I

104TH CONGRESS

2D SESSION H. R. 4122

To rescind restrictions on welfare and public benefits for legal immigrants

enacted by title 4 of the Personal Responsibility and Work Opportunity

Reconciliation Act of 1996, to reduce corporate welfare, to strengthen

tax provisions regarding persons who relinquish United States citizenship,

and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

SEPTEMBER 19, 1996

Mr. GUTIERREZ (for himself, Mr. EVANS, Mrs. MEEK of Florida, Mr. FILNER,

Mr. DELLUMS, Mr. ABERCROMBIE, Ms. NORTON, Mr. SERRANO, Mr.

CONYERS, Mr. FRANK of Massachusetts, Mr. HILLIARD, Ms. WATERS,

Mr. STARK, Mr. TORRES, Mr. GONZALEZ, Mr. PASTOR, Mr. PAYNE of

New Jersey, and Ms. ROYBAL-ALLARD) introduced the following bill;

which was referred to the Committee on Ways and Means

A BILL

To rescind restrictions on welfare and public benefits for

legal immigrants enacted by title 4 of the Personal Responsibility and Work Opportunity Reconciliation Act of

1996, to reduce corporate welfare, to strengthen tax provisions regarding persons who relinquish United States

citizenship, and for other purposes.

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

2 This Act may be cited as the ‘‘Immigrant Fairness

3 Act of 1996’’.

4 TITLE I—TERMINATION OF PRO5 VISIONS OF PUBLIC LAW 104–

6 193 RESTRICTING WELFARE

7 AND PUBLIC BENEFITS FOR

8 LEGAL IMMIGRANTS

9 SEC 101. TERMINATION OF PROVISIONS OF PUBLIC LAW

10 104–193 RESTRICTING WELFARE AND PUBLIC

11 BENEFITS FOR LEGAL IMMIGRANTS.

12 Notwithstanding any other provision of law, on the

13 date of the enactment of this Act, the provisions of title

14 4 of the Personal Responsibility and Work Opportunity

15 Reconciliation Act of 1996 (Public Law 104–193) shall

16 cease to be effective, the amendments made by that title

17 shall be repealed, and any provision of law repealed by

18 that title shall be reenacted.

19 TITLE II—TAX PROVISIONS

20 SECTION 201. REVISION OF TAX RULES ON EXPATRIATION.

21 (a) IN GENERAL.—Subpart A of part II of sub22 chapter N of chapter 1 of the Internal Revenue Code of

23 1986 is amended by inserting after section 877 the follow24 ing new section:
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1 ‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

2 ‘‘(a) GENERAL RULES.—For purposes of this sub3 title—

4 ‘‘(1) MARK TO MARKET.—Except as provided in

5 subsection (f)(2), all property held by an expatriate

6 immediately before the expatriation date shall be

7 treated as sold at such time for its fair market

8 value.

9 ‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the

10 case of any sale under paragraph (1)—

11 ‘‘(A) notwithstanding any other provision

12 of this title, any gain arising from such sale

13 shall be taken into account for the taxable year

14 of the sale unless such gain is excluded from

15 gross income under part III of subchapter B,

16 and

17 ‘‘(B) any loss arising from such sale shall

18 be taken into account for the taxable year of

19 the sale to the extent otherwise provided by this

20 title, except that section 1091 shall not apply

21 (and section 1092 shall apply) to any such loss.

22 ‘‘(3) ELECTION TO CONTINUE TO BE TAXED AS

23 UNITED STATES CITIZEN.—

24 ‘‘(A) IN GENERAL.—If an expatriate elects

25 the application of this paragraph with respect

26 to any property—
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1 ‘‘(i) this section (other than this para2 graph) shall not apply to such property,

3 but

4 ‘‘(ii) such property shall be subject to

5 tax under this title in the same manner as

6 if the individual were a United States

7 citizen.

8 ‘‘(B) LIMITATION ON AMOUNT OF ESTATE,

9 GIFT, AND GENERATION-SKIPPING TRANSFER

10 TAXES.—The aggregate amount of taxes im11 posed under subtitle B with respect to any

12 transfer of property by reason of an election

13 under subparagraph (A) shall not exceed the

14 amount of income tax which would be due if the

15 property were sold for its fair market value im16 mediately before the time of the transfer or

17 death (taking into account the rules of para18 graph (2)).

19 ‘‘(C) REQUIREMENTS.—Subparagraph (A)

20 shall not apply to an individual unless the indi21 vidual—

22 ‘‘(i) provides security for payment of

23 tax in such form and manner, and in such

24 amount, as the Secretary may require,
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1 ‘‘(ii) consents to the waiver of any

2 right of the individual under any treaty of

3 the United States which would preclude as4 sessment or collection of any tax which

5 may be imposed by reason of this para6 graph, and

7 ‘‘(iii) complies with such other re8 quirements as the Secretary may prescribe.

9 ‘‘(D) ELECTION.—An election under sub10 paragraph (A) shall apply only to the property

11 described in the election and, once made, shall

12 be irrevocable.

13 ‘‘(b) EXCLUSION FOR CERTAIN GAIN.—The amount

14 which would (but for this subsection) be includible in the

15 gross income of any individual by reason of subsection (a)

16 shall be reduced (but not below zero) by $600,000.

17 ‘‘(c) PROPERTY TREATED AS HELD.—For purposes

18 of this section, except as otherwise provided by the Sec19 retary, an individual shall be treated as holding—

20 ‘‘(1) all property which would be includible in

21 his gross estate under chapter 11 if such individual

22 were a citizen or resident of the United States (with23 in the meaning of chapter 11) who died at the time

24 the property is treated as sold,
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1 ‘‘(2) any other interest in a trust which the in2 dividual is treated as holding under the rules of sub3 section (f)(1), and

4 ‘‘(3) any other interest in property specified by

5 the Secretary as necessary or appropriate to carry

6 out the purposes of this section.

