II 

109TH CONGRESS 

1ST SESSION S. 196 

To amend the Internal Revenue Code of 1986 to provide for the taxation 

of income of controlled foreign corporations attributable to imported property. 

IN THE SENATE OF THE UNITED STATES 

JANUARY 26, 2005 

Mr. DORGAN (for himself, Ms. MIKULSKI, Mr. FEINGOLD, Mr. KOHL, Mr. 

HARKIN, Mr. KENNEDY, Mr. LEAHY, Mr. LEVIN, and Mr. JOHNSON) 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 provide 

for the taxation of income of controlled foreign corporations attributable to imported property. 

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

3 SECTION 1. TAXATION OF INCOME OF CONTROLLED FOR4 EIGN CORPORATIONS ATTRIBUTABLE TO IM5 PORTED PROPERTY. 

6 (a) GENERAL RULE.—Subsection (a) of section 954 

7 of the Internal Revenue Code of 1986 (defining foreign 

8 base company income) is amended by striking ‘‘and’’ at 

9 the end of paragraph (4), by striking the period at the 
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1 end of paragraph (5) and inserting ‘‘, and’’, and by adding 

2 at the end the following new paragraph: 

3 ‘‘(6) imported property income for the taxable 

4 year (determined under subsection (j) and reduced 

5 as provided in subsection (b)(5)).’’. 

6 (b) DEFINITION OF IMPORTED PROPERTY IN7 COME.—Section 954 of the Internal Revenue Code of 1986 

8 is amended by adding at the end the following new sub9 section: 

10 ‘‘(j) IMPORTED PROPERTY INCOME.— 

11 ‘‘(1) IN GENERAL.—For purposes of subsection 

12 (a)(6), the term ‘imported property income’ means 

13 income (whether in the form of profits, commissions, 

14 fees, or otherwise) derived in connection with— 

15 ‘‘(A) manufacturing, producing, growing, 

16 or extracting imported property; 

17 ‘‘(B) the sale, exchange, or other disposi18 tion of imported property; or 

19 ‘‘(C) the lease, rental, or licensing of im20 ported property. 

21 Such term shall not include any foreign oil and gas 

22 extraction income (within the meaning of section 

23 907(c)) or any foreign oil related income (within the 

24 meaning of section 907(c)). 
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1 ‘‘(2) IMPORTED PROPERTY.—For purposes of 

2 this subsection— 

3 ‘‘(A) IN GENERAL.—Except as otherwise 

4 provided in this paragraph, the term ‘imported 

5 property’ means property which is imported 

6 into the United States by the controlled foreign 

7 corporation or a related person. 

8 ‘‘(B) IMPORTED PROPERTY INCLUDES CER9 TAIN PROPERTY IMPORTED BY UNRELATED

10 PERSONS.—The term ‘imported property’ in11 cludes any property imported into the United 

12 States by an unrelated person if, when such 

13 property was sold to the unrelated person by 

14 the controlled foreign corporation (or a related 

15 person), it was reasonable to expect that— 

16 ‘‘(i) such property would be imported 

17 into the United States; or 

18 ‘‘(ii) such property would be used as 

19 a component in other property which would 

20 be imported into the United States. 

21 ‘‘(C) EXCEPTION FOR PROPERTY SUBSE22 QUENTLY EXPORTED.—The term ‘imported 

23 property’ does not include any property which is 

24 imported into the United States and which— 
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1 ‘‘(i) before substantial use in the 

2 United States, is sold, leased, or rented by 

3 the controlled foreign corporation or a re4 lated person for direct use, consumption, 

5 or disposition outside the United States; or 

6 ‘‘(ii) is used by the controlled foreign 

7 corporation or a related person as a com8 ponent in other property which is so sold, 

9 leased, or rented. 

10 ‘‘(3) DEFINITIONS AND SPECIAL RULES.— 

11 ‘‘(A) IMPORT.—For purposes of this sub12 section, the term ‘import’ means entering, or 

13 withdrawal from warehouse, for consumption or 

14 use. Such term includes any grant of the right 

15 to use intangible property (as defined in section 

16 936(h)(3)(B)) in the United States. 

17 ‘‘(B) UNITED STATES.—For purposes of 

18 this subsection, the term ‘United States’ in19 cludes the Commonwealth of Puerto Rico, the 

20 Virgin Islands of the United States, Guam, 

21 American Samoa, and the Commonwealth of 

22 the Northern Mariana Islands. 

23 ‘‘(C) UNRELATED PERSON.—For purposes 

24 of this subsection, the term ‘unrelated person’ 

25 means any person who is not a related person 
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1 with respect to the controlled foreign corpora2 tion. 

