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[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 285 Introduced in House (IH)]

108th CONGRESS
  1st Session
                                H. R. 285

 To amend the Internal Revenue Code of 1986 to simplify certain rules 
relating to the taxation of United States businesses operating abroad, 
                        and for other purposes.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                            January 8, 2003

 Mr. Houghton (for himself, Mr. Sam Johnson of Texas, Mr. Portman, and 
 Mr. Ramstad) 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 simplify certain rules 
relating to the taxation of United States businesses operating abroad, 
                        and for other purposes.

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

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Fairness, 
Simplification and Competitiveness for American Business Act of 2003''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; amendment of 1986 Code; table of contents.
         TITLE I--TREATMENT OF CONTROLLED FOREIGN CORPORATIONS

Sec. 101. Expansion of de minimis rule under subpart F.
Sec. 102. Clarification of treatment of pipeline transportation income.
Sec. 103. Look-through treatment for sales of partnership interests.
Sec. 104. Repeal of foreign personal holding company rules and foreign 
                            investment company rules.
Sec. 105. Determination of foreign personal holding company income with 
                            respect to transactions in commodities.
Sec. 106. Repeal of CFC rules on foreign base company sales and 
                            services income.
Sec. 107. Look-thru treatment of payments between related controlled 
                            foreign corporations under foreign personal 
                            holding company income rules.
Sec. 108. Reduction to 3 foreign tax credit baskets.
Sec. 109. Effective date.
          TITLE II--PROVISIONS RELATING TO FOREIGN TAX CREDIT

Sec. 201. Recharacterization of overall domestic loss.
Sec. 202. Special rules relating to financial services income.
Sec. 203. Look-thru rules to apply to dividends from noncontrolled 
                            section 902 corporations.
Sec. 204. Application of look-thru rules to foreign tax credit.
Sec. 205. 10-year foreign tax credit carryforward.
Sec. 206. Repeal of limitation of foreign tax credit under alternative 
                            minimum tax.
Sec. 207. Attribution of stock ownership through partnerships to apply 
                            in determining section 902 and 960 credits.
Sec. 208. Repeal of special rules for applying foreign tax credit in 
                            case of foreign oil and gas income.
                      TITLE III--OTHER PROVISIONS

Sec. 301. Application of uniform capitalization rules to foreign 
                            persons.
Sec. 302. United States property not to include certain assets acquired 
                            by dealers in ordinary course of trade or 
                            business.
Sec. 303. Treatment of certain dividends of regulated investment 
                            companies.
Sec. 304. Airline mileage awards to certain foreign persons.
Sec. 305. Interest payments deductible where disqualified guarantee has 
                            economic effect.
Sec. 306. Modifications of reporting requirements for certain foreign-
                            owned corporations.
Sec. 307. Election not to use average exchange rate for foreign tax 
                            paid other than in functional currency.
Sec. 308. Repeal of special capital gains tax on aliens present in the 
                            United States for 183 days or more.
Sec. 309. Repeal of withholding tax on dividends from certain foreign 
                            corporations.
Sec. 310. Interest expense allocation rules.
Sec. 311. Permanent extension of Subpart F exemption for active 
                            financing.

         TITLE I--TREATMENT OF CONTROLLED FOREIGN CORPORATIONS

SEC. 101. EXPANSION OF DE MINIMIS RULE UNDER SUBPART F.

    (a) In General.--Clause (ii) of section 954(b)(3)(A) (relating to 
de minimis, etc., rules) is amended by striking ``$1,000,000'' and 
inserting ``$5,000,000''.
    (b) Technical Amendments.--
            (1) Clause (ii) of section 864(d)(5)(A) is amended by 
        striking ``$1,000,000'' and inserting ``$5,000,000''.
            (2) Clause (i) of section 881(c)(5)(A) is amended by 
        striking ``$1,000,000'' and inserting ``$5,000,000''.

SEC. 102. CLARIFICATION OF TREATMENT OF PIPELINE TRANSPORTATION INCOME.

    Section 954(g)(1) (defining foreign base company oil related 
income) is amended by striking ``or'' at the end of subparagraph (A), 
by striking the period at the end of subparagraph (B) and inserting ``, 
or'', and by inserting after subparagraph (B) the following new 
subparagraph:
                    ``(C) the pipeline transportation of oil or gas 
                within such foreign country.''

SEC. 103. LOOK-THROUGH TREATMENT FOR SALES OF PARTNERSHIP INTERESTS.

    (a) In General.--Section 954(c) (defining foreign personal holding 
company income) is amended by adding at the end the following new 
paragraph:
            ``(4) Look-through rule for certain partnership sales.--
                    ``(A) In general.--In the case of any sale by a 
                controlled foreign corporation of an interest in a 
                partnership with respect to which such corporation is a 
                25-percent owner, such corporation shall be treated for 
                purposes of this subsection as selling the 
                proportionate share of the assets of the partnership 
attributable to such interest.
                    ``(B) 25-percent owner.--For purposes of this 
                paragraph, the term `25-percent owner' means a 
                controlled foreign corporation which owns 25 percent or 
                more of the capital or profits interest in the 
                partnership. The constructive ownership rules of 
                section 958(b) shall apply for purposes of the 
                preceding sentence.''
    (b) Conforming Amendment.--Section 954(c)(1)(B)(ii) is amended by 
inserting ``except as provided in paragraph (4),'' before ``which''.

SEC. 104. REPEAL OF FOREIGN PERSONAL HOLDING COMPANY RULES AND FOREIGN 
              INVESTMENT COMPANY RULES.

