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[Congressional Bills 113th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5857 Introduced in House (IH)]

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.

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

SECTION 1. SHORT TITLE; ETC.

    (a) Short Title.--This Act may be cited as the ``Infrastructure and 
Global Tax Competitiveness Act of 2014''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents for 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

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.

 TITLE I--DEEMED REPATRIATION AND INVESTMENT IN DOMESTIC INFRASTRUCTURE

SEC. 101. ELIMINATION OF INCENTIVE FOR CORPORATIONS TO CONTINUE TO HOLD 
              ACCUMULATED EARNINGS OFFSHORE.

    (a) In General.--Section 965 is amended to read as follows:

``SEC. 965. ELIMINATION OF INCENTIVE TO HOLD ACCUMULATED EARNINGS AND 
              PROFITS OFFSHORE.

    ``(a) Treatment of Deferred Foreign Income as Subpart F Income.--In 
the case of the last taxable year of a deferred foreign income 
corporation which begins before January 1, 2015, the subpart F income 
of such foreign corporation (as otherwise determined for such taxable 
year under section 952) shall be increased by the accumulated post-1986 
deferred foreign income of such corporation determined as of the close 
of such taxable year.
    ``(b) Reduction in Amounts Included in Gross Income of United 
States Shareholders of Specified Foreign Corporations With Deficits in 
Earnings and Profits.--
            ``(1) In general.--In the case of a taxpayer which is a 
        United States shareholder with respect to at least one deferred 
        foreign income corporation and at least one E&P deficit foreign 
        corporation, the amount which would (but for this subsection) 
        be taken into account under section 951(a)(1) by reason of 
        subsection (a) as such United States shareholder's pro rata 
        share of the subpart F income of each deferred foreign income 
        corporation shall be reduced (but not below zero) by the amount 
        of such United States shareholder's aggregate foreign E&P 
        deficit which is allocated under paragraph (2) to such deferred 
        foreign income corporation.
            ``(2) Allocation of aggregate foreign e&p deficit.--The 
        aggregate foreign E&P deficit of any United States shareholder 
        shall be allocated among the deferred foreign income 
        corporations of such United States shareholder in an amount 
        which bears the same proportion to such aggregate as--
                    ``(A) such United States shareholder's pro rata 
                share of the accumulated post-1986 deferred foreign 
                income of each such deferred foreign income 
                corporation, bears to
                    ``(B) the aggregate of such United States 
                shareholder's pro rata share of the accumulated post-
                1986 deferred foreign income of all deferred foreign 
                income corporations of such United States shareholder.
            ``(3) Definitions related to e&p deficits.--For purposes of 
        this subsection--
                    ``(A) Aggregate foreign e&p deficit.--The term 
                `aggregate foreign E&P deficit' means, with respect to 
                any United States shareholder, the aggregate of such 
                shareholder's pro rata shares of the specified E&P 
                deficits of the E&P deficit foreign corporations of 
                such shareholder.
                    ``(B) E&P deficit foreign corporation.--The term 
                `E&P deficit foreign corporation' means, with respect 
                to any taxpayer, any specified foreign corporation with 
                respect to which such taxpayer is a United States 
                shareholder, if--
                            ``(i) such specified foreign corporation 
                        has a deficit in post-1986 earnings and 
                        profits, and
                            ``(ii) as of the date of the introduction 
                        of Infrastructure and Global Tax 
                        Competitiveness Act of 2014--
                                    ``(I) such corporation was a 
                                specified foreign corporation, and
                                    ``(II) such taxpayer was a United 
                                States shareholder of such corporation.
                    ``(C) Specified e&p deficit.--The term `specified 
                E&P deficit' means, with respect to any E&P deficit 
                foreign corporation, the amount of the deficit referred 
                to in subparagraph (B).
    ``(c) Deduction for Portion of Included Income.--In the case of a 
United States shareholder of a deferred foreign income corporation, 
there shall be allowed as a deduction for the taxable year in which an 
amount is included in the gross income of such United States 
shareholder under section 951(a)(1) by reason of this section an amount 
equal to 75 percent of the amount so included in gross income.
    ``(d) Deferred Foreign Income Corporation; Accumulated Post-1986 
Deferred Foreign Income.--For purposes of this section--
            ``(1) Deferred foreign income corporation.--The term 
        `deferred foreign income corporation' means, with respect to 
        any United States shareholder, any specified foreign 
        corporation of such United States shareholder which has 
        accumulated post-1986 deferred foreign income (as of the close 
        of the taxable year referred to in subsection (a)) greater than 
        zero.
            ``(2) Accumulated post-1986 deferred foreign income.--The 
        term `accumulated post-1986 deferred foreign income' means the 
        post-1986 earnings and profits except to the extent such 
        earnings--
                    ``(A) are attributable to income of the specified 
                foreign corporation which is effectively connected with 
                the conduct of a trade or business within the United 
                States and subject to tax under this chapter,
                    ``(B) if distributed, would--
                            ``(i) in the case of a controlled foreign 
                        corporation, be excluded from the gross income 
                        of a United States shareholder under section 
                        959, or
                            ``(ii) in the case of any passive foreign 
                        investment company (as defined in section 1297) 
                        other than a controlled foreign corporation, be 
                        treated as a distribution which is not a 
                        dividend, or
                    ``(C) in the case of any passive foreign investment 
                company (as so defined), is properly attributable to an 
                unreversed inclusion of a United States person under 
                section 1296.
        To the extent provided in regulations or other guidance 
        prescribed by the Secretary, in the case of any controlled 
        foreign corporation which has shareholders which are not United 
        States shareholders, accumulated post-1986 deferred foreign 
        income shall be appropriately reduced by amounts which would be 
        described in subparagraph (B)(i) if such shareholders were 
        United States shareholders. Such regulations or other guidance 
        may provide a similar rule for purposes of subparagraph (B)(ii) 
        and (C).
            ``(3) Post-1986 earnings and profits.--The term `post-1986 
        earnings and profits' means the earnings and profits of the 
        foreign corporation (computed in accordance with sections 
        964(a) and 986) accumulated in taxable years beginning after 
        December 31, 1986, and determined--
                    ``(A) as of the close the taxable year referred to 
                in subsection (a), and
                    ``(B) without diminution by reason of dividends 
                distributed during such taxable year.
    ``(e) Specified Foreign Corporation.--
            ``(1) In general.--For purposes of this section, the term 
        `specified foreign corporation' means--
                    ``(A) any controlled foreign corporation, and
                    ``(B) any section 902 corporation (as defined in 
                section 909(d)(5)).
            ``(2) Application to section 902 corporations.--For 
        purposes of section 951, a section 902 corporation (as so 
        defined) shall be treated as a controlled foreign corporation 
        solely for purposes of taking into account the subpart F income 
        of such corporation under subsection (a) (and for purposes of 
        applying subsection (f)).
    ``(f) Determinations of Pro Rata Share.--For purposes of this 
section, the determination of any United States shareholder's pro rata 
share of any amount with respect to any specified foreign corporation 
shall be determined under rules similar to the rules of section 
951(a)(2) by treating such amount in the same manner as subpart F 
income (and by treating such specified foreign corporation as a 
controlled foreign corporation).
    ``(g) Disallowance of Foreign Tax Credit, etc.--
            ``(1) In general.--No credit shall be allowed under section 
        901 for the applicable percentage of any taxes paid or accrued 
        (or treated as paid or accrued) with respect to any amount for 
        which a deduction is allowed under this section.
            ``(2) Applicable percentage.--For purposes of this 
        subsection, the term `applicable percentage' means the 
        percentage specified in subsection (c).
            ``(3) Denial of deduction.--No deduction shall be allowed 
        under this chapter for any tax for which credit is not 
        allowable under section 901 by reason of paragraph (1) 
        (determined by treating the taxpayer as having elected the 
        benefits of subpart A of part III of subchapter N).
            ``(4) Coordination with section 78.--Section 78 shall not 
        apply to any tax for which credit is not allowable under 
        section 901 by reason of paragraph (1).
    ``(h) Election To Pay Liability in Installments.--
            ``(1) In general.--In the case of a United States 
        shareholder of a deferred foreign income corporation, such 
        United States shareholder may elect to pay the net tax 
        liability under this section in 8 installments of the following 
        amounts:
                    ``(A) 8 percent of the net tax liability in the 
                case of each of the first 5 of such installments,
                    ``(B) 15 percent of the net tax liability in the 
                case of the 6th such installment,
                    ``(C) 20 percent of the net tax liability in the 
                case of the 7th such installment, and
                    ``(D) 25 percent of the net tax liability in the 
                case of the 8th such installment.
            ``(2) Date for payment of installments.--If an election is 
        made under paragraph (1), the first installment shall be paid 
        on the due date (determined without regard to any extension of 
        time for filing the return) for the return of tax for the 
        taxable year described in subsection (b) and each succeeding 
        installment shall be paid on the due date (as so determined) 
        for the return of tax for the taxable year following the 
        taxable year with respect to which the preceding installment 
        was made.
            ``(3) Acceleration of payment.--If there is an addition to 
        tax for failure to pay timely assessed with respect to any 
        installment required under this subsection, a liquidation or 
        sale of substantially all the assets of the taxpayer (including 
        in a title 11 or similar case), a cessation of business by the 
        taxpayer, or any similar circumstance, then the unpaid portion 
        of all remaining installments shall be due on the date of such 
        event (or in the case of a title 11 or similar case, the day 
        before the petition is filed). The preceding sentence shall not 
        apply to the sale of substantially all the assets of a taxpayer 
        to a buyer if such buyer enters into an agreement with the 
        Secretary under which such buyer is liable for the remaining 
        installments due under this subsection in the same manner as if 
        such buyer were the taxpayer.
            ``(4) Proration of deficiency to installments.--If an 
        election is made under paragraph (1) to pay the net tax 
        liability under this section in installments and a deficiency 
        has been assessed with respect to such net tax liability, the 
        deficiency shall be prorated to the installments payable under 
        paragraph (1). The part of the deficiency so prorated to any 
        installment the date for payment of which has not arrived shall 
        be collected at the same time as, and as a part of, such 
        installment. The part of the deficiency so prorated to any 
        installment the date for payment of which has arrived shall be 
        paid upon notice and demand from the Secretary. This subsection 
        shall not apply if the deficiency is due to negligence, to 
        intentional disregard of rules and regulations, or to fraud 
        with intent to evade tax.
            ``(5) Election.--Any election under paragraph (1) shall be 
        made not later than the due date for the return of tax for the 
        taxable year described in subsection (a) and shall be made in 
        such manner as the Secretary may provide.
            ``(6) Net tax liability under this section.--For purposes 
        of this subsection--
                    ``(A) In general.--The net tax liability under this 
                section with respect to any United States shareholder 
                is the excess (if any) of--
                            ``(i) such taxpayer's net income tax for 
                        the taxable year described in subsection (a), 
                        over
                            ``(ii) such taxpayer's net income tax for 
                        such taxable year determined without regard to 
                        this section.
                    ``(B) Net income tax.--The term `net income tax' 
                means the regular tax liability reduced by the credits 
                allowed under subparts A, B, and D of part IV of 
                subchapter A.
    ``(i) Inclusion of Deferred Foreign Income Under This Section Not 
To Trigger Recapture of Overall Foreign Loss.--For purposes of section 
904(f)(1), in the case of a United States shareholder of a deferred 
foreign income corporation, such United States shareholder's taxable 
income from sources without the United States shall be determined 
without regard to this section.
    ``(j) Regulations.--The Secretary may prescribe such regulations or 
other guidance as may be necessary or appropriate to carry out the 
provisions of this section.''.
    (b) Clerical Amendment.--The table of sections for subpart F of 
part III of subchapter N of chapter 1 of such Code is amended by 
striking the item relating to section 965 and inserting the following:

``Sec. 965. Elimination of incentive to hold accumulated earnings and 
                            profits offshore.''.

SEC. 102. AMERICAN INFRASTRUCTURE FUND.

