I 

113TH CONGRESS 

2D SESSION H. R. 5857 

To eliminate the incentive for corporations to continue to hold accumulated 

earnings offshore, to invest in domestic infrastructure, to provide for 

international tax reform, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

DECEMBER 11, 2014 

Mr. DELANEY introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committee on Transportation and Infrastructure, for a period to be subsequently determined 

by the Speaker, in each case for consideration of such provisions as fall 

within the jurisdiction of the committee concerned 

A BILL 

To eliminate the incentive for corporations to continue to 

hold accumulated earnings offshore, to invest in domestic 

infrastructure, to provide for international tax reform, 

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; ETC. 

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

5 ‘‘Infrastructure and Global Tax Competitiveness Act of 

6 2014’’. 


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1 (b) AMENDMENT OF 1986 CODE.—Except as other2 wise expressly provided, whenever in this Act an amend3 ment or repeal is expressed in terms of an amendment 

4 to, or repeal of, a section or other provision, the reference 

5 shall be considered to be made to a section or other provi6 sion of the Internal Revenue Code of 1986. 

7 (c) TABLE OF CONTENTS.—The table of contents for 

8 this Act is as follows: 

Sec. 1. Short title; etc. 

TITLE I—DEEMED REPATRIATION AND INVESTMENT IN 

DOMESTIC INFRASTRUCTURE 

Sec. 101. Elimination of incentive for corporations to continue to hold accumulated earnings offshore. 

Sec. 102. American Infrastructure Fund. 

Sec. 103. Dedication of remaining revenues to highway trust fund. 

Sec. 104. Highway Trust Fund Solvency Commission. 

TITLE II—DEADLINE FOR INTERNATIONAL TAX REFORM 

Sec. 201. 18-month deadline for international tax reform. 

TITLE III—FALLBACK INTERNATIONAL TAX REFORM 

Sec. 300. General effective date of title. 

Subtitle A—Reform of Taxation of Income Earned by Controlled Foreign 

Corporations 

PART I—GENERAL PROVISIONS

Sec. 301. Modifications to subpart F income. 

PART II—FOREIGN TAX CREDIT LIMITATIONS

Sec. 311. Reform of foreign tax credit limitation. 

Sec. 312. Denial of credit and deduction for foreign taxes with respect to excluded subpart F income. 

PART III—EXPENSE DISALLOWANCE

Sec. 321. Disallowance of deduction for expenses allocable to exempt income of 

a controlled foreign corporation. 

PART IV—OTHER PROVISIONS RELATING TO SUBPART F 

SUBPART A—PREVIOUSLY DEFERRED FOREIGN INCOME


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Sec. 331. Treatment of previously deferred foreign income. 

SUBPART B—OTHER PROVISIONS

Sec. 336. Elimination of 30-day requirement. 

Sec. 337. Modification of definition of United States shareholder. 

Subtitle B—Reform of Foreign Tax Credit Provisions 

Sec. 341. Repeal of section 902 indirect foreign tax credits; foreign tax credit 

related to subpart F income. 

Sec. 342. Repeal of rule suspending foreign taxes and credits until related income is taken into account. 

1 TITLE I—DEEMED REPATRI2 ATION AND INVESTMENT IN 

3 DOMESTIC INFRASTRUCTURE 

4 SEC. 101. ELIMINATION OF INCENTIVE FOR CORPORATIONS 

5 TO CONTINUE TO HOLD ACCUMULATED 

6 EARNINGS OFFSHORE. 

7 (a) IN GENERAL.—Section 965 is amended to read 

8 as follows: 

9 ‘‘SEC. 965. ELIMINATION OF INCENTIVE TO HOLD ACCUMU10 LATED EARNINGS AND PROFITS OFFSHORE. 

11 ‘‘(a) TREATMENT OF DEFERRED FOREIGN INCOME

12 AS SUBPART F INCOME.—In the case of the last taxable 

13 year of a deferred foreign income corporation which begins 

14 before January 1, 2015, the subpart F income of such 

15 foreign corporation (as otherwise determined for such tax16 able year under section 952) shall be increased by the ac17 cumulated post-1986 deferred foreign income of such cor18 poration determined as of the close of such taxable year. 

19 ‘‘(b) REDUCTION IN AMOUNTS INCLUDED IN GROSS

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1 FIED FOREIGN CORPORATIONS WITH DEFICITS IN EARN2 INGS AND PROFITS.— 

3 ‘‘(1) IN GENERAL.—In the case of a taxpayer 

4 which is a United States shareholder with respect to 

5 at least one deferred foreign income corporation and 

6 at least one E&P deficit foreign corporation, the 

7 amount which would (but for this subsection) be 

8 taken into account under section 951(a)(1) by rea9 son of subsection (a) as such United States share10 holder’s pro rata share of the subpart F income of 

11 each deferred foreign income corporation shall be re12 duced (but not below zero) by the amount of such 

13 United States shareholder’s aggregate foreign E&P 

14 deficit which is allocated under paragraph (2) to 

15 such deferred foreign income corporation. 

16 ‘‘(2) ALLOCATION OF AGGREGATE FOREIGN E&P

17 DEFICIT.—The aggregate foreign E&P deficit of any 

18 United States shareholder shall be allocated among 

19 the deferred foreign income corporations of such 

20 United States shareholder in an amount which bears 

21 the same proportion to such aggregate as— 

22 ‘‘(A) such United States shareholder’s pro 

23 rata share of the accumulated post-1986 de24 ferred foreign income of each such deferred for25 eign income corporation, bears to 


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1 ‘‘(B) the aggregate of such United States 

2 shareholder’s pro rata share of the accumulated 

3 post-1986 deferred foreign income of all de4 ferred foreign income corporations of such 

5 United States shareholder. 

6 ‘‘(3) DEFINITIONS RELATED TO E&P DEFI7 CITS.—For purposes of this subsection— 

8 ‘‘(A) AGGREGATE FOREIGN E&P DEF9 ICIT.—The term ‘aggregate foreign E&P deficit’ 

10 means, with respect to any United States share11 holder, the aggregate of such shareholder’s pro 

12 rata shares of the specified E&P deficits of the 

13 E&P deficit foreign corporations of such share14 holder. 

15 ‘‘(B) E&P DEFICIT FOREIGN CORPORA16 TION.—The term ‘E&P deficit foreign corpora17 tion’ means, with respect to any taxpayer, any 

18 specified foreign corporation with respect to 

19 which such taxpayer is a United States share20 holder, if— 

21 ‘‘(i) such specified foreign corporation 

22 has a deficit in post-1986 earnings and 

23 profits, and 


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1 ‘‘(ii) as of the date of the introduction 

2 of Infrastructure and Global Tax Competi3 tiveness Act of 2014— 

4 ‘‘(I) such corporation was a spec5 ified foreign corporation, and 

6 ‘‘(II) such taxpayer was a United 

7 States shareholder of such corpora8 tion. 

9 ‘‘(C) SPECIFIED E&P DEFICIT.—The term 

10 ‘specified E&P deficit’ means, with respect to 

11 any E&P deficit foreign corporation, the 

12 amount of the deficit referred to in subpara13 graph (B). 

14 ‘‘(c) DEDUCTION FOR PORTION OF INCLUDED IN15 COME.—In the case of a United States shareholder of a 

16 deferred foreign income corporation, there shall be allowed 

17 as a deduction for the taxable year in which an amount 

18 is included in the gross income of such United States 

19 shareholder under section 951(a)(1) by reason of this sec20 tion an amount equal to 75 percent of the amount so in21 cluded in gross income. 

22 ‘‘(d) DEFERRED FOREIGN INCOME CORPORATION; 

23 ACCUMULATED POST-1986 DEFERRED FOREIGN IN24 COME.—For purposes of this section— 


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1 ‘‘(1) DEFERRED FOREIGN INCOME CORPORA2 TION.—The term ‘deferred foreign income corpora3 tion’ means, with respect to any United States 

4 shareholder, any specified foreign corporation of 

5 such United States shareholder which has accumu6 lated post-1986 deferred foreign income (as of the 

7 close of the taxable year referred to in subsection 

8 (a)) greater than zero. 

9 ‘‘(2) ACCUMULATED POST-1986 DEFERRED FOR10 EIGN INCOME.—The term ‘accumulated post-1986 

11 deferred foreign income’ means the post-1986 earn12 ings and profits except to the extent such earnings— 

13 ‘‘(A) are attributable to income of the 

14 specified foreign corporation which is effectively 

15 connected with the conduct of a trade or busi16 ness within the United States and subject to 

17 tax under this chapter, 

18 ‘‘(B) if distributed, would— 

19 ‘‘(i) in the case of a controlled foreign 

20 corporation, be excluded from the gross in21 come of a United States shareholder under 

22 section 959, or 

23 ‘‘(ii) in the case of any passive foreign 

24 investment company (as defined in section 

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1 poration, be treated as a distribution which 

2 is not a dividend, or 

3 ‘‘(C) in the case of any passive foreign in4 vestment company (as so defined), is properly 

5 attributable to an unreversed inclusion of a 

6 United States person under section 1296. 

7 To the extent provided in regulations or other guid8 ance prescribed by the Secretary, in the case of any 

9 controlled foreign corporation which has share10 holders which are not United States shareholders, 

11 accumulated post-1986 deferred foreign income shall 

12 be appropriately reduced by amounts which would be 

13 described in subparagraph (B)(i) if such share14 holders were United States shareholders. Such regu15 lations or other guidance may provide a similar rule 

16 for purposes of subparagraph (B)(ii) and (C). 

17 ‘‘(3) POST-1986 EARNINGS AND PROFITS.—The 

18 term ‘post-1986 earnings and profits’ means the 

19 earnings and profits of the foreign corporation (com20 puted in accordance with sections 964(a) and 986) 

21 accumulated in taxable years beginning after Decem22 ber 31, 1986, and determined— 

23 ‘‘(A) as of the close the taxable year re24 ferred to in subsection (a), and 


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1 ‘‘(B) without diminution by reason of divi2 dends distributed during such taxable year. 

3 ‘‘(e) SPECIFIED FOREIGN CORPORATION.— 

4 ‘‘(1) IN GENERAL.—For purposes of this sec5 tion, the term ‘specified foreign corporation’ 

6 means— 

7 ‘‘(A) any controlled foreign corporation, 

8 and 

9 ‘‘(B) any section 902 corporation (as de10 fined in section 909(d)(5)). 

11 ‘‘(2) APPLICATION TO SECTION 902 CORPORA12 TIONS.—For purposes of section 951, a section 902 

13 corporation (as so defined) shall be treated as a con14 trolled foreign corporation solely for purposes of tak15 ing into account the subpart F income of such cor16 poration under subsection (a) (and for purposes of 

17 applying subsection (f)). 

18 ‘‘(f) DETERMINATIONS OF PRO RATA SHARE.—For 

19 purposes of this section, the determination of any United 

20 States shareholder’s pro rata share of any amount with 

21 respect to any specified foreign corporation shall be deter22 mined under rules similar to the rules of section 951(a)(2) 

23 by treating such amount in the same manner as subpart 

24 F income (and by treating such specified foreign corpora25 tion as a controlled foreign corporation). 


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1 ‘‘(g) DISALLOWANCE OF FOREIGN TAX CREDIT, 

2 ETC.— 

3 ‘‘(1) IN GENERAL.—No credit shall be allowed 

4 under section 901 for the applicable percentage of 

5 any taxes paid or accrued (or treated as paid or ac6 crued) with respect to any amount for which a de7 duction is allowed under this section. 

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

9 of this subsection, the term ‘applicable percentage’ 

10 means the percentage specified in subsection (c). 

11 ‘‘(3) DENIAL OF DEDUCTION.—No deduction 

12 shall be allowed under this chapter for any tax for 

13 which credit is not allowable under section 901 by 

14 reason of paragraph (1) (determined by treating the 

15 taxpayer as having elected the benefits of subpart A 

16 of part III of subchapter N). 

17 ‘‘(4) COORDINATION WITH SECTION 78.—Sec18 tion 78 shall not apply to any tax for which credit 

19 is not allowable under section 901 by reason of para20 graph (1). 

21 ‘‘(h) ELECTION TO PAY LIABILITY IN INSTALL22 MENTS.— 

23 ‘‘(1) IN GENERAL.—In the case of a United 

24 States shareholder of a deferred foreign income cor25 poration, such United States shareholder may elect 


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1 to pay the net tax liability under this section in 8 

2 installments of the following amounts: 

3 ‘‘(A) 8 percent of the net tax liability in 

4 the case of each of the first 5 of such install5 ments, 

6 ‘‘(B) 15 percent of the net tax liability in 

7 the case of the 6th such installment, 

8 ‘‘(C) 20 percent of the net tax liability in 

9 the case of the 7th such installment, and 

10 ‘‘(D) 25 percent of the net tax liability in 

11 the case of the 8th such installment. 

12 ‘‘(2) DATE FOR PAYMENT OF INSTALLMENTS.— 

13 If an election is made under paragraph (1), the first 

14 installment shall be paid on the due date (deter15 mined without regard to any extension of time for 

16 filing the return) for the return of tax for the tax17 able year described in subsection (b) and each suc18 ceeding installment shall be paid on the due date (as 

19 so determined) for the return of tax for the taxable 

20 year following the taxable year with respect to which 

21 the preceding installment was made. 

22 ‘‘(3) ACCELERATION OF PAYMENT.—If there is 

23 an addition to tax for failure to pay timely assessed 

24 with respect to any installment required under this 

25 subsection, a liquidation or sale of substantially all 


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1 the assets of the taxpayer (including in a title 11 or 

2 similar case), a cessation of business by the tax3 payer, or any similar circumstance, then the unpaid 

4 portion of all remaining installments shall be due on 

5 the date of such event (or in the case of a title 11 

6 or similar case, the day before the petition is filed). 

7 The preceding sentence shall not apply to the sale 

8 of substantially all the assets of a taxpayer to a 

9 buyer if such buyer enters into an agreement with 

10 the Secretary under which such buyer is liable for 

11 the remaining installments due under this subsection 

12 in the same manner as if such buyer were the tax13 payer. 

14 ‘‘(4) PRORATION OF DEFICIENCY TO INSTALL15 MENTS.—If an election is made under paragraph (1) 

16 to pay the net tax liability under this section in in17 stallments and a deficiency has been assessed with 

18 respect to such net tax liability, the deficiency shall 

19 be prorated to the installments payable under para20 graph (1). The part of the deficiency so prorated to 

21 any installment the date for payment of which has 

22 not arrived shall be collected at the same time as, 

23 and as a part of, such installment. The part of the 

24 deficiency so prorated to any installment the date 

25 for payment of which has arrived shall be paid upon 


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1 notice and demand from the Secretary. This sub2 section shall not apply if the deficiency is due to 

3 negligence, to intentional disregard of rules and reg4 ulations, or to fraud with intent to evade tax. 

5 ‘‘(5) ELECTION.—Any election under paragraph 

6 (1) shall be made not later than the due date for the 

7 return of tax for the taxable year described in sub8 section (a) and shall be made in such manner as the 

9 Secretary may provide. 

10 ‘‘(6) NET TAX LIABILITY UNDER THIS SEC11 TION.—For purposes of this subsection— 

12 ‘‘(A) IN GENERAL.—The net tax liability 

13 under this section with respect to any United 

14 States shareholder is the excess (if any) of— 

15 ‘‘(i) such taxpayer’s net income tax 

16 for the taxable year described in subsection 

17 (a), over 

18 ‘‘(ii) such taxpayer’s net income tax 

19 for such taxable year determined without 

20 regard to this section. 

21 ‘‘(B) NET INCOME TAX.—The term ‘net 

22 income tax’ means the regular tax liability re23 duced by the credits allowed under subparts A, 

24 B, and D of part IV of subchapter A. 


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1 ‘‘(i) INCLUSION OF DEFERRED FOREIGN INCOME

2 UNDER THIS SECTION NOT TO TRIGGER RECAPTURE OF

3 OVERALL FOREIGN LOSS.—For purposes of section 

4 904(f)(1), in the case of a United States shareholder of 

5 a deferred foreign income corporation, such United States 

6 shareholder’s taxable income from sources without the 

7 United States shall be determined without regard to this 

8 section. 

9 ‘‘(j) REGULATIONS.—The Secretary may prescribe 

10 such regulations or other guidance as may be necessary 

11 or appropriate to carry out the provisions of this section.’’. 

12 (b) CLERICAL AMENDMENT.—The table of sections 

13 for subpart F of part III of subchapter N of chapter 1 

14 of such Code is amended by striking the item relating to 

15 section 965 and inserting the following: 

‘‘Sec. 965. Elimination of incentive to hold accumulated earnings and profits 

offshore.’’. 

16 SEC. 102. AMERICAN INFRASTRUCTURE FUND. 

17 (a) AMERICAN INFRASTRUCTURE FUND.— 

18 (1) IN GENERAL.—There is established a wholly 

19 owned Government corporation— 

20 (A) which shall be called the American In21 frastructure Fund (referred to in this Act as 

22 the ‘‘AIF’’); 

23 (B) which shall be headed by the Board of 

24 Trustees established under subsection (b); 


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1 (C) which may have separate subaccounts 

2 or subsidiaries for funds used to make loans, 

3 bond guarantees, and equity investments under 

4 this section; 

5 (D) which shall be available to the AIF to 

6 pay for the costs of carrying out this section, 

7 including the compensation of the Board and 

8 other employees of the AIF; and 

9 (E) the funds of which may be invested by 

10 the Board in such manner as the Board deter11 mines appropriate. 

12 (2) DEPOSITS TO AIF.—All funds received from 

13 bond issuances, loan payments, bond guarantee fees, 

14 and any other funds received in carrying out this 

15 section shall be held by AIF. 

16 (3) LIMITATIONS.—The charter of the AIF 

17 shall limit its activities to those activities described 

18 as the mission of the Board under subsection (b)(2). 

19 (4) OVERSIGHT.—The AIF shall register with 

20 the Securities and Exchange Commission and the 

21 Chairman shall report to Congress annually as to 

22 whether the AIF is fulfilling the mission of the 

23 Board under subsection (b)(2). 

24 (5) TREATMENT OF AIF.— 


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1 (A) ACCOUNTS.—Title 31, United States 

2 Code, is amended in each of sections 9107(c)(3) 

3 and 9108(d)(2)— 

4 (i) by inserting ‘‘the American Infra5 structure Fund,’’ after ‘‘the Regional 

6 Banks for Cooperatives,’’; and 

7 (ii) by striking ‘‘those banks’’ and in8 serting ‘‘those entities’’. 

9 (B) BONDS.—Section 149(b)(3)(A)(i) is 

10 amended by inserting ‘‘American Infrastructure 

11 Fund,’’ after ‘‘Federal Home Loan Mortgage 

12 Corporation,’’. 

13 (b) BOARD OF TRUSTEES.— 

14 (1) IN GENERAL.—There is established a Board 

15 of Trustees of the AIF (referred to in this sub16 section as the ‘‘Board’’), which shall be composed of 

17 9 members who— 

18 (A) have substantial experience in bond 

19 guarantees or municipal credit; and 

20 (B) to the greatest extent practicable, have 

21 extensive experience working with municipal 

22 credit, risk management, and infrastructure fi23 nance. 

24 (2) MISSION.—The mission of the Board is— 


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1 (A) to operate the AIF and its subsidiaries 

2 to be a low cost provider of bond guarantees, 

3 loans, and equity investments to State and local 

4 governments and infrastructure providers for 

5 urban and rural infrastructure projects that— 

6 (i) provide a positive economic impact; 

7 and 

8 (ii) meet such other standards as the 

9 Board may develop; 

10 (B) to operate the AIF in a self-sustaining 

11 manner; 

12 (C) to not have a profit motive, but to seek 

13 at all times to pursue its mission of providing 

14 low cost bond guarantees and loans while— 

15 (i) covering its costs; 

16 (ii) maintaining such reserves as may 

17 be needed; and 

18 (iii) applying prudent underwriting 

19 standards; 

20 (D) to only consider projects put forth by 

21 State and local governments and not to seek 

22 projects directly; and 

23 (E) to engage in no other activities other 

24 than those permitted under this section. 

25 (3) MEMBERSHIP.— 


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1 (A) INITIAL MEMBERS.— 

2 (i) APPOINTMENT.—Not later than 

3 150 days after the date of the enactment 

4 of this Act, the President shall appoint, 

5 with the advice and consent of the Senate, 

6 as members of the Board— 

7 (I) 2 individuals from a list of at 

8 least 5 individuals selected by the 

9 Speaker of the House of Representa10 tives; 

11 (II) 2 individuals from a list of 

12 at least 5 individuals selected by the 

13 Minority Leader of the House of Rep14 resentatives; 

15 (III) 2 individuals from a list of 

16 at least 5 individuals selected by the 

17 Majority Leader of the Senate; 

18 (IV) 2 individuals from a list of 

19 at least 5 individuals selected by the 

20 Minority Leader of the Senate; and 

21 (V) 1 individual selected at will 

22 by the President. 

23 (ii) SUBMISSION OF LISTS.—Each of 

24 the lists described in clause (i) shall be 

25 submitted to the President not later than 


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1 90 days after the date of the enactment of 

2 this Act. If any of such lists are submitted 

3 after the date required under this clause, 

4 the President may appoint the 2 members 

5 of the Board who were to be selected from 

6 such list at will. 

