of
chapter 6 (relating to consolidated returns), any loss of such corporation
shall be treated as a dual consolidated loss for purposes of section 1503(d)
without regard to paragraph (2)(B) thereof.</text>
</paragraph><paragraph id="ID05c3d77fd8a3494a9d8184ebaaa27b7d"><enum>(4)</enum><header>Effect of
election</header>
<subparagraph id="id18E9854CFB6947B18CC10DBF161A685A"><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="ID81620e6a1ae94f6caf04ff7491f0f85d"><enum>(B)</enum><header>Exception for
pre-2008 earnings and profit</header>
<clause id="IDa901b3d623e74586a975b040288fef1d"><enum>(i)</enum><header>In
general</header><text>Earnings and profits of the foreign corporation
accumulated in taxable years beginning before January 1, 2008, 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="ID78343df83f5144c4864864b3be48471f"><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,
2008, shall be treated as a distribution made by a foreign corporation.</text>
</clause><clause id="ID73530b327a6f4bb4b2fde2ae766a4a30"><enum>(iii)</enum><header>Certain rules
to continue to apply to pre-2008 earnings</header><text>The provisions
specified in clause (iv) 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, 2008, shall be taken into account.</text>
</clause><clause id="IDcd30269ec9644976bcf9442d7f2ec941"><enum>(iv)</enum><header>Specified
provisions</header><text>The provisions specified in this clause are:</text>
<subclause id="IDaa782ee1654a4460bd7a0171e9849c2d"><enum>(I)</enum><text>Section 1248
(relating to gain from certain sales or exchanges of stock in certain foreign
corporations).</text>
</subclause><subclause id="ID0ae3487d67bd44a7bd63c3a2ba3eaba5"><enum>(II)</enum><text>Subpart F of
part III of subchapter N to the extent such subpart relates to earnings
invested in United States property or amounts referred to in clause (ii) or
(iii) of section 951(a)(1)(A).</text>
</subclause></clause></subparagraph></paragraph><paragraph id="ID21d7942dac2647a499d7159a2cf96b9e"><enum>(5)</enum><header>Effect of
termination</header><text>For purposes of section 367, if—</text>
<subparagraph id="ID306ffb437de3462f9cdb9690aaee9772"><enum>(A)</enum><text>an election is
made by a corporation under paragraph (1) for any taxable year, and</text>
</subparagraph><subparagraph id="ID5740b3b125f54fdc8a32c62f37e85d9f"><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></subsection><subsection id="ID845badd8e406446790b388eb2772f0ae"><enum>(c)</enum><header>Special rule
for certain captive insurance companies</header>
<paragraph id="ID92fa366f9db9410282f3290246e166d8"><enum>(1)</enum><header>In
general</header><text>Solely for purposes of applying this subpart to related
person insurance income—</text>
<subparagraph id="ID2f0b3a5e9dee408ab5d8b7e7634a1ff3"><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 id="IDeb22286c72c64e5eb746d36ceec85b38"><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 id="IDb48b299479af45ad86a79c7bf24a2363"><enum>(C)</enum><text>the pro rata
share referred to in section 951(a)(1)(A)(i) shall be determined under
paragraph (5) of this subsection.</text>
</subparagraph></paragraph><paragraph id="ID315f58097bc144458c40cf0370f58c28"><enum>(2)</enum><header>Related person
insurance income</header><text>For purposes of this subsection—</text>
<subparagraph id="idD480CB9BE911486B8E1B40ADA3F94ED4"><enum>(A)</enum><header>In
general</header><text>The term <term>related person insurance income</term>
means any income which—</text>
<clause id="id4A16E7D43FC54C2DA47824F96FE067AE"><enum>(i)</enum><text>is 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, and</text>
</clause><clause id="idEC0D4BE4D6654F45BB34EBD59D48B353"><enum>(ii)</enum><text>would (subject
to the modifications provided by subparagraph (B)) be taxed under subchapter L
of this chapter if such income were the income of a domestic insurance
company.</text>
</clause></subparagraph><subparagraph id="idD695D7B0C1BD416693F7083994707CC7"><enum>(B)</enum><header>Special
rules</header><text>For purposes of subparagraph (A)—</text>
<clause id="id726EF0FE8C074F2E921257980C350EEF"><enum>(i)</enum><text>The following
provisions of subchapter L shall not apply:</text>
<subclause id="id2E309650E03C496FA248A95100E3F4BF"><enum>(I)</enum><text>The small life
insurance company deduction.</text>
</subclause><subclause id="id9899F859240B4FAF9FC9CEC7912CB601"><enum>(II)</enum><text>Section
805(a)(5) (relating to operations loss deduction).</text>
</subclause><subclause id="idE904278C73D748A09998473305F035C9"><enum>(III)</enum><text>Section
832(c)(5) (relating to certain capital losses).</text>
</subclause></clause><clause id="id106DB637EF024C749EE5CAB93EDB03D8"><enum>(ii)</enum><text>The items
referred to in—</text>
<subclause id="id45321792B84A4AFCB904653CEA73A8FE"><enum>(I)</enum><text>section 803(a)(1)
(relating to gross amount of premiums and other considerations),</text>
