I

103D CONGRESS

1ST SESSION H. R. 3610

To amend the Internal Revenue Code of 1986 to provide that distributions

from a controlled foreign corporation to a United States shareholder

shall be excluded from gross income if at least a portion of the distribution is invested in certain property located in the United States and

in the employment of new employees in the United States.

IN THE HOUSE OF REPRESENTATIVES

NOVEMBER 21, 1993

Ms. SLAUGHTER 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 provide

that distributions from a controlled foreign corporation

to a United States shareholder shall be excluded from

gross income if at least a portion of the distribution

is invested in certain property located in the United

States and in the employment of new employees in the

United States.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. EXCLUSION FROM GROSS INCOME FOR DIS2 TRIBUTIONS FROM CONTROLLED FOREIGN

3 CORPORATIONS WHICH ARE INVESTED IN

4 CERTAIN PROPERTY LOCATED IN THE UNIT5 ED STATES OR USED TO HIRE NEW EMPLOY6 EES IN THE UNITED STATES.

7 (a) IN GENERAL.—Part III of subchapter B of chap8 ter 1 of the Internal Revenue Code of 1986 (relating to

9 items specifically excluded from gross income) is amended

10 by redesignating section 137 as section 138 and by insert11 ing after section 136 the following new section:

12 ‘‘SEC. 137. DISTRIBUTIONS FROM CONTROLLED FOREIGN

13 CORPORATIONS WHICH ARE INVESTED IN

14 CERTAIN UNITED STATES PROPERTY OR

15 WHICH ARE USED TO HIRE NEW EMPLOYEES

16 IN THE UNITED STATES.

17 ‘‘(a) EXCLUSION.—The gross income of a United

18 States shareholder of a controlled foreign corporation shall

19 not include the amount of any qualified distribution re20 ceived during the taxable year by such shareholder from

21 such corporation.

22 ‘‘(b) REINVESTMENT REQUIREMENTS.—

23 ‘‘(1) IN GENERAL.—If, as of the close of the re24 investment period with respect to any distribution,

25 the taxpayer fails to meet—
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1 ‘‘(A) the investment in property require2 ment of subsection (c), or

3 ‘‘(B) the job creation requirement of sub4 section (d),

5 then the taxpayer’s tax imposed by this chapter for

6 the taxable year in which such reinvestment period

7 ends shall be increased by an amount equal to the

8 recapture amount with respect to such distribution.

9 ‘‘(2) RECAPTURE AMOUNT.—For purposes of

10 paragraph (1), the term ‘recapture amount’ means

11 an amount equal to the sum of—

12 ‘‘(A) the shortfall percentage of the reduc13 tion in the taxpayer’s liability for tax under this

14 chapter which resulted from excluding such dis15 tribution from gross income under subsection

16 (a), plus

17 ‘‘(B) the aggregate amount of interest (de18 termined in the manner provided in subsection

19 (e)(4)) on the amount determined under sub20 paragraph (A).

21 ‘‘(3) SHORTFALL PERCENTAGE.—For purposes

22 of paragraph (2), the term ‘shortfall percentage’

23 means the greater of—

24 ‘‘(A) the investment in property shortfall

25 percentage, or
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1 ‘‘(B) the job creation shortfall percentage.

2 ‘‘(4) INVESTMENT IN PROPERTY SHORTFALL

3 PERCENTAGE.—For purposes of paragraph (3), the

4 term ‘investment in property shortfall percentage’

5 means the percentage which—

6 ‘‘(A) the excess (if any) of—

7 ‘‘(i) an amount equal to 50 percent of

8 the distribution involved, over

9 ‘‘(ii) the amount of qualified invest10 ment made during the reinvestment period

11 which allocable to such distribution, bears

12 to

13 ‘‘(B) the amount described in subpara14 graph (A)(i).

15 ‘‘(5) JOB CREATION SHORTFALL PERCENT16 AGE.—For purposes of paragraph (3), the term ‘job

17 creation shortfall percentage’ means the percentage

18 which—

19 ‘‘(A) the excess (if any) of—

20 ‘‘(i) an amount equal to 12.5 percent

21 of the distribution involved, over

22 ‘‘(ii) the amount of new employee

23 wages paid during the last taxable year of

24 the reinvestment period allocable to such

25 distribution, bears to
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1 ‘‘(B) the amount described in subpara2 graph (A)(i).

3 ‘‘(c) INVESTMENT IN PROPERTY REQUIREMENT.—

4 For purposes of this section—

5 ‘‘(1) REQUIREMENT.—A taxpayer meets the in6 vestment in property requirement of this subsection

7 if the qualified investment of the taxpayer during

8 the reinvestment period (to the extent not taken into

9 account under this paragraph with respect to any

10 prior distribution) is not less than 50 percent of the

11 amount of the distribution.

12 ‘‘(2) QUALIFIED INVESTMENT.—The term

13 ‘qualified investment’ means the sum of—

14 ‘‘(A) the aggregate bases of new qualified

15 property placed in service by the taxpayer, and

16 ‘‘(B) the aggregate cost of used qualified

17 property placed in service by the taxpayer.

