I 

111TH CONGRESS 

2D SESSION H. R. 5793 

To amend the Internal Revenue Code of 1986 to close foreign tax loopholes. 

IN THE HOUSE OF REPRESENTATIVES 

JULY 20, 2010 

Mr. GARAMENDI (for himself, Mr. MCDERMOTT, Mrs. NAPOLITANO, Mr. 

DEFAZIO, Mr. HARE, Ms. SUTTON, Mr. SCHAUER, Mr. HINCHEY, Ms. 

KAPTUR, Mr. KAGEN, and Mr. PERLMUTTER) introduced the following 

bill; which was referred to the Committee on Ways and Means 

A BILL 

To amend the Internal Revenue Code of 1986 to close foreign 

tax loopholes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; 

4 TABLE OF CONTENTS. 

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

6 ‘‘Close Foreign Tax Loopholes: Make it in America Act 

7 of 2010’’. 

8 (b) AMENDMENT OF 1986 CODE.—Except as other9 wise expressly provided, whenever in this Act an amend10 ment or repeal is expressed in terms of an amendment 

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

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

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

5 this Act is as follows: 

Sec. 1. Short title; amendment of 1986 code; table of contents. 

Sec. 2. Rules to prevent splitting foreign tax credits from the income to which 

they relate. 

Sec. 3. Denial of foreign tax credit with respect to foreign income not subject 

to United States taxation by reason of covered asset acquisitions. 

Sec. 4. Separate application of foreign tax credit limitation, etc., to items 

resourced under treaties. 

Sec. 5. Limitation on the amount of foreign taxes deemed paid with respect to 

section 956 inclusions. 

Sec. 6. Special rule with respect to certain redemptions by foreign subsidiaries. 

Sec. 7. Modification of affiliation rules for purposes of rules allocating interest 

expense. 

Sec. 8. Termination of special rules for interest and dividends received from 

persons meeting the 80-percent foreign business requirements. 

Sec. 9. Source rules for income on guarantees. 

Sec. 10. Limitation on extension of statute of limitations for failure to notify 

Secretary of certain foreign transfers. 

6 SEC. 2. RULES TO PREVENT SPLITTING FOREIGN TAX 

7 CREDITS FROM THE INCOME TO WHICH THEY 

8 RELATE. 

9 (a) IN GENERAL.—Subpart A of part III of sub10 chapter N of chapter 1 is amended by adding at the end 

11 the following new section: 

12 ‘‘SEC. 909. SUSPENSION OF TAXES AND CREDITS UNTIL RE13 LATED INCOME TAKEN INTO ACCOUNT. 

14 ‘‘(a) IN GENERAL.—If there is a foreign tax credit 

15 splitting event with respect to a foreign income tax paid 

16 or accrued by the taxpayer, such tax shall not be taken 

17 into account for purposes of this title before the taxable 

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1 year in which the related income is taken into account 

2 under this chapter by the taxpayer. 

3 ‘‘(b) SPECIAL RULES WITH RESPECT TO SECTION

4 902 CORPORATIONS.—If there is a foreign tax credit split5 ting event with respect to a foreign income tax paid or 

6 accrued by a section 902 corporation, such tax shall not 

7 be taken into account— 

8 ‘‘(1) for purposes of section 902 or 960, or 

9 ‘‘(2) for purposes of determining earnings and 

10 profits under section 964(a), 

11 before the taxable year in which the related income is 

12 taken into account under this chapter by such section 902 

13 corporation or a domestic corporation which meets the 

14 ownership requirements of subsection (a) or (b) of section 

15 902 with respect to such section 902 corporation. 

16 ‘‘(c) SPECIAL RULES.—For purposes of this sec17 tion— 

18 ‘‘(1) APPLICATION TO PARTNERSHIPS, ETC.—In 

19 the case of a partnership, subsections (a) and (b) 

20 shall be applied at the partner level. Except as oth21 erwise provided by the Secretary, a rule similar to 

22 the rule of the preceding sentence shall apply in the 

23 case of any S corporation or trust. 

24 ‘‘(2) TREATMENT OF FOREIGN TAXES AFTER

25 SUSPENSION.—In the case of any foreign income tax 

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1 not taken into account by reason of subsection (a) 

2 or (b), except as otherwise provided by the Sec3 retary, such tax shall be so taken into account in the 

4 taxable year referred to in such subsection (other 

5 than for purposes of section 986(a)) as a foreign in6 come tax paid or accrued in such taxable year. 