7 (B) STAGGERED TERMS.—The members of 

8 the Board appointed pursuant to subparagraph 

9 (A)(i) shall serve staggered terms, with 2 each 

10 of the initial members of the Board serving for 

11 terms of 5, 6, 7, and 8 years, respectively, and 

12 the initial Chair selected under subparagraph 

13 (D) serving for 9 years. The decision of which 

14 Board members, other than the Chair, serve for 

15 which initial terms shall be made by the mem16 bers of the Board drawing lots. 

17 (C) ADDITIONAL MEMBERS.— 

18 (i) IN GENERAL.—Except as provided 

19 in subparagraph (A), if the term of a 

20 member of the Board expires or otherwise 

21 becomes vacant, the President shall ap22 point a replacement for such member, with 

23 the advice and consent of the Senate, from 

24 among a list of at least 5 individuals sub25 mitted by the Board. 


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1 (ii) TERM OF SERVICE.— 

2 (I) IN GENERAL.—Each member 

3 of the Board appointed to replace a 

4 member whose term is expiring shall 

5 serve for a 7-year term. 

6 (II) VACANCIES.—Any member 

7 of the Board appointed to fill a va8 cancy occurring before the expiration 

9 of the term to which that member’s 

10 predecessor was appointed shall be ap11 pointed only for the remainder of the 

12 term. 

13 (D) CHAIR.—The members of the Board 

14 shall choose 1 member to serve as the Chair of 

15 the Board for a term of 7 years, except that the 

16 initial Chair shall serve for a term of 9 years, 

17 pursuant to subsection (B). 

18 (E) CONTINUATION OF SERVICE.—Each 

19 member of the Board may continue to serve 

20 after the expiration of the term of office to 

21 which that member was appointed until a suc22 cessor has been appointed. 

23 (F) CONFLICTS OF INTEREST.—No mem24 ber of the Board may have a financial interest 

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1 ture Project (‘‘QIP’’) related to assistance pro2 vided under this section. Owning municipal 

3 credit of any State or local government or own4 ing the securities of a diversified company that 

5 engages in infrastructure activities, provided 

6 those activities constitute less than 20 percent 

7 of the company’s revenues, or investing in 

8 broadly held investment funds shall not be 

9 deemed to create a conflict of interest. The 

10 Board may issue regulations to define terms 

11 used under this subparagraph. 

12 (4) COMPENSATION.—The members of the 

13 Board shall be compensated at an amount to be set 

14 by the Board, but under no circumstances may such 

15 compensation be higher than the rate prescribed for 

16 level IV of the Executive Schedule under section 

17 5315 of title 5, United States Code. 

18 (5) STAFF.—The Board shall employ and set 

19 compensation for such staff as the Board determines 

20 as is necessary to carry out the activities and mis21 sion of the AIF, and such staff may be paid without 

22 regard to the provisions of chapter 51 and sub23 chapter III of chapter 53, United States Code, relat24 ing to classification and General Schedule pay rates. 


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1 (6) PROCEDURES.—The Board shall establish 

2 such procedures as are necessary to carry out this 

3 section. 

4 (7) CORPORATE GOVERNANCE STANDARDS.— 

5 (A) BOARD COMMITTEES GENERALLY.— 

6 The Board shall maintain all of the committees 

7 required to be maintained by the board of direc8 tors of an issuer listed on the New York Stock 

9 Exchange as of the date of the enactment of 

10 this section. 

11 (B) RISK MANAGEMENT COMMITTEE.—The 

12 Board shall maintain a risk management com13 mittee, which shall— 

14 (i) employ additional staff who are 

15 certified by the Board as having significant 

16 and relevant experience in insurance un17 derwriting and credit risk management; 

18 and 

19 (ii) establish the risk management 

20 policies used by the Board. 

21 (C) STANDARDS.—The Board shall, to the 

22 extent practicable, follow all standards with re23 spect to corporate governance that are required 

24 to be followed by the board of directors of an 


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1 issuer listed on the New York Stock Exchange 

2 as of the date of the enactment of this section. 

3 (8) BIENNIAL REPORTS.—Not less frequently 

4 than once every 2 years, the Board shall produce a 

5 report that describes, of the materials, goods, and 

6 products that were used to construct, or to support 

7 the construction of, qualified infrastructure projects 

8 (as described in subsection (c)) and received financ9 ing from the American Infrastructure Fund within 

10 the most recent 2 calendar years, the percentage of 

11 such materials, goods, and products that were cre12 ated, sourced, or manufactured in the United States. 

13 (c) INFRASTRUCTURE INVESTMENT.— 

14 (1) ENTITIES ELIGIBLE FOR ASSISTANCE.—The 

15 AIF may provide assistance to State and local gov16 ernment entities, nonprofit infrastructure providers, 

17 private parties, and public-private partnerships (re18 ferred to in this section as ‘‘eligible entities’’) to help 

19 finance qualified infrastructure projects (referred to 

20 in this subsection as ‘‘QIPs’’). 

21 (2) FORMS OF ASSISTANCE.—The AIF may— 

22 (A) provide bond guarantees to debt issued 

23 by eligible entities; 

24 (B) make loans, including subordinated 

25 loans, to eligible entities; and 


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1 (C) make equity investments in QIPs. 

2 (3) QUALIFIED INFRASTRUCTURE PROJECTS.— 

3 A project qualifies as a QIP under this section if— 

4 (A) the project is sponsored by a State or 

5 local government; 

6 (B) the infrastructure is, or will be, owned 

7 by a State or local government; 

8 (C) the project involves the construction, 

9 maintenance, improvement, or repair of a trans10 portation, energy, water, communications, or 

11 educational facility; 

12 (D) the recipient of bond guarantees, 

13 loans, equity investments, or any other innova14 tive financing technique authorized under this 

15 Act provides written assurances prescribed by 

16 the AIF that the project will be performed in 

17 compliance with the requirements of all Federal 

18 laws that would otherwise apply to similar 

19 projects to which the United States is a party; 

20 and 

21 (E) in the case of a public transportation 

22 capital project as defined in section 5302 of 

23 title 49, United States Code, the recipient of 

24 bond guarantees, loans, equity investments, or 

25 any other innovative financing technique auVerDate Sep 11 2014 01:13 Dec 20, 2014 Jkt 049200 PO 00000 Frm 00024 Fmt 6652 Sfmt 6201 E:\BILLS\H5857.IH H5857

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1 thorized under this Act complies with the grant 

2 requirements of section 5309 of such title. 

3 (4) APPLICATION FOR ASSISTANCE.— 

4 (A) IN GENERAL.—A State or local gov5 ernment that wishes to receive a loan or bond 

6 guarantee under this section shall submit an 

7 application to the Board in such form and man8 ner and containing such information as the 

9 Board may require. 

10 (B) REQUIREMENT FOR PUBLIC SPONSOR11 SHIP OF PRIVATE ENTITIES.—A private entity 

12 may only receive a bond guarantee, loan, or eq13 uity investment under this section if the State 

14 or local government for the jurisdiction in which 

15 the nonprofit infrastructure provider or private 

16 partner is located submits an application pursu17 ant to subparagraph (A) on behalf of such non18 profit infrastructure provider or private part19 ner. 

20 (5) LIMITATIONS ON SINGLE STATE AWARDS.— 

21 (A) ANNUAL LIMITATION.—The Board 

22 shall set an annual limit, as a percentage of 

23 total assistance provided under this section dur24 ing a year, on the amount of assistance a single 

25 State (including local governments and other 


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1 infrastructure providers within such State) may 

2 receive in assistance provided under this sec3 tion. 

4 (B) CUMULATIVE LIMITATION.—The 

5 Board shall set a limit, as a percentage of total 

6 assistance provided under this section out7 standing at any one time, on the amount of as8 sistance a single State (including local govern9 ments and other infrastructure providers within 

10 such State) may receive in assistance provided 

11 under this section. 

12 (6) LOAN SPECIFICATIONS.—Loans made under 

13 this section shall have such maturity and carry such 

14 interest rate as the Board determines appropriate. 

15 (7) BOND GUARANTEE.—The Board shall 

16 charge such fees for Bond guarantees made under 

17 this section as the Board determines appropriate. 

18 (8) EQUITY INVESTMENTS.—With respect to a 

19 QIP, the amount of an equity investment made by 

20 the AIF in such QIP may not exceed 20 percent of 

21 the total cost of the QIP. 

22 (9) PUBLIC-PRIVATE PARTNERSHIP REQUIRE23 MENTS.—At least 35 percent of the assistance pro24 vided under this section shall be provided to QIPs 


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1 for which at least 10 percent of the financing for 

2 such QIPs comes from private debt or equity. 

3 (10) PROHIBITION ON PRINCIPAL FORGIVE4 NESS.—With respect to a loan made under this sec5 tion, the Board may not forgive any amount of prin6 cipal on such loan. 

7 (d) DEFINITIONS.—For purposes of this section: 

8 (1) INFRASTRUCTURE PROVIDER.—The term 

9 ‘‘infrastructure provider’’ means an entity that seeks 

10 to finance a QIP. 

11 (2) SECRETARY.—The term ‘‘Secretary’’ means 

12 the Secretary of the Treasury. 

13 (3) STATE.—The term ‘‘State’’ means each of 

14 the several States, the District of Columbia, any ter15 ritory or possession of the United States, and each 

16 federally recognized Indian tribe. 

17 (e) APPROPRIATION.—Out of money in the Treasury 

18 not otherwise appropriated, there is hereby appropriated 

19 $50,000,000,000 to the American Infrastructure Fund. 

20 Amounts appropriated under this subsection shall remain 

21 available without fiscal year limitation. 


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1 SEC. 103. DEDICATION OF REMAINING REVENUES TO HIGH2 WAY TRUST FUND. 

3 (a) IN GENERAL.—Section 9503(f) is amended by re4 designating paragraph (5) as paragraph (6) and by insert5 ing after paragraph (4) the following new paragraph: 

6 ‘‘(5) APPROPRIATION OF REVENUES ATTRIB7 UTABLE TO SECTION 965.— 

8 ‘‘(A) INITIAL APPROPRIATION.—Out of 

9 money in the Treasury not otherwise appro10 priated, there is hereby appropriated 

11 $100,000,000,000 to the Highway Trust Fund. 

12 ‘‘(B) REMAINING REVENUES.— 

13 ‘‘(i) IN GENERAL.—Out of money in 

14 the Treasury not otherwise appropriated, 

15 there are hereby appropriated to the High16 way Trust Fund the excess of— 

17 ‘‘(I) amounts equivalent to the 

18 aggregate net tax liabilities under sec19 tion 965 (as defined in such section) 

20 received in the Treasury, over 

21 ‘‘(II) $150,000,000,000. 

22 ‘‘(ii) ADDITIONAL TRANSFERS ONLY

23 AFTER REVENUES EQUALING INITIAL

24 TRANSFERS HAVE BEEN RECEIVED IN THE

25 TREASURY.—For purposes of applying sec26 tion 9601 to clause (i), no transfer shall be 


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1 made under clause (i) until the Secretary 

2 estimates that the amount described in 

3 clause (i)(I) has exceeded the amount de4 scribed in clause (i)(II).’’. 

5 (b) TRANSFERS TO MASS TRANSIT ACCOUNT.—Sec6 tion 9503(e)(2) of such Code is amended by striking ‘‘the 

7 mass transit portion’’ and inserting ‘‘, 20 percent of the 

8 amounts appropriated to the Highway Trust Fund under 

9 subsection (f)(5), and the mass transit portion’’. 

10 SEC. 104. HIGHWAY TRUST FUND SOLVENCY COMMISSION. 

11 (a) ESTABLISHMENT.—There is established in the 

12 legislative branch a commission to be known as the ‘‘High13 way Trust Fund Solvency Commission’’ (in this section 

14 referred to as the ‘‘Commission’’). 

15 (b) DUTY OF THE COMMISSION.—Not later than 1 

16 year after the initial meeting of the Commission, the Com17 mission shall transmit to Congress a written report that 

18 includes recommendations and proposed legislation for 

19 achieving long-term solvency of the Highway Trust Fund. 

20 (c) MEMBERS.— 

21 (1) NUMBER AND APPOINTMENT.—The Com22 mission shall be composed of 9 members. Of the 

23 members of the Commission— 

24 (A) 1 member shall be appointed by the 

25 President of the United States; 


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1 (B) 1 member shall be appointed by the 

2 chairman of the Committee on Finance of the 

3 Senate; 

4 (C) 1 member shall be appointed by the 

5 ranking minority member of the Committee on 

6 Finance of the Senate; 

7 (D) 1 member shall be appointed by the 

8 chairman of the Committee on Ways and Means 

9 of the House of Representatives; 

10 (E) 1 member shall be appointed by the 

11 ranking minority member of the Committee on 

12 Ways and Means of the House of Representa13 tives; 

14 (F) 1 member shall be appointed by the 

15 chairman of the Committee on Environment 

16 and Public Works of the Senate; 

17 (G) 1 member shall be appointed by the 

18 ranking minority member of the Committee on 

19 Environment and Public Works of the Senate; 

20 (H) 1 member shall be appointed by the 

21 chairman of the Committee on Transportation 

22 and Infrastructure of the House of Representa23 tives; and 

24 (I) 1 member shall be appointed by the 

25 ranking minority member of the Committee on 


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1 Transportation and Infrastructure of the House 

2 of Representatives. 

3 (2) TIMING OF APPOINTMENTS.—Each of the 

4 appointments made under paragraph (1) shall be 

5 made not later than 45 days after the date of the 

6 enactment of this Act. 

7 (3) TERMS; VACANCIES.—Each member shall be 

8 appointed for the life of the Commission, and a va9 cancy in the Commission shall be filled in the man10 ner in which the original appointment was made. 

11 (4) COMPENSATION.— 

12 (A) IN GENERAL.—Members of the Com13 mission shall serve without pay. 

14 (B) TRAVEL EXPENSES.—Each member 

15 shall receive travel expenses, including per diem 

16 in lieu of subsistence, in accordance with appli17 cable provisions under subchapter I of chapter 

18 57 of title 5, United States Code. 

19 (d) OPERATION AND POWERS OF THE COMMIS20 SION.— 

21 (1) CHAIR.—The chairperson of the Commis22 sion shall be elected by the members of the Commis23 sion. 

24 (2) MEETINGS.—The Commission shall meet 

25 not later than 30 days after the members of the 


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1 Commission have been appointed, and at such times 

2 thereafter as the chairperson shall determine. 

3 (3) RULES OF PROCEDURE.—The chairperson 

4 shall, with the approval of a majority of the mem5 bers of the Commission, establish written rules of 

6 procedure for the Commission, which shall include a 

7 quorum requirement to conduct the business of the 

8 Commission. 

9 (4) HEARINGS.—The Commission may, for the 

10 purpose of carrying out this section, hold hearings, 

11 sit and act at times and places, take testimony, and 

12 receive evidence as the Commission considers appro13 priate. 

14 (5) OBTAINING OFFICIAL DATA.—The Commis15 sion may secure directly from any department or 

16 agency of the United States, including the Congres17 sional Budget Office and the Government Account18 ability Office, any information or technical assist19 ance necessary to enable it to carry out this section. 

20 Upon request of the chairperson of the Commission, 

21 the head of that department or agency shall furnish 

22 that information or technical assistance to the Com23 mission. 

24 (6) CONTRACT AUTHORITY.—The Commission 

25 may contract with and compensate government and 


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1 private agencies or persons for any purpose nec2 essary to enable it to carry out this section. 

3 (7) MAILS.—The Commission may use the 

4 United States mails in the same manner and under 

5 the same conditions as other departments and agen6 cies of the United States. 

7 (e) PERSONNEL.— 

8 (1) DIRECTOR.—The Commission shall have a 

9 Director who shall be appointed by the Commission. 

10 The Director shall be paid at a rate of pay equiva11 lent to the annual rate of basic pay for a comparable 

12 position paid under the Executive Schedule, subject 

13 to the approval of the chairperson of the Commis14 sion. 

15 (2) STAFF.—The Director may appoint and fix 

16 the pay of additional staff as the Director considers 

17 appropriate. 

18 (3) EXPERTS AND CONSULTANTS.—The Com19 mission may procure temporary and intermittent 

20 services under section 3109(b) of title 5, United 

21 States Code, but at rates for individuals not to ex22 ceed the daily equivalent of the annual rate of basic 

23 pay for a comparable position paid under the Execu24 tive Schedule. 


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1 (4) STAFF OF FEDERAL AGENCIES.—Upon re2 quest of the Commission, the head of any Federal 

3 department or agency may detail, without reim4 bursement, any of the personnel of that department 

5 or agency to the Commission to assist it in carrying 

6 out its duties under this section. 

7 (5) ADMINISTRATIVE SUPPORT SERVICES.— 

8 Upon the request of the Commission, the Adminis9 trator of General Services shall provide to the Com10 mission, on a reimbursable basis, the administrative 

11 support services necessary for the Commission to 

12 carry out its responsibilities under this section. 

13 (f) TERMINATION.—The Commission shall terminate 

14 not later than 60 days after the submission of the report 

15 described in subsection (b). 

16 (g) AUTHORIZATION OF APPROPRIATIONS.—There is 

17 authorized to be appropriated such sums as may be nec18 essary to carry out this section. 

19 TITLE II—DEADLINE FOR 

20 INTERNATIONAL TAX REFORM 

21 SEC. 201. 18-MONTH DEADLINE FOR INTERNATIONAL TAX 

22 REFORM. 

23 Notwithstanding any provision of title III, the provi24 sions of, and amendments made by, title III shall not take 

25 effect if a bill which reforms the corporate international 


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1 tax system by eliminating the incentive to hold earnings 

2 in low-tax foreign jurisdictions is enacted into law during 

3 the 18-month period which begins on the date of the en4 actment of this Act. 

5 TITLE III—FALLBACK 

6 INTERNATIONAL TAX REFORM 

7 SEC. 300. GENERAL EFFECTIVE DATE OF TITLE. 

8 For purposes of this title, the term ‘‘applicable date’’ 

9 means the date which is 18 months after the date of the 

10 enactment of this Act. 

11 Subtitle A—Reform of Taxation of 

12 Income Earned by Controlled 

13 Foreign Corporations 

14 PART I—GENERAL PROVISIONS 

15 SEC. 301. MODIFICATIONS TO SUBPART F INCOME. 

16 (a) IN GENERAL.—Subpart F of part III of sub17 chapter N of chapter 1 is amended by striking sections 

18 952 through 956 and inserting the following: 

19 ‘‘SEC. 952. SUBPART F INCOME DEFINED. 

20 ‘‘(a) IN GENERAL.—For purposes of this subpart, the 

21 term ‘subpart F income’ means, with respect to any con22 trolled foreign corporation, the sum of— 

23 ‘‘(1) the inclusion percentage of the corpora24 tion’s modified active income, plus 


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1 ‘‘(2) 100 percent of the corporation’s modified 

2 nonactive income. 

3 ‘‘(b) MODIFIED ACTIVE INCOME.— 

4 ‘‘(1) IN GENERAL.—The term ‘modified active 

5 income’ means, with respect to any controlled for6 eign corporation, the excess (if any) of— 

7 ‘‘(A) the corporation’s active foreign mar8 ket income, over 

9 ‘‘(B) the amount of the reduction under 

10 subsection (e) for deductions properly allocable 

11 to such income. 

12 ‘‘(2) REDUCTION FOR CERTAIN LOSSES.— 

13 ‘‘(A) IN GENERAL.—The modified active 

14 income determined under paragraph (1) for any 

15 taxable year shall be reduced (but not below 

16 zero)— 

17 ‘‘(i) first by any active foreign market 

18 loss for any prior taxable year, and 

19 ‘‘(ii) then by any qualified loss for 

20 such taxable year (or for any prior taxable 

21 year to the extent provided in subsection 

22 (c)(3)(B)). 

23 ‘‘(B) LIMITATION.—An active foreign mar24 ket loss or qualified loss for any prior taxable 


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1 year shall only be taken into account under sub2 paragraph (A)— 

3 ‘‘(i) if the prior taxable year is a tax4 able year which begins on or after the ap5 plicable date (as defined in section 300 of 

6 the Infrastructure and Global Tax Com7 petitiveness Act of 2014), and for which 

8 the controlled foreign corporation was a 

9 controlled foreign corporation, and 

10 ‘‘(ii) to the extent such loss has not 

11 been previously taken into account under 

12 this subsection. 

13 ‘‘(3) ACTIVE FOREIGN MARKET LOSS.—The 

14 term ‘active foreign market loss’ means, with respect 

15 to any taxable year, the amount by which the 

16 amount determined under paragraph (1)(B) exceeds 

17 the amount determined under paragraph (1)(A). 

18 ‘‘(c) MODIFIED NONACTIVE INCOME.— 

19 ‘‘(1) IN GENERAL.—The term ‘modified non20 active income’ means, with respect to any controlled 

21 foreign corporation, the excess (if any) of— 

22 ‘‘(A) the corporation’s gross income deter23 mined without regard to active foreign market 

24 income, over 


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1 ‘‘(B) the amount of the reduction under 

2 subsection (e) for deductions properly allocable 

3 to such gross income. 

