II

104TH CONGRESS

2D SESSION S. 1597

To amend the Internal Revenue Code of 1986 to discourage American businesses from moving jobs overseas and to encourage the creation of

new jobs in the United States, and for other purposes.

IN THE SENATE OF THE UNITED STATES

MARCH 7 (legislative day, MARCH 6), 1996

Mr. DORGAN 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 discourage

American businesses from moving jobs overseas and to

encourage the creation of new jobs in the United States,

and for other purposes.

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; AMENDMENT OF 1986 CODE.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘American Jobs Act of 1996’’.

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment
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1 to, or repeal of, a section or other provision, the reference

2 shall be considered to be made to a section or other provi3 sion of the Internal Revenue Code of 1986.

4 SEC. 2. TAXATION OF INCOME OF CONTROLLED FOREIGN

5 CORPORATIONS ATTRIBUTABLE TO IM6 PORTED PROPERTY.

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

8 (defining foreign base company income) is amended by

9 striking ‘‘and’’ at the end of paragraph (4), by striking

10 the period at the end of paragraph (5) and inserting

11 ‘‘, and’’, and by adding at the end the following new para12 graph:

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

14 year (determined under subsection (h) and reduced

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

16 (b) DEFINITION OF IMPORTED PROPERTY IN17 COME.—Section 954 is amended by adding at the end the

18 following new subsection:

19 ‘‘(h) IMPORTED PROPERTY INCOME.—

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

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

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

23 fees, or otherwise) derived in connection with—

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

25 or extracting imported property,
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1 ‘‘(B) the sale, exchange, or other disposi2 tion of imported property, or

3 ‘‘(C) the lease, rental, or licensing of im4 ported property.

5 Such term shall not include any foreign oil and gas

6 extraction income (within the meaning of section

7 907(c)) or any foreign oil related income (within the

8 meaning of section 907(c)).

9 ‘‘(2) IMPORTED PROPERTY.—For purposes of

10 this subsection—

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

12 provided in this paragraph, the term ‘imported

13 property’ means property which is imported

14 into the United States by the controlled foreign

15 corporation or a related person.

16 ‘‘(B) IMPORTED PROPERTY INCLUDES CER17 TAIN PROPERTY IMPORTED BY UNRELATED

18 PERSONS.—The term ‘imported property’ in19 cludes any property imported into the United

20 States by an unrelated person if, when such

21 property was sold to the unrelated person by

22 the controlled foreign corporation (or a related

23 person), it was reasonable to expect that—

24 ‘‘(i) such property would be imported

25 into the United States, or
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1 ‘‘(ii) such property would be used as

2 a component in other property which would

3 be imported into the United States.

4 ‘‘(C) EXCEPTION FOR PROPERTY SUBSE5 QUENTLY EXPORTED.—The term ‘imported

6 property’ does not include any property which is

7 imported into the United States and which—

8 ‘‘(i) before substantial use in the

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

10 the controlled foreign corporation or a re11 lated person for direct use, consumption,

12 or disposition outside the United States, or

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

14 corporation or a related person as a com15 ponent in other property which is so sold,

16 leased, or rented.

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

18 ‘‘(A) IMPORT.—For purposes of this sub19 section, the term ‘import’ means entering, or

20 withdrawal from warehouse, for consumption or

21 use. Such term includes any grant of the right

22 to use an intangible (as defined in section

23 936(b)(3)(B)) in the United States.

24 ‘‘(B) UNRELATED PERSON.—For purposes

25 of this subsection, the term ‘unrelated person’
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1 means any person who is not a related person

2 with respect to the controlled foreign corpora3 tion.

4 ‘‘(C) COORDINATION WITH FOREIGN BASE

5 COMPANY SALES INCOME.—For purposes of this

6 section, the term ‘foreign base company sales

7 income’ shall not include any imported property

8 income.’’

9 (c) SEPARATE APPLICATION OF LIMITATIONS ON

10 FOREIGN TAX CREDIT FOR IMPORTED PROPERTY IN11 COME.—

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

13 904(d) (relating to separate application of section

14 with respect to certain categories of income) is

15 amended by striking ‘‘and’’ at the end of subpara16 graph (H), by redesignating subparagraph (I) as

17 subparagraph (J), and by inserting after subpara18 graph (H) the following new subparagraph:

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

20 (2) IMPORTED PROPERTY INCOME DEFINED.—

21 Paragraph (2) of section 904(d) is amended by re22 designating subparagraphs (H) and (I) as subpara23 graphs (I) and (J), respectively, and by inserting

24 after subparagraph (G) the following new subpara25 graph:
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1 ‘‘(H) IMPORTED PROPERTY INCOME.—The

2 term ‘imported property income’ means any in3 come received or accrued by any person which

4 is of a kind which would be imported property

5 income (as defined in section 954(h)).’’

6 (3) LOOK-THRU RULES TO APPLY.—Subpara7 graph (F) of section 904(d)(3) is amended by strik8 ing ‘‘or (E)’’ and inserting ‘‘(E), or (H)’’.

9 (d) TECHNICAL AMENDMENTS.—

10 (1) Clause (iii) of section 952(c)(1)(B) (relating

11 to certain prior year deficits may be taken into ac12 count) is amended by inserting the following

13 subclause after subclause (II) (and by redesignating

14 the following subclauses accordingly):

15 ‘‘(III) imported property income,’’.

