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[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4122 Introduced in House (IH)]

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.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Immigrant Fairness Act of 1996''.

 TITLE I--TERMINATION OF PROVISIONS OF PUBLIC LAW 104-193 RESTRICTING 
            WELFARE AND PUBLIC BENEFITS FOR LEGAL IMMIGRANTS

SEC 101. TERMINATION OF PROVISIONS OF PUBLIC LAW 104-193 RESTRICTING 
              WELFARE AND PUBLIC BENEFITS FOR LEGAL IMMIGRANTS.

    Notwithstanding any other provision of law, on the date of the 
enactment of this Act, the provisions of title 4 of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 (Public 
Law 104-193) shall cease to be effective, the amendments made by that 
title shall be repealed, and any provision of law repealed by that 
title shall be reenacted.

                        TITLE II--TAX PROVISIONS

SECTION 201. REVISION OF TAX RULES ON EXPATRIATION.

    (a) In General.--Subpart A of part II of subchapter N of chapter 1 
of the Internal Revenue Code of 1986 is amended by inserting after 
section 877 the following new section:

``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

    ``(a) General Rules.--For purposes of this subtitle--
            ``(1) Mark to market.--Except as provided in subsection 
        (f)(2), all property held by an expatriate immediately before 
        the expatriation date shall be treated as sold at such time for 
        its fair market value.
            ``(2) Recognition of gain or loss.--In the case of any sale 
        under paragraph (1)--
                    ``(A) notwithstanding any other provision of this 
                title, any gain arising from such sale shall be taken 
                into account for the taxable year of the sale unless 
                such gain is excluded from gross income under part III 
                of subchapter B, and
                    ``(B) any loss arising from such sale shall be 
                taken into account for the taxable year of the sale to 
                the extent otherwise provided by this title, except 
                that section 1091 shall not apply (and section 1092 
                shall apply) to any such loss.
            ``(3) Election to continue to be taxed as united states 
        citizen.--
                    ``(A) In general.--If an expatriate elects the 
                application of this paragraph with respect to any 
                property--
                            ``(i) this section (other than this 
                        paragraph) shall not apply to such property, 
                        but
                            ``(ii) such property shall be subject to 
                        tax under this title in the same manner as if 
                        the individual were a United States citizen.
                    ``(B) Limitation on amount of estate, gift, and 
                generation-skipping transfer taxes.--The aggregate 
                amount of taxes imposed under subtitle B with respect 
                to any transfer of property by reason of an election 
                under subparagraph (A) shall not exceed the amount of 
                income tax which would be due if the property were sold 
                for its fair market value immediately before the time 
                of the transfer or death (taking into account the rules 
                of paragraph (2)).
                    ``(C) Requirements.--Subparagraph (A) shall not 
                apply to an individual unless the individual--
                            ``(i) provides security for payment of tax 
                        in such form and manner, and in such amount, as 
                        the Secretary may require,
                            ``(ii) consents to the waiver of any right 
                        of the individual under any treaty of the 
                        United States which would preclude assessment 
                        or collection of any tax which may be imposed 
                        by reason of this paragraph, and
                            ``(iii) complies with such other 
                        requirements as the Secretary may prescribe.
                    ``(D) Election.--An election under subparagraph (A) 
                shall apply only to the property described in the 
                election and, once made, shall be irrevocable.
    ``(b) Exclusion for Certain Gain.--The amount which would (but for 
this subsection) be includible in the gross income of any individual by 
reason of subsection (a) shall be reduced (but not below zero) by 
$600,000.
    ``(c) Property Treated as Held.--For purposes of this section, 
except as otherwise provided by the Secretary, an individual shall be 
treated as holding--
            ``(1) all property which would be includible in his gross 
        estate under chapter 11 if such individual were a citizen or 
        resident of the United States (within the meaning of chapter 
        11) who died at the time the property is treated as sold,
            ``(2) any other interest in a trust which the individual is 
        treated as holding under the rules of subsection (f)(1), and
            ``(3) any other interest in property specified by the 
        Secretary as necessary or appropriate to carry out the purposes 
        of this section.
    ``(d) Exceptions.--The following property shall not be treated as 
sold for purposes of this section:
            ``(1) United states real property interests.--Any United 
        States real property interest (as defined in section 
        897(c)(1)), other than stock of a United States real property 
        holding corporation which does not, on the expatriation date, 
        meet the requirements of section 897(c)(2).
            ``(2) Interest in certain retirement plans.--
                    ``(A) In general.--Any interest in a qualified 
                retirement plan (as defined in section 4974(c)), other 
                than any interest attributable to contributions which 
                are in excess of any limitation or which violate any 
                condition for tax- favored treatment.