7 ‘‘(d) EXCEPTIONS.—The following property shall not

8 be treated as sold for purposes of this section:

9 ‘‘(1) UNITED STATES REAL PROPERTY INTER10 ESTS.—Any United States real property interest (as

11 defined in section 897(c)(1)), other than stock of a

12 United States real property holding corporation

13 which does not, on the expatriation date, meet the

14 requirements of section 897(c)(2).

15 ‘‘(2) INTEREST IN CERTAIN RETIREMENT

16 PLANS.—

17 ‘‘(A) IN GENERAL.—Any interest in a

18 qualified retirement plan (as defined in section

19 4974(c)), other than any interest attributable to

20 contributions which are in excess of any limita21 tion or which violate any condition for tax22 favored treatment.

23 ‘‘(B) FOREIGN PENSION PLANS.—

24 ‘‘(i) IN GENERAL.—Under regulations

25 prescribed by the Secretary, interests in
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1 foreign pension plans or similar retirement

2 arrangements or programs.

3 ‘‘(ii) LIMITATION.—The value of prop4 erty which is treated as not sold by reason

5 of this subparagraph shall not exceed

6 $500,000.

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

8 ‘‘(1) EXPATRIATE.—The term ‘expatriate’

9 means—

10 ‘‘(A) any United States citizen who relin11 quishes his citizenship, or

12 ‘‘(B) any long-term resident of the United

13 States who—

14 ‘‘(i) ceases to be a lawful permanent

15 resident of the United States (within the

16 meaning of section 7701(b)(6)), or

17 ‘‘(ii) commences to be treated as a

18 resident of a foreign country under the

19 provisions of a tax treaty between the

20 United States and the foreign country and

21 who does not waive the benefits of such

22 treaty applicable to residents of the foreign

23 country.

24 An individual shall not be treated as an expatriate

25 for purposes of this section by reason of the individ-
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1 ual relinquishing United States citizenship before attaining the age of 181 2 ⁄2 if the individual has been a

3 resident of the United States (as defined in section

4 7701(b)(1)(A)(ii)) for less than 5 taxable years be5 fore the date of relinquishment.

6 ‘‘(2) EXPATRIATION DATE.—The term ‘expa7 triation date’ means—

8 ‘‘(A) the date an individual relinquishes

9 United States citizenship, or

10 ‘‘(B) in the case of a long-term resident of

11 the United States, the date of the event de12 scribed in clause (i) or (ii) of paragraph (1)(B).

13 ‘‘(3) RELINQUISHMENT OF CITIZENSHIP.—A

14 citizen shall be treated as relinquishing his United

15 States citizenship on the earliest of—

16 ‘‘(A) the date the individual renounces his

17 United States nationality before a diplomatic or

18 consular officer of the United States pursuant

19 to paragraph (5) of section 349(a) of the Immi20 gration and Nationality Act (8 U.S.C.

21 1481(a)(5)),

22 ‘‘(B) the date the individual furnishes to

23 the United States Department of State a signed

24 statement of voluntary relinquishment of

25 United States nationality confirming the per-
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1 formance of an act of expatriation specified in

2 paragraph (1), (2), (3), or (4) of section 349(a)

3 of the Immigration and Nationality Act (8

4 U.S.C. 1481(a) (1)–(4)),

5 ‘‘(C) the date the United States Depart6 ment of State issues to the individual a certifi7 cate of loss of nationality, or

8 ‘‘(D) the date a court of the United States

9 cancels a naturalized citizen’s certificate of nat10 uralization.

11 Subparagraph (A) or (B) shall not apply to any indi12 vidual unless the renunciation or voluntary relin13 quishment is subsequently approved by the issuance

14 to the individual of a certificate of loss of nationality

15 by the United States Department of State.

16 ‘‘(4) LONG-TERM RESIDENT.—

17 ‘‘(A) IN GENERAL.—The term ‘long-term

18 resident’ means any individual (other than a

19 citizen of the United States) who is a lawful

20 permanent resident of the United States in at

21 least 8 taxable years during the period of 15

22 taxable years ending with the taxable year dur23 ing which the sale under subsection (a)(1) is

24 treated as occurring. For purposes of the pre25 ceding sentence, an individual shall not be
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1 treated as a lawful permanent resident for any

2 taxable year if such individual is treated as a

3 resident of a foreign country for the taxable

4 year under the provisions of a tax treaty be5 tween the United States and the foreign coun6 try and does not waive the benefits of such

7 treaty applicable to residents of the foreign

8 country.

9 ‘‘(B) SPECIAL RULE.—For purposes of

10 subparagraph (A), there shall not be taken into

11 account—

12 ‘‘(i) any taxable year during which

13 any prior sale is treated under subsection

14 (a)(1) as occurring, or

15 ‘‘(ii) any taxable year prior to the tax16 able year referred to in clause (i).

17 ‘‘(f) SPECIAL RULES APPLICABLE TO BENE18 FICIARIES’ INTERESTS IN TRUST.—

19 ‘‘(1) DETERMINATION OF BENEFICIARIES’ IN20 TEREST IN TRUST.—For purposes of this section—

21 ‘‘(A) GENERAL RULE.—A beneficiary’s in22 terest in a trust shall be based upon all relevant

23 facts and circumstances, including the terms of

24 the trust instrument and any letter of wishes or

25 similar document, historical patterns of trust
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1 distributions, and the existence of and functions

2 performed by a trust protector or any similar

3 adviser.

4 ‘‘(B) SPECIAL RULE.—The remaining in5 terests in the trust not determined under sub6 paragraph (A) to be held by any beneficiary

7 shall be allocated first to the grantor, if a bene8 ficiary, and then to other beneficiaries under

9 rules prescribed by the Secretary similar to the

10 rules of intestate succession.