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

8 ‘‘(1) FOREIGN TAX CREDIT SPLITTING

9 EVENT.—There is a foreign tax credit splitting event 

10 with respect to a foreign income tax if the related 

11 income is (or will be) taken into account under this 

12 chapter by a covered person. 

13 ‘‘(2) FOREIGN INCOME TAX.—The term ‘foreign 

14 income tax’ means any income, war profits, or excess 

15 profits tax paid or accrued to any foreign country or 

16 to any possession of the United States. 

17 ‘‘(3) RELATED INCOME.—The term ‘related in18 come’ means, with respect to any portion of any for19 eign income tax, the income (or, as appropriate, 

20 earnings and profits) to which such portion of for21 eign income tax relates. 

22 ‘‘(4) COVERED PERSON.—The term ‘covered 

23 person’ means, with respect to any person who pays 

24 or accrues a foreign income tax (hereafter in this 

25 paragraph referred to as the ‘payor’)— 

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1 ‘‘(A) any entity in which the payor holds, 

2 directly or indirectly, at least a 10 percent own3 ership interest (determined by vote or value), 

4 ‘‘(B) any person which holds, directly or 

5 indirectly, at least a 10 percent ownership in6 terest (determined by vote or value) in the 

7 payor, 

8 ‘‘(C) any person which bears a relationship 

9 to the payor described in section 267(b) or 

10 707(b), and 

11 ‘‘(D) any other person specified by the 

12 Secretary for purposes of this paragraph. 

13 ‘‘(5) SECTION 902 CORPORATION.—The term 

14 ‘section 902 corporation’ means any foreign corpora15 tion with respect to which one or more domestic cor16 porations meets the ownership requirements of sub17 section (a) or (b) of section 902. 

18 ‘‘(e) REGULATIONS.—The Secretary may issue such 

19 regulations or other guidance as is necessary or appro20 priate to carry out the purposes of this section, including 

21 regulations or other guidance which provides— 

22 ‘‘(1) appropriate exceptions from the provisions 

23 of this section, and 

24 ‘‘(2) for the proper application of this section 

25 with respect to hybrid instruments.’’. 

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

2 for subpart A of part III of subchapter N of chapter 1 

3 is amended by adding at the end the following new item: 

‘‘Sec. 909. Suspension of taxes and credits until related income taken into account.’’. 

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

5 this section shall apply to— 

6 (1) foreign income taxes (as defined in section 

7 909(d) of the Internal Revenue Code of 1986, as 

8 added by this section) paid or accrued after May 20, 

9 2010; and 

10 (2) foreign income taxes (as so defined) paid or 

11 accrued by a section 902 corporation (as so defined) 

12 on or before such date (and not deemed paid under 

13 section 902(a) or 960 of such Code on or before 

14 such date), but only for purposes of applying sec15 tions 902 and 960 with respect to periods after such 

16 date. 

17 Section 909(b)(2) of the Internal Revenue Code of 1986, 

18 as added by this section, shall not apply to foreign income 

19 taxes described in paragraph (2). 

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1 SEC. 3. DENIAL OF FOREIGN TAX CREDIT WITH RESPECT 

2 TO FOREIGN INCOME NOT SUBJECT TO 

3 UNITED STATES TAXATION BY REASON OF 

4 COVERED ASSET ACQUISITIONS. 

5 (a) IN GENERAL.—Section 901 is amended by redes6 ignating subsection (m) as subsection (n) and by inserting 

7 after subsection (l) the following new subsection: 

8 ‘‘(m) DENIAL OF FOREIGN TAX CREDIT WITH RE9 SPECT TO FOREIGN INCOME NOT SUBJECT TO UNITED

10 STATES TAXATION BY REASON OF COVERED ASSET AC11 QUISITIONS.— 

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

13 asset acquisition, the disqualified portion of any for14 eign income tax determined with respect to the in15 come or gain attributable to the relevant foreign as16 sets— 

17 ‘‘(A) shall not be taken into account in de18 termining the credit allowed under subsection 

19 (a), and 

20 ‘‘(B) in the case of a foreign income tax 

21 paid by a section 902 corporation (as defined in 

22 section 909(d)(5)), shall not be taken into ac23 count for purposes of section 902 or 960. 

