I 

108TH CONGRESS 

1ST SESSION H. R. 1769

To amend the Internal Revenue Code of 1986 to comply with the World 

Trade Organization rulings on the FSC/ETI benefit in a manner that 

preserves jobs and production activities in the United States. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 11, 2003

Mr. CRANE (for himself, Mr. RANGEL, Mr. MANZULLO, Mr. LEVIN, Mr. COLLINS, Mr. MCDERMOTT, Mr. LAHOOD, Mr. NEAL of Massachusetts, Mr. 

SHIMKUS, and Mr. MATSUI) introduced the following bill; which was referred to the Committee on Ways and Means 

A BILL

To amend the Internal Revenue Code of 1986 to comply 

with the World Trade Organization rulings on the FSC/

ETI benefit in a manner that preserves jobs and production activities in the United States.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Job Protection Act 

5 of 2003’’. 
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1 SEC. 2. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL 

2 INCOME. 

3 (a) IN GENERAL.—Section 114 of the Internal Rev4 enue Code of 1986 is hereby repealed. 

5 (b) CONFORMING AMENDMENTS.—

6 (1) Subpart E of part III of subchapter N of 

7 chapter 1 of such Code (relating to qualifying for8 eign trade income) is hereby repealed. 

9 (2) The table of subparts for such part III is 

10 amended by striking the item relating to subpart E. 

11 (3) The table of sections for part III of sub12 chapter B of chapter 1 of such Code is amended by 

13 striking the item relating to section 114. 

14 (c) EFFECTIVE DATE.—

15 (1) IN GENERAL.—The amendments made by 

16 this section shall apply to transactions occurring 

17 after the date of the enactment of this Act. 

18 (2) BINDING CONTRACTS.—The amendments 

19 made by this section shall not apply to any trans20 action in the ordinary course of a trade or business 

21 which occurs pursuant to a binding contract—

22 (A) which is between the taxpayer and a 

23 person who is not a related person (as defined 

24 in section 943(b)(3) of such Code, as in effect 

25 on the day before the date of the enactment of 

26 this Act), and 
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1 (B) which is in effect on April 11, 2003, 

2 and at all times thereafter. 

3 For purposes of this paragraph, a binding contract 

4 shall include a purchase option, renewal option, or 

5 replacement option which is included in such con6 tract. 

7 (d) REVOCATION OF SECTION 943(e) ELECTIONS.—

8 (1) IN GENERAL.—In the case of a corporation 

9 that elected to be treated as a domestic corporation 

10 under section 943(e) of the Internal Revenue Code 

11 of 1986 (as in effect on the day before the date of 

12 the enactment of this Act)—

13 (A) the corporation may revoke such elec14 tion, effective as of the date of the enactment 

15 of this Act, and 

16 (B) if the corporation does revoke such 

17 election—

18 (i) such corporation shall be treated 

19 as a domestic corporation transferring (as 

20 of the date of the enactment of this Act) 

21 all of its property to a foreign corporation 

22 in connection with an exchange described 

23 in section 354 of the Internal Revenue 

24 Code of 1986, and 
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1 (ii) no gain or loss shall be recognized 

2 on such transfer. 

3 (2) EXCEPTION.—Subparagraph (B)(ii) of 

4 paragraph (1) shall not apply to gain on any asset 

5 held by the revoking corporation if—

6 (A) the basis of such asset is determined 

7 in whole or in part by reference to the basis of 

8 such asset in the hands of the person from 

9 whom the revoking corporation acquired such 

10 asset, 

11 (B) the asset was acquired by transfer (not 

12 as a result of the election under section 943(e) 

13 of such Code) occurring on or after the 1st day 

14 on which its election under section 943(e) of 

15 such Code was effective, and 

16 (C) a principal purpose of the acquisition 

17 was the reduction or avoidance of tax. 

18 (e) GENERAL TRANSITION.—

19 (1) IN GENERAL.—In the case of a taxable year 

20 ending after the date of the enactment of this Act 

21 and beginning before January 1, 2009, for purposes 

22 of chapter 1 of such Code, each current FSC/ETI 

23 beneficiary shall be allowed a deduction equal to the 

24 transition amount determined under this subsection 

25 with respect to such beneficiary for such year. 
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1 (2) CURRENT FSC/ETI BENEFICIARY.—The 

2 term ‘‘current FSC/ETI beneficiary’’ means any cor3 poration which entered into one or more transactions 

4 during its taxable year beginning in calendar year 

5 2001 with respect to which FSC/ETI benefits were 

6 allowable. 

