American Jobs Creation Act of 2004 (P.L. 108-357) (Title VI--Fair and Equitable Tobacco Reform Act of 2004)
American Jobs Creation Act of 2004 (P.L. 108-357) (Title VI--Fair and Equitable Tobacco Reform Act of 2004)
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S. 1637, Introduced in the Senate
108th CONGRESS
1st Session
S. 1637
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 jobs and production activities in the United States, to reform and simplify the international taxation rules of the United States, and for other purposes.
IN THE SENATE OF THE UNITED STATES
September 18, 2003
Mr. FRIST (for Mr. GRASSLEY) (for himself, Mr. BAUCUS, and Mr. HATCH) 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 jobs and production activities in the United States, to reform and simplify the international taxation rules of 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; TABLE OF CONTENTS.
(a) SHORT TITLE.--This Act may be cited as the "Jumpstart Our Business Strength (JOBS) Act".
(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.
(c) TABLE OF CONTENTS.--
Sec. 102. Deduction relating to income attributable to United States production activities.
Subtitle A--International Tax Reform
Sec. 202. Look-thru rules to apply to dividends from noncontrolled section 902 corporations.
Sec. 203. Foreign tax credit under alternative minimum tax.
Sec. 204. Recharacterization of overall domestic loss.
Sec. 205. Interest expense allocation rules.
Sec. 212. Expansion of de minimis rule under subpart F.
Sec. 214. Application of uniform capitalization rules to foreign persons.
Sec. 215. Repeal of withholding tax on dividends from certain foreign corporations.
Sec. 216. Repeal of special capital gains tax on aliens present in the United States for 183 days or more.
SEC. 101. 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.
(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.
(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).
(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: percentage is:
2004 80
2005 80
2006 60.
(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.
(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 part by the taxpayer.
(6) SPECIAL RULE FOR FARM 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 250(h) 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), 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 aggregate FSC/ETI benefits 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.
(a) IN GENERAL.--Part VIII of subchapter B of chapter 1 (relating to special deductions for corporations) is amended by adding at the end the following new section:
"SEC. 250. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES.
"(a) IN GENERAL.--In the case of a corporation, there shall be allowed as a deduction an amount equal to 9 percent of the qualified production activities income of the corporation for the taxable year.
"(b) PHASEIN.--In the case of taxable years beginning in 2004, 2005, 2006, 2007, or 2008, subsection (a) shall be applied by substituting for the percentage contained therein the transition percentage determined under the following table:
"Taxable years The transition
beginning in: percentage is:
2004 1
2005 2
2006 3
2007 or 2008 6.
"(1) IN GENERAL.--The term 'qualified production activities income' means an amount equal to the applicable percentage of the portion of the modified taxable income of the taxpayer which is attributable to domestic production activities.
"(2) APPLICABLE PERCENTAGE.--For purposes of this subsection, the term 'applicable percentage' means--
"(A) in the case of taxable years beginning before 2012, a percentage equal to the domestic/worldwide fraction,
"(B) in the case of taxable years beginning in 2012, a percentage (not greater than 100 percent) equal to twice the domestic/worldwide fraction, and
"(C) in the case of taxable years beginning after 2012, 100 percent.
"(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.
"(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 without a transfer price meeting the requirements of section 482 shall be treated as acquired by purchase, and its cost shall be treated as not less than its value when 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, the term 'domestic production gross receipts' means the gross receipts of the taxpayer which are derived from--
"(1) any sale, exchange, or other disposition of, or
"(2) 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.
"(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).
"(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 (or any primary product thereof),
"(C) electricity,
"(D) water supplied by pipeline to the consumer,
"(E) any unprocessed timber which is softwood,
"(F) utility services, or
"(G) any property (not described in paragraph (1)(B)) which is a film, tape, recording, book, magazine, newspaper, or similar property the market for which is primarily topical or otherwise essentially transitory in nature.
For purposes of subparagraph (E), the term 'unprocessed timber' means any log, cant, or similar form of timber.
"(g) DOMESTIC/WORLDWIDE FRACTION.--For purposes of this section--
"(1) IN GENERAL.--The term 'domestic/worldwide fraction' means a fraction--
"(A) the numerator of which is the value of the domestic production of the taxpayer, and
"(B) the denominator of which is the value of the worldwide production of the taxpayer.
