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 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 629

SEC. 105. CLARIFICATION THAT SECTION 1234 APPLIES TO OPTIONS ON REGULATED FUTURES CONTRACTS AND CASH SETTLEMENT OPTIONS.

(a) GENERAL RULE.—Section 1234 (relating to options to buy or sell) is amended by adding at the end thereof the following new subsection: "(c) TREATMENT OF OPTIONS ON SECTION 1256 CONTRACTS AND CASH SETTLEMENT OPTIONS.— "(1) SECTION 1256 CONTRACTS.—Gain or loss shall be recog-

nized on the exercise of an option on a section 1256 contract (within the meaning of section 1256(b)).

26 USC 1234.

 * c i s

Ante, p. 620.

"(2) TREATMENT OF CASH SETTLEMENT OPTIONS.—

"(A) IN GENERAL.—For purposes of subsections (a) and (b), a cash settlement option shall be treated as an option to buy or sell property. -f»b

i

"(B) CASH SETTLEMENT OPTION.—For purposes of subpara-

-^ >'^-J '-

graph (A), the term 'cash settlement option' means any option which on exercise settles in (or could be settled in) cash or property other than the underlying property." (b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 USC 1234 shall apply to options purchased or granted after October 31, 1983, note. in taxable years ending after such date. SEC. 106. WASH SALE RULES TO APPLY TO LOSSES ON CERTAIN SHORT SALES. (a) IN GENERAL.—Section 1091 (relating to losses from wash sales 26 USC 1091. of stock or securities) is amended by adding at the end thereof the following new subsection: „,. "(e) CERTAIN SHORT SALES OF STOCK OR SECURITIES.—Rules similar

to the rules of subsection (a) shall apply to any loss realized on the closing of a short sale of stock or securities if, within a period beginning 30 days before the date of such closing and ending 30 days after such date— "(1) substantially identical stock or securities were sold, or "(2) another short sale of substantially identical stock or securities was entered into."

'

'•"

(b) LOSSES FROM WASH SALES ONLY IN CASE OF DEALER LOSSES.—

Section 1091(a) (relating to disallowance of loss deduction for wash sales) is amended by striking out all that follows "then" and inserting in lieu thereof "no deduction shall be allowed under section 165 unless the taxpayer is a dealer in stock or securities and the loss is sustained in a transaction made in the ordinary course of such business." (c) EFFECTIVE DATE.— 26 USC I09i (1) SUBSECTION (a).—The amendment made by subsection (a) ^°^shall apply to short sales of stock or securities after the date of the enactment of this Act in taxable years ending after such date. (2) SUBSECTION (b).—The amendment made by subsection (b) shall apply to sales after December 31, 1984, in taxable years ending after such date. SEC. 107. TIME FOR IDENTIFICATION BY TAXPAYER OF CERTAIN TRANSACTIONS. (a) IDENTIFIED STRADDLES.—Clause (i) of section 1092(a)(2)(B) (defm- 26 USC 1092. ing identified straddles) is amended to read as follows:

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Page:United States Statutes at Large Volume 98 Part 1.djvu/678

 98 STAT. 630

PUBLIC LAW 98-369—JULY 18, 1984 ••-'•••

M'&i 3PJi ys

"(i) which is clearly identified on the taxpayer's records as an identified straddle before the earlier of— "(I) the close of the day on which the straddle is acquired, or "(II) such time as the Secretary may prescribe by regulations."

(b) DEALERS IN SECURITIES.—

26 USC 1236. 0£^) 4.lij^k

26 USC 1256.

"

(1) Paragraph (1) of section 1236(a) (relating to capital gain of dealers in securities) is amended to read as follows: "(1) the security was, before the close of the day on which it was acquired (or such earlier time as the Secretary may prescribe by regulations), clearly identified in the dealer's records as a security held for investment; and". (2) Paragraph (2) of section 1236(a) is amended by inserting "(or such earlier time)" after "such day". (c) MIXED STRADDLES.—Subparagraph (B) of section 1256(d)(4) (de-

fining mixed straddles) is amended by inserting "(or such earlier time as the Secretary may prescribe by regulations)" after "acquired". km. >6i' Bi

<:;t., 26 USC 1092 note. 26 USC 1092 note.

(d)

HEDGING

TRANSACTIONS.—Subparagraph

(C)

of

section

1256(e)(2) (defining hedging transactions) is amended by inserting "(or such earlier time as the Secretary may prescribe by regulations)" after "entered into". (e) EFFECTIVE DATE.—The amendments made by this section shall apply to positions entered into after the date of the enactment of this Act, in taxable years ending after such date. SEC. 108. TREATMENT OF CERTAIN LOSSES ON STRADDLES ENTERED INTO BEFORE EFFECTIVE DATE OF ECONOMIC RECOVERY TAX ACT OF 1981.

(a) GENERAL RULE.—For purposes of the Internal Revenue Code of 26 USC 1 et seq. 1954, in the case of any disposition of 1 or more positions— (1) which were entered into before 1982 and form part of a straddle, and (2) to which the amendments made by title V of the Economic 95 Stat. 323. Recovery Tax Act of 1981 do not apply, any loss from such disposition shall be allowed for the taxable year of the disposition if such position is part of a transaction entered into for profit. (b) PRESUMPTION THAT TRANSACTION ENTERED INTO FOR PROFIT.—

i? O OP'u ds f -ijof

For purposes of subsection (a), any position held by a commodities dealer or any person regularly engaged in investing in regulated futures contracts shall be rebuttably presumed to be part of a transaction entered into for profit. (c) NET Loss ALLOWED WHETHER OR NOT TRANSACTION ENTERED INTO FOR PROFIT.—If any loss with respect to a position described in paragraphs (1) and (2) of subsection (a) is not allowable as a deduction (after applying subsections (a) and (b)), such loss shall be allowed in determining the gain or loss from dispositions of other positions in the straddle to the extent required to accurately reflect the taxpayer's net gain or loss from all positions in such straddle, (d) OTHER RULES.—Except as otherwise provided in subsections (a)

and (c) and in sections 1233 and 1234 of such Code, the determination of whether there is recognized gain or loss with respect to a S®; "yF-'j. K: position, and the amount and timing of such gain or loss, and the treatment of such gain or loss as long-term or short-term shall be

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license: Creative Commons - Attribution Share-Alike - https://creativecommons.org/licenses/by-sa/4.0/


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Page:United States Statutes at Large Volume 98 Part 1.djvu/679

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 631

made without regard to whether such position constitutes part of a straddle. J (e) STRADDLE.—For purposes of this section, the term "straddle" has the meaning given to such term by section 1092(c) of the Internal Revenue Code of 1954 as in effect on the day after the date of the enactment of the Economic Recovery Tax Act of 1981, and 26 USC l note. shall include a straddle all the positions of which are regulated futures contracts. (f) COMMODITIES DEALER.—For purposes of this section, the term "commodities dealer" has the meaning given to such term by section 1402(i)(2)(B) of the Internal Revenue Code of 1954 (as added by this Ante, p. 622. subtitle). (g) REGULATED FUTURES CONTRACTS.—For purposes of this section, the term "regulated futures contracts" has the meaning given to such term by section 1256(b) of the Internal Revenue Code of 1954 Ante, p. 620. (as in effect before the date of enactment of this Act). (h) SYNDICATES.—Subsection (b) shall not apply to any syndicate (as defined in section 1256(e)(3)(B) of the Internal Revenue Code of 1954). 26 USC 1256.

Subtitle I—Depreciation SEC. 111. RECOVERY PERIOD FOR CERTAIN REAL PROPERTY EXTENDED TO 18 YEARS. (a) IN GENERAL.—Paragraph (2) of section 168(b) (relating to 15- 26 USC 168. year real property) is amended— (1) by striking out "15-year real property" each place it appears in the text and heading thereof and inserting in lieu thereof "18-year real property", (2) by striking out "15-year recovery period" in subparagraph (A)(i) and inserting in lieu thereof "18-year recovery period", and (3) by striking out "(200 percent declining balance method in the case of low-income housing)". (h) LOW-INCOME HOUSING.— (1) DETERMINATION OF RECOVERY PERCENTAGE.—Subsection (h)

of section 168 (relating to the amount of deduction) is amended by adding at the end thereof the following new paragraph: "(4) LOW-INCOME HOUSING.—

t fci V

i i

"(A) IN GENERAL.—In the case of low-income housing, the applicable percentage shall be determined in accordance with the table prescribed in paragraph (2) (without regard to the mid-month convention), except that in prescribing such table, the Secretary shall— "(i) assign to the property a 15-year recovery period, and "(ii) assign percentages generally determined in accordance with use of the 200 percent declining balance method, switching to the method described in section 167(b)(1) at a time to maximize the deduction allowable under subsection (a). "(B) SPECIAL RULE FOR YEAR OF DISPOSITION.—In the case of a disposition of low-income housing, the deduction allowable under subsection (a) for the taxable year in which the disposition occurs shall reflect only the months during such year the property was placed in service."

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Page:United States Statutes at Large Volume 98 Part 1.djvu/680

 98 STAT. 632

PUBLIC LAW 98-369—JULY 18, 1984

e ]

26 USC 168.

(2) LOW-INCOME HOUSING DEFINED.—Paragraph (2) of section

168(c) (defining recovery property) is amended by redesignating subparagraph (F) as subparagraph (G) and by inserting after subparagraph (E) the following new subparagraph: "(F) LOW-INCOME HOUSING.—The term 'low-income housing' means property described in clause (i), (ii), (iii), or (iv) of section 1250(a)(1)(B)."

iJo i.aiJ dJ:

(3) CONFORMING AMENDMENTS.—

'"• SSH c.\ ! ' (K;.q juvft

(A) Subparagraph (A) of section 168(b)(2) is amended by striking out the last sentence thereof. (B) Subparagraph (D) of section 168(c)(2) is amended to read as follows: "(D) 18-YEAR REAL PROPERTY.—The term '18-year real property' means section 1250 class property which— "(i) does not have a present class life of 12.5 years or less, and "(ii) is not low-income housing."

(c) TRANSITIONAL RULE FOR COMPONENTS.—Subparagraph (B)

of

ooSl DBli & section 168(f)(1) is amended to read as follows: S "(B) TRANSITIONAL RULES.— "(i) BUILDINGS PLACED IN SERVICE BEFORE 1981.—In

frjfi/ T5 f jf i.:• ^'-'' ' '
 * d( > J w - - •":

the case of any building placed in service by the taxpayer before January 1, 1981, for purposes of applying subparagraph (A) to components of such buildings placed in service after December 31, 1980, and before March 16, 1984, the deduction allowable under subsection (a) with respect to such components shall be computed in the same manner as the deduction allowable with respect to the first such component placed in service after December 31, 1980. "(ii) BUILDINGS PLACED IN SERVICE BEFORE MARCH 16,

n't b 't " '^

1984.—In the case of any building placed in service by ^^® taxpayer before March 16, 1984, for purposes of applying subparagraph (A) to components of such buildings placed in service after March 15, 1984, the deduction allowable under subsection (a) with respect to such components shall be computed in the same manner as the deduction allowable with respect to the first such component placed in service after March 15, 1984. "(iii) FIRST COMPONENT TREATED AS SEPARATE BUILDING.—For purposes of clause (i) or (ii), the method of computing the deduction allowable with respect to the first component described in such clause shall be determined as if it were a separate building."