7 (3) TRANSITION AMOUNT.—For purposes of 

8 this subsection—

9 (A) IN GENERAL.—The transition amount 

10 applicable to any current FSC/ETI beneficiary 

11 for any taxable year is the phaseout percentage 

12 of the adjusted base period amount. 

13 (B) PHASEOUT PERCENTAGE.—

14 (i) IN GENERAL.—In the case of a 

15 taxpayer using the calendar year as its 

16 taxable year, the phaseout percentage shall 

17 be determined under the following table:

The phaseout 

‘‘Years: percentage is:

2004 and 2005 ....... 100

2006 ....................... 75

2007 ....................... 75

2008 ....................... 50

2009 and thereafter 0

18 (ii) SPECIAL RULE FOR 2003.—The 

19 phaseout percentage for 2003 shall be the 

20 amount that bears the same ratio to 100

21 percent as the number of days after the 
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1 date of the enactment of this Act bears to 

2 365. 

3 (iii) SPECIAL RULE FOR FISCAL YEAR

4 TAXPAYERS.—In the case of a taxpayer 

5 not using the calendar year as its taxable 

6 year, the phaseout percentage is the 

7 weighted average of the phaseout percent8 ages determined under the preceding provi9 sions of this paragraph with respect to cal10 endar years any portion of which is in11 cluded in the taxpayer’s taxable year. The 

12 weighted average shall be determined on 

13 the basis of the respective portions of the 

14 taxable year in each calendar year. 

15 (4) ADJUSTED BASE PERIOD AMOUNT.—

16 For purposes of this subsection—

17 (A) IN GENERAL.—In the case of a 

18 taxpayer using the calendar year as its 

19 taxable year, the adjusted base period 

20 amount for any taxable year is the base 

21 period amount multiplied by the applicable 

22 percentage, as determined in the following 

23 table:

The applicable 

‘‘Years: percentage is:

2003 ....................... 100

2004 ....................... 100

2005 ....................... 105
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The applicable 

‘‘Years: percentage is:

2006 ....................... 110

2007 ....................... 115

2008 ....................... 120

2009 and thereafter 0

1 (B) BASE PERIOD AMOUNT.—The 

2 base period amount is the aggregate FSC/

3 ETI benefits for the taxpayer’s taxable 

4 year beginning in calendar year 2001. 

5 (C) SPECIAL RULES FOR FISCAL YEAR

6 TAXPAYERS, ETC.—Rules similar to rules 

7 of clauses (ii) and (iii) of paragraph (3)(B) 

8 shall apply for purposes of this paragraph. 

9 (5) FSC/ETI BENEFIT.—For purposes of this 

10 subsection, the term ‘FSC/ETI benefit’ means—

11 (A) amounts excludable from gross income 

12 under section 114 of such Code, and 

13 (B) the exempt foreign trade income of re14 lated foreign sales corporations from property 

15 acquired from the taxpayer (determined without 

16 regard to section 923(a)(5) of such Code (relat17 ing to special rule for military property), as in 

18 effect on the day before the date of the enact19 ment of the FSC Repeal and Extraterritorial 

20 Income Exclusion Act of 2000). 

21 In determining the FSC/ETI benefit there shall be 

22 excluded any amount attributable to a transaction 
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1 with respect to which the taxpayer is the lessor un2 less the leased property was manufactured or pro3 duced in whole or in part by the taxpayer. 

4 (6) SPECIAL RULE FOR FARM COOPERATIVES.—

5 Under regulations prescribed by the Secretary, de6 terminations under this subsection with respect to 

7 an organization described in section 943(g)(1) of 

8 such Code, as in effect on the day before the date 

9 of the enactment of this Act, shall be made at the 

10 cooperative level and the purposes of this subsection 

11 shall be carried out by excluding amounts from the 

12 gross income of its patrons. 

13 (7) CERTAIN RULES TO APPLY.—Rules similar 

14 to the rules of section 41(f) of such Code shall apply 

15 for purposes of this subsection. 

