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Committee on Voluntary Foreign A i d: Provided, That no such funds may be utilized to promote religious activities; " (g) For the purchase of goods or services for other friendly countries; " (h) For financing, at the request of such country, programs emphasizing maternal welfare, child health and nutrition, and activities, where participation is voluntary, related to the problems of population growth, under procedures established by the President through any agency of the United States, or through any local agency which he determines is qualified to administer such activities; "(i) for paying, to the maximum extent practicable, the costs outside the United States of carrying out the program authorized in section 406 of this Act; and ^°^^' P- ^^^e. "(j) For sale for dollars to United States citizeu* and nonprofit organizations for travel or other purposes of currencies determined to be in excess of the needs of departments and agencies of the United States for such currencies. The United States dollars received from the sale of such foreign currencies shall be deposited to the account of Commodity Credit Corporation: Provided, That— "(1) Section 1415 of the Supplemental Appropriation Act, 1953, \\^^^l:^ll' shall apply to currencies used for the purposes specified in subsections (a) and (b), "(2) Section 1415 of the Supplemental Appropriation Act, 1953, shall apply to all foreign currencies used for grants under subsections (f) and (g), to not less than 10 per centum of the foreign currencies which accrue pursuant to agreements entered into on or before December 31, 1964, and to not less than 20 per centum in the aggregate of the foreign currencies which accrue pursuant to agreements entered into thereafter: Provided, however, That the President is authorized to waive such applicability of section 1415 in any case where he determines that it would be inappropriate or inconsistent with the purposes of this title, "(3) No agreement or proposal to grant any foreign currencies Transmittal to (except as provided in subsection (c) of this section), or to use mlneTs^.^^""^ '^°'"" (except pursuant to appropriation Act) any principal or interest from loan repayments under this section shall be entered into or carried, out until the expiration of thirty days following the date on which such agreement or proposal is transmitted by the President to the Senate Committee on Agriculture and Forestry and to the House Committee on Agriculture, if transmitted while Congress is in session, or sixty days following the date of transmittal if transmitted while Congress is not in session, "(4) Any loan made under the authority of this section shall bear interest at such rate as the President may determine but not less than the cost of funds to the United States Treasury, taking into consideration the current average market yields on outstanding marketable obligations of the United States having maturity comparable to the maturity of such loans, unless the President shall in specific instances after consultation with the advisory committee established under section 407 designate a different rate: Provided, further. That paragraphs (2), (3), and (4) of the foregoing proviso shall not apply in the case of any nation where the foreign currencies or credits owned by the United States and available for use by it in such nation are determined by the Secretary of the Treasury to be in excess of the normal requirements of the departments and agencies of the United States for expenditures in such

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[80 STAT.

nations for the two fiscal years following the fiscal year in which such determination is made. The amount of any such excess shall be devoted to the extent practicable and without regard to paragraph (1) of the foregoing proviso, to the acquisition of sites, buildings, and grounds under paragraph (4) of subsection (b) of this section and to assist such nation in undertaking self-help measures to increase its production of agricultural commodities and its facilities for storage and distribution of such commodities. Assistance under the foregoing provision shall be limited to self-help measures additional to those Reports to con- ^hich wouM be Undertaken without such assistance. Upon the g r e s s i o n a l com-

mittees.

,

•

•

i

i

O

i

c

i

m

i

i

determination by the secretary oi the Ireasury that such an excess exists with respect to any nation, the President shall advise the Senate Committee on Agriculture and Forestry and the House Committee on Agriculture of such determination; and shall thereafter report to each such committee as often as may be necessary to keep such Committee advised as to the extent of such excess, the purposes for which it is used or proposed to be used, and the effects of such use. Special account. "SEC. 105. Forelgu currcncics received pursuant to this Act shall be deposited in a special account to the credit of the United States and shall be used only pursuant to section 104, and any department or agency of the Government using any of such currencies for a purpose for which funds have been appropriated shall reimburse the Commodity Credit Corporation in an amount equivalent to the dollar value of the currencies used. The President shall utilize foreign currencies received pursuant to this Act in such manner as wnll, to the maximum extent possible, reduce any deficit in the balance of payments of the United States. Dollar credit sales. "SEC. 106. (a) Payment by any friendly country for commodities purchased for dollars on credit shall be upon terms as favorable to the United States as the economy of such country wdll permit. Payment for such commodities shall be in dollars with interest at such rates as the Secretary may determine but not less than the minimum rate 75 Stat. 426; required by section 201 of the Foreign Assistance Act of 1961 for loans "2 USC 2161. made under that section. Payment may be made in reasonable annual amounts over periods of not to exceed twenty years from the date of the last delivery of commodities in each calendar year under the agreement, except that the date for beginning such annual payment may be deferred for a period not later than two years after such date of last delivery, and interest shall be computed from the date of such last delivery. Delivery of such commodities shall be made in annual installments for not more than ten years following the date of the sales agreement and subject to the availability of the commodities at the time delivery is to be made. "(b) Agreements hereunder for the sale of agricultural commodities for dollars on credit terms shall include provisions to assure that the proceeds from the sale of the commodities in the recipient country are used for such economic development purposes as are agreed upon in the sales agreement or any amendment thereto. P r i v a t e trade "SEC. 107. (a) I t is also the policy of the Congress to stimulate and and enterprise. maximize the sale of United States agricultviral commodities for dollars through the private trade and to further the use of private enterprise to the maximum, thereby strengthening the development and expansion of foreign commercial markets for United States agricultural commodities. In furtherance of this policy, the Secretary of Agriculture is authorized, notwithstanding any other provision of law, to enter into agreements with foreign and United States private trade for financing the sale of agricultural commodities for export over

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such periods of time and on such credit terms as the Secretary determines will accomplish the objectives of this section. Any agreement entered into under this section shall provide for the development and execution of projects which will result in the establishment of facilities designed to improve the storage or marketing of agricultural commodities, or which will otherwise stimulate and expand private economic enterprise in any friendly country. Any agreement entered into under this section shall also provide for the furnishing of such security as the Secretary determines necessary to provide reasonable and adequate assurance of payment of the purchase price in dollars with interest at a rate which will as nearly as practicable be equivalent to the average cost of funds to the United States Treasury, as determined by the Secretary of the Treasury, on outstanding marketable obligations of the United States having maturities comparable to maturities of credits extended under this section. In no event shall the rate of interest be less than the minimum rate, or the delivery period, deferral of first payment, or term of credit be longer than the maximum term, authorized in section 106. In carrying out this Act, the authority provided in this section for making dollar sales shall be used to the maximum extent practicable. "(b) In carrying out the provisions of this section, the Secretary shall take reasonable precautions to safeguard usual marketings of the United States and to avoid displacing any sales of Ignited States agricultural commodities which the Secretary finds and determines would otherwise be made for cash dollars. "(c) The Secretary shall obtain commitments from purchasers that will prevent resale or transshipment to other countries, or use for other than domestic purposes, of agricultural commodities purchased under this section. " (d) In carrying out this Act, the provisions of sections 102,103 (a), 103(d), 103(e), l b 3 (f), 103(j), 103(k), 110, 401, 402, 403, 404, 405, 407, 408, and 409 shall be applicable to sales under this section. "SEC. 108. The Commodity Credit Corporation may finance ocean freight charges incurred pursuant to agreements for sales for foreign currencies (other than those providing for conversion to dollars as described in section 103(b) of this Act) entered into hereunder only to the extent that such charges are higher (than would otherwise be the case) by reason of a requirement that the commodities be transported in United States-flag vessels. Such agreements shall require the balance of such charges for transportation in United States vessels to be paid in dollars by the nations or organizations with whom such agreements are entered into. "SEC. 109. (a) Before entering into agreements with develojnng countries for the sale of United States agricultural commodities on whatever terms, the President shall consider the extent to which the recipient country is undertaking wherever practicable self-help measures to increase per capita production and improve the means for storage and distribution of agricultural commodities, including: "(1) devoting land resources to the production of needed food rather than to the production of nonfood crops—especially nonfood crops in world surplus; "(2) development of the agricultural chemical, farm machinery and equipment, transportation and other necessary industries through private enterprise; "(3) training and instructing farmers in agricultural methods and techniques; "(4) constructing adequate storage facilities; "(5) improving marketing and distribution systems; 65-300 0-67—99

1533

ocean transpor-

seif-heip meas-

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68 Stat. 457. 7 USC 17211724.

PUBLIC LAW 89-808-NOV. 11, 1966

[80 STAT.

"(6) creating a favorable environment for private enterprise and investment, both domestic and foreign, and utilizing available technical know-how; "(7) establishing and maintaining Government policies to insure adequate incentives to producers; and "(8) establishing and expanding institutions for adaptive agricultural research; and "(9) allocating for these purposes sufficient national budgetary and foreign exchange resources (including those supplied by bilateral, multilateral and consortium aid programs) and local currency resources (resulting from loans or grants to recipient governments of the proceeds of local currency sales). "(b) Notwithstanding any other provisions of this Act, in agreements with nations not engaged in armed conflict against Communist forces or against nations with which the United States has no diplomatic relations, not less than 20 per centum of the foreign currencies set aside for purposes other than those in sections 104(a), (b), (e), and (j) shall be allocated for the self-help measures set forth in this section. "(c) Each agreement entered into under this title shall describe the program which the recipient country is undertaking to improve its production, storage, and distribution of agricultural commodities; and shall provide for termination of such agreement whenever the President finds that such program is not being adequately developed. "SEC. 110. Agreements shall not be entered into under this title during any calendar year which will call for an appropriation to reimburse the Commodity Credit Corporation in an amount in excess of $1,900,000,000, plus any amount by which agreements entered into under this title in prior years have called or will call for appropriations to reimburse the Commodity Credit Corporation in amounts less than authorized for such prior years." (C) By amending title II to read as follows: "TITLE II

lie^!"^'^^*"''^ '^^'