(d) USE OF MID-MONTH CONVENTION.—Subparagraphs (A) and

(B)

of section 168(b)(2) are each amended by inserting "(using a midmonth convention)" after "months". (e) CONFORMING AMENDMENTS.—

(1) Subsections (b)(3)(B)(iii), (f)(2)(B), (f)(2)(C)(ii)(II), (f)(2)(E), and (f)(5) of section 168 are each amended by striking out "15-year 5«af real property" each place it appears and inserting in lieu thereof "18-year real property or low-income housing". (2) Clause (ii) of section 168(b)(3)(B) is amended by striking out iit»i "15-year real property" and inserting in lieu thereof "18-year real property or low-income housing,".

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 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 633

(3) Subparagraph (B) of section 168(d)(2) is amended by striking out "15-year real property" and inserting in lieu thereof "18-year real property or low-income housing". (4) Clause (i) of section 168(f)(2)(C) (relating to recovery period for property used outside United States) is amended by striking out the item relating to 15-year real property in the table and inserting in lieu thereof the following new item: "18-year real property or low-income housing

t

26 USC 168.

35 or 45 years.".

(5) Sections 57(a)(12)(A) and 312(k)(3)(A) and subparagraphs (A), (B), and (C) of section 1245(A)(5) are each amended by striking out "15-year real property" each place it appears in the text and headings and inserting in lieu thereof "18-year real property and low-income housing". (6) Subparagraph (B) of section 57(a)(12) (relating to items of tax preference) is amended to read as follows:

26 USC 57, 312, 1245. 26 USC 57.

"(B) 18-YEAR REAL PROPERTY AND LOW-INCOME HOUSING.—

With respect to each recovery property which is 18-year ^ real property or low-income housing, the amount (if any) by J which the deduction allowed under section 168(a) for the taxable year exceeds the deduction which would have been allowable for a taxable year had the property been depreciated using the straight-line method (without regard to salvage value) over a recovery period of— "(i) 18 years in the case of 18-year real property, and n':«.. "(ii) 15 years in the case of low-income housing property." (7) Subparagraph (E) of section 57(a)(12) is amended by striking out " '15-year real property'," and inserting in lieu thereof s " '18-year real property, 'low-income housing',". (8) Paragraph (2) of section 48(g) (relating to qualified rehabili- 26 USC 48. tation expenditure) is amended— (A) by striking out "property" each place it appears in subparagraph (A)(i) and inserting in lieu thereof "real property", l'^^ (B) by striking out "15" in subparagraph (A)(i) and inserting in lieu thereof "18 (15 years in the case of low-income ,,,. housing), (C) by striking out "15 years" in subparagraph (B)(v) and cf-.^,{.^ inserting in lieu thereof "18 years (15 years in the case of low-income housing)", and .^ (D) by adding at the end thereof the following new subparagraph: "(D) Low-iNCOME HOUSING.—For purposes of subparagraph (B), the term 'low-income housing has the meaning given such term by section 168(c)(2)(F)." Ante, p. 632. (9) Subparagraph (A) of section 168(b)(3) (relating to election 26 USC 168. of different recovery percentage) is amended— (A) by striking out "under paragraphs (1) and (2)" and inserting in lieu thereof "under paragraph (1), (2), or (4)", 10 and (B) by striking out the item in the table relating to 15year real property and inserting in lieu thereof the following new item: "18-year real property and low-income housing

18, 35, or 45."

(10) Section 1245(a)(5)(D) is amended to read as follows:

26 USC 1245.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/682

 98 STAT. 634

PUBLIC LAW 98-369—JULY 18, 1984 "(D) low-income housing (within the meaning of section 168(c)(2)(F))."

Ante, p. 632. 26 USC 168 note.

(g) EFFECTIVE D A T E. —

(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply with respect to property placed in service by the taxpayer after March 15, 1984. (2) EXCEPTION.—The amendments made by this section shall not apply to property placed in service by the taxpayer before January 1, 1987, if— (A) the taxpayer or a qualified person entered into a binding contract to purchase or construct such property before March 16, 1984, or (B) construction of such property was commenced by or for the taxpayer or a qualified person before March 16, 1984. For purposes of this paragraph the term "qualified person" means any person who transfers his rights in such a contract or such property to the taxpayer, but only if such property is not placed in service by such person before such rights are transferred to the taxpayer.

.,,.

(3) S P E C I A L RULES F 0 R APPLICATION OF PARAGRAPH (2). —

(A) CERTAIN INVENTORY.—In the case of any property which— (i) is held by a person as property described in section 1221(1), and (ii) is disposed of by such person before January 1, 1985, such person shall not, for purposes of paragraph (2), be treated as having placed such property in service before such property is disposed of merely because such person rented such property or held such property for rental. No deduction for depreciation or amortization shall be allowed to such person with respect to such property, (B) CERTAIN PROPERTY FINANCED BY BONDS.—In the Case of any property with respect to which— (i) bonds were issued to finance such property before 1984, and (ii) an architectural contract was entered into before March 16, 1984, paragraph (2) shall be applied by substituting "May 2" for "March 16".

•' 3fr,f

(4) SPECIAL RULE FOR COMPONENTS.—For purposes of applying

Ante, p. 632.

,..,

section 168(f)(1)(B) of the Internal Revenue Code of 1954 (as amended by this section) to components placed in service after December 31, 1986, property to which paragraph (2) applies shall be treated as placed in service by the taxpayer before March 16, 1984. (5) SPECIAL RULE FOR MID-MONTH CONVENTION.—In the case of the amendment made by subsection (d)— (A) paragraph (1) shall be applied by substituting "June 22, 1984" for "March 15, 1984", and , (B) paragraph (2) shall be applied by substituting "June 23, 1984" for "March 15, 1984" each place it appears.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/683

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 635

SEC. 112. RECAPTURE IN CASE OF INSTALLMENT SALES. (a) GENERAL RULE.—Subsection (i) of section 453 (relating to in-

26 USC 453.

stallment method) is amended to read as follows: "(i) RECOGNITION OF RECAPTURE INCOME IN YEAR OF DISPOSITION.—

"(1) IN GENERAL.—In the case of any installment sale of
 * H.i?

property to which subsection (a) applies— "(A) notwithstanding subsection (a), any recapture income shall be recognized in the year of the disposition, ^;-;; and i!i !>4i «(g) ^jjy gg^jjj jj^ excess of the recapture income shall be taken into account under the installment method. "(2) RECAPTURE INCOME.—For purposes of paragraph (1), the ' term 'recapture income' means, with respect to any installment sale, the aggregate amount which would be treated as ordinary ^ income under section 1245 or 1250 for the taxable year of the disposition if all payments to be received were received in the taxable year of disposition." (b) EFFECTIVE DATE.— 26 USC 453 note. (1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply with respect to dispositions made after June 6, 1984. (2) EXCEPTION.—The amendments made by this section shall not apply with respect to any disposition conducted pursuant to a contract which was binding on March 22, 1984, and at all ^ times thereafter. (3) SPECIAL RULE FOR CERTAIN DISPOSITIONS BEFORE OCTOBER i,

1984.—The amendments made by this section shall not apply to any disposition before October 1, 1984, of all or substantially all of the personal property of a cable television business pursuant to a written offer delivered by the seller on June 20, 1984, but only if the last payment under the installment contract is due no later than October 1, 1989. SEC. 113. PROVISIONS RELATING TO SOUND RECORDINGS AND FILMS. (a) SOUND RECORDINGS.—

'i '

(1) IN GENERAL.—Section 48 (defining section 38 property) is 26 USC 48. amended by redesignating subsection (r) as subsection (s) and by inserting after subsection (q) the following new subsection: "(r) SPECIAL RULES RELATING TO SOUND RECORDINGS.—

"(1) IN GENERAL.—For purposes of this title, in the case of any sound recording, the original use of which commences with the taxpayer, the taxpayer may elect to treat such recording as ' recovery property which is 3-year property to the extent that the taxpayer has an ownership interest in such recording. "(2) FAILURE TO MAKE ELECTION.—If a taxpayer does not make an election under paragraph (1) with respect to any sound recording— "(A) no credit shall be allowed under section 38 with Post, p. 827. 'J respect to such recording, and "(B) such recording shall not be treated as recovery s i5 w » property. I

"(3) PREDOMINANT USE TEST AND AT RISK RULES NOT TO APPLY; QUALIFIED INVESTMENT.—In the case of any sound recording—

^; au

"(A) sections 46(c)(8), 46(c)(9), and 48(a)(2) shall not apply. Post, p. 807. and "(B) in determining the qualified investment under section 46(c)(l), there shall be used (in lieu of the basis of the i a J oi

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Page:United States Statutes at Large Volume 98 Part 1.djvu/684

 98 STAT. 636 ft^j

PUBLIC LAW 98-369—JULY 18, 1984 property) an amount equal to the production costs which are allocable to the United States (as determined under rules similar to the rules of section 48(k)(5)(D)). "(4) OWNERSHIP INTEREST.—For purposes of determining the credit allowable under section 38, the ownership interest of any person in a sound recording shall be determined on the basis of his proportionate share of any loss which may be incurred with respect to the production costs of such sound recording. "(5) SOUND RECORDING.—For purposes of this subsection, the term 'sound recording' means any sound recording described in section 280(c)(2).

-;;

Post, p. 827.

"(6) PRODUCTION COSTS—

,,,;

"(A) IN GENERAL.—For purposes of this subsection, the term 'production costs' includes— "(i) a reasonable allocation of general overhead costs, "(ii) compensation for services performed by song writers, artists, production personnel, directors, producers, and similar personnel, "(iii) costs of 'first' distribution of records or tapes, and "(iv) the cost of the material being recorded.

f

"(B) CERTAIN COSTS NOT TAKEN INTO ACCOUNT.—Except as

provided in subparagraph (C), the term 'production costs' shall not include— "(i) 'residuals' payable under contracts with labor organizations, or "(ii) participations or royalties payable as compensation to song writers, artists, production personnel, directors, producers, and similar personnel, or "(iii) any other contingent amounts. "(C)

j^i O.; s E

26 USC 168.

Ante, p. 635. . - Ai,!. t -

^

CERTAIN

CONTINGENT

AMOUNTS

TAKEN

INTO

ACCOUNT.—In the case of any amount which is described in subparagraph (B) and which is incurred in the taxable year in which the sound recording is placed in service or the next taxable year— "(i) subparagraph (B) shall not apply, and "(ii) for purposes of sections 38 and 168, the taxpayer shall be treated as having placed in service in each such taxable year 3-year recovery property with a basis equal to the amount so incurred in such taxable year. "(7) ELECTION MADE SEPARATELY.—An election under paragraph (1) shall be made separately with respect to each sound recording and must be made by all persons having an ownership interest in such recording. "(8) UNITED STATES.—For purposes of this subsection, the term 'United States' includes the possessions of the United States." (2) CONFORMING AMENDMENTS.—Section 168(f) (relating to special rules), as amended by this Act, is amended by adding at the end thereof the following new paragraph: "(14) SPECIAL RULES FOR SOUND RECORDINGS.—In the case of a sound recording (within the meaning of section 48(r)), the unadjusted basis of such property shall be equal to the production costs (within the meaning of section 48(r)(6))." (b) FILMS AND OTHER PROPERTY.— (1) FILMS AND VIDEO TAPES NOT TREATED AS RECOVERY PROP-

26 USC 168.

ERTY.—Section 168(e) (relating to property excluded from appli-

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 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 637

cation of this section) is amended by adding at the end thereof the following new paragraph: "(5) FILMS AND VIDEO TAPES NOT RECOVERY PROPERTY.—The

term 'recovery property' shall not include any motion picture film or video tape." (2) APPLICATION OF RECOVERY PROPERTY EXCEPTIONS.—

(A) Section 168(e) is amended by striking out "section" 26 USC 168. and inserting in lieu thereof "title" in the matter preceding paragraph (1). (B) Subparagraph (A) of section 46(c)(7) is amended by 26 USC 46. inserting "recovery" before "property" the first place it appears.

