II 

112TH CONGRESS 

1ST SESSION S. 1671 

To amend the Internal Revenue Code of 1986 to allow a temporary dividends 

received deduction for dividends received from a controlled foreign corporation. 

IN THE SENATE OF THE UNITED STATES 

OCTOBER 6, 2011 

Mrs. HAGAN (for herself, Mr. MCCAIN, Mrs. BOXER, Mr. BLUNT, Mr. GRAHAM, Mr. ISAKSON, Ms. MURKOWSKI, Mr. BROWN of Massachusetts, and 

Mr. MANCHIN) introduced the following bill; which was read twice and 

referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to allow a 

temporary dividends received deduction for dividends received from a controlled foreign corporation. 

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

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Foreign Earnings Re5 investment Act’’. 


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1 SEC. 2. ALLOWANCE OF TEMPORARY DIVIDENDS RECEIVED 

2 DEDUCTION FOR DIVIDENDS RECEIVED 

3 FROM A CONTROLLED FOREIGN CORPORA4 TION. 

5 (a) APPLICABILITY OF PROVISION.— 

6 (1) IN GENERAL.—Subsection (f) of section 965 

7 is amended to read as follows: 

8 ‘‘(f) ELECTION; ELECTION YEAR.— 

9 ‘‘(1) IN GENERAL.—The taxpayer may elect to 

10 apply this section to— 

11 ‘‘(A) the taxpayer’s last taxable year which 

12 begins before the date of the enactment of the 

13 Foreign Earnings Reinvestment Act, or 

14 ‘‘(B) the taxpayer’s first taxable year 

15 which begins during the 1-year period beginning 

16 on such date. 

17 Such election may be made for a taxable year only 

18 if made on or before the due date (including exten19 sions) for filing the return of tax for such taxable 

20 year. 

21 ‘‘(C) ELECTION YEAR.—For purposes of 

22 this section, the term ‘election year’ means the 

23 taxable year— 

24 ‘‘(i) which begins after the date that 

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1 ment of the Foreign Earnings Reinvest2 ment Act, and 

3 ‘‘(ii) to which the taxpayer elects 

4 under paragraph (1) to apply this sec5 tion.’’. 

6 (2) CONFORMING AMENDMENTS.— 

7 (A) EXTRAORDINARY DIVIDENDS.—Section 

8 965(b)(2) of such Code is amended— 

9 (i) by striking ‘‘June 30, 2003’’ and 

10 inserting ‘‘September 30, 2011’’, and 

11 (ii) by adding at the end the following 

12 new sentence: ‘‘The amounts described in 

13 clauses (i), (ii), and (iii) shall not include 

14 any amounts which were taken into ac15 count in determining the deduction under 

16 subsection (a) for any prior taxable year.’’. 

17 (B) DETERMINATIONS RELATING TO RE18 LATED PARTY INDEBTEDNESS.—Section 

19 965(b)(3)(B) of such Code is amended by strik20 ing ‘‘October 3, 2004’’ and inserting ‘‘Sep21 tember 30, 2011’’. 

22 (C) DETERMINATIONS RELATING TO BASE

23 PERIOD.—Section 965(c)(2) of such Code is 

24 amended by striking ‘‘June 30, 2003’’ and in25 serting ‘‘September 30, 2011’’. 


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1 (b) DEDUCTION INCLUDES CURRENT AND ACCUMU2 LATED FOREIGN EARNINGS.— 

3 (1) IN GENERAL.—Paragraph (1) of section 

4 965(b) of the Internal Revenue Code of 1986 is 

5 amended to read as follows: 

6 ‘‘(1) IN GENERAL.—The amount of dividends 

7 taken into account under subsection (a) shall not ex8 ceed the sum of the current and accumulated earn9 ings and profits described in section 959(c)(3) for 

10 the year a deduction is claimed under subsection (a), 

11 without diminution by reason of any distributions 

12 made during the election year, for all controlled for13 eign corporations of the United States shareholder.’’. 

