II 

117TH CONGRESS 

1ST SESSION S. 2485 

To amend the Internal Revenue Code of 1986 to provide a credit for economic 

activity in possessions of the United States. 

IN THE SENATE OF THE UNITED STATES 

JULY 27, 2021 

Mr. MENENDEZ 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 

a credit for economic activity in possessions of the United 

States. 

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 ‘‘Territory Economic 

5 Development Tax Credit Act’’. 

6 SEC. 2. CREDIT FOR ECONOMIC ACTIVITY IN POSSESSIONS 

7 OF THE UNITED STATES. 

8 (a) IN GENERAL.—Subpart B of part IV of sub9 chapter A of chapter 1 of the Internal Revenue Code of 


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1 1986 is amended by adding at the end the following new 

2 section: 

3 ‘‘SEC. 30E. POSSESSION ECONOMIC ACTIVITY CREDIT. 

4 ‘‘(a) ALLOWANCE OF CREDIT.— 

5 ‘‘(1) IN GENERAL.—Except as otherwise pro6 vided in this section, in the case of a qualified do7 mestic corporation, there shall be allowed as a credit 

8 against the tax imposed by this chapter an amount 

9 equal to the amount determined under paragraph 

10 (2). 

11 ‘‘(2) DETERMINATION OF AMOUNT.—The 

12 amount determined under this paragraph is— 

13 ‘‘(A) in the case of a qualified domestic 

14 corporation described in subsection (b)(1)(A), 

15 the lesser of— 

16 ‘‘(i) the portion of the tax which is at17 tributable to the taxable income, from 

18 sources without the United States, from— 

19 ‘‘(I) the active conduct of a trade 

20 or business within a possession of the 

21 United States, or 

22 ‘‘(II) the sale or exchange of sub23 stantially all of the assets used by the 

24 taxpayer in the active conduct of such 

25 trade or business, or 


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1 ‘‘(ii) the wage and asset limitation 

2 with respect to such corporation, and 

3 ‘‘(B) in the case of a qualified domestic 

4 corporation described in subsection (b)(1)(B), 

5 the lesser of— 

6 ‘‘(i) the intangible low-taxed income 

7 tax amount, or 

8 ‘‘(ii) the sum of the qualified domestic 

9 corporation’s pro rata share (determined in 

10 a manner similar to the manner provided 

11 in section 951A(e)(1)) of the wage and 

12 asset limitations with respect to each for13 eign qualified corporation of which such 

14 qualified domestic corporation is a United 

15 States shareholder. 

16 ‘‘(b) QUALIFIED DOMESTIC CORPORATION; QUALI17 FIED CORPORATION.—For purposes of this section— 

18 ‘‘(1) IN GENERAL.—The term ‘qualified domes19 tic corporation’ means any domestic corporation 

20 which is— 

21 ‘‘(A) a qualified corporation, or 

22 ‘‘(B) a United States shareholder of a for23 eign corporation which— 

24 ‘‘(i) is a qualified corporation, and 


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1 ‘‘(ii) is wholly owned by corporations 

2 which are members of the same affiliated 

3 group as such United States shareholder. 

4 ‘‘(2) QUALIFIED CORPORATION.—The term 

5 ‘qualified corporation’ means any corporation if such 

6 corporation meets the following requirements: 

7 ‘‘(A) SOURCE QUALIFICATION.—80 percent 

8 or more of the gross income of the corporation 

9 for the 3-year period immediately preceding the 

10 close of the taxable year (or for such part of 

11 such period immediately preceding the close of 

12 such taxable year as may be applicable) was de13 rived from sources within a possession of the 

14 United States (determined without regard to 

15 section 904(f)). 

