COMPARISON OF CERTAIN PROVISIONS OF H.R. 4520 AS PASSED BY

THE HOUSE OF REPRESENTATIVES AND AS AMENDED BY THE SENATE:

PROVISIONS RELATING TO THE REPEAL OF THE EXCLUSION

FOR EXTRATERRITORIAL INCOME, DOMESTIC PRODUCTION,

AND THE CORPORATE INCOME TAX RATES

APPLICABLE TO SMALL CORPORATIONS 

Prepared by the Staff of the

JOINT COMMITTEE ON TAXATION

September 29, 2004

JCX-61-04
ii

Contents

Page

INTRODUCTION ...................................................................................................................................................................................... 1

I. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME (sec. 101 of the House bill and sec. 101 of the Senate 

amendment)................................................................................................................................................................................................. 3

II. DOMESTIC PRODUCTION PROVISIONS (sec. 102 of the House bill and secs. 102 and 103(a) of the Senate amendment) ......... 6

III. RATE REDUCTION FOR SMALL CORPORATIONS (sec. 103 of the House bill) ........................................................................ 9
1

INTRODUCTION

On June 17, 2004, the House of Representatives passed H.R. 4520, the “American Jobs Creations Act of 2004.” On July 15, 

2004, the Senate amended H.R. 4520 by substituting the text and title of S. 1637, the “Jumpstart Our Business Strength (JOBS) Act,”1

and an additional non-tax amendment.

The House bill and the Senate amendment each repeal the extraterritorial income exclusion provisions of present law, provide 

provisions to reduce the effective income tax imposed on income earned from certain domestic production activities, and make 

numerous other changes to the Internal Revenue Code. This document,2 prepared by the staff of the Joint Committee on Taxation, 

compares those provisions relating to the repeal of the extraterritorial income exclusion, domestic production, and the provisions 

relating to the corporate income tax rates applicable to small corporations. 

In this publication set,3 (JCX-61-04 to JCX-66-04), the staff of the Joint Committee on Taxation compares provisions of H.R. 

4520 as passed by the House of Representatives and as amended by the Senate relating to the repeal of the extraterritorial income 

 

1

 The Senate originally passed S. 1637 on May 11, 2004.

2

 This document may be cited as follows: Joint Committee on Taxation, Comparison of Certain Provisions of H.R. 4520 as 

Passed by the House of Representatives and as Amended by the Senate: Provisions Relating to the Repeal of the Exclusion for 

Extraterritorial Income, Domestic Production, and the Corporate Income Tax Rates Applicable to Small Corporations (JCX-61-04), 

September 29, 2004.

3

 Joint Committee on Taxation, Comparison of Certain Provisions of H.R. 4520 as Passed by the House of Representatives 

and as Amended by the Senate: Provisions Relating to the Repeal of the Exclusion for Extraterritorial Income, Domestic Production, 

and the Corporate Income Tax Rates Applicable to Small Corporations (JCX-61-04), September 29, 2004; Joint Committee on 

Taxation, Comparison of Certain Provisions of H.R. 4520 as Passed by the House of Representatives and as Amended by the Senate: 

Job Creation Tax Incentives for Manufacturing, Small Business, and Farming (JCX-62-04), September 29, 2004; Joint Committee on 

Taxation, Comparison of Certain Provisions of H.R. 4520 as Passed by the House of Representatives and as Amended by the Senate: 

Provisions Relating to International Tax Reform and Simplification for United States Businesses (JCX-63-04), September 29, 2004; 

Joint Committee on Taxation, Comparison of Certain Provisions of H.R. 4520 as Passed by the House of Representatives and as 

Amended by the Senate: Revenue Provisions (JCX-64-04), September 29, 2004; Joint Committee on Taxation, Comparison of Certain 

Provisions of H.R. 4520 as Passed by the House of Representatives and as Amended by the Senate: Alcohol Fuels and Fuel Fraud 
2

exclusions, domestic production, corporate income tax rates applicable to small corporations, tax incentives for manufacturers, small 

businesses and farming, international tax reform and simplification for United States businesses, alcohol fuels and fuel fraud, expiring 

provisions, and certain revenue raising provisions. 