4 ‘‘(2) REDUCTION FOR QUALIFIED LOSSES.— 

5 The amount determined under paragraph (1) for 

6 any taxable year shall be reduced (but not below 

7 zero) by any qualified loss for any prior taxable year 

8 beginning on or after the applicable date (as defined 

9 in section 300 of the Infrastructure and Global Tax 

10 Competitiveness Act of 2014), for which the con11 trolled foreign corporation was a controlled foreign 

12 corporation, but only to the extent such loss has not 

13 been previously taken into account under subsection 

14 (b)(2) or this subsection. 

15 ‘‘(3) QUALIFIED LOSS.—For purposes of this 

16 section— 

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

18 loss’ means, with respect to any taxable year, 

19 the amount by which the amount determined 

20 under paragraph (1)(B) exceeds the amount de21 termined under paragraph (1)(A). 

22 ‘‘(B) ORDERING RULE FOR LOSSES CAR23 RIED FROM PRIOR TAXABLE YEARS.—In the 

24 case of any qualified losses carried to a taxable 


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1 year from 1 or more prior taxable years, such 

2 losses shall be taken into account— 

3 ‘‘(i) first under paragraph (2), and 

4 ‘‘(ii) then under subsection (b)(2)(B) 

5 to the extent such losses exceed the 

6 amount determined under paragraph (1). 

7 ‘‘(d) INCLUSION PERCENTAGE.—For purposes of this 

8 section— 

9 ‘‘(1) IN GENERAL.—The term ‘inclusion per10 centage’ means 20 percent increased by the number 

11 of percentage points (if any) determined under para12 graph (2). 

13 ‘‘(2) ADDITIONAL INCLUSION FOR EARNINGS

14 NOT SUBJECT TO OECD AVERAGE FOREIGN TAX.— 

15 The number of percentage points determined under 

16 this paragraph with respect to any controlled foreign 

17 corporation for any taxable year, is the number of 

18 percentage points (not less than zero nor more than 

19 15) which bears the same ratio to 15 as— 

20 ‘‘(A) the number of percentage points by 

21 which 25 percent exceeds the aggregate foreign 

22 rate of tax imposed on the modified active in23 come of such controlled foreign corporation for 

24 such taxable year, bears to 

25 ‘‘(B) 25. 


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1 ‘‘(e) EXCLUSION OF UNITED STATES INCOME.—For 

2 purposes of this subpart, any item of income of the con3 trolled foreign corporation which is effectively connected 

4 with the conduct by such corporation of a trade or busi5 ness within the United States shall not be taken into ac6 count in computing the subpart F income of such corpora7 tion unless such item is exempt from taxation (or is sub8 ject to a reduced rate of tax) pursuant to a treaty obliga9 tion of the United States. For purposes of this subsection, 

10 any exemption (or reductions) with respect to the tax im11 posed by section 884 shall not be taken into account. 

12 ‘‘(f) DEDUCTIONS.—For purposes of subsections 

13 (b)(1)(B) and (c)(1)(B), the active foreign market income, 

14 and gross income other than active foreign market income, 

15 of a controlled foreign corporation shall each be reduced, 

16 under regulations prescribed by the Secretary, by any de17 ductions (including taxes) of such corporation properly al18 locable to items of income taken into account in computing 

19 such income. 

20 ‘‘SEC. 953. ACTIVE FOREIGN MARKET INCOME. 

21 ‘‘(a) ACTIVE FOREIGN MARKET INCOME DEFINED.— 

22 For purposes of this subpart, the term ‘active foreign mar23 ket income’ means, with respect to any controlled foreign 

24 corporation, the aggregate of all items of income which 

25 are— 


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1 ‘‘(1) attributable to economically significant ac2 tivities with respect to a qualified trade or business, 

3 and 

4 ‘‘(2) derived in connection with— 

5 ‘‘(A) property which is sold, exchanged, or 

6 otherwise disposed of for use, consumption, or 

7 disposition outside of the United States, or 

8 ‘‘(B) services which are provided outside of 

9 the United States with respect to persons or 

10 property located outside of the United States. 

11 ‘‘(b) TREATMENT OF PASSIVE INCOME.— 

12 ‘‘(1) IN GENERAL.—Except as otherwise pro13 vided in this subsection, the term ‘active foreign 

14 market income’ shall not include the passive income 

15 (as defined in section 954) of a controlled foreign 

16 corporation. 

17 ‘‘(2) ACTIVE FOREIGN MARKET INCOME IN18 CLUDES CERTAIN INCOME.—The term ‘active foreign 

19 market income’ shall include— 

20 ‘‘(A) if the controlled foreign corporation 

21 or a qualified business unit of the corporation 

22 is an eligible controlled foreign corporation (as 

23 defined in section 954(c)), any item of income 

24 of the corporation or unit which is qualified 

25 banking or financing income (as so defined), 


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1 ‘‘(B) if the controlled foreign corporation 

2 or a qualified business unit of the corporation 

3 is a qualifying insurance company (as defined 

4 in section 954(d)) or a qualifying insurance 

5 company branch (as so defined), any item of in6 come of the corporation or unit which is quali7 fied insurance income (as so defined), 

8 ‘‘(C) any item of income which is rents or 

9 royalties derived from the ownership and oper10 ation (including leasing) of real or personal 

11 property which is not treated as passive income 

12 under section 954(a)(2)(A), and 

13 ‘‘(D) in the case of a regular dealer in 

14 property which is property described in section 

15 954(a)(1)(B), forward contracts, option con16 tracts, or similar financial instruments (includ17 ing notional principal contracts and all instru18 ments referenced to commodities), any item of 

19 income from any transaction (including hedging 

20 transactions and transactions involving physical 

21 settlement) entered into in the ordinary course 

22 of such dealer’s trade or business as such a 

23 dealer. 

24 ‘‘(3) GAIN OR LOSS FROM SALES OF STOCK IN

25 OTHER CFCS.—If a controlled foreign corporation 


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1 sells, exchanges, or otherwise disposes of stock in 

2 another controlled foreign corporation which is a re3 lated person to the selling corporation— 

4 ‘‘(A) gain from such sale, exchange, or dis5 position shall be treated as active foreign mar6 ket income to the extent that such gain would 

7 have been excluded from gross income under 

8 section 1203 if the selling corporation were a 

9 United States shareholder in the other con10 trolled foreign corporation, and 

11 ‘‘(B) loss from such sale, exchange, or dis12 position shall not be allowed to the extent such 

13 loss would have been disallowed under section 

14 1213 if the selling corporation were a United 

15 States shareholder in the other controlled for16 eign corporation. 

17 ‘‘(4) GAIN OR LOSS FROM SALES OF INTERESTS

18 IN 25-PERCENT OWNED PARTNERSHIPS.— 

19 ‘‘(A) IN GENERAL.— 

20 ‘‘(i) PORTION TREATED AS ACTIVE

21 FOREIGN MARKET INCOME.—In the case of 

22 any sale or exchange by a controlled for23 eign corporation of an interest in a part24 nership with respect to which such cor25 poration is a 25-percent owner, gain or 


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1 loss on such sale shall be taken into ac2 count in determining active foreign market 

3 income in the amount which bears the 

4 same ratio to the amount of such gain or 

5 loss as the controlled foreign corporation’s 

6 distributable share of the active foreign 

7 market income from the partnership over 

8 the applicable period bears to the con9 trolled foreign corporation’s distributable 

10 share of gross income from the partnership 

11 over such period. The Secretary shall pre12 scribe such regulations as may be appro13 priate to prevent abuse of the purposes of 

14 this paragraph, including regulations pro15 viding for coordination of this paragraph 

16 with the provisions of subchapter K. 

17 ‘‘(ii) APPLICABLE PERIOD.—For pur18 poses of this subparagraph, the term ‘ap19 plicable period’ means, with respect to any 

20 interest in a partnership, the shorter of the 

21 3-taxable year period immediately pre22 ceding the taxable year of the sale or ex23 change or the controlled foreign corpora24 tion’s holding period in the interest. In no 

25 event shall the applicable period include 


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1 any portion of any taxable year beginning 

2 before the applicable date (as defined in 

3 section 300 of the Infrastructure and Glob4 al Tax Competitiveness Act of 2014). 

5 ‘‘(B) 25-PERCENT OWNER.—For purposes 

6 of this paragraph, the term ‘25-percent owner’ 

7 means a controlled foreign corporation which 

8 owns directly 25 percent or more of the capital 

9 or profits interest in a partnership. For pur10 poses of the preceding sentence, if a controlled 

11 foreign corporation is a shareholder or partner 

12 of a corporation or a partnership, the controlled 

13 foreign corporation shall be treated as owning 

14 directly its proportionate share of any capital or 

15 profits interest in any partnership held directly 

16 or indirectly by such corporation or partnership. 

17 If a controlled foreign corporation is treated as 

18 owning a capital or profits interest in a part19 nership under constructive ownership rules 

20 similar to the rules of section 958(b), the con21 trolled foreign corporation shall be treated as 

22 owning such interest directly for purposes of 

23 this subparagraph. 

24 ‘‘(c) TREATMENT OF INSURANCE INCOME.— 


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1 ‘‘(1) IN GENERAL.—Except as otherwise pro2 vided in this subsection, the term ‘active foreign 

3 market income’ shall not include the insurance in4 come (as defined in section 955(a)) of a controlled 

5 foreign corporation. 

6 ‘‘(2) ACTIVE FOREIGN MARKET INCOME IN7 CLUDES EXEMPT INSURANCE INCOME.—The term 

8 ‘active foreign market income’ shall include exempt 

9 insurance income (as defined in section 955(c)) shall 

10 be treated as active foreign market income. 

11 ‘‘(d) TREATMENT OF INCOME FROM PROPERTY

12 USED, CONSUMED, OR DISPOSED OF IN THE UNITED

13 STATES.—For purposes of subsection (a)(2)(A)— 

14 ‘‘(1) IN GENERAL.—The term ‘active foreign 

15 market income’ shall not include income derived in 

16 connection with property which is sold, exchanged, 

17 or otherwise disposed of to any person if it was rea18 sonable for the controlled foreign corporation (or a 

19 related person) to expect that— 

20 ‘‘(A) such property would be used, con21 sumed, or disposed of in the United States, or 

22 ‘‘(B) such property would be used in the 

23 manufacture or production of, or as a compo24 nent part in, other property which would be 


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1 used, consumed, or disposed of in the United 

2 States. 

3 ‘‘(2) CHAIN OF RELATED PERSONS.—If— 

4 ‘‘(A) property is ultimately used, con5 sumed, or disposed of as described in subpara6 graph (A) or (B) of paragraph (1), and 

7 ‘‘(B) all sales, exchanges, or dispositions of 

8 such property (or of the other property de9 scribed in paragraph (1)(B)) before the sale for 

10 use, consumption, or disposition in the United 

11 States are between related persons, 

12 then, for purposes of paragraph (1), there shall be 

13 deemed to have been a reasonable expectation that 

14 the property (or the other property described in 

15 paragraph (1)(B)) would be used, consumed, or dis16 posed of in the United States. 

17 ‘‘(3) EXCEPTION FOR PROPERTY SUBSE18 QUENTLY EXPORTED.—Paragraphs (1) and (2) shall 

19 not apply with respect to property which, after entry 

20 into the United States is— 

21 ‘‘(A) sold, leased, rented, or licensed by the 

22 controlled foreign corporation or a related per23 son for direct use, consumption, or disposition 

24 outside the United States, or 


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1 ‘‘(B) used by the controlled foreign cor2 poration or a related person as a component in 

3 other property which is so sold, leased, rented, 

4 or licensed. 

5 ‘‘(4) RELATED PERSON DEFINED.—For pur6 poses of this subsection, the term ‘related person’ 

7 has the meaning given such term under section 

8 954(b). 

9 ‘‘(e) ECONOMICALLY SIGNIFICANT ACTIVITIES.—For 

10 purposes of this section, the term ‘economically significant 

11 activities’ means, with respect to any item of income, ac12 tivities— 

13 ‘‘(1) performed outside the United States, 

14 ‘‘(2) performed by officers or employees of the 

15 controlled foreign corporation which are part of the 

16 management and operational functions of the cor17 poration, and 

18 ‘‘(3) which make a substantial contribution to 

19 the production of such item of income. 

20 ‘‘(f) QUALIFIED TRADE OR BUSINESS.—For pur21 poses of this section— 

22 ‘‘(1) IN GENERAL.—The term ‘qualified trade 

23 or business’ means any trade or business which con24 sists of— 


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

2 or extracting property outside of the United 

3 States, or 

4 ‘‘(B) providing services outside of the 

5 United States. 

6 ‘‘(2) SPECIAL RULE FOR SUBSTANTIAL CON7 TRIBUTIONS TO MANUFACTURING AND SERVICES.— 

8 If a trade or business consists of making a substan9 tial contribution through the activities of the officers 

10 and employees of the controlled foreign corporation 

11 to a qualified trade or business which is described in 

12 subparagraph (A) or (B) of paragraph (1) of an13 other person, then the trade or business shall be 

14 treated as a qualified trade or business described in 

15 subparagraph (A) or (B) of paragraph (1), which16 ever is applicable. 

17 ‘‘SEC. 954. DEFINITION OF PASSIVE INCOME. 

18 ‘‘(a) PASSIVE INCOME.— 

19 ‘‘(1) IN GENERAL.—For purposes of this part, 

20 the term ‘passive income’ means the portion of the 

21 gross income which consists of: 

22 ‘‘(A) DIVIDENDS, ETC.—Dividends, inter23 est, royalties, rents, and annuities. 


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1 ‘‘(B) CERTAIN PROPERTY TRANS2 ACTIONS.—The excess of gains over losses from 

3 the sale or exchange of property— 

4 ‘‘(i) which gives rise to income de5 scribed in subparagraph (A) (after applica6 tion of paragraph (2)(A)) other than prop7 erty which gives rise to income not treated 

8 as passive income by reason of subsection 

9 (c) or (d) for the taxable year, 

10 ‘‘(ii) which is an interest in a trust, 

11 partnership, or REMIC, or 

12 ‘‘(iii) which does not give rise to any 

13 income. 

14 Gains and losses from the sale or exchange of 

15 any property which, in the hands of the con16 trolled foreign corporation, is property de17 scribed in section 1221(a)(1) shall not be taken 

18 into account under this subparagraph. 

19 ‘‘(C) COMMODITIES TRANSACTIONS.—The 

20 excess of gains over losses from transactions 

21 (including futures, forward, and similar trans22 actions) in any commodities. This subparagraph 

23 shall not apply to gains or losses which— 


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1 ‘‘(i) arise out of commodity hedging 

2 transactions (as defined in paragraph 

3 (5)(A)), 

4 ‘‘(ii) are active business gains or 

5 losses from the sale of commodities, but 

6 only if substantially all of the controlled 

7 foreign corporation’s commodities are 

8 property described in paragraph (1), (2), 

9 or (8) of section 1221(a), or 

10 ‘‘(iii) are foreign currency gains or 

11 losses (as defined in section 988(b)) attrib12 utable to any section 988 transactions. 

13 ‘‘(D) FOREIGN CURRENCY GAINS.—The ex14 cess of foreign currency gains over foreign cur15 rency losses (as defined in section 988(b)) at16 tributable to any section 988 transactions. This 

17 subparagraph shall not apply in the case of any 

18 transaction, other than a borrowing, directly re19 lated to the business needs of the controlled for20 eign corporation. 

21 ‘‘(E) INCOME EQUIVALENT TO INTER22 EST.—Any income equivalent to interest, in23 cluding income from commitment fees (or simi24 lar amounts) for loans actually made. 


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1 ‘‘(F) INCOME FROM NOTIONAL PRINCIPAL

2 CONTRACTS.— 

3 ‘‘(i) IN GENERAL.—Net income from 

4 notional principal contracts. 

5 ‘‘(ii) COORDINATION WITH OTHER

6 CATEGORIES OF PASSIVE INCOME.—Any 

7 item of income, gain, deduction, or loss 

8 from a notional principal contract entered 

9 into for purposes of hedging any item de10 scribed in any preceding subparagraph 

11 shall not be taken into account for pur12 poses of this subparagraph but shall be 

13 taken into account under such other sub14 paragraph. 

15 ‘‘(G) PAYMENTS IN LIEU OF DIVIDENDS.— 

16 Payments in lieu of dividends which are made 

17 pursuant to an agreement to which section 

18 1058 applies. 

19 ‘‘(H) PERSONAL SERVICE CONTRACTS.— 

20 ‘‘(i) Amounts received under a con21 tract under which the corporation is to fur22 nish personal services if— 

23 ‘‘(I) some person other than the 

24 corporation has the right to designate 

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1 vidual who is to perform the services, 

2 or 

3 ‘‘(II) the individual who is to per4 form the services is designated (by 

5 name or by description) in the con6 tract, and 

7 ‘‘(ii) amounts received from the sale 

8 or other disposition of such a contract. 

9 This subparagraph shall apply with respect to 

10 amounts received for services under a particular 

11 contract only if at some time during the taxable 

12 year 25 percent or more in value of the out13 standing stock of the corporation is owned, di14 rectly or indirectly, by or for the individual who 

15 has performed, is to perform, or may be des16 ignated (by name or by description) as the one 

17 to perform, such services. 

18 ‘‘(2) EXCEPTION FOR CERTAIN AMOUNTS.— 

19 ‘‘(A) RENTS AND ROYALTIES DERIVED IN

20 ACTIVE BUSINESS.—Passive income shall not 

21 include rents and royalties which are derived in 

22 the active conduct of a trade or business and 

23 which are received from a person other than a 

24 related person. For purposes of the preceding 

25 sentence, rents derived from leasing an aircraft 


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1 or vessel in foreign commerce shall not fail to 

2 be treated as derived in the active conduct of a 

3 trade or business if, as determined under regu4 lations prescribed by the Secretary, the active 

5 leasing expenses are not less than 10 percent of 

6 the profit on the lease. 

7 ‘‘(B) EXCEPTION FOR DEALERS.—Except 

8 as provided by regulations, in the case of a reg9 ular dealer in property which is property de10 scribed in paragraph (1)(B), forward contracts, 

11 option contracts, or similar financial instru12 ments (including notional principal contracts 

13 and all instruments referenced to commodities), 

14 there shall not be taken into account in com15 puting passive income any item of income, gain, 

16 deduction, or loss from any transaction (includ17 ing hedging transactions and transactions in18 volving physical settlement) entered into in the 

19 ordinary course of such dealer’s trade or busi20 ness as such a dealer. 

21 ‘‘(3) LOOK-THRU RULE FOR CERTAIN PARTNER22 SHIP SALES.— 

23 ‘‘(A) IN GENERAL.—In the case of any 

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1 spect to which such corporation is a 25-percent 

2 owner, gain or loss on such sale shall be treated 

3 as being described in paragraph (1)(B)(ii) in 

4 the amount which bears the same ratio to the 

5 amount of such gain or loss as the controlled 

6 foreign corporation’s distributable share of pas7 sive income from the partnership over the appli8 cable period (as defined in section 

9 953(b)(4)(A)(ii)) bears to the controlled foreign 

10 corporation’s distributable share of gross in11 come from the partnership over such period. 

12 The Secretary shall prescribe such regulations 

13 as may be appropriate to prevent abuse of the 

14 purposes of this paragraph, including regula15 tions providing for the coordination of this 

16 paragraph with the provisions of subchapter K. 

17 ‘‘(B) 25-PERCENT OWNER.—For purposes 

18 of this paragraph, the term ‘25-percent owner’ 

19 has the meaning given such term under section 

20 953(b)(4)(B). 

21 ‘‘(4) DEFINITION AND SPECIAL RULES RELAT22 ING TO COMMODITY TRANSACTIONS.— 

23 ‘‘(A) COMMODITY HEDGING TRANS24 ACTIONS.—For purposes of paragraph 

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1 action’ means any transaction with respect to a 

2 commodity if such transaction— 

3 ‘‘(i) is a hedging transaction as de4 fined in section 1221(b)(2), determined— 

5 ‘‘(I) without regard to subpara6 graph (A)(ii) thereof, 

7 ‘‘(II) by applying subparagraph 

8 (A)(i) thereof by substituting ‘ordi9 nary property or property described in 

10 section 1231(b)’ for ‘ordinary prop11 erty’, and 

12 ‘‘(III) by substituting ‘controlled 

13 foreign corporation’ for ‘taxpayer’ 

14 each place it appears, and 

15 ‘‘(ii) is clearly identified as such in ac16 cordance with section 1221(a)(7). 

17 ‘‘(B) TREATMENT OF DEALER ACTIVITIES

18 UNDER PARAGRAPH (1)(C).—Commodities with 

19 respect to which gains and losses are not taken 

20 into account under paragraph (2)(B) in com21 puting a controlled foreign corporation’s passive 

22 income shall not be taken into account in apply23 ing the substantially all test under paragraph 

24 (1)(C)(ii) to such corporation. 


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1 ‘‘(C) REGULATIONS.—The Secretary shall 

2 prescribe such regulations as are appropriate to 

3 carry out the purposes of paragraph (1)(C) in 

4 the case of transactions involving related per5 sons. 

6 ‘‘(b) RELATED PERSON DEFINED.—For purposes of 

7 this section, a person is a related person with respect to 

8 a controlled foreign corporation, if— 

9 ‘‘(1) such person is an individual, corporation, 

10 partnership, trust, or estate which controls, or is 

11 controlled by, the controlled foreign corporation, or 

12 ‘‘(2) such person is a corporation, partnership, 

13 trust, or estate which is controlled by the same per14 son or persons which control the controlled foreign 

15 corporation. 