    (a) General Rule.--The following provisions are hereby repealed:
            (1) Part III of subchapter G of chapter 1 (relating to 
        foreign personal holding companies).
            (2) Section 1246 (relating to gain on foreign investment 
        company stock).
            (3) Section 1247 (relating to election by foreign 
        investment companies to distribute income currently).
    (b) Exemption of Foreign Corporations From Personal Holding Company 
Rules.--
            (1) In general.--Subsection (c) of section 542 (relating to 
        exceptions) is amended--
                    (A) by striking paragraph (5) and inserting the 
                following:
            ``(5) a foreign corporation,'',
                    (B) by striking paragraphs (7) and (10) and by 
                redesignating paragraphs (8) and (9) as paragraphs (7) 
                and (8), respectively,
                    (C) by inserting ``and'' at the end of paragraph 
                (7) (as so redesignated), and
                    (D) by striking ``; and'' at the end of paragraph 
                (8) (as so redesignated) and inserting a period.
            (2) Treatment of income from personal service contracts.--
        Paragraph (1) of section 954(c) is amended by adding at the end 
        the following new subparagraph:
                    ``(H) Personal service contracts.--
                            ``(i) Amounts received under a contract 
                        under which the corporation is to furnish 
                        personal services; if some person other than 
                        the corporation has the right to designate (by 
                        name or by description) the individual who is 
                        to perform the services, or if the individual 
                        who is to perform the services is designated 
                        (by name or by description) in the contract; 
                        and
                            ``(ii) amounts received from the sale or 
                        other disposition of such a contract.
                This subparagraph shall apply with respect to amounts 
                received for services under a particular contract only 
                if at some time during the taxable year 25 percent or 
                more in value of the outstanding stock of the 
                corporation is owned, directly or indirectly, by or for 
                the individual who has performed, is to perform, or may 
                be designated (by name or by description) as the one to 
                perform, such services.''
    (c) Conforming Amendments.--
            (1) Paragraph (2) of section 171(c) is amended--
                    (A) by striking ``, or by a foreign personal 
                holding company, as defined in section 552'', and
                    (B) by striking ``, or a foreign personal holding 
                company''.
            (2) Paragraph (2) of section 245(a) is amended by striking 
        ``foreign personal holding company or''
            (3) Section 312 is amended by striking subsection (j).
            (4) Subsection (m) of section 312 is amended by striking 
        ``, a foreign investment company (within the meaning of section 
        1246(b)), or a foreign personal holding company (within the 
        meaning of section 552)''.
            (5) Subsection (e) of section 443 is amended by striking 
        paragraph (3) and by redesignating paragraphs (4) and (5) as 
        paragraphs (3) and (4), respectively.
            (6) Subparagraph (B) of section 465(c)(7) is amended to by 
        adding ``or'' at the end of clause (i), by striking clause 
        (ii), and by redesignating clause (iii) as clause (ii).
            (7) Paragraph (1) of section 543(b) is amended by inserting 
        ``and'' at the end of subparagraph (A), by striking ``, and'' 
        at the end of subparagraph (B) and inserting a period, and by 
        striking subparagraph (C).
            (8) Paragraph (1) of section 562(b) is amended by striking 
        ``or a foreign personal holding company described in section 
        552''.
            (9) Section 563 is amended--
                    (A) by striking subsection (c),
                    (B) by redesignating subsection (d) as subsection 
                (c), and
                    (C) by striking ``subsection (a), (b), or (c)'' in 
                subsection (c) (as so redesignated) and inserting 
                ``subsection (a) or (b)''.
            (10) Subsection (d) of section 751 is amended by adding 
        ``and'' at the end of paragraph (2), by striking paragraph (3), 
        by redesignating paragraph (4) as paragraph (3), and by 
        striking ``paragraph (1), (2), or (3)'' in paragraph (3) (as so 
        redesignated) and inserting paragraph (1) or (2)''.
            (11) Paragraph (2) of section 864(d) is amended by striking 
        subparagraph (A) and by redesignating subparagraphs (B) and (C) 
        as subparagraphs (A) and (B), respectively.
            (12)(A) Subparagraph (A) of section 898(b)(1) is amended to 
        read as follows:
                    ``(A) which is treated as a controlled foreign 
                corporation for any purpose under subpart F of part III 
                of this subchapter, and''.
            (B) Subparagraph (B) of section 898(b)(2) is amended by 
        striking ``and sections 551(f) and 554, whichever are 
        applicable,''.
            (C) Paragraph (3) of section 898(b) is amended to read as 
        follows:
            ``(3) United states shareholder.--The term `United States 
        shareholder' has the meaning given to such term by section 
        951(b), except that, in the case of a foreign corporation 
        having related person insurance income (as defined in section 
        953(c)(2)), the Secretary may treat any person as a United 
        States shareholder for purposes of this section if such person 
        is treated as a United States shareholder under section 
        953(c)(1).''
            (D) Subsection (c) of section 898 is amended to read as 
        follows:
    ``(c) Determination of Required Year.--
            ``(1) In general.--The required year is--
                    ``(A) the majority U.S. shareholder year, or
                    ``(B) if there is no majority U.S. shareholder 
                year, the taxable year prescribed under regulations.
            ``(2) 1-month deferral allowed.--A specified foreign 
        corporation may elect, in lieu of the taxable year under 
        paragraph (1)(A), a taxable year beginning 1 month earlier than 
        the majority U.S. shareholder year.
            ``(3) Majority u.s. shareholder year.--
                    ``(A) In general.--For purposes of this subsection, 
                the term `majority U.S. shareholder year' means the 
                taxable year (if any) which, on each testing day, 
                constituted the taxable year of--
                            ``(i) each United States shareholder 
                        described in subsection (b)(2)(A), and
                            ``(ii) each United States shareholder not 
                        described in clause (i) whose stock was treated 
                        as owned under subsection (b)(2)(B) by any 
                        shareholder described in such clause.
                    ``(B) Testing day.--The testing days shall be--
                            ``(i) the first day of the corporation's 
                        taxable year (determined without regard to this 
                        section), or
                            ``(ii) the days during such representative 
                        period as the Secretary may prescribe.''
            (13) Clause (ii) of section 904(d)(2) is amended to read as 
        follows:
                            ``(ii) Certain amounts included.--Except as 
                        provided in clause (iii), the term `passive 
                        income' includes, except as provided in 
                        subparagraph (E)(iii) or paragraph (3)(I), any 
                        amount includible in gross income under section 
                        1293 (relating to certain passive foreign 
                        investment companies).''
            (14)(A) Subparagraph (A) of section 904(g)(1) is amended by 
        adding ``or'' at the end of clause (i), by striking clause 
        (ii), and by redesignating clause (iii) as clause (ii).
            (B) The paragraph heading of paragraph (2) of section 
        904(g) is amended by striking ``foreign personal holding or''.
            (15) Section 951 is amended by striking subsections (c) and 
        (d) and by redesignating subsections (e) and (f) as subsections 
        (c) and (d), respectively.
            (16) Paragraph (3) of section 989(b) is amended by striking 
        ``, 551(a),''.
            (17) Paragraph (5) of section 1014(b) is hereby repealed.
            (18) Subsection (a) of section 1016 is amended by striking 
        paragraph (13) and by redesignating the following paragraphs 
        accordingly.
            (19)(A) Paragraph (3) of section 1212(a) is amended to read 
        as follows:
            ``(3) Special rules on carrybacks.--A net capital loss of a 
        corporation shall not be carried back under paragraph (1)(A) to 
        a taxable year--
                    ``(A) for which it is a regulated investment 
                company (as defined in section 851), or
                    ``(B) for which it is a real estate investment 
                trust (as defined in section 856).''
            (B) The amendment made by subparagraph (A) shall apply to 
        taxable years beginning after December 31, 2004.
            (20) Section 1223 is amended by striking paragraph (10) and 
        by redesignating the following paragraphs accordingly.
            (21) Subsection (d) of section 1248 is amended by striking 
        paragraph (5) and by redesignating paragraphs (6) and (7) as 
        paragraphs (5) and (6), respectively.
            (22) Paragraph (2) of section 1260(c) is amended by 
        striking subparagraphs (H) and (I) and by redesignating 
        subparagraph (J) as subparagraph (H).
            (23) Subparagraph (F) of section 1291(b)(3) is amended by 
        striking ``551(d), 959(a),'' and inserting ``959(a)''.
            (24) Paragraph (2) of section 1294(a) is amended to read as 
        follows:
            ``(2) Election not permitted where amounts otherwise 
        includible under section 951.--The taxpayer may not make an 
        election under paragraph (1) with respect to the undistributed 
        PFIC earnings tax liability attributable to a qualified 
        electing fund for the taxable year if any amount is includible 
        in the gross income of the taxpayer under section 951 with 
        respect to such fund for such taxable year.''
            (25) Section 6035 is hereby repealed.
            (26) Subparagraph (D) of section 6103(e)(1) is amended by 
        striking clause (iv) and redesignating clauses (v) and (vi) as 
        clauses (iv) and (v), respectively.
            (27) Subparagraph (B) of section 6501(e)(1) is amended to 
        read as follows:
                    ``(B) Constructive dividends.--If the taxpayer 
                omits from gross income an amount properly includible 
                therein under section 951(a), the tax may be assessed, 
                or a proceeding in court for the collection of such tax 
                may be done without assessing, at any time within 6 
                years after the return was filed.''
            (28) Subsection (a) of section 6679 is amended--
                    (A) by striking ``6035, 6046, and 6046A'' in 
                paragraph (1) and inserting ``6046 and 6046A'', and
                    (B) by striking paragraph (3).
            (29) Sections 170(f)(10)(A), 508(d), 4947 and section 
        4948(c)(4) are each amended by striking ``556(b)(2),'' each 
        place it appears.
            (30) The table of parts for subchapter G of chapter 1 is 
        amended by striking the item relating to part III.
            (31) The table of sections for part IV of subchapter P of 
        chapter 1 is amended by striking the items relating to sections 
        1246 and 1247.
            (32) The table of sections for subpart A of part III of 
        subchapter A of chapter 61 of such Code is amended by striking 
        the item relating to section 6035.

SEC. 105. DETERMINATION OF FOREIGN PERSONAL HOLDING COMPANY INCOME WITH 
              RESPECT TO TRANSACTIONS IN COMMODITIES.

    (a) In General.--Clauses (i) and (ii) of section 954(c)(1)(C) 
(relating to commodity transactions) are amended to read as follows:
                            ``(i) arise out of commodity hedging 
                        transactions (as defined in paragraph (5)(A)),
                            ``(ii) are active business gains or losses 
                        from the sale of commodities, but only if 
                        substantially all of the controlled foreign 
                        corporation's commodities are property 
                        described in paragraph (1), (2) or (8) of 
                        section 1221(a), or''.
    (b) Definition and Special Rules.--Subsection (c) of section 954 is 
amended by adding after paragraph (4) the following new paragraph:
            ``(5) Definition and special rules relating to commodity 
        transactions.--
                    ``(A) Commodity hedging transactions.--For purposes 
                of paragraph (1)(C)(i), the term `commodity hedging 
                transaction' means any transaction with respect to a 
                commodity if such transaction--
                            ``(i) is a hedging transaction as defined 
                        in section 1221(b)(2), determined--
                                    ``(I) without regard to 
                                subparagraph (A)(ii) thereof,
                                    ``(II) by applying subparagraph 
                                (A)(i) thereof by substituting 
                                `ordinary property or property 
                                described in section 1231(b)' for 
                                `ordinary property', and
                                    ``(III) by substituting `controlled 
                                foreign corporation' for `taxpayer' 
                                each place it appears, and
                            ``(ii) is clearly identified as such in 
                        accordance with section 1221(a)(7).
                    ``(B) Regulations.--The Secretary shall prescribe 
                such regulations as are appropriate to carry out the 
                purposes of paragraph (1)(C) in the case of 
                transactions involving related parties.''
    (c) Effective Date.--The amendments made by this section shall 
apply to commodity hedging transactions entered into on or after the 
date of enactment of this Act.