3 ‘‘(D) COORDINATION WITH FOREIGN BASE

4 COMPANY SALES INCOME.—For purposes of this 

5 section, the term ‘foreign base company sales 

6 income’ shall not include any imported property 

7 income.’’. 

8 (c) SEPARATE APPLICATION OF LIMITATIONS ON

9 FOREIGN TAX CREDIT FOR IMPORTED PROPERTY IN10 COME.— 

11 (1) BEFORE 2007.— 

12 (A) IN GENERAL.—Paragraph (1) of sec13 tion 904(d) of the Internal Revenue Code of 

14 1986 (relating to separate application of section 

15 with respect to certain categories of income), as 

16 in effect for taxable years beginning before Jan17 uary 1, 2007, is amended by striking ‘‘and’’ at 

18 the end of subparagraph (H), by redesignating 

19 subparagraph (I) as subparagraph (J), and by 

20 inserting after subparagraph (H) the following 

21 new subparagraph: 

22 ‘‘(I) imported property income, and’’. 

23 (B) IMPORTED PROPERTY INCOME DE24 FINED.—Paragraph (2) of section 904(d) of 

25 such Code, as so in effect, is amended by redes-
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1 ignating subparagraphs (H) and (I) as subpara2 graphs (I) and (J), respectively, and by insert3 ing after subparagraph (G) the following new 

4 subparagraph: 

5 ‘‘(H) IMPORTED PROPERTY INCOME.—The 

6 term ‘imported property income’ means any in7 come received or accrued by any person which 

8 is of a kind which would be imported property 

9 income (as defined in section 954(j)).’’. 

10 (C) LOOK-THRU RULES TO APPLY.—Sub11 paragraph (F) of section 904(d)(3) of such 

12 Code, as so in effect, is amended by striking 

13 ‘‘or (D)’’ and inserting ‘‘(D), or (I)’’. 

14 (2) AFTER 2006.— 

15 (A) IN GENERAL.—Paragraph (1) of sec16 tion 904(d) of such Code (relating to separate 

17 application of section with respect to certain 

18 categories of income), as in effect for taxable 

19 years beginning after December 31, 2006, is 

20 amended by striking ‘‘and’’ at the end of sub21 paragraph (A), by redesignating subparagraph 

22 (B) as subparagraph (C), and by inserting after 

23 subparagraph (A) the following new subpara24 graph: 

25 ‘‘(B) imported property income, and’’. 
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1 (B) IMPORTED PROPERTY INCOME DE2 FINED.—Paragraph (2) of section 904(d) of 

3 such Code, as so in effect, is amended by redes4 ignating subparagraphs (I) and (J) as subpara5 graphs (J) and (K), respectively, and by insert6 ing after subparagraph (H) the following new 

7 subparagraph: 

8 ‘‘(I) IMPORTED PROPERTY INCOME.—The 

9 term ‘imported property income’ means any in10 come received or accrued by any person which 

11 is of a kind which would be imported property 

12 income (as defined in section 954(j)).’’. 

13 (C) CONFORMING AMENDMENT.—Clause 

14 (ii) of section 904(d)(2)(A) of such Code, as so 

15 in effect, is amended by inserting ‘‘or imported 

16 property income’’ after ‘‘passive category in17 come’’. 

18 (d) TECHNICAL AMENDMENTS.— 

19 (1) Clause (iii) of section 952(c)(1)(B) of the 

20 Internal Revenue Code of 1986 (relating to certain 

21 prior year deficits may be taken into account) is 

22 amended— 

23 (A) by redesignating subclauses (II), (III), 

24 (IV), and (V) as subclauses (III), (IV), (V), and 

25 (VI), and 
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1 (B) by inserting after subclause (I) the fol2 lowing new subclause: 

3 ‘‘(II) imported property in4 come,’’. 

5 (2) Paragraph (5) of section 954(b) of such 

6 Code (relating to deductions to be taken into ac7 count) is amended by striking ‘‘and the foreign base 

8 company oil related income’’ and inserting ‘‘the for9 eign base company oil related income, and the im10 ported property income’’. 

11 (e) EFFECTIVE DATES.— 

12 (1) IN GENERAL.—Except as provided in para13 graph (2), the amendments made by this section 

14 shall apply to taxable years of foreign corporations 

15 beginning after the date of the enactment of this 

16 Act, and to taxable years of United States share17 holders within which or with which such taxable 

18 years of such foreign corporations end. 

19 (2) SUBSECTION (c).—The amendments made 

20 by subsection (c)(1) shall apply to taxable years be21 ginning after the date of the enactment of this Act 

22 and before January 1, 2007, and the amendments 

23 made by subsection (c)(2) shall apply to taxable 

24 years beginning after December 31, 2006. 

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