16 For purposes of the preceding sentence, control means, 

17 with respect to a corporation, the ownership, directly or 

18 indirectly, of stock possessing more than 50 percent of the 

19 total voting power of all classes of stock entitled to vote 

20 or of the total value of stock of such corporation. In the 

21 case of a partnership, trust, or estate, control means the 

22 ownership, directly or indirectly, of more than 50 percent 

23 (by value) of the beneficial interests in such partnership, 

24 trust, or estate. For purposes of this subsection, rules 

25 similar to the rules of section 958 shall apply. 


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1 ‘‘(c) SPECIAL RULE FOR INCOME DERIVED IN THE

2 ACTIVE CONDUCT OF BANKING, FINANCING, OR SIMILAR

3 BUSINESSES.— 

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

5 (a)(1), passive income shall not include qualified 

6 banking or financing income of an eligible controlled 

7 foreign corporation. 

8 ‘‘(2) ELIGIBLE CONTROLLED FOREIGN COR9 PORATION.—For purposes of this subsection, the 

10 term ‘eligible controlled foreign corporation’ means 

11 any controlled foreign corporation if— 

12 ‘‘(A) more than 80 percent of the gross in13 come of the controlled foreign corporation is de14 rived directly from the active and regular con15 duct of a lending, finance, or financial services 

16 business from transactions with customers 

17 which are located outside the United States and 

18 are not related persons, or 

19 ‘‘(B) it is a regulated financial institution. 

20 ‘‘(3) QUALIFIED BANKING OR FINANCING IN21 COME.—For purposes of this subsection— 

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

23 banking or financing income’ means income of 

24 an eligible controlled foreign corporation 

25 which— 


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1 ‘‘(i) is derived in the active conduct of 

2 a banking, financing, or similar business 

3 by such eligible controlled foreign corpora4 tion, 

5 ‘‘(ii) is derived from one or more 

6 transactions— 

7 ‘‘(I) with customers located in a 

8 country other than the United States, 

9 and 

10 ‘‘(II) substantially all of the ac11 tivities in connection with which are 

12 conducted directly by the corporation 

13 in its home country, and 

14 ‘‘(iii) is treated as earned by such cor15 poration in its home country for purposes 

16 of such country’s tax laws. 

17 ‘‘(B) INCOME DERIVED FROM CUSTOMERS

18 TO INCLUDE CERTAIN INVESTMENT INCOME.— 

19 For purposes of subparagraph (A), in the case 

20 of a regulated financial institution, income de21 rived from customers includes income derived 

22 from— 

23 ‘‘(i) reserves that are required to be 

24 held pursuant to banking regulations, 


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1 ‘‘(ii) deposits placed with the central 

2 bank (or equivalent thereof) in the cor3 poration’s home country, and 

4 ‘‘(iii) investments in debt instruments 

5 issued by the home country. 

6 ‘‘(C) SUBSTANTIAL ACTIVITY REQUIRE7 MENT FOR CROSS BORDER INCOME.—The term 

8 ‘qualified banking or financing income’ shall 

9 not include income derived from 1 or more 

10 transactions with customers located in a coun11 try other than the home country of the eligible 

12 controlled foreign corporation unless such cor13 poration conducts substantial activity with re14 spect to a banking, financing, or similar busi15 ness in its home country. 

16 ‘‘(D) DIRECT CONDUCT OF ACTIVITIES.— 

17 For purposes of subparagraph (A)(ii)(II), an 

18 activity shall be treated as conducted directly by 

19 an eligible controlled foreign corporation in its 

20 home country if the activity is performed by 

21 employees of a related person and— 

22 ‘‘(i) the related person is a resident 

23 subject to tax under the laws of the home 

24 country of the corporation to which sub25 paragraph (A)(ii)(II) is being applied, 


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1 ‘‘(ii) the activity is performed in such 

2 home country, and 

3 ‘‘(iii) the related person is com4 pensated on an arm’s-length basis for the 

5 performance of the activity by its employ6 ees and such compensation is treated as 

7 earned by such person in such home coun8 try for purposes of the home country’s tax 

9 laws. 

10 ‘‘(4) LENDING, FINANCE, OR FINANCIAL SERV11 ICES BUSINESS.—For purposes of this subsection, 

12 except as provided in regulations, the term ‘lending, 

13 finance, or financial services business’ means the 

14 business of— 

15 ‘‘(A) making loans, 

16 ‘‘(B) purchasing, selling, discounting, or 

17 negotiating on a regular basis accounts receiv18 able, notes, or installment obligations, 

19 ‘‘(C) engaging in leasing (including enter20 ing into leases and purchasing, servicing, and 

21 disposing of leases and leased assets), 

22 ‘‘(D) issuing letters of credit or providing 

23 guarantees, 

24 ‘‘(E) providing charge and credit card 

25 services, 


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1 ‘‘(F) performing trust services, including 

2 as a fiduciary, agent, or custodian, other than 

3 trust services provided by a broker or dealer in 

4 stock, securities, or other financial instruments, 

5 ‘‘(G) arranging interest rate or currency 

6 futures, forwards, options, or notional principal 

7 contracts for, or entering into such transactions 

8 with, customers, 

9 ‘‘(H) providing traveler’s check and money 

10 order services for customers, 

11 ‘‘(I) providing correspondent bank services 

12 for customers, 

13 ‘‘(J) engaging in hedging activities directly 

14 related to an activity described in any other 

15 subparagraph of this paragraph, 

16 ‘‘(K) underwriting issues of stock, debt, or 

17 other securities for customers, 

18 ‘‘(L) providing financial, investment advi19 sory, or investment management services, 

20 ‘‘(M) purchasing or selling stock, debt in21 struments, interest rate or currency futures, or 

22 other securities or derivative financial products 

23 (including notional principal contracts) from or 

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1 ucts as inventory for sale to customers, unless 

2 such stock, debt instruments, futures, or other 

3 securities or products are not held in a dealer 

4 capacity, 

5 ‘‘(N) effecting transactions in securities for 

6 customers as a securities broker, or 

7 ‘‘(O) rendering services or making facilities 

8 available in connection with activities described 

9 in subparagraphs (A) through (N) carried on 

10 by— 

11 ‘‘(i) the corporation rendering services 

12 or making facilities available, or 

13 ‘‘(ii) another corporation which is a 

14 member of the same affiliated group (as 

15 defined in section 1504, but determined 

16 without regard to section 1504(b)(3)). 

17 ‘‘(5) OTHER DEFINITIONS.—For purposes of 

18 this subsection— 

19 ‘‘(A) CUSTOMER.—The term ‘customer’ 

20 means, with respect to any controlled foreign 

21 corporation, any person which has a customer 

22 relationship with such corporation and which is 

23 acting in its capacity as such. 

24 ‘‘(B) HOME COUNTRY.—Except as pro25 vided in regulations, the term ‘home country’ 


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1 means, with respect to any entity, the country 

2 with respect to which the entity is a resident for 

3 purposes of the country’s income tax laws. 

4 ‘‘(C) LOCATED.—Except as provided in 

5 regulations, for purposes of paragraph (3)(A)— 

6 ‘‘(i) if a customer is a natural person, 

7 the customer is considered to be located in 

8 the country in which the customer is phys9 ically located when entering into the trans10 action, and 

11 ‘‘(ii) if a customer is not a natural 

12 person, the customer is considered to be lo13 cated in the country from which the cus14 tomer enters into the transaction. 

15 ‘‘(D) QUALIFIED BUSINESS UNIT.—The 

16 term ‘qualified business unit’ has the meaning 

17 given such term by section 989(a). 

18 ‘‘(E) REGULATED FINANCIAL INSTITU19 TION.—Except as provided in regulations, the 

20 term ‘regulated financial institution’ means a 

21 controlled foreign corporation which— 

22 ‘‘(i) is engaged in the active conduct 

23 of a banking business and is an institution 

24 licensed to do business as a bank in the 

25 United States (or is any other corporation 


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1 not so licensed which is specified by the 

2 Secretary in regulations), or 

3 ‘‘(ii) satisfies each of the following 

4 conditions: 

5 ‘‘(I) The corporation is directly 

6 or indirectly wholly owned by a do7 mestic corporation that is a bank (as 

8 defined in section 581) or a depository 

9 institution holding company (as de10 fined in section 3(w)(1) of the Federal 

11 Deposit Insurance Act (12 U.S.C. 

12 1813(w)(1))). 

13 ‘‘(II) The corporation is subject 

14 to bank regulatory supervision in a ju15 risdiction the central bank of which 

16 (or equivalent thereof) is a member of 

17 the Basel Committee on Banking Su18 pervision. 

19 ‘‘(III) The corporation is licensed 

20 and regulated in such jurisdiction as a 

21 bank. 

22 ‘‘(6) SEPARATE APPLICATION TO QUALIFIED

23 BUSINESS UNITS.— 


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1 ‘‘(A) IN GENERAL.—If a controlled foreign 

2 corporation has 1 or more qualified business 

3 units— 

4 ‘‘(i) this subsection shall be applied 

5 separately to each such unit in the same 

6 manner as if it were a controlled foreign 

7 corporation, and 

8 ‘‘(ii) if any such unit is treated as an 

9 eligible controlled foreign corporation after 

10 application of clause (i), the qualified 

11 banking or financing income of such unit 

12 shall be treated as qualified banking or fi13 nancing income of the controlled foreign 

14 corporation of which such unit is a part. 

15 ‘‘(B) DETERMINATIONS MADE SEPA16 RATELY.—For purposes of the separate applica17 tion of this subsection to a controlled foreign 

18 corporation and its qualified business units— 

19 ‘‘(i) in the case of the controlled for20 eign corporation, only activities and items 

21 of income, deduction, gain, or loss and ac22 tivities of such corporation not properly al23 locable or attributable to any qualified 

24 business unit of such corporation shall be 

25 taken into account, and 


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1 ‘‘(ii) in the case of a qualified busi2 ness unit, only activities and items of in3 come, deduction, gain, or loss and activities 

4 properly allocable or attributable to such 

5 unit shall be taken into account. 

6 ‘‘(C) HOME COUNTRY.—For purposes of 

7 this subsection, except as provided in regula8 tions, notwithstanding paragraph (5)(B), the 

9 home country with respect to any qualified 

10 business unit treated as a controlled foreign 

11 corporation under subparagraph (A) shall be 

12 the country in which such unit maintains its 

13 principal office. 

14 ‘‘(7) ANTI-ABUSE RULES.—For purposes of ap15 plying this subsection— 

16 ‘‘(A) there shall be disregarded any item of 

17 income, gain, loss, or deduction with respect to 

18 any transaction or series of transactions one of 

19 the principal purposes of which is qualifying in20 come or gain for the exclusion under this sec21 tion, including any transaction or series of 

22 transactions a principal purpose of which is the 

23 acceleration or deferral of any item in order to 

24 claim the benefits of such exclusion through the 

25 application of this subsection, 


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1 ‘‘(B) there shall be disregarded any item of 

2 income, gain, loss, or deduction of an entity 

3 which is not engaged in regular and continuous 

4 transactions with customers which are not re5 lated persons, 

6 ‘‘(C) there shall be disregarded any item of 

7 income, gain, loss, or deduction with respect to 

8 any transaction or series of transactions uti9 lizing, or doing business with— 

10 ‘‘(i) one or more entities in order to 

11 satisfy any home country requirement 

12 under this subsection, or 

13 ‘‘(ii) a special purpose entity or ar14 rangement, including a securitization, fi15 nancing, or similar entity or arrangement, 

16 if one of the principal purposes of such trans17 action or series of transactions is qualifying in18 come or gain for the exclusion under this sub19 section, and 

20 ‘‘(D) a related person, an officer, a direc21 tor, or an employee with respect to any con22 trolled foreign corporation which would other23 wise be treated as a customer of such corpora24 tion with respect to any transaction shall not be 

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1 action is to satisfy any requirement of this sub2 section. 

3 ‘‘(8) REGULATIONS.—The Secretary shall pre4 scribe such regulations as may be necessary or ap5 propriate to carry out the purposes of this sub6 section and subsection (a)(1)(B)(i). 

7 ‘‘(d) SPECIAL RULE FOR INCOME DERIVED IN THE

8 ACTIVE CONDUCT OF INSURANCE BUSINESS.— 

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

10 (a)(1), passive income shall not include qualified in11 surance income of a qualifying insurance company. 

12 ‘‘(2) QUALIFIED INSURANCE INCOME.—For 

13 purposes of this subsection, the term ‘qualified in14 surance income’ means income of a qualifying insur15 ance company which is— 

16 ‘‘(A) received from a person other than a 

17 related person and derived from the invest18 ments made by a qualifying insurance company 

19 or a qualifying insurance company branch of its 

20 reserves allocable to exempt contracts or of 80 

21 percent of its unearned premiums from exempt 

22 contracts (as both are determined in the man23 ner prescribed under paragraph (4)), or 

24 ‘‘(B) received from a person other than a 

25 related person and derived from investments 


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1 made by a qualifying insurance company or a 

2 qualifying insurance company branch of an 

3 amount of its assets allocable to exempt con4 tracts equal to— 

5 ‘‘(i) in the case of property, casualty, 

6 or health insurance contracts, one-third of 

7 its premiums earned on such insurance 

8 contracts during the taxable year (as de9 fined in section 832(b)(4)), and 

10 ‘‘(ii) in the case of life insurance or 

11 annuity contracts, 10 percent of the re12 serves described in subparagraph (A) for 

13 such contracts. 

14 ‘‘(3) PRINCIPLES FOR DETERMINING QUALI15 FIED INSURANCE INCOME.—Except as provided by 

16 the Secretary, for purposes of subparagraphs (A) 

17 and (B) of paragraph (2)— 

18 ‘‘(A) in the case of any contract which is 

19 a separate account-type contract (including any 

20 variable contract not meeting the requirements 

21 of section 817), income credited under such 

22 contract shall be allocable only to such contract, 

23 and 


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1 ‘‘(B) income not allocable under subpara2 graph (A) shall be allocated ratably among con3 tracts not described in subparagraph (A). 

4 ‘‘(4) METHODS FOR DETERMINING UNEARNED

5 PREMIUMS AND RESERVES.—For purposes of para6 graph (2)(A)— 

7 ‘‘(A) PROPERTY AND CASUALTY CON8 TRACTS.—The unearned premiums and reserves 

9 of a qualifying insurance company or a quali10 fying insurance company branch with respect to 

11 property, casualty, or health insurance con12 tracts shall be determined using the same meth13 ods and interest rates which would be used if 

14 such company or branch were subject to tax 

15 under subchapter L, except that— 

16 ‘‘(i) the interest rate determined for 

17 the functional currency of the company or 

18 branch, and which, except as provided by 

19 the Secretary, is calculated in the same 

20 manner as the Federal mid-term rate 

21 under section 1274(d), shall be substituted 

22 for the applicable Federal interest rate, 

23 and 


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1 ‘‘(ii) such company or branch shall 

2 use the appropriate foreign loss payment 

3 pattern. 

4 ‘‘(B) LIFE INSURANCE AND ANNUITY CON5 TRACTS.— 

6 ‘‘(i) IN GENERAL.—Except as pro7 vided in clause (ii), the amount of the re8 serve of a qualifying insurance company or 

9 qualifying insurance company branch for 

10 any life insurance or annuity contract shall 

11 be equal to the greater of— 

12 ‘‘(I) the net surrender value of 

13 such contract (as defined in section 

14 807(e)(1)(A)), or 

15 ‘‘(II) the reserve determined 

16 under paragraph (5). 

17 ‘‘(ii) RULING REQUEST, ETC.—The 

18 amount of the reserve under clause (i) 

19 shall be the foreign statement reserve for 

20 the contract (less any catastrophe, defi21 ciency, equalization, or similar reserves), if, 

22 pursuant to a ruling request submitted by 

23 the taxpayer or as provided in published 

24 guidance, the Secretary determines that 

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1 mining the foreign statement reserve pro2 vide an appropriate means of measuring 

3 income. 

4 ‘‘(C) LIMITATION ON RESERVES.—In no 

5 event shall the reserve determined under this 

6 paragraph for any contract as of any time ex7 ceed the amount which would be taken into ac8 count with respect to such contract as of such 

9 time in determining foreign statement reserves 

10 (less any catastrophe, deficiency, equalization, 

11 or similar reserves). 

12 ‘‘(5) AMOUNT OF RESERVE.—The amount of 

13 the reserve determined under this paragraph with 

14 respect to any contract shall be determined in the 

15 same manner as it would be determined if the quali16 fying insurance company or qualifying insurance 

17 company branch were subject to tax under sub18 chapter L, except that in applying such sub19 chapter— 

20 ‘‘(A) the interest rate determined for the 

21 functional currency of the company or branch, 

22 and which, except as provided by the Secretary, 

23 is calculated in the same manner as the Federal 

24 mid-term rate under section 1274(d), shall be 


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1 substituted for the applicable Federal interest 

2 rate, 

3 ‘‘(B) the highest assumed interest rate 

4 permitted to be used in determining foreign 

5 statement reserves shall be substituted for the 

6 prevailing State assumed interest rate, and 

7 ‘‘(C) tables for mortality and morbidity 

8 which reasonably reflect the current mortality 

9 and morbidity risks in the company’s or 

10 branch’s home country shall be substituted for 

11 the mortality and morbidity tables otherwise 

12 used for such subchapter. 

13 The Secretary may provide that the interest rate 

14 and mortality and morbidity tables of a qualifying 

15 insurance company may be used for 1 or more of its 

16 qualifying insurance company branches when appro17 priate. 

18 ‘‘(6) DEFINITIONS.—For purposes of this sec19 tion, any term used in this subsection which is also 

20 used in section 955(c) shall have the meaning given 

21 such term under section 955(c). 

22 ‘‘SEC. 955. DEFINITION OF INSURANCE INCOME. 

23 ‘‘(a) INSURANCE INCOME.— 


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1 ‘‘(1) IN GENERAL.—For purposes of section 

2 953(c), the term ‘insurance income’ means the gross 

3 income which— 

4 ‘‘(A) is attributable to the issuing (or rein5 suring) of an insurance or annuity contract, 

6 and 

7 ‘‘(B) is of a kind that would be subject to 

8 tax under subchapter L of this chapter if such 

9 income were the income of a domestic insurance 

10 company. 

11 ‘‘(2) EXCEPTION.—Such term shall not include 

12 any exempt insurance income (as defined in sub13 section (c)). 

14 ‘‘(b) SPECIAL RULES FOR DETERMINATION OF

15 GROSS INCOME AND ALLOCABLE DEDUCTIONS.—For 

16 purposes of determining gross income under subsection (a) 

17 and deductions allocable to insurance income under sec18 tion 952(e), the following rules shall apply: 

19 ‘‘(1) CERTAIN DEDUCTIONS NOT ALLOWED.— 

20 The following provisions of subchapter L shall not 

21 apply: 

22 ‘‘(A) The small life insurance company de23 duction. 

24 ‘‘(B) Section 805(a)(5) (relating to oper25 ations loss deduction). 


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1 ‘‘(C) Section 832(c)(5) (relating to certain 

2 capital losses). 

3 ‘‘(2) SPECIAL RULES FOR AMOUNTS INCLUDED

4 IN INCOME.—The items referred to in— 

5 ‘‘(A) section 803(a)(1) (relating to gross 

6 amount of premiums and other considerations), 

7 ‘‘(B) section 803(a)(2) (relating to net de8 crease in reserves), 

9 ‘‘(C) section 805(a)(2) (relating to net in10 crease in reserves), and 

11 ‘‘(D) section 832(b)(4) (relating to pre12 miums earned on insurance contracts), 

13 shall be taken into account only to the extent they 

14 are in respect of any reinsurance or the issuing of 

15 any insurance or annuity contract described in sub16 section (a)(1). 

17 ‘‘(3) TREATMENT OF RESERVES.—Reserves for 

18 any insurance or annuity contract shall be deter19 mined in the same manner as under section 954(d). 

20 ‘‘(c) EXEMPT INSURANCE INCOME.—For purposes of 

21 this section— 

22 ‘‘(1) EXEMPT INSURANCE INCOME DEFINED.— 

23 ‘‘(A) IN GENERAL.—The term ‘exempt in24 surance income’ means income derived by a 

25 qualifying insurance company which— 


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1 ‘‘(i) is attributable to the issuing (or 

2 reinsuring) of an exempt contract by such 

3 company or a qualifying insurance com4 pany branch of such company, and 

5 ‘‘(ii) is treated as earned by such com6 pany or branch in its home country for 

7 purposes of such country’s tax laws. 

8 ‘‘(B) EXCEPTION FOR CERTAIN ARRANGE9 MENTS.—Such term shall not include income 

10 attributable to the issuing (or reinsuring) of an 

11 exempt contract as the result of any arrange12 ment whereby another corporation receives a 

13 substantially equal amount of premiums or 

14 other consideration in respect of issuing (or re15 insuring) a contract which is not an exempt 

16 contract. 

