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90 STAT. 1631

by section 9 0 4 (a)(2) shall apply and the per-country limitation provided by subsection (a)(1) shall not apply."

Ante, p. 1620.

(c) T A X CREDIT FOR PRODUCTION-SHARING CONTRACTS.—

26 USC 907

(1) For purposes of section 901 of the I n t e r n a l Revenue Code note, of 1954. there shall be treated as income, w a r profits, and excess profits tuxes to be taken into account under section 907(a) of such Code amounts designated as income taxes of a foreign government by such government (which otherwise would not be treated as taxes for purposes of section 901 of such Code) with respect to production-sharing contracts for the extraction of foreign oil or gas. (2) The amounts specified in paragraph (1) shall not exceed the lesser of— (A) the product of the foreign oil and gas extraction income with respect to all such production-sharing contracts multiplied by the sum of the normal tax rate and the surtax rate for the taxable year specified in section 11 of such Code, or (B) the excess of the total amount of foreign oil and gas extraction income (as defined in section 907(c)(1) of such Code) for the taxable year multiplied by the sum of the normal tax rate and the surtax rate for the taxable year specified in section 11 of such Code over the amount of any income, war profits, and excess profits taxes paid or accrued (or deemed to have been p a i d) without regard to paragraph (1) during the taxable year with respect to foreign oil and gas extraction income. (3) The production-sharing contracts taken into account for purposes of paragraph (1) shall be those contracts which were entered into before April 8, 1976, for the sharing of foreign oil and gas production with a foreign government (or an entity owned by such government) with respect to which amounts claimed as taxes paid or accrued to such foreign government for taxable years beginning before June 30, 1976, will not be disallowed as taxes. No such contract shall be taken into account for any taxable year ending after December 31, 1977. (d)

CARRYBACK AND CARRYOVER OF DISALLOWED CREDITS.—

(1) IN GENERAL.—Section 907 (as amended by section 1032) is 26 USC 907. amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection: "(f)

CARRYBACK AND CARRYOVER OF DISALLOWED CREDITS.—

" (1) IN GENERAL.—If the amount of the oil and gas extraction taxes paid or accrued during any taxable year exceeds the limitation provided by subsection (a) for such taxable year (hereinafter in this subsection referred to as the 'unused credit year '), SO much of such excess as does not exceed 2 percent of foreign oil and gas extraction income for such taxable year shall be deemed to be oil and gas extraction taxes paid or accrued in the second preceding taxable year, in the first preceding taxable year, and in the first, second, t h i r d, fourth, or fifth succeeding taxable year, in that order and to the extent not deemed tax paid or accrued in a prior taxable year by reason of the limitation imposed by paragraph (2). Such amount deemed paid or accrued in any taxable year may be availed of only as a tax credit and not as a deduction and only if the taxpayer for such year chooses to have the benefits of this subpart as to taxes paid or accrued for that year to foreign countries or possessions. For purposes of t h i s

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 90 STAT. 1632 s

,

Ante, p. 1620. Ante, p. 1626. 26 USC 960.

PUBLIC LAW 94-455—OCT. 4, 1976 subsection, the terms 'second preceding taxable year', and 'first preceding taxable year' do not include any taxable year ending before January 1, 1975. For purposes of determining the amount of such taxes which may be deemed paid or accrued in any taxable year ending in 1975, 1976, or 1977, the first sentence of this paragraph shall be applied by substituting 'such excess' for 'so much of such excess as does not exceed 2 percent of the foreign oil and gas extraction income for such taxable year'. "(2) LIMITATION.—The amount of the unused oil and gas extraction taxes which under paragraph (1) may be deemed paid or accrued in any preceding or succeeding taxable year shall not exceed the lesser of— "(A) the amount by which the limitation provided by subsection (a) for such taxable year exceeds the sum of— "(i) the oil and gas extraction taxes paid or accrued during such taxable year, plus "(ii) the amounts of the oil and gas extraction taxes which by reason of this subsection are deemed paid or accrued in such taxable year and are attributable to taxable years preceding the unused credit year; or "(B) the amount by which the limitation provided by section 904 on taxes paid or accrued with respect to foreign oil-related income for such taxable year exceeds the sum of— " (i) the taxes paid or accrued (or deemed to have been paid under section 902 or 960) to all foreign countries and possessions of the United States with respect to such income during such taxable year, "(ii) the amount of such taxes which were deemed paid or accrued in such taxable year under section 904(c) and which are attributable to taxable years preceding the unused credit year, plus "(iii) the amount of the oil and gas extraction taxes which by reason of this subsection are deemed paid or accrued in such taxable year and are attributable to taxable years preceding the unused credit year. " (3) S P E C I A L RULES.—

"(A) In the case of any taxable year which is an unused credit year under this subsection and which is an unused credit year under section 904(c) with respect to oil-related income, the provisions of this subsection shall be applied before section 904(c). "(B) For purposes of determining the amount of oilrelated taxes paid or accrued in any taxable year which may be deemed paid or accrued in a preceding or succeeding taxable year under section 904(c), any tax deemed paid or accrued in such preceding or succeeding taxable year under this subsection shall be considered to be tax paid or accrued in such preceding or succeeding taxable year. "(C) For purposes of determining the amount of the unused oil and gas extraction taxes which under paragraph (1) may be deemed paid or accrued in any taxable year ending before January 1, 1977, subparagraph (A) of paragraph (2) shall be applied as if the amendment made by section 1035(a) of the Tax Reform Act of 1976 applied to such taxable year." (2) DEFINITION OF OIL AND GAS EXTRACTION TAXES.—Subsection

26 USC 907.

(c) of section 907 is amended by adding at the end thereof the following new paragraph:

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 PUBLIC LAW 94-455—OCT. 4, 1976 "(5)

90 STAT. 1633

O I L AND GAS EXTRACTION TAXES.—The term 'oil and gas

extraction taxes' means any income, w a r profits, and excess profits tax p a i d or accrued (or deemed to have been p a i d under section 902 or 960) during the taxable year with respect to foreign oil Ante, p. 1626. and gas extraction income (determined without regard to para- 26 USC 960. g r a p h (4)) or loss which would be taken into account for purposes of section 901 without regard to this section." (3) TECHXICAL AMENDMENT.—Subsection (i) of section 6501, as

amended by section 1031, (relating to foreign tax carrybacks) is 26 USC 6501. amended— (A) by striking out "excess foreign tax e s) " and inserting in lieu thereof "excess foreign taxes) or under section 907(f) ^'*^^» P- 1631. (relating to carryback and carryover of disallowed oil and gas extraction tax e s) "; and (B) by striking out "section 9 0 4 (c) " the second place it appears and inserting in lieu thereof "section 904(c) or 907(f)". (e)

EFTECTIVE D A T E S. —

26 USC 907

(1) The amendment made by subsection (a) shall apply to tax- note, able years ending after December 31, 1976. (2) The amendment made by subsection (b) shall apply to taxable years ending after December 31, 1974; except that the last sentence of section 907(b) of the I n t e r n a l Revenue Code of 1954 Ante, p. 1630. shall only apply to taxable years ending after December 31, 1975. (3) The amendment made by subsection (c) shall apply to taxable years beginning after June 29, 1976. (4) The amendments made by subsection (d) shall apply to taxes p a i d or accrued during taxable years ending after the date of the enactment of this Act. • - ' 'i SEC. 1036. UNDERWRITING INCOME. (a)

TREATMENT AS INCOME F R O M SOURCES W I T H I N THE UNITED

STATES.—Section 861(a) (relating to gross income from sources 26 USC 861. within the United States) is amended by a d d i n g the following new paragraph: " (7) Amounts received as underwriting income (as defined in section 832(b)(3)) derived from the insurance of United States risks (as defined in section 9 5 3 (a)). ". (b) TREATMENT AS FOREIGN SOURCE INCOME.—Section 862(a) (relat-

ing to gross income from sources without the United States) is 26 USC 862. amended by a d d i n g the following new paragraph: " (7) Under writing income other than that derived from sources within the United States as provided in section 861(a)(7). ". (c) ErrECTRTE D A T E. — The amendments made by this section shall 26 USC 861 a p p l y to taxable years beginning after December 31, 1976. note. SEC. 1037. THIRD TIER FOREIGN TAX CREDIT WHEN SECTION 951 APPLIES. (a)

FOREIGN TAXES D E E M E D P A I D BY FOREIGN

CORPORATIONS.—

Section 960(a)(1) (relating to special rules for foreign tax credits), as amended in section 1033, is further amended to read as follows: " (1) GENERAL RULE.—For purposes of subpart A of this part. if there is included, under section 9 5 1 (a), in the gross income of a domestic corporation any amount attributable to earnings and profits— " (A) of a foreign corporation (hereafter in this subsection referred to as the 'first foreign corporation') at least 10 per-

26 USC 960.

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 90 STAT. 1634

26 USC 960 note.

PUBLIC LAW 94-455—OCT. 4, 1976 cent of the voting stock of which is owned by such domestic corporation, or " (B) of a second foreign corporation (hereinafter in this subsection referred to as the 'second foreign corporation') a t least 10 percent of the voting stock of which is owned by the first foreign corporation, or " (C) of a t h i r d foreign corporation (hereinafter in t h i s subsection referred to as the ' t h i r d foreign corporation') a t least 10 percent of the voting stock of which is owned by the second foreign corporation, then, under regulations prescribed by the Secretary, such domestic corporation shall be deemed to have p a i d the same proportion of the total income, w a r profits, and excess profits taxes paid (or deemed paid) by such foreign corporation to a foreign country or possession of the United States for the taxable year on o r with respect to the earnings and profits of such foreign corporation which the amount of earnings and profits of such foreign corporation so included in gross income of the domestic corporation bears to the entire amount of the earnings and profits of such corporation for such taxable year. This paragraph shall not apply with respect to any amount included in the gross income of such domestic corporation attributable to earnings and profits of the second foreign corporation or of the t h i r d foreign corporation unless, in the case of the second foreign corporation, the percentage-of-voting-stock requirement of section 902(b)(3)(A) is satisfied, and in the case of the t h i r d foreign corporation, the percentage-of-voting-stock requirement of section 9 0 2 (b)(3)(B) is satisfied." (b) EFFECTIVE D A T E. — The amendment made by this section shall ^PPly with respect to earnings and profits of a foreign corporation included, under section 951(a) of the I n t e r n a l Revenue Code of 1954, in the gross income of a domestic corporation in taxable years beginning after December 31, 1976. P A R T IV — M O N E Y OR OTHER PROPERTY MOVING O U T OF OR I N TO THE UNITED STATES