</subclause><subclause id="idB1EA830B0F704C139563A4EF9A74970E"><enum>(II)</enum><text>section
803(a)(2) (relating to net decrease in reserves),</text>
</subclause><subclause id="id7C40CD5273D742899356BD19355F1CC9"><enum>(III)</enum><text>section
805(a)(2) (relating to net increase in reserves), and</text>
</subclause><subclause id="id3BBF11C29D2C4FCF9449678CFC2785D9"><enum>(IV)</enum><text>section
832(b)(4) (relating to premiums earned on insurance contracts),</text>
</subclause><continuation-text continuation-text-level="clause">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 subparagraph
(A).</continuation-text></clause><clause id="idFDEB6CBB6A0F47A6B11E86D1C6455A42"><enum>(iii)</enum><text>Reserves for
any insurance or annuity contract shall be determined in the same manner as if
the controlled foreign corporation were subject to tax under subchapter L,
except that in applying such subchapter—</text>
<subclause id="idE4474A7A7469474390B6ED9B25CEAC86"><enum>(I)</enum><text>the interest rate
determined for the functional currency of the corporation 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>
</subclause><subclause id="id462464BA73F2467E81D46E257542ECAE"><enum>(II)</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>
</subclause><subclause id="id290A77F0A55B433A933DEA2F79AB2C71"><enum>(III)</enum><text>tables for
mortality and morbidity which reasonably reflect the current mortality and
morbidity risks in the corporation's home country shall be substituted for the
mortality and morbidity tables otherwise used for such subchapter.</text>
</subclause></clause><clause id="id11D6E22EA6214B7A8315E1D45112D8F2"><enum>(iv)</enum><text>All items of
income, expenses, losses, and deductions shall be properly allocated or
apportioned under regulations prescribed by the Secretary.</text>
</clause></subparagraph></paragraph><paragraph id="IDf96e807c49cd44e6a0ab4adc619dce5c"><enum>(3)</enum><header>Exception for
corporations not held by insureds</header><text>Paragraph (1) shall not apply
to any foreign corporation if at all times during the taxable year of such
foreign corporation—</text>
<subparagraph id="ID26fbed1c3ef94c2d843fdbfc1a0d6430"><enum>(A)</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>
</subparagraph><subparagraph id="ID909a74ca036b4fe6ab08d66a26a39de8"><enum>(B)</enum><text>less than 20
percent of the total value of such corporation,</text>
</subparagraph><continuation-text continuation-text-level="paragraph">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></paragraph><paragraph id="IDfbed4e39cb714a88adf84a802341e755"><enum>(4)</enum><header>Treatment of
mutual insurance companies</header><text>In the case of a mutual insurance
company—</text>
<subparagraph id="IDa2009de9e2034c708d95ee09fe1087c6"><enum>(A)</enum><text>this subsection
shall apply,</text>
</subparagraph><subparagraph id="ID0a8f5dbbd1df47f09a9eecac68127db4"><enum>(B)</enum><text>policyholders of
such company shall be treated as shareholders, and</text>
</subparagraph><subparagraph id="IDcff69c4e9b0f479592f34210a01a937c"><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="ID29b13d77e4cd43b3bcf9e0aa7bb150ee"><enum>(5)</enum><header>Determination
of pro rata share</header>
<subparagraph id="IDc6133a2b7284463e82688924c4374f1c"><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="IDfe311ee8ba5b4894805d8931e0c0bd9b"><enum>(i)</enum><text>the amount which
would be determined under paragraph (2) of section 951(a) if—</text>
<subclause id="ID408fbbba9bef4cfbae895bfd4fb8ddb0"><enum>(I)</enum><text>only related
person insurance income were taken into account,</text>
</subclause><subclause id="ID9423360e87ed401885bf616f8ba64773"><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="ID8f1b9dbd46b749eeaf8d5bef00f09e28"><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="ID0f6840c2c5cd43b2b08a101df081875e"><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="ID3cf32575a1094a6f86fa1276a8208563"><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="IDcc47c83d32e0425fb85598756c091848"><enum>(6)</enum><header>Related
person</header><text>For purposes of this subsection—</text>
<subparagraph id="ID0fe4334dfe5b43969216d2f771649b7d"><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 subsection
(d)(3).</text>
</subparagraph><subparagraph id="IDe789820df91f45e5a5a6fc06106b91a0"><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="IDc4bc17adf76a423cb2a888e0b865c68c"><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="IDc38a25729b404b7e85b02bc3087291ce"><enum>(A)</enum><text>regulations
preventing the avoidance of this subsection through cross insurance
arrangements or otherwise, and</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="ID311d540d86e14f7e8f23547d298944a9"><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 commented="no" display-inline="no-display-inline" id="id8CEEDF0FF6874880A00C9F6D4012ABD7"><enum>(d)</enum><header>Other
definitions and rules</header><text>For purposes of this section—</text>