    (a) American Infrastructure Fund.--
            (1) In general.--There is established a wholly owned 
        Government corporation--
                    (A) which shall be called the American 
                Infrastructure Fund (referred to in this Act as the 
                ``AIF'');
                    (B) which shall be headed by the Board of Trustees 
                established under subsection (b);
                    (C) which may have separate subaccounts or 
                subsidiaries for funds used to make loans, bond 
                guarantees, and equity investments under this section;
                    (D) which shall be available to the AIF to pay for 
                the costs of carrying out this section, including the 
                compensation of the Board and other employees of the 
                AIF; and
                    (E) the funds of which may be invested by the Board 
                in such manner as the Board determines appropriate.
            (2) Deposits to aif.--All funds received from bond 
        issuances, loan payments, bond guarantee fees, and any other 
        funds received in carrying out this section shall be held by 
        AIF.
            (3) Limitations.--The charter of the AIF shall limit its 
        activities to those activities described as the mission of the 
        Board under subsection (b)(2).
            (4) Oversight.--The AIF shall register with the Securities 
        and Exchange Commission and the Chairman shall report to 
        Congress annually as to whether the AIF is fulfilling the 
        mission of the Board under subsection (b)(2).
            (5) Treatment of aif.--
                    (A) Accounts.--Title 31, United States Code, is 
                amended in each of sections 9107(c)(3) and 9108(d)(2)--
                            (i) by inserting ``the American 
                        Infrastructure Fund,'' after ``the Regional 
                        Banks for Cooperatives,''; and
                            (ii) by striking ``those banks'' and 
                        inserting ``those entities''.
                    (B) Bonds.--Section 149(b)(3)(A)(i) is amended by 
                inserting ``American Infrastructure Fund,'' after 
                ``Federal Home Loan Mortgage Corporation,''.
    (b) Board of Trustees.--
            (1) In general.--There is established a Board of Trustees 
        of the AIF (referred to in this subsection as the ``Board''), 
        which shall be composed of 9 members who--
                    (A) have substantial experience in bond guarantees 
                or municipal credit; and
                    (B) to the greatest extent practicable, have 
                extensive experience working with municipal credit, 
                risk management, and infrastructure finance.
            (2) Mission.--The mission of the Board is--
                    (A) to operate the AIF and its subsidiaries to be a 
                low cost provider of bond guarantees, loans, and equity 
                investments to State and local governments and 
                infrastructure providers for urban and rural 
                infrastructure projects that--
                            (i) provide a positive economic impact; and
                            (ii) meet such other standards as the Board 
                        may develop;
                    (B) to operate the AIF in a self-sustaining manner;
                    (C) to not have a profit motive, but to seek at all 
                times to pursue its mission of providing low cost bond 
                guarantees and loans while--
                            (i) covering its costs;
                            (ii) maintaining such reserves as may be 
                        needed; and
                            (iii) applying prudent underwriting 
                        standards;
                    (D) to only consider projects put forth by State 
                and local governments and not to seek projects 
                directly; and
                    (E) to engage in no other activities other than 
                those permitted under this section.
            (3) Membership.--
                    (A) Initial members.--
                            (i) Appointment.--Not later than 150 days 
                        after the date of the enactment of this Act, 
                        the President shall appoint, with the advice 
                        and consent of the Senate, as members of the 
                        Board--
                                    (I) 2 individuals from a list of at 
                                least 5 individuals selected by the 
                                Speaker of the House of 
                                Representatives;
                                    (II) 2 individuals from a list of 
                                at least 5 individuals selected by the 
                                Minority Leader of the House of 
                                Representatives;
                                    (III) 2 individuals from a list of 
                                at least 5 individuals selected by the 
                                Majority Leader of the Senate;
                                    (IV) 2 individuals from a list of 
                                at least 5 individuals selected by the 
                                Minority Leader of the Senate; and
                                    (V) 1 individual selected at will 
                                by the President.
                            (ii) Submission of lists.--Each of the 
                        lists described in clause (i) shall be 
                        submitted to the President not later than 90 
                        days after the date of the enactment of this 
                        Act. If any of such lists are submitted after 
                        the date required under this clause, the 
                        President may appoint the 2 members of the 
                        Board who were to be selected from such list at 
                        will.
                    (B) Staggered terms.--The members of the Board 
                appointed pursuant to subparagraph (A)(i) shall serve 
                staggered terms, with 2 each of the initial members of 
                the Board serving for terms of 5, 6, 7, and 8 years, 
                respectively, and the initial Chair selected under 
                subparagraph (D) serving for 9 years. The decision of 
                which Board members, other than the Chair, serve for 
                which initial terms shall be made by the members of the 
                Board drawing lots.
                    (C) Additional members.--
                            (i) In general.--Except as provided in 
                        subparagraph (A), if the term of a member of 
                        the Board expires or otherwise becomes vacant, 
                        the President shall appoint a replacement for 
                        such member, with the advice and consent of the 
                        Senate, from among a list of at least 5 
                        individuals submitted by the Board.
                            (ii) Term of service.--
                                    (I) In general.--Each member of the 
                                Board appointed to replace a member 
                                whose term is expiring shall serve for 
                                a 7-year term.
                                    (II) Vacancies.--Any member of the 
                                Board appointed to fill a vacancy 
                                occurring before the expiration of the 
                                term to which that member's predecessor 
                                was appointed shall be appointed only 
                                for the remainder of the term.
                    (D) Chair.--The members of the Board shall choose 1 
                member to serve as the Chair of the Board for a term of 
                7 years, except that the initial Chair shall serve for 
                a term of 9 years, pursuant to subsection (B).
                    (E) Continuation of service.--Each member of the 
                Board may continue to serve after the expiration of the 
                term of office to which that member was appointed until 
                a successor has been appointed.
                    (F) Conflicts of interest.--No member of the Board 
                may have a financial interest in, or be employed by, a 
                Qualified Infrastructure Project (``QIP'') related to 
                assistance provided under this section. Owning 
                municipal credit of any State or local government or 
                owning the securities of a diversified company that 
                engages in infrastructure activities, provided those 
                activities constitute less than 20 percent of the 
                company's revenues, or investing in broadly held 
                investment funds shall not be deemed to create a 
                conflict of interest. The Board may issue regulations 
                to define terms used under this subparagraph.
            (4) Compensation.--The members of the Board shall be 
        compensated at an amount to be set by the Board, but under no 
        circumstances may such compensation be higher than the rate 
        prescribed for level IV of the Executive Schedule under section 
        5315 of title 5, United States Code.
            (5) Staff.--The Board shall employ and set compensation for 
        such staff as the Board determines as is necessary to carry out 
        the activities and mission of the AIF, and such staff may be 
        paid without regard to the provisions of chapter 51 and 
        subchapter III of chapter 53, United States Code, relating to 
        classification and General Schedule pay rates.
            (6) Procedures.--The Board shall establish such procedures 
        as are necessary to carry out this section.
            (7) Corporate governance standards.--
                    (A) Board committees generally.--The Board shall 
                maintain all of the committees required to be 
                maintained by the board of directors of an issuer 
                listed on the New York Stock Exchange as of the date of 
                the enactment of this section.
                    (B) Risk management committee.--The Board shall 
                maintain a risk management committee, which shall--
                            (i) employ additional staff who are 
                        certified by the Board as having significant 
                        and relevant experience in insurance 
                        underwriting and credit risk management; and
                            (ii) establish the risk management policies 
                        used by the Board.
                    (C) Standards.--The Board shall, to the extent 
                practicable, follow all standards with respect to 
                corporate governance that are required to be followed 
                by the board of directors of an issuer listed on the 
                New York Stock Exchange as of the date of the enactment 
                of this section.
            (8) Biennial reports.--Not less frequently than once every 
        2 years, the Board shall produce a report that describes, of 
        the materials, goods, and products that were used to construct, 
        or to support the construction of, qualified infrastructure 
        projects (as described in subsection (c)) and received 
        financing from the American Infrastructure Fund within the most 
        recent 2 calendar years, the percentage of such materials, 
        goods, and products that were created, sourced, or manufactured 
        in the United States.
    (c) Infrastructure Investment.--
            (1) Entities eligible for assistance.--The AIF may provide 
        assistance to State and local government entities, nonprofit 
        infrastructure providers, private parties, and public-private 
        partnerships (referred to in this section as ``eligible 
        entities'') to help finance qualified infrastructure projects 
        (referred to in this subsection as ``QIPs'').
            (2) Forms of assistance.--The AIF may--
                    (A) provide bond guarantees to debt issued by 
                eligible entities;
                    (B) make loans, including subordinated loans, to 
                eligible entities; and
                    (C) make equity investments in QIPs.
            (3) Qualified infrastructure projects.--A project qualifies 
        as a QIP under this section if--
                    (A) the project is sponsored by a State or local 
                government;
                    (B) the infrastructure is, or will be, owned by a 
                State or local government;
                    (C) the project involves the construction, 
                maintenance, improvement, or repair of a 
                transportation, energy, water, communications, or 
                educational facility;
                    (D) the recipient of bond guarantees, loans, equity 
                investments, or any other innovative financing 
                technique authorized under this Act provides written 
                assurances prescribed by the AIF that the project will 
                be performed in compliance with the requirements of all 
                Federal laws that would otherwise apply to similar 
                projects to which the United States is a party; and
                    (E) in the case of a public transportation capital 
                project as defined in section 5302 of title 49, United 
                States Code, the recipient of bond guarantees, loans, 
                equity investments, or any other innovative financing 
                technique authorized under this Act complies with the 
                grant requirements of section 5309 of such title.
            (4) Application for assistance.--
                    (A) In general.--A State or local government that 
                wishes to receive a loan or bond guarantee under this 
                section shall submit an application to the Board in 
                such form and manner and containing such information as 
                the Board may require.
                    (B) Requirement for public sponsorship of private 
                entities.--A private entity may only receive a bond 
                guarantee, loan, or equity investment under this 
                section if the State or local government for the 
                jurisdiction in which the nonprofit infrastructure 
                provider or private partner is located submits an 
                application pursuant to subparagraph (A) on behalf of 
                such nonprofit infrastructure provider or private 
                partner.
            (5) Limitations on single state awards.--
                    (A) Annual limitation.--The Board shall set an 
                annual limit, as a percentage of total assistance 
                provided under this section during a year, on the 
                amount of assistance a single State (including local 
                governments and other infrastructure providers within 
                such State) may receive in assistance provided under 
                this section.
                    (B) Cumulative limitation.--The Board shall set a 
                limit, as a percentage of total assistance provided 
                under this section outstanding at any one time, on the 
                amount of assistance a single State (including local 
                governments and other infrastructure providers within 
                such State) may receive in assistance provided under 
                this section.
            (6) Loan specifications.--Loans made under this section 
        shall have such maturity and carry such interest rate as the 
        Board determines appropriate.
            (7) Bond guarantee.--The Board shall charge such fees for 
        Bond guarantees made under this section as the Board determines 
        appropriate.
            (8) Equity investments.--With respect to a QIP, the amount 
        of an equity investment made by the AIF in such QIP may not 
        exceed 20 percent of the total cost of the QIP.
            (9) Public-private partnership requirements.--At least 35 
        percent of the assistance provided under this section shall be 
        provided to QIPs for which at least 10 percent of the financing 
        for such QIPs comes from private debt or equity.
            (10) Prohibition on principal forgiveness.--With respect to 
        a loan made under this section, the Board may not forgive any 
        amount of principal on such loan.
    (d) Definitions.--For purposes of this section:
            (1) Infrastructure provider.--The term ``infrastructure 
        provider'' means an entity that seeks to finance a QIP.
            (2) Secretary.--The term ``Secretary'' means the Secretary 
        of the Treasury.
            (3) State.--The term ``State'' means each of the several 
        States, the District of Columbia, any territory or possession 
        of the United States, and each federally recognized Indian 
        tribe.
    (e) Appropriation.--Out of money in the Treasury not otherwise 
appropriated, there is hereby appropriated $50,000,000,000 to the 
American Infrastructure Fund. Amounts appropriated under this 
subsection shall remain available without fiscal year limitation.

SEC. 103. DEDICATION OF REMAINING REVENUES TO HIGHWAY TRUST FUND.

    (a) In General.--Section 9503(f) is amended by redesignating 
paragraph (5) as paragraph (6) and by inserting after paragraph (4) the 
following new paragraph:
            ``(5) Appropriation of revenues attributable to section 
        965.--
                    ``(A) Initial appropriation.--Out of money in the 
                Treasury not otherwise appropriated, there is hereby 
                appropriated $100,000,000,000 to the Highway Trust 
                Fund.
                    ``(B) Remaining revenues.--
                            ``(i) In general.--Out of money in the 
                        Treasury not otherwise appropriated, there are 
                        hereby appropriated to the Highway Trust Fund 
                        the excess of--
                                    ``(I) amounts equivalent to the 
                                aggregate net tax liabilities under 
                                section 965 (as defined in such 
                                section) received in the Treasury, over
                                    ``(II) $150,000,000,000.
                            ``(ii) Additional transfers only after 
                        revenues equaling initial transfers have been 
                        received in the treasury.--For purposes of 
                        applying section 9601 to clause (i), no 
                        transfer shall be made under clause (i) until 
                        the Secretary estimates that the amount 
                        described in clause (i)(I) has exceeded the 
                        amount described in clause (i)(II).''.
    (b) Transfers to Mass Transit Account.--Section 9503(e)(2) of such 
Code is amended by striking ``the mass transit portion'' and inserting 
``, 20 percent of the amounts appropriated to the Highway Trust Fund 
under subsection (f)(5), and the mass transit portion''.

SEC. 104. HIGHWAY TRUST FUND SOLVENCY COMMISSION.

    (a) Establishment.--There is established in the legislative branch 
a commission to be known as the ``Highway Trust Fund Solvency 
Commission'' (in this section referred to as the ``Commission'').
    (b) Duty of the Commission.--Not later than 1 year after the 
initial meeting of the Commission, the Commission shall transmit to 
Congress a written report that includes recommendations and proposed 
legislation for achieving long-term solvency of the Highway Trust Fund.
    (c) Members.--
            (1) Number and appointment.--The Commission shall be 
        composed of 9 members. Of the members of the Commission--
                    (A) 1 member shall be appointed by the President of 
                the United States;
                    (B) 1 member shall be appointed by the chairman of 
                the Committee on Finance of the Senate;
                    (C) 1 member shall be appointed by the ranking 
                minority member of the Committee on Finance of the 
                Senate;
                    (D) 1 member shall be appointed by the chairman of 
                the Committee on Ways and Means of the House of 
                Representatives;
                    (E) 1 member shall be appointed by the ranking 
                minority member of the Committee on Ways and Means of 
                the House of Representatives;
                    (F) 1 member shall be appointed by the chairman of 
                the Committee on Environment and Public Works of the 
                Senate;
                    (G) 1 member shall be appointed by the ranking 
                minority member of the Committee on Environment and 
                Public Works of the Senate;
                    (H) 1 member shall be appointed by the chairman of 
                the Committee on Transportation and Infrastructure of 
                the House of Representatives; and
                    (I) 1 member shall be appointed by the ranking 
                minority member of the Committee on Transportation and 
                Infrastructure of the House of Representatives.
            (2) Timing of appointments.--Each of the appointments made 
        under paragraph (1) shall be made not later than 45 days after 
        the date of the enactment of this Act.
            (3) Terms; vacancies.--Each member shall be appointed for 
        the life of the Commission, and a vacancy in the Commission 
        shall be filled in the manner in which the original appointment 
        was made.
            (4) Compensation.--
                    (A) In general.--Members of the Commission shall 
                serve without pay.
                    (B) Travel expenses.--Each member shall receive 
                travel expenses, including per diem in lieu of 
                subsistence, in accordance with applicable provisions 
                under subchapter I of chapter 57 of title 5, United 
                States Code.
    (d) Operation and Powers of the Commission.--
            (1) Chair.--The chairperson of the Commission shall be 
        elected by the members of the Commission.
            (2) Meetings.--The Commission shall meet not later than 30 
        days after the members of the Commission have been appointed, 
        and at such times thereafter as the chairperson shall 
        determine.
            (3) Rules of procedure.--The chairperson shall, with the 
        approval of a majority of the members of the Commission, 
        establish written rules of procedure for the Commission, which 
        shall include a quorum requirement to conduct the business of 
        the Commission.
            (4) Hearings.--The Commission may, for the purpose of 
        carrying out this section, hold hearings, sit and act at times 
        and places, take testimony, and receive evidence as the 
        Commission considers appropriate.
            (5) Obtaining official data.--The Commission may secure 
        directly from any department or agency of the United States, 
        including the Congressional Budget Office and the Government 
        Accountability Office, any information or technical assistance 
        necessary to enable it to carry out this section. Upon request 
        of the chairperson of the Commission, the head of that 
        department or agency shall furnish that information or 
        technical assistance to the Commission.
            (6) Contract authority.--The Commission may contract with 
        and compensate government and private agencies or persons for 
        any purpose necessary to enable it to carry out this section.
            (7) Mails.--The Commission may use the United States mails 
        in the same manner and under the same conditions as other 
        departments and agencies of the United States.
    (e) Personnel.--
            (1) Director.--The Commission shall have a Director who 
        shall be appointed by the Commission. The Director shall be 
        paid at a rate of pay equivalent to the annual rate of basic 
        pay for a comparable position paid under the Executive 
        Schedule, subject to the approval of the chairperson of the 
        Commission.
            (2) Staff.--The Director may appoint and fix the pay of 
        additional staff as the Director considers appropriate.
            (3) Experts and consultants.--The Commission may procure 
        temporary and intermittent services under section 3109(b) of 
        title 5, United States Code, but at rates for individuals not 
        to exceed the daily equivalent of the annual rate of basic pay 
        for a comparable position paid under the Executive Schedule.
            (4) Staff of federal agencies.--Upon request of the 
        Commission, the head of any Federal department or agency may 
        detail, without reimbursement, any of the personnel of that 
        department or agency to the Commission to assist it in carrying 
        out its duties under this section.
            (5) Administrative support services.--Upon the request of 
        the Commission, the Administrator of General Services shall 
        provide to the Commission, on a reimbursable basis, the 
        administrative support services necessary for the Commission to 
        carry out its responsibilities under this section.
    (f) Termination.--The Commission shall terminate not later than 60 
days after the submission of the report described in subsection (b).
    (g) Authorization of Appropriations.--There is authorized to be 
appropriated such sums as may be necessary to carry out this section.

            TITLE II--DEADLINE FOR INTERNATIONAL TAX REFORM

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

    Notwithstanding any provision of title III, the provisions of, and 
amendments made by, title III shall not take effect if a bill which 
reforms the corporate international tax system by eliminating the 
incentive to hold earnings in low-tax foreign jurisdictions is enacted 
into law during the 18-month period which begins on the date of the 
enactment of this Act.

              TITLE III--FALLBACK INTERNATIONAL TAX REFORM

SEC. 300. GENERAL EFFECTIVE DATE OF TITLE.

    For purposes of this title, the term ``applicable date'' means the 
date which is 18 months after the date of the enactment of this Act.

 Subtitle A--Reform of Taxation of Income Earned by Controlled Foreign 
                              Corporations

                       PART I--GENERAL PROVISIONS

SEC. 301. MODIFICATIONS TO SUBPART F INCOME.

    (a) In General.--Subpart F of part III of subchapter N of chapter 1 
is amended by striking sections 952 through 956 and inserting the 
following:

``SEC. 952. SUBPART F INCOME DEFINED.

    ``(a) In General.--For purposes of this subpart, the term `subpart 
F income' means, with respect to any controlled foreign corporation, 
the sum of--
            ``(1) the inclusion percentage of the corporation's 
        modified active income, plus
            ``(2) 100 percent of the corporation's modified nonactive 
        income.
    ``(b) Modified Active Income.--
            ``(1) In general.--The term `modified active income' means, 
        with respect to any controlled foreign corporation, the excess 
        (if any) of--
                    ``(A) the corporation's active foreign market 
                income, over
                    ``(B) the amount of the reduction under subsection 
                (e) for deductions properly allocable to such income.
            ``(2) Reduction for certain losses.--
                    ``(A) In general.--The modified active income 
                determined under paragraph (1) for any taxable year 
                shall be reduced (but not below zero)--
                            ``(i) first by any active foreign market 
                        loss for any prior taxable year, and
                            ``(ii) then by any qualified loss for such 
                        taxable year (or for any prior taxable year to 
                        the extent provided in subsection (c)(3)(B)).
                    ``(B) Limitation.--An active foreign market loss or 
                qualified loss for any prior taxable year shall only be 
                taken into account under subparagraph (A)--
                            ``(i) if the prior taxable year is a 
                        taxable year which begins on or after the 
                        applicable date (as defined in section 300 of 
                        the Infrastructure and Global Tax 
                        Competitiveness Act of 2014), and for which the 
                        controlled foreign corporation was a controlled 
                        foreign corporation, and
                            ``(ii) to the extent such loss has not been 
                        previously taken into account under this 
                        subsection.
            ``(3) Active foreign market loss.--The term `active foreign 
        market loss' means, with respect to any taxable year, the 
        amount by which the amount determined under paragraph (1)(B) 
        exceeds the amount determined under paragraph (1)(A).
    ``(c) Modified Nonactive Income.--
            ``(1) In general.--The term `modified nonactive income' 
        means, with respect to any controlled foreign corporation, the 
        excess (if any) of--
                    ``(A) the corporation's gross income determined 
                without regard to active foreign market income, over
                    ``(B) the amount of the reduction under subsection 
                (e) for deductions properly allocable to such gross 
                income.
            ``(2) Reduction for qualified losses.--The amount 
        determined under paragraph (1) for any taxable year shall be 
        reduced (but not below zero) by any qualified loss for any 
        prior taxable year beginning on or after the applicable date 
        (as defined in section 300 of the Infrastructure and Global Tax 
        Competitiveness Act of 2014), for which the controlled foreign 
        corporation was a controlled foreign corporation, but only to 
        the extent such loss has not been previously taken into account 
        under subsection (b)(2) or this subsection.
            ``(3) Qualified loss.--For purposes of this section--
                    ``(A) In general.--The term `qualified loss' means, 
                with respect to any taxable year, the amount by which 
                the amount determined under paragraph (1)(B) exceeds 
                the amount determined under paragraph (1)(A).
                    ``(B) Ordering rule for losses carried from prior 
                taxable years.--In the case of any qualified losses 
                carried to a taxable year from 1 or more prior taxable 
                years, such losses shall be taken into account--
                            ``(i) first under paragraph (2), and
                            ``(ii) then under subsection (b)(2)(B) to 
                        the extent such losses exceed the amount 
                        determined under paragraph (1).
    ``(d) Inclusion Percentage.--For purposes of this section--
            ``(1) In general.--The term `inclusion percentage' means 20 
        percent increased by the number of percentage points (if any) 
        determined under paragraph (2).
            ``(2) Additional inclusion for earnings not subject to oecd 
        average foreign tax.--The number of percentage points 
        determined under this paragraph with respect to any controlled 
        foreign corporation for any taxable year, is the number of 
        percentage points (not less than zero nor more than 15) which 
        bears the same ratio to 15 as--
                    ``(A) the number of percentage points by which 25 
                percent exceeds the aggregate foreign rate of tax 
                imposed on the modified active income of such 
                controlled foreign corporation for such taxable year, 
                bears to
                    ``(B) 25.
    ``(e) Exclusion of United States Income.--For purposes of this 
subpart, any item of income of the controlled foreign corporation which 
is effectively connected with the conduct by such corporation of a 
trade or business within the United States shall not be taken into 
account in computing the subpart F income of such corporation unless 
such item is exempt from taxation (or is subject to a reduced rate of 
tax) pursuant to a treaty obligation of the United States. For purposes 
of this subsection, any exemption (or reductions) with respect to the 
tax imposed by section 884 shall not be taken into account.
    ``(f) Deductions.--For purposes of subsections (b)(1)(B) and 
(c)(1)(B), the active foreign market income, and gross income other 
than active foreign market income, of a controlled foreign corporation 
shall each be reduced, under regulations prescribed by the Secretary, 
by any deductions (including taxes) of such corporation properly 
allocable to items of income taken into account in computing such 
income.