-

(3) FILMS NOT SUBJECT TO INVESTMENT CREDIT AT-RISK RULES.—

Paragraph (4) of section 48(k) is amended— 26 USC 48. (A) by inserting ", section 46(c)(8), or section 46(c)(9)" after "section 48(a)(2)" in subparagraph (A), (B) by inserting "or at-risk rules" after "test" in the it.. heading thereof, and (C) by striking out "issued" and inserting in lieu thereof il3ii "used". (4) BASIS ADJUSTMENT FOR FILMS.—Section 48(q) (relating to

basis adjustment) is amended by adding at the end thereof the following new paragraph: "(6) SPECIAL RULE FOR QUALIFIED FILMS.—If a credit is allowed under section 38 with respect to any qualified film (within the Post, p. 827. meaning of subsection (k)(l)(B)) then, in lieu of any reduction under paragraph (1)— "(A) to the extent that the credit is determined with respect to any amount described in clause (v) or (vi) of subsection (k)(5)(B), any deduction allowable under this chapter with respect to such amount shall be reduced by 50 percent of the amount of the credit so determined, and "(B) the basis of the taxpayer's ownership interest (within the meaning of subsection (k)(l)(C)) shall be reduced by the excess of^ "(i) 50 percent of the amount of the credit determined under subsection (k), over "(ii) the amount of the reduction under subparagraph (A)."

' j. '; '^ ^ ^

, t

(c) EFFECTIVE DATES.— (1) SOUND RECORDINGS.—The

amendments made by subsection 26 USC 48 note. (a) shall apply to property placed in service after March 15, 1984, in taxable years ending after such date. (2) FILMS AND OTHER PROPERTY.—

>

'•"

26 USC 168 note.

(A) The amendments made by paragraphs (1) of subsection (b) shall apply to any motion picture film or video tape placed in service before, on, or after the date of the enactment of this Act, except that such amendment shall not apply to— (i) any qualified film placed in service by the taxpayer before March 15, 1984, if the taxpayer treated such film as recovery property for purposes of section 168 of the Internal Revenue Code of 1954 on a return of tax under chapter 1 of such Code filed before March 16, 26 USC l et sea. 1984, or (ii) any qualified film placed in service by the taxpayer before January 1, 1985, if—

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 98 STAT. 638

PUBLIC LAW 98-369—JULY 18, 1984 tc-j^

Post, p. 827.

26 USC 168, 46.

26 USC 48.

26 USC 48. Post, p. 827.

(I) 20 percent or more of the production costs of such film were incurred before March 16, 1984, and (II) the taxpayer treats such film as recovery property for purposes of section 168 of such Code. No credit shall be allowable under section 38 of such Code with respect to any qualified film described in clause (ii), except to the extent provided in section 48(k) of such Code. (B) The amendment made by paragraph (2) and (3) of subsection (b) shall apply as if included in the amendments made by section 201(a), 211(a)(l), and 211(f)(1) of the Economic Recovery Tax Act of 1981. (C) The amendment made by paragraph (4) of subsection (b) shall take effect as if included in the amendments made by section 205(a)(1) of the Tax Equity and Fiscal Responsibility Act of 1982. (D) For purposes of this paragraph, the terms "qualified film" and "production costs" have the same respective meanings as when used in section 48(k) of the Internal Revenue Code of 1954. SEC. 114. DEFINITION OF SECTION 38 PROPERTY IN SALE-LEASEBACK TRANSACTIONS. (a) IN GENERAL.—Subsection (b) of section 48 (defining new section 38 property) is amended to read as follows: "(b) N E W SECTION 38 PROPERTY.—For purposes of this subpart— "(1) IN GENERAL.—The term 'new section 38 property' means section 38 property the original use of which commences with the taxpayer. "(2) SPECIAL RULE FOR SALE-LEASEBACKS.—For purposes of

26 USC 48 note. '33f>a?<>

paragraph (1), in the case of any section 38 property which— "(A) is originally placed in service by a person, and "(B) is sold and leased back by such person, or is leased to such person, within 3 months of the date such property was originally placed in service, such property shall be treated as originally placed in service not earlier than the date on which such property is used under the lease. "(3) SPECIAL RULE FOR ENERGY PROPERTY.—The principles of paragraph (2) shall be applicable in determining whether the original use of property commences with the taxpayer for purposes of section 48(l)(2)(B)(ii)." (b) EFFECTIVE DATE.—The amendment made by this section shall apply to property originally placed in service after April 11, 1984 (determined without regard to such amendment).

Subtitle J—Foreign Provisions PART I—CHANGES IN SOURCE AND CHARACTER RULES

26 USC 904. Post, p. 843.

SEC. 121. CERTAIN AMOUNTS TREATED AS DERIVED FROM UNITED STATES SOURCES FOR PURPOSES OF LIMITATION ON FOREIGN TAX CREDIT. (a) GENERAL RULE.—Section 904 (relating to limitation on foreign tax credit) is amended by redesignating subsections (g) and (h) as subsections (h) and (i), respectively, and by inserting after subsection (f) the following new subsection:

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 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 639

"(g) SOURCE RULES IN CASE OF UNITED STATES-OWNED FOREIGN CORPORATIONS.—

"(1) IN GENERAL.—The following amounts which are derived from a United States-owned foreign corporation and which would be treated as derived from sources outside the United States without regard to this subsection shall, for purposes of this section, be treated as derived from sources within the United States to the extent provided in this subsection: "(A) Any amount included in gross income under— "(i) section 951(a) (relating to amounts included in gross income of United States shareholders), or "(ii) section 551 (relating to foreign personal holding company income taxed to United States shareholders). "(B) Interest. "(C) Dividends. "(2) SUBPART F AND FOREIGN PERSONAL HOLDING COMPANY

INCLUSIONS.—Any amount described in subparagraph (A) of paragraph (1) shall be treated as derived from sources within the United States to the extent such amount is attributable to income of the United States-owned foreign corporation from sources within the United States. "(3) CERTAIN INTEREST ALLOCABLE TO UNITED STATES SOURCE

INCOME.—Any interest which— "(A) is paid or accrued by a United States-owned foreign corporation during any taxable year, "(B) is paid or accrued to a United States shareholder (as E defined in section 951(b)) or a related person (within the meaning of section 267(b)) to such a shareholder, and "(C) is properly allocable (under regulations prescribed by the Secretary) to income of such foreign corporation for the taxable year from sources within the United States, shall be treated as derived from sources within the United States.

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"(4) DIVIDENDS.—

"(A) IN GENERAL.—The United States source ratio of any dividend paid or accrued by a United States-owned foreign corporation shall be treated as derived from sources within the United States. "(B) UNITED STATES SOURCE RATIO.—For purposes of subparagraph (A), the term 'United States source ratio' means, with respect to any dividend paid out of the earnings and if, profits for any taxable year, a fraction— "(i) the numerator of which is the portion of the earnings and profits for such taxable year from sources bjvi ij^ within the United States, and "(ii) the denominator of which is the total amount of earnings and profits for such taxable year. "(5) EXCEPTION WHERE UNITED STATES-OWNED FOREIGN CORPORATION HAS SMALL AMOUNT OF UNITED STATES SOURCE INCOME.—

Paragraph (3) shall not apply to interest paid or accrued during any taxable year (and paragraph (4) shall not apply to any dividends paid out of the earnings and profits for such taxable year) if— "(A) the United States-owned foreign corporation has earnings and profits for such taxable year, and "(B) less than 10 percent of such earnings and profits is attributable to sources within the United States.

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/688

 98 STAT. 640

PUBLIC LAW 98-369—JULY 18, 1984 For purposes of the preceding sentence, earnings and profits shall be determined without any reduction for interest described in paragraph (3) (determined without regard to subparagraph (C) thereof). "(6) UNITED STATES-OWNED FOREIGN CORPORATION.—For purposes of this subsection, the term 'United States-owned foreign corporation' means any foreign corporation if 50 percent or more of— "(A) the total combined voting power of all classes of stock of such corporation entitled to vote, or "(B) the total value of the stock of such corporation, is held directly (or indirectly through applying paragraphs (2) and (3) of section 958(a) and paragraph (4) of section 318(a)) by United States persons (as defined in section 7701(a)(30)). "(7) DIVIDEND.—For purposes of this subsection, the term 'dividend' includes any gain treated as ordinary income under section 1246 or as a dividend under section 1248. "(8) COORDINATION WITH SUBSECTION (f).—This subsection shall be applied before subsection (D. "(9) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate for purposes of this subsection, including— "(A) regulations for the application of this subsection in the case of interest or dividend payments through 1 or more entities, and "(B) regulations providing that this subsection shall apply to interest paid or accrued to any person (whether or not a United States shareholder)."

26 USC 904 note.

Ante, p. 638.

(b) EFFECTIVE D A T E. —

(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendment made by subsection (a) shall take effect on the date of the enactment of this Act. In the case of any tsixable year of any United States-owned foreign corporation ending after the date of the enactment of this Act— (A) only income received or accrued by such foreign corporation after such date of enactment shall be taken into account under section 904(g) of the Internal Revenue Code of 1954 (as added by subsection (a)); except that (B) paragraph (5) of such section 904(g) (relating to exception where small amount of United States source income) shall be applied by taking into account all income received or accrued by such foreign corporation during such taxable year. (2) SPECIAL RULE FOR APPLICABLE CFC.—

(A) IN GENERAL.—In the case of qualified interest received or accrued by an applicable CFC before January 1, 1992— (i) such interest shall not be taken into account under section 904(g) of the Internal Revenue Code of 1954 (as added by subsection (a)), except that (ii) such interest shall be taken into account for purposes of applying paragraph (5) of such section •^i-.i.,.- > 904(g) (relating to exception where small amount of United States source income). (B) QUALIFIED INTEREST.—For purposes of subparagraph 8Brs (A), the term "qualified interest" means— Bi Biil^..J. (i) the aggregate amount of interest received or accrued during any taxable year by an applicable CFC on

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Page:Marriagewithdece00mayow.djvu/9

,

The deep interest which for a long period you have taken in preserving intact our Table of Degrees as to prohibited marriages, will, I hope, sufficiently account for my wish to address the following remarks to your Lordship, and your unvarying kindness will no less account for the ready permission which you have given me to do so. I will not take up any time in preface further than just to observe that of course you are not in any way responsible for the views or the argument of the ensuing pages, though I am, I hope, justified in believing that, whatever be their imperfections, the object at which they aim will meet with your sympathy and approval My earnest and anxious wish is to do what I may, God helping me, to aid in averting what 1 feel would be a grievous sin if our marriage law were altered in the sense desired by the promoters of the Wife's Sister's Marriage Bill. I do not purpose to go over the whole ground which has been so often contested, (to do which would be almost an impertinence in remarks addressed to your Lordship), but rather to confine my observations to the Scriptural

title: Page:Marriagewithdece00mayow.djvu/9


text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/689

 PUBLIC LAW 98-369—JULY 18, 1984 United States affiliate obligations held by such applicable CFC, multiplied by, (ii) a fraction (not in excess of 1)— (I) the numerator of which is the sum of the aggregate principal amount of United States affiliate obligations held by the applicable CFC on March 31, 1984, but not in excess of the applicable limit, and (II) the denominator of which is the average daily principal amount of United States affiliate obligations held by such applicable CFC during the taxable year. Proper adjustments shall be made to the numerator described in clause (ii)(I) for original issue discount accruing after March 31, 1984, on CFC obligations and United States affiliate obligations. i