24 ‘‘(2) COVERED ASSET ACQUISITION.—For pur25 poses of this section, the term ‘covered asset acquisi26 tion’ means— 

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1 ‘‘(A) a qualified stock purchase (as defined 

2 in section 338(d)(3)) to which section 338(a) 

3 applies, 

4 ‘‘(B) any transaction which— 

5 ‘‘(i) is treated as an acquisition of as6 sets for purposes of this chapter, and 

7 ‘‘(ii) is treated as the acquisition of 

8 stock of a corporation (or is disregarded) 

9 for purposes of the foreign income taxes of 

10 the relevant jurisdiction, 

11 ‘‘(C) any acquisition of an interest in a 

12 partnership which has an election in effect 

13 under section 754, and 

14 ‘‘(D) to the extent provided by the Sec15 retary, any other similar transaction. 

16 ‘‘(3) DISQUALIFIED PORTION.—For purposes of 

17 this section— 

18 ‘‘(A) IN GENERAL.—The term ‘disqualified 

19 portion’ means, with respect to any covered 

20 asset acquisition, for any taxable year, the ratio 

21 (expressed as a percentage) of— 

22 ‘‘(i) the aggregate basis differences 

23 (but not below zero) allocable to such tax24 able year under subparagraph (B) with reWReier-Aviles on DSKGBLS3C1PROD with BILLS

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1 spect to all relevant foreign assets, divided 

2 by 

3 ‘‘(ii) the income on which the foreign 

4 income tax referred to in paragraph (1) is 

5 determined (or, if the taxpayer fails to sub6 stantiate such income to the satisfaction of 

7 the Secretary, such income shall be deter8 mined by dividing the amount of such for9 eign income tax by the highest marginal 

10 tax rate applicable to such income in the 

11 relevant jurisdiction). 

12 ‘‘(B) ALLOCATION OF BASIS DIF13 FERENCE.—For purposes of subparagraph 

14 (A)(i)— 

15 ‘‘(i) IN GENERAL.—The basis dif16 ference with respect to any relevant foreign 

17 asset shall be allocated to taxable years 

18 using the applicable cost recovery method 

19 under this chapter. 

20 ‘‘(ii) SPECIAL RULE FOR DISPOSITION

21 OF ASSETS.—Except as otherwise provided 

22 by the Secretary, in the case of the disposi23 tion of any relevant foreign asset— 

24 ‘‘(I) the basis difference allocated 

25 to the taxable year which includes the 

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1 date of such disposition shall be the 

2 excess of the basis difference with re3 spect to such asset over the aggregate 

4 basis difference with respect to such 

5 asset which has been allocated under 

6 clause (i) to all prior taxable years, 

7 and 

8 ‘‘(II) no basis difference with re9 spect to such asset shall be allocated 

10 under clause (i) to any taxable year 

11 thereafter. 

12 ‘‘(C) BASIS DIFFERENCE.— 

13 ‘‘(i) IN GENERAL.—The term ‘basis 

14 difference’ means, with respect to any rel15 evant foreign asset, the excess of— 

16 ‘‘(I) the adjusted basis of such 

17 asset immediately after the covered 

18 asset acquisition, over 

19 ‘‘(II) the adjusted basis of such 

20 asset immediately before the covered 

21 asset acquisition. 

22 ‘‘(ii) BUILT-IN LOSS ASSETS.—In the 

23 case of a relevant foreign asset with re24 spect to which the amount described in 

25 clause (i)(II) exceeds the amount described 

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1 in clause (i)(I), such excess shall be taken 

2 into account under this subsection as a 

3 basis difference of a negative amount. 

4 ‘‘(iii) SPECIAL RULE FOR SECTION 338

5 ELECTIONS.—In the case of a covered 

6 asset acquisition described in paragraph 

7 (2)(A), the covered asset acquisition shall 

8 be treated for purposes of this subpara9 graph as occurring at the close of the ac10 quisition date (as defined in section 

11 338(h)(2)). 

12 ‘‘(4) RELEVANT FOREIGN ASSETS.—For pur13 poses of this section, the term ‘relevant foreign 

14 asset’ means, with respect to any covered asset ac15 quisition, any asset (including any goodwill, going 

16 concern value, or other intangible) with respect to 

17 such acquisition if income, deduction, gain, or loss 

18 attributable to such asset is taken into account in 

19 determining the foreign income tax referred to in 

20 paragraph (1). 