"(2) VALUE OF DOMESTIC PRODUCTION.--The value of domestic production is the excess of--
"(A) the domestic production gross receipts, over
"(B) the cost of purchased inputs allocable to such receipts that are deductible under this chapter for the taxable year.
"(3) PURCHASED INPUTS.--
"(A) IN GENERAL.--Purchased inputs are any of the following items acquired by purchase:
"(i) Services (other than services of employees) used in manufacture, production, growth, or extraction activities.
"(ii) Items consumed in connection with such activities. "(iii) Items incorporated as part of the property being manufactured, produced, grown, or extracted.
"(B) SPECIAL RULE.--Rules similar to the rules of subsection (d)(3) shall apply for purposes of this subsection.
"(4) VALUE OF WORLDWIDE PRODUCTION.--
"(A) IN GENERAL.--The value of worldwide production shall be determined under the principles of paragraph (2), except that--
"(i) worldwide production gross receipts shall be taken into account, and
"(ii) paragraph (3)(B) shall not apply.
"(B) WORLDWIDE PRODUCTION GROSS RECEIPTS.--The worldwide production gross receipts is the amount that would be determined under subsection (e) if such subsection were applied without any reference to the United States.
"(5) SPECIAL RULE FOR AFFILIATED GROUPS.--
"(A) IN GENERAL.--In the case of a taxpayer that is a member of an expanded affiliated group, the domestic/worldwide fraction shall be the amount determined under the preceding provisions of this subsection by treating all members of such group as a single corporation.
"(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), (3), (4), and (8) of section 1504(b).
"(1) 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) (determined as if the organization were a corporation if it is not) and designated as such by the organization in a written notice mailed to its patrons during the payment period described in section 1382(a),
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) 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.
"(4) ORDERING RULE.--The amount of any other deduction allowable under this chapter shall be determined as if this section had not been enacted.
"(5) 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 101(c)(2) of the Jumpstart Our Business Strength (JOBS) Act applies to such transaction, and
"(B) any deduction allowed under section 101(e) of such Act shall be disregarded in determining the portion of the taxable income which is attributable to domestic production gross receipts.".
(1) IN GENERAL.--Section 1363(b) (relating to computation of S corporation's taxable income) is amended by striking "and" at the end of paragraph (3), by striking the period at the end of paragraph (4) and inserting ", and", and by adding at the end the following new paragraph:
"(5) the deduction under section 250 shall be allowed to the S corporation."
(2) INCREASE IN BASIS.--Section 1367(a)(1) (relating to increases in basis) is amended by striking "and" at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting ", and", and by adding at the end the following new subparagraph:
"(D) any deduction allowed under section 250."
"Sec. 250. Income attributable to domestic production activities."
(e) 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.
SEC. 201. 20-YEAR FOREIGN TAX CREDIT CARRYFORWARD.
(a) GENERAL RULE.--Section 904(c) (relating to carryback and carryover of excess tax paid) is amended by striking "in the first, second, third, fourth, or fifth" and inserting "in any of the first 20".
(b) EXCESS EXTRACTION TAXES.--Paragraph (1) of section 907(f) is amended by striking "in the first, second, third, fourth, or fifth" and inserting "in any of the first 20".
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to excess foreign taxes which (without regard to the amendments made by this section) may be carried to any taxable year beginning after December 31, 2004.
SEC. 202. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM NONCONTROLLED SECTION 902 CORPORATIONS.
(a) IN GENERAL.--Section 904(d)(4) (relating to look-thru rules apply to dividends from noncontrolled section 902 corporations) is amended to read as follows:
"(4) LOOK-THRU APPLIES TO DIVIDENDS FROM NONCONTROLLED SECTION 902 CORPORATIONS.--
"(A) IN GENERAL.--For purposes of this subsection, any dividend from a noncontrolled section 902 corporation with respect to the taxpayer shall be treated as income described in a subparagraph of paragraph (1) in proportion to the ratio of--
"(i) the portion of earnings and profits attributable to income described in such subparagraph, to
"(ii) the total amount of earnings and profits.
"(B) SPECIAL RULES.--For purposes of this paragraph--
"(i) EARNINGS AND PROFITS.--
"(I) IN GENERAL.--The rules of section 316 shall apply.
"(II) REGULATIONS.--The Secretary may prescribe regulations regarding the treatment of distributions out of earnings and profits for periods before the taxpayer's acquisition of the stock to which the distributions relate.