"SEC. 201. The President is authorized to determine requirements and furnish agricultural commodities, on behalf of the people of the United States of America, to meet famine or other urgent or extraordinary relief requirements; to combat malnutrition, especially in children; to promote economic and community development in friendly developing areas; and for needy persons and nonprofit school lunch and preschool feeding programs outside the United States. The Commodity Credit Corporation shall make available to the President such as agricultural commodities determined to be available under section 401 as he may request. "SEC. 202. The President may furnish commodities for the purposes set forth in section 201 through such friendly governments and such agencies, private or public, including intergovernmental organizations such as the world food program and other multilateral organizations in such manner and upon such terms and conditions as he deems appropriate. The President shall, to the extent practicable, utilize nonprofit voluntary agencies registered with, and approved by, the Advisory Committee on Voluntary Foreign Aid. Insofar as practicable, all commodities furnished hereunder shall be clearly identified by appropriate marking on each package or container in the language of the locality where they are distributed as being furnished by the people of the United States of America. The assistance to needy persons shall insofar as practicable be directed toward community

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and other self-help activities designed to alleviate the causes of the need for such assistance. Except in the case of emergency, the President shall take reasonable precaution to assure that commodities furnished hereunder will not displace or interfere with sales which might otherwise be made. "SEC. 203. The Commodity Credit Corporation may, in addition to the cost of acquisition, pay with respect to commodities made available under this title costs for packaging, enrichment, preservation, and fortification; processing, transportation, handling, and other incidental costs up to the time of their delivery free on board vessels in United States ports; ocean freight charges from United States ports to designated ports of entry abroad, or, in the case of landlocked countries, transportation from United States ports to designated points of entry abroad; and charges for general average contributions arising out of the ocean transport of commodities transferred pursuant thereto. "SEC. 204. Programs of assistance shall not be undertaken under this title during any calendar year which call for an appropriation of more than $600,000,000 to reimburse the Commodity Credit Corporation for all costs incurred in connection with such programs (including the Corporation's investment in commodities made available) plus any amount by which programs of assistance undertaken under this title in the preceding calendar year have called or will call for appropriations to reimburse the Commodity Credit Corporation in amounts ess than were authorized for such purpose during such preceding year. I n addition to other funds available for such purposes under any other Act, funds made available under this title may be used in an amount not exceeding $7,500,000 annually to purchase foreign currencies accruing under title I of this Act in order to meet costs (except the -^"'®' P- ^^^e. personnel and administrative costs of cooperating sponsors, distributing agencies, and recipient agencies, and the costs of construction or maintenance or any church owned or operated edifice or any other edifices to be used for sectarian purposes) designed to assure that commodities made available under this title are used to carry out effectively the purposes for which such commodities are made available or to promote community and other self-help activities designed to alleviate the causes of the need for such assistance: Provided, however, That such funds shall be used only to supplement and not substitute for funds normally available for such purposes from other non-United States Government sources. "SEC. 205. I t is the sense of the Congress that the President should encourage other advanced nations to make increased contributions for the purpose of combating world hunger and malnutrition, particularly through the expansion of international food and agricultural assistance programs. I t is further the sense of the Congress that as a means of achieving this objective, the United States should work for the expansion of the United Nations World food program beyond its present established goals." (D) By changing the designation " TITLE III — GENERAL Repeals. PROVISIONS " to " TITLE III " and by striking out sections 304, 305, 306, 307, and 308. Ta'sta^'eoT"'' (YJ) By amending title IV to read as follows: 7 USC i693-

f

1697.

"TITLE IV "SEC. 401. After consulting with other agencies of the Government affected and within policies laid down by the President for implementing this Act, and after taking into account productive capacity.

 * ulc'17'3?:

1736.

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"Agricultural commodity."

Appropriation.

Ante, pp. 1531, 1532.

Aims of assistance programs.

Food production assistance.

Farmer-to-farmer program.

Education.

PUBLIC LAW 89-808-NOV. 11, 1966

[80 STAT.

domestic requirements, farm and consumer price levels, commercial exports, and adequate carryover, the Secretary of Agriculture shall determine the agricultural commodities and quantities thereof available for disposition under this Act, and the connnodities and quantities thereof which may be included in the negotiations with each countiy. Xo commodity shall be available for disj^osition under this Act if such disposition would reduce the domestic supply of such commodity below that needed to meet domestic requirements, adequate carryover, and anticipated exports for dollars as determined by the Secretary of Agriculture at the time of exportation of such commodity. "SEC. 402. The term 'agricultural commodity' as used in this Act shall include any agricultural commodity produced in the United States or product thereof produced in the United States: Provided, however. That the term 'agricultural commodity' shall not include alcoholic beverages, and for the purposes of title 11 of this Act, tobacco or products thereof. Subject to the availability of appropriations therefor, any domestically produced tishery product may be made available under this Act. "SEC. 403. There are hereby authorized to be appropriated such sums as may be necessary to carry out this Act including such amounts as may be required to make payments to the Commodity Credit Corporation, to the extent the Commodity Credit Corporation is not reim))ur'sed under sections 104( j) and 105, for its actual costs incurred or to be incurred. In presenting his budget, the President shall classify expenditures under this Act as expenditures for international affairs and finance rather than for agriculture and agricultural resources. "SEC. 404. The programs of assistance undertaken pursuant to this Act shall be directed toward the attainment of the humanitarian objectifies and national interest of the United States. "SEC. 405. The authority and funds provided by this Act shall be utilized in a manner that will assist friendly countries that are determined to help themselves toward a greater degree of self-reliance in providing enough food to meet the needs of their people and in resolving their problems relative to population growth. "SEC. 406. (a) I n order to further assist friendly developing countries to become self-sufficient in food production, the Secretary of Agriculture is authorized, notwithstanding any other provision of law— "(1) To establish and administer through existing agencies of the Department of Agriculture a program of farmer-to-farmer assistance between the United States and such countries to help farmers in such countries in the practical aspects of increasing food production and distribution and improving the effectiveness of their farming operations; "(2) To enter into contracts or other cooperative agreements with, or make grants to, land-grant colleges and universities and other institutions of higher learning in the Ignited States to recruit persons who by reason of training, education, or practical experience are knowledgeable in the practical arts and sciences of agriculture and home economics, and to train such persons in the practical techniques of transmitting to farmers in such countries improved practices in agrifMilture, and to participate in carrying out the program in such countries including, where desirable, additional courses for training or retraining in such countries; "(3) To consult and cooperate with private non-profit farm organizations in the exchange of farm youth and farm leaders with develop-

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ing countries and in the training of farmers of such de\elping countries within the United States or abroad; " (4) To conduct research in tropical and subtropical agricuUure for Research, the improvement and development of tropical and subtropical food products for dissemination and cuhivation in friendly countries: "(5) To coordinate the program authorized in this section with the activities of the Peace Corps, the Agency for International Development, and other agencies of the United States and to assign, upon agreement with such agencies, such persons to work with and under the administration of such agencies: Provided, That nothing in this section shall be construed to infringe upon the powers OT- functions of the Secretary of State: "(6) To establish by such rules and regulations as he deems Jiecessary the conditions for eligibility and retention in and dismissal from the program established in this section, together with the terms, length and nature of service, compensation, employee status, oaths of office, and security clearances, and such persons shall be entitled to the benefits and subject to the responsibilities applicable to persons serving in the Peace Corps pursuant to the provisions of section 612, volume 75 of the Statutes at Large, as amended; and ^^^^ use 2501 "(7) To the maximum extent practicable, to pay the costs of such program through the tise of foreign currencies accruing from the sale of agricultural commodities under this Act, as provided in section 104(i),

Ante, p. 1531.

" (b) There are hereby authorized to be appropriated not to exceed Appropriation. $83,000,000 during any fiscal year for the purpose of carrying out the provisions of this section. "SEC. 407. There is hereby established an advisory committee com- mittte^.^esLwiThposed of the Secretary of State, the Secretary of the Treasury, the Sec- ment. I'etary of Agriculture, the Director of the Bureau of the l^udget, the Administrator of the Agency for International Development, the chairman, the vice chairman and the two ranking minority members of the House Committee on Agriculture and the House Committee on iJ'oreign x\.fFairs, and the chairman, the next ranking majority member and the two ranking minority members of the Senate Committee on Agriculture and Forestry and the Senate Committee on Foreign Relations. The advisory committee shall survey the general policies relating to the administration of the Act, including the manner of implementing the self-help provisions, the uses to be made of foreign currencies which accrue in connection with sales for foreign currencies under title I, the amount of currencies to be reserved in sales agree- ^"^^' P- ^^^^• ments for loans to private industry under section 104(e), rates of exchange, interest rates, and the terms under which dollar credit sales are made, and shall advise the President with respect thereto. "SEC. 408. The President shall make a report to Congress not later Report to conthan April 1 each year with respect to the activities carried out under ^'"^^^" this Act during the preceding calendar year. Such report shall describe the progress of each country with which agreements are in effect under title I in carrying out its agreements under such title. "SEC. 409. No agreements to finance sales under title I and no pro- "^'"^ limitation. grams of assistance under title II shall be enfered into after Decembei31, 1968.

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[80 STAT.