17 ‘‘(C) DETERMINATIONS MADE SEPA18 RATELY.—For purposes of this subsection and 

19 section 954(d), the exempt insurance income 

20 and exempt contracts of a qualifying insurance 

21 company or any qualifying insurance company 

22 branch of such company shall be determined 

23 separately for such company and each such 

24 branch by taking into account— 


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1 ‘‘(i) in the case of the qualifying in2 surance company, only items of income, de3 duction, gain, or loss, and activities of such 

4 company not properly allocable or attrib5 utable to any qualifying insurance com6 pany branch of such company, and 

7 ‘‘(ii) in the case of a qualifying insur8 ance company branch, only items of in9 come, deduction, gain, or loss and activities 

10 properly allocable or attributable to such 

11 branch. 

12 ‘‘(2) EXEMPT CONTRACT.— 

13 ‘‘(A) IN GENERAL.—The term ‘exempt 

14 contract’ means an insurance or annuity con15 tract issued or reinsured by a qualifying insur16 ance company or qualifying insurance company 

17 branch in connection with property in, liability 

18 arising out of activity in, or the lives or health 

19 of residents of, a country other than the United 

20 States. 

21 ‘‘(B) MINIMUM NON-RELATED INCOME RE22 QUIRED.—No contract of a qualifying insurance 

23 company or of a qualifying insurance company 

24 branch shall be treated as an exempt contract 

25 unless such company or branch derives more 


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1 than 30 percent of its net written premiums 

2 from exempt contracts (determined without re3 gard to this subparagraph) with respect to 

4 which no policyholder, insured, annuitant, or 

5 beneficiary is a related person (as defined in 

6 section 954(b)). 

7 ‘‘(C) SUBSTANTIAL ACTIVITY REQUIRE8 MENTS.—A contract issued by a qualifying in9 surance company or qualifying insurance com10 pany branch shall not be treated as an exempt 

11 contract unless such company or branch, as the 

12 case may be— 

13 ‘‘(i) conducts substantial activity with 

14 respect to an insurance business in its 

15 home country, and 

16 ‘‘(ii) performs in its home country 

17 substantially all of the activities necessary 

18 to give rise to the income generated by 

19 such contract. 

20 ‘‘(3) QUALIFYING INSURANCE COMPANY.— 

21 ‘‘(A) IN GENERAL.—The term ‘qualifying 

22 insurance company’ means any controlled for23 eign corporation— 

24 ‘‘(i) which— 


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1 ‘‘(I) is subject to regulation as an 

2 insurance (or reinsurance) company 

3 by its home country, and is licensed, 

4 authorized, or regulated by the appli5 cable insurance regulatory body for its 

6 home country to sell insurance, rein7 surance, or annuity contracts to per8 sons other than related persons (with9 in the meaning of section 954(b)) in 

10 such home country, and 

11 ‘‘(II) is engaged in the insurance 

12 business and would be subject to tax 

13 under subchapter L if it were a do14 mestic corporation, 

15 ‘‘(ii) which derives more than 50 per16 cent of its aggregate net written premiums 

17 from the issuance or reinsurance by such 

18 controlled foreign corporation and each of 

19 its qualifying insurance company branches 

20 of contracts with respect to which no pol21 icyholder, insured, annuitant, or bene22 ficiary is a related person (as defined in 

23 section 954(b)), except that in the case of 

24 a branch, such premiums shall only be 

25 taken into account to the extent such preVerDate Sep 11 2014 01:13 Dec 20, 2014 Jkt 049200 PO 00000 Frm 00080 Fmt 6652 Sfmt 6201 E:\BILLS\H5857.IH H5857

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1 miums are treated as earned by such 

2 branch in its home country for purposes of 

3 such country’s tax laws, 

4 ‘‘(iii) more than 50 percent of the 

5 gross receipts of which for the taxable 

6 year— 

7 ‘‘(I) consist of premiums for in8 surance or reinsurance in connection 

9 with property, liability, or the lives or 

10 health of individuals, and 

11 ‘‘(II) are treated as earned by 

12 such controlled foreign corporation in 

13 its home country for purposes of such 

14 country’s tax laws, and 

15 ‘‘(iv) the applicable insurance liabil16 ities of which constitute more than 35 per17 cent of its total assets as reported on the 

18 company’s applicable financial statement 

19 for the year with which or in which the 

20 taxable year ends. 

21 ‘‘(B) APPLICABLE INSURANCE LIABIL22 ITIES.—For purposes of subparagraph (A)(iv), 

23 the term ‘applicable insurance liabilities’ 

24 means— 


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1 ‘‘(i) loss and loss adjustment ex2 penses, 

3 ‘‘(ii) unearned premiums, and 

4 ‘‘(iii) reserves (other than any catas5 trophe, deficiency, equalization, or similar 

6 reserves) for life and health insurance risks 

7 and life and health insurance claims with 

8 respect to contracts providing coverage for 

9 mortality or morbidity risks (not to exceed 

10 the amount of such reserve that is required 

11 to be reported to the home country insur12 ance regulatory body). 

13 ‘‘(C) APPLICABLE FINANCIAL STATE14 MENT.—For purposes of subparagraph (A)(iv), 

15 the term ‘applicable financial statement’ means 

16 a statement for financial reporting purposes 

17 which— 

18 ‘‘(i) is made on the basis of generally 

19 accepted accounting principles, 

20 ‘‘(ii) is made on the basis of inter21 national financial reporting standards, but 

22 only if there is no statement that meets 

23 the requirement of clause (i), or 

24 ‘‘(iii) except as otherwise provided by 

25 the Secretary in regulations, is the annual 


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1 statement which is required to be filed 

2 with the home country insurance regu3 latory body, but only if there is no state4 ment which meets the requirements of 

5 clause (i) or (ii). 

6 ‘‘(D) REGULATIONS.—The Secretary shall 

7 prescribe such regulations as necessary to carry 

8 out the purposes of this paragraph. 

9 ‘‘(4) QUALIFYING INSURANCE COMPANY

10 BRANCH.—The term ‘qualifying insurance company 

11 branch’ means a qualified business unit (within the 

12 meaning of section 989(a)) of a controlled foreign 

13 corporation if— 

14 ‘‘(A) such unit is licensed, authorized, or 

15 regulated by the applicable insurance regulatory 

16 body for its home country to sell insurance, re17 insurance, or annuity contracts to persons other 

18 than related persons (within the meaning of 

19 section 954(b)) in such home country, and 

20 ‘‘(B) such controlled foreign corporation is 

21 a qualifying insurance company, determined 

22 under paragraph (3) as if such unit were a 

23 qualifying insurance company branch. 

24 ‘‘(5) LIFE INSURANCE OR ANNUITY CON25 TRACT.—For purposes of this section and section 


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1 954, the determination of whether a contract issued 

2 by a controlled foreign corporation or a qualifying 

3 insurance company branch is a life insurance con4 tract or an annuity contract shall be made without 

5 regard to sections 72(s), 101(f), 817(h), and 7702 

6 if— 

7 ‘‘(A) such contract is regulated as a life in8 surance or annuity contract by the corpora9 tion’s or branch’s home country, and 

10 ‘‘(B) no policyholder, insured, annuitant, 

11 or beneficiary with respect to the contract is a 

12 United States person. 

13 ‘‘(6) HOME COUNTRY.—For purposes of this 

14 subsection, except as provided in regulations— 

15 ‘‘(A) CONTROLLED FOREIGN CORPORA16 TION.—The term ‘home country’ means, with 

17 respect to a controlled foreign corporation, the 

18 country in which such corporation is created or 

19 organized. 

20 ‘‘(B) QUALIFYING INSURANCE COMPANY

21 BRANCH.—The term ‘home country’ means, 

22 with respect to a qualifying insurance company 

23 branch, the country in which the principal office 

24 of such branch is located and in which such 

25 branch is licensed, authorized, or regulated by 


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1 the applicable insurance regulatory body to sell 

2 insurance, reinsurance, or annuity contracts to 

3 persons other than related persons (as defined 

4 in section 954(b)) in such country. 

5 ‘‘(7) ANTI-ABUSE RULES.—For purposes of ap6 plying this subsection and section 954(d)— 

7 ‘‘(A) the rules of section 954(c)(7) (other 

8 than subparagraph (B) thereof) shall apply, 

9 ‘‘(B) there shall be disregarded any item of 

10 income, gain, loss, or deduction of, or derived 

11 from, an entity which is not engaged in regular 

12 and continuous transactions with persons which 

13 are not related persons, 

14 ‘‘(C) there shall be disregarded any change 

15 in the method of computing reserves a principal 

16 purpose of which is the acceleration or deferral 

17 of any item in order to claim the benefits of 

18 this subsection or section 954(d), 

19 ‘‘(D) a contract of insurance or reinsur20 ance shall not be treated as an exempt contract 

21 (and premiums from such contract shall not be 

22 taken into account for purposes of paragraph 

23 (2)(B) or (3)) if— 

24 ‘‘(i) any policyholder, insured, annu25 itant, or beneficiary is a resident of the 


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1 United States and such contract was mar2 keted to such resident and was written to 

3 cover a risk outside the United States, or 

4 ‘‘(ii) the contract covers risks located 

5 within and without the United States and 

6 the qualifying insurance company or quali7 fying insurance company branch does not 

8 maintain such contemporaneous records, 

9 and file such reports, with respect to such 

10 contract as the Secretary may require, 

11 ‘‘(E) the Secretary may prescribe rules for 

12 the allocation of contracts (and income from 

13 contracts) among 2 or more qualifying insur14 ance company branches of a qualifying insur15 ance company in order to clearly reflect the in16 come of such branches, and 

17 ‘‘(F) premiums from a contract shall not 

18 be taken into account for purposes of para19 graph (2)(B) or (3) if such contract reinsures 

20 a contract issued or reinsured by a related per21 son (as defined in section 954(b)). 

22 ‘‘(8) COORDINATION WITH SECTION 956(a).— 

23 ‘‘(A) IN GENERAL.—In determining insur24 ance income for purposes of section 956(a), ex25 empt insurance income shall not include income 


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1 derived from exempt contracts which cover risks 

2 other than applicable home country risks. 

3 ‘‘(B) APPLICABLE HOME COUNTRY

4 RISKS.—For purposes of subparagraph (A), the 

5 term ‘applicable home country risks’ means 

6 risks in connection with property in, liability 

7 arising out of activity in, or the lives or health 

8 of residents of, the home country of the quali9 fying insurance company or qualifying insur10 ance company branch, as the case may be, 

11 issuing or reinsuring the contract covering the 

12 risks. 

13 ‘‘(9) REGULATIONS.—The Secretary shall pre14 scribe such regulations as may be necessary or ap15 propriate to carry out the purposes of this sub16 section and section 954(d). 

17 ‘‘(10) CROSS REFERENCE.—For treatment of 

18 certain investment income derived by qualifying in19 surance companies, see section 954(d). 

20 ‘‘SEC. 956. SPECIAL RULE FOR CERTAIN CAPTIVE INSUR21 ANCE COMPANIES. 

22 ‘‘(a) TREATMENT AS CONTROLLED FOREIGN COR23 PORATIONS AND UNITED STATES SHAREHOLDERS.— 

24 ‘‘(1) IN GENERAL.—For purposes only of tak25 ing into account related person insurance income— 


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1 ‘‘(A) the term ‘United States shareholder’ 

2 means, with respect to any foreign corporation, 

3 a United States person (as defined in section 

4 957(c)) who owns (within the meaning of sec5 tion 958(a)) any stock of the foreign corpora6 tion, 

7 ‘‘(B) the term ‘controlled foreign corpora8 tion’ has the meaning given to such term by 

9 section 957(a) determined by substituting ‘25 

10 percent or more’ for ‘more than 50 percent’, 

11 and 

12 ‘‘(C) the pro rata share referred to in sec13 tion 951(a)(1) shall be determined under para14 graph (5) of this subsection. 

15 ‘‘(2) RELATED PERSON INSURANCE INCOME.— 

16 For purposes of this subsection, the term ‘related 

17 person insurance income’ means any insurance in18 come (within the meaning of section 955(a)) attrib19 utable to a policy of insurance or reinsurance with 

20 respect to which the person (directly or indirectly) 

21 insured is a United States shareholder in the foreign 

22 corporation or a related person to such a share23 holder. 

24 ‘‘(3) EXCEPTIONS.— 


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1 ‘‘(A) CORPORATIONS NOT HELD BY IN2 SURED.—Paragraph (1) shall not apply to any 

3 foreign corporation if at all times during the 

4 taxable year of such foreign corporation— 

5 ‘‘(i) less than 20 percent of the total 

6 combined voting power of all classes of 

7 stock of such corporation entitled to vote, 

8 and 

9 ‘‘(ii) less than 20 percent of the total 

10 value of such corporation, 

11 is owned (directly or indirectly under the prin12 ciples of section 883(c)(4)) by persons who are 

13 (directly or indirectly) insured under any policy 

14 of insurance or reinsurance issued by such cor15 poration or who are related persons to any such 

16 person. 

17 ‘‘(B) DE MINIMIS EXCEPTION.—Paragraph 

18 (1) shall not apply to any foreign corporation 

19 for a taxable year of such corporation if the re20 lated person insurance income (determined on a 

21 gross basis) of such corporation for such tax22 able year is less than 20 percent of its insur23 ance income (as so determined) for such taxable 

24 year. 


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1 ‘‘(C) ELECTION TO TREAT INCOME AS EF2 FECTIVELY CONNECTED.—Paragraph (1) shall 

3 not apply to any foreign corporation for any 

4 taxable year if— 

5 ‘‘(i) such corporation elects (at such 

6 time and in such manner as the Secretary 

7 may prescribe)— 

8 ‘‘(I) to treat its related person in9 surance income for such taxable year 

10 as income effectively connected with 

11 the conduct of a trade or business in 

12 the United States, and 

13 ‘‘(II) to waive all benefits (other 

14 than with respect to section 884) with 

15 respect to related person insurance in16 come granted by the United States 

17 under any treaty between the United 

18 States and any foreign country, and 

19 ‘‘(ii) such corporation meets such re20 quirements as the Secretary shall prescribe 

21 to ensure that the tax imposed by this 

22 chapter on such income is paid. 

23 An election under this subparagraph made for 

24 any taxable year shall not be effective if the 

25 corporation (or any predecessor thereof) was a 


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1 disqualified corporation for the taxable year for 

2 which the election was made or for any prior 

3 taxable year beginning after 1986. 

4 ‘‘(D) SPECIAL RULES FOR SUBPARAGRAPH

5 (C).— 

6 ‘‘(i) PERIOD DURING WHICH ELEC7 TION IN EFFECT.— 

8 ‘‘(I) IN GENERAL.—Except as 

9 provided in subclause (II), any elec10 tion under subparagraph (C) shall 

11 apply to the taxable year for which 

12 made and all subsequent taxable years 

13 unless revoked with the consent of the 

14 Secretary. 

15 ‘‘(II) TERMINATION.—If a for16 eign corporation which made an elec17 tion under subparagraph (C) for any 

18 taxable year is a disqualified corpora19 tion for any subsequent taxable year, 

20 such election shall not apply to any 

21 taxable year beginning after such sub22 sequent taxable year. 

23 ‘‘(ii) EXEMPTION FROM TAX IMPOSED

24 BY SECTION 4371.—The tax imposed by 

25 section 4371 shall not apply with respect 


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1 to any related person insurance income 

2 treated as effectively connected with the 

3 conduct of a trade or business within the 

4 United States under subparagraph (C). 

5 ‘‘(E) DISQUALIFIED CORPORATION.—For 

6 purposes of this paragraph the term ‘disquali7 fied corporation’ means, with respect to any 

8 taxable year, any foreign corporation which is a 

9 controlled foreign corporation at any time dur10 ing such taxable year (determined without re11 gard to this subsection) but only if a United 

12 States shareholder (determined without regard 

13 to this subsection) owns (within the meaning of 

14 section 958(a)) stock in such corporation at 

15 some time during such taxable year. 

16 ‘‘(4) TREATMENT OF MUTUAL INSURANCE COM17 PANIES.—In the case of a mutual insurance com18 pany— 

19 ‘‘(A) this subsection shall apply, 

20 ‘‘(B) policyholders of such company shall 

21 be treated as shareholders, and 

22 ‘‘(C) appropriate adjustments in the appli23 cation of this subpart shall be made under reg24 ulations prescribed by the Secretary. 

25 ‘‘(5) DETERMINATION OF PRO RATA SHARE.— 


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1 ‘‘(A) IN GENERAL.—The pro rata share 

2 determined under this paragraph for any 

3 United States shareholder is the lesser of— 

4 ‘‘(i) the amount which would be deter5 mined under paragraph (2) of section 

6 951(a) if— 

7 ‘‘(I) only related person insur8 ance income were taken into account, 

9 ‘‘(II) stock owned (within the 

10 meaning of section 958(a)) by United 

11 States shareholders on the last day of 

12 the taxable year were the only stock 

13 in the foreign corporation, and 

14 ‘‘(III) only distributions received 

15 by United States shareholders were 

16 taken into account under subpara17 graph (B) of such paragraph (2), or 

18 ‘‘(ii) the amount which would be de19 termined under paragraph (2) of section 

20 951(a) if the entire earnings and profits of 

21 the foreign corporation for the taxable year 

22 were subpart F income. 

23 ‘‘(B) COORDINATION WITH OTHER PROVI24 SIONS.—The Secretary shall prescribe regula25 tions providing for such modifications to the 


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1 provisions of this subpart as may be necessary 

2 or appropriate by reason of subparagraph (A). 

3 ‘‘(6) RELATED PERSON.—For purposes of this 

4 subsection— 

5 ‘‘(A) IN GENERAL.—Except as provided in 

6 subparagraph (B), the term ‘related person’ has 

7 the meaning given such term by section 954(b). 

8 ‘‘(B) TREATMENT OF CERTAIN LIABILITY

9 INSURANCE POLICIES.—In the case of any pol10 icy of insurance covering liability arising from 

11 services performed as a director, officer, or em12 ployee of a corporation or as a partner or em13 ployee of a partnership, the person performing 

14 such services and the entity for which such 

15 services are performed shall be treated as re16 lated persons. 

17 ‘‘(7) REGULATIONS.—The Secretary shall pre18 scribe such regulations as may be necessary to carry 

19 out the purposes of this subsection, including— 

20 ‘‘(A) regulations preventing the avoidance 

21 of this subsection through cross insurance ar22 rangements or otherwise, and 

23 ‘‘(B) regulations which may provide that a 

24 person will not be treated as a United States 

25 shareholder under paragraph (1) with respect 


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1 to any foreign corporation if neither such per2 son (nor any related person to such person) is 

3 (directly or indirectly) insured under any policy 

4 of insurance or reinsurance issued by such for5 eign corporation. 

6 ‘‘(b) ELECTION BY FOREIGN INSURANCE COMPANY

7 TO BE TREATED AS DOMESTIC CORPORATION.— 

8 ‘‘(1) IN GENERAL.—If— 

9 ‘‘(A) a foreign corporation is a controlled 

10 foreign corporation (as defined in section 

11 957(a) by substituting ‘25 percent or more’ for 

12 ‘more than 50 percent’ and by using the defini13 tion of United States shareholder under sub14 section (a)(1)(B)), 

15 ‘‘(B) such foreign corporation would qual16 ify under part I or II of subchapter L for the 

17 taxable year if it were a domestic corporation, 

18 ‘‘(C) such foreign corporation meets such 

19 requirements as the Secretary shall prescribe to 

20 ensure that the taxes imposed by this chapter 

21 on such foreign corporation are paid, and 

22 ‘‘(D) such foreign corporation makes an 

23 election to have this paragraph apply and 

24 waives all benefits to such corporation granted 

25 by the United States under any treaty, 


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1 for purposes of this title, such corporation shall be 

2 treated as a domestic corporation. 

3 ‘‘(2) PERIOD DURING WHICH ELECTION IS IN

4 EFFECT.— 

5 ‘‘(A) IN GENERAL.—Except as provided in 

6 subparagraph (B), an election under paragraph 

7 (1) shall apply to the taxable year for which 

8 made and all subsequent taxable years unless 

9 revoked with the consent of the Secretary. 

10 ‘‘(B) TERMINATION.—If a corporation 

11 which made an election under paragraph (1) for 

12 any taxable year fails to meet the requirements 

13 of subparagraphs (A), (B), and (C) of para14 graph (1) for any subsequent taxable year, such 

15 election shall not apply to any taxable year be16 ginning after such subsequent taxable year. 

17 ‘‘(3) EFFECT OF ELECTION.— 

18 ‘‘(A) IN GENERAL.—For purposes of sec19 tion 367, any foreign corporation making an 

20 election under paragraph (1) shall be treated as 

21 transferring (as of the 1st day of the 1st tax22 able year to which such election applies) all of 

23 its assets to a domestic corporation in connec24 tion with an exchange to which section 354 ap25 plies. 


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1 ‘‘(B) EXCEPTION FOR PRE-1988 EARNINGS

2 AND PROFITS.— 

3 ‘‘(i) IN GENERAL.—Earnings and 

4 profits of the foreign corporation accumu5 lated in taxable years beginning before 

6 January 1, 1988, shall not be included in 

7 the gross income of the persons holding 

8 stock in such corporation by reason of sub9 paragraph (A). 

10 ‘‘(ii) TREATMENT OF DISTRIBU11 TIONS.—For purposes of this title, any dis12 tribution made by a corporation to which 

13 an election under paragraph (1) applies 

14 out of earnings and profits accumulated in 

15 taxable years beginning before January 1, 

16 1988, shall be treated as a distribution 

17 made by a foreign corporation. 