<paragraph commented="no" display-inline="no-display-inline" id="id79BD349E178E494AA92F6F092C276A59"><enum>(1)</enum><header>Treatment of
branches</header><text>If—</text>
<subparagraph commented="no" display-inline="no-display-inline" id="id9BA151080D5940EB9C559239304C2DB0"><enum>(A)</enum><text>a controlled
foreign corporation carries on activities through a branch or similar
establishment with a home country other than the home country of such
corporation, and</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="idF6F4B76AF8AF4F888F6234D63DAEE384"><enum>(B)</enum><text>the carrying on
of such activities in such manner has substantially the same effect as if such
branch or similar establishment were a wholly owned subsidiary of such
corporation,</text>
</subparagraph><continuation-text continuation-text-level="paragraph">this
subpart shall, under regulations prescribed by the Secretary, be applied as if
such branch or other establishment were a wholly owned subsidiary of such
corporation.</continuation-text></paragraph><paragraph id="idECEBE53109D0496ABEF3647E5BC2F804"><enum>(2)</enum><header>Home
country</header><text>For purposes of paragraph (1)—</text>
<subparagraph id="id54FC6E4C4F87410CBDC3E9FBB10408EA"><enum>(A)</enum><header>In
general</header><text>The term <term>home country</term> has the meaning given
such term by section 953(d).</text>
</subparagraph><subparagraph id="id88EAF11ED3AE49C58BB34E627C37E793"><enum>(B)</enum><header>Branch</header><text>In
the case of a branch or similar establishment, the term <term>home
country</term> means the foreign country in which—</text>
<clause id="idB316787963F2422FA26F223F344CB421"><enum>(i)</enum><text>the principal
place of business of the branch or similar establishment is located, and</text>
</clause><clause id="id1C7A611B05CC4C999922FF76A377CDBB"><enum>(ii)</enum><text>separate books
and accounts are maintained.</text>
</clause></subparagraph></paragraph><paragraph id="id59E8B338B1A14F6E9806A7F90793C20B"><enum>(3)</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>
<subparagraph id="id87C185B1BBA949CC9C27E9A5D53FCFDF"><enum>(A)</enum><text>such person is an
individual, corporation, partnership, trust, or estate which controls, or is
controlled by, the controlled foreign corporation, or</text>
</subparagraph><subparagraph id="id9159B2D4DCB241269130886E3A80E6CF"><enum>(B)</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>
</subparagraph><continuation-text continuation-text-level="paragraph">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 paragraph, rules
similar to the rules of section 958 shall
apply.</continuation-text></paragraph></subsection></section><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="id1EF88A918EE64225A684653FF9B11DFE"><enum>(b)</enum><header>Conforming
amendment</header><text>The table of sections for subpart F of part III of
subchapter N of chapter 1 is amended by striking the items relating to sections
953 and 954 and inserting:</text>
<quoted-block display-inline="no-display-inline" id="id0729E05717E64485BD86ECED3E198917" style="OLC">
<toc>
<toc-entry level="section">Sec. 953. Active home country
income.</toc-entry>
<toc-entry level="section">Sec. 954. Other rules and definitions
relating to subpart F
income.</toc-entry>
</toc>
<after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="id830AFC63B45D45CA8528A4CE2BADD926"><enum>(c)</enum><header>Effective
date</header><text display-inline="yes-display-inline">The amendments made by
this section shall apply to taxable years of controlled foreign corporations
beginning after December 31, 2007, and taxable years of United States
shareholders with or within which such taxable years of such corporations
end.</text>
</subsection></section><section id="idBAC5FC789F5344B785F7C858F2DCA484"><enum>102.</enum><header>Treatment of
foreign corporations managed and controlled in the United States as domestic
corporations</header>
<subsection id="id0499FD8F595141459372B1D7A7BF7A67"><enum>(a)</enum><header>In
general</header><text>Section 7701(a)(4) of the Internal Revenue Code of 1986
(defining domestic) is amended to read as follows:</text>
<quoted-block display-inline="no-display-inline" id="id1FA2E5782D8041F58D1DDC47D03B7E61" style="OLC">
<paragraph id="idB65B1A2DC4E84D43A17CEC043105F9F5"><enum>(4)</enum><header>Domestic</header>
<subparagraph id="id753BE384462445A9A3273FE80F14A197"><enum>(A)</enum><header>In
general</header><text>The term <term>domestic</term> means, when applied to a
corporation or partnership, a corporation or partnership which is created or
organized in the United States or under the law of the United States or of any
State unless, in the case of a partnership, the Secretary provides otherwise by
regulations.</text>
</subparagraph><subparagraph id="id3CBA47B8FA5A43C8A5BB61CDAFA9689E"><enum>(B)</enum><header>Income tax
exception for publicly-traded corporations managed and controlled in the United