26 USC 861.

26 USC 367.

SEC. 1041. PORTFOLIO DEBT INVESTMENTS IN UNITED STATES OF NONRESIDENT ALIENS AND FOREIGN CORPORATIONS. The last sentence of section 861(c) (relating to interest on deposits, etc.) is hereby repealed. SEC. 1042. CHANGES IN RULING REQUIREMENTS UNDER SECTION 367; CERTAIN CHANGES IN SECTION 1248. (a) AMENDMENT OF SECTION 367.—Section 367 ( r e l a t i n g to foreign

corporations) is amended to read as follows: "SEC. 367. FOREIGN CORPORATIONS. "(a)

TRANSFERS OF PROPERTY F R O M TPIE UNITED STATES. — " (1) GENERAL RULE.—If, in connection w4th any exchange

described i n section 332, 351, 354, 355, 356, or 361, there is a transfer of property (other than stock or securities of a foreign corporation which is a party to the exchange or a party to the reorganization) by a United States person to a foreign corporation, for purposes of determining the extent to which gain shall be recognized on such transfer, a foreign corporation shall not be considered to be a corporation unless, pursuant to a request filed not later than the close of the 183d day after the beginning of such

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 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1635

transfer ( and filed in such form and manner as may be prescribed by regulations by the Secretary), it is established to the satisfaction of the Secretary that such exchange is not in pursuance of a p l a n h a v i n g as one of its principal purposes the avoidance of Federal income taxes. "(2)

EXCEPTION FOR TRANSACTIONS DESIGNATED BY THE SECRE-

TARY.—Paragraph (1) shall not apply to any exchange (otherwise within paragraph (1)), or to any type of property, which the Secretary by regulations designates as not requiring the filing of a request. "(b)

OTHER TRANSFERS.— " (1) E F F E C To r SECTION TO BE DETERMINED UNDER REGULA-

TIONS.—In the case of any exchange described in section 332, 351, 354, 355, 356, or 361 in connection with which there is no transfer 26 USC 332, of property described in subsection (a)(1), a foreign corporation 351, 354, 355, shall be considered to be a corporation except to the extent pro- 356, 361. vided in regulations prescribed by the Secretary which are necessary or appropriate to prevent the avoidance of Federal income taxes. "(2)

REGULATIONS RELATING TO SALE OR EXCHANGE OF STOCK I N

FOREIGN CORPORATIONS.—The regulations prescribed pursuant to paragraph (1) shall include (but shall not be limited to) regulations dealing with the sale or exchange of stock or securities in a foreign corporation by a United States person, including regulations providing— " (A) the circumstances under which— " (i) gain shall be recognized currently, or amounts included in gross income currently as a dividend, or both, or " ( i i) gain or other amounts may be deferred for inclusion in the gross income of a shareliolder (or his successor in interest) at a later date, and " (B) the extent to which adjustments shall be made to earnings and profits, basis of stock or securities, and basis of assets. "(c)

TRANSACTIONS To B E TREATED AS E X C H A N G E S. —

" (1) SECTION 353 DISTRIBUTION.—For purposes of this section, any distribution described in section 355 (or so much of section 356 as relates to section 355) shall be treated as an exchange whether or not it is an exchange. "(2)

CONTRIBUTION OF CAPITAL TO CONTROLLED CORPORATIONS.—

For purposes of this chapter, any transfer of property to a foreign corporation as a contribution to the capital of such corporation by one or more persons who, immediately after the transfer, own (within the meaning of section 318) stock possessing at least 80 percent of the total combined voting power of all classes of stock of such corporation entitled to vote shall be treated as an exchange of such property for stock of the foreign corporation equal in value to the fair market value of the property transferred. " (d) TRANSITIONAL RULE. — I n the case of any exchange beginning before January 1, 1978— " (1) subsection (a) shall be applied without regard to whether or not there is a transfer of property described in subsection (a)(1), and " (2) subsection (b) shall not apply.".

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 90 STAT. 1636

PUBLIC LAW 94-455—OCT. 4, 1976 (b)

26 USC 1248.

E A R N I N G S AND PROFITS OF SUBSIDIARIES OF FOREIGN CORPORA-

TioNs FOR PURPOSES OF SECTION 1248.—Subparagraph (C) of section 1248(c)(2) is amended by striking out "; and " a t the end thereof and inserting in lieu thereof the following: " (or on the date of any sale or exchange of the stock of such other foreign corporation occurring during the 5-year period ending on the date of the sale or exchange of the stock of such foreign corporation, to the extent not otherwise taken into account under this section b u t not in excess of the fair m a r k e t value of the stock of such other foreign corporation sold or exchanged over the basis of such stock (for determining gain) in the h and s of the transfer o r); and". (c) CERTAIN SECTION 311, 336, OR 337 TRANSACTIONS.—

(1) GENERAL RULE.—Section 1248 (relating to gain from certain sales or exchanges of stock in certain foreign corporations) is amended by redesignating subsections (f) and (g) as subsections (g) and (h), respectively, and by inserting after subsection 'e) the following new subsection: '(f) "(fl CERTAIN SECTION 311, 336, OR 337 TRANSACTIONS.— "(1)

IN GENERAL.—If—

" (A) a domestic corporation satisfies the stock ownership requirements of subsection (a)(2) with respect to a foreign corporation, and " (B) such domestic corporation distributes, sells, or exchanges stock of such foreign corporation in a transaction to which section 311, 336, or 337 applies, then, notwithstanding any other provision of this subtitle, an amount equal to the excess of the fair market value of such stock over its adjusted basis in the h and s of the domestic corporation shall be included in the gross income of the domestic corporation as a dividend to the extent of the earnings and profits of the foreign corporation attributable (under regulations prescribed by the Secretary) to such stock which were accumulated in taxable years of such foreign corporation beginning after December 31, 1962, and during the period or periods the stock was held by such domestic corporation while such foreign corporation was a controlled foreign corporation. For purposes of subsections (c)(2), (d), and (h), a distribution, sale, or exchange of stock to which this subsection applies shall be treated as a sale of stock to which subsection (a) applies. " (2) ExcEiTioN FOR CERTAIN DISTRIBUTIONS.—In the casc of any distribution of stock of a foreign corporation, paragraph (1) shall not apply if such distribution is to a domestic corporation— " (A) which is treated under this section as holding such stock for the period for which the stock was held by the dist r i b u t i n g corporation, and " (B) which, immediately after the distribution, satisfies the stock ownership requirements of subsection (a)(2) with respect to such foreign corporation. "(3)

NONAPPLICATION OF PARAGRAPH (1) I N CERTAIN CASES.

Paragraph (1) shall not apply to a sale or exchange to which section 337 applies if— " (A) throughout the period or periods the stock of the foreign corporation was held by the domestic corporation (or predecessor referred to in paragraph (2)) all the stock of such domestic corporation was owned by United States persons who satisfied the 10-percent stock ownership require-

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90 STAT. 1637

ments of subsection (a)(2) with respect to such domestic corporation, and " (B) subsection (a) applies to the proceeds of the sale or exchange and also applied to all transactions described i n subsection (e)(1) which took place during the period or periods referred to in subparagraph (A). " (4) APPLICATION TO CASES DESCRIBED I N suBSECTioisr (e).—To

the extent that earnings and profits are taken into account under this subsection, they shall be excluded and not taken into account for purposes of subsection (e). ". (2) INTEREST I N PARTNERSHIP HOLDING STOCK I N CERTAIN FOR-

EIGN CORPORATIONS.—The last sentence of section 751(c) (relating 26 USC 751. to unrealized receivables) is amended— (A) by striking out " ( a s defined in section 1245(a)(3)), " and inserting in lieu thereof " a s defined in section 1245(a) (3)), stock in certain foreign corporations (as described i n section 1248)," and (B) by striking o u t " 1 2 4 5 (a), " and inserting in lieu thereof "1245(a), 1248(a),". (3) CONFORMING AMENDMENTS.—

(A) Subparagraph (A) of paragraph (2) of subsection (c) of section 1248 is amended by striking out "subsection (a) ^6 USC 1248. applies to a sale o r exchange" and inserting i n lieu thereof "subsection (a) or (f) applies to a sale, exchange, o r distribution". (B) Subparagraph (A) of paragraph (3) of subsection (g) (as redesignated by paragraph (1) of this subsection) of section 1248 is amended to read as follows: " (A) a dividend (other than an amount treated as a dividend under subsection (f)), ". (C) Subsection (h) (as redesignated by paragraph (1) of this subsection) of section 1248 is amended by striking o u t "subsection (a) " each place i t appears and inserting i n lieu thereof "subsection (a) or (f) ". (d) DECLARATORY J U D G M E N T PROCEDURE FOR R E VI E W B T THE T A X COURT o r SECTION 367 DETERMINATION S. — Ante, p. 1634.

(1) IN GENERAL.—Part IV of subchapter C of chapter 76 (relati n g to declaratory judgments) is amended by a d d i n g a t the end thereof the following new section: "SEC. 7477. DECLARATORY JUDGMENTS RELATING TO TRANSFERS OF 26 USC 7477. PROPERTY FROM THE UNITED STATES. " (a) CREATION o r R E M E D Y. —

" (1) IN GENERAL.—In a case of actual controversy involving— " (A) a determination by the Secretary— " (i) that an exchange described in section 367(a)(1) is in pursuance of a plan h a v i n g as one of its principal purposes the avoidance of Federal income taxes, o r " ( i i) of the terms and conditions pursuant to which an exchange described in section 367(a)(1) will be determined not to be i n pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes, or " (B) a failure by the Secretary to make a determination as to whether an exchange described in section 367(a)(1) is in pursuance of a plan having as one of i ts principal purposes the avoidance of Federal income taxes,

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 9 0 STAT. 1638

PUBLIC LAW 94-455—OCT. 4, 1976 upon the filing of an appropriate pleading, the T a x Court may make the a p p r o p r i a t e declaration referred to i n paragraph (2). Such declaration shall have the force and effect of a decision of the T a x Court and shall be reviewable as such. "(2)

SCOPE OF DECLARATION.—The declaration r e f e r r e d to in

paragraph (1) shall be— " (A) in the case of a determination referred to in subparagraph (A) of paragraph (1), whether or not such determination is reasonable, and, if it is not reasonable, a determination of the issue set forth in subparagraph (A) (ii) of paragraph (1), and (B) in the case of a failure described in subparagraph (B) of paragraph (1), the determination of the issues set forth in subparagraph (A) of paragraph (1).