 

Provisions (JCX-65-04), September 29, 2004; and Joint Committee on Taxation, Comparison of Certain Provisions of H.R. 4520 as 

Passed by the House of Representatives and as Amended by the Senate: Expiring Provisions (JCX-66-04), September 29, 2004.
3

Provision Present Law House Bill Senate Amendment

I. REPEAL OF EXCLUSION 

FOR EXTRATERRITORIAL

INCOME (sec. 101 of the House 

bill and sec. 101 of the Senate 

amendment)

The ETI regime provides an 

exclusion from gross income with 

respect to extraterritorial income, 

which is a taxpayer’s gross income 

attributable to foreign trading gross 

receipts. Generally, the ETI 

regime is available to individuals, 

domestic corporations, certain 

foreign corporations, and passthrough entities such as S 

corporations and partnerships. 

Foreign trading gross receipts are 

eligible for the exclusion to the 

extent that they are qualifying 

foreign trade income. Qualifying 

foreign trade income is the amount 

of gross income that, if excluded, 

would result in a reduction of 

taxable income by the greatest of: 

(1) 1.2 percent of the foreign 

trading gross receipts derived by 

the taxpayer from the transaction;

(2) 15 percent of the foreign trade 

income derived by the taxpayer 

from the transaction; or 

(3) 30 percent of the foreign sale 

and leasing income derived by the 

taxpayer from the transaction. 

Repeals the ETI regime. 

However, the ETI regime remains 

in effect for transactions in the 

ordinary course of a trade or 

business if such transactions are 

pursuant to a binding contract 

(including a purchase option, 

renewal option, or replacement 

option that is included in such 

contract) between the taxpayer and 

an unrelated person and such 

contract is in effect on January 14, 

2002, and at all times thereafter.

For transactions prior to 2005, 

taxpayers retain 100 percent of 

their ETI benefits. For 

transactions after 2004, provides 

taxpayers with 80 percent of their 

otherwise-applicable ETI benefits 

with respect to transactions during 

2005, and 60 percent of their 

otherwise-applicable ETI benefits 

with respect to transactions during 

2006. However, such ETI benefits 

for 2005 and 2006 do not include 

benefits from binding contracts for 

which the ETI regime remains in 

effect. 

Same as the House bill.

However, the ETI regime remains 

in effect for transactions in the 

ordinary course of a trade or 

business if such transactions are 

pursuant to a binding contract 

between the taxpayer and an 

unrelated person and such contract 

is in effect on September 17, 2003, 

and at all times thereafter.

Provides corporations and 

cooperatives that currently benefit 

from the ETI regime a transition 

benefit for taxable years ending 

after the date of enactment and 

beginning before January 1, 2007, 

if the corporation entered into one 

or more transactions in the taxable 

year beginning in 2002 for which 

FSC/ETI benefits were allowable. 

Generally, a corporation’s 

transition benefit is equal to the 

applicable percentage (i.e., 80 

percent in post-enactment 2004 and 

2005 and 60 percent in 2006) of the 

average FSC/ETI benefit for the 

corporation's taxable years 

beginning in calendar years 2000, 

2001, and 2002. A corporation 

must have entered into one or more 

transactions during its taxable year 

beginning in the 2002 calendar 
4

Provision Present Law House Bill Senate Amendment

Foreign trading gross receipts are 

gross receipts derived from certain 

activities in connection with 

qualifying foreign trade property 

with respect to which certain 

economic processes take place 

outside of the United States. 

Specifically, the gross receipts 

must be: 

(1) from the sale, exchange, or 

other disposition of qualifying 

foreign trade property; 

(2) from the lease or rental of 

qualifying foreign trade 

property for use by the lessee 

outside the United States;

(3) for services which are related 

and subsidiary to the sale, 

exchange, disposition, lease, or 

rental of qualifying foreign 

trade property (as described 

above);

(4) for engineering or architectural 

services for construction 

projects located outside the 

United States; or 

(5) for the performance of certain 

managerial services for 

unrelated persons.