States</header><text>Notwithstanding subparagraph (A), in the case of a
corporation the stock of which is regularly traded on an established securities
market, if—</text>
<clause id="idCB64B2F468F2467D984D33AD7D23F7F9"><enum>(i)</enum><text>the corporation
would not otherwise be treated as a domestic corporation for purposes of this
title, but</text>
</clause><clause id="idCB46197131594E7392F72AAB3C742F9D"><enum>(ii)</enum><text>the management
and control of the corporation occurs primarily within the United
States,</text>
</clause><continuation-text continuation-text-level="subparagraph">then,
solely for purposes of chapter 1 (and any other provision of this title
relating to chapter 1), the corporation shall be treated as a domestic
corporation.</continuation-text></subparagraph><subparagraph id="idDCDA38C9139C461AA0C7477BD326A44E"><enum>(C)</enum><header>Management and
control</header><text>For purposes of this paragraph, the management and
control of a corporation shall be treated as primarily occurring within the
United States if substantially all of the executive officers and senior
management of the corporation who exercise day-to-day responsibility for making
decisions involving strategic, financial, and operational policies of the
corporation are primarily located within the United States. The Secretary may
by regulations include other individuals not described in the preceding
sentence in the determination of whether the management and control of the
corporation occurs primarily within the United States if such other individuals
exercise the day-to day responsibilities described in the preceding
sentence.</text>
</subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="idFA9F9E26AF424F828C4ABA552C5237E1"><enum>(b)</enum><header>Effective
dates</header>
<paragraph id="id2C47E0E96AD04086A259995D8C337921"><enum>(1)</enum><header>In
general</header><text>The amendments made by this section shall apply to
taxable years beginning on or after the date which is 2 years after the date of
the enactment of this Act.</text>
</paragraph><paragraph id="idBCFB9EC2F21B40318A8695C075889F6C"><enum>(2)</enum><header>Transition rule
for corporations organized in treaty countries</header><text>If—</text>
<subparagraph id="id4F85E78781BA41A080C04AFC405F66C4"><enum>(A)</enum><text>a corporation is
in existence on the date of the enactment of this Act, and</text>
</subparagraph><subparagraph id="id0DD66731CE3F45F191F957F371D9B6BD"><enum>(B)</enum><text>the corporation
was created or organized under the laws of a foreign country with which the
United States has, on such date, a comprehensive income tax treaty which the
Secretary of the Treasury determines is satisfactory for purposes of this
paragraph and which includes an exchange of information program,</text>
</subparagraph><continuation-text continuation-text-level="paragraph">section
7701(a)(4)(B) of the Internal Revenue Code of 1986 (as added by the amendments
made by this section) shall not apply to the corporation with respect to
taxable years ending in any continuous period beginning on such date during
which the corporation is eligible for the benefits of such treaty (or any
successor treaty with such foreign country meeting the requirements of this
paragraph).</continuation-text></paragraph></subsection></section><enum>II</enum><header>Economic
substance doctrine</header>
<section id="IDFAAD8F1163EB4A6D81140A7575F1179F"><enum>201.</enum><header>Clarification
of economic substance doctrine</header>
<subsection id="ID8E9FC4757C8C4FB48DA38AC175DD3A5C"><enum>(a)</enum><header>In
General</header><text>Section 7701 is amended by redesignating subsection (o)
as subsection (p) and by inserting after subsection (n) the following new
subsection:</text>
<quoted-block id="ID9A10BEB8F0F74379AD648D2C44E9AB59" style="OLC">
<subsection id="IDEDD722F59AEC4E88A429C0F978E70C85"><enum>(o)</enum><header>Clarification
of Economic Substance Doctrine; etc</header>
<paragraph id="ID9C547A6E744B47A28A08F360E0214322"><enum>(1)</enum><header>General
rules</header>
<subparagraph id="IDB68FCF025C2D483F9ED8F6EC170EAB05"><enum>(A)</enum><header>In
general</header><text>In any case in which a court determines that the economic
substance doctrine is relevant for purposes of this title to a transaction (or
series of transactions), such transaction (or series of transactions) shall
have economic substance only if the requirements of this paragraph are
met.</text>
</subparagraph><subparagraph id="IDCB0995D26F5944C8A4569A1D2E25B5B8"><enum>(B)</enum><header>Definition of
economic substance</header><text>For purposes of subparagraph (A)—</text>
<clause id="ID7231C664CF384750A1098986E177E267"><enum>(i)</enum><header>In
general</header><text>A transaction has economic substance only if—</text>
<subclause id="ID9F9D297F73A64C999A0DAC9A15A5BEDA"><enum>(I)</enum><text>the transaction
changes in a meaningful way (apart from Federal tax effects) the taxpayer’s