SEC. 106. REPEAL OF CFC RULES ON FOREIGN BASE COMPANY SALES AND 
              SERVICES INCOME.

    (a) In General.--Subsection (a) of section 954 (relating to foreign 
base company income) is amended by striking paragraphs (2) and (3) and 
by redesignating paragraphs (4) and (5) as paragraphs (2) and (3), 
respectively.
    (b) Certain Sales.--Paragraph (1) of section 954(c) is amended by 
adding at the end the following new subparagraph:
                    ``(H) Certain sales.--Income (whether in the form 
                of profits, commissions, fees, or otherwise) derived in 
                connection with the purchase of personal property from 
                a related person and its sale to any person, the sale 
                of personal property to any person on behalf of a 
                related person, the purchase of personal property from 
                any person and its sale to a related person, or the 
                purchase of personal property from any person on behalf 
                of a related person where--
                            ``(i) the property which is purchased (or 
                        in the case of property sold on behalf of a 
                        related person, the property which is sold) is 
                        manufactured, produced, grown, or extracted in 
                        the United States, and
                            ``(ii) the property is sold for use, 
                        consumption, or disposition in the United 
                        States, or, in the case of property purchased 
                        on behalf of a related person, is purchased for 
                        use, consumption, or disposition in the United 
                        States.''
    (c) Conforming Amendments.--
            (1) Clause (iii) of section 952(c)(1)(B) is amended by 
        striking subclauses (III) and (IV) and by redesignating 
        subclauses (V) and (VI) as subclauses (III) and (IV), 
        respectively.
            (2) Section 953(c)(6)(A) is amended by striking ``section 
        954(d)(3)'' and inserting ``section 954(b)(9)''.
            (3) Subsection (b) of section 954 is amended by adding at 
        the end the following new paragraph:
            ``(9) Related person defined.--For purposes of this 
        subsection, a person is a related person with respect to a 
        controlled foreign corporation if--
                    ``(A) such person is an individual, corporation, 
                partnership, trust, or estate which controls, or is 
                controlled by, the controlled foreign corporation, or
                    ``(B) such person is a corporation, partnership, 
                trust, or estate which is controlled by the same person 
                or persons which control the controlled foreign 
                corporation.
        For purposes of the preceding sentence, control means, with 
        respect to a corporation, the ownership, directly or 
        indirectly, of stock possessing more than 50 percent of the 
        total voting power of all classes of stock entitled to vote or 
of the total value of stock of such corporation. In the case of a 
partnership, trust, or estate, control means the ownership, directly or 
indirectly, of more than 50 percent (by value) of the beneficial 
interests in such partnership, trust, or estate. For purposes of this 
paragraph, rules similar to the rules of section 958 shall apply.''
            (4) Paragraph (5) of section 954(b) is amended by striking 
        ``the foreign base company sales income, the foreign base 
        company services income,''.
            (5) Section 954 is amended by striking subsections (d) and 
        (e).
            (6) Sections 552(c)(2), 861(c)(2)(B), 904(d)(2)(H), 953(e), 
        955(b), 958(b), 971(f), 988(e)(3)(C), 1297(b)(2), 1298(d)(3), 
        and 1298(e)(2)(B) are each amended by striking ``954(d)(3)'' 
        each place it appears and inserting ``954(b)(9)''.

SEC. 107. LOOK-THRU TREATMENT OF PAYMENTS BETWEEN RELATED CONTROLLED 
              FOREIGN CORPORATIONS UNDER FOREIGN PERSONAL HOLDING 
              COMPANY INCOME RULES.

    Subsection (c) of section 954 is amended by adding after paragraph 
(3) the following new paragraph:
            ``(4) Look-thru in the case of related controlled foreign 
        corporations.--For purposes of this subsection, dividends, 
        interest, rents, and royalties received from a controlled 
        foreign corporation which is a related person (as defined in 
        subsection (b)(9)) shall not be treated as foreign personal 
        holding company income to the extent attributable (determined 
        under rules similar to the rules of subparagraphs (C) and (D) 
        of section 904(d)(3)) to income of the related person which is 
        not subpart F income (as defined in section 952).''

SEC. 108. REDUCTION TO 3 FOREIGN TAX CREDIT BASKETS.

    (a) In General.--Paragraph (1) of section 904(d) (relating to 
separate application of section with respect to certain categories of 
income) is amended to read as follows:
            ``(1) In general.--The provisions of subsections (a), (b), 
        and (c) and sections 902, 907, and 960 shall be applied 
        separately with respect to income described in each of the 
        following items of income:
                    ``(A) passive income and other passive category 
                income,
                    ``(B) financial services income, and
                    ``(C) income other than income described in 
                subparagraph (A) or (B).''
    (b) Other Passive Category Income.--Subparagraph (A) of section 
904(d)(2) is amended by adding at the end the following new clause:
                            ``(v) Other passive category income.--The 
                        term `other passive category income' means--
                                    ``(I) dividends from a DISC or 
                                former DISC (as defined in section 
                                992(a)) to the extent such dividends 
                                are treated as income from sources 
                                without the United States,
                                    ``(II) taxable income attributable 
                                to foreign trade income (within the 
                                meaning of section 923(b)), and
                                    ``(III) distributions from a FSC 
                                (or a former FSC) out of earnings and 
                                profits attributable to foreign trade 
                                income (within the meaning of section 
                                923(b)) or interest or carrying charges 
                                (as defined in section 927(d)(1)) 
                                derived from a transaction which 
                                results in foreign trade income (as 
                                defined in section 923(b)).''
    (c) Conforming Amendments.--
            (1) Paragraph (2) of section 904(d) is amended by striking 
        subparagraphs (B) and (D).
            (2)(A) Subclause (III) of section 904(d)(2)(C)(i) is 
        amended to read as follows:
                                    ``(III) high-taxed export financing 
                                interest.''
            (B) Subparagraph (C) of section 904(d)(2) is amended by 
        adding at the end the following new clause:
                            ``(iv) High-taxed export financing 
                        interest.--The term `high-taxed export 
                        financing interest' means any interest if--
                                    ``(I) such interest is subject to a 
                                withholding tax of a foreign country or 
                                possession of the United States (or 
                                other tax determined on a gross basis), 
                                and
                                    ``(II) the rate of such tax 
                                applicable to such interest is at least 
                                5 percent.
                        The Secretary may by regulations provide that 
                        export financing interest (not otherwise high-
                        taxed export financing interest) shall be 
                        treated as high-taxed export financing interest 
                        where necessary to prevent avoidance of the 
                        purposes of this subparagraph, and a tax shall 
                        not be treated as a withholding tax or other 
                        tax imposed on a gross basis if such tax is in 
                        the nature of a prepayment of a tax imposed on 
                        a net basis.''
            (3) Clause (iii) of section 904(d)(2)(C) is amended to read 
        as follows:
                            ``(iii) Exceptions.--The term `financial 
                        services income' does not include--
                                    ``(I) in the case of a corporation, 
                                dividends from noncontrolled section 
                                902 corporations out of earnings and 
                                profits accumulated in taxable years 
                                beginning before January 1, 2003, and
                                    ``(II) any export financing 
                                interest which is not high-taxed export 
                                financing interest.''
            (4) Subparagraph (E) of section 904(d)(2) is amended by 
        striking clause (ii) and by redesignating clauses (iii) and 
        (iv) as clauses (ii) and (iii), respectively.
            (5) Clause (i) of section 904(d)(3)(F) is amended to read 
        as follows:
                            ``(i) In general.--Except as provided in 
                        clause (ii), the separate categories are--
                                    ``(I) passive income and other 
                                passive category income, and
                                    ``(II) financial services income.''
            (6) Paragraph (3) of section 904(d) is amended by striking 
        subparagraph (H) and by redesignating subparagraph (I) as 
        subparagraph (H).
            (7) Paragraph (2) of section 904(d) is amended by adding at 
        the end the following new subparagraph:
                    ``(I) Transitional rule for 2003 changes.--For 
                purposes of paragraph (1), taxes carried from any 
                taxable year beginning before January 1, 2004, to any 
                taxable year beginning on or after such date, with 
                respect to any item of income shall be treated as 
                described in the subparagraph of paragraph (1) in which 
                such income would be described were such taxes paid or 
                accrued in a taxable year beginning on or after such 
                date.''
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 109. EFFECTIVE DATE.