14 (2) CONFORMING AMENDMENTS.— 

15 (A) Section 965(c) of such Code, as 

16 amended by subsection (a), is amended by 

17 striking paragraph (1) and by redesignating 

18 paragraphs (2), (3), (4), and (5), as paragraphs 

19 (1), (2), (3), and (4), respectively. 

20 (B) Paragraph (4) of section 965(c) of 

21 such Code, as redesignated by subparagraph 

22 (A), is amended to read as follows: 

23 ‘‘(4) CONTROLLED GROUPS.—All United States 

24 shareholders which are members of an affiliated 

25 group filing a consolidated return under section 


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1 1501 shall be treated as one United States share2 holder.’’. 

3 (c) AMOUNT OF DEDUCTION.— 

4 (1) IN GENERAL.—Paragraph (1) of section 

5 965(a) of the Internal Revenue Code of 1986 is 

6 amended by striking ‘‘85 percent’’ and inserting ‘‘75 

7 percent’’. 

8 (2) BONUS DEDUCTION IN SUBSEQUENT TAX9 ABLE YEAR FOR INCREASING JOBS.—Section 965 of 

10 such Code is amended by adding at the end the fol11 lowing new subsection: 

12 ‘‘(g) BONUS DEDUCTION.— 

13 ‘‘(1) IN GENERAL.—In the case of any taxpayer 

14 who makes an election to apply this section, there 

15 shall be allowed as a deduction for the first taxable 

16 year following the election year an amount equal to 

17 the applicable percentage of the cash dividends 

18 which are taken into account under subsection (a) 

19 with respect to such taxpayer for the election year. 

20 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes 

21 of paragraph (1), the applicable percentage is the 

22 amount which bears the same ratio (not greater 

23 than 1) to 10 percent as— 

24 ‘‘(A) the excess (if any) of— 


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1 ‘‘(i) the qualified payroll of the tax2 payer for the calendar year which begins 

3 with or within the first taxable year fol4 lowing the election year, over 

5 ‘‘(ii) the qualified payroll of the tax6 payer for calendar year 2010, bears to 

7 ‘‘(B) 10 percent of the qualified payroll of 

8 the taxpayer for calendar year 2010.’’ 

9 ‘‘(3) QUALIFIED PAYROLL.—For purposes of 

10 this paragraph: 

11 ‘‘(A) IN GENERAL.—The term ‘qualified 

12 payroll’ means, with respect to a taxpayer for 

13 any calendar year, the aggregate wages (as de14 fined in section 3121(a)) paid by the corpora15 tion during such calendar year. 

16 ‘‘(B) EXCEPTION FOR CHANGES IN OWN17 ERSHIP OF TRADES OR BUSINESSES.— 

18 ‘‘(i) ACQUISITIONS.—If, after Decem19 ber 31, 2009, and before the close of the 

20 first taxable year following the election 

21 year, a taxpayer acquires the trade or busi22 ness of a predecessor, then the qualified 

23 payroll of such taxpayer for any calendar 

24 year shall be increased by so much of the 

25 qualified payroll of the predecessor for 


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1 such calendar year as was attributable to 

2 the trade or business acquired by the tax3 payer. 

4 ‘‘(ii) DISPOSITIONS.—If, after Decem5 ber 31, 2009, and before the close of the 

6 first taxable year following the election 

7 year, a taxpayer disposes of a trade or 

8 business, then— 

9 ‘‘(I) the qualified payroll of such 

10 taxpayer for calendar year 2010 shall 

11 be decreased by the amount of wages 

12 for such calendar year as were attrib13 utable to the trade or business which 

14 was disposed of by the taxpayer, and 

15 ‘‘(II) if the disposition occurs 

16 after the beginning of the first taxable 

17 year following the election year, the 

18 qualified payroll of such taxpayer for 

19 the calendar year which begins with 

20 or within such taxable year shall be 

21 decreased by the amount of wages for 

22 such calendar year as were attrib23 utable to the trade or business which 

24 was disposed of by the taxpayer. 