16 ‘‘(B) TRADE OR BUSINESS QUALIFICA17 TION.—75 percent or more of the gross income 

18 of the corporation for such period or such part 

19 thereof was derived from the active conduct of 

20 a trade or business within a possession of the 

21 United States. 

22 ‘‘(3) SPECIAL RULE FOR SEPARATE AND

23 CLEARLY IDENTIFIED UNITS OF FOREIGN CORPORA24 TIONS.— 


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1 ‘‘(A) IN GENERAL.—In the case of a 

2 United States shareholder of a foreign corpora3 tion which— 

4 ‘‘(i) is not a qualified corporation but 

5 with respect to which the ownership re6 quirements of paragraph (1)(B)(ii) are 

7 met, and 

8 ‘‘(ii) has an eligible foreign business 

9 unit which, if such unit were a corporation, 

10 would be a qualified corporation with re11 spect to which such ownership require12 ments would be met, 

13 then, for purposes of this section, the United 

14 States shareholder may elect to treat such unit 

15 as a separate foreign corporation which meets 

16 the requirements of paragraph (1)(B) and with 

17 respect to which such shareholder is a United 

18 States shareholder. 

19 ‘‘(B) ELIGIBLE FOREIGN BUSINESS

20 UNIT.—For purposes of this paragraph, the 

21 term ‘eligible foreign business unit’ means a 

22 separate and clearly identified foreign unit of a 

23 trade or business, including a partnership or an 

24 entity treated as disregarded as a separate enti25 ty from its owner (under section 7701 or other 


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1 provision under this title), which maintains sep2 arate books and records. 

3 ‘‘(C) SPECIAL ELECTION FOR AFFILIATED

4 GROUPS.—In the case of an affiliated group de5 scribed in paragraph (1)(B)(ii), the election 

6 under subparagraph (A) with respect to any eli7 gible foreign business unit shall be made by the 

8 common parent of such group and shall apply 

9 uniformly to all members of such group which 

10 are United States shareholders with respect to 

11 the foreign corporation which has such unit. 

12 ‘‘(c) WAGE AND ASSET LIMITATION.— 

13 ‘‘(1) IN GENERAL.—The wage and asset limita14 tion with respect to any qualified corporation for any 

15 taxable year is an amount equal to the sum of the 

16 following amounts: 

17 ‘‘(A) 40 percent of the sum of— 

18 ‘‘(i) the aggregate amount of the 

19 qualified corporation’s qualified possession 

20 wages for such taxable year, plus 

21 ‘‘(ii) the allocable employee fringe 

22 benefit expenses of the qualified corpora23 tion for such taxable year. 


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1 ‘‘(B) 25 percent of the depreciation allow2 ances for the taxable year with respect to quali3 fied tangible property. 

4 ‘‘(C) In the case of a qualified domestic 

5 corporation described in subsection (b)(1)(A), 

6 the amount of the possession income taxes for 

7 the taxable year attributable to income de8 scribed in subsection (a)(2)(A)(i). 

9 ‘‘(2) QUALIFIED POSSESSION WAGES.—For 

10 purposes of this section— 

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

12 possession wages’ means wages paid or incurred 

13 by the qualified corporation during the taxable 

14 year in connection with the active conduct of a 

15 trade or business within a possession of the 

16 United States to any employee for services per17 formed in such possession, but only if such 

18 services are performed while the principal place 

19 of employment of such employee is within such 

20 possession. 

21 ‘‘(B) LIMITATION ON AMOUNT OF WAGES

22 TAKEN INTO ACCOUNT.— 

23 ‘‘(i) IN GENERAL.—The amount of 

24 wages which may be taken into account 

25 under subparagraph (A) with respect to 


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1 any employee for any taxable year shall 

2 not exceed the contribution and benefit 

3 base determined under section 230 of the 

4 Social Security Act for the calendar year 

5 in which such taxable year begins. 

6 ‘‘(ii) TREATMENT OF PART-TIME EM7 PLOYEES, ETC.—If— 

8 ‘‘(I) any employee is not em9 ployed by the qualified corporation on 

10 a substantially full-time basis at all 

11 times during the taxable year, or 

12 ‘‘(II) the principal place of em13 ployment of any employee with the 

14 qualified corporation is not within a 

15 possession at all times during the tax16 able year, 

17 the limitation applicable under clause (i) 

18 with respect to such employee shall be the 

19 appropriate portion (as determined by the 

20 Secretary) of the limitation which would 

21 otherwise be in effect under clause (i). 