^•.•

" (b) LIMITATIONS.—

Ante

1634

' ^'

'

" (1) PETITIONER.—A pleading may be filed under this section only by a petitioner who is a transferor or transferee of stock, securities, or property transferred in an exchange described in Section 367(a)(1). " (2) E X H A U S T I O N or ADMINISTRATIVE REMEDIES.—The T a x C o u r t

shall not issue a declaratory judgment or decree under this section in any proceeding unless it determines that the petitioner has exhausted administrative remedies available to h i m within the I n t e r n a l Revenue Service. A petitioner shall not be deemed to have exhausted his administrative remedies with respect to a failure by the Secretary to make a determination with respect to whether o r not an exchange described in section 367(a)(1) is in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes before the expiration of 270 days after the request for such determination was made. "(3)

E X C H A N G E SHALL HAVE BEGUN.—No proceeding may be

maintained under this section unless the exchange is described i n section 3 6 7 (a)(1) with respect to which a decision of the T a x Court is sought has begun before the filing of the pleading. "(4)

T I M E TOR BRINGING ACTION.—If the Secretary sends by

certified or registered mail to the petitioners referred to in paragraph (1) notice of his determination with respect to whether or not a n exchange described in section 367(a)(1) is in pursuance of a plan having as one of its principal purposes the avoidance ^'a-v \ < r, ^ ^^ Federal income taxes or with respect to the terms and conditions pursuant to which such an exchange will be determined not to be made in pursuance of such a plan, no proceeding may be initiated under this section by any petitioner unless the pleading is filed before the 91st day after the day after such notice is mailed to such petitioner. " (c) COMMISSIONERS.—The chief judge of the T a x Court may assign proceedings under this section to be heard by the commissioners of the court, and the court may authoiize a commissioner to make the decision of the court with respect to such proceeding, subject to such conditions and review as the court may by rule provide.". (2) T E C H N I C A L AND CONFORMING AMENDMENTS.—

26 USC 7482.

(A) Section 7482(b)(1) (relating to venue for review of T a x Court decisions) is amended by striking out "or" at the end of subparagraph (B), by striking o u t the period a t the end of subparagraph (C) and inserting in lieu thereof ", or ", and by inserting after subparagraph (C) the following new subparagraph:

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90 STAT. 1639

"(D) in the case of a person seeking a declaratory judgment under section 7477, the le^al residence of such person if Ante, p. 1637. such person is not a corporation, or the principal place of business or principal office or agency of such person if such person is a corporation,". (B) Section 7482(b)(1) is further amended— 26 USC 7482. (i) by striking out "subparagraph (A), (B), and (C) do not apply" in the second sentence and inserting in lieu thereof "no subparagraph of the preceding sentence applies"; and (ii) by striking out "section 7476" in the last sentence and inserting in lieu thereof "section 7476 or 7477". (C) The heading for section 7476 is amended to read as follows:

"SEC. 7476. DECLARATORY JUDGMENTS RELATING TO QUALIFICATION OF CERTAIN RETIREMENT PLANS."

(D) The table of sections for part IV of subchapter C of chapter 76 is amended to read as follows: "Sec. 7476. Declaratory judgments relating to qualification of certain retirement plans. "Sec. 7477. Declaratory judgments relating to transfers of property from United States." (E) The heading of part IV of subchapter C of chapter 76 is amended to read as follows: "PART IV—DECLARATORY JUDGMENTS**. (F) The table of parts for subchapter C of chapter 76 is amended by striking out the item relating to part IV and inserting in lieu thereof the following: "Part IV. Declaratory judgments." (e) EFFECTIVE DATES.—

26 USC 367

(1) The amendments made by this section (other than by sub- note, section (d)) shall apply to transfers beginning after October 9, 1975, and to sales, exchanges, and distributions taking place after such date. The amendments made by subsection (d) shall apply with respect to pleadings filed with the Tax Court after the date of the enactment of this Act but only with respect to transfers beginning after October 9, 1975. (2) In the case of any exchange described in section 367 of the Internal Revenue Code of 1954 (as in effect on December 31, 1974) in any taxable year beginning after December 31, 1962, and before the date of the enactment of this Act, which does not involve the transfer of property to or from a United States person, a taxpayer shall have for purposes of such section until 183 days after the date of the enactment of this Act to file a request with the Secretary of the Treasury or his delegate seeking to establish to the satisfaction of the Secretary of the Treasury or his delegate that such exchange was not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes and that for purposes of such section a foreign corporation is to be treated as a foreign corporation. SEC. 1043. CONTIGUOUS COUNTRY BRANCHES OF DOMESTIC LIFE INSURANCE COMPANIES. (a) AMENDMENT OF SUBCHAPTER L.—Subpart E of part I of sub-

chapter L of chapter 1 (relating to life insurance companies) is amended by inserting after section 819 the following new section:

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 90 STAT. 1640 26 USC 819A.

PUBLIC LAW 94-455—OCT. 4, 1976 "SEC. 819A. CONTIGUOUS COUNTRY BRANCHES OF DOMESTIC LIFE INSURANCE COMPANIES. " (a) EXCLUSION OF I T E M S. — I n the case of a domestic mutual insurance company which— " (1) is a life insurance company, " (2) has a contiguous country life insurance branch, and " (3) makes the election provided by subsection (g) with respect to such branch, there shall be excluded from each and every item involved in the determination of life insurance company taxable income the items separately accounted for in accordance with subsection (c).

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"(b)

CONTIGUOUS COUNTRY L I F E INSURANCE B R A N C H. — For p u r -

poses of this section, the term 'contiguous country life insurance branch' means a branch which— " (1) issues insurance contracts insuring risks in connection with the lives or health of residents of a country which is contiguous to the United States, " (2) has its principal place of business in such contiguous count r y, and " (3) would constitute a mutual life insurance company if such branch were a separate domestic insurance company. For purposes of this section, the term 'insurance contract' means any jjfe^ health, accident, or annuity contract or reinsurance contract or any contract relating thereto.

"Insurance contract." /

(c) SEPARATE ACCOUNTING R E Q U I R E D. — Any tax p a y e r which makes

the election provided by subsection (g) shall establish and maintain a separate account for the various income, exclusion, deduction, asset, reserve, liability, and surplus items properly attributable to the contracts described in subsection (b). Such separate accounting shall be made— " (1) in accordance with the method regularly employed by such company, if such method clearly reflects income derived from, and the other items attributable to, the contracts described in subsection (b), and " (2) in all other cases, in accordance with regulations prescribed by the Secretary.

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" (d) RECOGNITION OF G A I N ON ASSETS I N B R A N C H ACCOUNT. — I f the

aggregate fair market value of all the invested assets and tangible property which are separately accounted for by the domestic life insurance company in the branch account established pursuant to subsection (c) exceeds the aggregate adjusted basis of such assets for purposes of determining gain, then the domestic life insurance company shall be treated as having sold all such assets on the first day of the first taxable year for which the election is in effect a t their fair market value on such first day. Notwithstanding any other provision of this chapter, the net gain shall be recognized to the domestic life insurance company on the deemed sale described in the preceding sentence. ^

" (e) TRANSACTIONS B E T W E E N CONTIGUOUS COUNTRY B R A N C H AND DOMESTIC L I F E INSURANCE C O M P A N Y. — " (1) REIMBURSEMENT FOR HOME OFFICE SERVICES, ETC.—Any p a y -

^ '

^

ment, transfer, reimbursement, credit, or allowance which is made from a separate account established pursuant to subsection (c) to one or more other accounts of a domestic life insurance company as reimbursement for costs incurred for or with respect to the insurance (or reinsurance) of risks accounted for i n such separate account shall be taken into account by the domestic life insurance company i n the same manner as if such payment, transfer, reim-

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 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1641

bursement, credit, or allowance had been received from a separate person. " (2) EEPATRIATION OF I ^ COME.—

" (A) IN GENERAL.—Except as provided in subparagraph (B), any amount directly or indirectly transferred or credited from a branch account established pursuant to subsection (c) to one or more other accounts of such company shall, unless such transfer or credit is a reimbursement to which paragraph (1) applies, be added to the life insurance company taxable income of the domestic life insurance company (as computed without regard to this paragraph). " (B) LIMITATION.—The addition provided by subparagraph (A) for the taxable year with respect to any contiguous country life insurance branch shall not exceed the amount by which— " (i) the aggregate decrease in the life insurance company taxable income of the domestic life insurance company for the taxable year and for all prior taxable years resulting solely from the application of subsection (a) of this section with respect to such branch, exceeds " ( i i) the amount of additions to life insurance company taxable income pursuant to subparagraph (A) with respect to such contiguous country branch for all prior taxable years. "(f)

'

, ^

OTHER RULES.— " (1) TREATMENT o r FOREIGN TAXES.—

" (A) IN GENERAL.—No iucomc, war profits, or excess profits taxes paid or accrued to any foreign country or possession of the United States which is attributable to income excluded under subsection (a) shall be taken into account for purposes of subpart A of part III of subchapter N (relating to foreign 26 USC 901. tax credit) or allowable as a deduction. "(B)

TREATMENT OF REPATRIATED A3IOFNTS.—P^or purposes

of sections 78 and 902, where any amount is added to the life insurance company taxable income of the domestic life insurance company by reason of subsection (e)(2), the contiguous country life insurance branch shall be treated as a foreign corporation. Any amount so added shall be treated as a dividend paid by a foreign corporation, and the taxes paid to any foreign country or possession of the United States with respect to such amount shall be deemed to have been paid by such branch. "(2)

IGNITED STATES SOURCE INCOME ALLOCABLE TO CONTIGUOUS

COUNTRY BRANCH.—For purposes of sections 881, 882, and 1442, each contiguous country life insurance branch shall be treated as a foreign corporation. Such sections shall be applied to each such branch in the same manner as if such sections contained the provisions of any treaty to which the United States and the contiguou'^ country are parties, to the same extent such provisions would apply if such branch were incorporated in such contiguous country. " (g) ELECTION.—A taxpayer may make the election provided by this subsection with respect to any contiguous country for any taxable year beginning after December 31, 1975. A n election made under this subsection 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. The election provided by this subsection shall be

•, H.

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Page:United States Statutes at Large Volume 90 Part 2.djvu/174

 90 STAT. 1642

'

PUBLIC LAW 94-455—OCT. 4, 1976 inado not later tlian tlu> time, proscribed by law for filina" the re(iirii for the taxable year (inchidino- extensions thereof) ^vith respect" to AYliicli sncli election is made, and snch election and any approve(l I'evocation thereof shall be made in the manner pro\ided by the Secretary. "(h)

Ante, pp. 1634, 1617.

Srix'iAiv IviLK FOK I)O:MKSTI(^ STOCK L I F K I x s r i i A x n: Co:\r-

pAxiKs.^—At the election of a domestic stock life insurance company which has a contiguous country life insurance l)ranch descrilx'd in subsection (b) (M-ithout reo-ard to the mutual re(}uirement in subsection (b)(3)). the assets of such branch may be transferred to a forei<:'u corporation or<iani/ed under the laws of the contiguous counti'V "without the application of section ^\Vu or 14pl. Subsection (a) shall aj^ply to the stock of such foreiiiii corporation as if such donu'stic company Avere a mutual company and as if the stock were an item described in subsection (c). Subsection (e)("2) shall apply to amounts transferi'cd or ci'edited to such domestic company as if s\ich domestic company and such forei-i'(>o;)te fair market value of the in\ested assets and tan<>-il)le property which are separately accomited foi- by the domestic life insurance company in the bi-anch account exceeds th{> <'iaii) which ecpials the prportion which the a<i;ar(\iiate fair market value of snch assets which aiv. transferred pursuant to this subsection is of the aa'jireaate fair market value of all such assets." (b) C'LKincAr A^MKNUMKNT.—The table of sections for such subpart E is amended by iiiserting after the item I'elatinii' to section 810 the following new item: "Soc. 81!)A. Coiiti.iriioiis country lirnnches of domestic life iiisurnnco couipiliiics."