    Except as otherwise provided in this title, the amendments made by 
this title shall apply to taxable years of foreign corporations 
beginning after December 31, 2003, and taxable years of United States 
persons owning stock in such corporations with or within which such 
corporations' taxable years end.

          TITLE II--PROVISIONS RELATING TO FOREIGN TAX CREDIT

SEC. 201. RECHARACTERIZATION OF OVERALL DOMESTIC LOSS.

    (a) General Rule.--Section 904 is amended by redesignating 
subsections (g), (h), (i), (j), and (k) as subsections (h), (i), (j), 
(k), and (l) respectively, and by inserting after subsection (f) the 
following new subsection:
    ``(g) Recharacterization of Overall Domestic Loss.--
            ``(1) General rule.--For purposes of this subpart, in the 
        case of any taxpayer who sustains an overall domestic loss for 
        any taxable year beginning after December 31, 2003, that 
        portion of the taxpayer's taxable income from sources within 
        the United States for each succeeding taxable year which is 
        equal to the lesser of--
                    ``(A) the amount of such loss (to the extent not 
                used under this paragraph in prior taxable years), or
                    ``(B) 50 percent of the taxpayer's taxable income 
                from sources within the United States for such 
                succeeding taxable year,
        shall be treated as income from sources without the United 
        States (and not as income from sources within the United 
        States).
            ``(2) Overall domestic loss defined.--For purposes of this 
        subsection and section 936--
                    ``(A) In general.--The term `overall domestic loss' 
                means any domestic loss to the extent such loss offsets 
                taxable income from sources without the United States 
                for the taxable year or for any preceding taxable year 
                by reason of a carryback. For purposes of the preceding 
                sentence, the term `domestic loss' means the amount by 
                which the gross income for the taxable year from 
                sources within the United States is exceeded by the sum 
                of the deductions properly apportioned or allocated 
                thereto (determined without regard to any carryback 
                from a subsequent taxable year).
                    ``(B) Taxpayer must have elected foreign tax credit 
                for year of loss.--The term `overall domestic loss' 
                shall not include any loss for any taxable year unless 
                the taxpayer chose the benefits of this subpart for 
                such taxable year.
            ``(3) Characterization of subsequent income.--
                    ``(A) In general.--Any income from sources within 
                the United States that is treated as income from 
                sources without the United States under paragraph (1) 
                shall be allocated among and increase the income 
                categories in proportion to the loss from sources 
                within the United States previously allocated to those 
                income categories.
                    ``(B) Income category.--For purposes of this 
                paragraph, the term `income category' has the meaning 
                given such term by subsection (f)(5)(E)(i).
            ``(4) Coordination with subsection (f).--The Secretary 
        shall prescribe such regulations as may be necessary to 
        coordinate the provisions of this subsection with the 
        provisions of subsection (f).''
    (b) Conforming Amendments.--
            (1) Section 535(d)(2) is amended by striking ``section 
        904(g)(6)'' and inserting ``section 904(h)(6)''.
            (2) Subparagraph (A) of section 936(a)(2) is amended by 
        striking ``section 904(f)'' and inserting ``subsections (f) and 
        (g) of section 904''.
    (c) Effective Date.--The amendments made by this section shall 
apply to losses for taxable years beginning after December 31, 2003.

SEC. 202. SPECIAL RULES RELATING TO FINANCIAL SERVICES INCOME.

    (a) Financial Services Income in Excess of 80  Percent of Gross 
Income.--Section 904(d)(2)(C) (relating to financial services income) 
is amended by adding at the end the following new clause:
                            ``(iv) Income exceeding 80 percent of gross 
                        income.--If the financial services income (as 
                        defined in clause (i)) of any person exceeds 80 
                        percent of gross income, the entire gross 
                        income for the taxable year shall be treated as 
                        financial services income.''
    (b) Exception for Income on Dealer Property.--Subsection 904(g) 
(relating to source rules in case of United States-owned foreign 
corporations) is amended by redesignating paragraph (11) as paragraph 
(12) and by adding after paragraph (10) the following new paragraph:
            ``(11) Exception for income on dealer property.--Paragraph 
        (1) shall not apply to any amount derived from a United States-
        owned foreign corporation that is derived from income on a 
        security (within the meaning of section 475(c)(2)) which is 
        received or accrued by a person that holds the security in 
        connection with the holder's activities as a dealer in 
        securities (within the meaning of section 475(c)(1)).''
    (c) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 2003.
            (2) Deemed paid credits.--In the case of any credit under 
        section 901 of the Internal Revenue Code of 1986 by reason of 
        section 902 or 960 of such Code, the amendments made by this 
        section shall apply to taxable years of foreign corporations 
        beginning after December 31, 2003, and to taxable years of 
        United States shareholders in such corporations with or within 
        which such taxable years of foreign corporations end.

SEC. 203. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM NONCONTROLLED 
              SECTION 902 CORPORATIONS.

    (a) In General.--Section 904(d)(4) (relating to look-thru rules 
apply to dividends from noncontrolled section 902 corporations) is 
amended to read as follows:
            ``(4) Look-thru applies to dividends from noncontrolled 
        section 902 corporations.--
                    ``(A) In general.--For purposes of this subsection, 
                any dividend from a noncontrolled section 902 
                corporation with respect to the taxpayer shall be 
                treated as income in a separate category in proportion 
                to the ratio of--
                            ``(i) the portion of earnings and profits 
                        attributable to income in such category, to
                            ``(ii) the total amount of earnings and 
                        profits.
                    ``(B) Special rules.--For purposes of this 
                paragraph--
                            ``(i) In general.--Rules similar to the 
                        rules of paragraph (3)(F) shall apply.
                            ``(ii) Earnings and profits.--
                                    ``(I) In general.--The rules of 
                                section 316 shall apply.
                                    ``(II) Regulations.--The Secretary 
                                may prescribe regulations regarding the 
                                treatment of distributions out of 
                                earnings and profits for periods before 
                                the taxpayer's acquisition of the stock 
                                to which the distributions relate.
                            ``(iii) Dividends not allocable to separate 
                        category.--The portion of any dividend from a 
                        noncontrolled section 902 corporation which is 
                        not treated as income in a separate category 
                        under subparagraph (A) shall be treated as a 
                        dividend to which subparagraph (A) does not 
                        apply.
                            ``(iv) Look-thru with respect to 
                        carryforwards of credit.--Rules similar to 
                        subparagraph (A) also shall apply to any 
                        carryforward under subsection (c) from a 
                        taxable year beginning before January 1, 2003, 
                        of tax allocable to a dividend from a 
                        noncontrolled section 902 corporation with 
                        respect to the taxpayer.''.
    (b) Conforming Amendments.--
            (1) Subparagraph (E) of section 904(d)(1), as in effect 
        both before and after the amendments made by section 1105 of 
        the Taxpayer Relief Act of 1997, is hereby repealed.
            (2) Section 904(d)(2)(C)(iii), as so in effect, is amended 
        by striking subclause (II) and by redesignating subclause (III) 
        as subclause (II).
            (3) The last sentence of section 904(d)(2)(D), as so in 
        effect, is amended to read as follows: ``Such term does not 
        include any financial services income.''
            (4) Section 904(d)(2)(E) is amended--
                    (A) by inserting ``or (4)'' after ``paragraph (3)'' 
                in clause (i), and
                    (B) by striking clauses (ii) and (iv) and by 
                redesignating clause (iii) as clause (ii).
            (5) Section 904(d)(3)(F) is amended by striking ``(D), or 
        (E)'' and inserting ``or (D)''.
            (6) Section 864(d)(5)(A)(i) is amended by striking 
        ``(C)(iii)(III)'' and inserting ``(C)(iii)(II)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.

SEC. 204. APPLICATION OF LOOK-THRU RULES TO FOREIGN TAX CREDIT.