98 STAT. 641

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(C) ADJUSTMENT FOR RETIREMENT OF CFC OBLIGATIONS.—

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The amount described in subparagraph (B)(ii)(I) for any taxable year shall be reduced by the sum of— (i) the excess of (I) the aggregate principal amount of CFC obligations which are outstanding on March 31, 1984, but only with respect to obligations issued before March 8, 1984, or issued after March 7, 1984, by the applicable CFC pursuant to a binding commitment in effect on March 7, 1984, over (II) the average daily outstanding principal amount during the teixable year of the CFC obligations described in subclause (I), and (ii) the portion of the equity of such applicable CFC allocable to the excess described in clause (i) (determined on the basis of the debt-equity ratio of such applicable CFC on March 31, 1984). (D) APPLICABLE CFC.—For purposes of this paragraph, the term "applicable CFC" means any controlled foreign corporation (within the meaning of section 957)— (i) which was in existence on March 31, 1984, and (ii) the principal purpose of which on such date consisted of the issuing of CFC obligations or the holding of short-term obligations and lending the proceeds of such obligations to affiliates. (E) AFFIUATES; UNITED STATES AFFILIATES.—For purposes

>r "

of this paragraph— (i) AFFIUATE.—The term "affiliate" means any person who is a related person (within the meaning of section 482 of the Internal Revenue Code of 1954) to the applicable CFC. y.n •• (ii) UNITED STATES AFFILIATE.—The term "United States affiliate" means any United States person which , f:." ' is an affiliate of the applicable CFC. (F) UNITED STATES AFFILIATE OBLIGATIONS.—For purposes of this paragraph, the term "United States affiliate obligations" means any obligation of (and payable by) a United States affiliate. (G) CFC OBLIGATiON.—For purposes of this paragraph, the term "CFC obligation" means any obligation of (and issued by) a CFC if—

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/690

 98 STAT. 642

PUBLIC LAW 98-369—JULY 18, 1984 (i) the requirements of clause (i) of section 163(f)(2)(B) of the Internal Revenue Code of 1954 are met with respect to such obligation, and (ii) in the case of an obligation issued after December 31, 1982, the requirements of clause (ii) of such section 163(f)(2)(B) are met with respect to such obligation. (H) TREATMENT OF OBLIGATIONS WITH ORIGINAL ISSUE DIS-

Ante, p. 547.

Ante, p. 638.

COUNT.—For purposes of this paragraph, in the case of any obligation with original issue discount, the principal amount of such obligation as of any day shall be treated as equal to the revised issue price as of such day (as defined in section 1278(a)(4) of the Internal Revenue Code of 1954). (I) APPLICABLE LIMIT.—For purposes of subparagraph (B)(ii)(I), the term "applicable limit" means the sum of— (i) the equity of the applicable CFC on March 31, 1984, and (ii) the aggregate principal amount of CFC obligations outstanding on March 31, 1984, which were issued by an applicable CFC— (I) before March 8, 1984, or (II) after March 7, 1984, pursuant to a binding commitment in effect on March 7, 1984. (3) EXCEPTION FOR CERTAIN TERM OBLIGATIONS.—The amendments made by subsection (a) shall not apply to interest on any term obligations held by a foreign corporation on March 7, 1984. The preceding sentence shall not apply to any United States affiliate obligation (as defined in paragraph (2)(F)) held by an applicable CFC (as defined in paragraph (2)(D)). (4) DEFINITIONS.—Any term used in this subsection which is also used in section 904(g) of the Internal Revenue Code of 1954 (as added by subsection (a)) shall have the meaning given such term by such section 904(g). (5) SEPARATE APPLICATION OF SECTION 904 IN CASE OF INCOME COVERED BY TRANSITIONAL RULES.—Subsections (a), (b), and (c) of

section 904 of the Internal Revenue Code of 1954 shall be applied separately to any amount not treated as income derived from sources within the United States but which (but for the provisions of paragraph (2) or (3) of this subsection) would be so treated under the amendments made by subsection (a). Any such separate application shall be made before any separate application required under section 904(d) of such Code. (6) APPLICATION OF PARAGRAPH

(5)

DELAYED IN CERTAIN

CASES.—In the case of a foreign corporation— (A) which is a subsidiary of a domestic corporation which has been engaged in manufacturing for more than 50 years, and (B) which issued certificates with respect to obligations on— (i) September 24, 1979, denominated in French francs, (ii) September 10, 1981, denominated in Swiss francs, (iii) July 14, 1982, denominated in Swiss francs, and (iv) December 1, 1982, denominated in United States dollars, with a total principal amount of less than 200,000,000 United States dollars.

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/691

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 643

then paragraph (5) shall not apply to the proceeds from relending such obligations or related capital before January 1, 1986. SEC. 122. CERTAIN AMOUNTS TREATED AS INTEREST FOR PURPOSES OF THE LIMITATION ON THE FOREIGN TAX CREDIT.

(a) GENERAL RULE.—Subsection (d) of section 904 (relating to limitation on foreign tax credit) is amended by adding at the end thereof the following new paragraph:

26 USC 904.

"(3) CERTAIN AMOUNTS ATTRIBUTABLE TO UNITED STATES-OWNED FOREIGN CORPORATIONS, ETC., TREATED AS INTEREST.—

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.

.

"(A) IN GENERAL.—For purposes of this subsection, dividends and interest— "(i) paid or accrued by a designated payor corporation, and "(ii) attributable to any taxable year of such corporation, shall be treated as interest income described in paragraph (2) to the extent that the aggregate amount of such dividends and interest does not exceed the separate limitation interest of the designated payor corporation for such taxable year. "(B) SEPARATE LIMITATION INTEREST.—For purposes of this subsection, the term 'separate limitation interest' means, with respect to any taxable year— "(i) the aggregate amount of the interest income described in paragraph (2) (including amounts treated as so described by reason of this paragraph) which is received or accrued by the designated payor corporation during the taxable year, reduced by "(ii) the deductions properly allocable (under regulations prescribed by the Secretary) to such income. "(C) EXCEPTION WHERE DESIGNATED CORPORATION HAS SMALL A M O U N T OF SEPARATE LIMITATION INTEREST.—Sub-

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paragraph (A) shall not apply to any amount attributable to the taxable year of a designated payor corporation, if^ "(i) such corporation has earnings and profits for such taxable year, and "(ii) less than 10 percent of such earnings and profits is attributable to separate limitation interest. "(D) TREATMENT OF CERTAIN INTEREST.—For purposes of this paragraph, the amount of the separate limitation interest and the earnings and profits of any designated payor corporation shall be determined without any reduction for interest paid or accrued to a United States shareholder (as defined in section 951(b)) or a related person (within the meaning of section 267(b)) to such a shareholder. "(E) DESIGNATED PAYOR CORPORATION.—For purposes of

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this paragraph, the term 'designated payor corporation' means— "(i) any United States-owned foreign corporation (within the meaning of subsection (g)(6)), "(ii) any other foreign corporation in which a United States person is a United States shareholder (as defined in section 9510>)) at any time during the taxable year of such foreign corporation, and "(iii) any regulated investment company.

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/692

 98 STAT. 644

PUBLIC LAW 98-369—JULY 18, 1984 "(F) DETERMINATION OF YEAR TO WHICH AMOUNT IS ATTRIB-

UTABLE.—For purposes of determining whether an amount is attributable to a taxable year of a designated payor corporation— "(i) any amount includible in gross income under section 551 or 951 in respect of such taxable year, "(ii) any interest paid or accrued by such corporation during such taxable year, and "(iii) any dividend paid out of the earnings and profits of such corporation for such taxable year, shall be treated as attributable to such taxable year. "(G) ORDERING RULES.—Subparagraph (A) shall be applied to amounts described therein in the order in which such amounts are described in subparagraph (F). "(H) DIVIDEND.—For purposes of this paragraph, the term 'dividend' includes— "(i) any amount includible in gross income under section 551 or 951, and "(ii) any gain treated as ordinary income under section 1246 or as a dividend under section 1248. "(I) DISTRIBUTIONS THROUGH OTHER ENTITIES.—The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this paragraph in the case of distributions or payments through 1 or more entities. "(J)

INTEREST

FROM

MEMBERS

OF

SAME

AFFILIATED

GROUP.—For purposes of this paragraph, interest received or accrued by the designated payor corporation from another member of the same affiliated group (determined under section 1504 without regard to subsection (b)(3) thereof) shall not be treated as separate limitation interest, unless such interest is attributable directly or indirectly to separate limitation interest of such other member." 26 USC 904 note.

(b) EFFECTIVE D A T E. —

(1) IN GENERAL.—The amendment made by subsection (a) shall take effect on the date of the enactment of this Act. (2) SPECIAL RULES FOR INTEREST INCOME.—

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(A) IN GENERAL.—Interest income received or accrued by a designated payor corporation shall be taken into account for purposes of the amendment made by subsection (a) only in taxable years beginning after the date of the enactment of this Act. (B) EXCEPTION FOR INVESTMENT AFTER JUNE 22, 1984.— Notwithstanding subparagraph (A), the amendment made by subsection (a) shall apply to interest income received or accrued by a designated payor corporation after the date of enactment of this Act if it is attributable to investment in the designated payor corporation after June 22, 1984. (3) TERM OBLIGATIONS OF DESIGNATED PAYOR CORPORATION WHICH IS NOT APPLICABLE CFC.—In the case of any designated

Ante, p. 638.

26 USC 864.

payor corporation which is not an applicable CFC (as defined in section 121(b)(2)(D)), any interest received or accrued by such corporation on a term obligation held by such corporation on March 7, 1984, shall not be taken into account. SEC. 123. TREATMENT OF RELATED PERSON FACTORING INCOME. (a) GENERAL RULE.—Section 864 (relating to source definitions) is amended by adding at the end thereof the following new subsection:

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Page:United States Statutes at Large Volume 98 Part 1.djvu/693

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 645

'(d) TREATMENT OF RELATED PERSON FACTORING INCOME.—

"(1) IN GENERAL.—For purposes of the provisions set forth in paragraph (2), if any person acquires (directly or indirectly) a trade or service receivable from a related person, any income of such person from the trade or service receivable so acquired shall be treated as if it were interest on a loan to the obligor under the receivable. "(2) PROVISIONS TO WHICH PARAGRAPH ( D APPLIES.—The provisions set forth in this paragraph are as follows: "(A) Part III of subchapter G of this chapter (relating to foreign personal holding companies). "(B) Section 904 (relating to limitation on foreign tax credit). "(C) Subpart F of part III of this subchapter (relating to controlled foreign corporations). "(3) TRADE OR SERVICE RECEIVABLE.—For purposes of this subsection, the term 'trade or service receivable' means any account receivable or evidence of indebtedness arising out of— "(A) the disposition by a related person of property described in section 1221(1), or "(B) the performance of services by a related person. "(4) RELATED PERSON.—For purposes of this subsection, the term 'related person' means— "(A) any person who is a related person (within the meaning of section 267(b)), and "(B) any United States shareholder (as defined in section 951(b)) and any person who is a related person (within the meaning of section 267(b)) to such a shareholder.