16 (8) COORDINATION WITH BINDING CONTRACT

17 RULE.—The deduction determined under paragraph 

18 (1) for any taxable year shall be reduced by the 

19 phaseout percentage of any FSC/ETI benefit real20 ized for the taxable year by reason of subsection 

21 (c)(2). The preceding sentence shall not apply to any 

22 FSC/ETI benefit attributable to a transaction de23 scribed in the last sentence of paragraph (5). 

24 (9) SPECIAL RULE FOR TAXABLE YEAR WHICH

25 INCLUDES DATE OF ENACTMENT.—In the case of a 
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1 taxable year which includes the date of the enact2 ment of this Act, the deduction allowed under this 

3 subsection to any current FSC/ETI beneficiary shall 

4 in no event exceed—

5 (A) 100 percent of such beneficiary’s ad6 justed base period amount for calendar year 

7 2003, reduced by 

8 (B) the aggregate FSC/ETI benefits of 

9 such beneficiary with respect to transactions oc10 curring during the portion of the taxable year 

11 ending on the date of the enactment of this Act. 

12 SEC. 3. DEDUCTION RELATING TO INCOME ATTRIBUTABLE 

13 TO UNITED STATES PRODUCTION ACTIVI14 TIES. 

15 (a) IN GENERAL.—Part VIII of subchapter B of 

16 chapter 1 of the Internal Revenue Code of 1986 (relating 

17 to special deductions for corporations) is amended by add18 ing at the end the following new section: 

19 ‘‘SEC. 250. INCOME ATTRIBUTABLE TO DOMESTIC PRODUC20 TION ACTIVITIES. 

21 ‘‘(a) IN GENERAL.—In the case of a corporation, 

22 there shall be allowed as a deduction an amount equal to 

23 10 percent of the qualified production activities income of 

24 the corporation for the taxable year. 
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1 ‘‘(b) PHASEIN.—In the case of taxable years begin2 ning in 2006, 2007, 2008 or 2009, subsection (a) shall 

3 be applied by substituting for the percentage contained 

4 therein the transition percentage determined under the 

5 following table:

‘‘Taxable years The transition 

beginning in: percentage is:

2006 ....................... 1

2007 ....................... 2

2008 ....................... 4

2009 ....................... 9

6 ‘‘(c) QUALIFIED PRODUCTION ACTIVITIES IN7 COME.—For purposes of this section, the term ‘qualified 

8 production activities income’ means the product of—

9 ‘‘(1) the portion of the modified taxable income 

10 of the taxpayer which is attributable to domestic 

11 production activities, and 

12 ‘‘(2) the domestic/foreign fraction. 

13 ‘‘(d) DETERMINATION OF INCOME ATTRIBUTABLE

14 TO DOMESTIC PRODUCTION ACTIVITIES.—For purposes 

15 of this section—

16 ‘‘(1) IN GENERAL.—The portion of the modified 

17 taxable income which is attributable to domestic pro18 duction activities is so much of the modified taxable 

19 income for the taxable year as does not exceed—

20 ‘‘(A) the taxpayer’s domestic production 

21 gross receipts for such taxable year, reduced by 

22 ‘‘(B) the sum of—
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1 ‘‘(i) the costs of goods sold that are 

2 allocable to such receipts, 

3 ‘‘(ii) other deductions, expenses, or 

4 losses directly allocable to such receipts, 

5 and 

6 ‘‘(iii) a ratable portion of other deduc7 tions, expenses, and losses that are not di8 rectly allocable to such receipts or another 

9 class of income. 

10 ‘‘(2) ALLOCATION METHOD.—Except as pro11 vided in regulations, allocations under clauses (ii) 

12 and (iii) of paragraph (1)(B) shall be made under 

13 the principles used in determining the portion of tax14 able income from sources within and without the 

15 United States. 

16 ‘‘(3) SPECIAL RULE.—

17 ‘‘(A) For purposes of determining costs 

18 under clause (i) of paragraph (1)(B), any item 

19 or service brought into the United States with20 out a transfer price meeting the requirements 

21 of section 482 shall be treated as acquired by 

22 purchase, and its cost shall be treated as not 

23 less than its value when it entered the United 

24 States. A similar rule shall apply in determining 

25 the adjusted basis of leased or rented property 
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1 where the lease or rental gives rise to domestic 

2 production gross receipts. 