21 ‘‘(5) FOREIGN INCOME TAX.—For purposes of 

22 this section, the term ‘foreign income tax’ means 

23 any income, war profits, or excess profits tax paid 

24 or accrued to any foreign country or to any posses25 sion of the United States. 

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1 ‘‘(6) TAXES ALLOWED AS A DEDUCTION, ETC.— 

2 Sections 275 and 78 shall not apply to any tax 

3 which is not allowable as a credit under subsection 

4 (a) by reason of this subsection. 

5 ‘‘(7) REGULATIONS.—The Secretary may issue 

6 such regulations or other guidance as is necessary or 

7 appropriate to carry out the purposes of this sub8 section, including to exempt from the application of 

9 this subsection certain covered asset acquisitions, 

10 and relevant foreign assets with respect to which the 

11 basis difference is de minimis.’’. 

12 (b) EFFECTIVE DATE.— 

13 (1) IN GENERAL.—Except as provided in para14 graph (2), the amendments made by this section 

15 shall apply to covered asset acquisitions (as defined 

16 in section 901(m)(2) of the Internal Revenue Code 

17 of 1986, as added by this section) after— 

18 (A) May 20, 2010, if the transferor and 

19 the transferee are related, and 

20 (B) the date of the enactment of this Act 

21 in any other case. 

22 (2) TRANSITION RULE.—The amendments 

23 made by this section shall not apply to any covered 

24 asset acquisition (as so defined) with respect to 

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1 which the transferor and the transferee are not re2 lated if such acquisition is— 

3 (A) made pursuant to a written agreement 

4 which was binding on May 20, 2010, and at all 

5 times thereafter, 

6 (B) described in a ruling request submitted 

7 to the Internal Revenue Service on or before 

8 such date, or 

9 (C) described on or before such date in a 

10 public announcement or in a filing with the Se11 curities and Exchange Commission. 

12 (3) RELATED PERSONS.—For purposes of this 

13 subsection, a person shall be treated as related to 

14 another person if the relationship between such per15 sons is described in section 267 or 707(b) of the In16 ternal Revenue Code of 1986. 

17 SEC. 4. SEPARATE APPLICATION OF FOREIGN TAX CREDIT 

18 LIMITATION, ETC., TO ITEMS RESOURCED 

19 UNDER TREATIES. 

20 (a) IN GENERAL.—Subsection (d) of section 904 is 

21 amended by redesignating paragraph (6) as paragraph (7) 

22 and by inserting after paragraph (5) the following new 

23 paragraph: 

24 ‘‘(6) SEPARATE APPLICATION TO ITEMS

25 RESOURCED UNDER TREATIES.— 

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1 ‘‘(A) IN GENERAL.—If— 

2 ‘‘(i) without regard to any treaty obli3 gation of the United States, any item of 

4 income would be treated as derived from 

5 sources within the United States, 

6 ‘‘(ii) under a treaty obligation of the 

7 United States, such item would be treated 

8 as arising from sources outside the United 

9 States, and 

10 ‘‘(iii) the taxpayer chooses the bene11 fits of such treaty obligation, 

12 subsections (a), (b), and (c) of this section and 

13 sections 902, 907, and 960 shall be applied sep14 arately with respect to each such item. 

15 ‘‘(B) COORDINATION WITH OTHER PROVI16 SIONS.—This paragraph shall not apply to any 

17 item of income to which subsection (h)(10) or 

18 section 865(h) applies. 

19 ‘‘(C) REGULATIONS.—The Secretary may 

20 issue such regulations or other guidance as is 

21 necessary or appropriate to carry out the pur22 poses of this paragraph, including regulations 

23 or other guidance which provides that related 

24 items of income may be aggregated for pur25 poses of this paragraph.’’. 

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1 (b) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 the date of the enactment of this Act. 

4 SEC. 5. LIMITATION ON THE AMOUNT OF FOREIGN TAXES 

5 DEEMED PAID WITH RESPECT TO SECTION 

6 956 INCLUSIONS. 