"(ii) INADEQUATE SUBSTANTIATION.--If the Secretary determines that the proper subparagraph of paragraph (1) in which a dividend is described has not been substantiated, such dividend shall be treated as income described in paragraph (1)(A).
"(iii) LOOK-THRU WITH RESPECT TO CARRYFORWARDS OF CREDIT.--Rules similar to subparagraph (A) also shall apply to any carryforward under subsection (c) from a taxable year beginning before January 1, 2003, of tax allocable to a dividend from a noncontrolled section 902 corporation with respect to the taxpayer. The Secretary may by regulations provide for the allocation of any carryback of tax allocable to a dividend from a noncontrolled section 902 corporation to such a taxable year for purposes of allocating such dividend among the separate categories in effect for such taxable year.
"(iv) COORDINATION WITH HIGH-TAXED INCOME PROVISIONS.--Rules similar to the rules of paragraph (3)(F) shall apply for purposes of this paragraph.".
(1) Section 904(d)(2)(E) is amended--
(A) by inserting "or (4)" after "paragraph (3)" in clause (i), and
(B) by striking clauses (ii) and (iv) and by redesignating clause (iii) as clause (ii).
(2) Clause (i) of section 864(d)(5)(A) is amended to read as follows:
SEC. 203. FOREIGN TAX CREDIT UNDER ALTERNATIVE MINIMUM TAX.
(a) IN GENERAL.--
(1) Subsection (a) of section 59 is amended by striking paragraph (2) and by redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively.
(2) Section 53(d)(1)(B)(i)(II) of such Code is amended by striking "and if section 59(a)(2) did not apply".
(b) EFFECTIVE DATE.--The amendments made by this section shall apply to taxable years beginning after December 31, 2004.
SEC. 204. RECHARACTERIZATION OF OVERALL DOMESTIC LOSS.
(a) GENERAL RULE.--Section 904 is amended by redesignating subsections (g), (h), (i), (j), and (k) as subsections (h), (i), (j), (k), and (l) respectively, and by inserting after subsection (f) the following new subsection:
"(g) RECHARACTERIZATION OF OVERALL DOMESTIC LOSS.--
"(1) GENERAL RULE.--For purposes of this subpart and section 936, in the case of any taxpayer who sustains an overall domestic loss for any taxable year beginning after December 31, 2006, that portion of the taxpayer's taxable income from sources within the United States for each succeeding taxable year which is equal to the lesser of--
"(A) the amount of such loss (to the extent not used under this paragraph in prior taxable years), or
"(B) 50 percent of the taxpayer's taxable income from sources within the United States for such succeeding taxable year,
shall be treated as income from sources without the United States (and not as income from sources within the United States).
"(2) OVERALL DOMESTIC LOSS DEFINED.--For purposes of this subsection--
"(A) IN GENERAL.--The term 'overall domestic loss' means any domestic loss to the extent such loss offsets taxable income from sources without the United States for the taxable year or for any preceding taxable year by reason of a carryback. For purposes of the preceding sentence, the term 'domestic loss' means the amount by which the gross income for the taxable year from sources within the United States is exceeded by the sum of the deductions properly apportioned or allocated thereto (determined without regard to any carryback from a subsequent taxable year).
"(B) TAXPAYER MUST HAVE ELECTED FOREIGN TAX CREDIT FOR YEAR OF LOSS.--The term 'overall domestic loss' shall not include any loss for any taxable year unless the taxpayer chose the benefits of this subpart for such taxable year.
"(3) CHARACTERIZATION OF SUBSEQUENT INCOME.--
"(A) IN GENERAL.--Any income from sources within the United States that is treated as income from sources without the United States under paragraph (1) shall be allocated among and increase the income categories in proportion to the loss from sources within the United States previously allocated to those income categories.
"(B) INCOME CATEGORY.--For purposes of this paragraph, the term 'income category' has the meaning given such term by subsection (f)(5)(E)(i).
"(4) COORDINATION WITH SUBSECTION (f).--The Secretary shall prescribe such regulations as may be necessary to coordinate the provisions of this subsection with the provisions of subsection (f)."
(b) CONFORMING AMENDMENTS.--
(1) Section 535(d)(2) is amended by striking "section 904(g)(6)" and inserting "section 904(h)(6)".
(2) Subparagraph (A) of section 936(a)(2) is amended by striking "section 904(f)" and inserting "subsections (f) and (g) of section 904".
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to losses for taxable years beginning after December 31, 2006.
SEC. 205. INTEREST EXPENSE ALLOCATION RULES.