26 USC 819A note.

26 USC 582.

(c) KFFKcrn K DATK.—The amendment made by this section shall fPpl.v ^^o taxable years beginning after I)eceiiibei' o l. ^!)7.^. SEC. 1044. TRANSITIONAL lUTLE FOR BOND, ETC., LOSSES OF FOREIGN BANKS. (a) GF.XKI^M. IJn.K.—Section r)82(c) (relating to bond. etc.. losses and gains of financial institutions) is amended by adding at the end thereof the following new paragraph: " (4) TiiAXsrrioxAi. VA \A: FOU I?AXKS.—In the case of a corporation which would be a bank except foi' tlu> fact that it is a foivign cor]ioration, the net gain, if any. for the taxabl(> year on sales and exchanges described in paragraph (1) shall be considered as gain from the sale or exchange of a capital asset to the (>xti'nt such net gain does not exceed the portion of any capital loss canwover to such taxable year which is attributable to capital lossc's on sales oiexchanges described in paragraph (1) for a taxable^ year beginning b(>fore duly 12, 19i). For purposes of the prece([ing sentence, the portion of a net capital loss for a taxable yearwliicli is attributable to capital losses on sales or exchanges dcscrilied in paragra))li (1) is the amount of the net cajiital loss on such sal(>s or exchanges

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 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1643

for such taxable year (but not in excess of the net capital loss for such taxable year). ' ' (b) EFFKcrrvE D A T E. —

(1) The amendment made by subsection (a) shall apply with respect to taxable years beginning after July 11, 1900. (2) If the refund or credit of any overpayment attributablo to the application of the amendment made by subsection (a) to any taxable year is otherAvise prevented by the operation of any law or rule of law (other than section 7122 of the I n t e r n a l Revenue Code of 1954, relating to compromises) on the day which is one year after- the date of the enactment of this Act. such credit or refund shall be nevertheless allowed or made if claim therefor is filed on or before such day.

26 USC 582

"^te.

PART V—SPECIAL CATEGORIES OF FOREIGN TAX TREATMENT SEC. 1051. TAX TREATMENT OF CORPORATIONS CONDUCTING TRADE OR BUSINESS IN PUERTO RICO AND POSSESSIONS OF THE UNITED STATES. (a) ALLOAVAXCE OV PrKnro R I C A X AXD Possicssiox T A X CKKuri.— Section 33 (relating to taxes of foreign countries and possessions of ^6 USC 33. the United States) is amended to read as follows: "SEC. 33. TAXES OF FOREIGN COUNTRIES AND POSSESSIONS OF THE UNITED STATES; POSSESSION TAX CREDIT. " (a) FoREUJX TAX Cin.niT.—The amount of taxes imposed by foreign countries and possessions of the United States shall be allowed as a ci'edit against the tax imposed by this chapter to the extent provided in section 901. " (b) SECTIOX 936 CiiEmT.—In the case of a domestic corporation. the amount provided by section 936 (relating to l*uerto Rico and pos- Infra. session tax credit) shall be allowed as a credit against the tax imposed by this chapter." (b) IvUEES ox PossESsu)X' T A X CREDIT.—Subpart I) of part III of subchapter I T of chapter 1 (relating to possessions of the United S \ • States) is amended b_y adding at the end thereof the following new section: "SEC. 936. PUERTO RICO AND POSSESSION TAX CREDIT. "(a)

ALLOWAXCE or

26 USC 936.

CREDIT.—

' ' (1) I x GEXEKAL.—Except as provided in paragraph (2), in the case of a domestic corporation which elects the application of this section, there shall be allowed as a credit against the tax imposed by this chapter an amount equal to the j^ortion of the tax which is attributable to taxable income, from sources without the United States, from the active conduct of a trade or business within a possession of the United States, and from qualified possession source investment income, if the conditions of both subparagraph (A) and subparagraph (B) are satisfied: " (A) 3-YEAU PERTOD.—If 80 pcrccjit Or more of the gross income of such domestic corporation for the 3-3'ear period immediately preceding the close of the taxable year (or for such p a i t of such period immediately preceding the close of such taxable year as may be applicable) was derived from sources within a possession of the United States (determined without regard to sectioji 904 (f)); and

^

^"'«' P- 1^24.

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 90 STAT. 1644

PUBLIC LAW 94-455—OCT. 4, 1976

-•*

''(1^) TRADK OK BusiNKSS."—If T)!) percent oi- more of the <rros.s income of such domestic corporation for such period or such part tlieieof was deiived from the active conduct of a trade or business within a possession of the United States.

'•• ' •'

"(2)

CltEDIT XOT ALLOWKU AGAIXST CERTAIN TAXKS.

The Credit

provided by paragraph (1) shall not be allowed against the tax imposed by— ' ' (A) section 56 (relating to minimum tax), "(J^) section 531 (relating to the tax on accumulated earnings), " (C) section 541 (relating to personal holding companv tax), " (D) section 1.3-33 (relating to w a r loss recoveries), or "(p]) section 1351 (relating to recoveries of foreign expropriation losses).

Ante, p. 1549. 26 USC 531.

'"(b) AAFOUXTS RECEIVED IX I J X I T E D STATES. — I n determining tax -

able income for purposes of subsection (a), there shall not be taken into account as income from sources without the United States any gross income which was received by such dcmiestic corporation within the United States, Avhether derived from sources within or without the United States!

,, o

"(c)

TREAT.AIEXT OF CERTAIN FOKEKJX T A X E S. — For purposes of t h i s

title, any tax of a foreign country or a possession of the United States which is paid or acci'ued with respect to taxable income which is taken into account in computing the credit under subsection (a) shall not be treated as income, Avar profits, oi- excess profits taxes paid oi- accrued to a foreign country or possession of the United States, and no deduction shall be allowed under this title with respect to any amounts so paid or accrued. " (d) DEFINITIONS. — For purposes of this section— " (1) PossEssiox.—The term 'possession of the United Slates' includes the Commouwealth of Puerto Eico, but does not include the Virgin Islands of the Ignited States. "(2)

..jf'-O'vu i^S '

'

The

term 'qualified possession source investment income' means gross income which— " (A) is from sources within a possession of the United States in AA-hich a trade oi- business is actiA^ely conducted, and " (B) the taxpayer establishes to the satisfaction of the Secretary is attributable to the investment in such possession (for use therein) of funds derived from the actiA^e conduct of a trade or business in such possession, or from such investment, less the deductions properly apportioned or allocated thereto. "(e)

,,,.

Q l ' A L I F I E D POSSESSIOX' SOVRCE INAESTMEXT INCOME.

ELECTION'.—

" (1) PERIOD OF ET.ECTIOX'.—The election provided in subsection (a) shall be made at such time and in such manner as the Secretary may by regulations prescribe. Any such election shall apply to the first taxable year for which such election Avas made and for which the domestic corporation satisfied the conditions of subparagraph s (A) and (B) of subsection (a)(1) and foreach taxable year thereafter until such election is revoked by the domestic corporation under paragraph (2). I f any such election is revoked by the domestic corporation under paragraph (2), such domestic corporation may make a subsequent election under subsection (a) for any taxable year thereafter for AA-hich such domestic cor-

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 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1645

poratioji satisfies the. conditions of subparagraphs (A) and (B) of subsection (a)(1) and any such subsequent election shall reniaiji in efl'ect until revoked by such domestic corporation under pa]-a<^rapli (2). " (2) KKVOCATIOX.—An election under subsection (a) — " (A) may be revoked for any taxable year beginning before the expiration of the 9th taxable year following the taxable year for which such election first applies only with the consent of the Secretary; and " (B) may be revoked for any taxable year beginning after the expiration of such 9th taxable year without the consent of the Secretar}'. " (f) DLSC O FomiEH D I S C CoitPoRATiox INELIGIBLE FOR CREDIT.— K

Xo credit shall be allowed under this section to a corporation for a taxable year foi" which it is a D I S C or former D I S C (as defined in section 9 9 2 (a)) or in which it owns at any time stock in a D I S C or foinierDISC. "(g)

ExcErriON TO A C C I M I LATKD EARXINGS T A X. —

" (1) For purposes of section 535, the term 'accumulated taxable income' shall not include taxable income entitled to the credit under subsection (a). " (2) For purposes of section 587, the term 'reasonable needs of the business' includes assets which jjroduce income eligible for the credit under subsection (a).-"

"Accumulated taxable income. "Reasonable needs of the business."

(c) AMENDMENTS OF SECTIOX 981.—

(1) Subsection (a) of section 981 (relating to general rule in the case of income from souives within possessions of the United States) is amended to read as follows: "(a)

(TEXERAL K I L E. — I n

the case of individual

citizens of

26 USC 931.

the

United States, gross income means only gross income from sources within the United States if the conditions of both paragraph (1) and paragrap]i (2) are satisfied: " (1) 8-yEAR PERIOD.—If 80 percent or more of the gross income of such citizen (computed without the benefit of this section) foi- the 8-year period immediately preceding the close of the taxable year (or for such part of such period inmiediately preceding th(! close of such taxable year as may be applicable) was derived from sources within a possession of the United States; and " (2) TRADE OR BUSIXESS.—If 50 p e i r e n t or more of his gross

income (computed without the benefit of this section) for such period or such part thereof was derived from the active conduct of a trade or business within a possession of the United States either on his own account or as an employee or agent of another.''. (2) Subsection (c) of section 981 (defining the term "possession") is amended to read as follows: " (c) DEFINITION.—For }nirposes of this section, the term 'possession of the United States' does not include the Commonwealth of Puerto Rico, the Virgin Islands of the United States, or Guam.". (8) Subsections (d). (e), and (f) of section 981 are each amended by striking out "))ersons" each place it appears and inserting in lieu thereof "a citizen of the United States". (d)

AMENDMENTS OF SECTIOX' 901.—

(1) Section 901(d) (relating to certain corporations treated as 26 USC 901. foreign corporations) is amended to read as follows: " (d) TREATMEXT OF DIVIDENDS F R O M A D I S C OR FORMER D I S C. —

Foi- purposes of this subpart, dividends from a D I S C or former D I S C

89-194 n — 7n_nt 9

10

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 90 STAT. 1646

26 USC 901.

PUBLIC LAW 94-455—OCT. 4, 1976 (as defined in section 9 9 2 (a)) shall be treated as dividends from a foreion corporation to the extent such dividends are treated under part 1 as income from sources without the United States."'. (^2) Section 901 (relating to taxes of foreign countries and possessions of the United States) is amended by redesignating subsection (g) as (h) and by inserting after subsection (f) the following new subsection: " (g) CEIITAIX TAXES P A I D W I T H RESPECT TO DISTRIBUTIOXS F R O M

Ante, p. 1643.