26 USC 551. i 26 USC 951.

"(5) CERTAIN PROVISIONS NOT TO APPLY.— "(A) CERTAIN EXCEPTIONS.—The following

provisions shall not apply to any amount treated as interest under paragraph (1) or (6): "(i) Subparagraphs (A), (B), (C), and (D) of section 904(d)(2) (relating to interest income to which separate limitation applies). "(ii) Subparagraph (A) of section 954(b)(3) (relating to exception where foreign base company income is less than 10 percent). "(iii) Subparagraph (B) of section 954(c)(3) (relating to certain income derived in active conduct of trade or business). "(iv) Subparagraphs (A) and (B) of section 954(c)(4) (relating to exception for certain income received from related persons). "(B) SPECIAL RULES FOR POSSESSIONS.— "(i) PUERTO RICO AND POSSESSIONS TAX CREDIT.—Any

amount treated as interest under paragraph (1) shall not be treated as income described in subparagraph (A) or (B) of section 936(a)(1) unless such amount is from sources within a possession of the United States (determined after the application of paragraph (1)). "(ii) VIRGIN ISLANDS CORPORATIONS.—Subsection (b) of

section 934 shall not apply to any amount treated as interest under paragraph (1) unless such amount is from sources within the Virgin Islands (determined after the application of paragraph (1)).

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Page:United States Statutes at Large Volume 98 Part 1.djvu/694

 98 STAT. 646

PUBLIC LAW 98-369—JULY 18, 1984 "(6) SPECIAL RULE FOR CERTAIN INCOME FROM LOANS OF A

CONTROLLED FOREIGN CORPORATION.—Any income of a controlled foreign corporation (within the meaning of section 957(a)) from a loan to a person for the purpose of financing— "(A) the purchase of property described in section 1221(1) of a related person, or "(B) the payment for the performance of services by a related person, shall be treated as interest described in paragraph (1). "(7) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary to prevent the avoidance of the provisions of this subsection or section 956(b)(3)."

I • ")HU i Infra.

(h) TREATMENT AS UNITED STATES PROPERTY.—Subsection (b) of

26 USC 956.

section 956 (defining United States property) is amended by adding at the end thereof the following new paragraph: "(3) CERTAIN TRADE OR SERVICE RECEIVABLES ACQUIRED FROM RELATED UNITED STATES PERSONS.—

.tfj-

Ante, p. 644. 26 USC 864 note.

26 USC. 863.

"(A) IN GENERAL.—Notwithstanding paragraph (2), the term 'United States property' includes any trade or service receivable if— "(i) such trade or service receivable is acquired (directly or indirectly) from a related person who is a United States person, and "(ii) the obligor under such receivable is a United States person. "(B) DEFINITIONS.—For purposes of this paragraph, the term 'trade or service receivable' and 'related person' have the respective meanings given to such terms by section 864(d)."

(c) EFFECTIVE D A T E. —

(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to accounts receivable and evidences of indebtedness transferred after March 1, 1984, in taxable years ending after such date. (2) TRANSITIONAL RULE.—The amendments made by this section shall not apply to accounts receivable and evidences of indebtedness acquired after March 1, 1984, and before March 1, 1994, by a Belgian corporation in existence on March 1, 1984, in any taxable year ending after such date, but only to the extent that the amount includible in gross income by reason of section 956 of the Internal Revenue Code of 1954 with respect to such corporation for all such taxable years is not reduced by reason of this paragraph by more than the lesser of— (A) $15,000,000 or (B) the amount of the Belgian corporation's adjusted basis on March 1, 1984, in stock of a foreign corporation formed to issue bonds outside the United States to the public. SEC. 124. TREATMENT OF CERTAIN TRANSPORTATION INCOME. (a) GENERAL RULE.—Section 863 (relating to items not specified in section 861 or 862) is amended by adding at the end thereof the following new subsection: "(c) SOURCE RULE FOR CERTAIN TRANSPORTATION INCOME.— "(1) TRANSPORTATION BEGINNING AND ENDING IN THE UNITED

STATES.—All transportation income attributable to transportation which begins and ends in the United States shall be treated as derived from sources within the United States.

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/695

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 647

"(2) TRANSPORTATION BETWEEN UNITED STATES AND ANY POSSESSION.—

"(A) IN GENERAL.—50 percent of all transportation income attributable to transportation which— "(i) begins in the United States and ends in a possession of the United States, or "(ii) begins in a possession of the United States and ends in the United States, shall be treated as derived from sources within the United States.

-

•*

"(B) SPECIAL RULE FOR CERTAIN LESSORS OF AIRCRAFT.—If—

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"(i) the taxpayer owns an aircraft which is section 38 property and leases such aircraft to a United States person (other than a member of the same controlled fone group of corporations (as defined in section 1563) as the taxpayer), and "(ii) such United States person is a regularly scheduled air carrier, subparagraph (A) shall be applied by substituting '100 percent'for'50 percent'. "(3) TRANSPORTATION INCOME.—For purposes of this subsection, the term 'transportation income' means any income derived from, or in connection with— "(A) the use (or hiring or leasing for use) of a vessel or aircraft, or "(B) the performance of services directly related to the use of a vessel or aircraft. For purposes of the preceding sentence, the term 'vessel or aircraft' includes any container used in connection with a vessel or aircraft." (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply with respect to transportation beginning after the date of the enactment of this Act in taxable years ending after such date.

Post, p. 827.

,.

26 USC 863 note.

SEC. 125. TREATMENT OF CERTAIN DISTRIBUTIONS RECEIVED BY UNITED STATES-OWNED FOREIGN CORPORATIONS. (a) GENERAL RULE.—Section 535 (defining accumulated taxable 26 USC 535. income) is amended by adding at the end thereof the following new subsection: "(d) INCOME DISTRIBUTED TO UNITED STATES-OWNED FOREIGN CORPORATION RETAINS UNITED STATES CONNECTION.—

"(1) IN GENERAL.—For purposes of this part, if 10 percent or more of the earnings and profits of any foreign corporation for any taxable year— '"(A) is derived from sources within the United States, or ^ "(B) is effectively connected with the conduct of a trade or business within the United States, any distribution out of such earnings and profits (and any interest payment) received (directly or through 1 or more other entities) by a United States-owned foreign corporation shall be treated as derived by such corporation from sources within the United States. "(2) UNITED STATES-OWNED FOREIGN CORPORATION.—The term 'United States-owned foreign corporation' has the meaning given to such term by section 904(g)(6)." Ante, p. 638. (b) EFFECTIVE DATE.— 26 USC 535 note.

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/696

 98 STAT. 648

Ante, p. 647.

26 USC 861 note.

PUBLIC LAW 98-369—JULY 18, 1984 (1) IN GENERAL.—Except as provided in paragraph (2), the amendment made by subsection (a) shall apply to distributions and interest payments received by a United States-owned foreign corporation (within the meaning of section 535(d) of the Internal Revenue Code of 1954) on or after May 23, 1983, in taxable years ending on or after such date. (2) CORPORATIONS IN EXISTENCE ON MAY 23, 1983.—In the case of a United States-owned foreign corporation (as so defined) in existence on May 23, 1983, the amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1984. SEC. 126. ALLOCATION UNDER SECTION 861 OF RESEARCH AND EXPERIMENTAL EXPENDITURES.

(a) IN GENERAL.—For purposes of section 861(b), section 862(b), and section 863(b) of the Internal Revenue Code of 1954, all amounts allowable as a deduction for qualified research and experimental expenditures shall be allocated to income from sources within the United States and deducted from such income in determining the amount of taxable income from sources within the United States. (b) QUALIFIED RESEARCH AND EXPERIMENTAL EXPENDITURES.—For

purposes of this section— (1) IN GENERAL.—The term "qualified research and experimental expenditures" means amounts— (A) which are research and experimental expenditures within the meaning of section 174 of such Code, and (B) which are attributable to activities conducted in the United States. (2) TREATMENT OF DEPRECIATION, ETC.—Rules similar to the rules of subsection (c) of section 174 of such Code shall apply. (c) EFFECTIVE DATES.—

(1) IN GENERAL.—This section shall apply to taxable years beginning after August 13, 1983, and on or before August 1, 1985. (2) SPECIAL RULE.—If the taxpayer's 3rd taxable year beginning after August 13, 1981, is not described in paragraph (1), this section shall apply also to such 3rd taxable year. PART II—WITHHOLDING PROVISIONS SEC. 127. REPEAL OF THE 30 PERCENT TAX ON INTEREST RECEIVED BY FOREIGNERS ON CERTAIN PORTFOLIO INVESTMENTS. (a) REPEAL OF TAX ON NONRESIDENT INDIVIDUALS.—

26 USC 871. Post, p. 653.

(1) IN GENERAL.—Section 871 (relating to 30 percent tax on income not connected with United States business), as amended by this Act, is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection: "(h) REPEAL OF TAX ON INTEREST OF NONRESIDENT ALIEN INDIVIDUALS RECEIVED FROM CERTAIN PORTFOUO DEBT INVESTMENTS.—

.J

"(1) IN GENERAL.—In the case of any portfolio interest received by a nonresident individual from sources within the United States, no tax shall be imposed under paragraph (1)(A) or (1)(C) of subsection (a). "(2) PORTFOLIO INTEREST.—For purposes of this subsection, the term 'portfolio interest' means any interest (including original

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Page:United States Statutes at Large Volume 98 Part 1.djvu/697

 PUBLIC LAW 98-369—JULY 18, 1984 i^v

98 STAT. 649

issue discount) which is described in any of the following subparagraphs: "(A) CERTAIN OBLIGATIONS WHICH ARE NOT REGISTERED.—

Interest which is paid on any obligation which— "(i) is not in registered form, and "(ii) is described in section 163(f)(2)(B). "(B) CERTAIN REGISTERED OBLIGATIONS.—Interest which is paid on an obligation— "(i) which is in registered form, and "(ii) with respect to which the United States person who would otherwise be required to deduct and withhold tax from such interest under section 1441(a) has received a statement (which meets the requirements of paragraph (4)) that the beneficial owner of the obligation is not a United States person. "(3) PORTFOUO INTEREST NOT TO INCLUDE INTEREST RECEIVED BY 10-PERCENT SHAREHOLDERS.— For purposes of this subsection— "(A) IN GENERAL.—The term 'portfolio interest' shall not „,.,i,, include any interest described in subparagraph (A) or (B) of paragraph (2) which is received by a 10-percent shareholder. . i,. "(B) 10-PERCENT SHAREHOLDER.—The term '10-percent shareholder'means— "(i) in the case of an obligation issued by a corporation, any person who owns 10 percent or more of the total combined voting power of all classes of stock of such corporation entitled to vote, or "(ii) in the case of an obligation issued by a partner, ship, any person who owns 10 percent or more of the capital or profits interest in such partnership.