(a) ELECTION TO ALLOCATE ON WORLDWIDE BASIS.--Section 864 is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection:
"(f) ELECTION TO ALLOCATE INTEREST, ETC. ON WORLDWIDE BASIS.--For purposes of this subchapter, at the election of the worldwide affiliated group--
"(1) ALLOCATION AND APPORTIONMENT OF INTEREST EXPENSE.--
"(A) IN GENERAL.--The taxable income of each domestic corporation which is a member of a worldwide affiliated group shall be determined by allocating and apportioning interest expense of each member as if all members of such group were a single corporation.
"(B) TREATMENT OF WORLDWIDE AFFILIATED GROUP.--The taxable income of the domestic members of a worldwide affiliated group from sources outside the United States shall be determined by allocating and apportioning the interest expense of such domestic members to such income in an amount equal to the excess (if any) of--
"(i) the total interest expense of the worldwide affiliated group multiplied by the ratio which the foreign assets of the worldwide affiliated group bears to all the assets of the worldwide affiliated group, over
"(ii) the interest expense of all foreign corporations which are members of the worldwide affiliated group to the extent such interest expense of such foreign corporations would have been allocated and apportioned to foreign source income if this subsection were applied to a group consisting of all the foreign corporations in such worldwide affiliated group.
"(C) WORLDWIDE AFFILIATED GROUP.--For purposes of this paragraph, the term 'worldwide affiliated group' means a group consisting of--
"(i) the includible members of an affiliated group (as defined in section 1504(a), determined without regard to paragraphs (2) and (4) of section 1504(b)), and
"(ii) all controlled foreign corporations in which such members in the aggregate meet the ownership requirements of section 1504(a)(2) either directly or indirectly through applying paragraph (2) of section 958(a) or through applying rules similar to the rules of such paragraph to stock owned directly or indirectly by domestic partnerships, trusts, or estates.
"(3) TREATMENT OF TAX-EXEMPT ASSETS; BASIS OF STOCK IN NONAFFILIATED 10-PERCENT OWNED CORPORATIONS.--The rules of paragraphs (3) and (4) of subsection (e) shall apply for purposes of this subsection; except that paragraph (4) shall be applied on worldwide affiliated group basis.
"(4) TREATMENT OF CERTAIN FINANCIAL INSTITUTIONS.--
"(A) IN GENERAL.--For purposes of paragraph (1), any corporation described in subparagraph (B) shall be treated as an includible corporation for purposes of section 1504 only for purposes of applying this subsection separately to corporations so described.
"(B) DESCRIPTION.--A corporation is described in this subparagraph if--
"(i) such corporation is a financial institution described in section 581 or 591,
"(ii) the business of such financial institution is predominantly with persons other than related persons (within the meaning of subsection (d)(4)) or their customers, and
"(iii) such financial institution is required by State or Federal law to be operated separately from any other entity which is not such an institution.
"(C) TREATMENT OF BANK AND FINANCIAL HOLDING COMPANIES.--To the extent provided in regulations--
"(i) a bank holding company (within the meaning of section 2(a) of the Bank Holding Company Act of 1956),
"(ii) a financial holding company (within the meaning of section 2(p) of the Bank Holding Company Act of 1956), and
"(iii) any subsidiary of a financial institution described in section 581 or 591, or of any such bank or financial holding company, if such subsidiary is predominantly engaged (directly or indirectly) in the active conduct of a banking, financing, or similar business,
shall be treated as a corporation described in subparagraph (B).
"(5) ELECTION TO EXPAND FINANCIAL INSTITUTION GROUP OF WORLDWIDE GROUP.--
"(A) IN GENERAL.--If a worldwide affiliated group elects the application of this subsection, all financial corporations which--
"(i) are members of such worldwide affiliated group, but
"(ii) are not corporations described in paragraph (4)(B),
shall be treated as described in paragraph (4)(B) for purposes of applying paragraph (4)(A). This subsection (other than this paragraph) shall apply to any such group in the same manner as this subsection (other than this paragraph) applies to the pre-election worldwide affiliated group of which such group is a part.
"(B) FINANCIAL CORPORATION.--For purposes of this paragraph, the term 'financial corporation' means any corporation if at least 80 percent of its gross income is income described in section 904(d)(2)(D)(ii) and the regulations thereunder which is derived from transactions with persons who are not related (within the meaning of section 267(b) or 707(b)(1)) to the corporation. For purposes of the preceding sentence, there shall be disregarded any item of income or gain from a transaction or series of transactions a principal purpose of which is the qualification of any corporation as a financial corporation.