18 ‘‘(iii) CERTAIN RULES TO CONTINUE

19 TO APPLY TO PRE-1988 EARNINGS.—Sec20 tion 884 to the extent the foreign corpora21 tion reinvested 1987 earnings and profits 

22 in United States assets shall be applied 

23 without regard to paragraph (1), except 

24 that, in the case of a corporation to which 

25 an election under paragraph (1) applies, 


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1 only earnings and profits accumulated in 

2 taxable years beginning before January 1, 

3 1988, shall be taken into account. 

4 ‘‘(4) EFFECT OF TERMINATION.—For purposes 

5 of section 367, if— 

6 ‘‘(A) an election is made by a corporation 

7 under paragraph (1) for any taxable year, and 

8 ‘‘(B) such election ceases to apply for any 

9 subsequent taxable year, 

10 such corporation shall be treated as a domestic cor11 poration transferring (as of the 1st day of such sub12 sequent taxable year) all of its property to a foreign 

13 corporation in connection with an exchange to which 

14 section 354 applies. 

15 ‘‘(5) ADDITIONAL TAX ON CORPORATION MAK16 ING ELECTION.— 

17 ‘‘(A) IN GENERAL.—If a corporation 

18 makes an election under paragraph (1), the 

19 amount of tax imposed by this chapter for the 

20 1st taxable year to which such election applies 

21 shall be increased by the amount determined 

22 under subparagraph (B). 

23 ‘‘(B) AMOUNT OF TAX.—The amount of 

24 tax determined under this paragraph shall be 

25 equal to the lesser of— 


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‘‘(i) 3 1 ⁄4 of 1 percent of the aggregate 

2 amount of capital and accumulated surplus 

3 of the corporation as of December 31, 

4 1987, or 

5 ‘‘(ii) $1,500,000.’’. 

6 (b) TREATMENT OF CERTAIN EXCLUDED SUBPART

7 F INCOME AS PREVIOUSLY TAXED INCOME.—Section 

8 959(g), as added by section 331, is amended to read as 

9 follows: 

10 ‘‘(g) SPECIAL RULES FOR NONTAXED PORTION OF

11 CERTAIN INCOME.—For purposes of this section— 

12 ‘‘(1) IN GENERAL.—A United States share13 holder’s pro rata share of the excludable portion of 

14 the controlled foreign corporation’s subpart F in15 come shall be treated as an amount which has been 

16 included in gross income under section 951(a). 

17 ‘‘(2) ORDERING RULE.—Notwithstanding sub18 section (c), for purposes of subsections (a) and (b), 

19 section 316(a) shall be applied by applying para20 graph (2) thereof and then paragraph (1) thereof— 

21 ‘‘(A) first to the deductible portion (as de22 fined in section 965(c)(3)) of the increase in 

23 subpart F income described in section 

24 965(a)(1) included in the gross income of 

25 United States shareholders under section 


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1 951(a)(1) (after application of section 

2 965(a)(2)(A)), 

3 ‘‘(B) second to the excludable portion of 

4 the controlled foreign corporation’s subpart F 

5 income, and 

6 ‘‘(C) then to the amounts described in 

7 paragraphs (1), (2), or (3) of subsection (c) in 

8 accordance with the provisions of subsection (c). 

9 ‘‘(3) DEFINITIONS.—For purposes of this sub10 section— 

11 ‘‘(A) DEDUCTIBLE PORTION.—The term 

12 ‘deductible portion’ has the meaning given such 

13 term by section 965(c)(3). 

14 ‘‘(B) EXCLUDABLE PORTION.—The term 

15 ‘excludable portion’ means, with respect to the 

16 subpart F income of a controlled foreign cor17 poration, so much of such controlled foreign 

18 corporation’s modified active income as is not 

19 taken into account in computing subpart F in20 come under section 952(a)(1).’’. 

21 (c) GAINS AND LOSSES FROM THE SALE OF CFC 

22 STOCK.— 

23 (1) GAINS.— 


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1 (A) IN GENERAL.—Part I of subchapter P 

2 of chapter 1 is amended by adding at the end 

3 the following new section: 

4 ‘‘SEC. 1203. GAINS FROM SALES OR EXCHANGES OF STOCK 

5 IN CONTROLLED FOREIGN CORPORATIONS. 

6 ‘‘(a) IN GENERAL.—In the case of a United States 

7 shareholder (as defined in section 951), there shall be ex8 cluded from gross income an amount equal to the applica9 ble portion of the amount of any gain recognized from the 

10 sale or exchange of stock in a controlled foreign corpora11 tion. 

12 ‘‘(b) APPLICABLE PORTION.—For purposes of this 

13 section— 

14 ‘‘(1) IN GENERAL.—The term ‘applicable por15 tion’ means the amount which bears the same ratio 

16 to the gain recognized from such sale or exchange 

17 as— 

18 ‘‘(A) the shareholder’s pro rata share (de19 termined under section 951(a)(2)) of the ex20 cludable portion of the aggregate subpart F in21 come of the controlled foreign corporation for 

22 the applicable period, bears to 

23 ‘‘(B) the sum of the amount determined 

24 under subparagraph (A) plus the shareholder’s 

25 pro rata share (determined under section 


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1 951(a)(2)) of the aggregate subpart F income 

2 of the controlled foreign corporation for the ap3 plicable period. 

4 ‘‘(2) EXCLUDABLE PORTION.—For purposes of 

5 this section, the term ‘excludable portion’ has the 

6 meaning given such term by section 959(g)(3)(B). 

7 ‘‘(3) APPLICABLE PERIOD.—The term ‘applica8 ble period’ means, with respect to any stock, the 

9 shorter of the 3-taxable year period immediately pre10 ceding the taxable year of the sale or exchange or 

11 the shareholder’s holding period in the stock. In no 

12 event shall the applicable period include any portion 

13 of any taxable year beginning before the applicable 

14 date (as defined in section 300 of the Infrastructure 

15 and Global Tax Competitiveness Act of 2014).’’. 

16 (B) CLERICAL AMENDMENT.—The table of 

17 sections for part I of subchapter P of chapter 

18 1 is amended by adding at the end the following 

19 new item: 

‘‘Sec. 1203. Gains from sales or exchanges of stock in controlled foreign corporations.’’. 

20 (2) LOSSES.— 

21 (A) IN GENERAL.—Part II of subchapter P 

22 of chapter 1 is amended by adding at the end 

23 the following new section: 


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1 ‘‘SEC. 1213. LOSSES FROM SALES OR EXCHANGES OF STOCK 

2 IN CONTROLLED FOREIGN CORPORATIONS. 

3 ‘‘(a) IN GENERAL.—In the case of a United States 

4 shareholder (as defined in section 951), any loss from the 

5 sale or exchange of stock in a controlled foreign corpora6 tion shall be reduced (but not below zero) by an amount 

7 equal to the shareholder’s aggregate pro rata share (deter8 mined under section 951(a)(2)) of the excludable portion 

9 of the subpart F income of the controlled foreign corpora10 tion during the shareholder’s holding period in the stock. 

11 ‘‘(b) EXCLUDABLE PORTION.—For purposes of this 

12 section, the term ‘excludable portion’ has the meaning 

13 given such term by section 959(g)(3)(B).’’. 

14 (B) CLERICAL AMENDMENT.—The table of 

15 sections for part I of subchapter P of chapter 

16 1 is amended by adding at the end the following 

17 new item: 

‘‘Sec. 1213. Losses from sales or exchanges of stock in controlled foreign corporations.’’. 

18 (d) REPEAL OF ORDINARY INCOME TREATMENT FOR

19 GAINS FROM THE SALE OF STOCK IN CERTAIN FOREIGN

20 CORPORATIONS.— 

21 (1) IN GENERAL.—Part IV of subchapter P of 

22 chapter 1 is amended by striking section 1248. 

23 (2) CONFORMING AMENDMENTS.— 


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1 (A) Section (a) is amended by striking 

2 paragraph (11). 

3 (B) Section 338(h) is amended— 

4 (i) in paragraph (6)(B)(ii), by striking 

5 ‘‘or described in section 1248(e)’’, and 

6 (ii) in paragraph (16), by striking the 

7 second sentence. 

8 (C) Section 751 is amended— 

9 (i) in subsection (c), by striking 

10 ‘‘stock in certain foreign corporations (as 

11 described in section 1248),’’, and 

12 (ii) by striking subsection (e) and re13 designating subsection (f) as subsection 

14 (e). 

15 (D) Section 865(k) is amended to read as 

16 follows: 

17 ‘‘(k) CROSS REFERENCE.—For sourcing of income 

18 from certain foreign currency transactions, see section 

19 988.’’. 

20 (E) Section 904(h)(7) is amended by strik21 ing ‘‘or as a dividend under section 1248’’. 

22 (F) Section 951(a)(2) is amended by strik23 ing the last sentence thereof. 

24 (G) Section 964 is amended by striking 

25 subsection (e). 


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1 (H) Section 989(b) is amended by striking 

2 paragraph (2) and by redesignating paragraphs 

3 (3) and (4) as paragraphs (2) and (3), respec4 tively. 

5 (e) COORDINATION WITH AMOUNTS INCLUDED IN

6 GROSS INCOME OF UNITED STATES SHAREHOLDERS.— 

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

8 951(a) is amended by striking ‘‘such taxable year of 

9 the corporation ends—’’ and all that follows through 

10 the end period and inserting: ‘‘such taxable year of 

11 the corporation ends, the shareholder’s pro rata 

12 share (determined under paragraph (2)) of the cor13 poration’s subpart F income for such taxable year.’’. 

14 (2) CONFORMING AMENDMENTS.— 

15 (A) Section 951(a) is amended— 

16 (i) by striking ‘‘paragraph (1)(A)(i)’’ 

17 in paragraph (2) and inserting ‘‘paragraph 

18 (1)’’, and 

19 (ii) by striking paragraph (3). 

20 (B) Subparagraph (A) of section 

21 512(b)(17) is amended by striking 

22 ‘‘951(a)(1)(A)’’ and inserting ‘‘951(a)(1)’’. 

23 (C) Section 851(b) is amended by striking 

24 ‘‘951(a)(1)(A)(i)’’ in the first sentence following 

25 paragraph (3) and inserting ‘‘951(a)(1)’’. 


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1 (D) Section 959(a) is amended— 

2 (i) by striking ‘‘shall not, when’’ and 

3 all that follows through ‘‘such shareholder’’ 

4 and inserting ‘‘shall not, when actually dis5 tributed to such shareholder’’, and 

6 (ii) by striking ‘‘and the rules of sub7 section (f) shall apply for purposes of para8 graph (2) of this subsection’’. 

9 (E) Section 959(c) is amended by adding 

10 at the end the following: ‘‘References in this 

11 subsection and subsection (f) to section 

12 951(a)(1)(B) shall be treated as references to 

13 such provisions as in effect on the day before 

14 the enactment of the Infrastructure and Global 

15 Tax Competitiveness Act of 2014.’’. 

16 (F) Section 959(e) is amended by striking 

17 ‘‘951(a)(1)(A)’’ and inserting ‘‘951(a)(1)’’. 

18 (G) Section 989(b)(3) is amended by strik19 ing ‘‘951(a)(1)(A)’’ and inserting ‘‘951(a)(1)’’. 

20 (H) Section 1298(b) is amended by strik21 ing paragraph (8). 

22 (f) APPLICATION OF ANTI-LOSS IMPORTATION

23 RULES.—Section 362(e)(1)(B) is amended by adding at 

24 the end the following new sentence: ‘‘For purposes of 

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1 trolled foreign corporation shall be considered to be sub2 ject to tax under this subtitle.’’. 

3 (g) OTHER CONFORMING AMENDMENTS.— 

4 (1) Sections 163(e)(3)(B)(i) and 

5 267(a)(3)(B)(i) are each amended by striking ‘‘and 

6 qualified deficits under section 952(c)(1)(B)’’ and 

7 inserting ‘‘and loss carryforwards under sections 

8 952(d) and 953(b)’’. 

9 (2) Section 304(b)(5)(B)(ii) is amended by 

10 striking ‘‘953(c)’’ and inserting ‘‘956(a)’’. 

11 (3) Section 355(g)(2)(B)(ii)(I) is amended by 

12 striking ‘‘section 954(h)(4)’’ and inserting ‘‘section 

13 954(c)(4)’’. 

14 (4) Section 512(b)(17) is amended by striking 

15 ‘‘953’’ and inserting ‘‘section 955’’. 

16 (5) Section 864(d)(8) is amended by striking 

17 ‘‘or section 956(b)(3)’’. 

18 (6) Section 864(d)(5)(A) is amended— 

19 (A) by striking clause (iii) and redesig20 nating clause (iv) as clause (iii), and 

21 (B) by striking ‘‘954(c)(3)(A)’’ in clause 

22 (iii) (as redesignated by subparagraph (A)) and 

23 inserting ‘‘954(a)(3)(A)’’. 

24 (7) Section 864(d)(7)(B) is amended by strik25 ing ‘‘foreign base company income (as defined in 


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1 section 954(a), determined without regard to section 

2 954(b)(3)(A))’’ and inserting ‘‘passive income (as 

3 defined in section 954(a))’’. 

4 (8) Section 881(c)(5)(A)(iii) is amended by 

5 striking ‘‘954(c)(3)(A)’’ and inserting 

6 ‘‘954(a)(3)(A)’’. 

7 (9) Section 884(d)(2)(D) is amended by strik8 ing ‘‘953(c)(3)(C)’’ and inserting ‘‘956(a)(3)(C)’’. 

9 (10) Section 898(b)(3) is amended— 

10 (A) by striking ‘‘953(c)(2)’’ and inserting 

11 ‘‘956(a)(2)’’, and 

12 (B) by striking ‘‘953(c)(1)’’ and inserting 

13 ‘‘956(a)(1)’’. 

14 (11) Section 936(h)(5) is amended— 

15 (A) by inserting ‘‘(as in effect on the day 

16 before the enactment of the Infrastructure and 

17 Global Tax Competitiveness Act of 2014)’’ after 

18 ‘‘section 954’’ in the last sentence of subpara19 graph (B)(ii), and 

20 (B) in subparagraph (F)(iv)(II)— 

21 (i) by inserting ‘‘(as in effect on the 

22 day before the enactment of the Infrastruc23 ture and Global Tax Competitiveness Act 

24 of 2014)’’ after ‘‘section 954’’, and 


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1 (ii) by inserting ‘‘(as so in effect)’’ 

2 after ‘‘section 954(a)’’. 

3 (12) Section 957(b) is amended— 

4 (A) by striking ‘‘income described in sec5 tion 953(a)’’ and inserting ‘‘income described in 

6 section 955(a)’’, and 

7 (B) by striking ‘‘contracts described in sec8 tion 953(a)(1)’’ and inserting ‘‘contracts de9 scribed in section 955(a)(1)’’. 

10 (13) Section 958(b) is amended— 

11 (A) by striking ‘‘956(c)(2),’’ before ‘‘and 

12 957’’, 

13 (B) by striking ‘‘to treat the stock of a do14 mestic corporation as owned by a United States 

15 shareholder of the controlled foreign corpora16 tion for purposes of section 956(c)(2),’’, and 

17 (C) by striking the last sentence. 

18 (14) Section 964(b) is amended by striking 

19 ‘‘sections 952, 955, and 956’’ and inserting ‘‘section 

20 952’’. 

21 (15) Section 964(e)(2) is amended by striking 

22 ‘‘954(c)(3)(A)’’ and inserting ‘‘954(a)(3)(A)’’. 

23 (16)(A) Part III of subchapter N of chapter 1 

24 is amended by striking subpart G. 


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1 (B) Section 865(e)(2)(A) is amended by strik2 ing the last sentence. 

3 (C) The table of subparts for part III of sub4 chapter N of chapter 1 is amended by striking the 

5 item relating to subpart G. 

6 (17) Section 999(c) is amended— 

7 (A) by striking ‘‘, 952(a)(3)’’ in paragraph 

8 (1), and 

9 (B) by striking ‘‘, the addition to subpart 

10 F income under section 952(a)(3),’’ in para11 graph (2). 

12 (18) Section 1296(f)(2) is amended— 

13 (A) by striking ‘‘foreign personal holding 

14 company income described in section 

15 954(c)(1)(A)’’ in subparagraph (A) and insert16 ing ‘‘passive income (as defined in section 

17 954(a))’’, and 

18 (B) by striking ‘‘foreign personal holding 

19 company income so described’’ and inserting 

20 ‘‘such passive income’’. 

21 (19) Section 1297(b) is amended to read as fol22 lows: 

23 ‘‘(b) PASSIVE INCOME.— 

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1 come received or accrued by any foreign corporation 

2 which is of a kind which would be passive income as 

3 defined in section 954 if the foreign corporation 

4 were a controlled foreign corporation. 

5 ‘‘(2) EXCEPTION.—Except as provided in regu6 lations, the term ‘passive income’ does not include 

7 any income which is interest, a dividend, or a rent 

8 or royalty, which is received or accrued from a re9 lated person (within the meaning of section 954(b)) 

10 to the extent that such amount is properly allocable 

11 (under regulations prescribed by the Secretary) to 

12 income of such related person which is not passive 

13 income.’’. 

14 (20) Section 2057(e)(2)(D)(ii) is amended by 

15 striking ‘‘section 954(c)(1)’’ and inserting ‘‘section 

16 954(a)(1)’’. 

17 (21) The following sections are amended by 

18 striking ‘‘954(d)(3)’’ each place it appears and in19 serting ‘‘954(b)’’: 

20 (A) Section 861(c)(2)(B). 

21 (B) Section 958(b). 

22 (C) Section 988(a)(3)(C). 

23 (D) Subsections (d)(3)(A) and (e)(2)(B)(i) 

24 of section 1298. 

25 (E) Section 1471(e)(2). 


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1 (F) Section 3121(z)(2). 

2 (22) The table of sections for subpart F of part 

3 III of subchapter 1 is amended by striking the items 

4 relating to sections 952 through 956 and inserting 

5 the following: 

‘‘Sec. 952. Subpart F income defined. 

‘‘Sec. 953. Active foreign market income. 

‘‘Sec. 954. Definition of passive income. 

‘‘Sec. 955. Definition of insurance income. 

‘‘Sec. 956. Special rule for certain captive insurance companies.’’. 

6 (h) EFFECTIVE DATES.— 

7 (1) IN GENERAL.—Except as provided in para8 graph (2), the amendments made by this section 

9 shall apply to taxable years of foreign corporations 

10 beginning on or after the applicable date, and to tax11 able years of United States shareholders with or 

12 within which such taxable years of foreign corpora13 tions end. 

14 (2) GAINS AND LOSSES FROM THE SALE OF CFC

15 STOCK; REPEAL OF SECTION 1248.—The amend16 ments made by subsections (c) and (d) shall apply 

17 to sales or exchanges on or after the applicable date. 

18 PART II—FOREIGN TAX CREDIT LIMITATIONS 

19 SEC. 311. REFORM OF FOREIGN TAX CREDIT LIMITATION. 

20 (a) IN GENERAL.—Subsection (d) of section 904 is 

21 amended to read as follows: 

22 ‘‘(d) SEPARATE APPLICATION OF SECTION WITH RE23 SPECT TO CERTAIN CATEGORIES OF INCOME.— 


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1 ‘‘(1) IN GENERAL.—The provisions of sub2 sections (a), (b), and (c) and section 907 and 960 

3 shall be applied separately with respect to— 

4 ‘‘(A) amounts included under section 

5 951(a) which are attributable to active foreign 

6 market income (as defined in section 953), 

7 ‘‘(B) passive category income, and 

8 ‘‘(C) income other than income described 

9 in either of the preceding subparagraphs. 

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

11 ‘‘(A) PASSIVE CATEGORY INCOME.— 

12 ‘‘(i) IN GENERAL.—The term ‘passive 

13 category income’ means— 

14 ‘‘(I) United States taxpayer pas15 sive income described in subparagraph 

16 (B), and 

17 ‘‘(II) income which is included in 

18 gross income of the taxpayer under 

19 section 951(a)(1) to the extent such 

20 income is attributable to passive in21 come (as defined in section 954(a)). 

22 ‘‘(ii) EXCEPTION FOR HIGH-TAXED

23 INCOME.—Passive category income shall 

24 not include any high-taxed income. 


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1 ‘‘(iii) CLARIFICATION OF APPLICATION

2 OF SECTION 864(d)(6).—In determining 

3 whether any income is passive category in4 come, the rules of section 864(d)(6) shall 

5 apply only in the case of income of a con6 trolled foreign corporation. 

7 ‘‘(B) UNITED STATES TAXPAYER PASSIVE

8 INCOME.—United States taxpayer passive in9 come described in this subparagraph is income 

10 received or accrued by the taxpayer which is of 

11 a kind that would be passive income as defined 

12 under section 954(a) if such taxpayer were a 

13 controlled foreign corporation. 

14 ‘‘(C) TREATMENT OF FINANCIAL SERVICES

15 INCOME AND COMPANIES.— 

16 ‘‘(i) IN GENERAL.—Financial services 

17 income which is not active foreign market 

18 category income shall be treated as income 

19 described in paragraph (1)(C) in the case 

20 of— 

21 ‘‘(I) a member of a financial 

22 services group, and 

23 ‘‘(II) any other person if such 

24 person is predominantly engaged in 


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1 the active conduct of a banking, insur2 ance, financing, or similar business. 