"SEC. 410. The provisions of section 620(e) of the Foreign Assistrs's ^t^*io^u^' ^^^^ ^^^ ^^ 1961, as amended (referring to nationalization, expropria22 USC 2370. tion, and related governmental Acts affecting property owned by United States citizens), shall be applicable to assistance provided Ante, p. 1526. y^dcr title I of this Act." SEC. 3. (a) Section 9 of the Act of September 6, 1968 (7 U.S.C. 72 Stat. 1792. i43ib), is amended, effective January 1, 1967, by deleting the symbol •'(1)", by changing the semicolon to a period and by striking out all of the language in the section after the semicolon. (b) Section 709 of the Food and Agriculture Act of 1965 (7 U.S.C. 79 Stat. 1212. 1446a-l) is amended, effective January 1, 1967, by striking out '•foreign distribution,". (c) Section 416 of the Agricultural Act of 1949, as amended (7 68 Stat. 458. U.S.C. 1431), is amended, effective January 1, 1967, by striking out the following: "and (4) to donate any such food commodities in excess of anticipated disposition under (1), (2), and (3) above to nonprofit voluntary agencies registered with the Committee on Voluntary Foreign Aid of the Foreign Operations Administration or other appropriate department or agency of the Federal Government and intergovernmental organizations for use in the assistance of needy persons and in nonprofit school lunch programs outside the United States"; "and (4) above"; ", in the case of commodities made available for use within the United States, or their delivery free alongside ship or free on board export carrier at point of export, in the case of commodities made available for use outside the United States"; and "The assistance to needy persons provided in (4) above shall, insofar as practicable be directed toward community and other self-help designed to alleviate the causes of the need for such assistance." jjsc 1701 ((J) Section 8 of Public Law 85-931 (72 Stat. 1792) is amended (1) by inserting a period in lieu of the colon after the word "Act" and striking out the proviso; (2) by inserting after the word "manufactured" the word "entirely"; and (3) by inserting before the comma following the words "surplus supply" the words "in the same manner as any other agricultural commodity or product is made available". 7\j|'c*ii2°7"' (e) Section 407 of the Agricultural Act of 1949, as amended, is amended by striking the period at the end of the third sentence thereof and adding the following: ": Provided, That whenever the Secretary of Agriculture determines that the carryover at the end of any marketing year of a price supported agricultural commodity for which a voluntary adjustment program is in effect will be less than 25 per centum (35 per centum in the case of wheat) of the estimated export and domestic consumption of such commodity during such marketing year, the Commodity Credit Corporation shall not sell any of its stocks of such commodity during such year for unrestricted use at less than 115 per centum (120 per centum in the case of wheat whenever its carryover will be less than 25 per centum of such estimated export and domestic consumption) of the current price support loan plus reasonable carrying charges." SEC. 4. Commercial sales of agricultural commodities out of private stocks on credit terms of not to exceed three years may be financed by Commodity Credit Corporation under its Export Credit Sales proAppropriation. gram. There are hereby authorized to be appropriated such sums as may be necessary to reimburse the Commodity Credit Corporation annually for its actual costs incurred or to be incurred under its Export Credit Sales Program. Effective date. SJJC. 5. This Act shall take effect as of January 1, 1967, except that section 4 shall take effect upon enactment. Approved November 11, 1966.

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Public Law 89-809 AN ACT

November 13, 1966 PH

To provide equitable tax treatment for foreign investment in the United States, to establish a Presidential Election Campaign Fund to assist in financing the costs of presidential election campaigns, and for other purposes.

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

T?

1

H

1 0S 1

LJ

of the

SECTION 1. TABLE OF CONTENTS, ETC.

tofs°Til"AcTof' 3^66 and Presidential Election

(a) TABLE

OF CONTENTS.—

Sec. 1. Table of contents, etc. (a) Table of contents. (b) Amendment of 1954 Code. TITLE I—FOREIGN INVESTORS TAX ACT Sec. 102. Source of income. (a) Interest. (b) Dividends. (c) Personal services. (d) Definitions. (e) Effective dates. Sec. 103. Nonresident alien individuals. (a) Tax on nonresident alien individuals. (b) Gross income. (c) Deductions. (d) Allowance of deductions and credits. (e) Beneficiaries of estates and trusts. (f) Expatriation to avoid tax. (g) Partial exclusion of dividends. (h) Withholding of tax on nonresident aliens. [i) Liability for withheld tax. (j) Declaration of estimated income tax by individuals. (k) Collection of income tax at source on wages. (1) Definitions of foreign estate or trust, (m) Conforming amendment, [n) Effective dates. Sec. 104. Foreign corporations. (a) Tax on income not connected with United States business. (b) Tax on income connected with United States business. (c) Withholding of tax on foreign corporations. (d) Dividends received from certain foreign corporations. (e) Dividends received from certain wholly-owned foreign subsidiaries. (f) Distributions of certain foreign corjwrations. (g) Unrelated business taxable income, (h) Corporations subject to personal holding company tax. (i) Amendments with respect to foreign corporations carrying on insurance business in United States, (j) Subpart F income, [k) Gain from certain sales or exchanges of stock in certain foreign corporations. [1) Declaration of estimated income tax by corporations. (m) Technical amendments. [n) Effective dates. Sec. 105. Special tax provisions. (a) Income affected by treaty. (b) Adjustment of tax because of burdensome or discriminatory foreign taxes. (c) Clerical amendments. (d) Effective date. (e) Elections by nonresident United States citizens who are subject to foreign community property laws. (f) Presumptive date of payment for tax withheld under chapter 3. Sec. 106. Foreign tax credit. (a) Allowance of credit to certain nonresident aliens and foreign corporations. (b) Alien residents of the United States or Puerto Rico. (c) Foreign tax credit in respect of interest received from foreign subsidiaries. Sec. 107. Amendments to preserve existing law on deductions under section 931. (a) Deductions. [b) Effective date.

campaign Fund Act of 1966,

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PUBLIC LAW 89-809-NOV. 13, 1966

[80 STAT.

TITLE I—FOREIGN INVESTORS TAX ACT—Continued Sec. 108. Estates of nonresidents not citizens. (a) Rate of tax. (b) Credits against tax. (c) Property within the United States. (d) Property without the United States. (e) Definition of taxable estate. (f) Special methods of computing tax. (g) Estate tax returns, (h) Clerical amendment, (i) Effective date. Sec. 109. Tax on gifts of nonresidents not citizens. (a) Imposition of tax. (b) Transfers in general. (c) Effective date. Sec. 110. Treaty obligations. TITLE II—OTHER AMENDMENTS TO INTERNAL REVENUE CODE Sec. 201. Application of investment credit to property used in possessions of the United States. (a) Property used by domestic corporations, etc. (b) Effective date. Sec. 202. Basis of property received on liquidation of subsidiary. (a) Definition of purchase. (b) Period of acquisition. (c) Distribution of installment obligations. (d) Effective dates. Sec. 203. Transfers of property to investment companies controlled by transferors. (a) Transfers to investment companies. (b) Investment companies required to file registration statement with S.E.C. (c) Effective date. Sec. 204. Removal of special limitations with respect to deductibility of contributions to pension plans by self-employed individuals. (a) Removal of special limitations. (b) Conforming amendments. (c) Definition of earned income. (d) Effective date. Sec. 205. Treatment of certain income of authors, inventors, etc., as earned income for retirement plan purposes. (a) Income from disposition of property created by taxpayer. (b) Effective date. Sec. 206. Exclusion of certain rents from personal holding company income. (a) Rents from leases of certain tangible personal property. (b) Technical amendments. (c) Effective date. Sec. 20^. Percentage depletion rate for certain clay bearing alumina. (a) 23 percent rate. (b) Treatment processes. (c) Effective date. Sec. 208. Percentage depletion rate for clam and oyster shells. (a) 15 percent rate. (b) Effective date. Sec. 209. Percentage depletion rate for certain clay, shale, and slate. (a) 7^-percent rate. (b) Conforming amendment. (c) Effective date. Sec. 210. Straddles. (a) Treatment as short-term capital gain. (b) Effective date. Sec. 211. Tax treatment of per-unit retain allocations. (a) Tax treatment of cooperatives. (b) Tax treatment by patrons. (c) Definitions. (d) Information reporting. (e) Effective dates. (f) Transition rule. Sec. 212. Excise tax rate on ambulances and hearses. (a) Classification as automobiles. (b) Effective date.

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TITLE II — OTHER AMENDMENTS TO I N T E R N A L R E V E N U E CODEContinued See. 213. Applicability of exclusion from interest equalization loans to a s s u r e r a w m a t e r i a l s sources. (a) Exception to exclusion. (b) Technical amendments. (c) Effective date. Sec. 214. Exclusion from interest equalization tax for certain insurance companies. (a) New companies and companies operating in former countries. (b) Effective date. Sec. 215. Exclusion from interest equalization tax of certain foreign branches of domestic banks. (a) Authority for modification of executive orders. (b) Effective date.

tax of certain

acquisitions by less developed acquisitions by

TITLE III — P R E S I D E N T I A L ELECTION CAMPAIGN F U N D ACT Sec. 301. Short title. Sec. 302. Authority for designation of $1 of income tax payments to presidential election campaign fund. Sec..303. Presidential election campaign fund. (a) Establishment. (b) Transfers to the fund. (c) Payments from fund. (d) Transfers to general fund. Sec. 304. Establishment of advisory board. Sec. 305. Appropriations authorized. TITLE IV—MISCELLANEOUS PROVISIONS Sec. 401. Treasury notes payable in foreign currency. Sec. 402. Reports to clarify the national debt and tax structure.

(b) AMENDMENT OF 1954 CODE.—Except as otherwise expressly provided, wherever in titles I, II, and III, of this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference is to a section or other provision of the Internal Revenue Code of 1954.

TITLE I—FOREIGN INVESTORS TAX ACT SEC. 101. SHORT TITLE.

This title may be cited as the "Foreign Investors Tax Act of 1966". SEC. 102. SOURCE OF INCOME. (a)

INTEREST.—

(1)(A) Subparagraph (A) of section 861(a)(1) (relating to interest from sources within the United States) is amended to read as follows: " (A) interest on amounts described in subsection (c) received by a nonresident alien individual or a foreign corporation, if such interest is not effectively connected with the conduct of a trade or business within the United States,". (B) Section 861 is amended by adding at the end thereof the following new subsection: "(c) INTEREST ON DEPOSITS, E T C. — For purposes of subsection (a) (1)(A), the amounts described in this subsection are— "(1) deposits with persons carrying on the banking business, "(2) deposits or withdrawable accounts with savings institutions chartered and supervised as savings and loan or similar associations under Federal or State law, but only to the extent that amounts paid or credited on such deposits or accounts are deducti-

SSA Stat. 275.

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Page:United States Statutes at Large Volume 80 Part 1.djvu/1578

 1542 68A Stat. 78.