"(C) ANTIABUSE RULES.--In the case of a corporation which is a member of an electing financial institution group, to the extent that such corporation--
"(i) distributes dividends or makes other distributions with respect to its stock after the date of the enactment of this paragraph to any member of the pre-election worldwide affiliated group (other than to a member of the electing financial institution group) in excess of the greater of--
"(I) its average annual dividend (expressed as a percentage of current earnings and profits) during the 5-taxable-year period ending with the taxable year preceding the taxable year, or
"(II) 25 percent of its average annual earnings and profits for such 5-taxable-year period, or
"(ii) deals with any person in any manner not clearly reflecting the income of the corporation (as determined under principles similar to the principles of section 482),
an amount of indebtedness of the electing financial institution group equal to the excess distribution or the understatement or overstatement of income, as the case may be, shall be recharacterized (for the taxable year and subsequent taxable years) for purposes of this paragraph as indebtedness of the worldwide affiliated group (excluding the electing financial institution group). If a corporation has not been in existence for 5 taxable years, this subparagraph shall be applied with respect to the period it was in existence.
"(D) ELECTION.--An election under this paragraph with respect to any financial institution group may be made only by the common parent of the pre-election worldwide affiliated group and may be made only for the first taxable year beginning after December 31, 2009, in which such affiliated group includes 1 or more financial corporations. Such an election, once made, shall apply to all financial corporations which are members of the electing financial institution group for such taxable year and all subsequent years unless revoked with the consent of the Secretary.
"(E) DEFINITIONS RELATING TO GROUPS.--For purposes of this paragraph--
"(i) PRE-ELECTION WORLDWIDE AFFILIATED GROUP.--The term 'pre-election worldwide affiliated group' means, with respect to a corporation, the worldwide affiliated group of which such corporation would (but for an election under this paragraph) be a member for purposes of applying paragraph (1).
"(ii) ELECTING FINANCIAL INSTITUTION GROUP.--The term 'electing financial institution group' means the group of corporations to which this subsection applies separately by reason of the application of paragraph (4)(A) and which includes financial corporations by reason of an election under subparagraph (A).
"(F) REGULATIONS.--The Secretary shall prescribe such regulations as may be appropriate to carry out this subsection, including regulations--
"(i) providing for the direct allocation of interest expense in other circumstances where such allocation would be appropriate to carry out the purposes of this subsection,
"(ii) preventing assets or interest expense from being taken into account more than once, and
"(iii) dealing with changes in members of any group (through acquisitions or otherwise) treated under this paragraph as an affiliated group for purposes of this subsection.
(b) EXPANSION OF REGULATORY AUTHORITY.--Paragraph (7) of section 864(e) is amended--
(1) by inserting before the comma at the end of subparagraph (B) "and in other circumstances where such allocation would be appropriate to carry out the purposes of this subsection", and
(2) by striking "and" at the end of subparagraph (E), by redesignating subparagraph (F) as subparagraph (G), and by inserting after subparagraph (E) the following new subparagraph:
"(F) preventing assets or interest expense from being taken into account more than once, and".
SEC. 206. DETERMINATION OF FOREIGN PERSONAL HOLDING COMPANY INCOME WITH RESPECT TO TRANSACTIONS IN COMMODITIES.
(a) IN GENERAL.--Clauses (i) and (ii) of section 954(c)(1)(C) (relating to commodity transactions) are amended to read as follows:
"(ii) are active business gains or losses from the sale of commodities, but only if substantially all of the controlled foreign corporation's commodities are property described in paragraph (1), (2), or (8) of section 1221(a), or".
"(6) DEFINITION AND SPECIAL RULES RELATING TO COMMODITY TRANSACTIONS.--
"(A) COMMODITY HEDGING TRANSACTIONS.--For purposes of paragraph (1)(C)(i), the term 'commodity hedging transaction' means any transaction with respect to a commodity if such transaction--
"(i) is a hedging transaction as defined in section 1221(b)(2), determined--
"(I) without regard to subparagraph (A)(ii) thereof,
"(II) by applying subparagraph (A)(i) thereof by substituting 'ordinary property or property described in section 1231(b)' for 'ordinary property', and
"(III) by substituting 'controlled foreign corporation' for 'taxpayer' each place it appears, and
"(ii) is clearly identified as such in accordance with section 1221(a)(7).
