To amend the Internal Revenue Code of 1986 to allow certain Puerto Rico corporations to elect to be treated as domestic corporations.

Summary: Puerto Rico Investment Promotion Act of 2011 - Amends the Internal Revenue Code to allow a corporation incorporated under the laws of Puerto Rico and deriving at least 50% of its gross income from sources within Puerto Rico to elect to be treated as a domestic corporation for U.S. tax purposes.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Puerto Rico Investment Promotion Act 
of 2011''.

SEC. 2. CERTAIN PUERTO RICO CORPORATIONS MAY ELECT TO BE TREATED AS 
              DOMESTIC CORPORATIONS.

    (a) In General.--Subpart D of part III of subchapter N of chapter 1 
of the Internal Revenue Code of 1986 (relating to possessions of the 
United States) is amended by inserting after section 933 the following 
new section:

``SEC. 933A. ELECTION BY PUERTO RICO CORPORATIONS TO BE TREATED AS 
              DOMESTIC CORPORATIONS.

    ``(a) In General.--A qualified Puerto Rico corporation for which an 
election under this section is in effect for any taxable year shall be 
treated for such year as a domestic corporation for purposes of this 
title.
    ``(b) Qualified Puerto Rico Corporation.--For purposes of this 
section, the term `qualified Puerto Rico corporation' means any 
corporation if--
            ``(1) the corporation is incorporated under the laws of 
        Puerto Rico, and
            ``(2) at least 50 percent of its gross income (determined 
        without regard to subsection (c)) for the taxable year is 
        derived from sources within Puerto Rico.
    ``(c) Exclusion of Puerto Rico Source Income.--
            ``(1) In general.--In the case of a qualified Puerto Rico 
        corporation for which an election under this section is in 
        effect for any taxable year, gross income for such year shall 
        not include income derived from sources within Puerto Rico.
            ``(2) Denial of certain foreign tax credits.--No credit 
        shall be allowed for the amount of taxes paid or accrued to a 
        foreign country or possession of the United States to the 
        extent such taxes are properly allocable to amounts excluded 
        from gross income under paragraph (1).
    ``(d) Rules Relating to Election.--
            ``(1) Period election in effect.--
                    ``(A) In general.--Except as otherwise provided in 
                this paragraph, an election under this section shall 
                apply to the taxable year for which made and all 
                subsequent taxable years.
                    ``(B) Revocation.--
                            ``(i) Revocation by corporation.--A 
                        corporation may revoke an election under this 
                        section for any taxable year only if the 
                        election has been in effect for at least the 3 
                        most recent preceding taxable years.
                            ``(ii) Ceasing to be qualified.--An 
                        election under this section shall be revoked by 
                        the Secretary for any taxable year for which 
                        the corporation fails to meet the requirements 
                        of subsection (b).
                            ``(iii) Effect of revocation.--Except as 
                        provided in subparagraph (C), a revocation 
                        under this subparagraph shall apply to the 
                        taxable year for which revoked and all 
                        subsequent taxable years.
                    ``(C) Election after revocation.--An election under 
                this section may be made after a revocation under 
                subparagraph (B), but the election may not apply to any 
                taxable year before the 4th taxable year following the 
                most recent preceding taxable year for which the 
                election was in effect.
            ``(2) Effect of making and terminating election.--
                    ``(A) Making election.--For purposes of section 
                367, any qualified Puerto Rico corporation making an 
                election under this section shall be treated as 
                transferring (as of the 1st day of the 1st taxable year 
                to which such election applies) all of its assets to a 
                domestic corporation in connection with an exchange to 
                which section 354 applies.
                    ``(B) Effect of termination.--For purposes of 
                section 367, if an election is made by a corporation 
                under this section for any taxable year and such 
                election ceases to apply for any subsequent taxable 
                year, such corporation shall be treated as a domestic 
                corporation transferring (as of the 1st day of such 
                subsequent taxable year) all of its property to a 
                foreign corporation in connection with an exchange to 
                which section 354 applies.
                    ``(C) Intangibles.--For purposes of section 367(d) 
                and the second sentence of section 482, any election 
                made under this section shall be disregarded.
    ``(e) Denial of Inclusion in Consolidated Return.--A qualified 
Puerto Rico corporation for which an election under this section is in 
effect for any taxable year may not be included in any consolidated 
return under chapter 6.''.
    (b) Clerical Amendment.--The table of sections for such subpart D 
is amended by inserting after the item relating to section 933 the 
following new item:

``Sec. 933A. Election by Puerto Rico corporations to be treated as 
                            domestic corporations.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after September 30, 2011.