11 ‘‘(C) CONSTRUCTIVE OWNERSHIP.—If a

12 beneficiary of a trust is a corporation, partner13 ship, trust, or estate, the shareholders, part14 ners, or beneficiaries shall be deemed to be the

15 trust beneficiaries for purposes of this section.

16 ‘‘(D) TAXPAYER RETURN POSITION.—A

17 taxpayer shall clearly indicate on its income tax

18 return—

19 ‘‘(i) the methodology used to deter20 mine that taxpayer’s trust interest under

21 this section, and

22 ‘‘(ii) if the taxpayer knows (or has

23 reason to know) that any other beneficiary

24 of such trust is using a different methodol-
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1 ogy to determine such beneficiary’s trust

2 interest under this section.

3 ‘‘(2) DEEMED SALE IN CASE OF TRUST INTER4 EST.—If an individual who is an expatriate is treat5 ed under paragraph (1) as holding an interest in a

6 trust for purposes of this section—

7 ‘‘(A) the individual shall not be treated as

8 having sold such interest,

9 ‘‘(B) such interest shall be treated as a

10 separate share in the trust, and

11 ‘‘(C)(i) such separate share shall be treat12 ed as a separate trust consisting of the assets

13 allocable to such share,

14 ‘‘(ii) the separate trust shall be treated as

15 having sold its assets immediately before the ex16 patriation date for their fair market value and

17 as having distributed all of its assets to the in18 dividual as of such time, and

19 ‘‘(iii) the individual shall be treated as hav20 ing recontributed the assets to the separate

21 trust.

22 Subsection (a)(2) shall apply to any income, gain, or

23 loss of the individual arising from a distribution de24 scribed in subparagraph (C)(ii).
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1 ‘‘(g) TERMINATION OF DEFERRALS, ETC.—On the

2 date any property held by an individual is treated as sold

3 under subsection (a), notwithstanding any other provision

4 of this title—

5 ‘‘(1) any period during which recognition of in6 come or gain is deferred shall terminate, and

7 ‘‘(2) any extension of time for payment of tax

8 shall cease to apply and the unpaid portion of such

9 tax shall be due and payable at the time and in the

10 manner prescribed by the Secretary.

11 ‘‘(h) RULES RELATING TO PAYMENT OF TAX.—

12 ‘‘(1) IMPOSITION OF TENTATIVE TAX.—

13 ‘‘(A) IN GENERAL.—If an individual is re14 quired to include any amount in gross income

15 under subsection (a) for any taxable year, there

16 is hereby imposed, immediately before the expa17 triation date, a tax in an amount equal to the

18 amount of tax which would be imposed if the

19 taxable year were a short taxable year ending

20 on the expatriation date.

21 ‘‘(B) DUE DATE.—The due date for any

22 tax imposed by subparagraph (A) shall be the

23 90th day after the expatriation date.

24 ‘‘(C) TREATMENT OF TAX.—Any tax paid

25 under subparagraph (A) shall be treated as a
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1 payment of the tax imposed by this chapter for

2 the taxable year to which subsection (a) applies.

3 ‘‘(2) DEFERRAL OF TAX.—The payment of any

4 tax attributable to amounts included in gross income

5 under subsection (a) may be deferred to the same

6 extent, and in the same manner, as any tax imposed

7 by chapter 11, except that the Secretary may extend

8 the period for extension of time for paying tax under

9 section 6161 to such number of years as the Sec10 retary determines appropriate.

11 ‘‘(3) RULES RELATING TO SECURITY INTER12 ESTS.—

13 ‘‘(A) ADEQUACY OF SECURITY INTER14 ESTS.—In determining the adequacy of any se15 curity to be provided under this section, the

16 Secretary may take into account the principles

17 of section 2056A.

18 ‘‘(B) SPECIAL RULE FOR TRUST.—If a

19 taxpayer is required by this section to provide

20 security in connection with any tax imposed by

21 reason of this section with respect to the hold22 ing of an interest in a trust and any trustee of

23 such trust is an individual citizen of the United

24 States or a domestic corporation, such trustee

25 shall be required to provide such security upon
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1 notification by the taxpayer of such

2 requirement.

3 ‘‘(i) COORDINATION WITH ESTATE AND GIFT

4 TAXES.—If subsection (a) applies to property held by an

5 individual for any taxable year and—

6 ‘‘(1) such property is includible in the gross es7 tate of such individual solely by reason of section

8 2107, or

9 ‘‘(2) section 2501 applies to a transfer of such

10 property by such individual solely by reason of sec11 tion 2501(a)(3),

12 then there shall be allowed as a credit against the addi13 tional tax imposed by section 2101 or 2501, whichever is

14 applicable, solely by reason of section 2107 or 2501(a)(3)

15 an amount equal to the increase in the tax imposed by

16 this chapter for such taxable year by reason of this

17 section.

18 ‘‘(j) REGULATIONS.—The Secretary shall prescribe

19 such regulations as may be necessary or appropriate to

20 carry out the purposes of this section, including regula21 tions to prevent double taxation by ensuring that—

22 ‘‘(1) appropriate adjustments are made to basis

23 to reflect gain recognized by reason of subsection (a)

24 and the exclusion provided by subsection (b),
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1 ‘‘(2) no interest in property is treated as held

2 for purposes of this section by more than one tax3 payer, and

4 ‘‘(3) any gain by reason of a deemed sale under

5 subsection (a) of an interest in a corporation, part6 nership, trust, or estate is reduced to reflect that

7 portion of such gain which is attributable to an in8 terest in a trust which a shareholder, partner, or

9 beneficiary is treated as holding directly under sub10 section (f)(1)(C).

11 ‘‘(k) CROSS REFERENCE.—

‘‘For income tax treatment of individuals who terminate United States citizenship, see section

7701(a)(47).’’