22 ‘‘(C) TREATMENT OF CERTAIN EMPLOY23 EES.—The term ‘qualified possession wages’ 

24 shall not include any wages paid to employees 

25 who are assigned by the employer to perform 


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1 services for another person, unless the principal 

2 trade or business of the employer is to make 

3 employees available for temporary periods to 

4 other persons in return for compensation. All 

5 qualified corporations treated as 1 corporation 

6 under subsection (f)(1) shall be treated as 1 

7 employer for purposes of the preceding sen8 tence. 

9 ‘‘(D) WAGES.— 

10 ‘‘(i) IN GENERAL.—Except as pro11 vided in clause (ii), the term ‘wages’ has 

12 the meaning given to such term by sub13 section (b) of section 3306 (determined 

14 without regard to any dollar limitation 

15 contained in such section). For purposes of 

16 the preceding sentence, such subsection (b) 

17 shall be applied as if the term ‘United 

18 States’ included all possessions of the 

19 United States. 

20 ‘‘(ii) SPECIAL RULE FOR AGRICUL21 TURAL LABOR AND RAILWAY LABOR.—In 

22 any case to which subparagraph (A) or (B) 

23 of paragraph (1) of section 51(h) applies, 

24 the term ‘wages’ has the meaning given to 

25 such term by section 51(h)(2). 


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1 ‘‘(3) ALLOCABLE EMPLOYEE FRINGE BENEFIT

2 EXPENSES.— 

3 ‘‘(A) IN GENERAL.—The allocable em4 ployee fringe benefit expenses of any qualified 

5 corporation for any taxable year is an amount 

6 which bears the same ratio to the amount de7 termined under subparagraph (B) for such tax8 able year as— 

9 ‘‘(i) the aggregate amount of the 

10 qualified corporation’s qualified possession 

11 wages for such taxable year, bears to 

12 ‘‘(ii) the aggregate amount of the 

13 wages paid or incurred by such qualified 

14 corporation during such taxable year. 

15 In no event shall the amount determined under 

16 the preceding sentence exceed 15 percent of the 

17 amount referred to in clause (i). 

18 ‘‘(B) EXPENSES TAKEN INTO ACCOUNT.— 

19 For purposes of subparagraph (A), the amount 

20 determined under this subparagraph for any 

21 taxable year is the aggregate amount allowable 

22 (or, in the case of a foreign corporation, which 

23 would be allowable if such foreign corporation 

24 were a domestic corporation) as a deduction 


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1 under this chapter to the qualified corporation 

2 for such taxable year with respect to— 

3 ‘‘(i) employer contributions under a 

4 stock bonus, pension, profit-sharing, or an5 nuity plan, 

6 ‘‘(ii) employer-provided coverage 

7 under any accident or health plan for em8 ployees, and 

9 ‘‘(iii) the cost of life or disability in10 surance provided to employees. 

11 Any amount treated as wages under paragraph 

12 (2)(D) shall not be taken into account under 

13 this subparagraph. 

14 ‘‘(4) DEPRECIATION RULES.—For purposes of 

15 this section— 

16 ‘‘(A) DEPRECIATION ALLOWANCES.—The 

17 term ‘depreciation allowances’ means the depre18 ciation deductions allowable (or, in the case of 

19 a foreign corporation, which would be allowable 

20 if such foreign corporation were a domestic cor21 poration) under section 167 to the qualified cor22 poration. 

23 ‘‘(B) QUALIFIED TANGIBLE PROPERTY.— 

24 The term ‘qualified tangible property’ means 

25 any tangible property— 


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1 ‘‘(i) which is used by the qualified cor2 poration in a possession of the United 

3 States in the active conduct of a trade or 

4 business within such possession, 

5 ‘‘(ii) to which section 168 applies, and 

6 ‘‘(iii) which is not 3-year property for 

7 purposes of such section. 