PUBLIC LAW 89-809-NOV. 13, 1966

[80 STAT.

ble under section 591 (determined without regard to section 265) in computing the taxable income of such institutions, and "(3) amounts held by an insurance company under an agreement to pay interest thereon. Effective with respect to amounts paid or credited after December 31, 1972, subsection (a)(1)(A) and this subsection shall cease to apply." (2) Section 861(a)(1) is amended by striking out subparagraphs (B) and (C) and inserting in lieu thereof the following: " (B) interest received from a resident alien individual or a domestic corporation, when it is shown to the satisfaction of the Secretary or his delegate that less than 20 percent of the gross income from all sources of such individual or such corporation has been derived from sources within the United States, as determined under the provisions of this part, for the 3-year period ending with the close of the taxable year of such individual or such corporation preceding the payment of such interest, or for such part of such period as may be applicable, " (C) interest received from a foreign corporation (other than interest paid or credited after December 31, 1972, by a domestic branch of a foreign corporation, if such branch is engaged in the commercisd banking business), when it is shown to the satisfaction of the Secretary or his delegate that less than 50 percent of the gross income from all sources of such foreign corporation for the 3-year period ending with the close of its taxable year preceding the payment of such interest (or for such part of such period as the corporation has been in existence) was effectively connected with the conduct of a trade or business within the United States, " (D) in the case of interest received from a foreign corporation (other than interest paid or credited after December 31, 1972, by a domestic branch of a foreign corporation, if such branch is engaged in the commercial banking business), 50 percent or more of the gross income of which from all sources for the 3-year period ending with the close of its taxable year preceding the payment of such interest (or for such part of such period as the corporation has been in existence) was effectively connected with the conduct of a trade or business within the United States, an amount of such interest which bears the same ratio to such interest as the gross income of such foreign corporation for such period which was not effectively connected with the conduct of a trade or business within the United States bears to its gross income from all sources, " (E) income derived by a foreign central bank of issue from bankers' acceptances, and " (F) interest on deposits with a foreign branch of a domestic corporation or a domestic partnership, if such branch is engaged in the commercial banking business." (3) Section 861 (relating to income from sources within the United States) is amended by adding after subsection (c) (as added by paragraph (1)(B)) the following new subsection: " (d) SPECIAL RULES FOR APPLICATION OF PARAGRAPHS (l)(C), (1)(D), A N D (2)(B) OF SUBSECTION (a).—

(1)(B),

"(1) N E W ENTITIES,—For purposes of paragraphs (1)(B), (1)(C), (1)(D), and (2)(B) of subsection (a), if the resident alien individual, domestic corporation, or foreign corporation, as the case may be, has no gross income from any source for the 3-year period (or part thereof) specified, the 20 percent test or the 50 percent test, as the case may be, shall be applied with respect to the taxable year of the payor in which payment of the interest or dividends, as the case may be, is made.

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 80 STAT.]

PUBLIC LAW 89-809-NOV. 13, 1966

"(2) TRANSITION RULE.—For purposes of paragraphs (1)(C), (1)(D), and (2)(B) of subsection (a), the gross income of the foreign corporation for any period before the first taxable year beginning after December 31, 1966, which is effectively connected with the conduct of a trade or business within the United States is an amount equal to the gross income for such period from sources within the United States." (4)(A) Section 895 (relating to income derived by a for e i ^ central bank of issue from obligations of the United States) is amended to read as follows: "SEC. 895. INCOME DERIVED BY A FOREIGN CENTRAL BANK OF ISSUE FROM OBLIGATIONS OF THE UNITED STATES OR FROM BANK DEPOSITS. "Income derived by a foreign central bank of issue from obligations of the United States or of any agency or instrumentality thereof (including beneficial interests, participations, and other instruments issued under section 302(c) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717)) which are owned by such foreign central bank of issue, or derived from interest on deposits with persons carrying on the banking business, shall not be included in gross income and shall be exempt from taxation under this subtitle unless such obligations or deposits are held for, or used in connection with, the conduct of commercial banking functions or other commercial activities. For purposes of the preceding sentence the Bank for International Settlements shall be treated as a foreign central bank of issue." (B) The table of sections for subpart C of part II of subchapter JN" of chapter 1 is amended by striking out the item relating to section 895 and inserting in lieu thereof the following:

1543

''^ ^'^' ^'^•

Jf/l^\^4°-

"Sec. 895. Income derived by a foreign central bank of issue from obligations of the United States or from bank deposits."

(b) DIVIDENDS.—Section 8 6 1 (a)(2)(B) (relating to dividends from sources within the United States) is amended to read as follows: " (B) from a foreign corporation unless less than 50 percent of the gross income from all sources of such foreign corporation for the 3-year period ending with the close of its taxable year preceding the declaration of such dividends (or for such part of such period as the corporation has been in existence) was effectively connected with the conduct of a trade or business within the United States; but only in an amount which bears the same ratio to such dividends as the gross income of the corporation for such period which was effectively connected with the conduct of a trade or business within the United States bears to its gross income from all sources; but dividends (other than dividends for which a deduction is allowable under section 245(b)) from a foreign corporation shall, for purposes of subpart A of part III (relating to foreign tax credit), be treated as income from sources without the United States to the extent (and only to the extent) exceeding the amount which is 100/85ths of the amount of the deduction allowable under section 245 in respect of such dividends, or". (c) PERSONAL SERVICES.—Section 861(a)(3)(C) (ii) (relating to income from personal services) is amended to read as follows: "(ii) an individual who is a citizen or resident of the United States, a domestic partnership, or a domestic corporation, if such labor or services are performed for an office or place of business maintained in a foreign country

^^A Stat. 275.

Post,

p. 1558.

^°^^' ^ ^^^^•

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Page:United States Statutes at Large Volume 80 Part 1.djvu/1580

 1544

68A Stat. 278.

PUBLIC LAW 89-809-NOV. 13, 1966

[80 STAT.

or in a possession of the United States by such individual, partnership, or corporation." (d) DEFINITIONS.—Section 864 (relating to definitions) is amended— (1) by striking out " For purposes of this part," and inserting in lieu thereof " (a) SALE, E T C. — For purposes of this part,"; and (2) by adding at the end thereof the following new subsections: " (b) TRADE OR BUSINESS W I T H I N THE UNITED STATES.—For purposes of this part, part II, and chapter 3, the term 'trade or business within the United States' includes the performance of personal services within the United States at any time within the taxable year, but does not include— " (1) PERFORMANCE OF PERSONAL SERVICES FOR FOREIGN EM-

PLOYER.—The performance of personal services— " (A) for a nonresident alien individual, foreign partnership, or foreign corporation, not engaged in trade or business within the United States, or " (B) for an office or place of business maintained in a foreign country or in a possession of the United States by an individual who is a citizen or resident of the United States or by a domestic partnership or a domestic corporation, by a nonresident alien individual temporarily present in the United States for a period or periods not exceeding a total of 90 days during the taxable year and whose compensation for such services does not exceed in the aggregate $3,000. " (2) TRADING I N SECURITIES OR COMMODITIES.— " (A) STOCKS AND SECURITIES.—

"(i) IN GENERAL.—Trading in stocks or securities through a resident broker, commission agent, custodian, or other independent agent. " (ii) TRADING FOR TAXPAYER'S OWN ACCOUNT.—Trading

^°^'' P ^^^^

in stocks or securities for the taxpayer's own account, whether by the taxpayer or his employees or through a resident broker, commission agent, custodian, or other agent, and whether or not any such employee or agent has discretionary authority to make decisions in effecting the transactions. This clause shall not apply in the case of a dealer in stocks or securities, or in the case of a corporation (other than a corporation which is, or but for section 542(c)(7) or 543(b)^ (1)(C) would be, a personal holding company) the principal business of which is trading in stocks or securities for its own account, if its principal office is in the United States. " (B) COMMODITIES.—

"(i) IN GENERAL.—Trading in commodities through a resident broker, commission agent, custodian, or other independent agent. " (li) TRADING FOR TAXPAYER'S OWN ACCOUNT.—Trading

in commodities for the taxpayer's own account, whether by the taxpayer or his employees or through a resident broker, commission agent, custodian, or other agent, and whether or not any such employee or agent has discretionary authority to make decisions in effecting the transactions. This clause shall not apply in the case of a dealer in commodities. "(iii) LIMITATION.—Clauses (i) and (ii) shall apply only if the commodities are of a kind customarily dealt in on an organized commodity exchange and if the

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Page:United States Statutes at Large Volume 80 Part 1.djvu/1581

 80 STAT.]

PUBLIC LAW 89-809-NOV. 13, 1966

1545

transaction is of a kind customarily consummated at such place. " (C) LIMITATION.—Subpaxagraplis (A)(i)

and

(B)(i)

shall apply only if, at no time during the taxable year, taxpayer has an office or other fixed place of business in United States through which or by the direction of which transactions in stocks or securities, or in commodities, as case may be, are effected. "(c)

the the the the

EFFECTIVELY CONNECTED INCOME, E T C. — "(1) GENERAL RULE.—For purposes of this title—

" (A) I n the case of a, nonresident alien individual or a foreign corporation engaged in trade or business within the United States during the taxable year, the rules set forth in paragraphs (2), (3), and (4) shall apply in determining the mcome, gain, or loss which shall be treated as effectively connected with the conduct of a trade or business withm the United States. " (B) Except as provided in section 871(d) or sections 882 (d) and (e), in the case of a nonresident alien individual or a foreign corporation not engaged in trade or business within the United States during the taxable year, no income, gain, or loss shall be treated as effectively connected with the conduct of a trade or business within the United States. "(2)

PERIODICAL, ETC., INCOME FROM SOURCES WITHIN UNITED

STATES—FACTORS.—in determining whether income from sources within the United States of the types described in section 871 (a)(1) or section 881(a), or whether gain or loss from sources within the United States from the sale or exchange of capital assets, is effectively connected with the conduct of a trade or business within the United States, the factors taken into account shall include whether— " (A) the income, gain, or loss is derived from assets used in or held for use in the conduct of such trade or business, or " (B) the activities of such trade or business were a material factor in the realization of the income, gain, or loss. I n determining whether an asset is used in or held for use in the conduct of such trade or business or whether the activities of such trade or business were a material factor in realizing an item of income, gain, or loss, due regard shall be given to whether or not such asset or such income, gain, or loss was accounted for through such trade or business. In applying this paragraph and paragraph (4), interest referred to in section 861(a)(1)(A) shall be considered income from sources within the United States. "(3)

OTHER INCOME FROM SOURCES WITHIN UNITED STATES.—

All income, gain, or loss from sources within the United States (other than income, gain, or loss to which paragraph (2) applies) shall be treated as effectively connected with the conduct of a trade or business within the United States. "(4)

Post, pp. 1547,

INCOME FROM SOURCES WITHOUT UNITED STATES.—

" (A) Except as provided in subparagraphs (B) and (C), no income, gain, or loss from sources without the United States shall be treated as effectively connected with the conduct of a trade or business wnthin the United States. " (B) Income, gain, or loss from sources without the United States shall be treated as effectively connected with the conduct of a trade or business within the United States by a nonresident alien individual or a foreign corporation if such person has an office or other fixed place of business within the United States to which such income, gain, or loss is attributable and such income, gain, or loss—

Ante, p. 1541.

