Rollover of gain from divesting certain qualified securities of business entities engaged in discouraged activities in Iran or Sudan

(a)

In general

Part III of subchapter O of chapter 1 of the Internal Revenue Code of 1986 (relating to common nontaxable exchanges) is amended by adding at the end the following new section:

1046.

Rollover of gain from divesting certain qualified securities of business entities engaged in discouraged activities in Iran or Sudan

(a)

Nonrecognition of gain

(1)

In general

In the case of any sale of any qualified security held by a taxpayer with respect to which such taxpayer elects the application of this section, in any business entity that is engaged in an Iran discouraged activity or a Sudan discouraged activity, gain from such sale shall be recognized only to the extent that the amount realized on such sale exceeds— (A)the cost of any qualified replacement property purchased by the taxpayer during the 30-day period beginning on the date of such sale, reduced by (B)any portion of such cost previously taken into account under this section. (2)

Exception for ordinary income gain

This section shall not apply to any gain which is treated as ordinary income for purposes of this title. (3)

Exception where taxpayer owns controlling interest in the business entity

(A)

In general

Paragraph (1) shall not apply to any sale if, immediately before such sale, the taxpayer owns a controlling interest in the business entity that is engaged in an Iran discouraged activity or a Sudan discouraged activity. (B)

Controlling interest

For purposes of subparagraph (A), the term controlling interest means direct or indirect ownership of at least 50 percent of the total voting power and value of all classes of stock of a corporation. For purposes of the preceding sentence, the rules of paragraphs (1) and (5) of section 267(c) shall apply. (C)

Aggregation rule

For purposes of this paragraph, all members of the same controlled group of corporations (within the meaning of section 267(f)) and all persons under common control (within the meaning of section 52(b) but determined by treating an interest of more than 50 percent as a controlling interest) shall be treated as 1 person. (b)

Definitions and special rules relating to securities and replacement property

For purposes of this section— (1)

Qualified security

(A)

In general

The term qualified security means any security held by a taxpayer in any business entity that is engaged in an Iran discouraged activity or a Sudan discouraged activity. (B)

Exception

Such term shall not include any security purchased or otherwise acquired after the date of the enactment of this section which, at the time of such purchase or acquisition, was issued by a business entity then engaged in an Iran discouraged activity or a Sudan discouraged activity. (C)

Security defined

The term security has the meaning given such term by section 165(g)(2). (2)

Qualified replacement property

(A)

In general

The term qualified replacement property means any security of a business entity that, on the date of purchase by the taxpayer— (i)is not engaged in an Iran discouraged activity or a Sudan discouraged activity on such date, (ii)is not a member of an expanded affiliated group, any member of which is engaged in an Iran discouraged activity or a Sudan discouraged activity on such date, and (iii)meets the requirements of subparagraph (B). (B)

Replacement property

Property meets the requirements of this paragraph if, with respect to the sale of any security— (i)except as provided in clause (ii), in the case that the security is a share of stock in a corporation, the replacement property is a share of stock in a corporation, (ii)in the case that the security is a share of stock of a regulated investment company, real estate investment trust, hedge fund, investment partnership, or similar business entity, the replacement property is a share of stock in a regulated investment company, real estate investment trust, hedge fund, investment partnership, or similar business entity, (iii)in the case that the security is a right to subscribe for, or to receive, a share of stock in a corporation, the replacement property is a right to subscribe for, or to receive, a share of stock in a corporation, and (iv)in the case that the security is a bond, debenture, note, or certificate, or other evidence of indebtedness issued by a corporation, with interest coupons or in registered form, the replacement property is a bond, debenture, note, or certificate, or other evidence of indebtedness issued by a corporation, with interest coupons or in registered form. (C)

Deemed investment if investing in entities engaged in discouraged activities

Any regulated investment company, real estate investment trust, hedge fund, investment partnership, or similar business entity, which invests in the securities— (i)issued by a business entity determined to be engaging in Iran discouraged activities or Sudan discouraged activities, or (ii)issued by the government of Sudan or Iran or any agency thereof,

shall be deemed to be a business entity engaging in Iran discouraged activities or Sudan discouraged activities.