Effective date.–The provision is 

effective for transactions after 

December 31, 2004.

year with respect to which 

FSC/ETI benefits were allowable 

to receive this benefit.

Generally, a corporation’s 

FSC/ETI benefit is comprised of 

the amounts excludable from the 

gross income of the corporation 

under the ETI regime and the 

exempt foreign trade income of 

related FSCs from property 

acquired by the FSCs from the 

corporation. However, this 

aggregate amount does not include 

any amount attributable to a 

transaction involving a lease by the 

corporation unless the corporation 

manufactured or produced (in 

whole or in part) the leased 

property.

However, the transition benefit is 

generally reduced for a taxable 

year by the specified percentage of 

exempted FSC income and 

excluded ETI of the corporation for 

the taxable year from transactions 

pursuant to a binding contract. 

Effective date.–The provision is 

effective for transactions after date 

of enactment.
5

Provision Present Law House Bill Senate Amendment

A taxpayer may elect to treat gross 

receipts from a transaction as not 

foreign trading gross receipts. As a 

result of such an election, a 

taxpayer may use any related 

foreign tax credits in lieu of the 

exclusion.

Qualifying foreign trade property 

generally is property manufactured, 

produced, grown, or extracted 

within or outside the United States 

that is held primarily for sale, 

lease, or rental in the ordinary 

course of a trade or business for 

direct use, consumption, or 

disposition outside the United 

States. No more than 50 percent of 

the fair market value of such 

property can be attributable to the 

sum of: (1) the fair market value 

of articles manufactured outside 

the United States, and (2) the direct 

costs of labor performed outside 

the United States. With respect to 

property that is manufactured 

outside the United States, certain 

rules are provided to ensure 

consistent U.S. tax treatment with 

respect to manufacturers.
6

Provisions Present Law House Bill Senate Amendment

II. DOMESTIC PRODUCTION 

PROVISIONS (sec. 102 of the 

House bill and secs. 102 and 

103(a) of the Senate amendment)

Corporate regular taxable income 

is subject to tax under the 

following rate structure:

Taxable income Rate

$50,000 or less ...........................15

$50,001-$75,000 ........................25

$75,001-$10 million...................34

Over $10 million ........................35

An additional 5 percent tax (not in 

excess of $11,750) is imposed on 

taxable income over $100,000; an 

additional 3 percent tax (not in 

excess of $100,000) is imposed on 

taxable income over $15 million.

There is no provision in the Code 

that permits taxpayers to claim a 

deduction from taxable income 

attributable to domestic production 

activities, other than generally 

allowable deductions of costs 

incurred to produce such income.

Provides a reduced corporate tax 

rate for the portion of taxable 

income attributable to: (1) 

domestic production of certain 

property, including tangible 

personal property, computer 

software, films and videotape 

(other than certain sexually explicit 

productions); and sound 

recordings; (2) domestic 

construction, engineering or 

architectural services with respect 

to projects located in the United 

States; (3) certain domestic storage, 

handling or other processing 

activities with respect to 

agricultural products; or (4) food 

products with respect to which the 

taxpayer performs domestic 

processing activities.

The reduced maximum corporate 

tax rate under the provision is 32 

percent (34 percent for taxable 

years beginning before 2007).

Provides that a corporation may 

revoke a previous election to treat 

the cutting of timber as a sale or 

exchange.

Provides a deduction equal to a 

portion of taxable income 

attributable to: (1) domestic 

production of certain property, 

including tangible personal 

property, computer software, films 

and videotape, and sound 

recordings; (2) domestic 

engineering or architectural (but 

not construction) services with 

respect to projects located in the 

United States (phased in from 2004 

to 2012); (3) certain domestic 

storage, handling, or other 

processing activities with respect to 

agricultural products; or (4) the use 

of films or videotape domestically 

produced by the taxpayer. The 

deduction is allowed for AMT 

purposes.