3 ‘‘(ii) FINANCIAL SERVICES GROUP.— 

4 The term ‘financial services group’ means 

5 any affiliated group (as defined in section 

6 1504(a) without regard to paragraphs (2) 

7 and (3) of section 1504(b)) which is pre8 dominantly engaged in the active conduct 

9 of a banking, insurance, financing, or simi10 lar business. In determining whether such 

11 a group is so engaged, there shall be taken 

12 into account only the income of members 

13 of the group that are— 

14 ‘‘(I) United States corporations, 

15 or 

16 ‘‘(II) controlled foreign corpora17 tions in which such United States cor18 porations own, directly or indirectly, 

19 at least 80 percent of the total voting 

20 power and value of the stock. 

21 ‘‘(iii) PASS-THRU ENTITIES.—The 

22 Secretary shall by regulation specify for 

23 purposes of this subparagraph the treat24 ment of financial services income received 

25 or accrued by partnerships and by other 


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1 pass-thru entities which are not members 

2 of a financial services group. 

3 ‘‘(D) FINANCIAL SERVICES INCOME.— 

4 ‘‘(i) IN GENERAL.—Except as other5 wise provided in this subparagraph, the 

6 term ‘financial services income’ means any 

7 income which is received or accrued by any 

8 person predominantly engaged in the active 

9 conduct of a banking, insurance, financing, 

10 or similar business, and which is— 

11 ‘‘(I) described in clause (ii), or 

12 ‘‘(II) United States taxpayer pas13 sive income (determined without re14 gard to subparagraph (A)(ii)). 

15 ‘‘(ii) GENERAL DESCRIPTION OF FI16 NANCIAL SERVICES INCOME.—Income is 

17 described in this clause if such income is— 

18 ‘‘(I) derived in the active conduct 

19 of a banking, financing, or similar 

20 business, 

21 ‘‘(II) derived from the investment 

22 by an insurance company of its un23 earned premiums or reserves ordinary 

24 and necessary for the proper conduct 

25 of its insurance business, or 


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1 ‘‘(III) of a kind which would be 

2 insurance income as defined in section 

3 955(a). 

4 ‘‘(E) HIGH-TAXED INCOME.—The term 

5 ‘high-taxed income’ means any income which 

6 (but for this subparagraph) would be passive 

7 category income if the sum of— 

8 ‘‘(i) the foreign income taxes paid or 

9 accrued by the taxpayer with respect to 

10 such income, and 

11 ‘‘(ii) the foreign income taxes deemed 

12 paid by the taxpayer with respect to such 

13 income under section 960, 

14 exceeds the highest rate of tax specified in sec15 tion 1 or 11 (whichever applies) multiplied by 

16 the amount of such income (determined with re17 gard to section 78). For purposes of the pre18 ceding sentence, the term ‘foreign income taxes’ 

19 means any income, war profits, or excess profits 

20 tax imposed by any foreign country or posses21 sion of the United States. 

22 ‘‘(F) TREATMENT OF INCOME TAX BASE

23 DIFFERENCES.— 

24 ‘‘(i) IN GENERAL.—In the case of tax25 able years beginning after December 31, 


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1 2006, tax imposed under the law of a for2 eign country or possession of the United 

3 States on an amount which does not con4 stitute income under United States tax 

5 principles shall be treated as imposed on 

6 income described in paragraph (1)(C). 

7 ‘‘(ii) SPECIAL RULES FOR YEARS

8 AFTER 2006 AND BEFORE THE APPLICABLE

9 DATE.—In the case of taxable years begin10 ning after December 31, 2006, and on or 

11 before the applicable date (as defined in 

12 section 300 of the Infrastructure and Glob13 al Tax Competitiveness Act of 2014), tax 

14 imposed under the law of a foreign country 

15 or possession of the United States on an 

16 amount which does not constitute income 

17 under United States tax principles shall be 

18 treated as imposed on income described in 

19 paragraph (1)(B) (as in effect for taxable 

20 years beginning the day before such appli21 cable date). 

22 ‘‘(iii) SPECIAL RULE FOR YEARS BE23 FORE 2007.— 

24 ‘‘(I) IN GENERAL.—In the case 

25 of taxes paid or accrued in taxable 


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1 years beginning after December 31, 

2 2004, and before January 1, 2007, a 

3 taxpayer may elect to treat tax im4 posed under the law of a foreign coun5 try or possession of the United States 

6 on an amount which does not con7 stitute income under United States 

8 tax principles as tax imposed on in9 come described in subparagraph (C) 

10 or (I) of paragraph (1) (as in effect 

11 for taxable years beginning in 2006). 

12 ‘‘(II) REVOCATION.—Any such 

13 election shall apply to the taxable year 

14 for which made and all subsequent 

15 taxable years described in subclause 

16 (I) unless revoked with the consent of 

17 the Secretary. 

18 ‘‘(G) TRANSITION RULES FOR CERTAIN

19 CARRYFORWARDS AND CARRYBACKS.—For pur20 poses of paragraph (1)— 

21 ‘‘(i) in the case of any taxes carried 

22 from any taxable year beginning before the 

23 applicable date (as defined in section 300 

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1 petitiveness Act of 2014), to any taxable 

2 year beginning on or after such date— 

3 ‘‘(I) if such taxes were treated as 

4 attributable to income described in 

5 paragraph (1)(A) (as in effect for tax6 able years beginning the day before 

7 such applicable date), such taxes shall 

8 be treated as attributable to income 

9 described in paragraph (1)(B), and 

10 ‘‘(II) if such taxes were treated 

11 as attributable to income described in 

12 paragraph (1)(B) (as in effect for tax13 able years beginning the day before 

14 such applicable date), such taxes shall 

15 be treated as attributable to income 

16 described in paragraph (1)(C), and 

17 ‘‘(ii) the Secretary may by regulations 

18 provide for the allocation of any carryback 

19 of taxes with respect to income from a tax20 able year beginning on or after such appli21 cable date, to a taxable year beginning be22 fore such date for purposes of allocating 

23 such income among the separate categories 

24 in effect for the taxable year to which car25 ried. 


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1 ‘‘(3) CONTROLLED FOREIGN CORPORATION; 

2 UNITED STATES SHAREHOLDER.—For purposes of 

3 this subsection— 

4 ‘‘(A) CONTROLLED FOREIGN CORPORA5 TION.—The term ‘controlled foreign corpora6 tion’ has the meaning given such term by sec7 tion 957 (taking into account section 956(a)). 

8 ‘‘(B) UNITED STATES SHAREHOLDER.— 

9 The term ‘United States shareholder’ has the 

10 meaning given such term by section 951(b) 

11 (taking into account section 956(a)). 

12 ‘‘(4) SEPARATE APPLICATION TO ITEMS

13 RESOURCED UNDER TREATIES.— 

14 ‘‘(A) IN GENERAL.—If— 

15 ‘‘(i) without regard to any treaty obli16 gation of the United States, any item of 

17 income would be treated as derived from 

18 sources within the United States, 

19 ‘‘(ii) under a treaty obligation of the 

20 United States, such item would be treated 

21 as arising from sources outside the United 

22 States, and 

23 ‘‘(iii) the taxpayer chooses the bene24 fits of such treaty obligation, 


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1 subsections (a), (b), and (c) of this section and 

2 sections 907 and 960 shall be applied sepa3 rately with respect to each such item. 

4 ‘‘(B) COORDINATION WITH OTHER PROVI5 SIONS.—This paragraph shall not apply to any 

6 item of income to which subsection (h)(10) or 

7 section 865(h) applies. 

8 ‘‘(C) REGULATIONS.—The Secretary may 

9 issue such regulations as may be necessary or 

10 appropriate to carry out the purposes of this 

11 paragraph, including regulations which provide 

12 that related items of income may be aggregated 

13 for purposes of this paragraph. 

14 ‘‘(5) REGULATIONS.—The Secretary shall pre15 scribe such regulations as may be necessary or ap16 propriate for the purposes of this subsection, includ17 ing preventing the manipulation of the character of 

18 income the effect of which is to avoid the purposes 

19 of this subsection.’’. 

20 (b) APPLICATION OF PER COUNTRY LIMITATION.— 

21 Section 904 is amended by inserting after subsection (d) 

22 the following new subsection: 

23 ‘‘(e) LIMITATIONS APPLIED ON A PER COUNTRY

24 BASIS.—The provisions of subsections (a), (b), (c), and 

25 (d) and sections 907 and 960 shall be applied separately 


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1 with respect to each foreign country or possession with 

2 respect to which taxes described in section 901(b) are paid 

3 or accrued.’’. 

4 (c) EFFECTIVE DATE.—The amendment made by 

5 this section shall apply to taxable years beginning on or 

6 after the applicable date. 

7 SEC. 312. DENIAL OF CREDIT AND DEDUCTION FOR FOR8 EIGN TAXES WITH RESPECT TO EXCLUDED 

9 SUBPART F INCOME. 

10 (a) IN GENERAL.—Section 901 is amended by redes11 ignating subsection (n) as subsection (o) and by inserting 

12 after subsection (m) the following: 

13 ‘‘(n) DENIAL OF FOREIGN TAX CREDIT AND DEDUC14 TION WITH RESPECT TO EXCLUDED SUBPART F IN15 COME.— 

16 ‘‘(1) IN GENERAL.—Notwithstanding section 

17 960(b), no credit shall be allowed under subsection 

18 (a) for any income, war profits, or excess profits 

19 taxes paid or accrued (or deemed paid or accrued 

20 under section 960) with respect to the excludable 

21 portion of subpart F income or any distribution re22 ceived by a United States shareholder (as defined in 

23 section 951(b)) which is properly attributable to 

24 such excludable portion. No deduction shall be al25 lowed to a taxpayer under this chapter for any tax 


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1 for which a credit is not allowable by reason of the 

2 preceding sentence. 

3 ‘‘(2) EXCLUDABLE PORTION.—The term ‘ex4 cludable portion’ has the meaning given such term 

5 by section 959(g)(3)(B). 

6 ‘‘(3) COORDINATION WITH SECTION 78.—Sec7 tion 78 shall not apply to any tax which is not allow8 able as a credit under this section by reason of this 

9 subsection.’’. 

10 (b) EFFECTIVE DATE.—The amendments made by 

11 this section shall apply to taxable years of foreign corpora12 tions beginning on or after the applicable date, and to tax13 able years of United States shareholders with or within 

14 which such taxable years of foreign corporations end. 

15 PART III—EXPENSE DISALLOWANCE 

16 SEC. 321. DISALLOWANCE OF DEDUCTION FOR EXPENSES 

17 ALLOCABLE TO EXEMPT INCOME OF A CON18 TROLLED FOREIGN CORPORATION. 

19 (a) IN GENERAL.—Part IX of subchapter B of chap20 ter 1 is amended by adding at the end the following: 

21 ‘‘SEC. 265A. EXPENSES ALLOCABLE TO EXEMPT INCOME OF 

22 A CONTROLLED FOREIGN CORPORATION. 

23 ‘‘(a) IN GENERAL.—In the case of a United States 

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1 able year, no deduction shall be allowed under this chapter 

2 for— 

3 ‘‘(1) the disallowed portion of any allocable 

4 CFC interest, or 

5 ‘‘(2) expenses directly allocable to the exclud6 able portion of subpart F income (as defined in sec7 tion 959(g)(3)(B)). 

8 ‘‘(b) DISALLOWED PORTION.—For purposes of this 

9 section— 

10 ‘‘(1) IN GENERAL.—The term ‘disallowed por11 tion’ means, with respect to any allocable CFC inter12 est in connection with a controlled foreign corpora13 tion, the exclusion percentage of the amount which 

14 bears the same ratio to the amount of such interest 

15 as— 

16 ‘‘(A) the corporation’s modified active in17 come (as defined in section 952) for the appli18 cable taxable year, bears to 

19 ‘‘(B) the corporation’s current earnings 

20 and profits. 

21 ‘‘(2) CURRENT EARNINGS AND PROFITS.—For 

22 purposes of this subsection— 

23 ‘‘(A) IN GENERAL.—The term ‘current 

24 earnings and profits’ means the earnings and 

25 profits of the controlled foreign corporation for 


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1 the applicable taxable year, without diminution 

2 by reason of distributions made during the tax3 able year. 

4 ‘‘(B) SPECIAL RULE FOR DETERMINING

5 EARNINGS AND PROFITS.—Earnings and profits 

6 of any controlled foreign corporation shall be 

7 determined without regard to paragraphs (4), 

8 (5), and (6) of section 312(n). Under regula9 tions, the preceding sentence shall not apply to 

10 the extent it would increase earnings and prof11 its by an amount which was previously distrib12 uted by the controlled foreign corporation. 

13 ‘‘(3) EXCLUSION PERCENTAGE.—The term ‘ex14 clusion percentage’ means, with respect to any con15 trolled foreign corporation for any taxable year, the 

16 number of percentage points by which 100 percent 

17 exceeds the inclusion percentage determined under 

18 section 952(d) with respect to such controlled for19 eign corporation for such taxable year. 

20 ‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur21 poses of this section— 

22 ‘‘(1) ALLOCABLE CFC INTEREST.—The term 

23 ‘allocable CFC interest’ means any interest expense 

24 paid or accrued during the taxable year by a United 

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1 tion which under section 861, and subsection (e) or 

2 (f) of section 864 (whichever is applicable), is appor3 tioned to income of the controlled foreign corpora4 tion. 

5 ‘‘(2) APPLICABLE TAXABLE YEAR.—The term 

6 ‘applicable taxable year’ means, with respect to any 

7 controlled foreign corporation, the taxable year of 

8 such corporation which ends with or within the tax9 able year of the United States shareholder described 

10 in subsection (a). 

11 ‘‘(3) UNITED STATES SHAREHOLDER; CON12 TROLLED FOREIGN CORPORATION.—The term 

13 ‘United States shareholder’ has the meaning given 

14 such term by section 951(b) and the term ‘controlled 

15 foreign corporation’ shall have the meaning given 

16 such term by section 957(a). 

17 ‘‘(4) SPECIAL RULE FOR MEMBERS OF AN AF18 FILIATED GROUP.—If a United States shareholder 

19 to which subsection (a) applies is a domestic cor20 poration which is a member of a group all members 

21 of which are treated as a single corporation under 

22 subsection (e) or (f) of section 864, whichever is ap23 plicable, all domestic corporations which are mem24 bers of such group shall be treated as a single cor25 poration for purposes of this section. 


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1 ‘‘(5) SPECIAL RULES.— 

2 ‘‘(A) COORDINATION WITH OTHER PROVI3 SIONS.—Except as provided in regulations, this 

4 section shall be applied before any other provi5 sion of this chapter limiting the deductibility of 

6 any allocable CFC interest. 

7 ‘‘(B) SEPARATE APPLICATION TO INCOME

8 IN SEPARATE BASKETS.—This section shall be 

9 applied separately with respect to the categories 

10 of income under section 904(d)(1). 

11 ‘‘(d) REGULATIONS.—The Secretary shall prescribe 

12 such regulations as may be necessary to carry out the pur13 poses of this section, including regulations providing— 

14 ‘‘(1) for the sharing of information between 

15 shareholders if necessary to carry out the provisions 

16 of this section, 

17 ‘‘(2) for directly associating interest or other 

18 expenses disallowed under this section with income 

19 of a controlled foreign corporation and for coordi20 nating this section with other provisions of this 

21 chapter limiting the deductibility of interest or other 

22 expenses, and 

23 ‘‘(3) for the proper application of this section 

24 with respect to the taxpayer’s share of net operating 

25 losses of a controlled foreign corporation.’’. 


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1 (b) CONFORMING AMENDMENT.—The table of sec2 tions for part IX of subchapter B of chapter 1 is amended 

3 by inserting after the item relating to section 265 the fol4 lowing: 

‘‘Sec. 265A. Expense allocable to exempt income of a controlled foreign corporation.’’. 

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

6 this section shall apply to taxable years of foreign corpora7 tions beginning on or after the applicable date, and to tax8 able years of United States shareholders with or within 

9 which such taxable years of foreign corporations end. 

10 PART IV—OTHER PROVISIONS RELATING TO 

11 SUBPART F 

12 Subpart A—Previously Deferred Foreign Income 

13 SEC. 331. TREATMENT OF PREVIOUSLY DEFERRED FOR14 EIGN INCOME. 

15 (a) IN GENERAL.—Subpart F of part III of sub16 chapter N of chapter 1 is amended by adding at the end 

17 the following new section: 

18 ‘‘SEC. 966. INCLUSION OF PREVIOUSLY DEFERRED FOR19 EIGN INCOME. 

20 ‘‘(a) INCLUSION AS SUBPART F INCOME.— 

21 ‘‘(1) IN GENERAL.—Subject to the provisions of 

22 paragraph (2), the subpart F income (determined 

23 under section 952 without regard to this section) of 

24 a controlled foreign corporation for its last taxable 


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1 year beginning before the applicable date (as defined 

2 in section 300 of the Infrastructure and Global Tax 

3 Competitiveness Act of 2014), shall be increased by 

4 the accumulated deferred foreign income of the cor5 poration. 

6 ‘‘(2) INCLUSION ONLY TO APPLY TO DOMESTIC

7 CORPORATIONS.—In the case of any increase in sub8 part F income of a controlled foreign corporation by 

9 reason of paragraph (1)— 

10 ‘‘(A) notwithstanding section 951(a)(1), 

11 the inclusion in gross income under such section 

12 of a United States shareholder’s pro rata por13 tion (as determined under section 951(a)(2)) of 

14 such increased subpart F income shall only 

15 apply if the United States shareholder is a do16 mestic corporation, and 

17 ‘‘(B) there shall be allowed as a deduction 

18 for the taxable year of such United States 

19 shareholder in which such increased subpart F 

20 income is included in such shareholder’s gross 

21 income under section 951(a)(1) an amount 

22 equal to the applicable percentage of the 

23 amount of the income so included. 

24 ‘‘(b) ACCUMULATED DEFERRED FOREIGN IN25 COME.—For purposes of this section— 


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1 ‘‘(1) IN GENERAL.—The term ‘accumulated de2 ferred foreign income’ means the excess of— 

3 ‘‘(A) the undistributed earnings of the con4 trolled foreign corporation, over 

5 ‘‘(B) the undistributed U.S. earnings of 

6 such controlled foreign corporation. 

7 ‘‘(2) UNDISTRIBUTED EARNINGS.— 

8 ‘‘(A) IN GENERAL.—The term ‘undistrib9 uted earnings’ means the earnings and profits 

10 of the controlled foreign corporation described 

11 in section 959(c)(3), determined— 

12 ‘‘(i) as of the close of the taxable year 

13 described in subsection (a)(1), 

14 ‘‘(ii) without diminution by reason of 

15 distributions made during such taxable 

16 year, and 

17 ‘‘(iii) without regard to this section. 

18 ‘‘(B) SPECIAL RULE FOR CURRENT YEAR

19 DISTRIBUTIONS.—For purposes of this chapter, 

20 any determination with respect to the treatment 

21 of distributions described in subparagraph 

22 (A)(ii) shall be made after the application of 

23 this section to the earnings and profits de24 scribed in subparagraph (A). 


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1 ‘‘(3) UNDISTRIBUTED U.S. EARNINGS.—The 

2 term ‘undistributed U.S. earnings’ has the meaning 

3 given the term ‘post-1986 undistributed U.S. earn4 ings’ in section 245(a)(5) (as in effect for taxable 

5 years beginning the day before the applicable date 

6 (as defined in section 300 of the Infrastructure and 

7 Global Tax Competitiveness Act of 2014)), deter8 mined— 

9 ‘‘(A) without regard to ‘post-1986’ each 

10 place it appears in the matter before subpara11 graph (A), and 

12 ‘‘(B) without regard to the last sentence 

13 thereof. 

14 ‘‘(c) DISALLOWANCE OF FOREIGN TAX CREDIT, 

15 ETC.— 

16 ‘‘(1) IN GENERAL.—No credit shall be allowed 

17 under section 901 to a United States shareholder of 

18 a controlled foreign corporation for any taxes paid 

19 or accrued (or treated as paid or accrued) with re20 spect to the deductible portion of— 

21 ‘‘(A) the increased subpart F income of 

22 the corporation included in the gross income of 

23 the shareholder under subsection (a)(2)(A), or 


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1 ‘‘(B) any distribution received by the 

2 shareholder which is properly attributable to 

3 such increased subpart F income. 

4 ‘‘(2) DENIAL OF DEDUCTION.—No deduction 

5 shall be allowed under this chapter to a United 

6 States shareholder of a controlled foreign corpora7 tion for any tax for which a credit is not allowable 

8 under section 901 by reason of paragraph (1). 

9 ‘‘(3) DEDUCTIBLE PORTION.—For purposes of 

10 this subsection, the term ‘deductible portion’ means, 

11 with respect to the increased subpart F income of 

12 the corporation included in the gross income of the 

13 shareholder under subsection (a)(2)(A), the applica14 ble percentage of such income with respect to which 

15 a deduction is allowable under subsection (a)(2)(B). 