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Page:United States Statutes at Large Volume 80 Part 1.djvu/1582

 1546

68A Stat. 277„

73 USC 801-820, 26 Stat. 112.

76 Stat. 1018.

PUBLIC LAW 89-809-NOV. 13, 1966

[80 STAT.

" (i) consists of rents or royalties for the use of or for the privilege of using intangible property described in section 862(a)(4) (including any gain or loss realized on the sale of such property) derived in the active conduct of such trade or business; "(ii) consists of dividends or interest, or gain or loss from the sale or exchange of stock or notes, bonds, or other evidences of indebtedness, and either is derived in the active conduct of a banking, financing, or similar business within the United States or is received by a corporation the principal business of which is trading in stocks or securities for its own account; or "(iii) is derived from the sale (without the United States) through such office or other fixed place of business of personal property described in section 1221(1), except that this clause shall not apply if the property is sold for use, consumption, or disposition outside the United States and an office or other fixed place of business of the taxpayer outside the United States participated materially in such sale. " (C) I n the case of a for e i ^ corporation taxable under P ^ ^ "- ^^ subchapter L, any income from sources without " the United States which is attributable to its United States business shall be treated as effectively connected with the conduct of a traHe or business within the United States. " (D) No income from sources without the United States shall be treated as effectively connected with the conduct of a trade or business within the United States if it either— " (i) consists of dividends, interest, or royalties paid by a foreign corporation in which the taxpayer owns (within the meaning of section 958(a)), or is considered as owning (by applying the ownership rules of section 958 (b)), more than 60 percent of the total combined voting power of all classes of stock entitled to vote, or "(ii) is subpart F income within the meaning of section 962(a). "(5) RULES FOR APPLICATION or PARAGRAPH (4)(B). — For purposes of subparagraph (B) of paragraph (4) — " (A) in determining whether a nonresident alien individual or a foreign corporation has an office or other fixed place of business, an office or other fixed place of business of an agent shall be disregarded unless such agent (i) has the authority to negotiate and conclude contracts in the name of the nonresident alien individual or foreign corporation and regularly exercises that authority or has a stock of merchandise from which he regularly fills orders on behalf of such individual or foreign corporation, and (ii) is not a general commission agent, broker, or other agent of independent status acting in the ordinary course of his business, " (B) income, gain, or loss shall not be considered as attributable to an office or other fixed place of business within the United States unless such office or fixed place of business is a material factor in the production of such income, gain, or loss and such office or fixed place of business regularly carries on activities of the type from which such income, gam, or loss is derived, and " (C) the income, gain, or loss which shall be attributable to an office or other fixed place of business within the United States shall be the income, gain, or loss property allocable thereto, but, in the case of a sale described in clause (iii) of

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 80 STAT.]

PUBLIC LAW 89-809-NOV. 13, 1966

1547

such subparagraph, the income which shall be treated as attributable to an office or other fixed place of business within the United States shall not exceed the income which would be derived from sources within the United States if the sale were made in the United States." (e)

EFFECTIVE DATES.—

(1) The amendments made by subsections (a), (c), and (d) shall apply with respect to taxable years beginning after December 31, 1966; except that in applying section 864(c)(4)(B) (iii) of the Internal Revenue Code of 1954 (as added by subsection (d)) with respect to a binding contract entered into on or before February 24, 1966, activities in the United States on or before such date in negotiating or carrying out such contract shall not be taken into account. (2) The amendments made by subsection (b) shall apply with respect to amounts received after December 31, 1966. SEC. 103. NONRESIDENT ALIEN INDIVIDUALS. (a)

TAX ON NoNREsmENT A L I E N INDIVIDUALS.—

(1) Section 871 (relating to tax on nonresident alien individuals) is amended to read as follows: "SEC. 871. TAX ON NONRESIDENT ALIEN INDIVIDUALS. " (a) INCOME NOT CONNECTED W I T H UNITED STATES BUSINESS— 30 PERCENT T A X. — "(1) INCOME OTHER THAN CAPITAL GAINS.—There is hereby

imposed for each taxable year a tax of 30 percent of the amount received from sources within the United States by a nonresident alien individual as— " (A) interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income, " (B) gains described in section 402(a)(2), 403(a)(2), or 631 (b) or (c), and gains on transfers described in section 1235 made on or before October 4, 1966, " (C) in the case of bonds or other evidences of indebtedness issued after September 28, 1965, amounts which under section 1232 are considered as ^ains from the sale or exchange of property which is not a capital asset, and " (D) gains from the sale or exchange after October 4, 1966, of patents, copyrights, secret processes and formulas, good will, trademarks, trade brands, franchises, and other like property, or of any interest in any such property, to the extent such gains are from payments which are contingent on the productivity, use, or disposition of the property or interest sold or exchanged, or from payments which are treated as being so contingent under subsection (e), but only to the extent the amount so received is not effectively connected with the conduct of a trade or business within the United States. " (2) C A P I T A L GAINS OF ALIENS PRESENT I N THE UNITED STATES 18 3 DAYS OR MORE.—In the case of a nonresident alien individual pres-

ent in the United States for a period or periods aggregating 183 days or more during the taxable year, there is hereby imposed for such year a tax of 30 percent of the amount by which his gains, derived from sources within the United States, from the sale or exchange at any time during such year of capital assets exceed his losses, allocable to sources within the United States, from the sale or exchange at any time during such year of capital assets. For purposes of this paragraph, gains and losses shall be taken

^^^ ^*®* ^^*

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Page:United States Statutes at Large Volume 80 Part 1.djvu/1584

 1548

6 8 A Stat. 320.

PUBLIC LAW 89-809-NOV. 13, 1966

[80 STAT.

into account only if, and to the extent that, they would be recognized and taken into account if such gains and losses were effectively connected with the conduct of a trade or business within the United States, except that such gains and losses shall be determined without regard to section 1202 (relating to deduction for capital gains) and such losses shall be determined without the benefits of the capital loss carryover provided in section 1212. Any gain or loss which is taken into account in determining the tax under paragraph (1) or subsection (b) shall not be taken into account in determining the tax under this paragraph. For purposes of the 183-day requirement of this paragraph, a nonresident alien individual not engaged in trade or business within the United States who has not established a taxable year for any prior period shall be treated as having a taxable year which is the calendar year. "(b) INCOME CONNECTED W I T H UNITED STATES BUSINESS—GRADTJATED R A T E OF T A X. — "(1) IMPOSITION or TAX.—A nonresident alien individual

Post, p. 1550.

engaged in trade or business within the United States during YiQ taxable year shall be taxable as provided in section 1 or 1201 (b) on his taxable income which is effectively connected with the conduct of a trade or business within the United States. "(2) DETERMINATION or TAXABLE INCOME.—In determining taxable income for purposes of paragraph (1), gross income includes only gross income which is effectively connected with the conduct of a trade or business within the United States. "(c)

75l^ll%\^^' 75 Stat. 536.

PARTICIPANTS I N CERTAIN EXCHANGE OR TRAINING PROGRAMS.—

For purposes of this section, a nonresident alien individual who (without regard to this subsection) is not engaged in trade or business within the United States and who is temporarily present in the United States as a nonimmigrant under subparagraph (F) or (J) of section 101(a) (15) of the Immigration and Nationality Act, as amended (8 U.S.C. 1101 (a) (15)(F) or (J)), shall be treated as a nonresideili alien individual engaged in trade or business within the United States, and any income described in section 1441(b)(1) or (2) which is received by such individual shall, to the extent derived from sources within the United States, be treated as effectively connected with the conduct of a trade or business within the United States. " (d) ELECTION To TREAT REAL PROPERTY INCOME AS INCOME CONNECTED W I T H UNITED STATES BUSINESS.—

68A Stat. 213.