12 (b) DEFINITION OF TERMINATION OF UNITED

13 STATES CITIZENSHIP.—Section 7701(a) of the Internal

14 Revenue Code of 1986 is amended by adding at the end

15 the following new paragraph:

16 ‘‘(47) TERMINATION OF UNITED STATES CITI17 ZENSHIP.—An individual shall not cease to be treat18 ed as a United States citizen before the date on

19 which the individual’s citizenship is treated as relin20 quished under section 877A(e)(3).’’

21 (c) COORDINATION WITH HEALTH INSURANCE

22 PORTABILITY AND ACCOUNTABILITY ACT OF 1996.—Sec23 tion 511 of the Health Insurance Portability and Account24 ability Act of 1996, and the amendments made by such
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1 section, are hereby repealed and the Internal Revenue

2 Code of 1986 shall be applied as if such section and such

3 amendments had never been enacted.

4 (d) CONFORMING AMENDMENTS.—

5 (1) Section 877 of the Internal Revenue Code

6 of 1986 is amended by adding at the end the follow7 ing new subsection:

8 ‘‘(f) APPLICATION.—This section shall not apply to

9 any individual who relinquishes (within the meaning of

10 section 877A(e)(3)) United States citizenship on or after

11 February 6, 1995.’’

12 (2) Section 2107(c) of such Code is amended by

13 adding at the end the following new paragraph:

14 ‘‘(3) CROSS REFERENCE.—For credit against

15 the tax imposed by subsection (a) for expatriation

16 tax, see section 877A(i).’’

17 (3) Section 2501(a)(3) of such Code is amended

18 by adding at the end the following new flush

19 sentence:

20 ‘‘For credit against the tax imposed under this sec21 tion by reason of this paragraph, see section

22 877A(i).’’

23 (4) Section 6851 of such Code is amended by

24 striking subsection (d) and by redesignating sub25 section (e) as subsection (d).
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1 (5) Paragraph (10) of section 7701(b) of such

2 Code is amended by adding at the end the following

3 new sentence: ‘‘This paragraph shall not apply to

4 any long-term resident of the United States who is

5 an expatriate (as defined in section 877A(e)(1)).’’

6 (e) CLERICAL AMENDMENT.—The table of sections

7 for subpart A of part II of subchapter N of chapter 1

8 of the Internal Revenue Code of 1986 is amended by in9 serting after the item relating to section 877 the following

10 new item:

‘‘Sec. 877A. Tax responsibilities of expatriation.’’

11 (f) EFFECTIVE DATE.—

12 (1) IN GENERAL.—The amendments made by

13 this section (other than subsection (c)) shall apply to

14 expatriates (within the meaning of section 877A(e)

15 of the Internal Revenue Code of 1986, as added by

16 this section) whose expatriation date (as so defined)

17 occurs on or after February 6, 1995.

18 (2) DUE DATE FOR TENTATIVE TAX.—The due

19 date under section 877A(h)(1)(B) of such Code shall

20 in no event occur before the 90th day after the date

21 of the enactment of this Act.

22 SEC. 202. BASIS OF ASSETS OF NONRESIDENT INDIVIDUALS

23 BECOMING CITIZENS OR RESIDENTS.

24 (a) IN GENERAL.—Part IV of subchapter O of chap25 ter 1 of the Internal Revenue Code of 1986 (relating to
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1 special rules for gain or loss on disposition of property)

2 is amended by redesignating section 1061 as section 1062

3 and by inserting after section 1060 the following new sec4 tion:

5 ‘‘SEC. 1061. BASIS OF ASSETS OF NONRESIDENT INDIVID6 UALS BECOMING CITIZENS OR RESIDENTS.

7 ‘‘(a) GENERAL RULE.—If a nonresident alien individ8 ual becomes a citizen or resident of the United States,

9 gain or loss on the disposition of any property held on

10 the date the individual becomes such a citizen or resident

11 shall be determined by substituting, as of the applicable

12 date, the fair market value of such property (on the appli13 cable date) for its cost basis.

14 ‘‘(b) EXCEPTION FOR DEPRECIATION.—Any deduc15 tion under this chapter for depreciation, depletion, or am16 ortization shall be determined without regard to the appli17 cation of this section.

18 ‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur19 poses of this section—

20 ‘‘(1) APPLICABLE DATE.—The term ‘applicable

21 date’ means, with respect to any property to which

22 subsection (a) applies, the earlier of—

23 ‘‘(A) the date the individual becomes a citi24 zen or resident of the United States, or
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1 ‘‘(B) the date the property first becomes

2 subject to tax under this subtitle by reason of

3 being used in a United States trade or business

4 or by reason of becoming a United States real

5 property interest (within the meaning of section

6 897(c)(1)).

7 ‘‘(2) RESIDENT.—The term ‘resident’ does not

8 include an individual who is treated as a resident of

9 a foreign country under the provisions of a tax trea10 ty between the United States and a foreign country

11 and who does not waive the benefits of such treaty

12 applicable to residents of the foreign country.

13 ‘‘(3) TRUSTS.—A trust shall not be treated as

14 an individual.

15 ‘‘(4) ELECTION NOT TO HAVE SECTION

16 APPLY.—An individual may elect not to have this

17 section apply solely for purposes of determining gain

18 with respect to any property. Such election shall

19 apply only to property specified in the election and,

20 once made, shall be irrevocable.

21 ‘‘(5) SECTION ONLY TO APPLY ONCE.—This

22 section shall apply only with respect to the first time

23 the individual becomes either a citizen or resident of

24 the United States.
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1 ‘‘(d) REGULATIONS.—The Secretary shall prescribe

2 regulations for purposes of this section, including regula3 tions—

4 ‘‘(1) for application of this section in the case

5 of property which consists of a direct or indirect in6 terest in a trust, and

7 ‘‘(2) providing look-thru rules in the case of any

8 indirect interest in any United States real property

9 interest (within the meaning of section 897(c)(1)) or

10 property used in a United States trade or business.’’