26 USC 904. Ante, p. 1629.

POSSESSIOXS COUPOIUTIOXS.—• "'(l) I x GEXERAE.—For purposes of this chapter, any tax of a foreign country or possession of the United States which is paid or accrued with respect to any distribution from a corporation, to the extent that such distribution is attributable to periods during which such corporation is a possessions corporation, shall not be treated as income, w a r profits, or excess profits taxes paid or accrued to a foreign country or possession of the United States, and no deduction shall be allowed under this title with respect to any amount so paid or accrued. " (2) PossEssioxs coRPORATiox.—For purposes of paragraph (1), a corporation shall be treated as a possessions corporation for any period during which an election vnider section 9;'> applied to such corporation or during whicfi section 9;]1 (as in effect on the day before the date of the enactment of the T a x Reform Act of 197) applied to such corporation." (e) AMEXOMEXT o r SECTIOX 904(b).—Section 904(b) (as amended by sections 1031 and 1034(a) of this Act) is amended by adding at the end thereof the following new paragraph: " (4) CooPtDiXATiox wrrii SECTIOX D.-^C.—For purposes of subsection (a), in the case of a corporation, the taxable income shall not include any portion thereof taken into account for purposes of the credit (if any) allowed by section 936." (f)

26 USC 243.

26 USC 243. 26 USC 246.

(1) Section 2 4 3 (b)(1) (defining qualifying dividends) is amended by adding "either" a t the end of subparagraph (A), by striking out the period a t the end of subparagraph (B) (ii) and inserting in lieu thereof a comma and "or", and by adding at the end thereof the following ncAv subparagraph: " (C) such dividends are paid by a corporation with respect to which an election undei- section 936 is in effect for the taxable year in which such dividends are paid.". (2) Section 243(b)(5) (defining affiliated g r o u p) is amended by inserting '% ir)04(b)(4), " immediately after "1504(1)) (2) ". " (3) Section 246(a) (relating to dividends from certain corporations) is amended to read as follows: "(a)

26 USC 1504.

DiviDEXDs R E ( E I \ E D DEDUCTION ALLOWED.—

DEDICTTOX X O T ALLOWED FOR DniDEXDs F R O M CERTATX COR-

PORATJOXS.—The deductions allowed by sections 243, 244, and 245 shall not apply to any dividend from a corporation which, foi- the taxable year of the corporation in which the distribution is made, or for the next preceding taxable year of the corporation, is a corporation exempt from tax undei- section 501 (relating to certain charitable, etc.. organizations) oi- section 521 (I'elating to farmers' cooperative associations)." (g)(V)XsoLTDATED R E T I H X TREATMEXT.—Section 1504(1)) (4) (defining includible cor))ration) is amended to read as follows: " (4) CorpoT-ations with respect to which an election under section 936 (relating to possession tax credit) is in effect for the taxable year.".

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 PUBLIC LAW 94-455—OCT. 4, 1976 (h)

90 STAT. 164'

CoNFOK.ALlNC A.MKND.MKN TS.

(1) Section 48(a) (-2)(B) ( v i i) (ivlating to definition of section 38 property) is amended by sti-iking out " ( other tlian a corporation entitled to the benefits of section 031 or 0 3 4 (b)) ' ' and insertin) (relatinf,^ to certain dividends excluded from partial exclusion of dividends ivceived by indivi(bials) is amended to read as follows: " (2) a corporation which, for the taxable year of the corporation in which the distribution is made, oi' for the next precedin,ii' taxable year of the corporation, is a corporation exempt from tax under section 501 (relating to certain char-itable, etc., organizations) or section r)21 (relating to farmers' cooperative associations); or". (3) Section 8f)l(a)(2)(A) (relating to income from sources within the Tinted States) is amended by striking out "othei- tlum a corporation entitled to the benefits of section 031," and inserting in lieu thereof the following: "other than a corporation which has an election in effect under section 03(5,". (4) Section 0001(b)(2)(H) (ii) (relating to place of filing foi' corporations) is amended by striking out "section 031 (relating to income from sources within possessions of the United States), " and inserting in lieu fhereof the following: "section 036 (relating to possession tax credit),", (i)

P]FFE(TIVE D A T E. —

26 USC 48.

26 USC 116. •'

a: 26 USC 861.

Post, p. 1648. - v 26 USC 33 note.

(1) Except as provided by paragraph (2), the amendments made by this section shall apply to taxable years beginning after .,. Decembv'r 31, 107;"), except that "(jualified possession source investment income" as defined in section 03(d)(2) of the Internal Revenue Code of 1054 shall include income from any source out- ^"^^' P- 1643. side the United States if the taxpayer establishes to the satisfaction of the Secretary of the Treasury or his delegate that the income from such sources was earned before October 1, 1076. (2) The amendment made by subsection (d)(2) shall not apply to any tax imposed by a possession of the United States with respect to the complete liquidation occurring before fJanuary 1. • >' 1070, of a corporation to the extent that such tax is attributable to earnings and profits accmnulated by such corporation during periods ending before January 1, 1076. SEC. 1052. WESTERN HEIVIISPHERE TRADE CORPORATIONS. (a) PiiASEouT OF SPECIAL DEDUCTION FOR W E S T E R X H E M I S P H E R E TRADE CORPORATIONS.—Section 022 (special deduction for Western

Hemisphere trade corporations) is amended by adding at the end thereof the following new subsection: " (b) PiiASEOUT OF DEDUCTION.—In the case of a taxable year beginning after December 31, 1075. and before January 1, 1080," the percent specified in subsection (a)(2)(A) shall be (in lieu of 14 percent) the percent specified in the following t a b l e: "For a taxable year The percentage beginning in— shall be— 1976 n 1977 1978 1979

_

S o 2".

26 USC 922.

'

-'

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 90 STAT. 1648 ,

26 USC 921, ^22.

26 USC 922.

PUBLIC LAW 94-455—OCT. 4, 1976 (b) KKPEAL OF WKSTKRN Hf:MrspiiERE TRADE (.'oRroRAxiox DEDUCTiox FOR TAXABLE YEARS B E G IX X IX G A F T E R 1979.—Subpart C of part

III of subfliaptor N of chapter 1 (relating to AVestern Hejiiisphere trade corporations) is hereby repealed, (c) CONFORMING AMENDMENTS. —

(1) The first sentence of section 922 (relatinjEi: to special deduction) is amended by striking out " I n the case of* and inserting in lieu thereof the following: "(a)

26 USC 170.

26 USC 172. Repeal. 26 USC 907. 26 USC 1503.

(TENERAE RULE. — I n the case of".

(2) Section 170(b)(2) (relating to pejcentage limitations on charitable contributions in the case of corporations) is amended by adding "'and" at the end of subparagraph (C). by striking out subparagraph (D), and by redesignating subparagraph (E) as subparagraph (D). (.3) Section 172(d) (relating to modifications for purposes of the net operating loss deduction) is amended by striking out paragraph (T)) and by redesignating paragraph (6) as paragraph (5). (4) Subsection (g) of section 907 is hereby repealed. (5) Section 1503 (relating to computation and paj'ment of tax jj^ ^j^p p.^gp ^f consolidated returns) is amended by striking out subsection (b) and by striking out " (a) GENERAL RULE. — ".

26 USC 6091. Ante, p. 1643.

26 USC 922

note.

26 USC 941.

26 USC 943.

(6) Section 091(b)(2)(B) (ii) (relating to place for filing returns of corporations) is amended to I'ead as follows: " ( i i) corporations which claim the benefits of section 936 (relating to possession tax c r e d i t), and''. (7) The table of subparts for part III of subchapter X of chapter 1 is amended l)v striking out the item relating to subpart C. (d) EFFECTIVE D A T E S. — The amendments made by subsection

(a)

and paragraph (1) of subsection (c) shall apply with respect to taxable years beginning after December 31, 197.5. The amendments made by subsecti(m (b) and by subsection (c) (other than paragraph (1)) shall apply with respect to taxable r e a r s beginning after December 31, 1979. SEC. 1053. REPEAL OF PROVISIONS RELATING TO CHINA TRADE ACT CORPORATIONS. (a) PiiASEouT o r SECTION 941,—Section 941 (relating to special deductions for (!'hina Trade Act corporations) is amended by adding the following new subsection: " (d) PiiAsEouT OF DEDUCTION.—In the case of a taxable year beginning after December 31, 1975, and before January 1, 1978, the amount of the special deduction under subsection (a) (determined without regard to this subsection) shall be reduced by the percentage reduction specified in the following t a b l e: "For a taxable year The percentage rebeginning in— duction shall be— (b)

1976 33% 1977 66%.'" PHASEOUT OF SECTION 943.—Section 943 ( r e l a t i n g to the exclu-

sion of certain dividends to residents of Formosa or H o n g Kong) is amended by adding at the end thereof the following new sentence: " I n the case of a taxable year beginning after December 31, 1975. and before January 1, 1978, the amount of the distributions which are excludable from gross income under this section (determined without

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 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1649

regard to this sentence) shall be reduced by the percentage reduction specified in the following t a b l e: "For a taxable year The percentage rebeginning in— duction shall be— 1976 1977

331/3 66%."

(c) EEPEAL.—Subpart E of part III of subchapter X of chapter J 26 USC 941, (relating to China Trade Act corporations) is hereby repealed. ^^2, 943. (d) T E C H X I C A I. AXD COXFORMIKG AMENDMENTS. —

(1) Section 116(b) is amended by striking out paragraph (1) and redesignating paragraph s (2) and (3) as paragraph s (1) and (2), respectively. (2) Section 1504(b) is amended by striking out paragraph (5). (3) Section 6072 is amended by striking out subsection (e). (4) Section 6091(b)(2)(B) (ii) is amended by striking out the comma after "trade corporations)" and inserting in lieu thereof "or'" and by striking out " o r section 941 (relating to the special deduction for China Trade Act corporations),". (5) The table of subparts for part III of subchapter N of chapter 1 is amended by striking out the item relating to subpart E. (e) EFFECTIVE D A T E S. — The amendments m a d e by subsections (a)

26 USC 116. 26 USC 1504. 26 USC 6072. 26 USC 6091.

26 USC 941

and (b) shall apply with respect to taxable years beginning after "°*December 31, 1975. The amendments n)ade by subsections (c) and (d) shall apply with respect to taxable years beginning after December 31, 1977. " ^ P A R T VI — D E N I A L OF CERTAIN T A X B E N E F I T S FOR COOPERATION WITH OR PARTICIPATION I N INTERNATIONAL BOYCOTTS A N D I N C O N N E C T I O N WITH THE P A Y M E N T OF CERTAIN B R I B E S

.•,.