8 ‘‘(d) INTANGIBLE LOW-TAXED INCOME TAX

9 AMOUNT.—For purposes of this section— 

10 ‘‘(1) IN GENERAL.—The intangible low-taxed 

11 income tax amount is an amount equal to the lesser 

12 of— 

13 ‘‘(A) the eligible possession intangible low14 tax income tax amount, or 

15 ‘‘(B) the global intangible low-taxed in16 come tax amount. 

17 ‘‘(2) ELIGIBLE POSSESSION INTANGIBLE LOW18 TAXED INCOME TAX AMOUNT.— 

19 ‘‘(A) IN GENERAL.—The eligible possession 

20 intangible low-taxed income tax amount is an 

21 amount equal to the excess of— 

22 ‘‘(i) the product of— 

23 ‘‘(I) the rate in effect under sec24 tion 11 for the taxable year, and 


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1 ‘‘(II) the sum of the possession 

2 intangible low-taxed income amount 

3 for such taxable year and the amount 

4 which would be treated as a dividend 

5 under section 78 if only amounts at6 tributable to such possession intan7 gible low-tax income amount were 

8 taken into account under such section 

9 for such taxable year, reduced by the 

10 possession ILTI deduction for such 

11 taxable year, over 

12 ‘‘(ii) an amount equal to the amount 

13 described in section 960(d), determined— 

14 ‘‘(I) by substituting ‘possession 

15 intangible low-taxed income amount 

16 (as defined in section 30E(d)(2)(B))’ 

17 for ‘global intangible low-taxed income 

18 (as defined in section 951A(b))’ in 

19 paragraph (2)(A) thereof, and 

20 ‘‘(II) by only taking into account 

21 income from the active conduct of a 

22 trade or business and from sources 

23 (determined under rules similar to the 

24 rules of part I of chapter N) within 

25 possessions of the United States for 


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1 purposes of determining the amounts 

2 under paragraphs (2)(B) and (3) 

3 thereof. 

4 ‘‘(B) POSSESSION INTANGIBLE LOW-TAXED

5 INCOME AMOUNT.—The possession intangible 

6 low-taxed income amount is equal to the 

7 amount of global intangible low-taxed income 

8 (as defined in section 951A(b)) for the taxable 

9 year, determined— 

10 ‘‘(i) by only taking into account in11 come from the active conduct of a trade or 

12 business and from sources (determined 

13 under rules similar to the rules of part I 

14 of chapter N) within possessions of the 

15 United States for purposes of determining 

16 the tested income and tested loss, and 

17 ‘‘(ii) for purposes of determining the 

18 qualified business asset investment, by only 

19 taking into account specified tangible prop20 erty which is predominantly used— 

21 ‘‘(I) in the production of income 

22 described in clause (i), and 

23 ‘‘(II) in possessions of the United 

24 States. 


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1 ‘‘(C) POSSESSION ILTI DEDUCTION.—The 

2 possession ILTI deduction is 50 percent (37.5 

3 percent in the case of taxable years beginning 

4 after December 31, 2025) of— 

5 ‘‘(i) the possession intangible low6 taxed income amount (if any) for such tax7 able year, and 

8 ‘‘(ii) the amount which would be 

9 treated as a dividend under section 78 if 

10 only amounts attributable to the amount 

11 described in clause (i) were taken into ac12 count. 

13 Rules similar to the rules of section 250(a)(2) 

14 (applied by substituting ‘possession intangible 

15 low-taxed income amount (as defined in section 

16 30E(d)(2)(B))’ for ‘global intangible low-taxed 

17 income amount’ in subsection (a)(1)(B)(i) for 

18 purposes of determining the amount described 

19 and taken into account therein) shall apply for 

20 purposes of this subparagraph. 

21 ‘‘(3) GLOBAL INTANGIBLE LOW-TAXED INCOME

22 TAX AMOUNT.—For purposes of this subsection, the 

23 global intangible low-taxed income tax amount is an 

24 amount equal to the excess of— 

25 ‘‘(A) the product of— 


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1 ‘‘(i) the rate in effect under section 11 

2 for the taxable year, and 

3 ‘‘(ii) the sum of global intangible low4 taxed income amount determined under 

5 section 951A(b) for such taxable year and 

6 the amount which would be treated as a 

7 dividend under section 78 if only amounts 

8 attributable to such global intangible low9 taxed income amount were taken into ac10 count under such section for such taxable 

11 year, reduced by an amount equal to the 

12 amount determined under section 

13 250(a)(1)(B), over 

14 ‘‘(B) an amount equal to the amount de15 scribed in section 960(d) (determined after the 

16 application of section 904). 