11 (b) CONFORMING AMENDMENT.—The table of sec12 tions for part IV of subchapter O of chapter 1 of the Inter13 nal Revenue Code of 1986 is amended by striking the item

14 relating to section 1061 and inserting the following new

15 items:

‘‘Sec. 1061. Basis of assets of nonresident individuals becoming

citizens or residents.

‘‘Sec. 1062. Cross references.’’

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

17 this section shall apply to dispositions after the date of

18 the enactment of this Act, and to any disposition occurring

19 on or before such date to which section 877A of the Inter20 nal Revenue Code of 1986 (as added by section 201 of

21 this Act) applies.
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1 SEC. 203. ELIMINATION OF EXCLUSION FOR CITIZENS OR

2 RESIDENTS OF UNITED STATES LIVING

3 ABROAD.

4 Section 911 of the Internal Revenue Code of 1986

5 (relating to citizens or residents of the United States living

6 abroad) is amended by redesignating subsection (f) as sub7 section (g) and by inserting after subsection (e) the follow8 ing new subsection:

9 ‘‘(f) TERMINATION.—This section shall not apply to

10 any taxable year beginning after December 31, 1996.’’

11 SEC. 204. DISPOSITION OF STOCK IN DOMESTIC CORPO12 RATIONS BY 10-PERCENT FOREIGN SHARE13 HOLDERS.

14 (a) GENERAL RULE.—Subpart D of part II of sub15 chapter N of chapter 1 of the Internal Revenue Code of

16 1986 (relating to miscellaneous provisions) is amended by

17 adding at the end the following new section:

18 ‘‘SEC. 899. DISPOSITION OF STOCK IN DOMESTIC CORPO19 RATIONS BY 10-PERCENT FOREIGN SHARE20 HOLDERS.

21 ‘‘(a) GENERAL RULE.—

22 ‘‘(1) TREATMENT AS EFFECTIVELY CONNECTED

23 WITH UNITED STATES TRADE OR BUSINESS.—For

24 purposes of this title, if any nonresident alien indi25 vidual or foreign corporation is a 10-percent share26 holder in any domestic corporation, any gain or loss
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1 of such individual or foreign corporation from the

2 disposition of any stock in such domestic corporation

3 shall be taken into account—

4 ‘‘(A) in the case of a nonresident alien in5 dividual, under section 871(b)(1), or

6 ‘‘(B) in the case of a foreign corporation,

7 under section 882(a)(1),

8 as if the taxpayer were engaged during the taxable

9 year in a trade or business within the United States

10 through a permanent establishment in the United

11 States and as if such gain or loss were effectively

12 connected with such trade or business and attrib13 utable to such permanent establishment. Notwith14 standing section 865, any such gain or loss shall be

15 treated as from sources in the United States.

16 ‘‘(2) 26-PERCENT MINIMUM TAX ON NON17 RESIDENT ALIEN INDIVIDUALS.—

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

19 nonresident alien individual, the amount deter20 mined under section 55(b)(1)(A) shall not be

21 less than 26 percent of the lesser of—

22 ‘‘(i) the individual’s alternative mini23 mum taxable income (as defined in section

24 55(b)(2)) for the taxable year, or
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1 ‘‘(ii) the individual’s net taxable stock

2 gain for the taxable year.

3 ‘‘(B) NET TAXABLE STOCK GAIN.—For

4 purposes of subparagraph (A), the term ‘net

5 taxable stock gain’ means the excess of—

6 ‘‘(i) the aggregate gains for the tax7 able year from dispositions of stock in do8 mestic corporations with respect to which

9 such individual is a 10-percent share10 holder, over

11 ‘‘(ii) the aggregate of the losses for

12 the taxable year from dispositions of such

13 stock.

14 ‘‘(C) COORDINATION WITH SECTION

15 897(a)(2).—Section 897(a)(2)(A) shall not apply

16 to any nonresident alien individual for any tax17 able year for which such individual has a net

18 taxable stock gain, but the amount of such net

19 taxable stock gain shall be increased by the

20 amount of such individual’s net United States

21 real property gain (as defined in section

22 897(a)(2)(B)) for such taxable year.

23 ‘‘(b) 10-PERCENT SHAREHOLDER.—
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1 ‘‘(1) IN GENERAL.—For purposes of this sec2 tion, the term ‘10-percent shareholder’ means any

3 person who at any time during the shorter of—

4 ‘‘(A) the period beginning on January 1,

5 1996, and ending on the date of the disposition,

6 or

7 ‘‘(B) the 5-year period ending on the date

8 of the disposition,

9 owned 10 percent or more (by vote or value) of the

10 stock in the domestic corporation.

11 ‘‘(2) CONSTRUCTIVE OWNERSHIP.—

12 ‘‘(A) IN GENERAL.—Section 318(a) (relat13 ing to constructive ownership of stock) shall

14 apply for purposes of paragraph (1).

15 ‘‘(B) MODIFICATIONS.—For purposes of

16 subparagraph (A)—

17 ‘‘(i) paragraph (2)(C) of section

18 318(a) shall be applied by substituting ‘10

19 percent’ for ‘50 percent’, and

20 ‘‘(ii) paragraph (3)(C) of section

21 318(a) shall be applied—

22 ‘‘(I) by substituting ‘10 percent’

23 for ‘50 percent’, and

24 ‘‘(II) in any case where such

25 paragraph would not apply but for
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1 subclause (I), by considering a cor2 poration as owning the stock (other

3 than stock in such corporation) owned

4 by or for any shareholder of such cor5 poration in that proportion which the

6 value of the stock which such share7 holder owns in such corporation bears

8 to the value of all stock in such cor9 poration.