"(1) IN GENERAL.—A nonresident alien individual who during the taxable year derives any income— " (A) from real property held for the production of income and located in the United States, or from any interest in such real property, including (i) gains from the sale or exchange of such real property or an interest therein, (ii) rents or royalties from mines, wells, or other natural deposits, and (iii) gains described in section 631(b) or (c), and " (B) which, but for this subsection, would not be treated as income which is effectively connected with the conduct of a trade or business within the United States, may elect for such taxable year to treat all such income as income which is effectively connected with the conduct of a trade or business within the United States. I n such case, such income shall be taxable as provided in subsection (b)(1) whether or not such individual is engaged in trade or business within the United States during the taxable year. An election under this paragraph for any taxable year shall remain in effect for all subsequent taxable years, except that it may be revoked with the

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Page:United States Statutes at Large Volume 80 Part 1.djvu/1585

 80 STAT.]

PUBLIC LAW 89-809-NOV. 13, 1966

1549

consent of the Secretary or his delegate with respect to any taxable year. "(2) ELECTION AFTER REVOCATION.—If an election has been made under paragraph (1) and such election has been revoked, a new election may not be made under such paragraph for any taxable year before the 5th taxable year which begins after the first taxable year for which such revocation is effective, unless the Secretary or his delegate consents to such new election. " (3) FORM AND TIME or ELECTION AND REVOCATION.—An election

under paragraph (1), and any revocation of such an election, may be made only in such manner and at such time as the Secretary or his delegate may by regulations prescribe. "(e)

GAINS FROM SALE OR EXCHANGE OF CERTAIN INTANGIBLE PROP-

ERTY.—For purposes of subsection (a)(1)(D), and for purposes of 68A Stat. 357; sections881(a)(4), 1441(b),and 1442(a)— Post, pp. 1555, "(1) PAYMENTS TREATED AS CONTINGENT ON USE, ETC.—If more 15^57 than 50 percent of the gain for any taxable year from the sale or exchange of any patent, copyright, secret process or formula, good will, trademark, trade brand, franchise, or other like property, or of any interest in any such property, is from payments which are contingent on the productivity, use, or disposition of such property or interest, all of the gain for the taxable year from the sale or exchange of such property or interest shall be treated as being from payments which are contingent on the productivity, use, or disposition of such property or interest. "(2) SOURCE RULE.—In determining whether gains described in subsection (a)(1)(D) and section 881(a)(4) are received from sources within the United States, such gains shall be treated as rentals or royalties for the use of, or privilege of using, property or an interest in property. "(f)

CERTAIN ANNUITIES RECEIVED UNDER QUALIFIED PLANS.—For

purposes of this section, gross income does not include any amount received as an annuity under a qualified annuity plan described in section 403(a)(1), or from a qualified trust described in section 401(a) which is exempt from tax under section 501(a), if— "(1) all of the personal services by reason of which such annuity is payable were either (A) personal services performed outside the United States by an individual who, at the time of performance of such personal services, was a nonresident alien, or (B) personal services described in section 864(b)(1) performed within the United States by such individual, and " (2) at the time the first amount is paid as such annuity under such annuity plan, or by such trust, 90 percent or more of the employees for whom contributions or benefits are provided under such annuity plan, or under the plan or plans of which such trust is a part, are citizens or residents of the United States." "(g)

CROSS REFERENCES.—

"(1) For tax treatment of certain amounts distributed by the United States to nonresident alien individuals, see section 402(a)(4). "(2) For taxation of nonresident alien individuals who are expatriate United States citizens, see section 877. "(3) For doubling of tax on citizens of certain foreign countries, see section 891. "(4) For adjustment of tax in case of nationals or residents of certain foreign countries, see section 896. "(5) For withholding of tax at source on nonresident alien individuals, see section 1441. "(6) For the requirement of making a declaration of estimated tax by certain nonresident alien individuals, see section 6015(i)." 65-300 0-67—100

72 Stat. 1622.

^ ' ^ ' P- ^^'^'^

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 1550

PUBLIC LAW 89-809-NOV. 13, 1966

[80 STAT.

68A Stat 7.

^2) Section 1 (relating to tax on individuals) is amended by redesignating subsection (d) as subsection (e), and by inserting after subsection (c) the following new subsection: " (d) NONRESIDENT A L I E N S. — I n the case of a nonresident alien individual, the tax imposed by subsection (a) shall apply only as provided Poi"t!p. "issf'*^' % section 871 or 877." (b) GROSS INCOME.—

75 Stat. 536.

(1) Subsection (a) of section 872 (relating to gross income of nonresident alien individuals) is amended to read as follows: " (a) GENERAL RULE. — I n the case of a nonresident alien individual, gross income includes only— "(1) gross income which is derived from sources within the United States and which is not effectively connected with the conduct of a trade or business within the United States, and "(2) gross income which is effectively connected with the conduct of a trade or business within the United States." (£) Subparagraph (B) of section 872(b)(3) (relating to compensation of participants in certain exchange or training programs) is amended by striking out "by a domestic corporation" and inserting in lieu thereof "by a domestic corporation, a domestic partnership, or an individual who is a citizen or resident of the United States". (3) Subsection (b) of section 872 (relating to exclusions from gross income) is amended by adding at the end thereof the following new paragraph: " (4) CERTAIN BOND INCOME OF RESIDENTS or THE RYUKYU ISLANDS OR THE TRUST TERRITORY OF THE PACIFIC ISLANDS.—

Income derived hj a nonresident alien individual from a series E or series H United States savings bond, if such individual acquired such bond while a resident of the Ryukyu Islands or the Trust Territory of the Pacific Islands." (c) DEDUCTIONS.—

78 Stat. 43.

(1) Section 873 (relating to deductions allowed to nonresident alien individuals) is amended to read as follows: "SEC. 873. DEDUCTIONS. " (a) GENERAL RULE. — I n the case of a nonresident alien individual, the deductions shall be allowed only for purposes of section 871(b) and (except as provided by subsection (b)) only if and to theextent that they are connected with income which is effectively connected with the conduct of a trade or business within the United States; and the proper apportionment and allocation of the deductions for this purpose shall be determined as provided in regulations prescribed by the Secretary or his delegate. " (b) EXCEPTIONS.—The following deductions shall be allowed whether or not they are connected with income which is effectively connected with the conduct of a trade or business within the United States: "(1) Losses.—The deduction, for losses of property not connected with the trade or business if arising from certain casualties Or theft, allowed by section 165(c)(3), but only if the loss is of property located within the United States. " (2) CHARITABLE CONTRIBUTIONS.—The deduction for charita-

68A Stat. 58.

ble contributions and gifts allowed by section 170. " (3) PERSONAL

EXEMPTION.—The

deduction

for

personal

exemptions allowed by section 151, except that in the case of a nonresident alien individual who is not a resident of a contiguous country only one exemption shall be allowed under section 151.

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Page:United States Statutes at Large Volume 80 Part 1.djvu/1587

 80 STAT.] "(c)

PUBLIC LAW 89-809-NOV. 13, 1966

1551

CROSS EEFERENCES.—

"(1) For disallowance of standard deduction, see section 142(b)(1). "(2) For rule that certain foreign taxes are not to be taken into account in determining deduction or credit, see section 906(b)(1)." (2) Section 154(3) (relating to cross references in respect of deductions for personal exemptions) is amended to read as follows: "(3) For exemptions of nonresident aliens, see section 873(b)(3)." (d)

ALLOWANCE OF DEDUCTIONS AND CREDITS.—Subsection (a)

of

section 874 (relating to filing of returns) is amended to read as follows: " (a) RETURN PREREQUISITE TO ALLOWANCE.—A nonresident alien individual shall receive the benefit of the deductions and credits allowed to him in this subtitle only by filing or causing to be filed with the Secretary or his delegate a true and accurate return, in the manner prescribed in subtitle F (sec. 6001 and following, relating to procedure and administration), including therein all the information which the Secretary or his delegate may deem necessary for the calculation of such deductions and credits. This subsection shall not be construed to deny the credits provided by sections 31 and 32 for tax withheld at source or the credit provided by section 39 for certain uses of gasoline and lubricating oil." (e)

68A Stat. 45.

BENEFICIARIES OF ESTATES AND TRUSTS.—

(1) Section 875 (relating to partnerships) is amended to read as follows: "SEC. 875. PARTNERSHIPS; BENEFICIARIES OF ESTATES AND TRUSTS. "For purposes of this subtitle— "(1) a nonresident alien individual or foreign corporation shall be considered as being engaged in a trade or business within the United States if the partnership of which such individual or corporation is a member is so engaged, and "(2) a nonresident alien individual or foreign corporation which is a beneficiary of an estate or trust which is engaged in any trade or business within the United States shall be treated as being engaged in such trade or business within the United States." (2) The table of sections for subpart A of part II of subchapter N of chapter 1 is amended by striking out the item relating to section 875 and inserting in lieu thereof the following:

79 Stat. 167.

68A Stat. 281.

"Sec. 875. Partnerships; beneficiaries of estates and trusts." (f)

EXPATRIATION To AVOID T A X. —

(1) Subpart A of part II of subchapter N of chapter 1 (relating to nonresident alien individuals) is amended by redesignating section 877 as section 878, and by inserting after section 876 the following new section: "SEC. 877. EXPATRIATION TO AVOID TAX. " (a) IN GENERAL.—Every nonresident alien individual who at any time after March 8, 1965, and within the 10-year period immediately preceding the close of the taxable year lost United States citizenship, unless such loss did not have for one of its principal purposes the avoidance of taxes under this subtitle or subtitle B, shall be taxable for such taxable year in the manner provided in subsection (b) if the tax imposed pursuant to such subsection exceeds the tax which, without regard to this section, is imposed pursuant to section 871. " (b) ALTERNATIVE TAX.—A nonresident alien individual described in subsection (a) shall be taxable for the taxable year as provided in section 1 or section 1201(b), except that—

26 USC 1-2524.

Ante, p. 1547.

^"'^' P ^^^O.

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PUBLIC LAW 89-809-NOV. 13, 1966

[80 STAT.