"(B) REGULATIONS.--The Secretary shall prescribe such regulations as are appropriate to carry out the purposes of paragraph (1)(C) in the case of transactions involving related parties."
SEC. 211. REPEAL OF FOREIGN PERSONAL HOLDING COMPANY RULES AND FOREIGN INVESTMENT COMPANY RULES.
(a) GENERAL RULE.--The following provisions are hereby repealed:
(1) Part III of subchapter G of chapter 1 (relating to foreign personal holding companies).
(2) Section 1246 (relating to gain on foreign investment company stock).
(3) Section 1247 (relating to election by foreign investment companies to distribute income currently).
(b) EXEMPTION OF FOREIGN CORPORATIONS FROM PERSONAL HOLDING COMPANY RULES.--
(1) IN GENERAL.--Subsection (c) of section 542 (relating to exceptions) is amended--
(A) by striking paragraph (5) and inserting the following:
"(5) a foreign corporation,",
(B) by striking paragraphs (7) and (10) and by redesignating paragraphs (8) and (9) as paragraphs (7) and (8), respectively,
(C) by inserting "and" at the end of paragraph (7) (as so redesignated), and
(D) by striking "; and" at the end of paragraph (8) (as so redesignated) and inserting a period.
(2) TREATMENT OF INCOME FROM PERSONAL SERVICE CONTRACTS.--Paragraph (1) of section 954(c) is amended by adding at the end the following new subparagraph:
"(I) PERSONAL SERVICE CONTRACTS.--
"(i) Amounts received under a contract under which the corporation is to furnish personal services if--
"(I) some person other than the corporation has the right to designate (by name or by description) the individual who is to perform the services, or
"(II) the individual who is to perform the services is designated (by name or by description) in the contract, and
"(ii) amounts received from the sale or other disposition of such a contract.
This subparagraph shall apply with respect to amounts received for services under a particular contract only if at some time during the taxable year 25 percent or more in value of the outstanding stock of the corporation is owned, directly or indirectly, by or for the individual who has performed, is to perform, or may be designated (by name or by description) as the one to perform, such services."
(1) Section 1(h) is amended--
(A) in paragraph (10), by inserting "and" at the end of subparagraph (F), by striking subparagraph (G), and by redesignating subparagraph (H) as subparagraph (G), and
(B) by striking "a foreign personal holding company (as defined in section 552), a foreign investment company (as defined in section 1246(b)), or" in paragraph (11)(C)(iii).
(2) Paragraph (2) of section 171(c) is amended--
(A) by striking ", or by a foreign personal holding company, as defined in section 552", and
(B) by striking ", or foreign personal holding company".
(3) Paragraph (2) of section 245(a) is amended by striking "foreign personal holding company or".
(4) Section 312 is amended by striking subsection (j).
(5) Subsection (m) of section 312 is amended by striking ", a foreign investment company (within the meaning of section 1246(b)), or a foreign personal holding company (within the meaning of section 552)".
(6) Subsection (e) of section 443 is amended by striking paragraph (3) and by redesignating paragraphs (4) and (5) as paragraphs (3) and (4), respectively.
(7) Subparagraph (B) of section 465(c)(7) is amended by adding "or" at the end of clause (i), by striking clause (ii), and by redesignating clause (iii) as clause (ii).
(8) Paragraph (1) of section 543(b) is amended by inserting "and" at the end of subparagraph (A), by striking ", and" at the end of subparagraph (B) and inserting a period, and by striking subparagraph (C).
(9) Paragraph (1) of section 562(b) is amended by striking "or a foreign personal holding company described in section 552".
(10) Section 563 is amended--
(A) by striking subsection (c),
(B) by redesignating subsection (d) as subsection (c), and
(C) by striking "subsection (a), (b), or (c)" in subsection (c) (as so redesignated) and inserting "subsection (a) or (b)".
(11) Subsection (d) of section 751 is amended by adding "and" at the end of paragraph (2), by striking paragraph (3), by redesignating paragraph (4) as paragraph (3), and by striking "paragraph (1), (2), or (3)" in paragraph (3) (as so redesignated) and inserting "paragraph (1) or (2)".
(12) Paragraph (2) of section 864(d) is amended by striking subparagraph (A) and by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively.