SEC. 1061. DENIAL OF FOREIGN TAX CREDIT. (a) IN GENERAL.—Subpart A of part III of subchapter N (relating to income from sources without the United States) is amended by adding at the end thereof the following new section: "SEC. 908. REDUCTION OF CREDIT FOR PARTICIPATION IN OR CO- 26 USC 908. OPERATION WITH AN INTERNATIONAL BOYCOTT. " (a) IN GENERAL.—If a person, or a member of a controlled group (within the meaning of section 993(a)(3)) which includes such person, participates in or cooperates with an international boycott during the taxable year (within the meaning of section 9 9 9 (b)), the amount ^^^'^^ P- 1^50. of the credit allowable under section 901 to such person, or under section 902 or 960 to United States shareholders of such person, for for- ^"'e, p. 1626. eign taxes paid during the taxable year shall be reduced by an amount equal to the product of— " (1) the amount of the credit which, but for this section, would i be allowed under section 901 for the taxable year, multiplied by " (2) the international boycott factor (determined under section 999). " (b) APPLICATION W I T H SECTIONS 2 7 5 (a)(4) AND 78.—Section 275

(a)(4) and section 78 shall not apply to any amount of taxes denied credit under subsection (a). "

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 90 STAT. 1650

PUBLIC LAW 94-455—OCT. 4, 1976 (b) (YKHICAL AMKNDMKXT.—Tho table of s('<'tioiis for sncli subpart is amended by addhifr at the end thereof the following new itejn: "Sec. 908. Rfductioo of credit for participation in or cooperation witl) an international boycott." SEC. 1062. D E N I A L OF D E F E R R A L O F INTERNATIONAL BOYCOTT AMOUNTS.

26 USC 952.

\

Infra.

(a) D E X I A L OF DEFERUAr..—Section 1)52(a) (relating to general definition of subpart F income) is amended— (1) by striking out ''and'" at the end of paragraph (1). (2) by striking out the period a t the end of paragraph (2) and inserting in lieu thereof a comma, and the word "and", and (3) by adding at the end thereof the following new paragraph: •'(?>) an amount ecjual to the product of— " (A) the income of such corporation other than income which— " (i) is attributable to earnings and profits of the foreign co]'poration included in the gross income of a United States person undei- section 951 (other than by reason of this paragraph), or " ( i i) is described in subsection (b), multiplied by " (B) the international boycott factor (as determined under section 999)." SEC. 1063. DENIAL OF DISC BENEFITS. (a)

26 USC 995.

INTERXATIONAE BOYCOTT ACT IV I T Y. — Subparagraph

(D)

of

section 9 9 5 (b)(1) (relating to distributions in qualified years) is amended to read as follows: " (D) the sum of— " (i) one-half of the excess of the taxable income of the DISC; for the taxable year, before reduction for any distributions during the year, over the sum of the amounts deemed distributed for the taxable year under subparagraph s (A), (B), and (C). an d " ( i i) an amount equal to the amount determined under clause (i) multiplied by the international boycott factor determined under section 999, and'-. SEC. 1064. DETERMINATIONS AS TO PARTICIPATION IN OR COOPERATION WITH AN INTERNATIONAL BOYCOTT. (a) I N GENERVL.—Subchapter X of chapter 1 (relating to tax based on income fiom sources within oi- without the United States) is amended by adding at the end thereof the following new part: "PART V — INTERNATIONAL BOYCOTT DETERMINATIONS •'Sec. 95]S). Reports by taxpayers: determinations.

26 USC 999.

"SEC. 999. REPORTS BY TAXPAYERS; DETERMINATIONS. " (a) INTERNATIONAL BOYCOTT EFFORTS BY TAXPAYERS.— " (1) REPORT REQUIRED.—If any person, or a member of a con-

trolled group (within the meaning of section 993(a)(3)) which includes that person, has operations in, or related to— " (A) a country (or with the government, a company, or a national of a country) which is on the list maintained by the Secretary under paragraph (3), or

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 PUBLIC LAW 94-455—OCT. 4, 1976 '

90 STAT. 1651

" (B) any other country (or with the government, a company, or a national of that country) in which such person or such member had operations during the taxable year if such person (or, if such person is a foreign corporation, any United States shareholder of that corporation) knows or has reason to know that participation in or cooperation with an international boycott is required as a condition of doing business within such country or with such government, company, or national, Lhat person or shareholder (within the meaning of section 951(b)) shall report such operations to the Secretary at such 26 USC 951. time and in such manner as the Secretary prescribes, except that in the case of a foreign corporation such report shall be required only of a United States shareholder (within the meaning of such section) of such corporation. "(2)

PARTICIPATION A X O COOI'EKATIOX; KEQUEST riiEREFOR.—A

taxpayer shall report whether he, a foreign corporation of which he is a United States shareholder, or any member of a controlled group which includes the taxpayer or such foreign corporation has participated in or cooperated with an international boycott at any time during the taxable year, or has been requested to participate in or cooperate with such a boycott, and, if so, the nature of any o))eration in connection with which there was participation in or cooperation with such boycott (or there was a request to participate or cooperate). " (3) L I S T TO KE MAINTAINED.—The Secretary shall m a i n t a i n

and publish not less frequently than fjuarterly a cur-rent list of countries which reijuire or may require participation in or cooperation with an international boycott (within the meaning of subsection (b)(3)). " (b) PARTICIPATION I N OR COOPERATION A\'rrn AX INTERNATIOXAI, BOYCOTT.— " (1) GENERAL RULE.—If the person or a member of a con-

trolled group (within the meaning of section 993(a)(3)) which includes the person participates in or cooperates with an international boycott in the taxable year, all operations of the taxpayer or such group in that country and in any other country which requires participation in or cooperation vvith the boycott as a condition of doing business witliin that country, oi- with the government, a company, or a national of that country, shall be treated as operations in connection with which such participation of cooperation occurred, except to the extent that the person can clearly demonstrate that a particular operation is a clearly separate and identifiable operation in connec^tion with which there was no participation in or cooperation with an international boycott. " (2) S P E C I A I, RILE.

" (A) XoNHOvcorr OPERATIONS.—A clearly sepaiate and identifiable operation of a person, or of a member of the controlled grouf) (within the meaning of section 993(a)(3)) which includes that person, in or related to any countr7 within the group of countries referred to in paragraph (1) shall not be treated as an operation in or related to a group of countries associated in carrying out an international boycott if the per-son can clearly demonstrate that he, or that such jnember. did not participate in or cooperate with the international boycott in connection with that operation.

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 90 STAT. 1652

PUBLIC LAW 94-455—OCT. 4, 1976 " (B) SEPARATE AND IDENTIFIABLE OPERATIONS.—A taxpayer may show that different operations within the same country, or operations in different countries, are clearly separate and identifiable operations. " (3) DEFINITION OF BOYCOTT PARTICIPATION AND COOPERATION.— For purposes of this section, a person participates in or cooperates with an international boycott if he agrees— " (A) as a condition of doing business directly or indirectly within a country or with the government, a company, or a national of a country— •'(i) to refrain from doing business with or in a country which is the object of the boycott or with the government, companies, or nationals of that country; " ( i i) to refrain from doing business with any United States person engaged in trade in a country which is the object of the boycott or with the government, companies, or nationals of that country; " ( i i i) to refrain from doing business with any company whose ownership or management is made u p, all or in part, of individuals of a particular nationality, race, or religion, or to remove (or refrain from selecting) corporate directors who are individuals of a particular nationality, race, or religion; or " ( i v) to refrain from employing individuals of a particular nationality, race, or religion; or " (B) as a condition of the sale of a product to the government, a company, or a national of a country, to refrain from shipping or insuring that product on a carrier owned, leased, or operated by a person who does not participate in or cooperate with an international boycott (within the meaning of subparagraph (A)). " (4) COMPLIANCE W I T H CERTAIN LAWS.—This section shall not

apply to any agreement by a person (or such member) — " (A) to meet requirements imposed by a foreign country with respect to an international boycott if United States law or regulations, or an Executive Order, sanctions participation in, or cooperation with, that international boycott, " (B) to comply with a prohibition on the importation of goods produced in whole or in part in any country which is the object of an international boycott, or " (C) to comply with a prohibition imposed by a country on the exportation of products obtained in such country to any country which is the object of an international boycott. " (c) INTERNATIONAL BOYCOTT FACTOR.— " (1) INTERNATIONAL BOYCOTT FACTOR.—For purposes of sec-

Ante, pp. 1649, 1650. Post, p. 1655. 26 USC 993.

tions 9 0 8 (a), 9 5 2 (a)(3), and 9 9 5 (b)(3), the international boycott factor is a fraction, determined under regulations prescribed by the Secretary, the numerator of which reflects the world-wide operations of a person (or, in the case of a controlled g r o u p (within the meaning of section 993(a)(3)) which includes that person, of the group) which are operations in or related to a group of countries associated in carrying out an international boycott in or with which that person or a member of that controlled group has participated or cooperated in the taxable year, and the denominator of which reflects the world-wide operations of that person or group.

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 PUBLIC LAW 94-455—OCT. 4, 1976 "(2)

SPECIFICALLY ATTRIBUTABLE TAXES AND I N C O M E. — I f

9 0 STAT. 1653 the

taxpayer clearly demonstrates that the foreign taxes paid and income earned for the taxable year are attributable to specific oper' ations, then, in lieu of a p p l y i n g the international boycott factor for such taxable year, the amount of the credit disallowed under section 9 0 8 (a), the addition to subpart F income under section Ante, p. 1649. 952(a)(3), and the amount of deemed distribution under section Ante, p. 1650. 9 9 5 (b)(1)(D) (ii) for the taxable year, if any, shall be the amount specifically attributable to the operations in which there was participation in or cooperation with an international boycott under section 999(b)(1). ^ ^ ^rete, p. 1650. " (3) WORLD-WIDE OPERATIONS.—For purposes of this subsection, the term 'world-wide operations' means operations i n o r related to countries other than the United States. " (d) DETERMINATIONS W I T H RESPECT TO PARTICULAR OPERATIONS.—

Upon a request made by the taxpayer, the Secretary shall issue a determination with respect to whether a particular operation of a person, or of a member of a controlled group which includes that person, constitutes participation in o r cooperation with an international boycott. The Secretary may issue such a determination in advance of such operation in cases which are of such a nature that a n advance determination is possible and appropriate under the circumstances. I f the request is made before the operation is commenced, or before the end of a taxable year in which the operation is carried out, the Secretary may decline to issue such a determination before close of the taxable year.

' '.. ....