economic position, and</text>
</subclause><subclause id="ID40CEC2D0BEF9479C9C99385ECFCC2E34"><enum>(II)</enum><text>the taxpayer has
a substantial nontax purpose for entering into such transaction and the
transaction is a reasonable means of accomplishing such purpose.</text>
</subclause><continuation-text continuation-text-level="clause">In applying subclause (II), a purpose of
achieving a financial accounting benefit shall not be taken into account in
determining whether a transaction has a substantial nontax purpose if the
origin of such financial accounting benefit is a reduction of income
tax.</continuation-text></clause><clause id="ID0EAC021469B247519039E547E3CB8074"><enum>(ii)</enum><header>Special rule
where taxpayer relies on profit potential</header><text>A transaction shall not
be treated as having economic substance by reason of having a potential for
profit unless—</text>
<subclause id="ID28F51F23C1B64A6399046F2EDC304E12"><enum>(I)</enum><text>the present value
of the reasonably expected pre-tax profit from the transaction is substantial
in relation to the present value of the expected net tax benefits that would be
allowed if the transaction were respected, and</text>
</subclause><subclause id="ID45F8FC0E0DBD4FB4A1F0A2DEDCB8D751"><enum>(II)</enum><text>the reasonably
expected pre-tax profit from the transaction exceeds a risk-free rate of
return.</text>
</subclause></clause></subparagraph><subparagraph id="ID2A40A30D58E24451B2656A966D3F4A85"><enum>(C)</enum><header>Treatment of
fees and foreign taxes</header><text>Fees and other transaction expenses and
foreign taxes shall be taken into account as expenses in determining pre-tax
profit under subparagraph (B)(ii).</text>
</subparagraph></paragraph><paragraph id="IDE245217673D444EF9B55D23429B9CCDC"><enum>(2)</enum><header>Special rules
for transactions with tax-indifferent parties</header>
<subparagraph id="ID6E74ABD6A47041EFB6CC8767F68F4AB0"><enum>(A)</enum><header>Special rules
for financing transactions</header><text>The form of a transaction which is in
substance the borrowing of money or the acquisition of financial capital
directly or indirectly from a tax-indifferent party shall not be respected if
the present value of the deductions to be claimed with respect to the
transaction is substantially in excess of the present value of the anticipated
economic returns of the person lending the money or providing the financial
capital. A public offering shall be treated as a borrowing, or an acquisition
of financial capital, from a tax-indifferent party if it is reasonably expected
that at least 50 percent of the offering will be placed with tax-indifferent
parties.</text>
</subparagraph><subparagraph id="ID980AF6276C2B4D0AADE687F77097F223"><enum>(B)</enum><header>Artificial
income shifting and basis adjustments</header><text>The form of a transaction
with a tax-indifferent party shall not be respected if—</text>
<clause id="ID58E2659C65C74459AD601D92E43F812B"><enum>(i)</enum><text>it results in an
allocation of income or gain to the tax-indifferent party in excess of such
party’s economic income or gain, or</text>
</clause><clause id="ID94BE791C89874F30ACF3483B8EA1F19B"><enum>(ii)</enum><text>it results in a
basis adjustment or shifting of basis on account of overstating the income or
gain of the tax-indifferent party.</text>
</clause></subparagraph></paragraph><paragraph id="ID23E8918255AC40F78F1FDCEA9441F713"><enum>(3)</enum><header>Definitions and
special rules</header><text>For purposes of this subsection—</text>
<subparagraph id="IDC3583F5E2BBA481495BA1F78346B5B8D"><enum>(A)</enum><header>Economic
substance doctrine</header><text>The term <term>economic substance
doctrine</term> means the common law doctrine under which tax benefits under
subtitle A with respect to a transaction are not allowable if the transaction
does not have economic substance or lacks a business purpose.</text>
</subparagraph><subparagraph id="IDC55155AA4AF340E0BBEB4FB76AFF4551"><enum>(B)</enum><header>Tax-indifferent
party</header><text>The term <term>tax-indifferent party</term> means any
person or entity not subject to tax imposed by subtitle A. A person shall be
treated as a tax-indifferent party with respect to a transaction if the items
taken into account with respect to the transaction have no substantial impact
on such person’s liability under subtitle A.</text>
</subparagraph><subparagraph id="ID56C876F7E2C74A6B8C5F7CC4D3E64AE7"><enum>(C)</enum><header>Exception for
personal transactions of individuals</header><text>In the case of an
individual, this subsection shall apply only to transactions entered into in
connection with a trade or business or an activity engaged in for the
production of income.</text>
</subparagraph><subparagraph id="ID93A48DC6D4A8484283812A10464B1CA6"><enum>(D)</enum><header>Treatment of
lessors</header><text>In applying paragraph (1)(B)(ii) to the lessor of
tangible property subject to a lease—</text>