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"(C) ATTRIBUTION RULES.—For puiT)oses of determining

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ownership of stock under subparagraph (B)(i) the rules of section 318(a) shall apply, except that— "(i) section 318(a)(2)(C) shall be applied without 'c.^y, j,. regard to the 50-percent limitation therein, and "(ii) any stock which a person is treated as owning gwft rAgr after application of section 318(a)(4) shall not, for purposes of applying paragraphs (2) and (3) of section 318(a), be treated as actually owned by such person. Under regulations prescribed by the Secretary, rules similar to the rules of the preceding sentence shall be applied in determining the ownership of the capital or profits interest in a partnership for purposes of subparagraph (B)(ii). "(4) CERTAIN STATEMENTS.—A statement with respect to any obligation meets the requirements of this paragraph if such statement is made by— "(A) the beneficial owner of such obligation, or "(B) a securities clearing organization, a bank, or other financial institution that holds customers' securities in the ordinary course of its trade or business. The preceding sentence shall not apply to any statement with respect to payment of interest on any obligation by any person if, at least one month before such payment, the Secretary has published a determination that any statement from such person (or any class including such person) does not meet the requirements of this paragraph.

i.-j;- •

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/698

 98 STAT. 650

PUBLIC LAW 98-369—JULY 18, 1984 "(5) SECRETARY MAY PROVIDE SUBSECTION N O T TO APPLY I N CASES OF INADEQUATE INFORMATION EXCHANGE.—

i'

"(A) IN GENERAL.—If the Secretary determines that the exchange of information between the United States and a foreign country is inadequate to prevent evasion of the United States income tax by United States persons, the Secretary may provide in writing (and publish a statement) that the provisions of this subsection shall not apply to payments of interest to any person within such foreign country (or payments addressed to, or for the account of, persons within such foreign country) during the period— "(i) beginning on the date specified by the Secretary, and "(ii) ending on the date that the Secretary determines that the exchange of information between the United States and the foreign country is adequate to prevent the evasion of United States income tax by United States persons. "(B)

>

26 USC 871.

EXCEPTION FOR CERTAIN

OBLIGATIONS.—Subpara-

graph (A) shall not apply to the payment of interest on any obligation which is issued on or before the date of the publication of the Secretary's determination under such subparagraph. "(6) REGISTERED FORM.—For purposes of this subsection, the term 'registered form' has the same meaning given such term by section 163(f).". (2) CONFORMING AMENDMENT.—Paragraph (1) of section 871(a) (relating to tax on income other than capital gains) is amended by striking out "There" and inserting in lieu thereof "Except as provided in subsection (i), there", (b) FOREIGN CORPORATIONS.—

26 USC 881. Post, p. 654.

(1) IN GENERAL.—Section 881 (relating to tax on income of foreign corporations not connected with United States business), as amended by this Act, is amended by redesignating subsection (c) as subsection (d) and by adding after subsection (b) the following new subsection: "(c) REPEAL OF TAX ON INTEREST OF FOREIGN CORPORATIONS RECEIVED FROM CERTAIN PORTFOUO DEBT INVESTMENTS.—

"(1) IN GENERAL.—In the case of any portfolio interest received by a foreign corporation from sources within the United States, no tax shall be imposed under paragraph (1) or (3) of subsection (a). "(2) PORTFOUO INTEREST.—For purposes of this subsection, the term 'portfolio interest' means any interest (including original issue discount) which is described in any of the following subparagraphs: "(A) CERTAIN OBLIGATIONS WHICH ARE NOT REGISTERED.—

Ante, p. 648.

Ante, p. 648.

Interest which is paid on any obligation which is described in section 871(h)(2)(A). "(B) CERTAIN REGISTERED OBLIGATIONS.—Interest which is paid on an obligation— "(i) which is in registered form, and "(ii) with respect to which the person who would otherwise be required to deduct and withhold tax from such interest under section 1442(a) has received a statement which meets the requirements of section 871(h)(4)

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Page:United States Statutes at Large Volume 98 Part 1.djvu/699

 PUBLIC LAW 98-369—JULY 18, 1984 -t'^t" =

98 STAT. 651

that the beneficial owner of the obligation is not a United States person.

"(3) PORTFOLIO INTEREST SHALL NOT INCLUDE INTEREST RECEIVED BY CERTAIN PERSONS.—For purposes of this subsection,

the term 'portfolio interest' shall not include any portfolio interest which— "(A) except in the case of interest paid on an obligation of ^^'* < '^J.^i* 3 the United States, is received by a bank on an extension of credit made pursuant to a loan agreement entered into in the ordinary course of its trade or business, "(B) is received by a 10-percent shareholder (within the meaning of section 871(h)(3)(B)), or Ante, p. 648. = "(C) is received by a controlled foreign corporation from a related person (within the meaning of section 864(d)(4). Ante, p. 644. "(4) SPECIAL RULES FOR CONTROLLED FOREIGN CORPORATIONS.—

-^ '

"(A) IN GENERAL.—In the case of any portfolio interest received by a controlled foreign corporation, the following provisions shall not apply: "(i) Subparagraph (A) of section 954(b)(3) (relating to exception where foreign base company income is less than 10 percent), "(ii) Paragraph (4) of section 954(b) (relating to corpoooiS'Sti.^ rations not formed or availed of to avoid tax). "(iii) Subparagraph (B) of section 954(c)(3) (relating to certain income derived in active conduct of trade or business), "(iv) Subparagraph (C) of section 954(c)(3) (relating to S« certain income derived by an insurance company). "(v) Subparagraphs (A) and (B) of section 954(c)(4) ^' (relating to exception for certain income received from ' related persons).

^*** -5 '"^ ^'

•^^^'i "-^^ ^

Ml

"(B) CONTROLLED FOREIGN CORPORATION.—For purposes of

this subsection, the term 'controlled foreign corporation' has the meaning given to such term by section 957(a). "(5) SECRETARY MAY CEASE APPLICATION OF THIS SUBSECTION.—

Under rules similar to the rules of section 871(h)(5), the Secre- Ante, p. 648. tary may provide that this subsection shall not apply to payments of interest described in section 871(h)(5). "(6) REGISTERED FORM.—For purposes of this subsection, the term 'registered form' has the meaning given such term by i-^ -y section 163(f)." (2) CONFORMING AMENDMENT.—Subsection (a) of section 881

26 USC 881.

(relating to imposition of tax) is amended by striking out "There' and inserting in lieu thereof "Except as provided in subsection (c), there". (c) AMENDMENT OF SECTION 864(c)(2).—Paragraph (2) of section 26 USC 864. 864(c) (relating to effectively connected income, etc.) is amended by striking out "section 871(a)(1) or section 881(a)" and inserting in lieu thereof "section 871(a)(1), section 871(h) section 881(a), or section 881(c)". (d) AMENDMENT OF SECTION 2105.—Subsection (b) of section 2105 26 USC 2105. (relating to property without the United States) is amended to read as follows: "(b) BANK DEPOSITS AND CERTAIN OTHER DEBT OBLIGATIONS.—For

purposes of this subchapter— "(1) amounts described in section 861(c), if any interest thereon would be treated by reason of section 861(a)(1)(A) as

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Page:United States Statutes at Large Volume 98 Part 1.djvu/700

 98 STAT. 652

Ante, p. 648.

PUBLIC LAW 98-369—JULY 18, 1984

income from sources without the United States were such interest received by the decedent at the time of his death, "(2) deposits with a foreign branch of a domestic corporation or domestic partnership, if such branch is engaged in the commercial banking business, and "(3) debt obligations, if, without regard to whether a statement meeting the requirements of section 871(h)(4) has been received, any interest thereon would be eligible for the exemption from tax under section 871(h)(1) were such interest received by the decedent at the time of his death, shall not be deemed property within the United States.". (e) WITHHOLDING.—

26 USC 1441.

(1) NONRESIDENT ALIENS.—Subsection (c) of section 1441 (relating to withholding of tax on nonresident aliens) is amended by adding at the end thereof the following new paragraph: "(9) INTEREST INCOME FROM CERTAIN PORTFOLIO DEBT INVEST-

Ante, p. 648.

26 USC 1442.

26 USC 163.

26 USC 871 note.

MENTS.—In the case of portfolio interest (within the meaning of 871(h)(2)), no tax shall be required to be deducted and withheld from such interest unless the person required to deduct and withhold tax from such interest knows, or has reason to know, that such interest is not portfolio interest by reason of section 871(h)(3).". (2) FOREIGN CORPORATIONS.—The last sentence of section 1442(a) is amended— (A) by striking out "and" after "section 881(a)(4)," and (B) by inserting before the period at the end thereof the following: ", and the references in section 1449(c)(9) to sections 871(h)(2) and 871(h)(3) shall be treated as referring to sections 881(c)(2) and 881(c)(3)". (f) REGISTERED OBLIGATIONS.—Subparagraph (C)(i) of section 163(f)(2) (relating to authority to include other obligations) is amended to read as follows: "(i) in the case of— "(I) subparagraph (A), such obligation is of a type which the Secretary has determined by regulations to be used frequently in avoiding Federal taxes, or "(II) subparagraph (B), such obligation is of a type specified by the Secretary in regulations, and". (g) EFFECTIVE D A T E S. —

(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to interest received after the date of the enactment of this Act with respect to obligations issued after such date, in taxable years ending after such date. (2) SUBSECTION (d).—The amendment made by subsection (d) shall apply to obligations issued after the date of the enactment of this Act with respect to the estates of decedents dying after such date. (3) SPECIAL RULE FOR CERTAIN UNITED STATES AFFILIATE OBLIGATIONS.—

26 USC 1 et seq.

(A) IN GENERAL.—For purposes of the Internal Revenue Code of 1954, payments of interest on a United States affiliate obligation to an applicable CFC in existence on or before June 22, 1984, shall be treated as payments to a resident of the country in which the applicable CFC is incorporated. „, -: - s.*:«5,;.:.>-ij ^t--* DIJ-OV;' i!i.-:i«nT

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Page:United States Statutes at Large Volume 98 Part 1.djvu/701

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 653

(B) EXCEPTION.—Subparagraph (A) shall not apply to any applicable CFC which did not meet requirements which are based on the principles set forth in Revenue Rulings 69-501, 69-377, 70-645, and 73-110. " >

(C) DEFINITIONS.—

(i) The term "applicable CFC" has the meaning given such term by section 121(b)(2)(D) of this Act, except that Ante, p. 638. such section shall be applied by substituting "the date of interest payment" for "March 31, 1984," in clause (i) thereof. (ii) The term "United States affiliate obligation" lox L.'-?J means an obligation described in section 121(b)(2)(F) of this Act which was issued before June 22, 1984. SEC. 128. TREATMENT OF UNITED STATES SOURCE ORIGINAL ISSUE DISCOUNT IN CASE OF FOREIGN PERSONS. ,.,5,,,.„ f

(a) NONRESIDENT A U E N INDIVIDUALS.—

(1) IN GENERAL.—Subparagraph (C) of section 871(a)(1) (relat- 26 USC 871. ing to income not connected with United States business) is amended to read as follows: "(C) in the case of— "(i) a sale or exchange of an original issue discount obligation, the amount of any gain not in excess of the •; original issue discount accruing while such obligation was held by the nonresident alien individual (to the K extent such discount was not theretofore taken into account under clause (ii)), and "(ii) the payment of interest on an original issue discount obligation, an amount equal to the original issue discount accrued on such obligation since the last payment of interest thereon (except that such origmal J,, issue discount shall be taken into account under this clause only to the extent that the tax thereon does not exceed the interest payment less the tax imposed by subparagraph (A) thereon), and". (2) DEFINITIONS AND SPECIAL RULES.—Section 871 is amended

by redesignating subsection (g) as subsection (h) and by inserting after subsection (f) the following new subsection: "(g) SPECIAL RULES FOR ORIGINAL ISSUE DISCOUNT.—For purposes

of this section and section 881—

•'*•' '^ "'* '

"(1) ORIGINAL ISSUE DISCOUNT OBLIGATION.—

•'1

"(A) IN GENERAL.—Except as provided in subparagraph i.3 J f x (B), the term 'original issue discount obligation' means any bond or other evidence of indebtedness having original issue discount (within the meaning of section 1273). Ante, p. 536. "(B) EXCEPTIONS.—The term 'original issue discount obligation' shall not include— "(i) CERTAIN SHORT-TERM OBLIGATIONS.—Any obliga-

tion payable 183 days or less from the date of original issue (without regard to the period held by the taxpaver). '(ii) TAX-EXEMPT OBLIGATIONS.—Any obligation the interest on which is exempt from tax under section 103 or under any other provision of law without regard to the identity of the holder. "(2) DETERMINATION OF PORTION OF ORIGINAL ISSUE DISCOUNT

ACCRUING DURING ANY PERIOD.—The determination of the

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Page:United States Statutes at Large Volume 98 Part 1.djvu/702

 98 STAT. 654 Ante, p. 533.

PUBLIC LAW 98-369—JULY 18, 1984 amount of the original issue disfcount which accrues during any period shall be made under the rules of section 1272 (or the corresponding provisions of prior law) without regard to any exception for short-term obligations. "(3) SOURCE OF ORIGINAL ISSUE DISCOUNT.—Except to the

K: q,,a ?