" (e) PARTICIPATION O COOPERATION BY RELATED P E R S O N S. — I f a perR

son controls (within the meaning of section 304(c)) a corporation— " (1) participation in or cooperation with an international boycott by such corporation shall be presumed to be such participation or cooperation by such person, and " (2) participation in or cooperation with such a boycott by such person shall be presumed to be such participation or cooperation by such corporation.

'

<

" (f) W I L L F U L FAILURE TO REPORT.—Any person ( w i t h i n the mean-

ing of section 6671(b)) required to report under this section who willfully fails to make such report shall, in addition to other penalties provided by law, be fined not more than $25,000, imprisoned for not more than one year, or both.". (b) CLERICAL AMENDMENT. — The table of part s for such subchapter is amended by adding a t the end thereof the following new item: "Part V. International boycott determinations." SEC. 1065. FOREIGN BRIBES. (a)

/.; ^

D E N I A L OF DEFERRAL.—

(1) CONTROLLED FOREIGN CORPORATIONS.—Section 952(a) (relat- 26 USC 952. i n g to general definition of subpart F income) is amended— (A) by striking out " and " a t the end of paragraph (2), (B) by striking out the period at the end of paragraph (3) and inserting in lieu thereof a comma and the word "and", and (C) by adding at the end thereof the following new paragraph: " (4) the sum of the amounts of any illegal bribes, kickbacks, or other payments (within the meaning of section 162(c)) paid by or on behalf of the corporation during the taxable year of

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 90 STAT. 1654

26 USC 995.

PUBLIC LAW 94^455—OCT. 4, 1976 the corporation directly or indirectly to an official, employee, or agent in fact of a government." (2) DISC'S.—Subparagraph (D) of section 995(b)(1) (relating to distributions in qualified years) is amended— (A) by striking out "and" at the end of clause (i), (B) by adding at the end thereof the following new clause: "(iii) any illegal bribe, kickback, or other payment (within the meaning of section 162(c)) paid by or on behalf of the DISC directly or indirectly to an official, employee, or agent in fact of a government, and", (b) BRIBES NOT To REDUCE FOREIGN EARNINGS AND PROFITS.—Sec-

26 USC 964.

26 USC 908

note.

26 USC 952 "ot«26 USC 999 note.

Ante, p. 1650.

tion 964(a) (relating to earnings and profits of foreign corporations) is amended by adding at the end thereof the following sentence,: "In determining such earnings and profits, or the deficit in such earnings and profits, the amount of any illegal bribe, kickback, or other payment (within the meaning of section 162(c)) shall not be taken into account to decrease such earnings and profits or to increase such deficit.". SEC. 1066. EFFECTIVE DATES. (a)

INTERNATIONAL BOYCOTTS.—

(1) GENERAL RULE.—The amendments made by this part (other than by section 1065) apply to participation in or cooperation with an international boycott more than 30 days after the date of enactment of this Act. (2) EXISTING CONTRACTS.—In the case of operations which constitute participation in or cooperation with an international boycott and which are carried out in accordance with the terms of a binding contract entered into before September 2, 1976, the amendments made by this part (other than by section 1065) apply to such participation or cooperation after December 31, 1977. (b) FOREIGN BRIBES..—The amendments made by section 1065 apply to payments described in section 162(c) of the Internal Revenue Code of 1954 made more than 30 days after the date of enactment of this Act. SEC. 1067. REPORTS BY SECRETARY. (a) REPORTS TO THE CONGRESS.—As

soon after the close of each calendar year as the data become available, the Secretary shall transmit a report to the Committee on Ways and Means of the House of Representatives and to the Committee on Finance of the Senate setting forth, for that calendar year— (1) the number of reports filed under section 999(a) of the Internal Revenue Code of 1954 for taxable years ending with or within such taxable year, (2) the number of such rep>orts on which the taxpayer indicated international boycott participation or cooperation (within the meaning of section 999(b)(3) of such Code), and (3) a detailed description of the manner in which the provisions of such Code relating to international boycott activity have been administered during such calendar year. (b) INITIAL LIST.—The Secretary of the Treasury shall publish an initial list of those countries which may require participation in or cooperation with an international boycott as a condition of doing business within such country, or with the go^'^ernment, a company, or a national of such country (within the meaning of section 999(b) of the Internal Revenue Code of 1954) within 30 days after the enactment of this Act.

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 PUBLIC LAW 94-455—OCT. 4, 1976

90 STAT. 1655

TITLE XI—AMENDMENTS AFFECTING DISC SEC. 1101. AMENDMENTS AFFECTING DISC. (a) IN GENERAL.—Section 995 (relating to taxation of D I S C 26 USC 995. income to shareholders) is amended— (1) in paragraph (1) of subsection (b) thereof, by redesignating subparagraphs (D) and (E) as subparagraphs (F) and (G), respectively, by striking out "and (C) " in subparagraph (F) (as so redesignated) and inserting in lieu thereof " (C), (D), and (E) ", and by inserting after subparagraph (C) the following new subparagraphs: " (D) 50 percent of the taxable income of the D I S C for the taxable year attributable to military property, " (E) the taxable income for the taxable year attributable to base period export gross receipts (as defined i n subsection (2) in paragraph (2)(B) of subsection (b) thereof, by s t r i k m g out "more than the n u m b e r " and inserting in lieu thereof "more than twice the n u m b e r "; (3) by a d d i n g a t the end of subsection (b) thereof the following new paragraph: "(3)

TAXABLE INCOME ATTRIBUTABLE TO MILITARY PROPERTY.—

" (A) IN GENERAL.—For purposes of paragraph (1)(D), taxable income of a D I S C for the taxable year attributable to military property shall be determined by only taking into account— " (i) the gross income of the D I S C for the taxable year which is attributable to military property, and " ( i i) the deductions which are properly apportioned or allocated to such income. " (B) MILITARY PROPERTY.—For purposes of subparagraph

(A), the term 'military property' means any property which is an arm, ammunition, or implement of w a r designated i n the munitions list published pursuant to the Military Security Act of 1954 (22 U.S.C. 1934)."; and (4) by a d d i n g a t the end thereof the following new subsections: " (e) DEFINITIONS AND SPECIAL RULES RELATING TO COMPUTATION OF TAXABLE INCOME ATTRIBUTABLE TO B A S E PERIOD EXPORT GROSS RECEIPTS.— " (1) TAXABLE INCOME ATTRIBUTABLE TO BASE PERIOD EXPORT

GROSS RECEIPTS.—For purposes of this section, the taxable income attributable to base period export gross receipts shall be a n amount equal to that portion of the adjusted taxable income of a D I S C which— " (A) the amount of the adjusted base period export gross receipts, bears to " (B) the amount of the export gross receipts of the D I S C for the taxable year. " (2) ADJUSTED TAXABLE INCOME.—For purposes of this section, the term 'adjusted taxable income' means the income of a D I S C for the taxable year, reduced by the amounts described in subparagraph s (A), (B), (C), and (D) of paragraph (1) of subsection (b).

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90 STAT. 1656

" (3) ADJUSTED

26 USC 993.

BASE

PERIOD

EXPORT

GROSS

RECEIPTS.—For

purposes of this section, the term 'adjusted base period export gross receipts' means 67 percent of the average of the export gross receipts of the D I S C for taxable years during the base period ( a s defined in paragraph (5)). For purposes of the preceding sentence, if any property would not qualify during the taxable year as export property by reason of section 993(c)(2), gross receipts from such property shall be excluded from export gross receipts during the taxable years in the base period. "(4)

EXPORT GROSS RECEIPTS.—For purposes of t h i s section, the

term 'export gross receipts' means— " (A) qualified export receipts described in subparagraphs (A), (B), (C), (G), and (H) of section 993(a)(1), reduced

by " (B) 50 percent of such qualified export receipts which are attributable to military property (as defined in subsection (b)(3)(B)). " (5) B A S E PERIOD.—For purposes of paragraph (3) —

Regulations.

" (A) for any taxable year beginning before 1980, the base period shall be the taxable years beginning in 1972, 1973, 1974, and 1975, and " (B) for any taxable year be2:inmng in any calendar year after 1979, the base period shall be the taxable years beginn i n g in the fourth, fifth, sixth, and seventh calendar years preceding such calendar year. " (6) No BASE PERIOD YEAR.—If a D I S C did not have a taxable year beginning in a calendar year specified in paragraph (5), then, for purposes of computing the adjusted base period export gross receipts, such D I S C is deemed to have a taxable year and export gross receipts of zero for that year. "(7)

SHORT TAXABLE YEAR.—The Secretary shall prescribe such

regulations as he deems necessary with respect to a short taxable year for purposes of computing base period export gross receipts of a D I S C, or a short taxable year in which deemed distributions (as described in subsection (b)) are made, including the circumstances under which the short taxable year shall be annualized, and the proper method of annualization. " (8) CONTROLLED GROUP.—If more than one member of a controlled group (as defined in section 993(a)(3)) for the taxable year qualifies as a D I S C, then subsection (b)(1)(E), this subsection, and subsection (f) shall each be applied in a manner provided by regulations prescribed by the Secretary by aggregating the export gross receipts and taxable income of such D I S C s for the taxable year and by aggregating the export gross receipts of such D I S C s for each taxable year in the base period. " (9) SPECIAL RULE WHERE THE OWNERSHIP OP DISC STOCK AND THE TRADE O R B U S I N E S S GIVING RISE TO EXPORT GROSS RECEIPTS OF THE DISC ARE SEPARATED.

" (A) IN GENERAL.—If, a t any time after the beginning of the base period, there has been a separation of the ownership of the stock in the D I S C from the ownership of the trade or business which ( during the base period) produced the export gross receipts of the D I S C, then the persons who own the trade or business during the taxable year shall be treated as h a v i n g had additional export gross receipts during the base period attributable to such trade or business.

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 90 STAT. 1657

PUBLIC LAW 94-455—OCT. 4, 1976 "(B) ExcEFnoNS.—Subparagraph (A) shall not apply— "(i) where the stock in the DISC and the trade or business are owned throughout the taxable year by members of the same controlled group, and "(ii) to the extent that the taxpayer's ownership of the stock in the DISC for the taxable year is proportionate to his ownership during the taxable year of the trade or business. " ( 1 0) D I S C BASE PERIOD ATTRIBUTED THROUGH SHAREHOLDERS IN CERTAIN CASES.— " (A) IN GENERAL.—If—

Regulations.