10 ‘‘(3) TREATMENT OF STOCK HELD BY CERTAIN

11 PARTNERSHIPS.—

12 ‘‘(A) IN GENERAL.—For purposes of this

13 section, if—

14 ‘‘(i) a partnership is a 10-percent

15 shareholder in any domestic corporation,

16 and

17 ‘‘(ii) 10 percent or more of the capital

18 or profits interests in such partnership is

19 held (directly or indirectly) by nonresident

20 alien individuals or foreign corporations,

21 each partner in such partnership who is not

22 otherwise a 10-percent shareholder in such cor23 poration shall, with respect to the stock in such

24 corporation held by the partnership, be treated
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1 as a 10-percent shareholder in such corpora2 tion.

3 ‘‘(B) EXCEPTION.—

4 ‘‘(i) IN GENERAL.—Subparagraph (A)

5 shall not apply with respect to stock in a

6 domestic corporation held by any partner7 ship if, at all times during the 5-year pe8 riod ending on the date of the disposition

9 involved—

10 ‘‘(I) the aggregate bases of the

11 stock and securities in such domestic

12 corporation held by such partnership

13 were less than 25 percent of the part14 nership’s net adjusted asset cost, and

15 ‘‘(II) the partnership did not own

16 50 percent or more (by vote or value)

17 of the stock in such domestic corpora18 tion.

19 The Secretary may by regulations dis20 regard any failure to meet the require21 ments of subclause (I) where the partner22 ship normally met such requirements dur23 ing such 5-year period.
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1 ‘‘(ii) NET ADJUSTED ASSET COST.—

2 For purposes of clause (i), the term ‘net

3 adjusted asset cost’ means—

4 ‘‘(I) the aggregate bases of all of

5 the assets of the partnership other

6 than cash and cash items, reduced by

7 ‘‘(II) the portion of the liabilities

8 of the partnership not allocable (on a

9 proportionate basis) to assets excluded

10 under subclause (I).

11 ‘‘(C) EXCEPTION NOT TO APPLY TO 50-

12 PERCENT PARTNERS.—Subparagraph (B) shall

13 not apply in the case of any partner owning (di14 rectly or indirectly) more than 50 percent of the

15 capital or profits interests in the partnership at

16 any time during the 5-year period ending on the

17 date of the disposition.

18 ‘‘(D) SPECIAL RULES.—For purposes of

19 subparagraphs (B) and (C)—

20 ‘‘(i) TREATMENT OF PREDE21 CESSORS.—Any reference to a partnership

22 or corporation shall be treated as including

23 a reference to any predecessor thereof.

24 ‘‘(ii) PARTNERSHIP NOT IN EXIST25 ENCE.—If any partnership was not in ex-
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1 istence throughout the entire 5-year period

2 ending on the date of the disposition, only

3 the portion of such period during which

4 the partnership (or any predecessor) was

5 in existence shall be taken into account.

6 ‘‘(E) OTHER PASS-THRU ENTITIES;

7 TIERED ENTITIES.—Rules similar to the rules

8 of the preceding provisions of this paragraph

9 shall also apply in the case of any pass-thru en10 tity other than a partnership and in the case of

11 tiered partnerships and other entities.

12 ‘‘(c) COORDINATION WITH NONRECOGNITION PROVI13 SIONS; ETC.—

14 ‘‘(1) COORDINATION WITH NONRECOGNITION

15 PROVISIONS.—

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

17 subparagraph (B), any nonrecognition provision

18 shall apply for purposes of this section to a

19 transaction only in the case of—

20 ‘‘(i) an exchange of stock in a domes21 tic corporation for other property the sale

22 of which would be subject to taxation

23 under this chapter, or

24 ‘‘(ii) a distribution with respect to

25 which gain or loss would not be recognized
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1 under section 336 if the sale of the distrib2 uted property by the distributee would be

3 subject to tax under this chapter.

4 ‘‘(B) REGULATIONS.—The Secretary shall

5 prescribe regulations (which are necessary or

6 appropriate to prevent the avoidance of Federal

7 income taxes) providing—

8 ‘‘(i) the extent to which nonrecogni9 tion provisions shall, and shall not, apply

10 for purposes of this section, and

11 ‘‘(ii) the extent to which—

12 ‘‘(I) transfers of property in a re13 organization, and

14 ‘‘(II) changes in interests in, or

15 distributions from, a partnership,

16 trust, or estate,

17 shall be treated as sales of property at fair

18 market value.

19 ‘‘(C) NONRECOGNITION PROVISION.—For

20 purposes of this paragraph, the term ‘non21 recognition provision’ means any provision of

22 this title for not recognizing gain or loss.

23 ‘‘(2) CERTAIN OTHER RULES MADE APPLICA24 BLE.—For purposes of this section, rules similar to
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1 the rules of subsections (g) and (j) of section 897

2 shall apply.

3 ‘‘(d) CERTAIN INTEREST TREATED AS STOCK.—For

4 purposes of this section—

5 ‘‘(1) any option or other right to acquire stock

6 in a domestic corporation,

7 ‘‘(2) the conversion feature of any debt instru8 ment issued by a domestic corporation, and

9 ‘‘(3) to the extent provided in regulations, any

10 other interest in a domestic corporation other than

11 an interest solely as creditor,

12 shall be treated as stock in such corporation.

13 ‘‘(e) TREATMENT OF CERTAIN GAIN AS A DIVI14 DEND.—In the case of any gain which would be subject

15 to tax by reason of this section but for a treaty and which

16 results from any distribution in liquidation or redemption,

17 for purposes of this subtitle, such gain shall be treated

18 as a dividend to the extent of the earnings and profits

19 of the domestic corporation attributable to the stock.