``SEC. 953. ACTIVE FOREIGN MARKET INCOME.

    ``(a) Active Foreign Market Income Defined.--For purposes of this 
subpart, the term `active foreign market income' means, with respect to 
any controlled foreign corporation, the aggregate of all items of 
income which are--
            ``(1) attributable to economically significant activities 
        with respect to a qualified trade or business, and
            ``(2) derived in connection with--
                    ``(A) property which is sold, exchanged, or 
                otherwise disposed of for use, consumption, or 
                disposition outside of the United States, or
                    ``(B) services which are provided outside of the 
                United States with respect to persons or property 
                located outside of the United States.
    ``(b) Treatment of Passive Income.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the term `active foreign market income' shall not 
        include the passive income (as defined in section 954) of a 
        controlled foreign corporation.
            ``(2) Active foreign market income includes certain 
        income.--The term `active foreign market income' shall 
        include--
                    ``(A) if the controlled foreign corporation or a 
                qualified business unit of the corporation is an 
                eligible controlled foreign corporation (as defined in 
                section 954(c)), any item of income of the corporation 
                or unit which is qualified banking or financing income 
                (as so defined),
                    ``(B) if the controlled foreign corporation or a 
                qualified business unit of the corporation is a 
                qualifying insurance company (as defined in section 
                954(d)) or a qualifying insurance company branch (as so 
                defined), any item of income of the corporation or unit 
                which is qualified insurance income (as so defined),
                    ``(C) any item of income which is rents or 
                royalties derived from the ownership and operation 
                (including leasing) of real or personal property which 
                is not treated as passive income under section 
                954(a)(2)(A), and
                    ``(D) in the case of a regular dealer in property 
                which is property described in section 954(a)(1)(B), 
                forward contracts, option contracts, or similar 
                financial instruments (including notional principal 
                contracts and all instruments referenced to 
                commodities), any item of income from any transaction 
                (including hedging transactions and transactions 
                involving physical settlement) entered into in the 
                ordinary course of such dealer's trade or business as 
                such a dealer.
            ``(3) Gain or loss from sales of stock in other cfcs.--If a 
        controlled foreign corporation sells, exchanges, or otherwise 
        disposes of stock in another controlled foreign corporation 
        which is a related person to the selling corporation--
                    ``(A) gain from such sale, exchange, or disposition 
                shall be treated as active foreign market income to the 
                extent that such gain would have been excluded from 
                gross income under section 1203 if the selling 
                corporation were a United States shareholder in the 
                other controlled foreign corporation, and
                    ``(B) loss from such sale, exchange, or disposition 
                shall not be allowed to the extent such loss would have 
                been disallowed under section 1213 if the selling 
                corporation were a United States shareholder in the 
                other controlled foreign corporation.
            ``(4) Gain or loss from sales of interests in 25-percent 
        owned partnerships.--
                    ``(A) In general.--
                            ``(i) Portion treated as active foreign 
                        market income.--In the case of any sale or 
                        exchange by a controlled foreign corporation of 
                        an interest in a partnership with respect to 
                        which such corporation is a 25-percent owner, 
                        gain or loss on such sale shall be taken into 
                        account in determining active foreign market 
                        income in the amount which bears the same ratio 
                        to the amount of such gain or loss as the 
                        controlled foreign corporation's distributable 
                        share of the active foreign market income from 
                        the partnership over the applicable period 
                        bears to the controlled foreign corporation's 
                        distributable share of gross income from the 
                        partnership over such period. The Secretary 
                        shall prescribe such regulations as may be 
                        appropriate to prevent abuse of the purposes of 
                        this paragraph, including regulations providing 
                        for coordination of this paragraph with the 
                        provisions of subchapter K.
                            ``(ii) Applicable period.--For purposes of 
                        this subparagraph, the term `applicable period' 
                        means, with respect to any interest in a 
                        partnership, the shorter of the 3-taxable year 
                        period immediately preceding the taxable year 
                        of the sale or exchange or the controlled 
                        foreign corporation's holding period in the 
                        interest. In no event shall the applicable 
                        period include any portion of any taxable year 
                        beginning before the applicable date (as 
                        defined in section 300 of the Infrastructure 
                        and Global Tax Competitiveness Act of 2014).
                    ``(B) 25-percent owner.--For purposes of this 
                paragraph, the term `25-percent owner' means a 
                controlled foreign corporation which owns directly 25 
                percent or more of the capital or profits interest in a 
                partnership. For purposes of the preceding sentence, if 
                a controlled foreign corporation is a shareholder or 
                partner of a corporation or a partnership, the 
                controlled foreign corporation shall be treated as 
                owning directly its proportionate share of any capital 
                or profits interest in any partnership held directly or 
                indirectly by such corporation or partnership. If a 
                controlled foreign corporation is treated as owning a 
                capital or profits interest in a partnership under 
                constructive ownership rules similar to the rules of 
                section 958(b), the controlled foreign corporation 
                shall be treated as owning such interest directly for 
                purposes of this subparagraph.
    ``(c) Treatment of Insurance Income.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the term `active foreign market income' shall not 
        include the insurance income (as defined in section 955(a)) of 
        a controlled foreign corporation.
            ``(2) Active foreign market income includes exempt 
        insurance income.--The term `active foreign market income' 
        shall include exempt insurance income (as defined in section 
        955(c)) shall be treated as active foreign market income.
    ``(d) Treatment of Income From Property Used, Consumed, or Disposed 
of in the United States.--For purposes of subsection (a)(2)(A)--
            ``(1) In general.--The term `active foreign market income' 
        shall not include income derived in connection with property 
        which is sold, exchanged, or otherwise disposed of to any 
        person if it was reasonable for the controlled foreign 
        corporation (or a related person) to expect that--
                    ``(A) such property would be used, consumed, or 
                disposed of in the United States, or
                    ``(B) such property would be used in the 
                manufacture or production of, or as a component part 
                in, other property which would be used, consumed, or 
                disposed of in the United States.
            ``(2) Chain of related persons.--If--
                    ``(A) property is ultimately used, consumed, or 
                disposed of as described in subparagraph (A) or (B) of 
                paragraph (1), and
                    ``(B) all sales, exchanges, or dispositions of such 
                property (or of the other property described in 
                paragraph (1)(B)) before the sale for use, consumption, 
                or disposition in the United States are between related 
                persons,
        then, for purposes of paragraph (1), there shall be deemed to 
        have been a reasonable expectation that the property (or the 
        other property described in paragraph (1)(B)) would be used, 
        consumed, or disposed of in the United States.
            ``(3) Exception for property subsequently exported.--
        Paragraphs (1) and (2) shall not apply with respect to property 
        which, after entry into the United States is--
                    ``(A) sold, leased, rented, or licensed by the 
                controlled foreign corporation or a related person for 
                direct use, consumption, or disposition outside the 
                United States, or
                    ``(B) used by the controlled foreign corporation or 
                a related person as a component in other property which 
                is so sold, leased, rented, or licensed.
            ``(4) Related person defined.--For purposes of this 
        subsection, the term `related person' has the meaning given 
        such term under section 954(b).
    ``(e) Economically Significant Activities.--For purposes of this 
section, the term `economically significant activities' means, with 
respect to any item of income, activities--
            ``(1) performed outside the United States,
            ``(2) performed by officers or employees of the controlled 
        foreign corporation which are part of the management and 
        operational functions of the corporation, and
            ``(3) which make a substantial contribution to the 
        production of such item of income.
    ``(f) Qualified Trade or Business.--For purposes of this section--
            ``(1) In general.--The term `qualified trade or business' 
        means any trade or business which consists of--
                    ``(A) manufacturing, producing, growing, or 
                extracting property outside of the United States, or
                    ``(B) providing services outside of the United 
                States.
            ``(2) Special rule for substantial contributions to 
        manufacturing and services.--If a trade or business consists of 
        making a substantial contribution through the activities of the 
        officers and employees of the controlled foreign corporation to 
        a qualified trade or business which is described in 
        subparagraph (A) or (B) of paragraph (1) of another person, 
        then the trade or business shall be treated as a qualified 
        trade or business described in subparagraph (A) or (B) of 
        paragraph (1), whichever is applicable.

``SEC. 954. DEFINITION OF PASSIVE INCOME.