                    ``(B) Foreign pension plans.--
                            ``(i) In general.--Under regulations 
                        prescribed by the Secretary, interests 
in foreign pension plans or similar retirement arrangements or 
programs.
                            ``(ii) Limitation.--The value of property 
                        which is treated as not sold by reason of this 
                        subparagraph shall not exceed $500,000.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Expatriate.--The term `expatriate' means--
                    ``(A) any United States citizen who relinquishes 
                his citizenship, or
                    ``(B) any long-term resident of the United States 
                who--
                            ``(i) ceases to be a lawful permanent 
                        resident of the United States (within the 
                        meaning of section 7701(b)(6)), or
                            ``(ii) commences to be treated as a 
                        resident of a foreign country under the 
                        provisions of a tax treaty between the United 
                        States and the foreign country and who does not 
                        waive the benefits of such treaty applicable to 
                        residents of the foreign country.
        An individual shall not be treated as an expatriate for 
        purposes of this section by reason of the individual 
        relinquishing United States citizenship before attaining the 
        age of 18\1/2\ if the individual has been a resident of the 
        United States (as defined in section 7701(b)(1)(A)(ii)) for 
        less than 5 taxable years before the date of relinquishment.
            ``(2) Expatriation date.--The term `expatriation date' 
        means--
                    ``(A) the date an individual relinquishes United 
                States citizenship, or
                    ``(B) in the case of a long-term resident of the 
                United States, the date of the event described in 
                clause (i) or (ii) of paragraph (1)(B).
            ``(3) Relinquishment of citizenship.--A citizen shall be 
        treated as relinquishing his United States citizenship on the 
        earliest of--
                    ``(A) the date the individual renounces his United 
                States nationality before a diplomatic or consular 
                officer of the United States pursuant to paragraph (5) 
                of section 349(a) of the Immigration and Nationality 
                Act (8 U.S.C. 1481(a)(5)),
                    ``(B) the date the individual furnishes to the 
                United States Department of State a signed statement of 
                voluntary relinquishment of United States nationality 
                confirming the performance of an act of expatriation 
                specified in paragraph (1), (2), (3), or (4) of section 
                349(a) of the Immigration and Nationality Act (8 U.S.C. 
                1481(a) (1)-(4)),
                    ``(C) the date the United States Department of 
                State issues to the individual a certificate of loss of 
                nationality, or
                    ``(D) the date a court of the United States cancels 
                a naturalized citizen's certificate of naturalization.
        Subparagraph (A) or (B) shall not apply to any individual 
        unless the renunciation or voluntary relinquishment is 
        subsequently approved by the issuance to the individual of a 
        certificate of loss of nationality by the United States 
        Department of State.
            ``(4) Long-term resident.--
                    ``(A) In general.--The term `long-term resident' 
                means any individual (other than a citizen of the 
                United States) who is a lawful permanent resident of 
                the United States in at least 8 taxable years during 
                the period of 15 taxable years ending with the taxable 
                year during which the sale under subsection (a)(1) is 
                treated as occurring. For purposes of the preceding 
                sentence, an individual shall not be treated as a 
lawful permanent resident for any taxable year if such individual is 
treated as a resident of a foreign country for the taxable year under 
the provisions of a tax treaty between the United States and the 
foreign country and does not waive the benefits of such treaty 
applicable to residents of the foreign country.
                    ``(B) Special rule.--For purposes of subparagraph 
                (A), there shall not be taken into account--
                            ``(i) any taxable year during which any 
                        prior sale is treated under subsection (a)(1) 
                        as occurring, or
                            ``(ii) any taxable year prior to the 
                        taxable year referred to in clause (i).
    ``(f) Special Rules Applicable to Beneficiaries' Interests in 
Trust.--
            ``(1) Determination of beneficiaries' interest in trust.--
        For purposes of this section--
                    ``(A) General rule.--A beneficiary's interest in a 
                trust shall be based upon all relevant facts and 
                circumstances, including the terms of the trust 
                instrument and any letter of wishes or similar 
                document, historical patterns of trust distributions, 
                and the existence of and functions performed by a trust 
                protector or any similar adviser.
                    ``(B) Special rule.--The remaining interests in the 
                trust not determined under subparagraph (A) to be held 
                by any beneficiary shall be allocated first to the 
                grantor, if a beneficiary, and then to other 
                beneficiaries under rules prescribed by the Secretary 
                similar to the rules of intestate succession.
                    ``(C) Constructive ownership.--If a beneficiary of 
                a trust is a corporation, partnership, trust, or 
                estate, the shareholders, partners, or beneficiaries 