20 Rules similar to the rules of section 1248(c) (determined

21 without regard to paragraph (2)(D) thereof) shall apply

22 for purposes of the preceding sentence.

23 ‘‘(f) REGULATIONS.—The Secretary shall prescribe

24 such regulations as may be appropriate to carry out the

25 purposes of this section, including—
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1 ‘‘(1) regulations coordinating the provisions of

2 this section with the provisions of section 897, and

3 ‘‘(2) regulations aggregating stock held by a

4 group of persons acting together.’’

5 (b) WITHHOLDING OF TAX.—Subchapter A of chap6 ter 3 of such Code is amended by adding at the end the

7 following new section:

8 ‘‘SEC. 1447. WITHHOLDING OF TAX ON CERTAIN STOCK

9 DISPOSITIONS.

10 ‘‘(a) GENERAL RULE.—Except as otherwise provided

11 in this section, in the case of any disposition of stock in

12 a domestic corporation by a foreign person who is a 10-

13 percent shareholder in such corporation, the withholding

14 agent shall deduct and withhold a tax equal to 10 percent

15 of the amount realized on the disposition.

16 ‘‘(b) EXCEPTIONS.—

17 ‘‘(1) STOCK WHICH IS NOT REGULARLY TRAD18 ED.—In the case of a disposition of stock which is

19 not regularly traded, a withholding agent shall not

20 be required to deduct and withhold any amount

21 under subsection (a) if—

22 ‘‘(A) the transferor furnishes to such with23 holding agent an affidavit by such transferor

24 stating, under penalty of perjury, that section
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1 899 does not apply to such disposition be2 cause—

3 ‘‘(i) the transferor is not a foreign

4 person, or

5 ‘‘(ii) the transferor is not a 10-percent

6 shareholder, and

7 ‘‘(B) such withholding agent does not

8 know (or have reason to know) that such affida9 vit is not correct.

10 ‘‘(2) STOCK WHICH IS REGULARLY TRADED.—

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

12 subparagraph (B), a withholding agent shall

13 not be required to deduct and withhold any

14 amount under subsection (a) with respect to

15 any disposition of regularly traded stock if such

16 withholding agent does not know (or have rea17 son to know) that section 899 applies to such

18 disposition.

19 ‘‘(B) SPECIAL RULE WHERE SUBSTANTIAL

20 DISPOSITION.—If—

21 ‘‘(i) there is a disposition of regularly

22 traded stock in a corporation, and

23 ‘‘(ii) the amount of stock involved in

24 such disposition constitutes 1 percent or
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1 more (by vote or value) of the stock in

2 such corporation,

3 subparagraph (A) shall not apply but para4 graph (1) shall apply as if the disposition in5 volved stock which was not regularly traded.

6 ‘‘(C) NOTIFICATION BY FOREIGN PER7 SON.—If section 899 applies to any disposition

8 by a foreign person of regularly traded stock,

9 such foreign person shall notify the withholding

10 agent that section 899 applies to such disposi11 tion.

12 ‘‘(3) NONRECOGNITION TRANSACTIONS.—A

13 withholding agent shall not be required to deduct

14 and withhold any amount under subsection (a) in

15 any case where gain or loss is not recognized by rea16 son of section 899(c) (or the regulations prescribed

17 under such section).

18 ‘‘(c) SPECIAL RULE WHERE NO WITHHOLDING.—

19 If—

20 ‘‘(1) there is no amount deducted and withheld

21 under this section with respect to any disposition to

22 which section 899 applies, and

23 ‘‘(2) the foreign person does not pay the tax

24 imposed by this subtitle to the extent attributable to

25 such disposition on the date prescribed therefor
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1 for purposes of determining the amount of such tax, the

2 foreign person’s basis in the stock disposed of shall be

3 treated as zero or such other amount as the Secretary may

4 determine (and, for purposes of section 6501, the under5 payment of such tax shall be treated as due to a willful

6 attempt to evade such tax).

7 ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur8 poses of this section—

9 ‘‘(1) WITHHOLDING AGENT.—The term ‘with10 holding agent’ means—

11 ‘‘(A) the last United States person to have

12 the control, receipt, custody, disposal, or pay13 ment of the amount realized on the disposition,

14 or

15 ‘‘(B) if there is no such United States per16 son, the person prescribed in regulations.

17 ‘‘(2) FOREIGN PERSON.—The term ‘foreign per18 son’ means any person other than a United States

19 person.

20 ‘‘(3) REGULARLY TRADED STOCK.—The term

21 ‘regularly traded stock’ means any stock of a class

22 which is regularly traded on an established securities

23 market.

24 ‘‘(4) AUTHORITY TO PRESCRIBE REDUCED

25 AMOUNT.—At the request of the person making the
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1 disposition or the withholding agent, the Secretary

2 may prescribe a reduced amount to be withheld

3 under this section if the Secretary determines that

4 to substitute such reduced amount will not jeopard5 ize the collection of the tax imposed by section

6 871(b)(1) or 882(a)(1).

7 ‘‘(5) OTHER TERMS.—Except as provided in

8 this section, terms used in this section shall have the

9 same respective meanings as when used in section

10 899.

11 ‘‘(6) CERTAIN RULES MADE APPLICABLE.—

12 Rules similar to the rules of section 1445(e) shall

13 apply for purposes of this section.

14 ‘‘(e) REGULATIONS.—The Secretary shall prescribe

15 such regulations as may be appropriate to carry out the

16 purposes of this section, including regulations coordinat17 ing the provisions of this section with the provisions of

18 sections 1445 and 1446.’’