    ``(a) Passive Income.--
            ``(1) In general.--For purposes of this part, the term 
        `passive income' means the portion of the gross income which 
        consists of:
                    ``(A) Dividends, etc.--Dividends, interest, 
                royalties, rents, and annuities.
                    ``(B) Certain property transactions.--The excess of 
                gains over losses from the sale or exchange of 
                property--
                            ``(i) which gives rise to income described 
                        in subparagraph (A) (after application of 
                        paragraph (2)(A)) other than property which 
                        gives rise to income not treated as passive 
                        income by reason of subsection (c) or (d) for 
                        the taxable year,
                            ``(ii) which is an interest in a trust, 
                        partnership, or REMIC, or
                            ``(iii) which does not give rise to any 
                        income.
                Gains and losses from the sale or exchange of any 
                property which, in the hands of the controlled foreign 
                corporation, is property described in section 
                1221(a)(1) shall not be taken into account under this 
                subparagraph.
                    ``(C) Commodities transactions.--The excess of 
                gains over losses from transactions (including futures, 
                forward, and similar transactions) in any commodities. 
                This subparagraph shall not apply to gains or losses 
                which--
                            ``(i) arise out of commodity hedging 
                        transactions (as defined in paragraph (5)(A)),
                            ``(ii) are active business gains or losses 
                        from the sale of commodities, but only if 
                        substantially all of the controlled foreign 
                        corporation's commodities are property 
                        described in paragraph (1), (2), or (8) of 
                        section 1221(a), or
                            ``(iii) are foreign currency gains or 
                        losses (as defined in section 988(b)) 
                        attributable to any section 988 transactions.
                    ``(D) Foreign currency gains.--The excess of 
                foreign currency gains over foreign currency losses (as 
                defined in section 988(b)) attributable to any section 
                988 transactions. This subparagraph shall not apply in 
                the case of any transaction, other than a borrowing, 
                directly related to the business needs of the 
                controlled foreign corporation.
                    ``(E) Income equivalent to interest.--Any income 
                equivalent to interest, including income from 
                commitment fees (or similar amounts) for loans actually 
                made.
                    ``(F) Income from notional principal contracts.--
                            ``(i) In general.--Net income from notional 
                        principal contracts.
                            ``(ii) Coordination with other categories 
                        of passive income.--Any item of income, gain, 
                        deduction, or loss from a notional principal 
                        contract entered into for purposes of hedging 
                        any item described in any preceding 
                        subparagraph shall not be taken into account 
                        for purposes of this subparagraph but shall be 
                        taken into account under such other 
                        subparagraph.
                    ``(G) Payments in lieu of dividends.--Payments in 
                lieu of dividends which are made pursuant to an 
                agreement to which section 1058 applies.
                    ``(H) Personal service contracts.--
                            ``(i) Amounts received under a contract 
                        under which the corporation is to furnish 
                        personal services if--
                                    ``(I) some person other than the 
                                corporation has the right to designate 
                                (by name or by description) the 
                                individual who is to perform the 
                                services, or
                                    ``(II) the individual who is to 
                                perform the services is designated (by 
                                name or by description) in the 
                                contract, and
                            ``(ii) amounts received from the sale or 
                        other disposition of such a contract.
                This subparagraph shall apply with respect to amounts 
                received for services under a particular contract only 
                if at some time during the taxable year 25 percent or 
                more in value of the outstanding stock of the 
                corporation is owned, directly or indirectly, by or for 
                the individual who has performed, is to perform, or may 
                be designated (by name or by description) as the one to 
                perform, such services.
            ``(2) Exception for certain amounts.--
                    ``(A) Rents and royalties derived in active 
                business.--Passive income shall not include rents and 
                royalties which are derived in the active conduct of a 
                trade or business and which are received from a person 
                other than a related person. For purposes of the 
                preceding sentence, rents derived from leasing an 
                aircraft or vessel in foreign commerce shall not fail 
                to be treated as derived in the active conduct of a 
                trade or business if, as determined under regulations 
                prescribed by the Secretary, the active leasing 
                expenses are not less than 10 percent of the profit on 
                the lease.
                    ``(B) Exception for dealers.--Except as provided by 
                regulations, in the case of a regular dealer in 
                property which is property described in paragraph 
                (1)(B), forward contracts, option contracts, or similar 
                financial instruments (including notional principal 
                contracts and all instruments referenced to 
                commodities), there shall not be taken into account in 
                computing passive income any item of income, gain, 
                deduction, or loss from any transaction (including 
                hedging transactions and transactions involving 
                physical settlement) entered into in the ordinary 
                course of such dealer's trade or business as such a 
                dealer.
            ``(3) Look-thru rule for certain partnership sales.--
                    ``(A) In general.--In the case of any sale or 
                exchange by a controlled foreign corporation of an 
                interest in a partnership with respect to which such 
                corporation is a 25-percent owner, gain or loss on such 
                sale shall be treated as being described in paragraph 
                (1)(B)(ii) in the amount which bears the same ratio to 
                the amount of such gain or loss as the controlled 
                foreign corporation's distributable share of passive 
                income from the partnership over the applicable period 
                (as defined in section 953(b)(4)(A)(ii)) bears to the 
                controlled foreign corporation's distributable share of 
                gross income from the partnership over such period. The 
                Secretary shall prescribe such regulations as may be 
                appropriate to prevent abuse of the purposes of this 
                paragraph, including regulations providing for the 
                coordination of this paragraph with the provisions of 
                subchapter K.
                    ``(B) 25-percent owner.--For purposes of this 
                paragraph, the term `25-percent owner' has the meaning 
                given such term under section 953(b)(4)(B).
            ``(4) Definition and special rules relating to commodity 
        transactions.--
                    ``(A) Commodity hedging transactions.--For purposes 
                of paragraph (1)(C)(i), the term `commodity hedging 
                transaction' means any transaction with respect to a 
                commodity if such transaction--
                            ``(i) is a hedging transaction as defined 
                        in section 1221(b)(2), determined--
                                    ``(I) without regard to 
                                subparagraph (A)(ii) thereof,
                                    ``(II) by applying subparagraph 
                                (A)(i) thereof by substituting 
                                `ordinary property or property 
                                described in section 1231(b)' for 
                                `ordinary property', and
                                    ``(III) by substituting `controlled 
                                foreign corporation' for `taxpayer' 
                                each place it appears, and
                            ``(ii) is clearly identified as such in 
                        accordance with section 1221(a)(7).
                    ``(B) Treatment of dealer activities under 
                paragraph (1)(c).--Commodities with respect to which 
                gains and losses are not taken into account under 
                paragraph (2)(B) in computing a controlled foreign 
                corporation's passive income shall not be taken into 
                account in applying the substantially all test under 
                paragraph (1)(C)(ii) to such corporation.
                    ``(C) Regulations.--The Secretary shall prescribe 
                such regulations as are appropriate to carry out the 
                purposes of paragraph (1)(C) in the case of 
                transactions involving related persons.
    ``(b) Related Person Defined.--For purposes of this section, a 
person is a related person with respect to a controlled foreign 
corporation, if--
            ``(1) such person is an individual, corporation, 
        partnership, trust, or estate which controls, or is controlled 
        by, the controlled foreign corporation, or
            ``(2) such person is a corporation, partnership, trust, or 
        estate which is controlled by the same person or persons which 
        control the controlled foreign corporation.
For purposes of the preceding sentence, control means, with respect to 
a corporation, the ownership, directly or indirectly, of stock 
possessing more than 50 percent of the total voting power of all 
classes of stock entitled to vote or of the total value of stock of 
such corporation. In the case of a partnership, trust, or estate, 
control means the ownership, directly or indirectly, of more than 50 
percent (by value) of the beneficial interests in such partnership, 
trust, or estate. For purposes of this subsection, rules similar to the 
rules of section 958 shall apply.
    ``(c) Special Rule for Income Derived in the Active Conduct of 
Banking, Financing, or Similar Businesses.--
            ``(1) In general.--For purposes of subsection (a)(1), 
        passive income shall not include qualified banking or financing 
        income of an eligible controlled foreign corporation.
            ``(2) Eligible controlled foreign corporation.--For 
        purposes of this subsection, the term `eligible controlled 
        foreign corporation' means any controlled foreign corporation 
        if--
                    ``(A) more than 80 percent of the gross income of 
                the controlled foreign corporation is derived directly 
                from the active and regular conduct of a lending, 
                finance, or financial services business from 
                transactions with customers which are located outside 
                the United States and are not related persons, or
                    ``(B) it is a regulated financial institution.
            ``(3) Qualified banking or financing income.--For purposes 
        of this subsection--
                    ``(A) In general.--The term `qualified banking or 
                financing income' means income of an eligible 
                controlled foreign corporation which--
                            ``(i) is derived in the active conduct of a 
                        banking, financing, or similar business by such 
                        eligible controlled foreign corporation,
                            ``(ii) is derived from one or more 
                        transactions--
                                    ``(I) with customers located in a 
                                country other than the United States, 
                                and
                                    ``(II) substantially all of the 
                                activities in connection with which are 
                                conducted directly by the corporation 
                                in its home country, and
                            ``(iii) is treated as earned by such 
                        corporation in its home country for purposes of 
                        such country's tax laws.
                    ``(B) Income derived from customers to include 
                certain investment income.--For purposes of 
                subparagraph (A), in the case of a regulated financial 
                institution, income derived from customers includes 
                income derived from--
                            ``(i) reserves that are required to be held 
                        pursuant to banking regulations,
                            ``(ii) deposits placed with the central 
                        bank (or equivalent thereof) in the 
                        corporation's home country, and
                            ``(iii) investments in debt instruments 
                        issued by the home country.
                    ``(C) Substantial activity requirement for cross 
                border income.--The term `qualified banking or 
                financing income' shall not include income derived from 
                1 or more transactions with customers located in a 
                country other than the home country of the eligible 
                controlled foreign corporation unless such corporation 
                conducts substantial activity with respect to a 
                banking, financing, or similar business in its home 
                country.
                    ``(D) Direct conduct of activities.--For purposes 
                of subparagraph (A)(ii)(II), an activity shall be 
                treated as conducted directly by an eligible controlled 
                foreign corporation in its home country if the activity 
                is performed by employees of a related person and--
                            ``(i) the related person is a resident 
                        subject to tax under the laws of the home 
                        country of the corporation to which 
                        subparagraph (A)(ii)(II) is being applied,
                            ``(ii) the activity is performed in such 
                        home country, and
                            ``(iii) the related person is compensated 
                        on an arm's-length basis for the performance of 
                        the activity by its employees and such 
                        compensation is treated as earned by such 
                        person in such home country for purposes of the 
                        home country's tax laws.
            ``(4) Lending, finance, or financial services business.--
        For purposes of this subsection, except as provided in 
        regulations, the term `lending, finance, or financial services 
        business' means the business of--
                    ``(A) making loans,
                    ``(B) purchasing, selling, discounting, or 
                negotiating on a regular basis accounts receivable, 
                notes, or installment obligations,
                    ``(C) engaging in leasing (including entering into 
                leases and purchasing, servicing, and disposing of 
                leases and leased assets),
                    ``(D) issuing letters of credit or providing 
                guarantees,
                    ``(E) providing charge and credit card services,
                    ``(F) performing trust services, including as a 
                fiduciary, agent, or custodian, other than trust 
                services provided by a broker or dealer in stock, 
                securities, or other financial instruments,
                    ``(G) arranging interest rate or currency futures, 
                forwards, options, or notional principal contracts for, 
                or entering into such transactions with, customers,
                    ``(H) providing traveler's check and money order 
                services for customers,
                    ``(I) providing correspondent bank services for 
                customers,
                    ``(J) engaging in hedging activities directly 
                related to an activity described in any other 
                subparagraph of this paragraph,
                    ``(K) underwriting issues of stock, debt, or other 
                securities for customers,
                    ``(L) providing financial, investment advisory, or 
                investment management services,
                    ``(M) purchasing or selling stock, debt 
                instruments, interest rate or currency futures, or 
                other securities or derivative financial products 
                (including notional principal contracts) from or to 
                customers and holding such stock, debt instruments, 
                futures, or other securities or products as inventory 
                for sale to customers, unless such stock, debt 
                instruments, futures, or other securities or products 
                are not held in a dealer capacity,
                    ``(N) effecting transactions in securities for 
                customers as a securities broker, or
                    ``(O) rendering services or making facilities 
                available in connection with activities described in 
                subparagraphs (A) through (N) carried on by--
                            ``(i) the corporation rendering services or 
                        making facilities available, or
                            ``(ii) another corporation which is a 
                        member of the same affiliated group (as defined 
                        in section 1504, but determined without regard 
                        to section 1504(b)(3)).
            ``(5) Other definitions.--For purposes of this subsection--
                    ``(A) Customer.--The term `customer' means, with 
                respect to any controlled foreign corporation, any 
                person which has a customer relationship with such 
                corporation and which is acting in its capacity as 
                such.
                    ``(B) Home country.--Except as provided in 
                regulations, the term `home country' means, with 
                respect to any entity, the country with respect to 
                which the entity is a resident for purposes of the 
                country's income tax laws.
                    ``(C) Located.--Except as provided in regulations, 
                for purposes of paragraph (3)(A)--
                            ``(i) if a customer is a natural person, 
                        the customer is considered to be located in the 
                        country in which the customer is physically 
                        located when entering into the transaction, and
                            ``(ii) if a customer is not a natural 
                        person, the customer is considered to be 
                        located in the country from which the customer 
                        enters into the transaction.
                    ``(D) Qualified business unit.--The term `qualified 
                business unit' has the meaning given such term by 
                section 989(a).
                    ``(E) Regulated financial institution.--Except as 
                provided in regulations, the term `regulated financial 
                institution' means a controlled foreign corporation 
                which--
                            ``(i) is engaged in the active conduct of a 
                        banking business and is an institution licensed 
                        to do business as a bank in the United States 
                        (or is any other corporation not so licensed 
                        which is specified by the Secretary in 
                        regulations), or
                            ``(ii) satisfies each of the following 
                        conditions:
                                    ``(I) The corporation is directly 
                                or indirectly wholly owned by a 
                                domestic corporation that is a bank (as 
                                defined in section 581) or a depository 
                                institution holding company (as defined 
                                in section 3(w)(1) of the Federal 
                                Deposit Insurance Act (12 U.S.C. 
                                1813(w)(1))).
                                    ``(II) The corporation is subject 
                                to bank regulatory supervision in a 
                                jurisdiction the central bank of which 
                                (or equivalent thereof) is a member of 
                                the Basel Committee on Banking 
                                Supervision.
                                    ``(III) The corporation is licensed 
                                and regulated in such jurisdiction as a 
                                bank.
            ``(6) Separate application to qualified business units.--
                    ``(A) In general.--If a controlled foreign 
                corporation has 1 or more qualified business units--
                            ``(i) this subsection shall be applied 
                        separately to each such unit in the same manner 
                        as if it were a controlled foreign corporation, 
                        and
                            ``(ii) if any such unit is treated as an 
                        eligible controlled foreign corporation after 
                        application of clause (i), the qualified 
                        banking or financing income of such unit shall 
                        be treated as qualified banking or financing 
                        income of the controlled foreign corporation of 
                        which such unit is a part.
                    ``(B) Determinations made separately.--For purposes 
                of the separate application of this subsection to a 
                controlled foreign corporation and its qualified 
                business units--
                            ``(i) in the case of the controlled foreign 
                        corporation, only activities and items of 
                        income, deduction, gain, or loss and activities 
                        of such corporation not properly allocable or 
                        attributable to any qualified business unit of 
                        such corporation shall be taken into account, 
                        and
                            ``(ii) in the case of a qualified business 
                        unit, only activities and items of income, 
                        deduction, gain, or loss and activities 
                        properly allocable or attributable to such unit 
                        shall be taken into account.
                    ``(C) Home country.--For purposes of this 
                subsection, except as provided in regulations, 
                notwithstanding paragraph (5)(B), the home country with 
                respect to any qualified business unit treated as a 
                controlled foreign corporation under subparagraph (A) 
                shall be the country in which such unit maintains its 
                principal office.
            ``(7) Anti-abuse rules.--For purposes of applying this 
        subsection--
                    ``(A) there shall be disregarded any item of 
                income, gain, loss, or deduction with respect to any 
                transaction or series of transactions one of the 
                principal purposes of which is qualifying income or 
                gain for the exclusion under this section, including 
                any transaction or series of transactions a principal 
                purpose of which is the acceleration or deferral of any 
                item in order to claim the benefits of such exclusion 
                through the application of this subsection,
                    ``(B) there shall be disregarded any item of 
                income, gain, loss, or deduction of an entity which is 
                not engaged in regular and continuous transactions with 
                customers which are not related persons,
                    ``(C) there shall be disregarded any item of 
                income, gain, loss, or deduction with respect to any 
                transaction or series of transactions utilizing, or 
                doing business with--
                            ``(i) one or more entities in order to 
                        satisfy any home country requirement under this 
                        subsection, or
                            ``(ii) a special purpose entity or 
                        arrangement, including a securitization, 
                        financing, or similar entity or arrangement,
                if one of the principal purposes of such transaction or 
                series of transactions is qualifying income or gain for 
                the exclusion under this subsection, and
                    ``(D) a related person, an officer, a director, or 
                an employee with respect to any controlled foreign 
                corporation which would otherwise be treated as a 
                customer of such corporation with respect to any 
                transaction shall not be so treated if a principal 
                purpose of such transaction is to satisfy any 
                requirement of this subsection.
            ``(8) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of this subsection and subsection (a)(1)(B)(i).
    ``(d) Special Rule for Income Derived in the Active Conduct of 
Insurance Business.--
            ``(1) In general.--For purposes of subsection (a)(1), 
        passive income shall not include qualified insurance income of 
        a qualifying insurance company.
            ``(2) Qualified insurance income.--For purposes of this 
        subsection, the term `qualified insurance income' means income 
        of a qualifying insurance company which is--
                    ``(A) received from a person other than a related 
                person and derived from the investments made by a 
                qualifying insurance company or a qualifying insurance 
                company branch of its reserves allocable to exempt 
                contracts or of 80 percent of its unearned premiums 
                from exempt contracts (as both are determined in the 
                manner prescribed under paragraph (4)), or
                    ``(B) received from a person other than a related 
                person and derived from investments made by a 
                qualifying insurance company or a qualifying insurance 
                company branch of an amount of its assets allocable to 
                exempt contracts equal to--
                            ``(i) in the case of property, casualty, or 
                        health insurance contracts, one-third of its 
                        premiums earned on such insurance contracts 
                        during the taxable year (as defined in section 
                        832(b)(4)), and
                            ``(ii) in the case of life insurance or 
                        annuity contracts, 10 percent of the reserves 
                        described in subparagraph (A) for such 
                        contracts.
            ``(3) Principles for determining qualified insurance 
        income.--Except as provided by the Secretary, for purposes of 
        subparagraphs (A) and (B) of paragraph (2)--
                    ``(A) in the case of any contract which is a 
                separate account-type contract (including any variable 
                contract not meeting the requirements of section 817), 
                income credited under such contract shall be allocable 
                only to such contract, and
                    ``(B) income not allocable under subparagraph (A) 
                shall be allocated ratably among contracts not 
                described in subparagraph (A).
            ``(4) Methods for determining unearned premiums and 
        reserves.--For purposes of paragraph (2)(A)--
                    ``(A) Property and casualty contracts.--The 
                unearned premiums and reserves of a qualifying 
                insurance company or a qualifying insurance company 
                branch with respect to property, casualty, or health 
                insurance contracts shall be determined using the same 
                methods and interest rates which would be used if such 
                company or branch were subject to tax under subchapter 
                L, except that--
                            ``(i) the interest rate determined for the 
                        functional currency of the company or branch, 
                        and which, except as provided by the Secretary, 
                        is calculated in the same manner as the Federal 
                        mid-term rate under section 1274(d), shall be 
                        substituted for the applicable Federal interest 
                        rate, and
                            ``(ii) such company or branch shall use the 
                        appropriate foreign loss payment pattern.
                    ``(B) Life insurance and annuity contracts.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), the amount of the reserve of a 
                        qualifying insurance company or qualifying 
                        insurance company branch for any life insurance 
                        or annuity contract shall be equal to the 
                        greater of--
                                    ``(I) the net surrender value of 
                                such contract (as defined in section 
                                807(e)(1)(A)), or
                                    ``(II) the reserve determined under 
                                paragraph (5).
                            ``(ii) Ruling request, etc.--The amount of 
                        the reserve under clause (i) shall be the 
                        foreign statement reserve for the contract 
                        (less any catastrophe, deficiency, 
                        equalization, or similar reserves), if, 
                        pursuant to a ruling request submitted by the 
                        taxpayer or as provided in published guidance, 
                        the Secretary determines that the factors taken 
                        into account in determining the foreign 
                        statement reserve provide an appropriate means 
                        of measuring income.
                    ``(C) Limitation on reserves.--In no event shall 
                the reserve determined under this paragraph for any 
                contract as of any time exceed the amount which would 
                be taken into account with respect to such contract as 
                of such time in determining foreign statement reserves 
                (less any catastrophe, deficiency, equalization, or 
                similar reserves).
            ``(5) Amount of reserve.--The amount of the reserve 
        determined under this paragraph with respect to any contract 
        shall be determined in the same manner as it would be 
        determined if the qualifying insurance company or qualifying 
        insurance company branch were subject to tax under subchapter 
        L, except that in applying such subchapter--
                    ``(A) the interest rate determined for the 
                functional currency of the company or branch, and 
                which, except as provided by the Secretary, is 
                calculated in the same manner as the Federal mid-term 
                rate under section 1274(d), shall be substituted for 
                the applicable Federal interest rate,
                    ``(B) the highest assumed interest rate permitted 
                to be used in determining foreign statement reserves 
                shall be substituted for the prevailing State assumed 
                interest rate, and
                    ``(C) tables for mortality and morbidity which 
                reasonably reflect the current mortality and morbidity 
                risks in the company's or branch's home country shall 
                be substituted for the mortality and morbidity tables 
                otherwise used for such subchapter.
        The Secretary may provide that the interest rate and mortality 
        and morbidity tables of a qualifying insurance company may be 
        used for 1 or more of its qualifying insurance company branches 
        when appropriate.
            ``(6) Definitions.--For purposes of this section, any term 
        used in this subsection which is also used in section 955(c) 
        shall have the meaning given such term under section 955(c).

``SEC. 955. DEFINITION OF INSURANCE INCOME.