<clause id="ID729E289A73FC49218DC80E3EC00CEAAE"><enum>(i)</enum><text>the expected net
tax benefits with respect to the leased property shall not include the benefits
of—</text>
<subclause id="IDF1BDD6A1685F4ADDB13DAB92B44DA629"><enum>(I)</enum><text>depreciation,</text>
</subclause><subclause id="ID46C2483A4EB24731910D7F12F6670917"><enum>(II)</enum><text>any tax credit,
or</text>
</subclause><subclause id="ID57810422FF90464E820A7C7F53141257"><enum>(III)</enum><text>any other
deduction as provided in guidance by the Secretary, and</text>
</subclause></clause><clause id="IDAD46CDDBCF4C49A19556E84759C233FF"><enum>(ii)</enum><text>subclause (II)
of paragraph (1)(B)(ii) shall be disregarded in determining whether any of such
benefits are allowable.</text>
</clause></subparagraph></paragraph><paragraph id="IDB1B55EE03BCE465EA5BAEBC1E87C098E"><enum>(4)</enum><header>Other common
law doctrines not affected</header><text>Except as specifically provided in
this subsection, the provisions of this subsection shall not be construed as
altering or supplanting any other rule of law, and the requirements of this
subsection shall be construed as being in addition to any such other rule of
law.</text>
</paragraph><paragraph id="IDEF61BBD6C94C4D88B7AE7074805AE985"><enum>(5)</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. Such regulations may include
exemptions from the application of this
subsection.</text>
</paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="ID151044B74A604BBDB1595CEA9F8EF9FF"><enum>(b)</enum><header>Effective
Date</header><text>The amendments made by this section shall apply to
transactions entered into after the date of the enactment of this Act.</text>
</subsection></section><section id="IDB9ABC4BB91114E8A8A1A5EA1682BDFD1"><enum>202.</enum><header>Penalty for
understatements attributable to transactions lacking economic substance,
etc</header>
<subsection id="ID3D8B4AF85C174276877A278A56ACFED3"><enum>(a)</enum><header>In
General</header><text>Subchapter A of chapter 68 is amended by inserting after
section 6662A the following new section:</text>
<quoted-block id="ID9A94E72EEA614BA7A11551804FA6A149" style="OLC">
<section id="ID202B7A2CBDA74870858FF77D1D08E02C"><enum>6662B.</enum><header>Penalty for
understatements attributable to transactions lacking economic substance,
etc</header>
<subsection id="ID11E36BA281BF432A8B2755889D462FA7"><enum>(a)</enum><header>Imposition of
Penalty</header><text>If a taxpayer has an noneconomic substance transaction
understatement for any taxable year, there shall be added to the tax an amount
equal to 40 percent of the amount of such understatement.</text>
</subsection><subsection id="ID57901D0815404ADAB134CBDE2D70E19D"><enum>(b)</enum><header>Reduction of
Penalty for Disclosed Transactions</header><text>Subsection (a) shall be
applied by substituting <quote>20 percent</quote> for <quote>40 percent</quote>
with respect to the portion of any noneconomic substance transaction
understatement with respect to which the relevant facts affecting the tax
treatment of the item are adequately disclosed in the return or a statement
attached to the return.</text>
</subsection><subsection id="ID447031D270AA4E0583E27DAE69F0BABF"><enum>(c)</enum><header>Noneconomic
Substance Transaction Understatement</header><text>For purposes of this
section—</text>
<paragraph id="IDD80C1C3FB30244F0A48CE5975F2256E3"><enum>(1)</enum><header>In
general</header><text>The term <term>noneconomic substance transaction
understatement</term> means any amount which would be an understatement under
section 6662A(b)(1) if section 6662A were applied by taking into account items
attributable to noneconomic substance transactions rather than items to which
section 6662A would apply without regard to this paragraph.</text>
</paragraph><paragraph id="IDA44D2043FF914711B4365EA373EF3A52"><enum>(2)</enum><header>Noneconomic
substance transaction</header><text>The term <term>noneconomic substance
transaction</term> means any transaction if—</text>
<subparagraph id="ID74C178EC1A014D1AB07923C4FDD10046"><enum>(A)</enum><text>there is a lack
of economic substance (within the meaning of section 7701(o)(1)) for the
transaction giving rise to the claimed benefit or the transaction was not
respected under section 7701(o)(2), or</text>
</subparagraph><subparagraph id="ID40706A0B2EEA437BA3D157D0BD9605BB"><enum>(B)</enum><text>the transaction
fails to meet the requirements of any similar rule of law.</text>
</subparagraph></paragraph></subsection><subsection id="ID9E31AB640980456AB0E86D2C85AA77C9"><enum>(d)</enum><header>Rules
Applicable to Compromise of Penalty</header>
<paragraph id="ID3320D589EDAA44F6B4B4BF2F6EBCA5C2"><enum>(1)</enum><header>In
general</header><text>If the 1st letter of proposed deficiency which allows the
taxpayer an opportunity for administrative review in the Internal Revenue
Service Office of Appeals has been sent with respect to a penalty to which this