"(i) any person owns 5 percent or more of the stock of a DISC (hereinafter in this paragraph referred to as 'first D I S C), and "(ii) such person at any time during the base period of the first DISC owned 5 percent or more of the stock of a second DISC, then, to the extent provided in such regulations as the Secretary may prescribe to prevent circumvention of the application of subsection (b)(1)(E), an amount equal to such shareholder's share of the base period export gross receipts of the second DISC shall be added to the base period export gross receipts of the first DISC. "(B) OWNERSHIP OF STOCK.—For purposes of subparagraph (A), the ownership of stock shall be determined under section 318. 26 USC 318. "(f) SMALL DISCS.— " (1) ADJUSTED TAXABLE INCOME OF $100,000 OR LESS.—If

a

DISC has adjusted taxable income of $100,000 or less for a taxable year, subsection (b)(1)(E) shall not apply with respect to such year. " (2) SPECIAL RULE.—If a DISC has adjusted taxable income of more than $100,000 for a taxable year, then the amount taken into account under subsection (b)(1)(E) shall be deemed to be an amount equal to the excess (if any) of— "(A) the amount which would (but for this paragraph) be taken into account under subsection (b)(1)(E), over "(B) twice the excess (if any) of $150,000 over the adjusted taxable income. "(g) CERTAIN TRANSFERS OF DISC ASSETS.—If— "(1) a corporation owns, directly or indirectly, all of the stock of a subsidiary and a DISC, ^ "(2) the subsidiary has been engaged in the active conduct of a trade or business (within the meaning of section 355(b)) throughout the 5-year period ending on the date of the transfer and continues to be so engaged thereafter, and "(3) during the taxable year of the subsidiary in which its stock is transferred and its preceding taxable year, such trade or business gives rise to qualified export receipts of the subsidiary and the DISC, then, under such terms and conditions as the Secretary by regulations Regulations. shall prescribe, transfers of assets, stock, or both, will be deemed to be a reorganization within the meaning of section 368, a transaction to which section 355 applies, an exchange of stock to which section 351 applies, or a combination thereof. The preceding sentence shall apply only to the extent that the transfer or transfers involved are for the purpose of preventing the separation of the ownership of the stock in

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 90 STAT. 1658

PUBLIC LAW 94-455—OCT. 4, 1976 the D I S C from the ownership of the trade or business which ( during the base period) produced the export gross receipts of the D I S C. "

26 USC 993.

^ (b)

AMENDMENT o r SECTION 993 (c)(2).—Section 993(c)(2) (relat-

ing to property excluded from export property) is amended— f l) by striking out "or" a t the end of subparagraph (B), and (2) by striking out "under section 611" in subparagraph (C) and inserting in lieu thereof "under section 613 or 613A". (c) AMENDMENTS TO SECTION 993(d).—Section 993(d) (relating to definition of producer's loans) is amended— (1) by inserting in paragraph (1)(C) immediately after "export property", the following: "determined without regard to subparagraph (C) or (D) of subsection (c)(2),". (2) by inserting i n paragraph (2) immediately after "of property which would be export property " the following: "(determined without regard to subparagraph (C) or (D) of subsection (c)(2))". (d) RECAPTURE OF ACCUMULATED D I S C INCOME ON DISPOSITION OF STOCK I N A D I S C OR FORMER D I S C —

26 USC 995.

(1) Section 995(c) is amended to read as follows: "(c)

G A I N ON DISPOSITION OF STOCK I N A D I S C. — " (1) IN GENERAL.—If—

" (A) a shareholder disposes of stock in a D I S C or former D I S C any gain recognized on such disposition shall be included in gross income as a dividend to the extent provided in paragraph (2), " (B) stock of a D I S C or former D I S C is disposed of i n a transaction in which the separate corporate existence of the D I S C or former D I S C is terminated other than by a mere change in place of organization, however effected, any gain realized o n the disposition of such stock in the transaction shall be recognized notwithstanding any other provision of this title to the extent provided in paragraph (2) and to the extent so recognized shall be included in gross income as a dividend, or " (C) a shareholder distributes, sells, or exchanges stock in a D I S C or former D I S C in a transaction to which section 311, 336, or 337 applies, then an amount ec[ual to the excess of the fair market value of such stock over its adjusted basis i n the hands of the shareholder shall, notwithstanding any provision of this title, be included in gross income of the shareholder as a dividend to the extent provided i n paragraph (2). " (2) A M O U N T INCLUDED.—The amounts described in paragraph (1) shall be included i n gross income as a dividend to the extent of the accumulated D I S C income of the D I S C or former D I S C which is attributable to the stock disposed of and which was accumulated in taxable years of such corporation during the period or periods the stock disposed of was held by the shareholder which disposed of such stock." (2)

26 USC 751.

INTEREST I N A PARTNERSHIP HOLDING STOCK I N A DISC.—

The last sentence of section 751(c) (relating to unrealized receivables) is amended— (A) by striking out " ( a s defined in section 617(f)(2)), " and inserting in lieu thereof " ( a s defined in section 617(f) (2), stock in a D I S C (as described in section 9 9 2 (a)), " and (B) by striking out " 6 1 7 (d)(1), 124:5(a)," and inserting in lieu thereof "617(d)(1), 995(c), 1245(a),''.

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(e)

90 STAT. 1659

RULES FOR ALLOCATING DISTRIBUTIONS M A D E TO M E E T Q U A L I -

FICATION REQUIREMENTS.—Paragraph (2) of section 996(a) (relating 26 USC 996. to rules for actual distributions and certain deemed distributions) is amended by adding at the end thereof the following new sentence: " I n the case of any amount of any actual distribution made pursuant to section 992(c) which is required to satisfy the condition of section 992(a)(1)(A), the preceding sentence shall apply to one-half of such amount, and paragraph (1) shall apply to the remaining one-half of such amount." (f)

AMENDMENT OF SECTION 603(b) OF T A X REDUCTION ACT

or

1975.—Section 603(b) of the T a x Reduction Act of 1975 (relating to 26 USC 993 effective date) is amended to read as follows: no^. "(b)

EFFECTIVE D A T E S. —

" (1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by subsection (a) shall apply to sales, exchanges, and other dispositions made after March 18, 1975, in taxable years ending after such date. " (2) BINDING CONTRACT.—The amendments made by subsection (a) shall not apply to sales, exchanges, and other dispositions made after March 18, 1975, but before March 19, 1980, if such sales, exchanges, and other dispositions are made pursuant to a fixed contract. The term 'fixed contract' means a contract which "Fixed was, on March 18, 1975, and is a t all times thereafter binding on contract." the D I S C or a tax p a y e r which was a member of the same controlled g r o u p (within the meaning of section 9 9 3 (a)(3) of the I n t e r n a l Revenue Code of 1954) as the D I S C, which was entered into after the date on which the D I S C qualified as a D I S C and the D I S C and the taxpayer became members of the same controlled g r o u p, and under which the price and quantity of the products sold, exchanged, or otherwise disposed of cannot be increased." (g)

EFFECTIVE D A T E S. —

(1) FOR SUBSECTIONS (a) AND (e).—The amendments made by subsections (a) and (e) shall apply to taxable years beginning after December 31, 1975. (2) FOR SUBSECTION (b). — The amendments made by subsection (b) shall apply to sales, exchanges, and other dispositions made after March 18, 1975, in taxable years ending after such date. (3) FOR SUBSECTIONS (C) AND (f).—The amendments made by subsections (c) and (f) shall apply to taxable years ending after March 18, 1975. (4) FOR SUBSECTION (d). — The amendments made by subsection (d) shall apply to sales, exchanges, or other dispositions after December 31, 1975, in taxable years ending after such date. (5)

26 USC 995 note. 26 USC 993 note, 26 USC 993 note. 26 USC 995 note.

PRORATION OF BASE PERIOD I N CASE OF FIXED CONTRACTS.— 26 USC 995

For purposes of determining adjusted base period export gross note, receipts (under section 995(e)(3) of the I n t e r n a l Revenue Code of 1954, as amended by this section), if any D I S C has export gross receipts from export property by reason of paragraph (2) of section 603(b) of the T a x Reduction Act of 1975, then the export gross receipts of such D I S C for the taxable years of the base period shall be increased by a n amount equal to the amount of gross receipts which were excluded from export gross receipts during each taxable year of the base period by reason of the last sentence of section 993(e)(3) of such Code multiplied by a fraction, the numerator of which is the amount of the gross receipts in the taxable year which are export gross receipts by reason of

,

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 90 STAT. 1660 26 USC 993 °°*®-

PUBLIC LAW 94-455—OCT. 4, 1976 paragraph (2) of section 603(b) of the T a x Reduction Act of 1975 and the denominator of which is the amount of total gross receipts which are excluded from export gross receipts in the taxable year by reason of subparagraph (C) or (D) of paragraph (2) of section 993(c) (determined without regard to paragraph (2) of section 603(b) of the T a x Reduction Act of 1975).

TITLE XII—ADMINISTRATIVE PROVISIONS SEC. 1201. PUBLIC INSPECTION OF WRITTEN DETERMINATIONS BY INTERNAL REVENUE SERVICE. (a) REQUIREMENT T H A T W R I T T E N DETERMINATIONS B E O P E N TO

26 USC 6110. Regulations.

PUBLIC INSPECTION.—Subchapter B of chapter 61 (relating to miscellaneous provisions) is amended by redesignating section 6110 as 6111 and by inserting after section 6109 the following new section: "SEC. 6110. PUBLIC INSPECTION OF WRITTEN DETERMINATIONS. " (a) GENERAL KuLE.—Except as otherwise provided in this section, the text of any written determination and any background file document relating to such written determination shall be open to public inspection a t such place as the Secretary may by regulations prescribe. " (b) DEFiNmoNs.—For purposes of this section— " (1) W R I T T E N DETERMINATION.—The term ' w r i t t e n determina-

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tion' means a ruling, determination letter, o r technical advice memorandum. " (2) BACKGROUND FILE DOCUMENT.—The term ' b a c k g r o u n d file document' w i t h respect to a written determination includes the request for that written determination, any written material submitted in support of the request, and any communication (written or otherwise) between the I n t e r n a l Revenue Service and persons outside the I n t e r n a l Revenue Service i n connection with such written determination (other than any communication between the Department of Justice and the I n t e r n a l Revenue Service relating to a pending civil or criminal case or investigation) received before issuance of the written determination. " (3) REFERENCE AND GENERAL WRITTEN DETERMINATIONS.— " (A) REFERENCE WRITTEN DETERMINATION.—The term ' r e f -

erence written determination' means any written determination which has been determined by the Secretary to have significant reference value. " (B) GENERAL WRITTEN DETERMINATION.—The term 'gen-

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eral written determination' means any written determination other than a reference written determination. " (c) E X E M P T I O N S F R O M DISCLOSURE.—Before making any w r i t t e n

determination or background file document open or available to public inspection under subsection (a), the Secretary shall delete— " (1) the names, addresses, and other identifying details of the person to whom the written determination pertains and of any other person, other than a person with respect to,whom a notation is made under subsection (d)(1), identified in the written determination or any background file document; " (2) information specifically authorized under criteria established by an Executive order to be kept secret in the interest of national defense or foreign policy, and which is i n fact properly classified pursuant to such Executive o r d e r;

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