(13)(A) Subparagraph (A) of section 898(b)(1) is amended to read as follows:
"(A) which is treated as a controlled foreign corporation for any purpose under subpart F of part III of this subchapter, and".
(B) Subparagraph (B) of section 898(b)(2) is amended by striking "and sections 551(f) and 554, whichever are applicable,".
(C) Paragraph (3) of section 898(b) is amended to read as follows:
"(3) UNITED STATES SHAREHOLDER.--The term 'United States shareholder' has the meaning given to such term by section 951(b), except that, in the case of a foreign corporation having related person insurance income (as defined in section 953(c)(2)), the Secretary may treat any person as a United States shareholder for purposes of this section if such person is treated as a United States shareholder under section 953(c)(1)."
(D) Subsection (c) of section 898 is amended to read as follows:
"(1) IN GENERAL.--The required year is--
"(A) the majority U.S. shareholder year, or
"(B) if there is no majority U.S. shareholder year, the taxable year prescribed under regulations.
"(2) 1-MONTH DEFERRAL ALLOWED.--A specified foreign corporation may elect, in lieu of the taxable year under paragraph (1)(A), a taxable year beginning 1 month earlier than the majority U.S. shareholder year.
"(3) MAJORITY U.S. SHAREHOLDER YEAR.--
"(A) IN GENERAL.--For purposes of this subsection, the term 'majority U.S. shareholder year' means the taxable year (if any) which, on each testing day, constituted the taxable year of--
"(i) each United States shareholder described in subsection (b)(2)(A), and
"(ii) each United States shareholder not described in clause (i) whose stock was treated as owned under subsection (b)(2)(B) by any shareholder described in such clause.
"(B) TESTING DAY.--The testing days shall be--
"(i) the first day of the corporation's taxable year (determined without regard to this section), or
"(ii) the days during such representative period as the Secretary may prescribe."
(B) The paragraph heading of paragraph (2) of section 904(g), as so redesignated, is amended by striking "FOREIGN PERSONAL HOLDING OR".
(16) Section 951 is amended by striking subsections (c) and (d) and by redesignating subsections (e) and (f) as subsections (c) and (d), respectively.
(17) Paragraph (3) of section 989(b) is amended by striking ", 551(a),".
(18) Paragraph (5) of section 1014(b) is amended by inserting "and before January 1, 2005," after "August 26, 1937,".
(19) Subsection (a) of section 1016 is amended by striking paragraph (13).
(20)(A) Paragraph (3) of section 1212(a) is amended to read as follows:
"(3) SPECIAL RULES ON CARRYBACKS.--A net capital loss of a corporation shall not be carried back under paragraph (1)(A) to a taxable year--
"(A) for which it is a regulated investment company (as defined in section 851), or
"(B) for which it is a real estate investment trust (as defined in section 856)."
(B) The amendment made by subparagraph (A) shall apply to taxable years beginning after December 31, 2004.
(21) Section 1223 is amended by striking paragraph (10) and by redesignating the following paragraphs accordingly.
(22) Subsection (d) of section 1248 is amended by striking paragraph (5) and by redesignating paragraphs (6) and (7) as paragraphs (5) and (6), respectively.
(23) Paragraph (2) of section 1260(c) is amended by striking subparagraphs (H) and (I) and by redesignating subparagraph (J) as subparagraph (H).
(24)(A) Subparagraph (F) of section 1291(b)(3) is amended by striking "551(d), 959(a)," and inserting "959(a)".
(B) Subsection (e) of section 1291 is amended by inserting "(as in effect on the day before the date of the enactment of the Jumpstart Our Business Strength (JOBS) Act)" after "section 1246".
(25) Paragraph (2) of section 1294(a) is amended to read as follows:
"(2) ELECTION NOT PERMITTED WHERE AMOUNTS OTHERWISE INCLUDIBLE UNDER SECTION 951.--The taxpayer may not make an election under paragraph (1) with respect to the undistributed PFIC earnings tax liability attributable to a qualified electing fund for the taxable year if any amount is includible in the gross income of the taxpayer under section 951 with respect to such fund for such taxable year."
(26) Section 6035 is hereby repealed.
(27) Subparagraph (D) of section 6103(e)(1) is amended by striking clause (iv) and redesignating clauses (v) and (vi) as clauses (iv) and (v), respectively.
(28) Subparagraph (B) of section 6501(e)(1) is amended to read as follows:
"(B) CONSTRUCTIVE DIVIDENDS.--If the taxpayer omits from gross income an amount properly includible therein under section 951(a), the tax may be assessed, or a proceeding in court for the collection of such tax may be done without assessing, at any time within 6 years after the return was filed."