    ``(a) Insurance Income.--
            ``(1) In general.--For purposes of section 953(c), the term 
        `insurance income' means the gross income which--
                    ``(A) is attributable to the issuing (or 
                reinsuring) of an insurance or annuity contract, and
                    ``(B) is of a kind that would be subject to tax 
                under subchapter L of this chapter if such income were 
                the income of a domestic insurance company.
            ``(2) Exception.--Such term shall not include any exempt 
        insurance income (as defined in subsection (c)).
    ``(b) Special Rules for Determination of Gross Income and Allocable 
Deductions.--For purposes of determining gross income under subsection 
(a) and deductions allocable to insurance income under section 952(e), 
the following rules shall apply:
            ``(1) Certain deductions not allowed.--The following 
        provisions of subchapter L shall not apply:
                    ``(A) The small life insurance company deduction.
                    ``(B) Section 805(a)(5) (relating to operations 
                loss deduction).
                    ``(C) Section 832(c)(5) (relating to certain 
                capital losses).
            ``(2) Special rules for amounts included in income.--The 
        items referred to in--
                    ``(A) section 803(a)(1) (relating to gross amount 
                of premiums and other considerations),
                    ``(B) section 803(a)(2) (relating to net decrease 
                in reserves),
                    ``(C) section 805(a)(2) (relating to net increase 
                in reserves), and
                    ``(D) section 832(b)(4) (relating to premiums 
                earned on insurance contracts),
        shall be taken into account only to the extent they are in 
        respect of any reinsurance or the issuing of any insurance or 
        annuity contract described in subsection (a)(1).
            ``(3) Treatment of reserves.--Reserves for any insurance or 
        annuity contract shall be determined in the same manner as 
        under section 954(d).
    ``(c) Exempt Insurance Income.--For purposes of this section--
            ``(1) Exempt insurance income defined.--
                    ``(A) In general.--The term `exempt insurance 
                income' means income derived by a qualifying insurance 
                company which--
                            ``(i) is attributable to the issuing (or 
                        reinsuring) of an exempt contract by such 
                        company or a qualifying insurance company 
                        branch of such company, and
                            ``(ii) is treated as earned by such company 
                        or branch in its home country for purposes of 
                        such country's tax laws.
                    ``(B) Exception for certain arrangements.--Such 
                term shall not include income attributable to the 
                issuing (or reinsuring) of an exempt contract as the 
                result of any arrangement whereby another corporation 
                receives a substantially equal amount of premiums or 
                other consideration in respect of issuing (or 
                reinsuring) a contract which is not an exempt contract.
                    ``(C) Determinations made separately.--For purposes 
                of this subsection and section 954(d), the exempt 
                insurance income and exempt contracts of a qualifying 
                insurance company or any qualifying insurance company 
                branch of such company shall be determined separately 
                for such company and each such branch by taking into 
                account--
                            ``(i) in the case of the qualifying 
                        insurance company, only items of income, 
                        deduction, gain, or loss, and activities of 
                        such company not properly allocable or 
                        attributable to any qualifying insurance 
                        company branch of such company, and
                            ``(ii) in the case of a qualifying 
                        insurance company branch, only items of income, 
                        deduction, gain, or loss and activities 
                        properly allocable or attributable to such 
                        branch.
            ``(2) Exempt contract.--
                    ``(A) In general.--The term `exempt contract' means 
                an insurance or annuity contract issued or reinsured by 
                a qualifying insurance company or qualifying insurance 
                company branch in connection with property in, 
                liability arising out of activity in, or the lives or 
                health of residents of, a country other than the United 
                States.
                    ``(B) Minimum non-related income required.--No 
                contract of a qualifying insurance company or of a 
                qualifying insurance company branch shall be treated as 
                an exempt contract unless such company or branch 
                derives more than 30 percent of its net written 
                premiums from exempt contracts (determined without 
                regard to this subparagraph) with respect to which no 
                policyholder, insured, annuitant, or beneficiary is a 
                related person (as defined in section 954(b)).
                    ``(C) Substantial activity requirements.--A 
                contract issued by a qualifying insurance company or 
                qualifying insurance company branch shall not be 
                treated as an exempt contract unless such company or 
                branch, as the case may be--
                            ``(i) conducts substantial activity with 
                        respect to an insurance business in its home 
                        country, and
                            ``(ii) performs in its home country 
                        substantially all of the activities necessary 
                        to give rise to the income generated by such 
                        contract.
            ``(3) Qualifying insurance company.--
                    ``(A) In general.--The term `qualifying insurance 
                company' means any controlled foreign corporation--
                            ``(i) which--
                                    ``(I) is subject to regulation as 
                                an insurance (or reinsurance) company 
                                by its home country, and is licensed, 
                                authorized, or regulated by the 
                                applicable insurance regulatory body 
                                for its home country to sell insurance, 
                                reinsurance, or annuity contracts to 
                                persons other than related persons 
                                (within the meaning of section 954(b)) 
                                in such home country, and
                                    ``(II) is engaged in the insurance 
                                business and would be subject to tax 
                                under subchapter L if it were a 
                                domestic corporation,
                            ``(ii) which derives more than 50 percent 
                        of its aggregate net written premiums from the 
                        issuance or reinsurance by such controlled 
                        foreign corporation and each of its qualifying 
                        insurance company branches of contracts with 
                        respect to which no policyholder, insured, 
                        annuitant, or beneficiary is a related person 
                        (as defined in section 954(b)), except that in 
                        the case of a branch, such premiums shall only 
                        be taken into account to the extent such 
                        premiums are treated as earned by such branch 
                        in its home country for purposes of such 
                        country's tax laws,
                            ``(iii) more than 50 percent of the gross 
                        receipts of which for the taxable year--
                                    ``(I) consist of premiums for 
                                insurance or reinsurance in connection 
                                with property, liability, or the lives 
                                or health of individuals, and
                                    ``(II) are treated as earned by 
                                such controlled foreign corporation in 
                                its home country for purposes of such 
                                country's tax laws, and
                            ``(iv) the applicable insurance liabilities 
                        of which constitute more than 35 percent of its 
                        total assets as reported on the company's 
                        applicable financial statement for the year 
                        with which or in which the taxable year ends.
                    ``(B) Applicable insurance liabilities.--For 
                purposes of subparagraph (A)(iv), the term `applicable 
                insurance liabilities' means--
                            ``(i) loss and loss adjustment expenses,
                            ``(ii) unearned premiums, and
                            ``(iii) reserves (other than any 
                        catastrophe, deficiency, equalization, or 
                        similar reserves) for life and health insurance 
                        risks and life and health insurance claims with 
                        respect to contracts providing coverage for 
                        mortality or morbidity risks (not to exceed the 
                        amount of such reserve that is required to be 
                        reported to the home country insurance 
                        regulatory body).
                    ``(C) Applicable financial statement.--For purposes 
                of subparagraph (A)(iv), the term `applicable financial 
                statement' means a statement for financial reporting 
                purposes which--
                            ``(i) is made on the basis of generally 
                        accepted accounting principles,
                            ``(ii) is made on the basis of 
                        international financial reporting standards, 
                        but only if there is no statement that meets 
                        the requirement of clause (i), or
                            ``(iii) except as otherwise provided by the 
                        Secretary in regulations, is the annual 
                        statement which is required to be filed with 
                        the home country insurance regulatory body, but 
                        only if there is no statement which meets the 
                        requirements of clause (i) or (ii).
                    ``(D) Regulations.--The Secretary shall prescribe 
                such regulations as necessary to carry out the purposes 
                of this paragraph.
            ``(4) Qualifying insurance company branch.--The term 
        `qualifying insurance company branch' means a qualified 
        business unit (within the meaning of section 989(a)) of a 
        controlled foreign corporation if--
                    ``(A) such unit is licensed, authorized, or 
                regulated by the applicable insurance regulatory body 
                for its home country to sell insurance, reinsurance, or 
                annuity contracts to persons other than related persons 
                (within the meaning of section 954(b)) in such home 
                country, and
                    ``(B) such controlled foreign corporation is a 
                qualifying insurance company, determined under 
                paragraph (3) as if such unit were a qualifying 
                insurance company branch.
            ``(5) Life insurance or annuity contract.--For purposes of 
        this section and section 954, the determination of whether a 
        contract issued by a controlled foreign corporation or a 
        qualifying insurance company branch is a life insurance 
        contract or an annuity contract shall be made without regard to 
        sections 72(s), 101(f), 817(h), and 7702 if--
                    ``(A) such contract is regulated as a life 
                insurance or annuity contract by the corporation's or 
                branch's home country, and
                    ``(B) no policyholder, insured, annuitant, or 
                beneficiary with respect to the contract is a United 
                States person.
            ``(6) Home country.--For purposes of this subsection, 
        except as provided in regulations--
                    ``(A) Controlled foreign corporation.--The term 
                `home country' means, with respect to a controlled 
                foreign corporation, the country in which such 
                corporation is created or organized.
                    ``(B) Qualifying insurance company branch.--The 
                term `home country' means, with respect to a qualifying 
                insurance company branch, the country in which the 
                principal office of such branch is located and in which 
                such branch is licensed, authorized, or regulated by 
                the applicable insurance regulatory body to sell 
                insurance, reinsurance, or annuity contracts to persons 
                other than related persons (as defined in section 
                954(b)) in such country.
            ``(7) Anti-abuse rules.--For purposes of applying this 
        subsection and section 954(d)--
                    ``(A) the rules of section 954(c)(7) (other than 
                subparagraph (B) thereof) shall apply,
                    ``(B) there shall be disregarded any item of 
                income, gain, loss, or deduction of, or derived from, 
                an entity which is not engaged in regular and 
                continuous transactions with persons which are not 
                related persons,
                    ``(C) there shall be disregarded any change in the 
                method of computing reserves a principal purpose of 
                which is the acceleration or deferral of any item in 
                order to claim the benefits of this subsection or 
                section 954(d),
                    ``(D) a contract of insurance or reinsurance shall 
                not be treated as an exempt contract (and premiums from 
                such contract shall not be taken into account for 
                purposes of paragraph (2)(B) or (3)) if--
                            ``(i) any policyholder, insured, annuitant, 
                        or beneficiary is a resident of the United 
                        States and such contract was marketed to such 
                        resident and was written to cover a risk 
                        outside the United States, or
                            ``(ii) the contract covers risks located 
                        within and without the United States and the 
                        qualifying insurance company or qualifying 
                        insurance company branch does not maintain such 
                        contemporaneous records, and file such reports, 
                        with respect to such contract as the Secretary 
                        may require,
                    ``(E) the Secretary may prescribe rules for the 
                allocation of contracts (and income from contracts) 
                among 2 or more qualifying insurance company branches 
                of a qualifying insurance company in order to clearly 
                reflect the income of such branches, and
                    ``(F) premiums from a contract shall not be taken 
                into account for purposes of paragraph (2)(B) or (3) if 
                such contract reinsures a contract issued or reinsured 
                by a related person (as defined in section 954(b)).
            ``(8) Coordination with section 956(a).--
                    ``(A) In general.--In determining insurance income 
                for purposes of section 956(a), exempt insurance income 
                shall not include income derived from exempt contracts 
                which cover risks other than applicable home country 
                risks.
                    ``(B) Applicable home country risks.--For purposes 
                of subparagraph (A), the term `applicable home country 
                risks' means risks in connection with property in, 
                liability arising out of activity in, or the lives or 
                health of residents of, the home country of the 
                qualifying insurance company or qualifying insurance 
                company branch, as the case may be, issuing or 
                reinsuring the contract covering the risks.
            ``(9) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of this subsection and section 954(d).
            ``(10) Cross reference.--For treatment of certain 
        investment income derived by qualifying insurance companies, 
        see section 954(d).

``SEC. 956. SPECIAL RULE FOR CERTAIN CAPTIVE INSURANCE COMPANIES.

    ``(a) Treatment as Controlled Foreign Corporations and United 
States Shareholders.--
            ``(1) In general.--For purposes only of taking into account 
        related person insurance income--
                    ``(A) the term `United States shareholder' means, 
                with respect to any foreign corporation, a United 
                States person (as defined in section 957(c)) who owns 
                (within the meaning of section 958(a)) any stock of the 
                foreign corporation,
                    ``(B) the term `controlled foreign corporation' has 
                the meaning given to such term by section 957(a) 
                determined by substituting `25 percent or more' for 
                `more than 50 percent', and
                    ``(C) the pro rata share referred to in section 
                951(a)(1) shall be determined under paragraph (5) of 
                this subsection.
            ``(2) Related person insurance income.--For purposes of 
        this subsection, the term `related person insurance income' 
        means any insurance income (within the meaning of section 
        955(a)) attributable to a policy of insurance or reinsurance 
        with respect to which the person (directly or indirectly) 
        insured is a United States shareholder in the foreign 
        corporation or a related person to such a shareholder.
            ``(3) Exceptions.--
                    ``(A) Corporations not held by insured.--Paragraph 
                (1) shall not apply to any foreign corporation if at 
                all times during the taxable year of such foreign 
                corporation--
                            ``(i) less than 20 percent of the total 
                        combined voting power of all classes of stock 
                        of such corporation entitled to vote, and
                            ``(ii) less than 20 percent of the total 
                        value of such corporation,
                is owned (directly or indirectly under the principles 
                of section 883(c)(4)) by persons who are (directly or 
                indirectly) insured under any policy of insurance or 
                reinsurance issued by such corporation or who are 
                related persons to any such person.
                    ``(B) De minimis exception.--Paragraph (1) shall 
                not apply to any foreign corporation for a taxable year 
                of such corporation if the related person insurance 
                income (determined on a gross basis) of such 
                corporation for such taxable year is less than 20 
                percent of its insurance income (as so determined) for 
                such taxable year.
                    ``(C) Election to treat income as effectively 
                connected.--Paragraph (1) shall not apply to any 
                foreign corporation for any taxable year if--
                            ``(i) such corporation elects (at such time 
                        and in such manner as the Secretary may 
                        prescribe)--
                                    ``(I) to treat its related person 
                                insurance income for such taxable year 
                                as income effectively connected with 
                                the conduct of a trade or business in 
                                the United States, and
                                    ``(II) to waive all benefits (other 
                                than with respect to section 884) with 
                                respect to related person insurance 
                                income granted by the United States 
                                under any treaty between the United 
                                States and any foreign country, and
                            ``(ii) such corporation meets such 
                        requirements as the Secretary shall prescribe 
                        to ensure that the tax imposed by this chapter 
                        on such income is paid.
                An election under this subparagraph made for any 
                taxable year shall not be effective if the corporation 
                (or any predecessor thereof) was a disqualified 
                corporation for the taxable year for which the election 
                was made or for any prior taxable year beginning after 
                1986.
                    ``(D) Special rules for subparagraph (C).--
                            ``(i) Period during which election in 
                        effect.--
                                    ``(I) In general.--Except as 
                                provided in subclause (II), any 
                                election under subparagraph (C) shall 
                                apply to the taxable year for which 
                                made and all subsequent taxable years 
                                unless revoked with the consent of the 
                                Secretary.
                                    ``(II) Termination.--If a foreign 
                                corporation which made an election 
                                under subparagraph (C) for any taxable 
                                year is a disqualified corporation for 
                                any subsequent taxable year, such 
                                election shall not apply to any taxable 
                                year beginning after such subsequent 
                                taxable year.
                            ``(ii) Exemption from tax imposed by 
                        section 4371.--The tax imposed by section 4371 
                        shall not apply with respect to any related 
                        person insurance income treated as effectively 
                        connected with the conduct of a trade or 
                        business within the United States under 
                        subparagraph (C).
                    ``(E) Disqualified corporation.--For purposes of 
                this paragraph the term `disqualified corporation' 
                means, with respect to any taxable year, any foreign 
                corporation which is a controlled foreign corporation 
                at any time during such taxable year (determined 
                without regard to this subsection) but only if a United 
                States shareholder (determined without regard to this 
                subsection) owns (within the meaning of section 958(a)) 
                stock in such corporation at some time during such 
                taxable year.
            ``(4) Treatment of mutual insurance companies.--In the case 
        of a mutual insurance company--
                    ``(A) this subsection shall apply,
                    ``(B) policyholders of such company shall be 
                treated as shareholders, and
                    ``(C) appropriate adjustments in the application of 
                this subpart shall be made under regulations prescribed 
                by the Secretary.
            ``(5) Determination of pro rata share.--
                    ``(A) In general.--The pro rata share determined 
                under this paragraph for any United States shareholder 
                is the lesser of--
                            ``(i) the amount which would be determined 
                        under paragraph (2) of section 951(a) if--
                                    ``(I) only related person insurance 
                                income were taken into account,
                                    ``(II) stock owned (within the 
                                meaning of section 958(a)) by United 
                                States shareholders on the last day of 
                                the taxable year were the only stock in 
                                the foreign corporation, and
                                    ``(III) only distributions received 
                                by United States shareholders were 
                                taken into account under subparagraph 
                                (B) of such paragraph (2), or
                            ``(ii) the amount which would be determined 
                        under paragraph (2) of section 951(a) if the 
                        entire earnings and profits of the foreign 
                        corporation for the taxable year were subpart F 
                        income.
                    ``(B) Coordination with other provisions.--The 
                Secretary shall prescribe regulations providing for 
                such modifications to the provisions of this subpart as 
                may be necessary or appropriate by reason of 
                subparagraph (A).
            ``(6) Related person.--For purposes of this subsection--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `related person' has the 
                meaning given such term by section 954(b).
                    ``(B) Treatment of certain liability insurance 
                policies.--In the case of any policy of insurance 
                covering liability arising from services performed as a 
                director, officer, or employee of a corporation or as a 
                partner or employee of a partnership, the person 
                performing such services and the entity for which such 
                services are performed shall be treated as related 
                persons.
            ``(7) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the purposes of 
        this subsection, including--
                    ``(A) regulations preventing the avoidance of this 
                subsection through cross insurance arrangements or 
                otherwise, and
                    ``(B) regulations which may provide that a person 
                will not be treated as a United States shareholder 
                under paragraph (1) with respect to any foreign 
                corporation if neither such person (nor any related 
                person to such person) is (directly or indirectly) 
                insured under any policy of insurance or reinsurance 
                issued by such foreign corporation.
    ``(b) Election by Foreign Insurance Company To Be Treated as 
Domestic Corporation.--
            ``(1) In general.--If--
                    ``(A) a foreign corporation is a controlled foreign 
                corporation (as defined in section 957(a) by 
                substituting `25 percent or more' for `more than 50 
                percent' and by using the definition of United States 
                shareholder under subsection (a)(1)(B)),
                    ``(B) such foreign corporation would qualify under 
                part I or II of subchapter L for the taxable year if it 
                were a domestic corporation,
                    ``(C) such foreign corporation meets such 
                requirements as the Secretary shall prescribe to ensure 
                that the taxes imposed by this chapter on such foreign 
                corporation are paid, and
                    ``(D) such foreign corporation makes an election to 
                have this paragraph apply and waives all benefits to 
                such corporation granted by the United States under any 
                treaty,
        for purposes of this title, such corporation shall be treated 
        as a domestic corporation.
            ``(2) Period during which election is in effect.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), an election under paragraph (1) shall 
                apply to the taxable year for which made and all 
                subsequent taxable years unless revoked with the 
                consent of the Secretary.
                    ``(B) Termination.--If a corporation which made an 
                election under paragraph (1) for any taxable year fails 
                to meet the requirements of subparagraphs (A), (B), and 
                (C) of paragraph (1) for any subsequent taxable year, 
                such election shall not apply to any taxable year 
                beginning after such subsequent taxable year.
            ``(3) Effect of election.--
                    ``(A) In general.--For purposes of section 367, any 
                foreign corporation making an election under paragraph 
                (1) shall be treated as transferring (as of the 1st day 
                of the 1st taxable year to which such election applies) 
                all of its assets to a domestic corporation in 
                connection with an exchange to which section 354 
                applies.
                    ``(B) Exception for pre-1988 earnings and 
                profits.--
                            ``(i) In general.--Earnings and profits of 
                        the foreign corporation accumulated in taxable 
                        years beginning before January 1, 1988, shall 
                        not be included in the gross income of the 
                        persons holding stock in such corporation by 
                        reason of subparagraph (A).
                            ``(ii) Treatment of distributions.--For 
                        purposes of this title, any distribution made 
                        by a corporation to which an election under 
                        paragraph (1) applies out of earnings and 
                        profits accumulated in taxable years beginning 
                        before January 1, 1988, shall be treated as a 
                        distribution made by a foreign corporation.
                            ``(iii) Certain rules to continue to apply 
                        to pre-1988 earnings.--Section 884 to the 
                        extent the foreign corporation reinvested 1987 
                        earnings and profits in United States assets 
                        shall be applied without regard to paragraph 
                        (1), except that, in the case of a corporation 
                        to which an election under paragraph (1) 
                        applies, only earnings and profits accumulated 
                        in taxable years beginning before January 1, 
                        1988, shall be taken into account.
            ``(4) Effect of termination.--For purposes of section 367, 
        if--
                    ``(A) an election is made by a corporation under 
                paragraph (1) for any taxable year, and
                    ``(B) such election ceases to apply for any 
                subsequent taxable year,
        such corporation shall be treated as a domestic corporation 
        transferring (as of the 1st day of such subsequent taxable 
        year) all of its property to a foreign corporation in 
        connection with an exchange to which section 354 applies.
            ``(5) Additional tax on corporation making election.--
                    ``(A) In general.--If a corporation makes an 
                election under paragraph (1), the amount of tax imposed 
                by this chapter for the 1st taxable year to which such 
                election applies shall be increased by the amount 
                determined under subparagraph (B).
                    ``(B) Amount of tax.--The amount of tax determined 
                under this paragraph shall be equal to the lesser of--
                            ``(i) \3/4\ of 1 percent of the aggregate 
                        amount of capital and accumulated surplus of 
                        the corporation as of December 31, 1987, or
                            ``(ii) $1,500,000.''.
    (b) Treatment of Certain Excluded Subpart F Income as Previously 
Taxed Income.--Section 959(g), as added by section 331, is amended to 
read as follows:
    ``(g) Special Rules for Nontaxed Portion of Certain Income.--For 
purposes of this section--
            ``(1) In general.--A United States shareholder's pro rata 
        share of the excludable portion of the controlled foreign 
        corporation's subpart F income shall be treated as an amount 
        which has been included in gross income under section 951(a).
            ``(2) Ordering rule.--Notwithstanding subsection (c), for 
        purposes of subsections (a) and (b), section 316(a) shall be 
        applied by applying paragraph (2) thereof and then paragraph 
        (1) thereof--
                    ``(A) first to the deductible portion (as defined 
                in section 965(c)(3)) of the increase in subpart F 
                income described in section 965(a)(1) included in the 
                gross income of United States shareholders under 
                section 951(a)(1) (after application of section 
                965(a)(2)(A)),
                    ``(B) second to the excludable portion of the 
                controlled foreign corporation's subpart F income, and
                    ``(C) then to the amounts described in paragraphs 
                (1), (2), or (3) of subsection (c) in accordance with 
                the provisions of subsection (c).
            ``(3) Definitions.--For purposes of this subsection--
                    ``(A) Deductible portion.--The term `deductible 
                portion' has the meaning given such term by section 
                965(c)(3).
                    ``(B) Excludable portion.--The term `excludable 
                portion' means, with respect to the subpart F income of 
                a controlled foreign corporation, so much of such 
                controlled foreign corporation's modified active income 
                as is not taken into account in computing subpart F 
                income under section 952(a)(1).''.
    (c) Gains and Losses From the Sale of CFC Stock.--
            (1) Gains.--
                    (A) In general.--Part I of subchapter P of chapter 
                1 is amended by adding at the end the following new 
                section:

``SEC. 1203. GAINS FROM SALES OR EXCHANGES OF STOCK IN CONTROLLED 
              FOREIGN CORPORATIONS.

    ``(a) In General.--In the case of a United States shareholder (as 
defined in section 951), there shall be excluded from gross income an 
amount equal to the applicable portion of the amount of any gain 
recognized from the sale or exchange of stock in a controlled foreign 
corporation.
    ``(b) Applicable Portion.--For purposes of this section--
            ``(1) In general.--The term `applicable portion' means the 
        amount which bears the same ratio to the gain recognized from 
        such sale or exchange as--
                    ``(A) the shareholder's pro rata share (determined 
                under section 951(a)(2)) of the excludable portion of 
                the aggregate subpart F income of the controlled 
                foreign corporation for the applicable period, bears to
                    ``(B) the sum of the amount determined under 
                subparagraph (A) plus the shareholder's pro rata share 
                (determined under section 951(a)(2)) of the aggregate 
                subpart F income of the controlled foreign corporation 
                for the applicable period.
            ``(2) Excludable portion.--For purposes of this section, 
        the term `excludable portion' has the meaning given such term 
        by section 959(g)(3)(B).
            ``(3) Applicable period.--The term `applicable period' 
        means, with respect to any stock, the shorter of the 3-taxable 
        year period immediately preceding the taxable year of the sale 
        or exchange or the shareholder's holding period in the stock. 
        In no event shall the applicable period include any portion of 
        any taxable year beginning before the applicable date (as 
        defined in section 300 of the Infrastructure and Global Tax 
        Competitiveness Act of 2014).''.
                    (B) Clerical amendment.--The table of sections for 
                part I of subchapter P of chapter 1 is amended by 
                adding at the end the following new item:

``Sec. 1203. Gains from sales or exchanges of stock in controlled 
                            foreign corporations.''.
            (2) Losses.--
                    (A) In general.--Part II of subchapter P of chapter 
                1 is amended by adding at the end the following new 
                section:

``SEC. 1213. LOSSES FROM SALES OR EXCHANGES OF STOCK IN CONTROLLED 
              FOREIGN CORPORATIONS.

    ``(a) In General.--In the case of a United States shareholder (as 
defined in section 951), any loss from the sale or exchange of stock in 
a controlled foreign corporation shall be reduced (but not below zero) 
by an amount equal to the shareholder's aggregate pro rata share 
(determined under section 951(a)(2)) of the excludable portion of the 
subpart F income of the controlled foreign corporation during the 
shareholder's holding period in the stock.
    ``(b) Excludable Portion.--For purposes of this section, the term 
`excludable portion' has the meaning given such term by section 
959(g)(3)(B).''.
                    (B) Clerical amendment.--The table of sections for 
                part I of subchapter P of chapter 1 is amended by 
                adding at the end the following new item:

``Sec. 1213. Losses from sales or exchanges of stock in controlled 
                            foreign corporations.''.
    (d) Repeal of Ordinary Income Treatment for Gains From the Sale of 
Stock in Certain Foreign Corporations.--
            (1) In general.--Part IV of subchapter P of chapter 1 is 
        amended by striking section 1248.
            (2) Conforming amendments.--
                    (A) Section (a) is amended by striking paragraph 
                (11).
                    (B) Section 338(h) is amended--
                            (i) in paragraph (6)(B)(ii), by striking 
                        ``or described in section 1248(e)'', and
                            (ii) in paragraph (16), by striking the 
                        second sentence.
                    (C) Section 751 is amended--
                            (i) in subsection (c), by striking ``stock 
                        in certain foreign corporations (as described 
                        in section 1248),'', and
                            (ii) by striking subsection (e) and 
                        redesignating subsection (f) as subsection (e).
                    (D) Section 865(k) is amended to read as follows:
    ``(k) Cross Reference.--For sourcing of income from certain foreign 
currency transactions, see section 988.''.
                    (E) Section 904(h)(7) is amended by striking ``or 
                as a dividend under section 1248''.
                    (F) Section 951(a)(2) is amended by striking the 
                last sentence thereof.
                    (G) Section 964 is amended by striking subsection 
                (e).
                    (H) Section 989(b) is amended by striking paragraph 
                (2) and by redesignating paragraphs (3) and (4) as 
                paragraphs (2) and (3), respectively.
    (e) Coordination With Amounts Included in Gross Income of United 
States Shareholders.--
            (1) In general.--Paragraph (1) of section 951(a) is amended 
        by striking ``such taxable year of the corporation ends--'' and 
        all that follows through the end period and inserting: ``such 
        taxable year of the corporation ends, the shareholder's pro 
        rata share (determined under paragraph (2)) of the 
        corporation's subpart F income for such taxable year.''.
            (2) Conforming amendments.--
                    (A) Section 951(a) is amended--
                            (i) by striking ``paragraph (1)(A)(i)'' in 
                        paragraph (2) and inserting ``paragraph (1)'', 
                        and
                            (ii) by striking paragraph (3).
                    (B) Subparagraph (A) of section 512(b)(17) is 
                amended by striking ``951(a)(1)(A)'' and inserting 
                ``951(a)(1)''.
                    (C) Section 851(b) is amended by striking 
                ``951(a)(1)(A)(i)'' in the first sentence following 
                paragraph (3) and inserting ``951(a)(1)''.
                    (D) Section 959(a) is amended--
                            (i) by striking ``shall not, when'' and all 
                        that follows through ``such shareholder'' and 
                        inserting ``shall not, when actually 
                        distributed to such shareholder'', and
                            (ii) by striking ``and the rules of 
                        subsection (f) shall apply for purposes of 
                        paragraph (2) of this subsection''.
                    (E) Section 959(c) is amended by adding at the end 
                the following: ``References in this subsection and 
                subsection (f) to section 951(a)(1)(B) shall be treated 
                as references to such provisions as in effect on the 
                day before the enactment of the Infrastructure and 
                Global Tax Competitiveness Act of 2014.''.
                    (F) Section 959(e) is amended by striking 
                ``951(a)(1)(A)'' and inserting ``951(a)(1)''.
                    (G) Section 989(b)(3) is amended by striking 
                ``951(a)(1)(A)'' and inserting ``951(a)(1)''.
                    (H) Section 1298(b) is amended by striking 
                paragraph (8).
    (f) Application of Anti-Loss Importation Rules.--Section 
362(e)(1)(B) is amended by adding at the end the following new 
sentence: ``For purposes of clause (i), except as provided under 
regulations, a controlled foreign corporation shall be considered to be 
subject to tax under this subtitle.''.
    (g) Other Conforming Amendments.--
            (1) Sections 163(e)(3)(B)(i) and 267(a)(3)(B)(i) are each 
        amended by striking ``and qualified deficits under section 
        952(c)(1)(B)'' and inserting ``and loss carryforwards under 
        sections 952(d) and 953(b)''.
            (2) Section 304(b)(5)(B)(ii) is amended by striking 
        ``953(c)'' and inserting ``956(a)''.
            (3) Section 355(g)(2)(B)(ii)(I) is amended by striking 
        ``section 954(h)(4)'' and inserting ``section 954(c)(4)''.
            (4) Section 512(b)(17) is amended by striking ``953'' and 
        inserting ``section 955''.
            (5) Section 864(d)(8) is amended by striking ``or section 
        956(b)(3)''.
            (6) Section 864(d)(5)(A) is amended--
                    (A) by striking clause (iii) and redesignating 
                clause (iv) as clause (iii), and
                    (B) by striking ``954(c)(3)(A)'' in clause (iii) 
                (as redesignated by subparagraph (A)) and inserting 
                ``954(a)(3)(A)''.
            (7) Section 864(d)(7)(B) is amended by striking ``foreign 
        base company income (as defined in section 954(a), determined 
        without regard to section 954(b)(3)(A))'' and inserting 
        ``passive income (as defined in section 954(a))''.
            (8) Section 881(c)(5)(A)(iii) is amended by striking 
        ``954(c)(3)(A)'' and inserting ``954(a)(3)(A)''.
            (9) Section 884(d)(2)(D) is amended by striking 
        ``953(c)(3)(C)'' and inserting ``956(a)(3)(C)''.
            (10) Section 898(b)(3) is amended--
                    (A) by striking ``953(c)(2)'' and inserting 
                ``956(a)(2)'', and
                    (B) by striking ``953(c)(1)'' and inserting 
                ``956(a)(1)''.
            (11) Section 936(h)(5) is amended--
                    (A) by inserting ``(as in effect on the day before 
                the enactment of the Infrastructure and Global Tax 
                Competitiveness Act of 2014)'' after ``section 954'' in 
                the last sentence of subparagraph (B)(ii), and
                    (B) in subparagraph (F)(iv)(II)--
                            (i) by inserting ``(as in effect on the day 
                        before the enactment of the Infrastructure and 
                        Global Tax Competitiveness Act of 2014)'' after 
                        ``section 954'', and
                            (ii) by inserting ``(as so in effect)'' 
                        after ``section 954(a)''.
            (12) Section 957(b) is amended--
                    (A) by striking ``income described in section 
                953(a)'' and inserting ``income described in section 
                955(a)'', and
                    (B) by striking ``contracts described in section 
                953(a)(1)'' and inserting ``contracts described in 
                section 955(a)(1)''.
            (13) Section 958(b) is amended--
                    (A) by striking ``956(c)(2),'' before ``and 957'',
                    (B) by striking ``to treat the stock of a domestic 
                corporation as owned by a United States shareholder of 
                the controlled foreign corporation for purposes of 
                section 956(c)(2),'', and
                    (C) by striking the last sentence.
            (14) Section 964(b) is amended by striking ``sections 952, 
        955, and 956'' and inserting ``section 952''.
            (15) Section 964(e)(2) is amended by striking 
        ``954(c)(3)(A)'' and inserting ``954(a)(3)(A)''.
            (16)(A) Part III of subchapter N of chapter 1 is amended by 
        striking subpart G.
            (B) Section 865(e)(2)(A) is amended by striking the last 
        sentence.
            (C) The table of subparts for part III of subchapter N of 
        chapter 1 is amended by striking the item relating to subpart 
        G.
            (17) Section 999(c) is amended--
                    (A) by striking ``, 952(a)(3)'' in paragraph (1), 
                and
                    (B) by striking ``, the addition to subpart F 
                income under section 952(a)(3),'' in paragraph (2).
            (18) Section 1296(f)(2) is amended--
                    (A) by striking ``foreign personal holding company 
                income described in section 954(c)(1)(A)'' in 
                subparagraph (A) and inserting ``passive income (as 
                defined in section 954(a))'', and
                    (B) by striking ``foreign personal holding company 
                income so described'' and inserting ``such passive 
                income''.
            (19) Section 1297(b) is amended to read as follows:
    ``(b) Passive Income.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        term `passive income' means any income received or accrued by 
        any foreign corporation which is of a kind which would be 
        passive income as defined in section 954 if the foreign 
        corporation were a controlled foreign corporation.
            ``(2) Exception.--Except as provided in regulations, the 
        term `passive income' does not include any income which is 
        interest, a dividend, or a rent or royalty, which is received 
        or accrued from a related person (within the meaning of section 
        954(b)) to the extent that such amount is properly allocable 
        (under regulations prescribed by the Secretary) to income of 
        such related person which is not passive income.''.
            (20) Section 2057(e)(2)(D)(ii) is amended by striking 
        ``section 954(c)(1)'' and inserting ``section 954(a)(1)''.
            (21) The following sections are amended by striking 
        ``954(d)(3)'' each place it appears and inserting ``954(b)'':
                    (A) Section 861(c)(2)(B).
                    (B) Section 958(b).
                    (C) Section 988(a)(3)(C).
                    (D) Subsections (d)(3)(A) and (e)(2)(B)(i) of 
                section 1298.
                    (E) Section 1471(e)(2).
                    (F) Section 3121(z)(2).
            (22) The table of sections for subpart F of part III of 
        subchapter 1 is amended by striking the items relating to 
        sections 952 through 956 and inserting 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.''.
    (h) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years of 
        foreign corporations beginning on or after the applicable date, 
        and to taxable years of United States shareholders with or 
        within which such taxable years of foreign corporations end.
            (2) Gains and losses from the sale of cfc stock; repeal of 
        section 1248.--The amendments made by subsections (c) and (d) 
        shall apply to sales or exchanges on or after the applicable 
        date.

                PART II--FOREIGN TAX CREDIT LIMITATIONS

SEC. 311. REFORM OF FOREIGN TAX CREDIT LIMITATION.