3 ‘‘(B) In the case of any property described 

4 in subparagraph (A) that had been exported by 

5 the taxpayer for further manufacture, the in6 crease in cost (or adjusted basis) under sub7 paragraph (A) shall not exceed the difference 

8 between the value of the property when ex9 ported and the value of the property when 

10 brought back into the United States after the 

11 further manufacture. 

12 ‘‘(4) MODIFIED TAXABLE INCOME.—The term 

13 ‘modified taxable income’ means taxable income 

14 computed without regard to the deduction allowable 

15 under this section. 

16 ‘‘(e) DOMESTIC PRODUCTION GROSS RECEIPTS.—

17 For purposes of this section—

18 ‘‘(1) IN GENERAL.—The term ‘domestic produc19 tion gross receipts’ means the gross receipts of the 

20 taxpayer which are derived from—

21 ‘‘(A) any sale, exchange, or other disposi22 tion of, or 

23 ‘‘(B) any lease, rental or license of, 

24 qualifying production property which was manufac25 tured, produced, grown, or extracted in whole or in 
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1 significant part by the taxpayer within the United 

2 States. 

3 ‘‘(2) SPECIAL RULE.—The term ‘domestic pro4 duction gross receipts’ includes gross receipts of the 

5 taxpayer from the sale, exchange, or other disposi6 tion of replacement parts if— 

7 ‘‘(A) such parts are sold by the taxpayer 

8 as replacement parts for qualified production 

9 property produced or manufactured in whole or 

10 significant part by the taxpayer in the United 

11 States, and 

12 ‘‘(B) the taxpayer (or a related party) 

13 owns the designs for such parts. 

14 ‘‘(3) RELATED PARTY.—The term ‘related 

15 party’ means any corporation which is a member of 

16 the taxpayer’s expanded afiliated group. 

17 ‘‘(f) QUALIFYING PRODUCTION PROPERTY.—For 

18 purposes of this section—

19 ‘‘(1) IN GENERAL.—Except as otherwise pro20 vided in this paragraph, the term ‘qualifying produc21 tion property’ means—

22 ‘‘(A) any tangible personal property, 

23 ‘‘(B) any computer software, and 

24 ‘‘(C) any films, tapes, records, or similar 

25 reproductions. 
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1 ‘‘(2) EXCLUSIONS FROM QUALIFYING PRODUC2 TION PROPERTY.—The term ‘qualifying production 

3 property’ shall not include—

4 ‘‘(A) consumable property that is sold, 

5 leased, or licensed by the taxpayer as an inte6 gral part of the provision of services, 

7 ‘‘(B) oil or gas (or any primary product 

8 thereof), 

9 ‘‘(C) electricity, 

10 ‘‘(D) water supplied by pipeline to the con11 sumer, 

12 ‘‘(E) any unprocessed timber which is 

13 softwood, 

14 ‘‘(F) utility services, or 

15 ‘‘(G) any property (not described in para16 graph (1)(B)) which is a film, tape, recording, 

17 book, magazine, newspaper, or similar property 

18 the market for which is primarily topical or oth19 erwise essentially transitory in nature. 

20 For purposes of subparagraph (E), the term ‘un21 processed timber’ means any log, cant, or similar 

22 form of timber. 

23 ‘‘(g) DOMESTIC/FOREIGN FRACTION.—For purposes 

24 of this section—
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1 ‘‘(1) IN GENERAL.—The term ‘domestic/foreign 

2 fraction’ means a fraction—

3 ‘‘(A) the numerator of which is the value 

4 of the domestic production of the taxpayer, and 

5 ‘‘(B) the denominator of which is the value 

6 of the worldwide production of the taxpayer. 

7 ‘‘(2) VALUE OF DOMESTIC PRODUCTION.—The 

8 value of domestic production is the excess of—

9 ‘‘(A) the domestic production gross re10 ceipts, over 

11 ‘‘(B) the cost of purchased inputs allocable 

12 to such receipts that are deductible under this 

13 chapter for the taxable year. 