19 (c) EXCEPTION FROM BRANCH PROFITS TAX.—Sub20 paragraph (C) of section 884(d)(2) of such Code is amend21 ed to read as follows:

22 ‘‘(C) gain treated as effectively connected

23 with the conduct of a trade or business within

24 the United States under—
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1 ‘‘(i) section 897 in the case of the

2 disposition of a United States real property

3 interest described in section

4 897(c)(1)(A)(ii), or

5 ‘‘(ii) section 899,’’.

6 (d) REPORTS WITH RESPECT TO CERTAIN DIS7 TRIBUTIONS.—Paragraph (2) of section 6038B(a) of such

8 Code (relating to notice of certain transfers to foreign per9 son) is amended by striking ‘‘section 336’’ and inserting

10 ‘‘section 302, 331, or 336’’.

11 (e) CLERICAL AMENDMENTS.—

12 (1) The table of sections for subpart D of part

13 II of subchapter N of chapter 1 of such Code is

14 amended by adding at the end the following new

15 item:

‘‘Sec. 899. Dispositions of stock in domestic corporations by 10-

percent foreign shareholders.’’

16 (2) The table of sections for subchapter A of

17 chapter 3 of such Code is amended by adding at the

18 end the following new item:

‘‘Sec. 1447. Withholding of tax on certain stock dispositions.’’

19 (f) EFFECTIVE DATE.—

20 (1) IN GENERAL.—Except as otherwise pro21 vided in this subsection, the amendments made by

22 this section shall apply to dispositions after the date

23 of the enactment of this Act, except that section
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1 1447 of such Code (as added by this section) shall

2 not apply to any disposition before the date 6

3 months after the date of the enactment of this Act.

4 (2) COORDINATION WITH TREATIES.—

5 (A) IN GENERAL.—Sections 899 (other

6 than subsection (e) thereof) and 1447 of such

7 Code (as added by this section) shall not apply

8 to any disposition if such disposition is by a

9 qualified resident of a foreign country and the

10 application of such sections to such disposition

11 would be contrary to any treaty between the

12 United States and such foreign country which

13 is in effect on the date of the enactment of this

14 Act and at the time of such disposition.

15 (B) QUALIFIED RESIDENT.—For purposes

16 of subparagraph (A), the term ‘‘qualified resi17 dent’’ means any resident of the foreign country

18 entitled to the benefits of the treaty referred to

19 in subparagraph (A); except that such term

20 shall not include a corporation unless such cor21 poration is a qualified resident of such country

22 (as defined in section 884(e)(4) of such Code).
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1 SEC. 205. ALTERNATIVE MINIMUM TAX ON CORPORATIONS

2 IMPORTING PRODUCTS INTO THE UNITED

3 STATES AT ARTIFICIALLY INFLATED PRICES.

4 (a) IN GENERAL.—Subchapter A of chapter 1 of the

5 Internal Revenue Code of 1986 (relating to determination

6 of tax liability) is amended by adding at the end the fol7 lowing new part:

8 ‘‘PART VIII—ALTERNATIVE MINIMUM TAX ON

9 CORPORATIONS IMPORTING PRODUCTS

10 INTO THE UNITED STATES AT ARTIFICIALLY

11 INFLATED PRICES

‘‘Sec. 59B. Alternative minimum tax on corporations importing products into

the United States at artificially inflated prices.

12 ‘‘SEC. 59B. ALTERNATIVE MINIMUM TAX ON CORPORA13 TIONS IMPORTING PRODUCTS INTO THE

14 UNITED STATES AT ARTIFICIALLY INFLATED

15 PRICES.

16 ‘‘(a) IMPOSITION OF TAX.—In the case of a corpora17 tion to which this section applies, there is hereby imposed

18 an alternative minimum tax equal to 3 percent of net busi19 ness receipts of the corporation for the taxable year.

20 ‘‘(b) TAXPAYERS TO WHICH SECTION APPLIES.—

21 This section shall apply to any corporation, foreign or do22 mestic, if—

23 ‘‘(1) gross sales in the United States during the

24 tax year of parts or products manufactured by the
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1 corporation, or any subsidiary or affiliate controlled

2 by the corporation, exceeded $10,000,000,

3 ‘‘(2) during that same tax year parts or prod4 ucts manufactured by the corporation, or any sub5 sidiary or affiliate controlled by the corporation, with

6 a customs value in excess of $10,000,000 were im7 ported into the United States, and

8 ‘‘(3) its tax obligation under this section ex9 ceeds its total tax obligation under all other sections

10 of this title.

11 ‘‘(c) CREDIT FOR TAXES PAID.—There shall be a

12 nonrefundable credit against the taxes owed under this

13 section equal to the total of all other taxes paid by the

14 corporation under this title.

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

16 ‘‘(1) NET BUSINESS RECEIPTS.—The term ‘net

17 business receipts’ means the value of all parts or

18 products sold in the United States, excluding—

19 ‘‘(A) the value of parts or products sold for

20 export,

21 ‘‘(B) expenses paid for parts or products

22 produced in the United States,

23 ‘‘(C) expenses paid for services performed

24 in the United States, and
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1 ‘‘(D) amounts paid for income, sales or use

2 taxes imposed by any State, or political subdivi3 sion thereof, or by the District of Columbia,

4 Puerto Rico, Guam, or the Virgin Islands.

5 ‘‘(2) SUBSIDIARY OR AFFILIATE CONTROLLED

6 BY THE CORPORATION.—An entity shall be consid7 ered to be a ‘subsidiary or affiliate controlled by the

8 corporation’ if the corporation owns 5 percent or

9 more of any class of stock of the entity or if the cor10 poration exercises control over a majority of the

11 board of directors of the entity.’’

12 (b) CLERICAL AMENDMENT.—The table of parts for

13 such subchapter A is amended by adding at the end the

14 following new item:

‘‘Part VIII. Alternative minimum tax on corporations importing

products into the United States at artificially inflated prices.’’

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

16 this section shall apply to taxable years beginning after

17 December 31, 1996.

Æ