                shall be deemed to be the trust beneficiaries for 
                purposes of this section.
                    ``(D) Taxpayer return position.--A taxpayer shall 
                clearly indicate on its income tax return--
                            ``(i) the methodology used to determine 
                        that taxpayer's trust interest under this 
                        section, and
                            ``(ii) if the taxpayer knows (or has reason 
                        to know) that any other beneficiary of such 
                        trust is using a different methodology to 
                        determine such beneficiary's trust interest 
                        under this section.
            ``(2) Deemed sale in case of trust interest.--If an 
        individual who is an expatriate is treated under paragraph (1) 
        as holding an interest in a trust for purposes of this 
        section--
                    ``(A) the individual shall not be treated as having 
                sold such interest,
                    ``(B) such interest shall be treated as a separate 
                share in the trust, and
                    ``(C)(i) such separate share shall be treated as a 
                separate trust consisting of the assets allocable to 
                such share,
                    ``(ii) the separate trust shall be treated as 
                having sold its assets immediately before the 
                expatriation date for their fair market value and as 
                having distributed all of its assets to the individual 
                as of such time, and
                    ``(iii) the individual shall be treated as having 
                recontributed the assets to the separate trust.
        Subsection (a)(2) shall apply to any income, gain, or loss of 
        the individual arising from a distribution described in 
        subparagraph (C)(ii).
    ``(g) Termination of Deferrals, Etc.--On the date any property held 
by an individual is treated as sold under subsection (a), 
notwithstanding any other provision of this title--
            ``(1) any period during which recognition of income or gain 
        is deferred shall terminate, and
            ``(2) any extension of time for payment of tax shall cease 
        to apply and the unpaid portion of such tax shall be due and 
        payable at the time and in the manner prescribed by the 
        Secretary.
    ``(h) Rules Relating to Payment of Tax.--
            ``(1) Imposition of tentative tax.--
                    ``(A) In general.--If an individual is required to 
                include any amount in gross income under subsection (a) 
                for any taxable year, there is hereby imposed, 
                immediately before the expatriation date, a tax in an 
                amount equal to the amount of tax which would be 
                imposed if the taxable year were a short taxable year 
                ending on the expatriation date.
                    ``(B) Due date.--The due date for any tax imposed 
                by subparagraph (A) shall be the 90th day after the 
                expatriation date.
                    ``(C) Treatment of tax.--Any tax paid under 
                subparagraph (A) shall be treated as a payment of the 
                tax imposed by this chapter for the taxable year to 
                which subsection (a) applies.
            ``(2) Deferral of tax.--The payment of any tax attributable 
        to amounts included in gross income under subsection (a) may be 
        deferred to the same extent, and in the same manner, as any tax 
        imposed by chapter 11, except that the Secretary may extend the 
        period for extension of time for paying tax under section 6161 
        to such number of years as the Secretary determines 
        appropriate.
            ``(3) Rules relating to security interests.--
                    ``(A) Adequacy of security interests.--In 
                determining the adequacy of any security to be provided 
                under this section, the Secretary may take into account 
                the principles of section 2056A.
                    ``(B) Special rule for trust.--If a taxpayer is 
                required by this section to provide security in 
                connection with any tax imposed by reason of this 
                section with respect to the holding of an interest in a 
                trust and any trustee of such trust is an individual 
                citizen of the United States or a domestic corporation, 
                such trustee shall be required to provide such security 
                upon notification by the taxpayer of such requirement.
    ``(i) Coordination With Estate and Gift Taxes.--If subsection (a) 
applies to property held by an individual for any taxable year and--
            ``(1) such property is includible in the gross estate of 
        such individual solely by reason of section 2107, or
            ``(2) section 2501 applies to a transfer of such property 
        by such individual solely by reason of section 2501(a)(3),
then there shall be allowed as a credit against the additional tax 
imposed by section 2101 or 2501, whichever is applicable, solely by 
reason of section 2107 or 2501(a)(3) an amount equal to the increase in 
the tax imposed by this chapter for such taxable year by reason of this 
section.
    ``(j) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section, including regulations to prevent double taxation by ensuring 
that--
            ``(1) appropriate adjustments are made to basis to reflect 
        gain recognized by reason of subsection (a) and the exclusion 
        provided by subsection (b),
            ``(2) no interest in property is treated as held for 
        purposes of this section by more than one taxpayer, and
            ``(3) any gain by reason of a deemed sale under subsection 
        (a) of an interest in a corporation, partnership, trust, or 
        estate is reduced to reflect that portion of such gain which is 
        attributable to an interest in a trust which a shareholder, 
        partner, or beneficiary is treated as holding directly under 
        subsection (f)(1)(C).
    ``(k) Cross Reference.--