16 (2) Paragraph (5) of section 954(b) (relating to

17 deductions to be taken into account) is amended by

18 striking ‘‘and the foreign base company oil related

19 income’’ and inserting ‘‘the foreign base company oil

20 related income, and the imported property income’’.

21 (e) EFFECTIVE DATE.—

22 (1) IN GENERAL.—Except as provided in para23 graph (2), the amendments made by this section

24 shall apply to taxable years of foreign corporations

25 beginning after December 31, 1995, and to taxable
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1 years of United States shareholders within which or

2 with which such taxable years of such foreign cor3 porations end.

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

5 by subsection (c) shall apply to taxable years begin6 ning after December 31, 1995.

7 SEC. 3. REFUNDABLE CREDIT FOR NEW EMPLOYEES.

8 (a) IN GENERAL.—Subpart C of part IV of sub9 chapter A of chapter 1 (relating to refundable credits) is

10 amended by redesignating section 35 as section 36 and

11 by inserting after section 34 the following new section:

12 ‘‘SEC. 35. CREDIT FOR NEW EMPLOYEES.

13 ‘‘(a) ALLOWANCE OF CREDIT.—There shall be al14 lowed as a credit against the tax imposed by this subtitle

15 for any taxable year an amount equal to 20 percent of

16 the qualified social security taxes paid or incurred by the

17 taxpayer during the taxable year.

18 ‘‘(b) QUALIFIED SOCIAL SECURITY TAXES.—For

19 purposes of this section—

20 ‘‘(1) IN GENERAL.—The term ‘qualified social

21 security taxes’ means the amount of taxes imposed

22 by section 3111(a) with respect to wages of an em23 ployee for employment during the 2-year period be24 ginning with the day the employee begins work for

25 the employer.
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1 ‘‘(2) APPLICATION TO RAILROAD RETIRE2 MENT.—Such term shall also include taxes imposed

3 by section 3221(a) with respect to compensation

4 during such 2-year period but only to the extent at5 tributable to the rate of tax in effect under section

6 3111(a).

7 ‘‘(3) EXCEPTION FOR EMPLOYMENT OUTSIDE

8 THE UNITED STATES.—Such term shall not include

9 taxes paid with respect to employment described in

10 section 3121(b)(B) (relating to employment outside

11 the United States by citizens and residents).

12 ‘‘(c) CERTAIN EMPLOYEES INELIGIBLE.—

13 ‘‘(1) OVERALL EMPLOYMENT MUST IN14 CREASE.—

15 ‘‘(A) IN GENERAL.—An employer may take

16 into account for purposes of this section only

17 that number of employees hired by the employer

18 during a taxable year which does not exceed the

19 number of employees determined under sub20 paragraph (B). The employer shall designate

21 which employees shall be taken into account.

22 Such designation shall apply for such taxable

23 year and any succeeding taxable year.

24 ‘‘(B) MAXIMUM NUMBER OF EMPLOY25 EES.—For purposes of subparagraph (A), the
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1 number of employees determined under this

2 subparagraph for a taxable year is an amount

3 equal to the excess (if any) of—

4 ‘‘(i) the average daily number of full5 time equivalent employees of the taxpayer

6 for such taxable year, over

7 ‘‘(ii) the average daily number of full8 time equivalent employees of the taxpayer

9 (or any predecessor) for the 3-taxable year

10 period immediately preceding such taxable

11 year.

12 ‘‘(2) OTHER INELIGIBLE EMPLOYEES.—Quali13 fied social security taxes paid with respect to any

14 employee shall not be taken into account under sub15 section (a) if such employee—

16 ‘‘(A) is a member of a targeted group with

17 respect to whom the employer has taken into

18 account wages in determining the amount of

19 the targeted jobs credit under section 51,

20 ‘‘(B) is described in paragraph (1) of sec21 tion 51(i) (relating to related individuals), or

22 ‘‘(C) is employed by the employer for less

23 than 120 days or has not completed at least

24 120 hours of service.
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1 ‘‘(d) OTHER SPECIAL RULES.—For purposes of this

2 section—

3 ‘‘(1) CONTROLLED GROUPS.—All employers

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

5 (b) of section 52 shall be treated as a single em6 ployer.

7 ‘‘(2) OTHER RULES.—Rules similar to the rules

8 of section 51(k) and subsections (c), (d), and (e) of

9 section 52 shall apply.’’

10 (b) CONFORMING AMENDMENTS.—The table of sec11 tions for subpart C of part IV of subchapter A of chapter

12 1 is amended by striking the item relating to section 35

13 and inserting the following new items:

‘‘Sec. 35. Credit for new employees.

‘‘Sec. 36. Overpayments of tax.’’

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

15 this section shall apply to taxable years beginning after

16 December 31, 1995.

17 SEC. 4. REPORT ON ELIMINATION OF BUSINESS TAX PREF18 ERENCES.

19 The Secretary of the Treasury shall, as soon as prac20 ticable after the date of the enactment of this Act, report

21 to the Committee on Ways and Means of the House of

22 Representatives and the Committee on Finance of the

23 Senate recommendations as to the elimination of, or

24 changes in, business tax preferences. Such recommenda-
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1 tions shall provide an increase in Federal revenues suffi2 cient to offset any overall decrease in Federal revenues

3 under the other provisions of this Act.

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