To amend the Internal Revenue Code of 1986 to expand and make permanent rules related to investment by nonresident aliens in domestic mutual funds.

Summary: Amends the Internal Revenue Code, with respect to the tax on nonresident alien individuals, to: (1) make permanent the tax exemption for interest-related dividends and short-term capital gain dividends received from a regulated investment company, and (2) expand the categories of interest-related dividends for which a tax exemption is allowed.

SECTION 1. EXEMPTION FOR CERTAIN DIVIDENDS PAID BY REGULATED INVESTMENT 
              COMPANIES TO NONRESIDENT ALIENS EXPANDED AND MADE 
              PERMANENT.

    (a) Exemptions for Certain Dividends Made Permanent.--
            (1) Interest-related dividends.--Subparagraph (C) of 
        section 871(k)(1) of the Internal Revenue Code of 1986 is 
        amended by striking clause (v).
            (2) Capital gain dividends.--Subparagraph (C) of section 
        871(k)(2) of such Code is amended by striking clause (v).
    (b) Expansion of Exemption for Interest-Related Dividends.--
            (1) In general.--Subparagraph (E) of section 871(k)(1) of 
        such Code is amended by striking clauses (iii) and (iv) and 
        inserting the following new clauses:
                            ``(iii) Any amount referred to in 
                        subsection (i)(2)(A) (without regard to the 
                        trade or business of the regulated investment 
                        company) or in subsection (i)(2)(B).
                            ``(iv) Any interest which is exempt from 
                        tax under section 103 or any other provision of 
                        law without regard to the identity of the 
                        holder.
                            ``(v) Any other amount includible in gross 
                        income that is determined by reference to an 
                        interest rate and that would not be subject to 
                        withholding under section 1441 if received by a 
                        nonresident alien individual.
                            ``(vi) Any amount includible in gross 
                        income from sources without the United States.
                            ``(vii) Any qualified income-related 
                        dividend includible in gross income with 
                        respect to stock of another regulated 
                        investment company.''.
            (2) Modification of exceptions.--Clause (i) of section 
        871(k)(1)(B) is amended by striking ``interest (other than 
        interest described in subparagraph (E)(i) or (iii))'' and 
        inserting ``interest described in subparagraph (E)(ii) (and not 
        described in subparagraph (E) (i), (iii), or (iv))''.
            (3) Conforming amendments.--
                    (A) Paragraph (1) of section 871(k) of such Code is 
                amended--
                            (i) by striking ``interest-related 
                        dividend'' each place it appears in the text 
                        and inserting ``qualified income-related 
                        dividend'',
                            (ii) by striking ``qualified net interest 
                        income'' each place it appears in the text and 
                        inserting ``qualified net income'',
                            (iii) by striking ``qualified interest 
                        income'' each place it appears in the text and 
                        inserting ``qualified income'',
                            (iv) by striking ``Interest-related 
                        dividends'' in the heading thereof and 
                        inserting ``Qualified income-related 
                        dividends'',
                            (v) by striking ``Interest related 
                        dividend'' in the heading of subparagraph (C) 
                        and inserting ``Qualified income-related 
                        dividend'',
                            (vi) by striking ``Qualified net interest 
                        income'' in the heading of subparagraph (D) and 
                        inserting ``Qualified net income'', and
                            (vii) by striking ``Qualified interest 
                        income'' in the heading of subparagraph (E) and 
                        inserting ``Qualified income''.
                    (B) Paragraph (1) of section 881(e) of such Code is 
                amended--
                            (i) by striking ``interest-related 
                        dividend'' each place it appears in 
                        subparagraphs (A) and (B) and inserting 
                        ``qualified income-related dividend'',
                            (ii) by striking ``interest received'' in 
                        subparagraph (B)(ii) and inserting ``interest 
                        described in clause (ii) of section 
                        871(k)(1)(E) (and not described in clause (i), 
                        (iii), or (iv) of such section) received'',
                            (iii) by striking ``interest-related 
                        dividend received'' in subparagraph (C) and 
                        inserting ``qualified income-related dividend 
                        received from a regulated investment company'',
                            (iv) by striking ``clause (i) or (iii)'' in 
                        subparagraph (C) and inserting ``clause (i), 
                        (iii), or (iv)'', and
                            (v) by striking ``Interest-related 
                        dividends'' in the heading thereof and 
                        inserting ``Qualified income-related 
                        dividends''.
    (c) Effective Date.--The amendments made by this section shall 
apply to dividends with respect to taxable years of regulated 
investment companies beginning after December 31, 2011.