(D)

Business declaration of policy

(i)

In general

Notwithstanding any other provision of this section, in the case of a business entity described in clause (iii), a security in such business entity shall not be treated as qualified replacement property unless the business entity has made the following declaration: It is our policy not to make investments in business entities which engage in Iran discouraged activities or Sudan discouraged activities as defined in section 1046 of the Internal Revenue Code of 1986, and to use due diligence to avoid making such investments. It is our policy to divest on or before December 31, 2010, from business entities engaged in Iran discouraged activities and Sudan discouraged activities.. (ii)

Not qualified security

If a business entity described in clause (iii) has made the declaration specified in clause (i), then from the time of such declaration an interest in such business entity shall not be treated as a qualified security. (iii)

Business entity described

A business entity described in this clause is a regulated investment company, real estate investment trust, hedge fund, investment partnership, or similar business entity. (E)

Expanded affiliated group

The term expanded affiliated group means an affiliated group as defined in section 1504(a), determined— (i)by substituting more than 50 percent for at least 80 percent each place it appears, and (ii)without regard to paragraphs (2) and (4) of section 1504(b). (F)

Basis adjustments

If gain from any sale is not recognized by reason of subsection (a), such gain shall be applied to reduce (in the order acquired) the basis for determining gain or loss of any qualified replacement property which is purchased by the taxpayer during the 30-day period described in subsection (a). (G)

Holding period

For purposes of determining the period for which the taxpayer has held qualified replacement property the acquisition of which resulted in the nonrecognition under subsection (a) of any part of the gain realized on the sale of a qualified security, there shall be included the period for which such qualified security had been held by the taxpayer. (3)

Special rule for securities of certain entities

(A)

In general

For any business entity described in subparagraph (C), a security in such business entity shall be treated as qualified replacement property if the business entity has made the following declaration: It is our policy not to make investments in any person having an investment in, or carrying on a trade or business (within the meaning of section 162) in or with, Iran and Sudan. This policy may or may not include investments concerning the provision of food, medicine, humanitarian services in or to Iran or Sudan or investments concerning marginalized areas of Sudan (as defined in section 2 of the Sudan Accountability and Divestment Act of 2007 (121 Stat. 2518)).. (B)

Not qualified security

If a business entity described in subparagraph (C) has made the declaration specified in subparagraph (A), then from the time of such declaration an interest in such business entity shall not be treated as a qualified security. (C)

Business entity described

A business entity described in this subparagraph is a regulated investment company, real estate investment trust, hedge fund, investment partnership, or similar business entity. (D)

Certain business entities as replacement property

A business entity described in subparagraph (C) making the declaration described in subparagraph (A) may qualify as replacement property if it has adopted restrictions on investment in persons that invest in or carrying on a trade or business (within the meaning of section 162) in or with countries other than Iran and Sudan that are designated as state sponsors of terrorism under section 6(j) of the Export Administration Act of 1979, section 40 of the Arms Export Control Act, or section 620A of the Foreign Assistance Act of 1961. (4)

Business entity

The term business entity means any corporation, limited liability partnership, limited liability company, or any other business entity conducting business activities in which the taxpayer has purchased or can purchase securities. (c)

Definitions and rules relating to Sudan discouraged activity

For purposes of this section, the term Sudan discouraged activity means an investment in any business operation described in section 3(d) of the Sudan Accountability and Divestment Act of 2007 (121 Stat. 2518). (d)

Definitions and rules relating to Iran discouraged activities

For purposes of this section— (1)

Iran discouraged activity

The term Iran discouraged activity means— (A)an investment of $20,000,000 or more— (i)in the energy sector of Iran; or (ii)in a person that provides oil or liquefied natural gas tankers, or products used to construct or maintain pipelines used to transport oil or liquefied natural gas, for the energy sector in Iran; (B)an extension of $20,000,000 or more in credit to another person, for 45 days or more, if that person will use the credit to invest in the energy sector in Iran; (C)except as provided in section 5(f) of the Iran Sanctions Act of 1996 (50 U.S.C. 1701 note), an investment of $20,000,000 or more (or any combination of investments of at least $5,000,000 each, which in the aggregate equals or exceeds $20,000,000 in any 12-month period), that directly and significantly contributed to the enhancement of Iran’s ability to develop petroleum resources of Iran; (D)except as provided in section 5(f) of the Iran Sanctions Act of 1996 (50 U.S.C. 1701 note), the sale, lease, or provision to Iran of any goods, services, technology, information, or support that would allow Iran to maintain or expand its domestic production of refined petroleum resources, including any assistance in refinery construction, modernization, or repair; or (E)except as provided in section 5(f) of the Iran Sanctions Act of 1996 (50 U.S.C. 1701 note), providing Iran with refined petroleum resources or engaging in any activity that could contribute to the enhancement of Iran’s ability to import refined petroleum resources, including— (i)providing ships or shipping services to deliver refined petroleum resources to Iran; (ii)underwriting or otherwise providing insurance or reinsurance for such activity; or (iii)financing or brokering such activity. (2)