17 ‘‘(e) POSSESSION.—The term ‘possession of the 

18 United States’ includes the Commonwealth of Puerto Rico 

19 and the Virgin Islands. 

20 ‘‘(f) CREDIT NOT ALLOWED AGAINST CERTAIN

21 TAXES.—The credit provided by subsection (a) shall not 

22 be allowed against the tax imposed by— 

23 ‘‘(1) section 531 (relating to the tax on accu24 mulated earnings), 


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1 ‘‘(2) section 541 (relating to personal holding 

2 company tax), or 

3 ‘‘(3) section 1351 (relating to recoveries of for4 eign expropriation losses). 

5 ‘‘(g) OTHER RULES.— 

6 ‘‘(1) DENIAL OF DOUBLE BENEFIT.— 

7 ‘‘(A) BRANCHES.—In the case of a quali8 fied domestic corporation described in sub9 section (b)(1)(A)— 

10 ‘‘(i) no credit or deduction shall be al11 lowed under this chapter for— 

12 ‘‘(I) the portion of the wages or 

13 salaries paid or incurred for the tax14 able year which is equal to the 

15 amount of wages taken into account 

16 in determining the wage and asset 

17 limitation under subsection (c)(1)(A), 

18 ‘‘(II) the portion of employee 

19 fringe benefit expenses for the taxable 

20 year which is equal to the amount of 

21 such expenses taken into account in 

22 determining the wage and asset limi23 tation under subsection (c)(1)(A), and 

24 ‘‘(III) the portion of depreciation 

25 allowances for the taxable year which 


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1 is equal to the amount of such allow2 ances taken into account under sub3 section (c)(1)(B), and 

4 ‘‘(ii) any tax of a foreign country or 

5 a possession of the United States which is 

6 paid or accrued with respect to taxable in7 come which is taken into account in com8 puting the credit under subsection 

9 (a)(2)(A) shall not be treated as income, 

10 war profits, or excess profits taxes paid or 

11 accrued to a foreign country or possession 

12 of the United States, and no deduction 

13 shall be allowed under this title with re14 spect to any amounts so paid or accrued. 

15 ‘‘(B) CONTROLLED FOREIGN CORPORA16 TIONS.—In the case of a qualified domestic cor17 poration described in subsection (b)(1)(B), for 

18 purposes of determining tested income or tested 

19 loss under section 951A— 

20 ‘‘(i) the deductions described in sec21 tion 951A(c)(2)(A)(ii) attributable to 

22 wages shall be reduced by the amounts de23 scribed in subparagraph (A)(i)(I), 

24 ‘‘(ii) the deductions described in sec25 tion 951A(c)(2)(A)(ii) attributable to emVerDate Sep 11 2014 15:43 Jul 30, 2021 Jkt 019200 PO 00000 Frm 00018 Fmt 6652 Sfmt 6201 E:\BILLS\S2485.IS S2485

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1 ployee fringe benefit expenses shall be re2 duced by the amounts described in sub3 paragraph (A)(i)(II), and 

4 ‘‘(iii) the deductions described in sec5 tion 951A(c)(2)(A)(ii) attributable to de6 preciation allowances shall be reduced by 

7 the amounts described in subparagraph 

8 (A)(i)(III). 

9 ‘‘(2) CARRYOVER OF CERTAIN UNUSED LIMITA10 TION.— 

11 ‘‘(A) BRANCHES.— 

12 ‘‘(i) IN GENERAL.—In the case of a 

13 qualified domestic corporation described in 

14 subsection (b)(1)(A), if the wage and asset 

15 limitation with respect to such corporation 

16 exceeds the amount described in subsection 

17 (a)(2)(A)(i), then such excess shall be a 

18 carryover to the first preceding taxable 

19 year and to any of the first 10 succeeding 

20 taxable years, in that order, and, subject to 

21 the limitations of clause (ii), shall be added 

22 to the wage and asset limitation for the 

23 taxable year to which it is carried. 