(29) Subsection (a) of section 6679 is amended--
(A) by striking "6035, 6046, and 6046A" in paragraph (1) and inserting "6046 and 6046A", and
(B) by striking paragraph (3).
(30) Sections 170(f)(10)(A), 508(d), 4947, and 4948(c)(4) are each amended by striking "556(b)(2)," each place it appears.
(31) The table of parts for subchapter G of chapter 1 is amended by striking the item relating to part III.
(32) The table of sections for part IV of subchapter P of chapter 1 is amended by striking the items relating to sections 1246 and 1247.
(33) The table of sections for subpart A of part III of subchapter A of chapter 61 is amended by striking the item relating to section 6035.
(d) EFFECTIVE DATE.--The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2004, and taxable years of United States shareholders of such corporations ending with or within such taxable years of such corporations.
SEC. 212. EXPANSION OF DE MINIMIS RULE UNDER SUBPART F.
(a) IN GENERAL.--Clause (ii) of section 954(b)(3)(A) (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) is amended by striking "$1,000,000" and inserting "$5,000,000".
(2) Clause (i) of section 881(c)(5)(A) 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 foreign corporations beginning after December 31, 2004, and taxable years of United States shareholders of such corporations ending with or within such taxable years of such corporations.
SEC. 213. ATTRIBUTION OF STOCK OWNERSHIP THROUGH PARTNERSHIPS TO APPLY IN DETERMINING SECTION 902 AND 960 CREDITS.
(a) IN GENERAL.--Subsection (c) of section 902 is amended by redesignating paragraph (7) as paragraph (8) and by inserting after paragraph (6) the following new paragraph:
"(7) CONSTRUCTIVE OWNERSHIP THROUGH PARTNERSHIPS.--Stock owned, directly or indirectly, by or for a partnership shall be considered as being owned proportionately by its partners. Stock considered to be owned by a person by reason of the preceding sentence shall, for purposes of applying such sentence, be treated as actually owned by such person. The Secretary may prescribe such regulations as may be necessary to carry out the purposes of this paragraph, including rules to account for special partnership allocations of dividends, credits, and other incidents of ownership of stock in determining proportionate ownership."
(b) CLARIFICATION OF COMPARABLE ATTRIBUTION UNDER SECTION 901(b)(5).--Paragraph (5) of section 901(b) is amended by striking "any individual" and inserting "any person".
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to taxes of foreign corporations for taxable years of such corporations beginning after the date of the enactment of this Act.
SEC. 214. APPLICATION OF UNIFORM CAPITALIZATION RULES TO FOREIGN PERSONS.
(a) IN GENERAL.--Section 263A(c) (relating to exceptions) is amended by adding at the end the following new paragraph:
"(7) FOREIGN PERSONS.--Except for purposes of applying sections 871(b)(1) and 882(a)(1), this section shall not apply to any taxpayer who is not a United States person if such taxpayer capitalizes costs of produced property or property acquired for resale by applying the method used to ascertain the income, profit, or loss for purposes of reports or statements to shareholders, partners, other proprietors, or beneficiaries, or for credit purposes."
(b) EFFECTIVE DATE.--
(1) IN GENERAL.--The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2004.
(2) CHANGE IN METHOD OF ACCOUNTING.--In the case of any taxpayer required by the amendment made by this section to change its method of accounting for its first taxable year beginning after December 31, 2004--
(A) such change shall be treated as initiated by the taxpayer,
(B) such change shall be treated as made with the consent of the Secretary of the Treasury, and
(C) the net amount of the adjustments required to be taken into account by the taxpayer under section 481 of the Internal Revenue Code of 1986 shall be taken into account in such first year.
(a) IN GENERAL.--Paragraph (2) of section 871(i) (relating to tax not to apply to certain interest and dividends) is amended by adding at the end the following new subparagraph:
SEC. 216. REPEAL OF SPECIAL CAPITAL GAINS TAX ON ALIENS PRESENT IN THE UNITED STATES FOR 183 DAYS OR MORE.
(a) IN GENERAL.--Subsection (a) of section 871 is amended by striking paragraph (2) and by redesignating paragraph (3) as paragraph (2).
(b) EFFECTIVE DATE.--The amendment made by this section shall apply to taxable years beginning after December 31, 2003.
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