section applies, only the Commissioner of Internal Revenue may compromise all
or any portion of such penalty.</text>
</paragraph><paragraph id="IDF068A8CD3A0B4CC1AF9901D73CA51FB2"><enum>(2)</enum><header>Applicable
rules</header><text>The rules of paragraphs (2) and (3) of section 6707A(d)
shall apply for purposes of paragraph (1).</text>
</paragraph></subsection><subsection id="IDC76E0038F5A944B09A617ECA9F9CD68D"><enum>(e)</enum><header>Coordination
With Other Penalties</header><text>Except as otherwise provided in this part,
the penalty imposed by this section shall be in addition to any other penalty
imposed by this title.</text>
</subsection><subsection id="ID1E02164023DA42A1AA6319A7237EA893"><enum>(f)</enum><header>Cross
References</header>
<toc regeneration="no-regeneration">
<toc-entry level="paragraph">(1) For
coordination of penalty with understatements under section 6662 and other
special rules, see section 6662A(e).</toc-entry>
<toc-entry level="paragraph">(2) For
reporting of penalty imposed under this section to the Securities and Exchange
Commission, see section 6707A(e).</toc-entry>
</toc>
</subsection></section><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="ID2EFE192CBDE4439EA34777E170EA6D9B"><enum>(b)</enum><header>Coordination
With Other Understatements and Penalties</header>
<paragraph id="ID54AAED6EA7D04437A82B1A4FD48BD8F2"><enum>(1)</enum><text>The second
sentence of section 6662(d)(2)(A) is amended by inserting <quote>and without
regard to items with respect to which a penalty is imposed by section
6662B</quote> before the period at the end.</text>
</paragraph><paragraph id="IDFDBF848E22E440B1AB3B01D5CE490D4E"><enum>(2)</enum><text>Subsection (e) of
section 6662A is amended—</text>
<subparagraph id="ID265AE95E13AF452591AFF27DE4EE465A"><enum>(A)</enum><text>in paragraph (1),
by inserting <quote>and noneconomic substance transaction
understatements</quote> after <quote>reportable transaction
understatements</quote> both places it appears,</text>
</subparagraph><subparagraph id="ID0245F9961E7046B3A02F7291287204D5"><enum>(B)</enum><text>in paragraph
(2)(A), by inserting <quote>and a noneconomic substance transaction
understatement</quote> after <quote>reportable transaction
understatement</quote>,</text>
</subparagraph><subparagraph id="IDAF203967DA224403AF89F93910B3559B"><enum>(C)</enum><text>in paragraph
(2)(B), by inserting <quote>6662B or</quote> before <quote>6663</quote>,</text>
</subparagraph><subparagraph id="IDD2890E8B6CF24988A7705281A0BAA50A"><enum>(D)</enum><text>in paragraph
(2)(C)(i), by inserting <quote>or section 6662B</quote> before the period at
the end,</text>
</subparagraph><subparagraph id="ID5EEC8B2767E048B59368F5DF3DD5F831"><enum>(E)</enum><text>in paragraph
(2)(C)(ii), by inserting <quote>and section 6662B</quote> after <quote>This
section</quote>,</text>
</subparagraph><subparagraph id="ID44205137DF3B43B9809F5BA7F7EF3DFE"><enum>(F)</enum><text>in paragraph (3),
by inserting <quote>or noneconomic substance transaction understatement</quote>
after <quote>reportable transaction understatement</quote>, and</text>
</subparagraph><subparagraph id="IDDC0AA7291DA841288A7848418835F3C6"><enum>(G)</enum><text>by adding at the
end the following new paragraph:</text>
<quoted-block id="IDD52DCF7123144A3D99E3EA946ACEDF43" style="OLC">
<paragraph id="IDC08DE0612A08414CA673F2B22A83F0E8"><enum>(4)</enum><header>Noneconomic
substance transaction understatement</header><text>For purposes of this
subsection, the term <term>noneconomic substance transaction
understatement</term> has the meaning given such term by section
6662B(c).</text>
</paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subparagraph></paragraph><paragraph id="ID40607FA39234465CB9715B94A3440922"><enum>(3)</enum><text>Subsection (e) of
section 6707A is amended—</text>
<subparagraph id="IDFA337AD444554C79992EDA4F8CFAF289"><enum>(A)</enum><text>by striking
<quote>or</quote> at the end of subparagraph (B), and</text>
</subparagraph><subparagraph id="IDA035E9477386470FAD3125F4CB691FBC"><enum>(B)</enum><text>by striking
subparagraph (C) and inserting the following new subparagraphs:</text>
<quoted-block id="ID99002AE8C42D49EFB19BCA05EB2B9615" style="OLC">
<subparagraph id="ID88CBC3D8408E4A5F97AF145C4D51ED39"><enum>(C)</enum><text>is required to
pay a penalty under section 6662B with respect to any noneconomic substance
transaction, or</text>
</subparagraph><subparagraph id="IDBC1A6BA3DFB64AFE9E9F93591D08C856"><enum>(D)</enum><text>is required to
pay a penalty under section 6662(h) with respect to any transaction and would
(but for section 6662A(e)(2)(C)) have been subject to penalty under section
6662A at a rate prescribed under section 6662A(c) or under section
6662B,</text>
</subparagraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subparagraph></paragraph></subsection><subsection id="ID84FEB13638EA4F569703540B98835D0E"><enum>(c)</enum><header>Clerical