18 Rules similar to the rules of subsections (b) and (c)

19 of section 48 (as in effect on the day before the date

20 of the enactment of the Revenue Reconciliation Act

21 of 1990) shall apply for purposes of this paragraph.

22 ‘‘(3) QUALIFIED PROPERTY.—For purposes of

23 paragraph (2), the term ‘qualified property’

24 means—
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1 ‘‘(A) section 38 property (as defined by

2 section 48(a) as in effect on the day before the

3 date of the enactment of the Omnibus Budget

4 Reconciliation Act of 1990), and

5 ‘‘(B) real property (not described in sub6 paragraph (A)) used as an integral part of

7 manufacturing facility (as defined in section

8 144(a)(12)(C)).

9 The term ‘qualified property’ shall not include any

10 property if the taxpayer is the lessor of the property.

11 ‘‘(4) RECAPTURE IF PROPERTY DISPOSED OF,

12 ETC.—

13 ‘‘(A) IN GENERAL.—If any qualified prop14 erty is disposed of, or otherwise ceases to be

15 qualified property with respect to the taxpayer,

16 before the close of the recapture period, then

17 the taxpayer’s tax imposed by this chapter for

18 the taxable year in which such disposition or

19 cessation occurs shall be increased by the sum

20 of—

21 ‘‘(i) the recapture percentage of such

22 property’s share of the tax benefit under

23 this section, plus

24 ‘‘(ii) the aggregate amount of interest

25 (determined in the manner provided in
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1 subsection (e)(4)) on the amount deter2 mined under subparagraph (A).

3 ‘‘(B) DEFINITIONS.—For purposes of this

4 paragraph—

5 ‘‘(i) RECAPTURE PERIOD.—The term

6 ‘recapture period’ means, with respect to

7 any property, the period consisting of the

8 first full year after the property is placed

9 in service and—

10 ‘‘(I) the 2 succeeding full years

11 in the case of 3-year property (within

12 the meaning of section 168),

13 ‘‘(II) the 4 succeeding full years

14 in the case of section 38 property

15 other than 3-year property, and

16 ‘‘(III) the 9 succeeding full years

17 in the case of property referred to in

18 paragraph (2)(B).

19 ‘‘(ii) RECAPTURE PERCENTAGE.—The

20 term ‘recapture percentage’ means the per21 centage determined under section

22 50(a)(1)(B); except that—

23 ‘‘(I) in the case of 3-year prop24 erty, the percentage set forth in

25 clause (ii) of the table contained in
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1 paragraph (1)(B) shall be 66 percent,

2 the percentage set forth in clause (iii)

3 of such table shall be 33 percent, and

4 clauses (iv) and (v) of such table shall

5 not apply, and

6 ‘‘(II) in the case of property re7 ferred to in paragraph (2)(B), the

8 percentage shall be 100 percent for

9 the first full year of the recapture pe10 riod and, for each full year thereafter,

11 shall be 10 percentage points less

12 than the recapture percentage for the

13 prior year.

14 ‘‘(C) PROPERTY’S SHARE OF TAX BENE15 FIT.—A property’s share of the tax benefit

16 under this section shall be—

17 ‘‘(i) an amount which bears the same

18 ratio to the reduction in the taxpayer’s li19 ability for tax under this chapter which re20 sulted from excluding the distribution in21 volved from gross income under subsection

22 (a), as

23 ‘‘(ii) the unadjusted basis of such

24 property bears to the aggregate unadjusted

25 bases of all qualified property placed in
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1 service during the reinvestment period with

2 respect to such distribution.

3 ‘‘(d) JOB CREATION REQUIREMENT.—For purposes

4 of this section—

5 ‘‘(1) REQUIREMENT.—A taxpayer meets the job

6 creation requirement of this subsection if the new

7 employee wages paid by the taxpayer during the last

8 taxable year of the reinvestment period (to the ex9 tent not taken into account under this paragraph

10 with respect to any prior distribution) is not less

11 than 12.5 percent of the amount of the distribution.

12 ‘‘(2) NEW EMPLOYEE WAGES.—The term ‘new

13 employee wages’ means, with respect to any distribu14 tion, wages paid to employees—

15 ‘‘(A) who are first hired after the date of

16 such distribution, and

17 ‘‘(B) whose employment represents an in18 crease in the aggregate number of employees of

19 the taxpayer in the United States.

20 ‘‘(3) WAGES.—The term ‘wages’ has the same

21 meaning as when used in section 51.

22 ‘‘(4) INCREASED EMPLOYMENT MUST BE MAIN23 TAINED FOR 4 YEARS.—

24 ‘‘(A) IN GENERAL.—If for any taxable year

25 in the employment maintenance period (here-
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1 after in this paragraph referred to as the ‘rede2 termination year’) the new employee wages with

3 respect to any distribution are less than the

4 new employee wages for the last taxable year of

5 the reinvestment period with respect to such

6 distribution, the taxpayer’s tax imposed by this

7 chapter for the redetermination year shall be

8 increased by an amount equal to the adjusted

9 recapture amount with respect to such distribu10 tion.