Ante, p. 551.

extent provided in regulations prescribed by the Secretary, the determination of whether any amount described in subsection (a)(1)(C) is from sources within the United States shall be made at the time of the payment (or sale or exchange) as if such payment (or sale or exchange) involved the payment of interest. "(4) STRIPPED BONDS.—The provisions of section 1286 (relating to the treatment of stripped bonds and stripped coupons as obligations with original issue discount) shall apply for purposes of this section." (b) FOREIGN CORPORATIONS.—

26 USC 881.

(1) IN GENERAL.—Paragraph (3) of section 881(a) (relating to tax on income of foreign corporations not connected with United States business) is amended to read as follows: "(3) in the case of— "(A) a sale or exchange of an original issue discount obligation, the amount of any gain not in excess of the original issue discount accruing while such obligation was held by the foreign corporation (to the extent such discount was not therefore taken into account under subparagraph (B)), and "(B) the payment of interest on an original issue discount obligation, an amount equal to the original issue discount accrued on such obligation since the last payment of interest thereon (except that such original issue discount shall be taken into account under this subparagraph only to the extent that the tax thereon does not exceed the interest payment less the tax imposed by paragraph (1) thereon), and". (2) CROSS REFERENCE.—Subsection (c) of section 881 (relating

to doubling of tax) is amended to read as follows: "(c) CROSS REFERENCE.—

Ante, p. 653.

"For doubling of tax on corporations of certain foreign countries, see section 891. "For special rules for original issue discount, see section 871(g)." (c) DEDUCTION FOR ORIGINAL ISSUE DISCOUNT HELD BY RELATED

Ante, p. 556. a<,c

FOREIGN PERSON.—Subsection (e) of section 163 (relating to original issue discount), as amended by this Act, is amended by redesignating paragraph (3) as paragraph (4), and by inserting after paragraph (2) the following new paragraph: "(3) SPECIAL RULE FOR ORIGINAL ISSUE DISCOUNT ON OBLIGATION HELD BY RELATED FOREIGN PERSON.—

"(A) IN GENERAL.—If any debt instrument having original issue discount is held by a related foreign person, any portion of such original issue discount shall not be allowable as a deduction to the issuer until paid. "(B) RELATED FOREIGN PERSON.—For purposes of subpara-

graph (A), the term 'related foreign person' means any person— "(i) who is not a United States person, and "(ii) who is related (within the meaning of section Oiii w im.. 267(b)) to the issuer."

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Page:United States Statutes at Large Volume 98 Part 1.djvu/703

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 655

(d) EFFECTIVE DATE.— (1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to payments made on or after the 60th day after the date of the enactment of this Act with respect to obligations issued after March 31, 1972. (2) SUBSECTION (C).—The amendment made by subsection (c) shall apply to obligations issued after June 9, 1984.

26 USC 871 note.

SEC. 129. WITHHOLDING OF TAX ON DISPOSITIONS OF UNITED STATES REAL PROPERTY INTERESTS. (a) WITHHOLDING OF TAX.—

(1) IN GENERAL.—Subchapter A of chapter 3 (relating to withholding of tax on nonresident aliens and foreign corporations) is amended by adding at the end thereof the following new section: "SEC. 1445. WITHHOLDING OF TAX ON DISPOSITIONS OF UNITED STATES REAL PROPERTY INTERESTS.

"(a) GENERAL RULE,—Except as otherwise provided in this section, in the case of any disposition of a United States real property interest (as defined in section 897(c)) by a foreign person, the transferee shall be required to deduct and withhold a tax equal to 10 percent of the amount realized on the disposition. "(b) EXEMPTIONS.—

"(1) IN GENERAL.—No person shall be required to deduct and withhold any amount under subsection (a) with respect to a disposition if paragraph (2), (3), (4), (5), or (6) applies to the transaction. "(2) TRANSFEROR FURNISHES NONFOREIGN AFFIDAVIT.—Except

as provided in paragraph (7), this paragraph applies to disposition if the transferor furnishes to the transferee affidavit by the transferor stating, under penalty of perjury, transferor's United States taxpayer identification number that the transferor is not a foreign person.

the an the and

"(3) NONPUBLICLY TRADED DOMESTICORPORATION FURNISHES AFFIDAVIT THAT IT IS NOT A UNITED STATES REAL PROPERTY HOLD-

ING CORPORATION.—Except as provided in paragraph (7), this paragraph applies in the case of a disposition of any interest in any domestic corporation, if the domestic corporation furnishes to the transferee an affidavit by the domestic corporation stating, under penalty of perjury, that the domestic corporation is not and has not been a United States real property holding corporation (as defined in section 897(c)(2)) during the applicable period specified in section 897(c)(l)(A)(ii). "(4) TRANSFEREE RECEIVES QUALIFYING STATEMENT.—

y^ 5

"(A) IN GENERAL.—This paragraph applies to the disposition if the transferee receives a qualifying statement at such time, in such manner, and subject to such terms and conditions as the Secretary may by regulations prescribe. "(B) QUALIFYING STATEMENT.—For purposes of subparagraph (A), the term 'qualifying statement' means a statement by the Secretary that— "(i) the transferor either— "(I) has reached agreement with the Secretary (or such agreement has been reached by the transferee) for the payment of any tax imposed by section 871(b)(l) or 882(a)(l) on any gain recognized by

26 USC 1445.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/704

 98 STAT. 656

PUBLIC LAW 98-369—JULY 18, 1984 the transferor on the disposition of the United States real property interest, or "(II) is exempt from any tax imposed by section 871(b)(1) or 882(a)(1) on any gain recognized by the transferor on the disposition of the United States real property interest, and "(ii) the transferor or transferee has satisfied any transferor's unsatisfied withholding liability or has provided adequate security to cover such liability. "(5) RESIDENCE WHERE AMOUNT REALIZED DOES NOT EXCEED

$300,000.—This paragraph applies to the disposition if^ "(A) the property is acquired by the transferee for use by him as a residence, and "(B) the amount realized for the property does not exceed $300,000. "(6)

STOCK REGULARLY TRADED ON ESTABLISHED SECURITIES

MARKET.—This paragraph applies if the disposition is of a share of a class of stock that is regularly traded on an established securities market. "(7) SPECIAL RULES FOR PARAGRAPHS (2) AND (3).—Paragraph (2) or (3) (as the case may be) shall not apply to any disposition— "(A) i f "(i) the transferee has actual knowledge that the affidavit referred to in such paragraph is false, or "(ii) the transferee receives a notice (as described in subsection (d)) from a transferor's agent or a transferee's agent that such affidavit is false, or "(B) if the Secretary by regulations requires the transferee to furnish a copy of such affidavit to the Secretary and the transferee fails to furnish a copy of such affidavit to the Secretary at such time and in such manner as required by such regulations. "(c) LIMITATIONS ON AMOUNT REQUIRED TO B E WITHHELD.— "(1) CANNOT EXCEED TRANSFEROR'S MAXIMUM TAX LIABILITY.—

"(A) IN GENERAL.—The amount required to be withheld under this section with respect to any disposition shall not exceed the amount (if any) determined under subparagraph (B) as the transferor's maximum tax liability. "(B) REQUEST.—At the request of the transferor or transferee, the Secretary shall determine, with respect to any disposition, the transferor's maximum tax liability. "(C) REFUND OF EXCESS AMOUNTS WITHHELD.—Subject to

such terms and conditions as the Secretary may by regulations prescribe, a transferor may seek and obtain a refund of any amounts withheld under this section in excess of the transferor's maximum tax liability. "(2)

AUTHORITY

OF

SECRETARY

TO

PRESCRIBE

REDUCED

AMOUNT.—At the request of the transferor or transferee, the Secretary may prescribe a reduced amount to be withheld under this section if the Secretary determines that to substitute such reduced amount will not jeopardize the collection of the tax imposed by section 871(b)(1) or 882(a)(1). "(3) PROCEDURAL RULES.—

<.;

"(A) REGULATIONS.—Requests for— "(i) qualifying statements under subsection (b)(4), "(ii) determinations of transferor's maximum tax liability under paragraph (1), and

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Page:United States Statutes at Large Volume 98 Part 1.djvu/705

 PUBLIC LAW 98-369-JULY 18, 1984

-'

98 STAT. 657

"(iii) reductions under paragraph (2) in the amount required to be withheld, shall be made at the time and manner, and shall include such information, as the Secretary shall prescribe by regulations. "(B) REQUESTS TO BE HANDLED WITHIN 90 DAYS.—The Secretary shall take action with respect to any request described in subparagraph (A) within 90 days after the Secretary receives the request.

"(d) LiABiuTY OF TRANSFEROR'S AGENTS OR TRANSFEREE'S AGENTS.— "(1) NOTICE OF FALSE AFFIDAVIT; FOREIGN CORPORATIONS.—If—

t

"(A) the transferor furnishes the transferee an affidavit described in paragraph (2)(A) of subsection (b) or a domestic sd. t corporation furnishes the transferee an affidavit described in paragraph (3) of subsection (b), and aomm. "(B) in the case of— "(i) any transferor's agent, the transferor is a foreign corporation or such agent has actual knowledge that such affidavit is false, or "(ii) any transferee's agent, such agent has actual knowledge that such affidavit is false, such agent shall so notify the transferee at such time and in such manner as the Secretary shall require by regulations. "(2) FAILURE TO FURNISH NOTICE.—

"(A) IN GENERAL.—If any transferor's agent or transferee's agent is required by paragraph (1) to furnish notice, but fails to furnish such notice at such time or times and in such manner as may be required by regulations, such agent shall have the same duty to deduct and withhold that the transferee would have had if such agent had complied with paragraph (1). "(B) LIABILITY LIMITED TO AMOUNT OF COMPENSATION.—An

agent's liability under subparagraph (A) shall be limited to the amount of compensation the agent derives from the transaction. "(3) TRANSFEROR'S AGENT.—For purposes of this subsection, the term 'transferor's agent' means any person who represents the transferor— "(A) in any negotiation with the transferee or any transferee's agent related to the transaction, or "(B) in settling the transaction. "(4) TRANSFEREE'S AGENT.—For purposes of this subsection, the term 'transferee's agent' means any person who represents the transferee— "(A) in any negotiation with the transferor or any transferor's agent related to the transaction, or "(B) in settling the transaction. "(5)

SETTLEMENT OFFICER NOT TREATED AS TRANSFEROR'S

AGENT.—For purposes of this subsection, a person shall not be treated as a transferor's agent or transferee's agent with respect to any transaction merely because such person performs 1 or more of the following acts: "(A) The receipt and the disbursement of any portion of the consideration for the transaction. "(B) The recording of any document in connection with the transaction.