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1 ‘‘(C) SPECIAL RULE.—For purposes of de2 termining qualified payroll for any calendar 

3 year after calendar year 2011, such term shall 

4 not include wages paid to any individual if such 

5 individual received compensation from the tax6 payer for services performed— 

7 ‘‘(i) after the date of the enactment of 

8 this paragraph, and 

9 ‘‘(ii) at a time when such individual 

10 was not an employee of the taxpayer.’’. 

11 (3) REDUCTION FOR FAILURE TO MAINTAIN

12 EMPLOYMENT LEVELS.—Paragraph (4) of section 

13 965(b) of such Code (relating to limitations) is 

14 amended to read as follows: 

15 ‘‘(4) REDUCTION IN BENEFITS FOR FAILURE

16 TO MAINTAIN EMPLOYMENT LEVELS.— 

17 ‘‘(A) IN GENERAL.—If, during the period 

18 consisting of the calendar month in which the 

19 taxpayer first receives a distribution described 

20 in subsection (a)(1) and the succeeding 23 cal21 endar months, the taxpayer does not maintain 

22 an average employment level at least equal to 

23 the taxpayer’s prior average employment, an 

24 additional amount equal to $75,000 multiplied 

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1 payer’s average employment level during such 

2 period falls below the prior average employment 

3 (but not exceeding the aggregate amount al4 lowed as a deduction pursuant to subsection 

5 (a)(1)) shall be taken into income by the tax6 payer during the taxable year that includes the 

7 final day of such period. 

8 ‘‘(B) AVERAGE EMPLOYMENT LEVEL.— 

9 For purposes of this paragraph, the taxpayer’s 

10 average employment level for a period shall be 

11 the average number of full-time United States 

12 employees of the taxpayer, measured at the end 

13 of each month during the period. 

14 ‘‘(C) PRIOR AVERAGE EMPLOYMENT.—For 

15 purposes of this paragraph, the taxpayer’s 

16 ‘prior average employment’ shall be the average 

17 number of full-time United States employees of 

18 the taxpayer during the period consisting of the 

19 24 calendar months immediately preceding the 

20 calendar month in which the taxpayer first re21 ceives a distribution described in subsection 

22 (a)(1). 

23 ‘‘(D) FULL-TIME UNITED STATES EM24 PLOYEE.—For purposes of this paragraph— 


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1 ‘‘(i) IN GENERAL.—The term ‘full2 time United States employee’ means an in3 dividual who provides services in the 

4 United States as a full-time employee, 

5 based on the employer’s standards and 

6 practices; except that regardless of the em7 ployer’s classification of the employee, an 

8 employee whose normal schedule is 40 

9 hours or more per week is considered a 

10 full-time employee. 

11 ‘‘(ii) EXCEPTION FOR CHANGES IN

12 OWNERSHIP OF TRADES OR BUSINESSES.— 

13 Such term does not include— 

14 ‘‘(I) any individual who was an 

15 employee, on the date of acquisition, 

16 of any trade or business acquired by 

17 the taxpayer during the 24-month pe18 riod referred to in subparagraph (A), 

19 and 

20 ‘‘(II) any individual who was an 

21 employee of any trade or business dis22 posed of by the taxpayer during the 

23 24-month period referred to in sub24 paragraph (A) or the 24-month period 

25 referred to in subparagraph (C). 


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1 ‘‘(E) AGGREGATION RULES.—In deter2 mining the taxpayer’s average employment level 

3 and prior average employment, all domestic 

4 members of a controlled group shall be treated 

5 as a single taxpayer.’’. 

6 (d) EFFECTIVE DATE.—The amendments made by 

7 this section shall apply to taxable years ending after the 

8 date of the enactment of this Act. 

Æ 


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