Amendment</header><text>The table of sections for part II of subchapter A of
chapter 68 is amended by inserting after the item relating to section 6662A the
following new item:</text>
<quoted-block id="IDB297D08240C34752B3D8AFFD6CF2E6AA" style="OLC">
<toc regeneration="no-regeneration">
<toc-entry level="section">Sec. 6662B. Penalty
for understatements attributable to transactions lacking economic substance,
etc.</toc-entry>
</toc>
<after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="ID6D777C27731B46B0A23C46362C126AB4"><enum>(d)</enum><header>Effective
Date</header><text>The amendments made by this section shall apply to
transactions entered into after the date of the enactment of this Act.</text>
</subsection></section><section id="ID8B1232D7025544A3B2BFE74D907E5CDC"><enum>203.</enum><header>Denial of
deduction for interest on underpayments attributable to noneconomic substance
transactions</header>
<subsection id="IDC169ECE550F240CDB6DDA6E3BD43CC42"><enum>(a)</enum><header>In
General</header><text>Section 163(m) (relating to interest on unpaid taxes
attributable to nondisclosed reportable transactions) is amended—</text>
<paragraph id="ID4C32B26D4CB249EAB2329FA1B96B0D63"><enum>(1)</enum><text>by striking
“attributable” and all that follows and inserting the following: “attributable
to—</text>
<quoted-block id="ID6550EC9243B34905A044338B34B4D491" style="OLC">
<paragraph id="ID57CA774EB03F474DB60E740B37FAB198"><enum>(1)</enum><text>the portion of
any reportable transaction understatement (as defined in section 6662A(b)) with
respect to which the requirement of section 6664(d)(2)(A) is not met, or</text>
</paragraph><paragraph id="ID2429CFF2B1A3429292EE6581FE86A480"><enum>(2)</enum><text>any noneconomic
substance transaction understatement (as defined in section
6662B(c)).</text>
</paragraph><after-quoted-block>,
and</after-quoted-block></quoted-block>
</paragraph><paragraph id="ID09EEB49E7A9E445483E6524DD6695D21"><enum>(2)</enum><text>by inserting
<quote><header-in-text>And Noneconomic Substance
Transactions</header-in-text></quote> in the heading thereof after
<quote><header-in-text>Transactions</header-in-text></quote>.</text>
</paragraph></subsection><subsection id="ID973D852AEA0F48D4B5ECE4B19A032FFA"><enum>(b)</enum><header>Effective
Date</header><text>The amendments made by this section shall apply to
transactions after the date of the enactment of this Act in taxable years
ending after such date.</text>
</subsection></section><enum>III</enum><header>Elimination of
highest corporate marginal income tax rate</header>
<section id="id6C533251088447A99FFB1CE951888C0E"><enum>301.</enum><header>Elimination of
highest corporate marginal income tax rate</header>
<subsection id="ID40D46DF483F24742B56ED4A87FEE5769"><enum>(a)</enum><header>In
General</header><text>Section 11(b)(1) (relating to amount of tax imposed on
corporations) is amended by striking subparagraphs (C) and (D) and inserting
the following new subparagraph:</text>
<quoted-block display-inline="no-display-inline" id="id4E6B26C888AB4FDAA40FA26ACF56C871" style="OLC">
<subparagraph id="id41DFAFA69CA54E94A8F38C44AAA57A7D"><enum>(C)</enum><text>34 percent of so
much of the taxable income as exceeds
$75,000.</text>
</subparagraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="id2E0CFFB0DAD54FD5BD6227EDA272A255"><enum>(b)</enum><header>Certain
personal service corporations</header><text>Section 11(b)(2) is amended by
striking <quote>35 percent</quote> and inserting <quote>34
percent</quote>.</text>
</subsection><subsection id="ID2555C8F53ABA4B279F4C7B4EC821AC06"><enum>(c)</enum><header>Conforming
Amendments</header>
<paragraph id="id8A08246D66ED40E88FD5D736D7400E23"><enum>(1)</enum><text>Section 11(b)(1)
is amended by striking the last sentence.</text>
</paragraph><paragraph id="IDB0003387EEF247388FC778AFDC77FD2B"><enum>(2)</enum><text>Section 1201(a)
is amended—</text>
<subparagraph id="id3A0B5EC96AA14A1B9DD563624BA33790"><enum>(A)</enum><text>by striking
<quote>35 percent</quote> each place it appears and inserting <quote>34
percent</quote>, and</text>
</subparagraph><subparagraph id="id75FA0668D50B46C9A623ADAF8E81F0B9"><enum>(B)</enum><text>by striking
<quote>last 2 sentences</quote> and inserting <quote>last
sentence</quote>.</text>
</subparagraph></paragraph><paragraph id="id41A15838DCC440AB93E8984AFA8F17F2"><enum>(3)</enum><text>Paragraphs (1)
and (2) of section 1445(e) are each amended by striking <quote>35
percent</quote> and inserting <quote>34 percent</quote>.</text>
</paragraph><paragraph id="idD288FE0A9AF74DDF8B1B91E8E007F7C2"><enum>(4)</enum><text>Section 1561(a)
is amended by striking <quote>last 2 sentences</quote> and inserting
<quote>last sentence</quote>.</text>
</paragraph></subsection><subsection id="id9B5445BFF2354158A43301032D3EAB66"><enum>(d)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to taxable
years beginning after December 31, 2007.</text>
</subsection></section>