"(1) the gross income shall include only the gross income described in section 872(a) (as modified by subsection (c) of this section), and "(2) the deductions shall be allowed if and to the extent that they are connected with the gross income included under this section, except that the capital loss carryover provided by section ^^ s'^'^5 1212(b) shall not be allowed; and the proper allocation and apportionment of the deductions for this purpose shall be determined as provided under regulations prescribed by the Secretary or his delegate. For purposes of paragraph (2), the deductions allowed by section Ante, p. 1550 873(b) shall be allowed; and the deduction (for losses not connected with the trade or business if incurred in transactions entered into for 68A Stat. 49. profit) allowed by section 165(c)(2) shall be allowed, but only if the profit, if such transaction had resulted in a profit, would be included in gross income under this section. "(c) SPECIAL RULES OF SOURCE.—For purposes of subsection (b), the following items of gross income shall be treated as income from sources within the United States: "(1) SALE OF PROPERTY.—Gains on the sale or exchange of property (other than stock or debt obligations) located in the United States. " (2) STOCK OR DEBT OBLIGATIONS.—Gains on the sale or exchange of stock issued by a domestic corporation or debt obligations of United States persons or of the United States, a State or political subdivision thereof, or the District of Columbia. " (d) EXCEPTION FOR Loss OF CITIZENSHIP FOR CERTAIN CAUSES.— Subsection (a) shall not apply to a nonresident alien individual whose loss of United States citizenship resulted from the application of section 801(b), 350, or 355 of the Immigration and Nationality Act, as 66 Stat. 236. amended (8 U.S.C. 1401 (b), 1482, or 1487). " (e) BURDEN OF PROOF.—If the Secretary or his delegate establishes that it is reasonable to believe that an individual's loss of United States citizenship would, but for this section, result in a substantial reduction for the taxable year in the taxes on his probable income for such year, the burden of proving for such taxable year that such loss of citizenship did not have for one of its principal purposes the avoid26 USC 1-2524. fijxQ^ of taxes under this subtitle or subtitle B shall be on such individual." (2) The table of sections for subpart A of part II of subchapter N of chapter 1 is amended by striking out the item relating to section 877 and inserting in lieu thereof the following: "Sec. 877. Expatriation to avoid tax. "Sec. 878. Foreign educational, charitable, and certain. other exempt organizations." Ante, p. 1550.

(g) PARTIAL EXCIATSION OF DIVIDENDS.—Subsection (d) of section

116 (relating to certain nonresident aliens ineligible for exclusion) is amended to read as follows: "(d)

Ante, p. 1547.

Ante, p. 1551.

CERTAIN NONRESIDENT ALIENS INELIGIBLE FOR EXCLUSION.—In

the case of a nonresident alien individual, subsection (a) shall apply only— "(1) in determining the tax imposed for the taxable year pursuant to section 871(b)(1) and only in respect of dividends which are effectively connected with the conduct of a trade or business within the United States, or "(2) in determining the tax imposed for the taxable year pursuant to section 877(b)."

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 80 STAT.]

PUBLIC LAW 89-809-NOV. 13, 1966

(h) WITHHOLDING OF TAX ON NONRESIDENT ALIENS.—Section

1553 1441

(relating to withholding of tax on nonresident aliens) is amended— (1) by striking out ", or of any partnership not engaged in trade or business within the United States and composed in whole or in part of nonresident aliens," in subsection (a) and inserting in lieu thereof "or of any foreign partnership"; (2) by striking out "(except interest on deposits with persons carrying on the banking business paid to persons not engaged in business in the United States)" in subsection (b); (3) by striking out "and amounts described in section 402(a) (2) " and all that follows in the first sentence of subsection (b) and inserting in lieu thereof "gains described in section 402(a)(2), 403(a)(2), or 631 (b) or (c), amounts subject to tax under section 8 7 1 (a)(1)(C), gains subject to tax under section 871(a) (1)(D), and gains on transfers described in section 1235 made on or before October 4, 1966."; (4) by adding at the end of subsection (b) the following new sentence: "In the case of a nonresident alien individual who is a member of a domestic partnership, the items of income referred to in subsection (a) shall be treated as referring to items specified in this subsection included in his distributive share of the income of such partnership."; (5) by striking out paragraph (1) of subsection (c) and inserting in lieu thereof the following new paragraph: (1)

CERTAIN ANNUITIES RECEIVED UNDER QUALIFIED PLANS.—No

deduction or withholding under subsection (a) shall be required in the case of any amount received as an annuity if such amount is, under section 871(f), exempt from the tax imposed by section 871 (a). "; and (9) by redesignating subsection (d) as (e), and by inserting after subsection (c) the following new subsection: "(d)

Ante, p. i547.

INCOME CONNECTED WITH UNITED STATES BUSINESS.—No

deduction or withholding under subsection (a) shall be required in the case of any item of income (other than compensation for personal services) which is effectively connected with the conduct of a trade or business within the United States and which is included in the gross income of the recipient under section 871 (b)(2) for the taxable year."; (6) by amending paragraph (4) of subsection (c) to read as follows: "(4) COMPENSATION OF CERTAIN ALIENS.—Under regulations prescribed by the Secretary or his delegate, compensation for personal services may be exempted from deduction and withholding under subsection (a). "; (7) by striking out "amounts described in section 402(a)(2), section 403(a)(2), section 631(b) and (c), and section 1235, which are considered to be gains from the sale or exchange of capital assets," in paragraph (5) of subsection (c) and inserting in lieu thereof "gains described in section 402(a)(2), 403(a)(2), or 631 (b) or (c), gains subject to tax under section 871(a)(1) (D), and gains on transfers described in section 1235 made on or before October 4, 1966,", and by striking out "proceeds from such sale or exchange," in such paragraph and inserting in lieu thereof "amount payable,"; (8) by adding at the end of subsection (c) the following new paragraph: " (7)

e S A Stat. 357.

EXEMPTION OF CERTAIN FOREIGN PARTNERSHIPS.—Subject to

such terms and conditions as may be provided by regulations prescribed by the Secretary or his delegate, subsection (a) shall not apply

^^ ^*^* ^^^

70 Stat. 563.

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Page:United States Statutes at Large Volume 80 Part 1.djvu/1590

 1554

Ante, p. 1547.

68A Stat. 360.

26 USC 14411465.

74 Stat. 1000.

PUBLIC LAW 89-809-NOV. 13, 1966

[80 STAT.

in the case of a foreign partnership engaged in trade or business within the United States if the Secretary or his delegate determines that the requirements of subsection (a) impose an undue administrative burden and that the collection of the tax imposed by section 871(a) on the members of such partnership who are nonresident alien individuals will not be jeopardized by the exemption." ^j^ LIABILITY FOR WITHHELD TAX.—Section 1461 (relating to return and payment of withheld tax) is amended to read as follows: "SEC. 1461. LIABILITY FOR WITHHELD TAX. "Every person required to deduct and withhold any tax under this chapter is hereby made liable for such tax and is hereby indemnified against the claims and demands of any person for the amount of any payments made in accordance with the provisions of this chapter." (j)

DECLARATION OF ESTIMATED INCOME T A X BY INDIVIDUALS.—

Section 6015 (relating to declaration of estimated income tax by individuals) is amended— (1) by striking out that portion of subsection (a) which precedes paragraph (1) and inserting in lieu thereof the following: " (a) REQUIREMENT or DECLARATION.^—Except as otherwise provided

26 USC 34013404.

in subsection (i), every individual shall make a declaration of his estimated tax for the taxable year if—'Jj (2) by redesignating subsection (i) as subsection (j); and (3) by inserting after subsection (h) the following new subsection: " (i) NONRESIDENT A L I E N INDIVIDUALS.—No declaration shall be required to be made under this section by a nonresident alien individual unless— "(1) withholding under chapter 24 is made applicable to the wages, as defined in section 3401(a), of such individual, "(2) such individual has income (other than compensation for personal services subject to deduction and withholding under section 1441) which is effectively connected with the conduct of a trade or business within the United States, or "(3) such individual is a resident of Puerto Rico during the entire taxable year." (k)

COLLECTION or INCOME TAX AT SOURCE ON WAGES.—Subsection

(a) of section 3401 (relating to definition of wages for purposes of collection of income tax at source) is amended by striking out paragraphs (6) and (Y) and inserting in lieu thereof the following: "(6) for such services, performed by a nonresident alien individual, as may be designated by regulations prescribed by the Secretary or his delegate; or". (1) DEFINITIONS OF FOREIGN ESTATE OR TRUST.—

76 Stat. 988,

68^A^^at. 365,

26 USC 1-1563.

(1) Section 7701(a) (31) (defining foreign estate or trust) is amended by striking out "from sources without the United States" and inserting in lieu thereof ", from sources without the United States which is not effectively connected with the conduct of a trade or business within the United States,". (2) Section 1493 (defining foreign trust for purposes of chapter 5) is repealed, (m) CONFORMING AMENDMENT.—The first sentence of section 932(a) (relating to citizens of possessions of the United States) is amended to read as follows: "Any individual who is a citizen of any possession of the United States (but not otherwise a citizen of the Ignited States) and who is not a resident of the United States shall be subject to taxation under this subtitle in the same manner and subject to the same conditions as in the case of a nonresident alien individual."

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PUBLIC LAW 89-809-NOV. 13, 1966

1555

(n) EFFECTIVE DATES.—

(1) The amendments made by this section (other than the amendments made by subsections (h), (i), and (k)) shall apply with respect to taxable years beginning after December 31, 1966. (2) The amendments made by subsection (h) shall apply with respect to payments made in taxable years.of recipients begmning after December 31, 1966. (3) The amendments made by subsection (i) shall apply with respect to payments occurring after December 31, 1966. (4) The amendments made by subsection (k) shall apply with respect to remuneration paid after December 31, 1966. SEC. 104. FOREIGN CORPORATIONS. (a) TAX ON INCOME NOT CONNECTED W I T H UNITED STATES BUSI-

NESS.—Section 881 (relating to tax on foreign corporations not engaged in business in the United States) is amended to read as follows:

68A Stat. 282.

"SEC. 881, TAX ON INCOME OF FOREIGN CORPORATIONS NOT CONNECTED WITH UNITED STATES BUSINESS. " (a) IMPOSITION OF TAX.—There is hereby imposed for each tax-

able year a tax of 30 percent of the amount received from sources within the United States by a foreign corporation as— "(1) interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income, "(2) gains described in section 631(b) or (c), "(3) in the case of bonds or other evidences of indebtedness issued after September 28, 1965, amounts which under section 1232 are considered as gains from the sale or exchange of property which is not a capital asset, and "(4) gains from the sale or exchange after October 4, 1966, of patents, copyrights, secret processes and formulas, good will, trademarks, trade brands, franchises, and other like property, or of any interest in any such property, to the extent such gains are from payments which are contingent on the productivity, use, or disposition of the property or interest sold or exchanged, or from payments which are treated as being so contingent under section 871(e), but only to the extent the amount so received is not effectively connected with the conduct of a trade or business within the United States.