16 ‘‘(4) COORDINATION WITH SECTION 78.—Sec17 tion 78 shall not apply to the portion of any tax for 

18 which credit is not allowable under section 901 by 

19 reason of paragraph (1). 

20 ‘‘(d) APPLICABLE PERCENTAGE.—For purposes of 

21 this section, the term ‘applicable percentage’ means the 

22 percentage which is equal to the ratio of— 

23 ‘‘(1) the excess of— 

24 ‘‘(A) the highest rate of tax in effect under 

25 section 11(b) for the taxable year of the United 


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1 States shareholder described in subsection 

2 (a)(2)(B), over 

3 ‘‘(B) 20 percent, to 

4 ‘‘(2) the highest rate of tax in effect under sec5 tion 11(b) for the taxable year of the United States 

6 shareholder described in subsection (a)(2)(B). 

7 The percentage determined under the preceding sentence 

8 shall be rounded to the nearest whole percentage point. 

9 ‘‘(e) ELECTION TO PAY LIABILITY IN INSTALL10 MENTS.— 

11 ‘‘(1) IN GENERAL.—In the case of a United 

12 States shareholder with respect to one or more con13 trolled foreign corporations to which subsection (a) 

14 applies, such United States shareholder may elect to 

15 pay the net tax liability under this section in 2 or 

16 more (but not exceeding 8) equal installments. 

17 ‘‘(2) DATE FOR PAYMENT OF INSTALLMENTS.— 

18 If an election is made under paragraph (1), the due 

19 date for the first installment shall be the due date 

20 (determined without regard to any extension of time 

21 for filing the return) for the return of tax for the 

22 taxable year described in subsection (a)(2)(B) and 

23 the due date for each succeeding installment shall be 

24 the due date (as so determined) for the return of tax 

25 for the taxable year following the taxable year with 


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1 respect to which the preceding installment was 

2 made. 

3 ‘‘(3) ACCELERATION OF PAYMENT.—If there 

4 is— 

5 ‘‘(A) an assessment of an addition to tax 

6 for failure to pay timely with respect to any in7 stallment required under this subsection, 

8 ‘‘(B) a liquidation or sale of substantially 

9 all the assets of the taxpayer (including in a 

10 title 11 or similar case), 

11 ‘‘(C) a cessation of business by the tax12 payer, or 

13 ‘‘(D) any similar circumstance, 

14 then the unpaid portion of all remaining installments 

15 shall be due on the date of such event (or in the case 

16 of a title 11 or similar case, the day before the peti17 tion is filed). 

18 ‘‘(4) PRORATION OF DEFICIENCY TO INSTALL19 MENTS.—If an election is made under paragraph (1) 

20 to pay the net tax liability under this section in in21 stallments and a deficiency has been assessed, the 

22 deficiency shall be prorated to the installments pay23 able under paragraph (1). The part of the deficiency 

24 so prorated to any installment the date for payment 

25 of which has not arrived shall be collected at the 


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1 same time as, and as a part of, such installment. 

2 The part of the deficiency so prorated to any install3 ment the date for payment of which has arrived 

4 shall be paid upon notice and demand from the Sec5 retary. This paragraph shall not apply if the defi6 ciency is due to negligence, to intentional disregard 

7 of rules and regulations, or to fraud with intent to 

8 evade tax. 

9 ‘‘(5) RULES RELATING TO INTEREST.— 

10 ‘‘(A) IN GENERAL.—In the case of any net 

11 tax liability prorated to an installment under 

12 this subsection, the last date prescribed for pay13 ment of the tax for purposes of section 6601(a) 

14 shall be the last date for payment of the install15 ment rather than the last date for payment of 

16 tax for the taxable year in which the net tax li17 ability arose. 

18 ‘‘(B) SPECIAL RULES FOR DEFI19 CIENCIES.— 

20 ‘‘(i) INTEREST PAYABLE FOR ENTIRE

21 PERIOD.—Subparagraph (A) shall not 

22 apply to any deficiency prorated to an in23 stallment under paragraph (4). 

24 ‘‘(ii) PAYMENT OF INTEREST ATTRIB25 UTABLE TO PRIOR PERIODS.—In the case 


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1 of a deficiency to which paragraph (4) ap2 plies, interest with respect to such defi3 ciency which is assigned under paragraph 

4 (4) to any installment the date for pay5 ment of which has arrived on or before the 

6 date of the assessment of the deficiency, 

7 shall be paid upon notice and demand from 

8 the Secretary. 

9 ‘‘(6) PERIOD OF ASSESSMENT.—Notwith10 standing section 6501, the period for assessing the 

11 net tax liability under this section for which an elec12 tion is made under paragraph (1) shall not expire 

13 before the due date for the last installment. 

14 ‘‘(7) ELECTION.—Any election under paragraph 

15 (1) shall be made not later than the due date for the 

16 return of tax for the taxable year of the United 

17 States shareholder described in subsection (a)(2)(B) 

18 and shall be made in such manner as the Secretary 

19 may provide. 

20 ‘‘(8) NET TAX LIABILITY UNDER THIS SEC21 TION.—For purposes of this subsection— 

22 ‘‘(A) IN GENERAL.—The net tax liability 

23 under this section with respect to any United 

24 States shareholder is the excess (if any) of— 


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1 ‘‘(i) such taxpayer’s net income tax 

2 for the taxable year, over 

3 ‘‘(ii) such taxpayer’s net income tax 

4 for such taxable year determined without 

5 regard to this section. 

6 ‘‘(B) NET INCOME TAX.—The term ‘net 

7 income tax’ means the net income tax (as de8 fined in section 38(c)(1)) reduced by the credit 

9 allowed under section 38. 

10 ‘‘(C) REGULATIONS.—The Secretary shall 

11 prescribe such regulations as may be necessary 

12 for the determination under this subsection of 

13 the net tax liability under this section in the 

14 case of any pass-thru entity. 

15 ‘‘(f) REGULATIONS.—The Secretary shall promulgate 

16 such regulations as necessary to carry out the purposes 

17 of this section, including regulations for the application 

18 of this section to pass-through entities all or part of which 

19 are owned by 1 or more domestic corporations.’’. 

20 (b) ORDERING RULE FOR PURPOSES OF TREATMENT

21 OF PREVIOUSLY TAXED INCOME.— 

22 (1) IN GENERAL.—Section 959 is amended by 

23 adding at the end the following new subsection: 

24 ‘‘(g) SPECIAL ORDERING RULE.—Notwithstanding 

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1 tion 316(a) shall be applied by applying paragraph (2) 

2 thereof and then paragraph (1) thereof— 

3 ‘‘(1) first to the deductible portion (as defined 

4 in section 965(c)(3)) of the increase in subpart F in5 come described in section 965(a)(1) included in the 

6 gross income of United States shareholders under 

7 section 951(a)(1) (after application of section 

8 965(a)(2)(A)), and 

9 ‘‘(2) then to amounts described in paragraphs 

10 (1), (2), or (3) of subsection (c).’’. 

11 (2) CONFORMING AMENDMENT.—Section 

12 959(c) is amended by inserting ‘‘except as provided 

13 in subsection (g),’’ after ‘‘subsections (a) and (b),’’. 

14 (c) CONFORMING AMENDMENTS.— 

15 (1) Clause (vi) of section 56(g)(4)(C) is amend16 ed— 

17 (A) by inserting ‘‘or section 966(a)(2)’’ 

18 after ‘‘section 965’’, and 

19 (B) by inserting ‘‘AND INCLUSIONS’’ after 

20 ‘‘CERTAIN DISTRIBUTIONS’’ in the heading 

21 thereof. 

22 (2) Paragraph (3) of section 245(a) is amend23 ed— 

24 (A) by striking ‘‘post-1986’’ in subpara25 graph (A), and 


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1 (B) by striking ‘‘total post-1986’’ in sub2 paragraph (B). 

3 (3) Paragraph (4) of section 245(a) is amended 

4 to read as follows: 

5 ‘‘(4) UNDISTRIBUTED EARNINGS.—The term 

6 ‘undistributed earnings’ means the amount of the 

7 earnings and profits of the controlled foreign cor8 poration (computed in accordance with sections 

9 964(a) and 986)— 

10 ‘‘(A) as of the close of the taxable year of 

11 the controlled foreign corporation in which the 

12 dividend is distributed, and 

13 ‘‘(B) without diminution by reason of divi14 dends distributed during such taxable year.’’. 

15 (4) Paragraph (5) of section 245(a) is amend16 ed— 

17 (A) by striking ‘‘post-1986’’ both places it 

18 appears in the matter preceding subparagraph 

19 (A), and 

20 (B) by striking ‘‘POST-1986 UNDISTRIB21 UTED’’ in the heading thereof and inserting 

22 ‘‘UNDISTRIBUTED’’. 

23 (5) Paragraph (6) of section 245(a) is amend24 ed— 


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1 (A) by striking ‘‘beginning after December 

2 31, 1986’’ and inserting ‘‘which is after the 

3 first taxable year of such corporation’’, and 

4 (B) by striking ‘‘post-1986’’ both places it 

5 appears. 

6 (6) Paragraph (2) of section 6601(b) is amend7 ed— 

8 (A) by striking ‘‘section 6156(a)’’ in the 

9 matter preceding subparagraph (A) and insert10 ing ‘‘section 965(d)(1) or 6156(a)’’, and 

11 (B) by striking ‘‘section 6156(b)’’ in sub12 paragraph (A) and inserting ‘‘section 965(d)(2) 

13 or 6156(b), as the case may be’’. 

14 (7) The table of sections for subpart F of part 

15 III of subchapter N of chapter 1 is amended by 

16 striking the item relating to section 965 and insert17 ing the following: 

‘‘Sec. 965. Inclusion of previously deferred foreign income.’’. 

18 (d) EFFECTIVE DATE.— 

19 (1) IN GENERAL.—Except as provided in para20 graph (2), the amendments made by this section 

21 shall apply to the last taxable year of foreign cor22 porations beginning before the applicable date, and 

23 to taxable years of United States shareholders with 

24 or within which such taxable years of foreign cor25 porations end. 


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1 (2) CONFORMING AMENDMENTS RELATED TO

2 SECTION 245.—The amendments made by para3 graphs (2), (3), (4), and (5) of subsection (c) shall 

4 apply to taxable years of foreign corporations begin5 ning on or after the applicable date, and to taxable 

6 years of United States shareholders with or within 

7 which such taxable years of foreign corporations 

8 end. 

9 Subpart B—Other Provisions 

10 SEC. 336. ELIMINATION OF 30-DAY REQUIREMENT. 

11 (a) IN GENERAL.—Section 951(a)(1) is amended by 

12 striking ‘‘for an uninterrupted period of 30 days or more’’ 

13 and inserting ‘‘at any time’’. 

14 (b) EFFECTIVE DATE.—The amendment made by 

15 this section shall apply to taxable years of foreign corpora16 tions beginning on or after the applicable date, and to tax17 able years of United States shareholders with or within 

18 which such taxable years of foreign corporations end. 

19 SEC. 337. MODIFICATION OF DEFINITION OF UNITED 

20 STATES SHAREHOLDER. 

21 (a) IN GENERAL.—Section 951(b) is amended by in22 serting ‘‘, or 10 percent or more of the total value of 

23 shares of all classes of stock of such foreign corporation’’ 

24 after ‘‘such foreign corporation’’. 


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1 (b) EFFECTIVE DATE.—The amendment made by 

2 this section shall apply to taxable years of foreign corpora3 tions beginning on or after the applicable date, and to tax4 able years of United States shareholders with or within 

5 which such taxable years of foreign corporations end. 

6 Subtitle B—Reform of Foreign Tax 

7 Credit Provisions 

8 SEC. 341. REPEAL OF SECTION 902 INDIRECT FOREIGN TAX 

9 CREDITS; FOREIGN TAX CREDIT RELATED TO 

10 SUBPART F INCOME. 

11 (a) REPEAL OF SECTION 902 INDIRECT FOREIGN

12 TAX CREDITS.—Subpart A of part III of subchapter N 

13 of chapter 1 is amended by striking section 902. 

14 (b) FOREIGN TAX CREDIT RELATED TO SUBPART F 

15 INCOME.— 

16 (1) IN GENERAL.—Section 960 is amended by 

17 redesignating subsections (b) and (c) as subsections 

18 (c) and (d), respectively, and by striking subsection 

19 (a) and inserting the following: 

20 ‘‘(a) DETERMINATION OF CREDIT ON CURRENT

21 YEAR BASIS.—For purposes of this subpart, if there is 

22 included in the gross income of a domestic corporation any 

23 amount under section 951(a) with respect to any con24 trolled foreign corporation with respect to which such do25 mestic corporation is a United States shareholder, such 


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1 domestic corporation shall be deemed to have paid so 

2 much of such foreign corporation’s foreign income taxes 

3 as are properly attributable to the amount so included. 

4 ‘‘(b) TREATMENT OF FOREIGN TAXES NOT PRE5 VIOUSLY DEEMED PAID.—For purposes of this subpart— 

6 ‘‘(1) IN GENERAL.—If any portion of a dis7 tribution from a controlled foreign corporation re8 ceived by a domestic corporation is excluded from 

9 gross income under section 959(a), such domestic 

10 corporation shall be deemed to have paid so much of 

11 such foreign corporation’s foreign income taxes as 

12 are properly attributable to the amount so excluded 

13 to the extent such taxes were not deemed paid by 

14 the domestic corporation under this section for any 

15 prior taxable year. 

16 ‘‘(2) TAXES OF LOWER-TIER CFCS.—If a con17 trolled foreign corporation receives a distribution 

18 any portion of which is described in section 959(b) 

19 from another controlled foreign corporation, such 

20 foreign corporation shall be deemed to have paid so 

21 much of such other foreign corporation’s foreign in22 come taxes as are properly attributable to the 

23 amount so described to the extent such taxes were 

24 not deemed paid by a domestic corporation under 

25 this section for any prior taxable year.’’. 


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1 (2) APPLICATION WITH RESPECT TO FOREIGN

2 TAX CREDIT LIMITATION.—Section 960(c), as redes3 ignated by paragraph (1), is amended by adding at 

4 the end the following new paragraph: 

5 ‘‘(6) APPLICATION WITH RESPECT TO FOREIGN

6 TAX CREDIT LIMITATION.—This subsection shall be 

7 applied separately with respect to each category of 

8 income described in section 904(d)(1).’’. 

9 (3) CONFORMING AMENDMENTS.— 

10 (A) Section 960 is amended by striking 

11 subsection (d), as redesignated by paragraph 

12 (1), and inserting the following: 

13 ‘‘(d) FOREIGN INCOME TAXES.—For purposes of this 

14 section, the term ‘foreign income taxes’ means any income, 

15 war profits, or excess profits taxes paid or accrued by a 

16 foreign corporation to any foreign country or possession 

17 of the United States. 

18 ‘‘(e) REGULATIONS.—The Secretary shall provide 

19 such regulations as may be necessary or appropriate to 

20 carry out the provisions of this section, including rules for 

21 the application of this section to domestic partnerships 

22 with partners that are domestic corporations.’’. 

23 (B) Section 960 is amended by striking the 

24 heading and inserting ‘‘DEEMED PAID CRED25 IT FOR SUBPART F INCLUSIONS’’. 


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1 (c) MODIFICATION TO SECTION 78 GROSS UP.—Sec2 tion 78 is amended to read as follows: 

3 ‘‘SEC. 78. AMOUNTS RECEIVED FROM CERTAIN FOREIGN 

4 CORPORATIONS BY DOMESTIC CORPORA5 TIONS CHOOSING FOREIGN TAX CREDIT. 

6 ‘‘If a domestic corporation which is a United States 

7 shareholder chooses to have the benefits of subpart A of 

8 part III of subchapter N (relating to foreign tax credits) 

9 for any taxable year, an amount equal to the taxes deemed 

10 to be paid by such corporation under section 960 for such 

11 taxable year— 

12 ‘‘(1) shall be treated as an amount included in 

13 the gross income under section 951(a), and 

14 ‘‘(2) for purposes of section 904, shall be 

15 deemed to be attributable to the same category of 

16 income described in section 904(d)(1) as the income 

17 which gave rise to the taxes deemed paid by such 

18 corporation.’’. 

19 (d) CONFORMING AMENDMENTS.— 

20 (1) Subclause (III) of section 56(g)(4)(C)(iii) is 

21 amended by inserting ‘‘as in effect before its repeal’’ 

22 after ‘‘section 902’’. 

23 (2) Sections 535(b)(1) and 545(b)(1) are each 

24 amended by striking ‘‘section 902(a) or 960(a)(1)’’ 

25 and inserting ‘‘section 960’’. 


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1 (3) Subparagraph (B) of section 814(f)(1) is 

2 repealed. 

3 (4) Subsection (a) of section 901 is amended by 

4 striking ‘‘sections 902 and 960’’ and inserting ‘‘sec5 tion 960’’. 

6 (5) Paragraph (2) of section 901(e) is amended 

7 by striking ‘‘but is not limited to—’’ and all that fol8 lows through ‘‘that portion’’ and inserting ‘‘but is 

9 not limited to that portion’’. 

10 (6) Subsection (f) of section 901 is amended by 

11 striking ‘‘sections 902 and 960’’ and inserting ‘‘sec12 tion 960’’. 

13 (7) Subparagraph (A) of section 901(j)(1) is 

14 amended by striking ‘‘902 or’’. 

15 (8) Subparagraph (A) of section 904(h)(10) is 

16 amended by striking ‘‘sections 902, 907, and 960’’ 

17 and inserting ‘‘sections 907 and 960’’. 

18 (9) Subsection (k) of section 904 is amended to 

19 read as follows: 

20 ‘‘(k) CROSS REFERENCE.—For modification of limi21 tation under subsection (a) for purposes of determining 

22 the amount of credit which can be taken against the alter23 native minimum tax, see section 59(a).’’. 

24 (10) Paragraph (1) of section 905(c) is amend25 ed by striking the last sentence. 


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1 (11) Subclause (I) of section 905(c)(2)(B) is 

2 amended by striking ‘‘902 or’’. 

3 (12) Subsection (a) of section 906 is amended 

4 by striking ‘‘(or deemed, under section 902, paid or 

5 accrued during the taxable year)’’. 

6 (13) Subsection (b) of section 906 is amended 

7 by striking paragraphs (4) and (5). 

8 (14) Subparagraph (B) of section 907(b)(2) is 

9 amended by striking ‘‘902 or’’. 

10 (15) Paragraph (3) of section 907(c) is amend11 ed— 

12 (A) by striking subparagraph (A) and re13 designating subparagraphs (B) and (C) as sub14 paragraphs (A) and (B), respectively, and 

15 (B) by striking ‘‘section 960(a)’’ in sub16 paragraph (A) (as so redesignated) and insert17 ing ‘‘section 960’’. 

18 (16) Paragraph (5) of section 907(c) is amend19 ed by striking ‘‘902 or’’. 

20 (17) Clause (i) of section 907(f)(2)(B) is 

21 amended by striking ‘‘902 or’’. 

22 (18) Subsection (a) of section 908 is amended 

23 by striking ‘‘902 or’’. 

24 (19) Paragraph (1) of section 958(a) is amend25 ed by striking ‘‘960(a)(1)’’ and inserting ‘‘960’’. 


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1 (20) Subparagraph (B) of section 6038(c)(1) is 

2 amended by striking ‘‘sections 902 (relating to for3 eign tax credit for corporate stockholder in foreign 

4 corporation) and 960 (relating to special rules for 

5 foreign tax credit)’’ and inserting ‘‘section 960’’. 

6 (21) Paragraph (4) of section 6038(c) is 

7 amended by striking subparagraph (C). 

8 (22) The table of sections for subpart A of part 

9 III of subchapter N of chapter 1 is amended by 

10 striking the item relating to section 902. 

11 (23) The table of sections for part II of sub12 chapter B of chapter 1 is amended by striking 

13 ‘‘Dividends’’ in the item relating to section 78 and 

14 inserting ‘‘Amounts’’. 

15 (24) The table of sections for subpart F of part 

16 III of subchapter N of chapter 1 is amended by 

17 striking the item relating to section 960 and insert18 ing the following: 

‘‘Sec. 960. Deemed paid credit for subpart F inclusions.’’. 

19 (e) EFFECTIVE DATE.—The amendments made by 

20 this section shall apply to taxable years of foreign corpora21 tions beginning on or after the applicable date, and to tax22 able years of United States shareholders with or within 

23 which such taxable years of foreign corporations end. 


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1 SEC. 342. REPEAL OF RULE SUSPENDING FOREIGN TAXES 

2 AND CREDITS UNTIL RELATED INCOME IS 

3 TAKEN INTO ACCOUNT. 

4 (a) IN GENERAL.—Subpart A of part III of sub5 chapter N of chapter 1 is amended by striking section 909. 

6 (b) CONFORMING AMENDMENTS.— 

7 (1) Section 901(m)(1)(B) is amended by strik8 ing ‘‘a section 902 corporation (as defined in section 

9 909(d)(5))’’ and inserting ‘‘a controlled foreign cor10 poration (as defined in section 957(a))’’. 

11 (2) The table of sections of subpart A of part 

12 III of subchapter N of chapter 1 is amended by 

13 striking the item relating to section 909. 

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

15 this section shall apply to foreign taxes paid or accrued 

16 in taxable years beginning on or after the applicable date. 

Æ 


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