    (a) Interest, Rents, and Royalties.--
            (1) Noncontrolled section 902 corporation.--Section 
        904(d)(4)(A), as amended by section 203, is amended to read as 
        follows:
                    ``(A) In general.--For purposes of this 
                subsection--
                            ``(i) any applicable dividend shall be 
                        treated as income in a separate category in 
                        proportion to the ratio of--
                                    ``(I) the portion of the earnings 
                                and profits attributable to income in 
                                such category, to
                                    ``(II) the total amount of earnings 
                                and profits, and
                            ``(ii) any interest, rent, or royalty which 
                        is received or accrued from a noncontrolled 
                        section 902 corporation with respect to the 
                        taxpayer shall be treated as income in a 
                        separate category to the extent it is properly 
                        allocable (under regulations prescribed by the 
                        Secretary) to income of such corporation in 
                        such category.''
            (2) Partnerships.--Section 904(d)(6)(C) (relating to 
        regulations) is amended--
                    (A) by inserting ``or (4)(A)(ii)'' after 
                ``paragraph (3)(C)'', and
                    (B) by inserting ``or noncontrolled section 902 
                corporations, whichever is applicable'' after 
                ``controlled foreign corporations''.
            (3) Conforming amendment.--The heading for section 
        904(d)(4), as amended by section 203, is amended by inserting 
        ``, interest, rents, or royalties'' after ``dividends''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 205. 10-YEAR FOREIGN TAX CREDIT CARRYFORWARD.

    (a) General Rule.--Section 904(c) (relating to carryback and 
carryover of excess tax paid) is amended by striking ``in the first, 
second, third, fourth, or fifth'' and inserting ``in any of the first 
10''.
    (b) Excess Extraction Taxes.--Paragraph (1) of section 907(f) is 
amended by striking ``in the first, second, third, fourth, or fifth'' 
and inserting ``in any of the first 10''.
    (c) Effective Date.--The amendments made by this section shall 
apply to excess foreign taxes which (without regard to the amendments 
made by this section) may be carried to any taxable year beginning 
after December 31, 2002.

SEC. 206. REPEAL OF LIMITATION OF FOREIGN TAX CREDIT UNDER ALTERNATIVE 
              MINIMUM TAX.

    (a) In General.--Section 59(a) (relating to alternative minimum tax 
foreign tax credit) is amended by striking paragraph (2) and by 
redesignating paragraphs (3) and (4) as paragraphs (2) and (3), 
respectively.
    (b) Conforming Amendment.--Section 53(d)(1)(B)(i)(II) is amended by 
striking ``and if section 59(a)(2) did not apply''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 207. ATTRIBUTION OF STOCK OWNERSHIP THROUGH PARTNERSHIPS TO APPLY 
              IN DETERMINING SECTION 902 AND 960 CREDITS.

    (a) In General.--Subsection (c) of section 902 is amended by 
redesignating paragraph (7) as paragraph (8) and by inserting after 
paragraph (6) the following new paragraph:
            ``(7) Constructive ownership through partnerships.--Stock 
        owned, directly or indirectly, by or for a partnership shall be 
        considered as being owned proportionately by its partners. 
        Stock considered to be owned by a person by reason of the 
        preceding sentence shall, for purposes of applying such 
        sentence, be treated as actually owned by such person. The 
        Secretary may prescribe such regulations as may be necessary to 
        carry out the purposes of this paragraph, including rules to 
        account for special partnership allocations of dividends, 
        credits, and other incidents of ownership of stock in 
        determining proportionate ownership.''
    (b) Effective Date.--The amendment made by this section shall apply 
to taxes of foreign corporations for taxable years of such corporations 
beginning after December 31, 2003.

SEC. 208. REPEAL OF SPECIAL RULES FOR APPLYING FOREIGN TAX CREDIT IN 
              CASE OF FOREIGN OIL AND GAS INCOME.

    (a) In General.--Section 907 (relating to special rules in case of 
foreign oil and gas income) is repealed.
    (b) Conforming Amendments.--
            (1) Each of the following provisions are amended by 
        striking ``907,'':
                    (A) Section 245(a)(10).
                    (B) Section 865(h)(1)(B).
                    (C) Section 904(d)(1).
                    (D) Section 904(g)(10)(A).
            (2) Section 904(f)(5)(E)(iii) is amended by inserting ``, 
        as in effect before its repeal by the Fairness, Simplification 
        and Competitiveness for American Business Act of 2003'' after 
        ``section 907(c)(4)(B)''.
            (3) Section 954(g)(1) is amended by inserting ``, as in 
        effect before its repeal by the Fairness, Simplification and 
        Competitiveness for American Business Act of 2003'' after 
        ``907(c)''.
            (4) Section 6501(i) is amended--
                    (A) by striking ``, or under section 907(f) 
                (relating to carryback and carryover of disallowed oil 
                and gas extraction taxes)'', and
                    (B) by striking ``or 907(f)''.
            (5) The table of sections for subpart A of part III of 
        subchapter N of chapter 1 is amended by striking the item 
        relating to section 907.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

                      TITLE III--OTHER PROVISIONS

SEC. 301. APPLICATION OF UNIFORM CAPITALIZATION RULES TO FOREIGN 
              PERSONS.

    (a) In General.--Section 263A(c) (relating to exceptions) is 
amended by adding at the end the following new paragraph:
            ``(7) Foreign persons.--Except for purposes of applying 
        sections 871(b)(1) and 882(a)(1), this section shall not apply 
        to any taxpayer who is not a United States person if such 
        taxpayer capitalizes costs of produced property or property 
        acquired for resale by applying the method used to ascertain 
        the income, profit, or loss for purposes of reports or 
        statements to shareholders, partners, other proprietors, or 
        beneficiaries, or for credit purposes.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 2003. Section 481 
of the Internal Revenue Code of 1986 shall not apply to any change in a 
method of accounting by reason of such amendment.

SEC. 302. UNITED STATES PROPERTY NOT TO INCLUDE CERTAIN ASSETS ACQUIRED 
              BY DEALERS IN ORDINARY COURSE OF TRADE OR BUSINESS.

    (a) In General.--Section 956(c)(2) (relating to exceptions from 
property treated as United States property) is amended by striking 
``and'' at the end of subparagraph (J), by striking the period at the 
end of subparagraph (K) and inserting ``; and'', and by adding at the 
end the following new subparagraph:
                    ``(L) securities acquired and held by a controlled 
                foreign corporation in the ordinary course of its 
                business as a dealer in securities if (i) the dealer 
                accounts for the securities as securities held 
                primarily for sale to customers in the ordinary course 
                of business, and (ii) the dealer disposes of the 
                securities (or such securities mature while held by the 
                dealer) within a period consistent with the holding of 
                securities for sale to customers in the ordinary course 
                of business.''
    (b) Conforming Amendment.--Section 956(c)(2) is amended by striking 
``and (K)'' in the last sentence and inserting ``, (K), and (L)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after December 
31, 2003, and to taxable years of United States shareholders with or 
within which such taxable years of foreign corporations end.

SEC. 303. TREATMENT OF CERTAIN DIVIDENDS OF REGULATED INVESTMENT 
              COMPANIES.