7 (a) IN GENERAL.—Section 960 is amended by adding 

8 at the end the following new subsection: 

9 ‘‘(c) LIMITATION WITH RESPECT TO SECTION 956 

10 INCLUSIONS.— 

11 ‘‘(1) IN GENERAL.—If there is included under 

12 section 951(a)(1)(B) in the gross income of a do13 mestic corporation any amount attributable to the 

14 earnings and profits of a foreign corporation which 

15 is a member of a qualified group (as defined in sec16 tion 902(b)) with respect to the domestic corpora17 tion, the amount of any foreign income taxes deemed 

18 to have been paid during the taxable year by such 

19 domestic corporation under section 902 by reason of 

20 subsection (a) with respect to such inclusion in gross 

21 income shall not exceed the amount of the foreign 

22 income taxes which would have been deemed to have 

23 been paid during the taxable year by such domestic 

24 corporation if cash in an amount equal to the 

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1 tributed as a series of distributions (determined 

2 without regard to any foreign taxes which would be 

3 imposed on an actual distribution) through the chain 

4 of ownership which begins with such foreign cor5 poration and ends with such domestic corporation. 

6 ‘‘(2) AUTHORITY TO PREVENT ABUSE.—The 

7 Secretary shall issue such regulations or other guid8 ance as is necessary or appropriate to carry out the 

9 purposes of this subsection, including regulations or 

10 other guidance which prevent the inappropriate use 

11 of the foreign corporation’s foreign income taxes not 

12 deemed paid by reason of paragraph (1).’’. 

13 (b) EFFECTIVE DATE.—The amendment made by 

14 this section shall apply to acquisitions of United States 

15 property (as defined in section 956(c) of the Internal Rev16 enue Code of 1986) after May 20, 2010. 

17 SEC. 6. SPECIAL RULE WITH RESPECT TO CERTAIN RE18 DEMPTIONS BY FOREIGN SUBSIDIARIES. 

19 (a) IN GENERAL.—Paragraph (5) of section 304(b) 

20 is amended by redesignating subparagraph (B) as sub21 paragraph (C) and by inserting after subparagraph (A) 

22 the following new subparagraph: 

23 ‘‘(B) SPECIAL RULE IN CASE OF FOREIGN

24 ACQUIRING CORPORATION.—In the case of any 

25 acquisition to which subsection (a) applies in 

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1 which the acquiring corporation is a foreign 

2 corporation, no earnings and profits shall be 

3 taken into account under paragraph (2)(A) 

4 (and subparagraph (A) shall not apply) if more 

5 than 50 percent of the dividends arising from 

6 such acquisition (determined without regard to 

7 this subparagraph) would not— 

8 ‘‘(i) be subject to tax under this chap9 ter for the taxable year in which the divi10 dends arise, or 

11 ‘‘(ii) be includible in the earnings and 

12 profits of a controlled foreign corporation 

13 (as defined in section 957 and without re14 gard to section 953(c)).’’. 

15 (b) EFFECTIVE DATE.—The amendments made by 

16 this section shall apply to acquisitions after May 20, 2010. 

17 SEC. 7. MODIFICATION OF AFFILIATION RULES FOR PUR18 POSES OF RULES ALLOCATING INTEREST EX19 PENSE. 

20 (a) IN GENERAL.—Subparagraph (A) of section 

21 864(e)(5) is amended by adding at the end the following: 

22 ‘‘Notwithstanding the preceding sentence, a foreign cor23 poration shall be treated as a member of the affiliated 

24 group if— 

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1 ‘‘(i) more than 50 percent of the gross 

2 income of such foreign corporation for the 

3 taxable year is effectively connected with 

4 the conduct of a trade or business within 

5 the United States, and 

6 ‘‘(ii) at least 80 percent of either the 

7 vote or value of all outstanding stock of 

8 such foreign corporation is owned directly 

9 or indirectly by members of the affiliated 

10 group (determined with regard to this sen11 tence).’’. 

12 (b) EFFECTIVE DATE.—The amendment made by 

13 this section shall apply to taxable years beginning after 

14 the date of the enactment of this Act. 

15 SEC. 8. TERMINATION OF SPECIAL RULES FOR INTEREST 

16 AND DIVIDENDS RECEIVED FROM PERSONS 

17 MEETING THE 80-PERCENT FOREIGN BUSI18 NESS REQUIREMENTS. 

19 (a) IN GENERAL.—Paragraph (1) of section 861(a) 

20 is amended by striking subparagraph (A) and by redesig21 nating subparagraphs (B) and (C) as subparagraphs (A) 

22 and (B), respectively. 

23 (b) GRANDFATHER RULE WITH RESPECT TO WITH24 HOLDING ON INTEREST AND DIVIDENDS RECEIVED FROM

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1 PERSONS MEETING THE 80-PERCENT FOREIGN BUSI2 NESS REQUIREMENTS.— 

3 (1) IN GENERAL.—Subparagraph (B) of section 

4 871(i)(2) is amended to read as follows: 

5 ‘‘(B) The active foreign business percent6 age of— 

7 ‘‘(i) any dividend paid by an existing 

8 80/20 company, and 

9 ‘‘(ii) any interest paid by an existing 

10 80/20 company.’’. 