Does not apply to: (1) consumable 

property used by the taxpayer in 

the provision of services; (2) oil or 

gas (other than primary products 

thereof); (3) utility services 

(including electricity and water); or 

(4) certain topical or transitory 

media products.

Applies to individuals, 

corporations, cooperatives, and 

pass-through entities such as S 

corporations, partnerships, and 
7

Provisions Present Law House Bill Senate Amendment

estates and trusts. However, the 

amount of the deduction is limited 

to 50 percent of the W-2 wages 

paid by the taxpayer during the 

taxable year.

With regard to taxable income 

attributable to films and videotape, 

the deduction is determined 

separately (except for the wage 

limitation) for theatrical films, 

broadcast television, and home 

video.

Applies to production activities in 

the United States or any possession 

of the United States.

For taxable years beginning after 

2008, the amount of the deduction 

is 9 percent. For taxable years 

beginning in 2004, 2005, 2006, 

2007, and 2008, the amount of the 

deduction is 5, 5, 5, 6, and 7 

percent, respectively.

For taxable years beginning before 

2013, the amount of the deduction 

is reduced by the ratio of domestic 

production activities to worldwide 

production activities of the 

taxpayer. For taxable years 

beginning in 2010, 2011, and 2012, 

the amount of the reduction is itself 
8

Provisions Present Law House Bill Senate Amendment

Effective date.–Taxable years 

beginning after December 31, 

2004.

reduced by 25, 50, and 75 percent, 

respectively.

Effective date.–Taxable years 

ending after the date of enactment.
9

Provisions Present Law House Bill Senate Amendment

III. RATE REDUCTION FOR 

SMALL CORPORATIONS

(sec. 103 of the House bill)

Corporate regular taxable income 

is subject to tax under the 

following rate structure:

Taxable income Rate

$50,000 or less ...........................15

$50,001-$75,000 ........................25

$75,001-$10 million...................34

Over $10 million ........................35

An additional 5 percent tax (not in 

excess of $11,750) is imposed on 

taxable income over $100,000; an 

additional 3 percent tax (not in 

excess of $100,000) is imposed on 

taxable income over $15 million.

Corporate regular taxable income 

is subject to tax under the 

following rate structures:

Year 2013 and thereafter:

Taxable income Rate

$50,000 or less ...........................15

$50,001-$75,000 ........................25

$75,001-$20 million...................32

Over $20 million ........................35

An additional 3 percent tax (not in 

excess of $610,250) is imposed on 

taxable income over $20 million.

Years 2011 and 2012:

Taxable income Rate

$50,000 or less ...........................15

$50,001-$75,000 ........................25

$75,001-$5 million.....................32

$5 million-$10 million ...............34

Over $10 million ........................35

An additional 5 percent tax (not in 

excess of $110,250) is imposed on 

No provision.
10

Provisions Present Law House Bill Senate Amendment

taxable income over $5 million; an 

additional 3 percent tax (not in 

excess of $100,000) is imposed on 

taxable income over $15 million.

Years 2008, 2009, and 2010:

Taxable income Rate

$50,000 or less ...........................15

$50,001-$75,000 ........................25

$75,001-$1 million.....................32

$1 million-$10 million ...............34

Over $10 million ........................35

An additional 5 percent tax (not in 

excess of $30,250) is imposed on 

taxable income over $1 million; an 

additional 3 percent tax (not in 

excess of $100,000) is imposed on 

taxable income over $15 million.

Years 2005, 2006, and 2007:

Taxable income Rate

$50,000 or less ...........................15

$50,001-$75,000 ........................25

$75,001-$1 million.....................33
11

Provisions Present Law House Bill Senate Amendment

$1 million-$10 million ...............34

Over $10 million ........................35

An additional 5 percent tax (not in 

excess of $21,000) is imposed on 

taxable income over $1 million; an 

additional 3 percent tax (not in 

excess of $100,000) is imposed on 

taxable income over $15 million.

Effective date.–Taxable years 

beginning after 2004.