    (a) Treatment of Certain Dividends.--
            (1) Nonresident alien individuals.--Section 871 (relating 
        to tax on nonresident alien individuals) is amended by 
        redesignating subsection (k) as subsection (l) and by inserting 
        after subsection (j) the following new subsection:
    ``(k) Exemption for Certain Dividends of Regulated Investment 
Companies.--
            ``(1) Interest-related dividends.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), no tax shall be imposed under 
                paragraph (1)(A) of subsection (a) on any interest-
                related dividend received from a regulated investment 
                company.
                    ``(B) Exceptions.--Subparagraph (A) shall not 
                apply--
                            ``(i) to any interest-related dividend 
                        received from a regulated investment company by 
                        a person to the extent such dividend is 
                        attributable to interest (other than interest 
                        described in subparagraph (E) (i) or (iii)) 
                        received by such company on indebtedness issued 
                        by such person or by any corporation or 
                        partnership with respect to which such person 
                        is a 10-percent shareholder,
                            ``(ii) to any interest-related dividend 
                        with respect to stock of a regulated investment 
                        company unless the person who would otherwise 
                        be required to deduct and withhold tax from 
                        such dividend under chapter 3 receives a 
                        statement (which meets requirements similar to 
                        the requirements of subsection (h)(5)) that the 
                        beneficial owner of such stock is not a United 
                        States person, and
                            ``(iii) to any interest-related dividend 
                        paid to any person within a foreign country (or 
                        any interest-related dividend payment addressed 
                        to, or for the account of, persons within such 
                        foreign country) during any period described in 
                        subsection (h)(6) with respect to such country.
                Clause (iii) shall not apply to any dividend with 
                respect to any stock which was acquired on or before 
                the date of the publication of the Secretary's 
                determination under subsection (h)(6).
                    ``(C) Interest-related dividend.--For purposes of 
                this paragraph, an interest-related dividend is any 
                dividend (or part thereof) which is designated by the 
                regulated investment company as an interest-related 
                dividend in a written notice mailed to its shareholders 
                not later than 60 days after the close of its taxable 
                year. If the aggregate amount so designated with 
                respect to a taxable year of the company (including 
                amounts so designated with respect to dividends paid 
                after the close of the taxable year described in 
                section 855) is greater than the qualified net interest 
                income of the company for such taxable year, the 
                portion of each distribution which shall be an 
                interest-related dividend shall be only that portion of 
                the amounts so designated which such qualified net 
                interest income bears to the aggregate amount so 
                designated.
                    ``(D) Qualified net interest income.--For purposes 
                of subparagraph (C), the term `qualified net interest 
                income' means the qualified interest income of the 
                regulated investment company reduced by the deductions 
                properly allocable to such income.
                    ``(E) Qualified interest income.--For purposes of 
                subparagraph (D), the term `qualified interest income' 
                means the sum of the following amounts derived by the 
                regulated investment company from sources within the 
                United States:
                            ``(i) Any amount includible in gross income 
                        as original issue discount (within the meaning 
                        of section 1273) on an obligation payable 183 
                        days or less from the date of original issue 
                        (without regard to the period held by the 
                        company).
                            ``(ii) Any interest includible in gross 
                        income (including amounts recognized as 
                        ordinary income in respect of original issue 
                        discount or market discount or acquisition 
                        discount under part V of subchapter P and such 
                        other amounts as regulations may provide) on an 
                        obligation which is in registered form; except 
                        that this clause shall not apply to--
                                    ``(I) any interest on an obligation 
                                issued by a corporation or partnership 
                                if the regulated investment company is 
                                a 10-percent shareholder in such 
                                corporation or partnership, and
                                    ``(II) any interest which is 
                                treated as not being portfolio interest 
                                under the rules of subsection (h)(4).
                            ``(iii) Any interest referred to in 
                        subsection (i)(2)(A) (without regard to the 
                        trade or business of the regulated investment 
                        company).
                            ``(iv) Any interest-related dividend 
                        includable in gross income with respect to 
                        stock of another regulated investment company.
                    ``(F) 10-percent shareholder.--For purposes of this 
                paragraph, the term `10-percent shareholder' has the 
                meaning given such term by subsection (h)(3)(B).
            ``(2) Short-term capital gain dividends.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), no tax shall be imposed under 
                paragraph (1)(A) of subsection (a) on any short-term 
                capital gain dividend received from a regulated 
                investment company.
                    ``(B) Exception for aliens taxable under subsection 
                (a)(2).--In the case of dividends received from a 
                regulated investment company before January 1, 2003, 
                subparagraph (A) shall not apply in the case of any 
                nonresident alien individual subject to tax under 
                subsection (a)(2).
                    ``(C) Short-term capital gain dividend.--For 
                purposes of this paragraph, a short-term capital gain 
                dividend is any dividend (or part thereof) which is 
                designated by the regulated investment company as a 
                short-term capital gain dividend in a written notice 
                mailed to its shareholders not later than 60 days after 
                the close of its taxable year. If the aggregate amount 
                so designated with respect to a taxable year of the 
                company (including amounts so designated with respect 
                to dividends paid after the close of the taxable year 
                described in section 855) is greater than the qualified 
                short-term gain of the company for such taxable year, 
                the portion of each distribution which shall be a 
                short-term capital gain dividend shall be only that 
                portion of the amounts so designated which such 
                qualified short-term gain bears to the aggregate amount 
                so designated.
                    ``(D) Qualified short-term gain.--For purposes of 
                subparagraph (C), the term `qualified short-term gain' 
                means the excess of the net short-term capital gain of 
                the regulated investment company for the taxable year 
                over the net long-term capital loss (if any) of such 
                company for such taxable year. For purposes of this 
                subparagraph--
                            ``(i) the net short-term capital gain of 
                        the regulated investment company shall be 
                        computed by treating any short-term capital 
                        gain dividend includible in gross income with 
                        respect to stock of another regulated 
                        investment company as a short-term capital 
                        gain, and
                            ``(ii) the excess of the net short-term 
                        capital gain for a taxable year over the net 
                        long-term capital loss for a taxable year (to 
                        which an election under section 4982(e)(4) does 
                        not apply) shall be determined without regard 
                        to any net capital loss or net short-term 
                        capital loss attributable to transactions after 
                        October 31 of such year, and any such net 
                        capital loss or net short-term capital loss 
                        shall be treated as arising on the 1st day of 
                        the next taxable year.
                To the extent provided in regulations, clause (ii) 
                shall apply also for purposes of computing the taxable 
                income of the regulated investment company.''
            (2) Foreign corporations.--Section 881 (relating to tax on 
        income of foreign corporations not connected with United States 
        business) is amended by redesignating subsection (e) as 
        subsection (f) and by inserting after subsection (d) the 
        following new subsection:
    ``(e) Tax Not To Apply to Certain Dividends of Regulated Investment 
Companies.--
            ``(1) Interest-related dividends.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), no tax shall be imposed under 
                paragraph (1) of subsection (a) on any interest-related 
                dividend (as defined in section 871(k)(1)) received 
                from a regulated investment company.
                    ``(B) Exception.--Subparagraph (A) shall not 
                apply--
                            ``(i) to any dividend referred to in 
                        section 871(k)(1)(B), and
                            ``(ii) to any interest-related dividend 
                        received by a controlled foreign corporation 
                        (within the meaning of section 957(a)) to the 
                        extent such dividend is attributable to 
                        interest received by the regulated investment 
                        company from a person who is a related person 
                        (within the meaning of section 864(d)(4)) with 
                        respect to such controlled foreign corporation.
                    ``(C) Treatment of dividends received by controlled 
                foreign corporations.--The rules of subsection 
                (c)(5)(A) shall apply to any interest-related dividend 
                received by a controlled foreign corporation (within 
                the meaning of section 957(a)) to the extent such 
                dividend is attributable to interest received by the 
                regulated investment company which is described in 
                clause (ii) of section 871(k)(1)(E) (and not described 
                in clause (i) or (iii) of such section).
            ``(2) Short-term capital gain dividends.--No tax shall be 
        imposed under paragraph (1) of subsection (a) on any short-term 
        capital gain dividend (as defined in section 871(k)(2)) 
        received from a regulated investment company.''
            (3) Withholding taxes.--
                    (A) Section 1441(c) (relating to exceptions) is 
                amended by adding at the end the following new 
                paragraph:
            ``(12) Certain dividends received from regulated investment 
        companies.--
                    ``(A) In general.--No tax shall be required to be 
                deducted and withheld under subsection (a) from any 
                amount exempt from the tax imposed by section 
                871(a)(1)(A) by reason of section 871(k).
                    ``(B) Special rule.--For purposes of subparagraph 
                (A), clause (i) of section 871(k)(1)(B) shall not apply 
                to any dividend unless the regulated investment company 
                knows that such dividend is a dividend referred to in 
                such clause. A similar rule shall apply with respect to 
                the exception contained in section 871(k)(2)(B).''
                    (B) Section 1442(a) (relating to withholding of tax 
                on foreign corporations) is amended--
                            (i) by striking ``and the reference in 
                        section 1441(c)(10)'' and inserting ``the 
                        reference in section 1441(c)(10)'', and
                            (ii) by inserting before the period at the 
                        end the following: ``, and the references in 
                        section 1441(c)(12) to sections 871(a) and 
                        871(k) shall be treated as referring to 
                        sections 881(a) and 881(e) (except that for 
                        purposes of applying subparagraph (A) of 
                        section 1441(c)(12), as so modified, clause 
                        (ii) of section 881(e)(1)(B) shall not apply to 
                        any dividend unless the regulated investment 
                        company knows that such dividend is a dividend 
                        referred to in such clause)''.
    (b) Estate Tax Treatment of Interest in Certain Regulated 
Investment Companies.--Section 2105 (relating to property without the 
United States for estate tax purposes) is amended by adding at the end 
the following new subsection:
    ``(d) Stock in a RIC.--
            ``(1) In general.--For purposes of this subchapter, stock 
        in a regulated investment company (as defined in section 851) 
        owned by a nonresident not a citizen of the United States shall 
        not be deemed property within the United States in the 
        proportion that, at the end of the quarter of such investment 
        company's taxable year immediately preceding a decedent's date 
        of death (or at such other time as the Secretary may designate 
        in regulations), the assets of the investment company that were 
        qualifying assets with respect to the decedent bore to the 
        total assets of the investment company.
            ``(2) Qualifying assets.--For purposes of this subsection, 
        qualifying assets with respect to a decedent are assets that, 
        if owned directly by the decedent, would have been--
                    ``(A) amounts, deposits, or debt obligations 
                described in subsection (b) of this section,
                    ``(B) debt obligations described in the last 
                sentence of section 2104(c), or
                    ``(C) other property not within the United 
                States.''
    (c) Treatment of Regulated Investment Companies Under Section 
897.--
            (1) Paragraph (1) of section 897(h) is amended by striking 
        ``REIT'' each place it appears and inserting ``qualified 
        investment entity''.
            (2) Paragraphs (2) and (3) of section 897(h) are amended to 
        read as follows:
            ``(2) Sale of stock in domestically controlled entity not 
        taxed.--The term `United States real property interest' does 
        not include any interest in a domestically controlled qualified 
        investment entity.
            ``(3) Distributions by domestically controlled qualified 
        investment entities.--In the case of a domestically controlled 
        qualified investment entity, rules similar to the rules of 
        subsection (d) shall apply to the foreign ownership percentage 
        of any gain.''
            (3) Subparagraphs (A) and (B) of section 897(h)(4) are 
        amended to read as follows:
                    ``(A) Qualified investment entity.--The term 
                `qualified investment entity' means any real estate 
                investment trust and any regulated investment company.
                    ``(B) Domestically controlled.--The term 
                `domestically controlled qualified investment entity' 
                means any qualified investment entity in which at all 
                times during the testing period less than 50 percent in 
                value of the stock was held directly or indirectly by 
                foreign persons.''
            (4) Subparagraphs (C) and (D) of section 897(h)(4) are each 
        amended by striking ``REIT'' and inserting ``qualified 
        investment entity''.
            (5) The subsection heading for subsection (h) of section 
        897 is amended by striking ``REITS'' and inserting ``Certain 
        Investment Entities''.
    (d) Effective Date.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        dividends with respect to taxable years of regulated investment 
        companies beginning after the date of the enactment of this 
        Act.
            (2) Estate tax treatment.--The amendment made by subsection 
        (b) shall apply to estates of decedents dying after the date of 
        the enactment of this Act.
            (3) Certain other provisions.--The amendments made by 
        subsection (c) (other than paragraph (1) thereof) shall take 
        effect on the date of the enactment of this Act.