Ante, p. 1547.

" (b) DOUBLING OF TAX.— "For doubling of tax on corporations of certain foreign countries, see section 891." (b) TAX ON INCOME CONNECTED W I T H UNITED STATES BUSINESS.—

(1) Section 882 (relating to tax on resident foreign corporations) is amended to read as follows: "SEC. 882. TAX ON INCOME OF FOREIGN CORPORATIONS CONNECTED WITH UNITED STATES BUSINESS. " (a) NORMAL T A X AND S U R T A X. — " (1) IMPOSITION OF TAX.—A foreign corporation engaged in

trade or business within the United States during the taxable year shall be taxable as provided in section 11 or 1201(a) on its taxable income which is effectively connected with the conduct of a trade or business within the United States. "(2) DETERMINATION OF TAXABLE INCOME.—In determining taxable income for purposes of paragraph (1), gross income includes only gross income which is effectively connected with the conduct of a trade or business within the United States. " (b) GROSS INCOME.—In the case of a foreign corporation, gross income includes only—

Post, p. 1557.

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 1556

PUBLIC LAW 89-809-NOV. 13, 1966

[80 STAT.

"(1) gross income which is derived from sources within the United States and which is not effectively connected with the conduct of a trade or business within the United States, and "(2) gross income which is effectively connected with the conduct of a trade or business within the United States. " (c)

ALLOWANCE or DEDUCTIONS AND CREDITS.— "(1) ALLOCATION OF DEDUCTIONS.— " (A) GENERAL RULE.—In the case of a foreign

corporation, the deductions shall be allowed only for purposes of subsection (a) and (except as provided by subparagraph (B)) only if and to the extent that they are connected with income which is effectively connected with the conduct of a trade or business within the United States; and the proper apportionment and allocation of the deductions for this purpose shall be determined as provided in regulations prescribed by the Secretary or his delegate. "(B)

68A Stat. 58.

79 Stat, 167. Post, p. 1568. Post,

p. 1569.

CONTRIBUTIONS.—The

deduction

for

charitable contributions and gifts provided by section 170 shall be allowed whether or not connected with income which is effectively connected with the conduct of a trade or business within the United States. " (2)

26 USC 60017852.

CHARITABLE

DEDUCTIONS AND CREDITS ALLOWED ONLY IF RETURN FILED.—

A foreign corporation shall receive the benefit of the deductions and credits allowed to it in this subtitle only by filing or causing to be filed with the Secretary or his delegate a true and accurate return, in the manner prescribed in subtitle F, including therein all the information which the Secretary or his delegate may deem necessary for the calculation of such deductions and credits. The preceding sentence shall not apply for purposes of the tax imposed by section 541 (relating to personal holding company tax), and shall not be construed to deny the credit provided by section 32 for tax withheld at source or the credit provided b}^ section 39 for certain uses of gasoline and lubricating oil. u^3^ FOREIGN TAX CREDIT.—Except as provided by section 906, foreign corporations shall not be allowed the credit against the tax for taxes of foreign countries and possessions of the United States allowed by section 901. "(4)

CROSS REFERENCE.—

'Tor rule that certain foreign taxes are not to be taken into account in determining deduction or credit, see section 906(b)(1). " (d) ELECTION To TREAT REAL PROPERTY INCOME AS INCOME CONNECTED W I T H UNITED STATES BUSINESS.—

"(1) IN GENERAL.—A foreign corporation which during the taxable year derives any income— " (A) from real property located in the United States, or from any interest in such real property, including (i) gains from the sale or exchange of real property or an interest therein, (ii) rents or royalties from mines, wells, or other natural deposits, and (iii) gains described in section 631 (b) or (c),and " (B) which, but for this subsection, would not be treated as income effectively connected with the conduct of a trade or business within the United States, may elect for such taxable year to treat all such income as income which is effectively connected with the conduct of a trade or business within the United States. In such case, such income shall be taxable as provided in subsection (a)(1) whether or not such corporation is engaged in trade or business within the

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 80 STAT.]

PUBLIC LAW 89-809-NOV. 13, 1966

1557

United States during the taxable year. An election under this paragraph for any taxable year shall remain in effect for all subsequent taxable years, except that it may be revoked with the consent of the Secretary or his delegate with respect to any taxable year. "(2)

ELECTION AFTER REVOCATION, ETC.—Paragraphs (2)

and

(3) of section 871(d) shall apply in respect of elections under this subsection in the same manner and to the same extent as they apply in respect of elections under section 871(d).

^"^e, p. 1547.

"(e) INTEREST ON UNITED STATES OBLIGATIONS RECEIVED BY BANKS ORGANIZED I N POSSESSIONS.—In the case of a corporation created or

organized in, or under the law of, a possession of the United States which is carrying on the banking business in a possession of the United States, interest on obligations of the United States shall— " (1) for purposes of this subpart, be treated as income which is effectively connected with the conduct of a trade or business within the United States, and "(2) shall be taxable as provided in subsection (a)(1) whether or not such corporation is engaged in trade or business within the United States during the taxable year. "(f) RETURNS OF TAX BY AGENT.—If any foreign corporation has no office or place of business in the United States but has an agent in the United States, the return required under section 6012 shall be made by the agent." (2)(A) Subsection (e) of section 11 (relating to exceptions from tax on corporations) is amended by inserting "or" at the end of paragraph (2), by striking out ", or" at the end of paragraph (3) and inserting a period in lieu thereof, and by striking out paragraph (4). (B) Section 11 (relating to tax on corporations) is amended by adding at the end thereof the following new subsection: " (f) FOREIGN CORPORATIONS.—In the case of a foreign corporation, the tax imposed by subsection (a) shall apply only as provided by section 882." (3) The table of sections for subpart B of part II of subchapter N of chapter 1 is amended by striking out the items relating to sections 881 and 882 and inserting in lieu thereof the following:

^^^ ^'^* ''^2. ^^ ^*^* ^^•

^ ' « ' P- isss.

"Sec. 881. Tax on income of foreign corporations not connected with United States business. "Sec. 882. Tax on income of foreign corporations connected with United States business." (c) WITHHOLDING OF TAX ON FOREIGN CORPORATIONS.—Section

1442 (relating to withholding of tax on foreign corporations) is amended to read as follows:

^^^ ^*^' ^^^

"SEC. 1442. WITHHOLDING OF TAX ON FOREIGN CORPORATIONS. " (a) GENERAL RULE. — I n the case of foreign corporations subject

to taxation under this subtitle, there shall be deducted and withheld at the source in the same manner and on the same items of income as is provided in section 1441 or section 1451 a tax equal to 30 percent thereof; except that, in the case of interest described in section 1451 (relating to tax-free covenant bonds), the deduction and withholding shall be at the rate specified therein. For purposes of the preceding sentence, the references in section 1441(b) to sections 871(a)(1)(C) and (D) shall be treated as referring to sections 881(a)(3) and (4), the reference in section 1441(c)(1) to section 871(b)(2) shall be treated as referring to section 842 or section 882(a)(2), as the case

^^ "^*-^ risea. ^"'^' ^ ^^^^

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isly'^isss ^"^'

PUBLIC LAW 89-809-NOV. 13, 1966

[80 STAT.

may be, and the reference in section 1441(c)(5) to section 871(a) '-'^"^ ^ ^) ^^^^^^ ^® treated as referring to section 881(a)_(4). "(b) EXEMPTION.—Subject to such terms and conditions as may be provided by regulations prescribed by the Secretary or his delegate, subsection (a) shall not apply in the case of a foreign corporation engaged in trade or business within the United States if the Secretary or his delegate determines that the requirements of subsection (a) impose an undue administrative burden and that the collection of the tax imposed by section 881 on such corporation will not be jeopardized by the exemption." (d) DIVIDENDS RECEIVED FROM CERTAIN FOREIGN CORPORATIONS.—

7^stat^f77^^'

Subsection (a) of section 245 (relating to the allowance of a deduction in respect of dividends received from a foreign corporation) is amended— (1) by striking out "and has derived 50 percent or more of its gross income from sources within the United States," in that portion of subsection (a) which precedes paragraph (1) and by inserting in lieu thereof "and if 50 percent or more of the gross income of such corporation from all sources for such period is effectively connected with the conduct of a trade or business within the United States,"; (2) by striking out "from sources within the United States" in paragraph (1) and inserting in lieu thereof "which is effectively connected with the conduct of a trade or business within the United States"; (3) by striking out "from sources within the United States" in paragraph (2) and inserting in lieu thereof ", which is effectively connected with the conduct of a trade or business within the United States,"; and (4) by adding after paragraph (2) the following new sentence: "For purposes of this subsection, the gross income of the foreign corporation for any period before the first taxable year beginning after December 31, 1966, which is effectively connected with the conduct of a trade or business within the United States is an amount equal to the gross income for such period from sources within the United States." (e) DIVIDENDS RECEIVED FROM CERTAIN WHOLLY-OWNED FOREIGN SUBSIDIARIES.—

(1) Section 245 (relating to dividends received from certain foreign corporations) is amended by redesignating subsection (b) as(c), and by inserting after subsection (a) the following new subsection: " (b) CERTAIN DIVIDENDS RECEIVED FROM WHOLLY OWNED FOREIGN SUBSIDIARIES.—

" (1) IN GENERAL,—In the case of dividends described in paragraph (2) received from a foreign corporation by a domestic corporation which, for its taxable year in which such dividends are received, owns (directly or indirectly) all of the outstanding stock of such foreign corporation, there shall be allowed as a deduction (in lieu of the deduction provided by subsection (a)) an amount equal to 100 percent of such dividends. "(2) ELIGIBLE DIVIDENDS.—Paragraph (1) shall apply only to dividends which are paid out of the earnings and profits of a foreign corporation for a taxable year during which— " (A) all of its outstanding stock is owned (directly or indirectly) by the domestic corporation to which such dividends are paid; and " (B) all of its gross income from all sources is effectively connected with the conduct of a trade or business within the United States.

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