11 (2) DEFINITIONS AND SPECIAL RULES.—Sec12 tion 871 is amended by redesignating subsections (l) 

13 and (m) as subsections (m) and (n), respectively, 

14 and by inserting after subsection (k) the following 

15 new subsection: 

16 ‘‘(l) RULES RELATING TO EXISTING 80/20 COMPA17 NIES.—For purposes of this subsection and subsection 

18 (i)(2)(B)— 

19 ‘‘(1) EXISTING 80/20 COMPANY.— 

20 ‘‘(A) IN GENERAL.—The term ‘existing 80/ 

21 20 company’ means any corporation if— 

22 ‘‘(i) such corporation met the 80-per23 cent foreign business requirements of sec24 tion 861(c)(1) (as in effect before the en25 actment of this subsection) for such corWReier-Aviles on DSKGBLS3C1PROD with BILLS

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1 poration’s last taxable year beginning be2 fore January 1, 2011, 

3 ‘‘(ii) such corporation meets the 80- 

4 percent foreign business requirements of 

5 subparagraph (B) with respect to each tax6 able year after the taxable year referred to 

7 in clause (i), and 

8 ‘‘(iii) there has not been an addition 

9 of a substantial line of business with re10 spect to such corporation after the date of 

11 the enactment of this subsection. 

12 ‘‘(B) FOREIGN BUSINESS REQUIRE13 MENTS.— 

14 ‘‘(i) IN GENERAL.—A corporation 

15 meets the 80-percent foreign business re16 quirements of this subparagraph if it is 

17 shown to the satisfaction of the Secretary 

18 that at least 80 percent of the gross in19 come from all sources of such corporation 

20 for the testing period is active foreign busi21 ness income. 

22 ‘‘(ii) ACTIVE FOREIGN BUSINESS IN23 COME.—For purposes of clause (i), the 

24 term ‘active foreign business income’ 

25 means gross income which— 

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1 ‘‘(I) is derived from sources out2 side the United States (as determined 

3 under this subchapter), and 

4 ‘‘(II) is attributable to the active 

5 conduct of a trade or business in a 

6 foreign country or possession of the 

7 United States. 

8 ‘‘(iii) TESTING PERIOD.—For pur9 poses of this subsection, the term ‘testing 

10 period’ means the 3-year period ending 

11 with the close of the taxable year of the 

12 corporation preceding the payment (or 

13 such part of such period as may be appli14 cable). If the corporation has no gross in15 come for such 3-year period (or part there16 of), the testing period shall be the taxable 

17 year in which the payment is made. 

18 ‘‘(2) ACTIVE FOREIGN BUSINESS PERCENT19 AGE.—The term ‘active foreign business percentage’ 

20 means, with respect to any existing 80/20 company, 

21 the percentage which— 

22 ‘‘(A) the active foreign business income of 

23 such company for the testing period, is of 

24 ‘‘(B) the gross income of such company for 

25 the testing period from all sources. 

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1 ‘‘(3) AGGREGATION RULES.—For purposes of 

2 applying paragraph (1) (other than subparagraph 

3 (A)(i) thereof) and paragraph (2)— 

4 ‘‘(A) IN GENERAL.—The corporation re5 ferred to in paragraph (1)(A) and all of such 

6 corporation’s subsidiaries shall be treated as 

7 one corporation. 

8 ‘‘(B) SUBSIDIARIES.—For purposes of sub9 paragraph (A), the term ‘subsidiary’ means any 

10 corporation in which the corporation referred to 

11 in subparagraph (A) owns (directly or indi12 rectly) stock meeting the requirements of sec13 tion 1504(a)(2) (determined by substituting ‘50 

14 percent’ for ‘80 percent’ each place it appears 

15 and without regard to section 1504(b)(3)). 

16 ‘‘(4) REGULATIONS.—The Secretary may issue 

17 such regulations or other guidance as is necessary or 

18 appropriate to carry out the purposes of this section, 

19 including regulations or other guidance which pro20 vide for the proper application of the aggregation 

21 rules described in paragraph (3).’’. 