Investment

The investment of assets, with respect to a State or local government, includes— (A)a commitment or contribution of assets; (B)a loan or other extension of credit; or (C)the entry into or renewal of a contract for goods or services. (3)

Energy sector

The term energy sector refers to activities to develop petroleum or natural gas resources or nuclear power. (4)

Iran

The term Iran includes any agency or instrumentality of Iran. (e)

Doing business with terrorists

(1)

In general

For purposes of this section— (A)A business entity has engaged in Iran discouraged activities if it conducts business with or makes any charitable donation to any Iranian person designated as a terrorist or to any foreign terrorist organization. (B)A business entity has engaged in Sudan discouraged activities if it conducts business with or makes any charitable donation to any Sudanese person designated as a terrorist or to any foreign terrorist organization. (2)

Terrorist

A person is designated as a terrorist for purposes of paragraph (1) if such person is designated or otherwise individually identified in or pursuant to an Executive Order which is related to terrorism and issued under the authority of the International Emergency Economic Powers Act or section 5 of the United Nations Participation Act of 1945 for the purpose of imposing on such organization an economic or other sanction. (3)

Foreign terrorist organization

For purposes of paragraph (1), the term foreign terrorist organization means an organization designated under section 219 of the Immigration and Nationality Act (8 U.S.C. 1189) as a foreign terrorist organization. (f)

Identification of business entities engaging in Iran discouraged activities or Sudan discouraged activities

(1)

Publication of list

For purposes of this section, the Secretary shall publish and update at least every six months a list of business entities engaging in any Sudan discouraged activities or Iran discouraged activities, or both. (2)

Regulations

The Secretary shall issue regulations defining how a business entity shall not be deemed to be engaged in an Iran discouraged activity or Sudan discouraged activity, if— (A)with regard to activities on the date this section becomes effective, the business entity limits its activity to continuing existing contracts, without extension or expansion (except that an investment (as defined in section 14 of the Iran Sanctions Act of 1996) that would subject a business entity to sanctions under section 5 of the Iran Sanctions Act of 1996 shall be considered an Iran discouraged activity, notwithstanding contracts entered into prior to the effective date of this section), and (B)with regard to any Iran discouraged activity or Sudan discouraged activity carried on under contracts entered into or expanded after the effective date of this section, the contract was entered into at a time when the business entity did not own or control the subsidiary business entity, and after acquiring such ownership or control the business entity has not extended or expanded or renewed such contract. (3)

Taxpayer self-help

Until such time as the Secretary publishes a list of those engaging in Iran discouraged activities or Sudan discouraged activities or if the Secretary fails to update that list as required in paragraph (1), the taxpayer may determine, using credible, publicly available information, which business entities engage in an Iran discouraged activity or a Sudan discouraged activity. (g)

Improvement in the Actions of the Government of the Sudan

Effective on the date when the President certifies under a section 12 of the Sudan Accountability and Divestment Act of 2007 (121 Stat. 2523), subsection (a) shall not apply to any Sudan discouraged activity after such date. (h)

Improvement in the Actions of the Government of Iran

(1)

Termination of nonrecognition treatment

Effective on the date when the requirements described in paragraph (2) are met, subsection (a) shall not apply to any Iran discouraged activity after such date. (2)

Requirements

The requirements described in this paragraph are— (A)a declaration by the President which states that, in the opinion of the President, Iran is no longer engaging in efforts to develop or retain weapons of mass destruction, and has not developed and is not developing the capacity to enrich or reprocess uranium or plutonium, and (B)a determination by the Secretary of State that Iran should no longer be listed as a state sponsor of acts of international terrorism pursuant to section 6(j) of the Export Administration Act of 1979, section 620A of the Foreign Assistance Act of 1961, section 40 of the Arms Export Control Act, or any other provision of law.

(b)

Clerical amendment

The table of sections for part III of subchapter O of chapter 1 of such Code is amended by adding at the end the following new item:

Sec. 1046. Rollover of gain from divesting certain qualified securities of business entities engaged in discouraged activities in Iran or Sudan.

(c)

Effective date

The amendments made by this section shall apply to with respect to sales of securities after the date of the enactment of this Act.