SEC. 304. AIRLINE MILEAGE AWARDS TO CERTAIN FOREIGN PERSONS.

    (a) In General.--The last sentence of section 4261(e)(3)(C) 
(relating to regulations) is amended by inserting ``and mileage awards 
which are issued to individuals whose mailing addresses on record with 
the person providing the right to air transportation are outside the 
United States'' before the period at the end thereof.
    (b) Effective Date.--The amendment made by this section shall apply 
to amounts paid, and benefits provided, after December 31, 2003.

SEC. 305. INTEREST PAYMENTS DEDUCTIBLE WHERE DISQUALIFIED GUARANTEE HAS 
              ECONOMIC EFFECT.

    (a) In General.--Section 163(j)(6)(D)(ii) (relating to exceptions 
to disqualified guarantee) is amended--
            (1) by striking ``or'' at the end of subclause (I),
            (2) by striking the period at the end of subclause (II) and 
        inserting ``, or'',
            (3) by inserting after subclause (II) the following new 
        subclause:
                                    ``(III) if, in the case of a 
                                guarantee by a foreign person, the 
                                taxpayer establishes to the 
                                satisfaction of the Secretary that the 
                                taxpayer could have borrowed 
                                substantially the same principal amount 
                                from an unrelated person without the 
                                guarantee.'', and
            (4) by adding at the end the following new sentence: ``For 
        purposes of subclause (III), to the extent provided in 
        regulations, the Secretary may reject a showing that a taxpayer 
        could have borrowed substantially the same principal amount if 
        such borrowing is on terms substantially dissimilar to those of 
        the actual loan.''
    (b) Effective Date.--The amendments made by this section shall 
apply to guarantees issued on and after the date of the enactment of 
this Act.

SEC. 306. MODIFICATIONS OF REPORTING REQUIREMENTS FOR CERTAIN FOREIGN-
              OWNED CORPORATIONS.

    (a) De Minimis Exception.--Section 6038A(b) (relating to required 
information) is amended by adding at the end the following new flush 
sentence:
``The Secretary shall not require the reporting corporation to report 
any information with respect to any foreign person which is a related 
person if the aggregate value of the transactions between the 
corporation and the related person (and any person related to such 
person) during the taxable year does not exceed $5,000,000.''
    (b) Time for Providing Translations of Specific Documents.--
Notwithstanding Internal Revenue Service Regulation Sec. 1.6038A-
3(f)(2), a taxpayer shall have at least 60 days to provide translations 
of specific documents it is requested to translate. Nothing in this 
subsection shall limit the right of a taxpayer to file a written 
request for an extension of time to comply with the request.
    (c) Effective Dates.--
            (1) Exception.--The amendment made by subsection (a) shall 
        apply to taxable years beginning after December 31, 2003.
            (2) Translations.--Subsection (b) shall apply to requests 
        made by the Internal Revenue Service after December 31, 2003.

SEC. 307. ELECTION NOT TO USE AVERAGE EXCHANGE RATE FOR FOREIGN TAX 
              PAID OTHER THAN IN FUNCTIONAL CURRENCY.

    (a) In General.--Paragraph (1) of section 986(a) (relating to 
determination of foreign taxes and foreign corporation's earnings and 
profits) is amended by redesignating subparagraph (D) as subparagraph 
(E) and by inserting after subparagraph (C) the following new 
subparagraph:
                    ``(D) Elective exception for taxes paid other than 
                in functional currency.--
                            ``(i) In general.--At the election of the 
                        taxpayer, subparagraph (A) shall not apply to 
                        any foreign income taxes the liability for 
                        which is denominated in any currency other than 
                        in the taxpayer's functional currency.
                            ``(ii) Application to qualified business 
                        units.--An election under this subparagraph may 
                        apply to foreign income taxes attributable to a 
                        qualified business unit in accordance with 
                        regulations prescribed by the Secretary.
                            ``(iii) Election.--Any such election shall 
                        apply to the taxable year for which made and 
                        all subsequent taxable years unless revoked 
                        with the consent of the Secretary.''
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 308. REPEAL OF SPECIAL CAPITAL GAINS TAX ON ALIENS PRESENT IN THE 
              UNITED STATES FOR 183 DAYS OR MORE.

    (a) In General.--Subsection (a) of section 871 is amended by 
striking paragraph (2) and by redesignating paragraph (3) as paragraph 
(2).
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 309. REPEAL OF WITHHOLDING TAX ON DIVIDENDS FROM CERTAIN FOREIGN 
              CORPORATIONS.

    (a) In General.--Paragraph (2) of section 871(i) (relating to tax 
not to apply to certain interest and dividends) is amended by adding at 
the end the following new subparagraph:
                    ``(D) Dividends paid by a foreign corporation.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to payments made after December 31, 2003.

SEC. 310. INTEREST EXPENSE ALLOCATION RULES.