22 (c) CONFORMING AMENDMENTS.— 

23 (1) Section 861 is amended by striking sub24 section (c) and by redesignating subsections (d), (e), 

25 and (f) as subsections (c), (d), and (e), respectively. 

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1 (2) Paragraph (9) of section 904(h) is amended 

2 to read as follows: 

3 ‘‘(9) TREATMENT OF CERTAIN DOMESTIC COR4 PORATIONS.—In the case of any dividend treated as 

5 not from sources within the United States under 

6 section 861(a)(2)(A), the corporation paying such 

7 dividend shall be treated for purposes of this sub8 section as a United States-owned foreign corpora9 tion.’’. 

10 (3) Subsection (c) of section 2104 is amended 

11 in the last sentence by striking ‘‘or to a debt obliga12 tion of a domestic corporation’’ and all that follows 

13 and inserting a period. 

14 (d) EFFECTIVE DATE.— 

15 (1) IN GENERAL.—Except as provided in para16 graph (2), the amendments made by this section 

17 shall apply to taxable years beginning after Decem18 ber 31, 2010. 

19 (2) GRANDFATHER RULE FOR OUTSTANDING

20 DEBT OBLIGATIONS.— 

21 (A) IN GENERAL.—The amendments made 

22 by this section shall not apply to payments of 

23 interest on obligations issued before the date of 

24 the enactment of this Act. 

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1 (B) EXCEPTION FOR RELATED PARTY

2 DEBT.—Subparagraph (A) shall not apply to 

3 any interest which is payable to a related per4 son (determined under rules similar to the rules 

5 of section 954(d)(3)). 

6 (C) SIGNIFICANT MODIFICATIONS TREAT7 ED AS NEW ISSUES.—For purposes of subpara8 graph (A), a significant modification of the 

9 terms of any obligation (including any extension 

10 of the term of such obligation) shall be treated 

11 as a new issue. 

12 SEC. 9. SOURCE RULES FOR INCOME ON GUARANTEES. 

13 (a) AMOUNTS SOURCED WITHIN THE UNITED

14 STATES.—Subsection (a) of section 861 is amended by 

15 adding at the end the following new paragraph: 

16 ‘‘(9) GUARANTEES.—Amounts— 

17 ‘‘(A) received from noncorporate residents 

18 or domestic corporations with respect to guar19 antees, and 

20 ‘‘(B) paid by any foreign person with re21 spect to guarantees if such amount is connected 

22 with income which is effectively connected (or 

23 treated as effectively connected) with the con24 duct of a trade or business in the United 

25 States.’’. 

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1 (b) AMOUNTS SOURCED WITHOUT THE UNITED

2 STATES.—Subsection (a) of section 862 is amended by 

3 striking ‘‘and’’ at the end of paragraph (7), by striking 

4 the period at the end of paragraph (8) and inserting ‘‘; 

5 and’’, and by adding at the end the following new para6 graph: 

7 ‘‘(9) amounts received with respect to guaran8 tees other than those derived from sources within 

9 the United States as provided in section 861(a)(9).’’. 

10 (c) CONFORMING AMENDMENT.—Clause (ii) of sec11 tion 864(c)(4)(B) is amended by striking ‘‘dividends or in12 terest’’ and inserting ‘‘dividends, interest, or amounts with 

13 respect to guarantees’’. 

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

15 this section shall apply to guarantees issued after the date 

16 of the enactment of this Act. 

17 SEC. 10. LIMITATION ON EXTENSION OF STATUTE OF LIMI18 TATIONS FOR FAILURE TO NOTIFY SEC19 RETARY OF CERTAIN FOREIGN TRANSFERS. 

20 (a) IN GENERAL.—Paragraph (8) of section 6501(c) 

21 is amended— 

22 (1) by striking ‘‘In the case of any information’’ 

23 and inserting the following: 

24 ‘‘(A) IN GENERAL.—In the case of any in25 formation’’; and 

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1 (2) by adding at the end the following: 

2 ‘‘(B) APPLICATION TO FAILURES DUE TO

3 REASONABLE CAUSE.—If the failure to furnish 

4 the information referred to in subparagraph (A) 

5 is due to reasonable cause and not willful ne6 glect, subparagraph (A) shall apply only to the 

7 item or items related to such failure.’’. 

8 (b) EFFECTIVE DATE.—The amendments made by 

9 this section shall take effect as if included in section 513 

10 of the Hiring Incentives to Restore Employment Act. 

Æ 

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