14 ‘‘(3) PURCHASED INPUTS.—

15 ‘‘(A) IN GENERAL.—Purchased inputs are 

16 any of the following items acquired by pur17 chase: 

18 ‘‘(i) Services (other than services of 

19 employees) used in manufacture, produc20 tion, growth, or extraction activities. 

21 ‘‘(ii) Items consumed in connection 

22 with such activities.

23 ‘‘(iii) Items incorporated as part of 

24 the property being manufactured, pro25 duced, grown, or extracted. 
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1 ‘‘(B) SPECIAL RULE.—Rules similar to the 

2 rules of subsection (d)(3) shall apply for pur3 poses of this subsection. 

4 ‘‘(4) VALUE OF WORLDWIDE PRODUCTION.—

5 ‘‘(A) IN GENERAL.—The value of world6 wide production shall be determined under the 

7 principles of paragraph (2), except that—

8 ‘‘(i) worldwide production gross re9 ceipts shall be taken into account, and 

10 ‘‘(ii) paragraph (3)(B) shall not apply. 

11 ‘‘(B) WORLDWIDE PRODUCTION GROSS RE12 CEIPTS.—The worldwide production gross re13 ceipts is the amount that would be determined 

14 under subsection (e) if such subsection were ap15 plied without any reference to the United 

16 States. 

17 ‘‘(5) SPECIAL RULE FOR AFFILIATED

18 GROUPS.—

19 ‘‘(A) IN GENERAL.—In the case of a tax20 payer that is a member of an expanded affili21 ated group, the domestic/foreign fraction shall 

22 be the amount determined under the preceding 

23 provisions of this subsection by treating all 

24 members of such group as a single corporation. 
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1 ‘‘(B) EXPANDED AFFILIATED GROUP.—

2 The term ‘expanded affiliated group’ means an 

3 affiliated group as defined in section 1504(a), 

4 determined—

5 ‘‘(i) by substituting ‘50 percent’ for 

6 ‘80 percent’ each place it appears, and 

7 ‘‘(ii) without regard to paragraphs 

8 (2), (3), and (4) of section 1504(b). 

9 ‘‘(h) DEFINITIONS AND SPECIAL RULES.—

10 ‘‘(1) UNITED STATES.—For purposes of this 

11 section, the term ‘United States’ includes the Com12 monwealth of Puerto Rico and any other possession 

13 of the United States. 

14 ‘‘(2) SPECIAL RULE FOR PARTNERSHIPS.—For 

15 purposes of this section, a corporation’s distributive 

16 share of any partnership item shall be taken into ac17 count as if directly realized by the corporation. 

18 ‘‘(3) COORDINATION WITH MINIMUM TAX.—The 

19 deduction under this section shall be allowed for 

20 purposes of the tax imposed by section 55; except 

21 that for purposes of section 55, alternative minimum 

22 taxable income shall be taken into account in deter23 mining the deduction under this section. 
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1 ‘‘(4) ORDERING RULE.—The amount of any 

2 other deduction allowable under this chapter shall be 

3 determined as if this section had not been enacted. 

4 ‘‘(5) COORDINATION WITH TRANSITION

5 RULES.—For purposes of this section—

6 ‘‘(A) domestic production gross receipts 

7 shall not include gross receipts from any trans8 action if the binding contract transition relief of 

9 section 2(c)(2) of the Job Protection Act of 

10 2003 applies to such transaction, and 

11 ‘‘(B) any deduction allowed under section 

12 2(e) of such Act shall be disregarded in deter13 mining the portion of the taxable income which 

14 is attributable to domestic production gross re15 ceipts.’’. 

16 (b) CLERICAL AMENDMENT.—The table of sections 

17 for part VIII of subchapter B of chapter 1 of such Code 

18 is amended by adding at the end the following new item:

‘‘Sec. 250. Income attributable to domestic production activities.’’.

19 (c) EFFECTIVE DATE.—

20 ‘‘(1) IN GENERAL.—The amendments made by 

21 this section shall apply to taxable years beginning 

22 after 2005. 

23 ‘‘(2) APPLICATION OF SECTION 15.—Section 15 

24 of the Internal Revenue Code of 1986 shall apply to 
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1 the amendments made by this section as if they were 

2 changes in a rate of tax.

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