    (a) In General.--Subsection (d) of section 904 is amended to read 
as follows:
    ``(d) Separate Application of Section With Respect to Certain 
Categories of Income.--
            ``(1) In general.--The provisions of subsections (a), (b), 
        and (c) and section 907 and 960 shall be applied separately 
        with respect to--
                    ``(A) amounts included under section 951(a) which 
                are attributable to active foreign market income (as 
                defined in section 953),
                    ``(B) passive category income, and
                    ``(C) income other than income described in either 
                of the preceding subparagraphs.
            ``(2) Definitions and special rules.--
                    ``(A) Passive category income.--
                            ``(i) In general.--The term `passive 
                        category income' means--
                                    ``(I) United States taxpayer 
                                passive income described in 
                                subparagraph (B), and
                                    ``(II) income which is included in 
                                gross income of the taxpayer under 
                                section 951(a)(1) to the extent such 
                                income is attributable to passive 
                                income (as defined in section 954(a)).
                            ``(ii) Exception for high-taxed income.--
                        Passive category income shall not include any 
                        high-taxed income.
                            ``(iii) Clarification of application of 
                        section 864(d)(6).--In determining whether any 
                        income is passive category income, the rules of 
                        section 864(d)(6) shall apply only in the case 
                        of income of a controlled foreign corporation.
                    ``(B) United states taxpayer passive income.--
                United States taxpayer passive income described in this 
                subparagraph is income received or accrued by the 
                taxpayer which is of a kind that would be passive 
                income as defined under section 954(a) if such taxpayer 
                were a controlled foreign corporation.
                    ``(C) Treatment of financial services income and 
                companies.--
                            ``(i) In general.--Financial services 
                        income which is not active foreign market 
                        category income shall be treated as income 
                        described in paragraph (1)(C) in the case of--
                                    ``(I) a member of a financial 
                                services group, and
                                    ``(II) any other person if such 
                                person is predominantly engaged in the 
                                active conduct of a banking, insurance, 
                                financing, or similar business.
                            ``(ii) Financial services group.--The term 
                        `financial services group' means any affiliated 
                        group (as defined in section 1504(a) without 
                        regard to paragraphs (2) and (3) of section 
                        1504(b)) which is predominantly engaged in the 
                        active conduct of a banking, insurance, 
                        financing, or similar business. In determining 
                        whether such a group is so engaged, there shall 
                        be taken into account only the income of 
                        members of the group that are--
                                    ``(I) United States corporations, 
                                or
                                    ``(II) controlled foreign 
                                corporations in which such United 
                                States corporations own, directly or 
                                indirectly, at least 80 percent of the 
                                total voting power and value of the 
                                stock.
                            ``(iii) Pass-thru entities.--The Secretary 
                        shall by regulation specify for purposes of 
                        this subparagraph the treatment of financial 
                        services income received or accrued by 
                        partnerships and by other pass-thru entities 
                        which are not members of a financial services 
                        group.
                    ``(D) Financial services income.--
                            ``(i) In general.--Except as otherwise 
                        provided in this subparagraph, the term 
                        `financial services income' means any income 
                        which is received or accrued by any person 
                        predominantly engaged in the active conduct of 
                        a banking, insurance, financing, or similar 
                        business, and which is--
                                    ``(I) described in clause (ii), or
                                    ``(II) United States taxpayer 
                                passive income (determined without 
                                regard to subparagraph (A)(ii)).
                            ``(ii) General description of financial 
                        services income.--Income is described in this 
                        clause if such income is--
                                    ``(I) derived in the active conduct 
                                of a banking, financing, or similar 
                                business,
                                    ``(II) derived from the investment 
                                by an insurance company of its unearned 
                                premiums or reserves ordinary and 
                                necessary for the proper conduct of its 
                                insurance business, or
                                    ``(III) of a kind which would be 
                                insurance income as defined in section 
                                955(a).
                    ``(E) High-taxed income.--The term `high-taxed 
                income' means any income which (but for this 
                subparagraph) would be passive category income if the 
                sum of--
                            ``(i) the foreign income taxes paid or 
                        accrued by the taxpayer with respect to such 
                        income, and
                            ``(ii) the foreign income taxes deemed paid 
                        by the taxpayer with respect to such income 
                        under section 960,
                exceeds the highest rate of tax specified in section 1 
                or 11 (whichever applies) multiplied by the amount of 
                such income (determined with regard to section 78). For 
                purposes of the preceding sentence, the term `foreign 
                income taxes' means any income, war profits, or excess 
                profits tax imposed by any foreign country or 
                possession of the United States.
                    ``(F) Treatment of income tax base differences.--
                            ``(i) In general.--In the case of taxable 
                        years beginning after December 31, 2006, tax 
                        imposed under the law of a foreign country or 
                        possession of the United States on an amount 
                        which does not constitute income under United 
                        States tax principles shall be treated as 
                        imposed on income described in paragraph 
                        (1)(C).
                            ``(ii) Special rules for years after 2006 
                        and before the applicable date.--In the case of 
                        taxable years beginning after December 31, 
                        2006, and on or before the applicable date (as 
                        defined in section 300 of the Infrastructure 
                        and Global Tax Competitiveness Act of 2014), 
                        tax imposed under the law of a foreign country 
                        or possession of the United States on an amount 
                        which does not constitute income under United 
                        States tax principles shall be treated as 
                        imposed on income described in paragraph (1)(B) 
                        (as in effect for taxable years beginning the 
                        day before such applicable date).
                            ``(iii) Special rule for years before 
                        2007.--
                                    ``(I) In general.--In the case of 
                                taxes paid or accrued in taxable years 
                                beginning after December 31, 2004, and 
                                before January 1, 2007, a taxpayer may 
                                elect to treat tax imposed under the 
                                law of a foreign country or possession 
                                of the United States on an amount which 
                                does not constitute income under United 
                                States tax principles as tax imposed on 
                                income described in subparagraph (C) or 
                                (I) of paragraph (1) (as in effect for 
                                taxable years beginning in 2006).
                                    ``(II) Revocation.--Any such 
                                election shall apply to the taxable 
                                year for which made and all subsequent 
                                taxable years described in subclause 
                                (I) unless revoked with the consent of 
                                the Secretary.
                    ``(G) Transition rules for certain carryforwards 
                and carrybacks.--For purposes of paragraph (1)--
                            ``(i) in the case of any taxes carried from 
                        any taxable year beginning before the 
                        applicable date (as defined in section 300 of 
                        the Infrastructure and Global Tax 
                        Competitiveness Act of 2014), to any taxable 
                        year beginning on or after such date--
                                    ``(I) if such taxes were treated as 
                                attributable to income described in 
                                paragraph (1)(A) (as in effect for 
                                taxable years beginning the day before 
                                such applicable date), such taxes shall 
                                be treated as attributable to income 
                                described in paragraph (1)(B), and
                                    ``(II) if such taxes were treated 
                                as attributable to income described in 
                                paragraph (1)(B) (as in effect for 
                                taxable years beginning the day before 
                                such applicable date), such taxes shall 
                                be treated as attributable to income 
                                described in paragraph (1)(C), and
                            ``(ii) the Secretary may by regulations 
                        provide for the allocation of any carryback of 
                        taxes with respect to income from a taxable 
                        year beginning on or after such applicable 
                        date, to a taxable year beginning before such 
                        date for purposes of allocating such income 
                        among the separate categories in effect for the 
                        taxable year to which carried.
            ``(3) Controlled foreign corporation; united states 
        shareholder.--For purposes of this subsection--
                    ``(A) Controlled foreign corporation.--The term 
                `controlled foreign corporation' has the meaning given 
                such term by section 957 (taking into account section 
                956(a)).
                    ``(B) United states shareholder.--The term `United 
                States shareholder' has the meaning given such term by 
                section 951(b) (taking into account section 956(a)).
            ``(4) Separate application to items resourced under 
        treaties.--
                    ``(A) In general.--If--
                            ``(i) without regard to any treaty 
                        obligation of the United States, any item of 
                        income would be treated as derived from sources 
                        within the United States,
                            ``(ii) under a treaty obligation of the 
                        United States, such item would be treated as 
                        arising from sources outside the United States, 
                        and
                            ``(iii) the taxpayer chooses the benefits 
                        of such treaty obligation,
                subsections (a), (b), and (c) of this section and 
                sections 907 and 960 shall be applied separately with 
                respect to each such item.
                    ``(B) Coordination with other provisions.--This 
                paragraph shall not apply to any item of income to 
                which subsection (h)(10) or section 865(h) applies.
                    ``(C) Regulations.--The Secretary may issue such 
                regulations as may be necessary or appropriate to carry 
                out the purposes of this paragraph, including 
                regulations which provide that related items of income 
                may be aggregated for purposes of this paragraph.
            ``(5) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate for the purposes 
        of this subsection, including preventing the manipulation of 
        the character of income the effect of which is to avoid the 
        purposes of this subsection.''.
    (b) Application of Per Country Limitation.--Section 904 is amended 
by inserting after subsection (d) the following new subsection:
    ``(e) Limitations Applied on a Per Country Basis.--The provisions 
of subsections (a), (b), (c), and (d) and sections 907 and 960 shall be 
applied separately with respect to each foreign country or possession 
with respect to which taxes described in section 901(b) are paid or 
accrued.''.
    (c) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning on or after the applicable date.

SEC. 312. DENIAL OF CREDIT AND DEDUCTION FOR FOREIGN TAXES WITH RESPECT 
              TO EXCLUDED SUBPART F INCOME.

    (a) In General.--Section 901 is amended by redesignating subsection 
(n) as subsection (o) and by inserting after subsection (m) the 
following:
    ``(n) Denial of Foreign Tax Credit and Deduction With Respect to 
Excluded Subpart F Income.--
            ``(1) In general.--Notwithstanding section 960(b), no 
        credit shall be allowed under subsection (a) for any income, 
        war profits, or excess profits taxes paid or accrued (or deemed 
        paid or accrued under section 960) with respect to the 
        excludable portion of subpart F income or any distribution 
        received by a United States shareholder (as defined in section 
        951(b)) which is properly attributable to such excludable 
        portion. No deduction shall be allowed to a taxpayer under this 
        chapter for any tax for which a credit is not allowable by 
        reason of the preceding sentence.
            ``(2) Excludable portion.--The term `excludable portion' 
        has the meaning given such term by section 959(g)(3)(B).
            ``(3) Coordination with section 78.--Section 78 shall not 
        apply to any tax which is not allowable as a credit under this 
        section by reason of this subsection.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning on or after 
the applicable date, and to taxable years of United States shareholders 
with or within which such taxable years of foreign corporations end.

                     PART III--EXPENSE DISALLOWANCE

SEC. 321. DISALLOWANCE OF DEDUCTION FOR EXPENSES ALLOCABLE TO EXEMPT 
              INCOME OF A CONTROLLED FOREIGN CORPORATION.

    (a) In General.--Part IX of subchapter B of chapter 1 is amended by 
adding at the end the following:

``SEC. 265A. EXPENSES ALLOCABLE TO EXEMPT INCOME OF A CONTROLLED 
              FOREIGN CORPORATION.

    ``(a) In General.--In the case of a United States shareholder of a 
controlled foreign corporation for any taxable year, no deduction shall 
be allowed under this chapter for--
            ``(1) the disallowed portion of any allocable CFC interest, 
        or
            ``(2) expenses directly allocable to the excludable portion 
        of subpart F income (as defined in section 959(g)(3)(B)).
    ``(b) Disallowed Portion.--For purposes of this section--
            ``(1) In general.--The term `disallowed portion' means, 
        with respect to any allocable CFC interest in connection with a 
        controlled foreign corporation, the exclusion percentage of the 
        amount which bears the same ratio to the amount of such 
        interest as--
                    ``(A) the corporation's modified active income (as 
                defined in section 952) for the applicable taxable 
                year, bears to
                    ``(B) the corporation's current earnings and 
                profits.
            ``(2) Current earnings and profits.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `current earnings and 
                profits' means the earnings and profits of the 
                controlled foreign corporation for the applicable 
                taxable year, without diminution by reason of 
                distributions made during the taxable year.
                    ``(B) Special rule for determining earnings and 
                profits.--Earnings and profits of any controlled 
                foreign corporation shall be determined without regard 
                to paragraphs (4), (5), and (6) of section 312(n). 
                Under regulations, the preceding sentence shall not 
                apply to the extent it would increase earnings and 
                profits by an amount which was previously distributed 
                by the controlled foreign corporation.
            ``(3) Exclusion percentage.--The term `exclusion 
        percentage' means, with respect to any controlled foreign 
        corporation for any taxable year, the number of percentage 
        points by which 100 percent exceeds the inclusion percentage 
        determined under section 952(d) with respect to such controlled 
        foreign corporation for such taxable year.
    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Allocable cfc interest.--The term `allocable CFC 
        interest' means any interest expense paid or accrued during the 
        taxable year by a United States shareholder of a controlled 
        foreign corporation which under section 861, and subsection (e) 
        or (f) of section 864 (whichever is applicable), is apportioned 
        to income of the controlled foreign corporation.
            ``(2) Applicable taxable year.--The term `applicable 
        taxable year' means, with respect to any controlled foreign 
        corporation, the taxable year of such corporation which ends 
        with or within the taxable year of the United States 
        shareholder described in subsection (a).
            ``(3) United states shareholder; controlled foreign 
        corporation.--The term `United States shareholder' has the 
        meaning given such term by section 951(b) and the term 
        `controlled foreign corporation' shall have the meaning given 
        such term by section 957(a).
            ``(4) Special rule for members of an affiliated group.--If 
        a United States shareholder to which subsection (a) applies is 
        a domestic corporation which is a member of a group all members 
        of which are treated as a single corporation under subsection 
        (e) or (f) of section 864, whichever is applicable, all 
        domestic corporations which are members of such group shall be 
        treated as a single corporation for purposes of this section.
            ``(5) Special rules.--
                    ``(A) Coordination with other provisions.--Except 
                as provided in regulations, this section shall be 
                applied before any other provision of this chapter 
                limiting the deductibility of any allocable CFC 
                interest.
                    ``(B) Separate application to income in separate 
                baskets.--This section shall be applied separately with 
                respect to the categories of income under section 
                904(d)(1).
    ``(d) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the purposes of this section, 
including regulations providing--
            ``(1) for the sharing of information between shareholders 
        if necessary to carry out the provisions of this section,
            ``(2) for directly associating interest or other expenses 
        disallowed under this section with income of a controlled 
        foreign corporation and for coordinating this section with 
        other provisions of this chapter limiting the deductibility of 
        interest or other expenses, and
            ``(3) for the proper application of this section with 
        respect to the taxpayer's share of net operating losses of a 
        controlled foreign corporation.''.
    (b) Conforming Amendment.--The table of sections for part IX of 
subchapter B of chapter 1 is amended by inserting after the item 
relating to section 265 the following:

``Sec. 265A. Expense allocable to exempt income of a controlled foreign 
                            corporation.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning on or after 
the applicable date, and to taxable years of United States shareholders 
with or within which such taxable years of foreign corporations end.

            PART IV--OTHER PROVISIONS RELATING TO SUBPART F

             Subpart A--Previously Deferred Foreign Income

SEC. 331. TREATMENT OF PREVIOUSLY DEFERRED FOREIGN INCOME.

    (a) In General.--Subpart F of part III of subchapter N of chapter 1 
is amended by adding at the end the following new section:

``SEC. 966. INCLUSION OF PREVIOUSLY DEFERRED FOREIGN INCOME.