24 ‘‘(ii) LIMITATION.—The unused 

25 amount which may be taken into account 


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1 under clause (i) for any taxable year shall 

2 not exceed the amount (if any) by which 

3 the amount described in subsection 

4 (a)(2)(A)(i) for such taxable year exceeds 

5 the sum of— 

6 ‘‘(I) the wage and asset limita7 tion with respect to such corporation 

8 for such taxable year determined with9 out regard to this paragraph, and 

10 ‘‘(II) the amounts which, by rea11 son of this paragraph, are carried to 

12 such taxable year and are attributable 

13 to taxable years before the unused 

14 amount. 

15 ‘‘(B) CONTROLLED FOREIGN CORPORA16 TIONS.— 

17 ‘‘(i) IN GENERAL.—In the case of a 

18 qualified domestic corporation described in 

19 subsection (b)(1)(B), if the amount de20 scribed in subsection (a)(2)(B)(ii) for any 

21 taxable year exceeds the intangible low22 taxed income tax amount, then such excess 

23 shall be a carryover to the first preceding 

24 taxable year and to any of the first 10 suc25 ceeding taxable years, in that order, and, 


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1 subject to the limitations of clause (ii), 

2 shall be added to the amount described in 

3 subsection (a)(2)(B)(ii) for the taxable 

4 year to which it is carried. 

5 ‘‘(ii) LIMITATION.—The unused 

6 amount which may be taken into account 

7 under clause (i) for any taxable year shall 

8 not exceed the amount (if any) by which 

9 the intangible low-taxed income tax 

10 amount for such taxable year exceeds the 

11 sum of— 

12 ‘‘(I) the amount described in sub13 section (a)(2)(B)(ii) for such taxable 

14 year determined without regard to 

15 this paragraph, and 

16 ‘‘(II) the amounts which, by rea17 son of this paragraph, are carried to 

18 such taxable year and are attributable 

19 to taxable years before the unused 

20 amount. 

21 ‘‘(3) SEPARATE APPLICATION TO EACH POSSES22 SION.—For purposes of determining the amount of 

23 the credit allowed under this section, this section 

24 shall be applied separately with respect to each pos25 session.’’. 


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1 (b) CONFORMING AMENDMENTS.— 

2 (1) Section 904(b) of the Internal Revenue 

3 Code of 1986 is amended by redesignating para4 graph (4) as paragraph (5) and by inserting after 

5 paragraph (3) the following new paragraph: 

6 ‘‘(4) COORDINATION WITH SECTION 30E.—For 

7 purposes of subsection (a), in the case of a qualified 

8 domestic corporation described in section 

9 30E(b)(1)(A), the taxable income shall not include 

10 any portion thereof taken into account for purposes 

11 of the credit (if any) allowed by section 30E (with12 out regard to subsection (c) thereof).’’. 

13 (2) Section 904(f)(1) of such Code is amended 

14 by inserting ‘‘and section 30E’’ after ‘‘For purposes 

15 of this subpart’’. 

16 (3) Section 904(g)(1) of such Code is amended 

17 by striking ‘‘section 936’’ and inserting ‘‘section 

18 30E’’. 

19 (4) The table of sections for subpart B of part 

20 IV of subchapter A of chapter 1 of such Code is 

21 amended by adding at the end the following: 

‘‘Sec. 30E. Possession economic activity credit.’’. 

22 (c) TREATMENT OF CREDIT UNDER BEAT.—Section 

23 59A(b)(1)(B)(ii) of the Internal Revenue Code of 1986 is 

24 amended by redesignating subclause (II) as subclause 


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1 (III) and by inserting after subclause (I) the following new 

2 subclause: 

3 ‘‘(II) the credit allowed under 

4 section 30E, plus’’. 

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

6 this section shall apply to taxable years beginning after 

7 the date of the enactment of this Act. 

Æ 


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