    (a) Election To Allocate on Worldwide Basis.-- Section 864 is 
amended by redesignating subsection (f) as subsection (g) and by 
inserting after subsection (e) the following new subsection:
    ``(f) Election To Allocate Interest, Etc. on Worldwide Basis.--For 
purposes of this subchapter, at the election of the worldwide 
affiliated group--
            ``(1) Allocation and apportionment of interest expense.--
                    ``(A) In general.--The taxable income of each 
                domestic corporation which is a member of a worldwide 
                affiliated group shall be determined by allocating and 
                apportioning interest expense of each member as if all 
members of such group were a single corporation.
                    ``(B) Treatment of worldwide affiliated group.--The 
                taxable income of the domestic members of a worldwide 
                affiliated group from sources outside the United States 
                shall be determined by allocating and apportioning the 
                interest expense of such domestic members to such 
                income in an amount equal to the excess (if any) of--
                            ``(i) the total interest expense of the 
                        worldwide affiliated group multiplied by the 
                        ratio which the foreign assets of the worldwide 
                        affiliated group bears to all the assets of the 
                        worldwide affiliated group, over
                            ``(ii) the interest expense of all foreign 
                        corporations which are members of the worldwide 
                        affiliated group to the extent such interest 
                        expense of such foreign corporations would have 
                        been allocated and apportioned to foreign 
                        source income if this subsection were applied 
                        to a group consisting of all the foreign 
                        corporations in such worldwide affiliated 
                        group.
                    ``(C) Worldwide affiliated group.--For purposes of 
                this paragraph, the term `worldwide affiliated group' 
                means an affiliated group as defined in section 
                1504(a), determined without regard to paragraphs (2), 
                (3), and (4) of section 1504(b).
            ``(2) Allocation and apportionment of other expenses.--
        Expenses other than interest which are not directly allocable 
        or apportioned to any specific income producing activity shall 
        be allocated and apportioned as if all members of the 
        affiliated group were a single corporation. For purposes of the 
        preceding sentence, the term `affiliated group' has the meaning 
        given such term by section 1504 (determined without regard to 
        paragraph (4) of section 1504(b)).
            ``(3) Treatment of tax-exempt assets; basis of stock in 
        nonaffiliated 10-percent owned corporations.--The rules of 
        paragraphs (3) and (4) of subsection (e) shall apply for 
        purposes of this subsection; except that paragraph (3) shall be 
        applied on worldwide affiliated group basis.
            ``(4) Treatment of certain financial institutions.--
                    ``(A) In general.--For purposes of paragraph (1), 
                any corporation described in subparagraph (B) shall be 
                treated as an includible corporation for purposes of 
                section 1504 only for purposes of applying this 
                subsection separately to corporations so described.
                    ``(B) Description.--A corporation is described in 
                this subparagraph if--
                            ``(i) such corporation is a financial 
                        institution described in section 581 or 591,
                            ``(ii) the business of such financial 
                        institution is predominantly with persons other 
                        than related persons (within the meaning of 
                        subsection (d)(4)) or their customers, and
                            ``(iii) such financial institution is 
                        required by State or Federal law to be operated 
                        separately from any other entity which is not 
                        such an institution.
                    ``(C) Treatment of bank holding companies.--To the 
                extent provided in regulations--
                            ``(i) a bank holding company (within the 
                        meaning of section 2(a) of the Bank Holding 
                        Company Act of 1956), and
                            ``(ii) any subsidiary of a financial 
                        institution described in section 581 or 591 or 
                        of any bank holding company if such subsidiary 
                        is predominantly engaged (directly or 
                        indirectly) in the active conduct of a banking, 
                        financing, or similar business,
                shall be treated as a corporation described in 
                subparagraph (B).
            ``(5) Election to expand financial institution group of 
        worldwide group.--
                    ``(A) In general.--If a worldwide affiliated group 
                elects the application of this subsection, all 
                financial corporations which--
                            ``(i) are members of such worldwide 
                        affiliated group, but
                            ``(ii) are not corporations described in 
                        paragraph (4)(B),
                shall be treated as described in paragraph (4)(B) for 
                purposes of applying paragraph (4)(A). This subsection 
                (other than this paragraph) shall apply to any such 
                group in the same manner as this subsection (other than 
                this paragraph) applies to the pre-election worldwide 
                affiliated group of which such group is a part.
                    ``(B) Financial corporation.--For purposes of this 
                paragraph, the term `financial corporation' means any 
                corporation if at least 80 percent of its gross income 
                is income described in section 904(d)(2)(C)(ii) and the 
                regulations thereunder which is derived from 
                transactions with persons who are not related (within 
                the meaning of section 267(b) or 707(b)(1)) to the 
                corporation. For purposes of the preceding sentence, 
                there shall be disregarded any item of income or gain 
                from a transaction or series of transactions a 
                principal purpose of which is the qualification of any 
                corporation as a financial corporation.
                    ``(C) Antiabuse rules.--In the case of a 
                corporation which is a member of an electing financial 
                institution group, to the extent that such 
                corporation--
                            ``(i) distributes dividends or makes other 
                        distributions with respect to its stock after 
                        the date of the enactment of this paragraph to 
                        any member of the pre-election worldwide 
                        affiliated group (other than to a member of the 
                        electing financial institution group) in excess 
                        of the greater of--
                                    ``(I) its average annual dividend 
                                (expressed as a percentage of current 
                                earnings and profits) during the 5-
                                taxable-year period ending with the 
                                taxable year preceding the taxable 
                                year, or
                                    ``(II) 25 percent of its average 
                                annual earnings and profits for such 5-
                                taxable-year period, or
                            ``(ii) deals with any person in any manner 
                        not clearly reflecting the income of the 
                        corporation (as determined under principles 
                        similar to the principles of section 482),
                an amount of indebtedness of the electing financial 
                institution group equal to the excess distribution or 
                the understatement or overstatement of income, as the 
                case may be, shall be recharacterized (for the taxable 
                year and subsequent taxable years) for purposes of this 
                paragraph as indebtedness of the worldwide affiliated 
                group (excluding the electing financial institution 
                group). If a corporation has not been in existence for 
                5 taxable years, this subparagraph shall be applied 
                with respect to the period it was in existence.
                    ``(D) Election.--An election under this paragraph 
                with respect to any financial institution group may be 
                made only by the common parent of the pre-election 
                worldwide affiliated group and may be made only for the 
                first taxable year beginning after December 31, 2002, 
                in which such affiliated group includes 1 or more 
                financial corporations. Such an election, once made, 
                shall apply to all financial corporations which are 
                members of the electing financial institution group for 
                such taxable year and all subsequent years unless 
                revoked with the consent of the Secretary.
                    ``(E) Definitions relating to groups.--For purposes 
                of this paragraph--
                            ``(i) Pre-election worldwide affiliated 
                        group.--The term `pre-election worldwide 
                        affiliated group' means, with respect to a 
                        corporation, the worldwide affiliated group of 
                        which such corporation would (but for an 
                        election under this paragraph) be a member for 
                        purposes of applying paragraph (1).
                            ``(ii) Electing financial institution 
                        group.--The term `electing financial 
                        institution group' means the group of 
                        corporations to which this subsection applies 
                        separately by reason of the application of 
                        paragraph (5)(A) and which includes financial 
                        corporations by reason of an election under 
                        subparagraph (A).
                    ``(F) Regulations.--The Secretary shall prescribe 
                such regulations as may be appropriate to carry out 
                this subsection, including regulations--
                            ``(i) providing for the direct allocation 
                        of interest expense in other circumstances 
                        where such allocation would be appropriate to 
                        carry out the purposes of this subsection,
                            ``(ii) preventing assets or interest 
                        expense from being taken into account more than 
                        once, and
                            ``(iii) dealing with changes in members of 
                        any group (through acquisitions or otherwise) 
                        treated under this paragraph as an affiliated 
                        group for purposes of this subsection.
            ``(6) Election.--An election to have this subsection apply 
        with respect to any worldwide affiliated group may be made only 
        by the common parent of the domestic affiliated group referred 
        to in paragraph (1)(C) and may be made only for the first 
        taxable year beginning after December 31, 2002, in which a 
        worldwide affiliated group exists which includes such 
        affiliated group and at least one foreign corporation. Such an 
        election, once made, shall apply to such common parent and all 
        other corporations which are members of such worldwide 
        affiliated group for such taxable year and all subsequent years 
        unless revoked with the consent of the Secretary.''.
    (b) Expansion of Regulatory Authority.--Paragraph (7) of section 
864(e) is amended--
            (1) by inserting before the comma at the end of 
        subparagraph (B) ``and in other circumstances where such 
        allocation would be appropriate to carry out the purposes of 
        this subsection'', and
            (2) by striking ``and'' at the end of subparagraph (E), by 
        redesignating subparagraph (F) as subparagraph (G), and by 
        inserting after subparagraph (E) the following new 
        subparagraph:
                    ``(F) preventing assets or interest expense from 
                being taken into account more than once, and''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 311. PERMANENT EXTENSION OF SUBPART F EXEMPTION FOR ACTIVE 
              FINANCING.

    (a) In General.--
            (1) Section 953(e)(10) is amended--
                    (A) by striking ``, and before January 1, 2007,'', 
                and
                    (B) by striking the second sentence.
            (2) Section 954(h)(9) is amended by striking ``, and before 
        January 1, 2007,''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to taxable years beginning after December 31, 2003.
                                 <all>
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