31-194 0 - 86 - 23: QL. 3 Part 1

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Page:United States Statutes at Large Volume 98 Part 1.djvu/706

 98 STAT. 658

PUBLIC LAW 98-369—JULY 18, 1984 "(e) SPECIAL RULES RELATING TO DISTRIBUTIONS, ETC., BY CORPORATIONS, PARTNERSHIPS, TRUSTS, OR ESTATES.— "(1) CERTAIN DOMESTIC PARTNERSHIPS, TRUSTS, AND ESTATES.—

A domestic partnership, the trustee of a domestic trust, or the executor of a domestic estate shall be required to deduct and withhold under subsection (a) a tax equal to 10 percent of any amount of which such partnership, trustee, or executor has custody which is— "(A) attributable to the disposition of a United States real property interest (as defined in section 897(c), other than a disposition described in paragraph (4) or (5)), and "(B) either— "(i) includible in the distributive share of a partner of the partnership who is a foreign person, "(ii) includible in the income of a beneficiary of the trust or estate who is a foreign person, or "(iii) includible in the income of a foreign person under the provisions of section 671. "(2) CERTAIN DISTRIBUTIONS BY FOREIGN CORPORATIONS.—In the

case of any distribution by a foreign corporation on which gain is recognized under subsection (d) or (e) of section 897, the foreign corporation shall deduct and withhold under subsection (a) a tax equal to 28 percent of the amount of gain recognized on such distribution under such subsection. "(3)

26 USC 331.

DISTRIBUTIONS BY CERTAIN DOMESTICORPORATIONS TO

FOREIGN SHAREHOLDERS.—If a domestic corporation which is or has been a United States real property holding corporation (as defined in section 897(c)(2)) during the applicable period specified in section 897(c)(l)(A)(ii) distributes property to a foreign person in a transaction to which section 302 or part II of subchapter C applies, such corporation shall deduct and withhold under subsection (a) a tax equal to 10 percent of the amount realized by the foreign shareholder. "(4) TAXABLE DISTRIBUTIONS BY DOMESTIC OR FOREIGN PARTNERSHIPS, TRUSTS, OR ESTATES.—A domestic or foreign partnership,

the trustee of a domestic or foreign trust, or the executor of a domestic or foreign estate shall be required to deduct and withhold under subsection (a) a tax equal to 10 percent of the fair market value (as of the time of the taxable distribution) of any United States real property interest distributed to a partner of the partnership or a beneficiary of the trust or estate, as the case may be, who is a foreign person in a transaction which would constitute a taxable distribution under the regulations promulgated by the Secretary pursuant to section 897(g). "(5) RULES RELATING TO DISPOSITIONS OF INTEREST IN PARTNER-

SHIPS, TRUSTS, OR ESTATES.—To the extent provided in regulations, the transferee of a partnership interest or of a beneficial interest in a trust or estate shall be required to deduct and withhold under subsection (a) a tax equal to 10 percent of the amount realized on the disposition. "(6) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including regulations providing for exceptions from provisions of this subsection. "(f) DEFINITIONS.—For purposes of this section— "(1) TRANSFEROR.—The term 'transferor' means the person disposing of the United States real property interest.

i J"S:s1 t

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Page:United States Statutes at Large Volume 98 Part 1.djvu/707

 PUBLIC LAW 98-369—JULY 18, 1984

j,

98 STAT. 659

"(2) TRANSFEREE.—The term 'transferee' means the person acquiring the United States real property interest. "(3) FOREIGN PERSON.—The term 'foreign person' means any person other than a United States person. "(4) TRANSFEROR'S MAXIMUM TAX LIABILITY.—The term 'transferor's maximum tax liability' means, with respect to the disposition of any interest, the sum of— "(A) the maximum amount which the Secretary determines could be imposed as tax under section 871(b)(1) or 882(a)(1) by reason of the disposition, plus "(B) the amount the Secretary determines to be the transferor's unsatisfied withholding liability with respect to such interest. "(5) TRANSFEROR'S UNSATISFIED WITHHOLDING LIABILITY.—The

term 'transferor's unsatisfied withholding liability' means the withholding obligation imposed by this section on the transferor's acquisition of the United States real property interest or on the acquisition of a predecessor interest, to the extent such obligation has not been satisfied." (2) CLERICAL AMENDMENT.—The table of sections for subchapter A of chapter 3 is amended by adding at the end thereof the following new item: "Sec. 1445. Withholding of tax on dispositions of United States real property interests." (b) REPORTING REQUIREMENTS LIMITED TO FOREIGN PERSONS HOLDING DIRECT INVESTMENTS IN UNITED STATES REAL PROPERTY.—

(1) IN GENERAL.—Section 6039C (relating to returns with respect to United States real property interests) is amended to read as follows:

26 USC 6039C.

"SEC. 6039C. RETURNS WITH RESPECT TO FOREIGN PERSONS HOLDING DIRECT INVESTMENTS IN UNITED STATES REAL PROPERTY INTERESTS.

"(a) GENERAL RULE.—To the extent provided in regulations, any foreign person holding direct investments in United States real property interests for the calendar year shall make a return setting forth— "(1) the name and address of such person, "(2) a description of all United States real property interests held by such person at any time during the calendar year, and "(3) such other information as the Secretary may by regulations prescribe.

s. c: .: -.i . „,,,. 5,r

"(b) DEFINITION OF FOREIGN PERSONS HOLDING DIRECT INVESTMENTS IN UNITED STATES REAL PROPERTY INTERESTS.—For purposes

of this section, a foreign person shall be treated as holding direct investments in United States real property interests during any calendar year if— "(1) such person did not engage in a trade or business in the United States at any time during such calendar year, and "(2) the fair market value of the United States real property interests held directly by such person at any time during such year equals or exceeds $50,000. "(c) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1) UNITED STATES REAL PROPERTY INTEREST.—The term 'United States real property interest' has the meaning given to such term by section 897(c).

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/708

 98 STAT. 660

PUBLIC LAW 98-369—JULY 18, 1984 "(2) FOREIGN PERSON.—The term 'foreign person' means any person who is not a United States person. "(3) ATTRIBUTION OF OWNERSHIP.—For purposes of subsection (b)(2)"(A) INTERESTS

HELD

BY PARTNERSHIPS,

ETC.—United

States real property interests held by a partnership, trust, or estate shall be treated as owned proportionately by its partners or beneficiaries. "(B) INTERESTS HELD BY FAMILY MEMBERS.—United States real property interests held by the spouse or any minor child of an individual shall be treated as owned by such individual. "(4) TIME AND MANNER OF FIUNG RETURN.—All returns re-

quired to be made under this section shall be made at such time and in such manner as the Secretary shall by regulations prescribe. "(d) SPECIAL RULE FOR UNITED STATES INTEREST AND VIRGIN ISLANDS INTEREST.—A nonresident alien individual or foreign corpo-

ration subject to tax under section 897(a) shall pay any tax and file any return required by this title— "(1) to the United States, in the case of any interest in real property located in the United States and an interest (other than an interest solely as a creditor) in a domestic corporation (with respect to the United States) described in section 897(c)(l)(A)(ii), and "(2) to the Virgin Islands, in the case of any interest in real property located in the Virgin Islands and an interest (other than an interest solely as a creditor) in a domestic corporation (with respect to the Virgin Islands) described in section 897(c)(l)(A)(ii)." (2) CLERICAL AMENDMENT.—The table of sections for subpart A of part III of subchapter A of chapter 61 is amended by striking out the item relating to section 6039C and inserting in lieu thereof the following: "Sec. 6039C. Returns with respect to foreign persons holding direct investments in United States real property interests." (c) EFFECTIVE DATES.—

26 USC 1445 note. 26 USC 6039C note.

26 USC 881.

(1) IN GENERAL.—The amendments made by subsection (a) shall apply to any disposition on or after January 1, 1985. (2) REPORTING REQUIREMENTS.—The amendments made by subsection (b) shall apply to calendar year 1980 and subsequent calendar years. SEC. 130. TREATMENT OF PAYMENTS TO GUAM AND VIRGIN ISLANDS CORPORATIONS. (a) GENERAL RULE.—Subsection (b) of section 881 (relating to

exception for Guam corporations) is amended to read as follows: "(b) EXCEPTION CORPORATIONS.—

FOR CERTAIN

GUAM

AND VIRGIN

ISLANDS

"(1) IN GENERAL.—For purposes of this section, a corporation created or organized in Guam or the Virgin Islands or under the law of Guam or the Virgin Islands shall not be treated as a foreign corporation for any taxable year if— "(A) at all times during such taxable year less than 25 percent in value of the stock of such corporation is owned (directly or indirectly) by foreign persons, and

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/709

 PUBLIC LAW 98-369—JULY 18, 1984 "(B) at least 20 percent of the gross income of such corporation is shown to the satisfaction of the Secretary to have been derived from sources within Guam or the Virgin Islands (as the case may be) for the 3-year period ending with the close of the preceding taxable year of such corporation (or for such part of such period as the corporation has been in existence).

3! I r

98 STAT. 661

• '-> • -

"(2) PARAGRAPH (i) NOT TO APPLY TO TAX IMPOSED IN GUAM.—

For purposes of applying this subsection with respect to income tax liability incurred to Guam— "(A) Paragraph (1) shall not apply, and "(B) for purposes of this section, the term 'foreign corporation' does not include a corporation created or organized in Guam or under the law of Guam.

0 ^

"(3) DEFINITIONS.— "(A) FOREIGN PERSON.—For purposes of paragraph (1), the

term 'foreign person' means any person other than— "(i) a United States person, or "(ii) a person who would be a United States person if references to the United States in section 7701 included Ki ij^A':- > references to a possession of the United States. "(B) INDIRECT OWNERSHIP RULES.—For purposes of paragraph (1), the rules of section 318(a)(2) shall apply except that '5 percent' shall be substituted for *50 percent' in subparagraph (C) thereof. 1

"(4) CROSS REFERENCE.—

"For tax imposed in the Virgin Islands, see sections 934 and 934A."

Co) WITHHOLDING OF TAX.—Subsection (c) of section 1442 (relating 26 USC 1442. to exception for Guam corporations) is amended to read as follows: "(c) EXCEPTION FOR CERTAIN GUAM AND VIRGIN ISLANDS CORPORATIONS.—

"(1) IN GENERAL.—For purposes of this section, the term 'foreign corporation' does not include a corporation created or organized in Guam or the Virgin Islands or under the law of Guam or the Virgin Islands if the requirements of subparagraphs (A) and (B) of section 881(b)(1) are met with respect to Ante, p. 660. such corporation. "(2) PARAGRAPH (i) NOT TO APPLY TO TAX IMPOSED IN GUAM.—

For purposes of applying this subsection with respect to income tax liability incurred to Guam— "(A) paragraph (1) shall not apply, and "(B) for purposes of this section, the term 'foreign corporation' does not include a corporation created or organized in Guam or under the law of Guam. "(3) CROSS REFERENCE.—

"For tax imposed in the Virgin Islands, see sections 934 and 934A."

(c) TECHNICAL AMENDMENT.—Subparagraph (B) of section 7651(5) 26 USC 7651. is amended by inserting "(other than section 881(b)(1))" after "For purposes of this title". (d) EFFECTIVE DATE.—The amendments made by this section shall 26 USC 881 note. apply to payments made after March 1, 1984, in taxable years ending after such date.

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