11 ‘‘(B) ADJUSTED RECAPTURE AMOUNT.—

12 For purposes of subparagraph (A), the term

13 ‘adjusted recapture amount’ means an amount

14 equal to the sum of—

15 ‘‘(A) the excess (if any) of—

16 ‘‘(i) the job creation shortfall percent17 age of the reduction in the taxpayer’s li18 ability for tax under this chapter which re19 sulted from excluding such distribution

20 from gross income under subsection (a)

21 (determined for the redetermination year),

22 over

23 ‘‘(ii) the amount determined under

24 subsection (b)(2)(A) (increased by any
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1 prior increase in tax under this paragraph

2 with respect to such distribution), plus

3 ‘‘(B) the aggregate amount of interest (de4 termined in the manner provided in subsection

5 (e)(4)) on the excess determined under subpara6 graph (A).

7 ‘‘(C) EMPLOYMENT MAINTENANCE PE8 RIOD.—For purposes of this paragraph, the

9 term ‘employment maintenance period’ means

10 any period of 4 consecutive taxable years se11 lected by the taxpayer so long as at least 1 of

12 such taxable years is during the reinvestment

13 period.

14 ‘‘(e) OTHER DEFINITIONS AND SPECIAL RULES.—

15 For purposes of this section—

16 ‘‘(1) QUALIFIED DISTRIBUTION.—The term

17 ‘qualified distribution’ means any distribution to the

18 extent that the amount thereof reduces the amount

19 includible in gross income under section 956A (relat20 ing to earnings invested in excess passive assets).

21 ‘‘(2) REINVESTMENT PERIOD.—The term ‘rein22 vestment period’ means, with respect to any dis23 tribution received during a taxable year, such tax24 able year and the 4 succeeding taxable years.
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1 ‘‘(3) UNITED STATES SHAREHOLDER; CON2 TROLLED FOREIGN CORPORATION.—The terms

3 ‘United States shareholder’ and ‘controlled foreign

4 corporation’ have the respective meanings given such

5 terms by sections 951 and 957.

6 ‘‘(4) RULES RELATING TO DETERMINATION OF

7 INTEREST.—

8 ‘‘(A) IN GENERAL.—The amount of inter9 est referred to in subsections (b)(2), (c)(4), and

10 (d)(3) for any taxable year shall be determined

11 for the period—

12 ‘‘(i) beginning on the due date for

13 taxable year during which the distribution

14 involved was made, and

15 ‘‘(ii) ending on the due date for the

16 taxable year for which the increase in tax

17 is being determined,

18 by using the rates and method applicable under

19 section 6621 for underpayment of tax for such

20 period.

21 ‘‘(B) DUE DATE.—For purposes of sub22 paragraph (A), the term ‘due date’ means the

23 date prescribed by law (determined without re24 gard to extensions) for filing the return of the
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1 tax imposed by this chapter for the taxable

2 year.

3 ‘‘(C) TREATMENT OF INCREASE IN TAX

4 ATTRIBUTABLE TO INTEREST AS INTEREST.—

5 Any increase in tax imposed by this chapter for

6 a taxable year by reason of this section to the

7 extent attributable to an amount referred to in

8 subsection (b)(2)(B), (c)(4)(A)(ii), or (d)(3)(B)

9 shall be treated as interest paid under section

10 6601 on the due date for such taxable year.

11 ‘‘(5) CONTROLLED GROUPS.—All taxpayers

12 treated as a single employer under subsection (a) or

13 (b) of section 52 shall be treated as a single

14 taxpayer.

15 ‘‘(f) BASIS ADJUSTMENT.—

16 ‘‘(1) IN GENERAL.—For purposes of this sub17 title, the basis of any qualified property placed in

18 service during any taxable year for which an amount

19 was excluded from gross income under this section

20 shall be reduced by an amount equal to such prop21 erty’s share of such exclusion (determined under

22 subsection (c)(3)).

23 ‘‘(2) CERTAIN DISPOSITIONS.—If there is an in24 crease in tax by reason of this section for any tax25 able year, proper adjustments shall be made under
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1 regulations prescribed by the Secretary with respect

2 to any property the basis of which was reduced

3 under paragraph (1).’’

4 (b) TECHNICAL AMENDMENT.—Subsection (a) of

5 section 1016 of such Code is amended by striking ‘‘and’’

6 at the end of paragraph (24), by striking the period at

7 the end of paragraph (25) and inserting ‘‘, and’’, and by

8 adding at the end thereof the following new paragraph:

9 ‘‘(26) to the extent provided in section 137(f).’’

10 (c) CLERICAL AMENDMENT.—The table of sections

11 for part III of subchapter B of chapter 1 of such Code

12 is amended by striking the last item and inserting the

13 following new items:

‘‘Sec. 137. Distributions from controlled foreign corporations

which are invested in certain United States property or which are used to hire new employees in the

United States.

‘‘Sec. 138. Cross references to other Acts.’’

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

15 this section shall apply to distributions received after the

16 date of the enactment of this Act in taxable years ending

17 after such date.

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