    ``(a) Inclusion as Subpart F Income.--
            ``(1) In general.--Subject to the provisions of paragraph 
        (2), the subpart F income (determined under section 952 without 
        regard to this section) of a controlled foreign corporation for 
        its last taxable year beginning before the applicable date (as 
        defined in section 300 of the Infrastructure and Global Tax 
        Competitiveness Act of 2014), shall be increased by the 
        accumulated deferred foreign income of the corporation.
            ``(2) Inclusion only to apply to domestic corporations.--In 
        the case of any increase in subpart F income of a controlled 
        foreign corporation by reason of paragraph (1)--
                    ``(A) notwithstanding section 951(a)(1), the 
                inclusion in gross income under such section of a 
                United States shareholder's pro rata portion (as 
                determined under section 951(a)(2)) of such increased 
                subpart F income shall only apply if the United States 
                shareholder is a domestic corporation, and
                    ``(B) there shall be allowed as a deduction for the 
                taxable year of such United States shareholder in which 
                such increased subpart F income is included in such 
                shareholder's gross income under section 951(a)(1) an 
                amount equal to the applicable percentage of the amount 
                of the income so included.
    ``(b) Accumulated Deferred Foreign Income.--For purposes of this 
section--
            ``(1) In general.--The term `accumulated deferred foreign 
        income' means the excess of--
                    ``(A) the undistributed earnings of the controlled 
                foreign corporation, over
                    ``(B) the undistributed U.S. earnings of such 
                controlled foreign corporation.
            ``(2) Undistributed earnings.--
                    ``(A) In general.--The term `undistributed 
                earnings' means the earnings and profits of the 
                controlled foreign corporation described in section 
                959(c)(3), determined--
                            ``(i) as of the close of the taxable year 
                        described in subsection (a)(1),
                            ``(ii) without diminution by reason of 
                        distributions made during such taxable year, 
                        and
                            ``(iii) without regard to this section.
                    ``(B) Special rule for current year 
                distributions.--For purposes of this chapter, any 
                determination with respect to the treatment of 
                distributions described in subparagraph (A)(ii) shall 
                be made after the application of this section to the 
                earnings and profits described in subparagraph (A).
            ``(3) Undistributed u.s. earnings.--The term `undistributed 
        U.S. earnings' has the meaning given the term `post-1986 
        undistributed U.S. earnings' in section 245(a)(5) (as in effect 
        for taxable years beginning the day before the applicable date 
        (as defined in section 300 of the Infrastructure and Global Tax 
        Competitiveness Act of 2014)), determined--
                    ``(A) without regard to `post-1986' each place it 
                appears in the matter before subparagraph (A), and
                    ``(B) without regard to the last sentence thereof.
    ``(c) Disallowance of Foreign Tax Credit, etc.--
            ``(1) In general.--No credit shall be allowed under section 
        901 to a United States shareholder of a controlled foreign 
        corporation for any taxes paid or accrued (or treated as paid 
        or accrued) with respect to the deductible portion of--
                    ``(A) the increased subpart F income of the 
                corporation included in the gross income of the 
                shareholder under subsection (a)(2)(A), or
                    ``(B) any distribution received by the shareholder 
                which is properly attributable to such increased 
                subpart F income.
            ``(2) Denial of deduction.--No deduction shall be allowed 
        under this chapter to a United States shareholder of a 
        controlled foreign corporation for any tax for which a credit 
        is not allowable under section 901 by reason of paragraph (1).
            ``(3) Deductible portion.--For purposes of this subsection, 
        the term `deductible portion' means, with respect to the 
        increased subpart F income of the corporation included in the 
        gross income of the shareholder under subsection (a)(2)(A), the 
        applicable percentage of such income with respect to which a 
        deduction is allowable under subsection (a)(2)(B).
            ``(4) Coordination with section 78.--Section 78 shall not 
        apply to the portion of any tax for which credit is not 
        allowable under section 901 by reason of paragraph (1).
    ``(d) Applicable Percentage.--For purposes of this section, the 
term `applicable percentage' means the percentage which is equal to the 
ratio of--
            ``(1) the excess of--
                    ``(A) the highest rate of tax in effect under 
                section 11(b) for the taxable year of the United States 
                shareholder described in subsection (a)(2)(B), over
                    ``(B) 20 percent, to
            ``(2) the highest rate of tax in effect under section 11(b) 
        for the taxable year of the United States shareholder described 
        in subsection (a)(2)(B).
The percentage determined under the preceding sentence shall be rounded 
to the nearest whole percentage point.
    ``(e) Election To Pay Liability in Installments.--
            ``(1) In general.--In the case of a United States 
        shareholder with respect to one or more controlled foreign 
        corporations to which subsection (a) applies, such United 
        States shareholder may elect to pay the net tax liability under 
        this section in 2 or more (but not exceeding 8) equal 
        installments.
            ``(2) Date for payment of installments.--If an election is 
        made under paragraph (1), the due date for the first 
        installment shall be the due date (determined without regard to 
        any extension of time for filing the return) for the return of 
        tax for the taxable year described in subsection (a)(2)(B) and 
        the due date for each succeeding installment shall be the due 
        date (as so determined) for the return of tax for the taxable 
        year following the taxable year with respect to which the 
        preceding installment was made.
            ``(3) Acceleration of payment.--If there is--
                    ``(A) an assessment of an addition to tax for 
                failure to pay timely with respect to any installment 
                required under this subsection,
                    ``(B) a liquidation or sale of substantially all 
                the assets of the taxpayer (including in a title 11 or 
                similar case),
                    ``(C) a cessation of business by the taxpayer, or
                    ``(D) any similar circumstance,
        then the unpaid portion of all remaining installments shall be 
        due on the date of such event (or in the case of a title 11 or 
        similar case, the day before the petition is filed).
            ``(4) Proration of deficiency to installments.--If an 
        election is made under paragraph (1) to pay the net tax 
        liability under this section in installments and a deficiency 
        has been assessed, the deficiency shall be prorated to the 
        installments payable under paragraph (1). The part of the 
        deficiency so prorated to any installment the date for payment 
        of which has not arrived shall be collected at the same time 
        as, and as a part of, such installment. The part of the 
        deficiency so prorated to any installment the date for payment 
        of which has arrived shall be paid upon notice and demand from 
        the Secretary. This paragraph shall not apply if the deficiency 
        is due to negligence, to intentional disregard of rules and 
        regulations, or to fraud with intent to evade tax.
            ``(5) Rules relating to interest.--
                    ``(A) In general.--In the case of any net tax 
                liability prorated to an installment under this 
                subsection, the last date prescribed for payment of the 
                tax for purposes of section 6601(a) shall be the last 
                date for payment of the installment rather than the 
                last date for payment of tax for the taxable year in 
                which the net tax liability arose.
                    ``(B) Special rules for deficiencies.--
                            ``(i) Interest payable for entire period.--
                        Subparagraph (A) shall not apply to any 
                        deficiency prorated to an installment under 
                        paragraph (4).
                            ``(ii) Payment of interest attributable to 
                        prior periods.--In the case of a deficiency to 
                        which paragraph (4) applies, interest with 
                        respect to such deficiency which is assigned 
                        under paragraph (4) to any installment the date 
                        for payment of which has arrived on or before 
                        the date of the assessment of the deficiency, 
                        shall be paid upon notice and demand from the 
                        Secretary.
            ``(6) Period of assessment.--Notwithstanding section 6501, 
        the period for assessing the net tax liability under this 
        section for which an election is made under paragraph (1) shall 
        not expire before the due date for the last installment.
            ``(7) Election.--Any election under paragraph (1) shall be 
        made not later than the due date for the return of tax for the 
        taxable year of the United States shareholder described in 
        subsection (a)(2)(B) and shall be made in such manner as the 
        Secretary may provide.
            ``(8) Net tax liability under this section.--For purposes 
        of this subsection--
                    ``(A) In general.--The net tax liability under this 
                section with respect to any United States shareholder 
                is the excess (if any) of--
                            ``(i) such taxpayer's net income tax for 
                        the taxable year, over
                            ``(ii) such taxpayer's net income tax for 
                        such taxable year determined without regard to 
                        this section.
                    ``(B) Net income tax.--The term `net income tax' 
                means the net income tax (as defined in section 
                38(c)(1)) reduced by the credit allowed under section 
                38.
                    ``(C) Regulations.--The Secretary shall prescribe 
                such regulations as may be necessary for the 
                determination under this subsection of the net tax 
                liability under this section in the case of any pass-
                thru entity.
    ``(f) Regulations.--The Secretary shall promulgate such regulations 
as necessary to carry out the purposes of this section, including 
regulations for the application of this section to pass-through 
entities all or part of which are owned by 1 or more domestic 
corporations.''.
    (b) Ordering Rule for Purposes of Treatment of Previously Taxed 
Income.--
            (1) In general.--Section 959 is amended by adding at the 
        end the following new subsection:
    ``(g) Special Ordering Rule.--Notwithstanding subsection (c), for 
purposes of subsections (a) and (b), section 316(a) shall be applied by 
applying paragraph (2) thereof and then paragraph (1) thereof--
            ``(1) first to the deductible portion (as defined in 
        section 965(c)(3)) of the increase in subpart F income 
        described in section 965(a)(1) included in the gross income of 
        United States shareholders under section 951(a)(1) (after 
        application of section 965(a)(2)(A)), and
            ``(2) then to amounts described in paragraphs (1), (2), or 
        (3) of subsection (c).''.
            (2) Conforming amendment.--Section 959(c) is amended by 
        inserting ``except as provided in subsection (g),'' after 
        ``subsections (a) and (b),''.
    (c) Conforming Amendments.--
            (1) Clause (vi) of section 56(g)(4)(C) is amended--
                    (A) by inserting ``or section 966(a)(2)'' after 
                ``section 965'', and
                    (B) by inserting ``and inclusions'' after ``certain 
                distributions'' in the heading thereof.
            (2) Paragraph (3) of section 245(a) is amended--
                    (A) by striking ``post-1986'' in subparagraph (A), 
                and
                    (B) by striking ``total post-1986'' in subparagraph 
                (B).
            (3) Paragraph (4) of section 245(a) is amended to read as 
        follows:
            ``(4) Undistributed earnings.--The term `undistributed 
        earnings' means the amount of the earnings and profits of the 
        controlled foreign corporation (computed in accordance with 
        sections 964(a) and 986)--
                    ``(A) as of the close of the taxable year of the 
                controlled foreign corporation in which the dividend is 
                distributed, and
                    ``(B) without diminution by reason of dividends 
                distributed during such taxable year.''.
            (4) Paragraph (5) of section 245(a) is amended--
                    (A) by striking ``post-1986'' both places it 
                appears in the matter preceding subparagraph (A), and
                    (B) by striking ``Post-1986 undistributed'' in the 
                heading thereof and inserting ``Undistributed''.
            (5) Paragraph (6) of section 245(a) is amended--
                    (A) by striking ``beginning after December 31, 
                1986'' and inserting ``which is after the first taxable 
                year of such corporation'', and
                    (B) by striking ``post-1986'' both places it 
                appears.
            (6) Paragraph (2) of section 6601(b) is amended--
                    (A) by striking ``section 6156(a)'' in the matter 
                preceding subparagraph (A) and inserting ``section 
                965(d)(1) or 6156(a)'', and
                    (B) by striking ``section 6156(b)'' in subparagraph 
                (A) and inserting ``section 965(d)(2) or 6156(b), as 
                the case may be''.
            (7) The table of sections for subpart F of part III of 
        subchapter N of chapter 1 is amended by striking the item 
        relating to section 965 and inserting the following:

``Sec. 965. Inclusion of previously deferred foreign income.''.
    (d) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to the last taxable 
        year of foreign corporations beginning before the applicable 
        date, and to taxable years of United States shareholders with 
        or within which such taxable years of foreign corporations end.
            (2) Conforming amendments related to section 245.--The 
        amendments made by paragraphs (2), (3), (4), and (5) of 
        subsection (c) shall apply to taxable years of foreign 
        corporations beginning on or after the applicable date, and to 
        taxable years of United States shareholders with or within 
        which such taxable years of foreign corporations end.

                      Subpart B--Other Provisions

SEC. 336. ELIMINATION OF 30-DAY REQUIREMENT.

    (a) In General.--Section 951(a)(1) is amended by striking ``for an 
uninterrupted period of 30 days or more'' and inserting ``at any 
time''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years of foreign corporations beginning on or after the 
applicable date, and to taxable years of United States shareholders 
with or within which such taxable years of foreign corporations end.

SEC. 337. MODIFICATION OF DEFINITION OF UNITED STATES SHAREHOLDER.

    (a) In General.--Section 951(b) is amended by inserting ``, or 10 
percent or more of the total value of shares of all classes of stock of 
such foreign corporation'' after ``such foreign corporation''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years of foreign corporations beginning on or after the 
applicable date, and to taxable years of United States shareholders 
with or within which such taxable years of foreign corporations end.

          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.

    (a) Repeal of Section 902 Indirect Foreign Tax Credits.--Subpart A 
of part III of subchapter N of chapter 1 is amended by striking section 
902.
    (b) Foreign Tax Credit Related to Subpart F Income.--
            (1) In general.--Section 960 is amended by redesignating 
        subsections (b) and (c) as subsections (c) and (d), 
        respectively, and by striking subsection (a) and inserting the 
        following:
    ``(a) Determination of Credit on Current Year Basis.--For purposes 
of this subpart, if there is included in the gross income of a domestic 
corporation any amount under section 951(a) with respect to any 
controlled foreign corporation with respect to which such domestic 
corporation is a United States shareholder, such domestic corporation 
shall be deemed to have paid so much of such foreign corporation's 
foreign income taxes as are properly attributable to the amount so 
included.
    ``(b) Treatment of Foreign Taxes Not Previously Deemed Paid.--For 
purposes of this subpart--
            ``(1) In general.--If any portion of a distribution from a 
        controlled foreign corporation received by a domestic 
        corporation is excluded from gross income under section 959(a), 
        such domestic corporation shall be deemed to have paid so much 
        of such foreign corporation's foreign income taxes as are 
        properly attributable to the amount so excluded to the extent 
        such taxes were not deemed paid by the domestic corporation 
        under this section for any prior taxable year.
            ``(2) Taxes of lower-tier cfcs.--If a controlled foreign 
        corporation receives a distribution any portion of which is 
        described in section 959(b) from another controlled foreign 
        corporation, such foreign corporation shall be deemed to have 
        paid so much of such other foreign corporation's foreign income 
        taxes as are properly attributable to the amount so described 
        to the extent such taxes were not deemed paid by a domestic 
        corporation under this section for any prior taxable year.''.
            (2) Application with respect to foreign tax credit 
        limitation.--Section 960(c), as redesignated by paragraph (1), 
        is amended by adding at the end the following new paragraph:
            ``(6) Application with respect to foreign tax credit 
        limitation.--This subsection shall be applied separately with 
        respect to each category of income described in section 
        904(d)(1).''.
            (3) Conforming amendments.--
                    (A) Section 960 is amended by striking subsection 
                (d), as redesignated by paragraph (1), and inserting 
                the following:
    ``(d) Foreign Income Taxes.--For purposes of this section, the term 
`foreign income taxes' means any income, war profits, or excess profits 
taxes paid or accrued by a foreign corporation to any foreign country 
or possession of the United States.
    ``(e) Regulations.--The Secretary shall provide such regulations as 
may be necessary or appropriate to carry out the provisions of this 
section, including rules for the application of this section to 
domestic partnerships with partners that are domestic corporations.''.
                    (B) Section 960 is amended by striking the heading 
                and inserting ``deemed paid credit for subpart f 
                inclusions''.
    (c) Modification to Section 78 Gross Up.--Section 78 is amended to 
read as follows:

``SEC. 78. AMOUNTS RECEIVED FROM CERTAIN FOREIGN CORPORATIONS BY 
              DOMESTIC CORPORATIONS CHOOSING FOREIGN TAX CREDIT.

    ``If a domestic corporation which is a United States shareholder 
chooses to have the benefits of subpart A of part III of subchapter N 
(relating to foreign tax credits) for any taxable year, an amount equal 
to the taxes deemed to be paid by such corporation under section 960 
for such taxable year--
            ``(1) shall be treated as an amount included in the gross 
        income under section 951(a), and
            ``(2) for purposes of section 904, shall be deemed to be 
        attributable to the same category of income described in 
        section 904(d)(1) as the income which gave rise to the taxes 
        deemed paid by such corporation.''.
    (d) Conforming Amendments.--
            (1) Subclause (III) of section 56(g)(4)(C)(iii) is amended 
        by inserting ``as in effect before its repeal'' after ``section 
        902''.
            (2) Sections 535(b)(1) and 545(b)(1) are each amended by 
        striking ``section 902(a) or 960(a)(1)'' and inserting 
        ``section 960''.
            (3) Subparagraph (B) of section 814(f)(1) is repealed.
            (4) Subsection (a) of section 901 is amended by striking 
        ``sections 902 and 960'' and inserting ``section 960''.
            (5) Paragraph (2) of section 901(e) is amended by striking 
        ``but is not limited to--'' and all that follows through ``that 
        portion'' and inserting ``but is not limited to that portion''.
            (6) Subsection (f) of section 901 is amended by striking 
        ``sections 902 and 960'' and inserting ``section 960''.
            (7) Subparagraph (A) of section 901(j)(1) is amended by 
        striking ``902 or''.
            (8) Subparagraph (A) of section 904(h)(10) is amended by 
        striking ``sections 902, 907, and 960'' and inserting 
        ``sections 907 and 960''.
            (9) Subsection (k) of section 904 is amended to read as 
        follows:
    ``(k) Cross Reference.--For modification of limitation under 
subsection (a) for purposes of determining the amount of credit which 
can be taken against the alternative minimum tax, see section 59(a).''.
            (10) Paragraph (1) of section 905(c) is amended by striking 
        the last sentence.
            (11) Subclause (I) of section 905(c)(2)(B) is amended by 
        striking ``902 or''.
            (12) Subsection (a) of section 906 is amended by striking 
        ``(or deemed, under section 902, paid or accrued during the 
        taxable year)''.
            (13) Subsection (b) of section 906 is amended by striking 
        paragraphs (4) and (5).
            (14) Subparagraph (B) of section 907(b)(2) is amended by 
        striking ``902 or''.
            (15) Paragraph (3) of section 907(c) is amended--
                    (A) by striking subparagraph (A) and redesignating 
                subparagraphs (B) and (C) as subparagraphs (A) and (B), 
                respectively, and
                    (B) by striking ``section 960(a)'' in subparagraph 
                (A) (as so redesignated) and inserting ``section 960''.
            (16) Paragraph (5) of section 907(c) is amended by striking 
        ``902 or''.
            (17) Clause (i) of section 907(f)(2)(B) is amended by 
        striking ``902 or''.
            (18) Subsection (a) of section 908 is amended by striking 
        ``902 or''.
            (19) Paragraph (1) of section 958(a) is amended by striking 
        ``960(a)(1)'' and inserting ``960''.
            (20) Subparagraph (B) of section 6038(c)(1) is amended by 
        striking ``sections 902 (relating to foreign tax credit for 
        corporate stockholder in foreign corporation) and 960 (relating 
        to special rules for foreign tax credit)'' and inserting 
        ``section 960''.
            (21) Paragraph (4) of section 6038(c) is amended by 
        striking subparagraph (C).
            (22) The table of sections for subpart A of part III of 
        subchapter N of chapter 1 is amended by striking the item 
        relating to section 902.
            (23) The table of sections for part II of subchapter B of 
        chapter 1 is amended by striking ``Dividends'' in the item 
        relating to section 78 and inserting ``Amounts''.
            (24) The table of sections for subpart F of part III of 
        subchapter N of chapter 1 is amended by striking the item 
        relating to section 960 and inserting the following:

``Sec. 960. Deemed paid credit for subpart F inclusions.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning on or after 
the applicable date, and to taxable years of United States shareholders 
with or within which such taxable years of foreign corporations end.

SEC. 342. REPEAL OF RULE SUSPENDING FOREIGN TAXES AND CREDITS UNTIL 
              RELATED INCOME IS TAKEN INTO ACCOUNT.

    (a) In General.--Subpart A of part III of subchapter N of chapter 1 
is amended by striking section 909.
    (b) Conforming Amendments.--
            (1) Section 901(m)(1)(B) is amended by striking ``a section 
        902 corporation (as defined in section 909(d)(5))'' and 
        inserting ``a controlled foreign corporation (as defined in 
        section 957(a))''.
            (2) The table of sections of subpart A of part III of 
        subchapter N of chapter 1 is amended by striking the item 
        relating to section 909.
    (c) Effective Date.--The amendments made by this section shall 
apply to foreign taxes paid or accrued in taxable years beginning on or 
after the applicable date.
                                 <all>
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