                                ``For income tax treatment of 
individuals who terminate United States citizenship, see section 
7701(a)(47).''
    (b) Definition of Termination of United States Citizenship.--
Section 7701(a) of the Internal Revenue Code of 1986 is amended by 
adding at the end the following new paragraph:
            ``(47) Termination of united states citizenship.--An 
        individual shall not cease to be treated as a United States 
        citizen before the date on which the individual's citizenship 
        is treated as relinquished under section 877A(e)(3).''
    (c) Coordination With Health Insurance Portability and 
Accountability Act of 1996.--Section 511 of the Health Insurance 
Portability and Accountability Act of 1996, and the amendments made by 
such section, are hereby repealed and the Internal Revenue Code of 1986 
shall be applied as if such section and such amendments had never been 
enacted.
    (d) Conforming Amendments.--
            (1) Section 877 of the Internal Revenue Code of 1986 is 
        amended by adding at the end the following new subsection:
    ``(f) Application.--This section shall not apply to any individual 
who relinquishes (within the meaning of section 877A(e)(3)) United 
States citizenship on or after February 6, 1995.''
            (2) Section 2107(c) of such Code is amended by adding at 
        the end the following new paragraph:
            ``(3) Cross reference.--For credit against the tax imposed 
        by subsection (a) for expatriation tax, see section 877A(i).''
            (3) Section 2501(a)(3) of such Code is amended by adding at 
        the end the following new flush sentence:
        ``For credit against the tax imposed under this section by 
        reason of this paragraph, see section 877A(i).''
            (4) Section 6851 of such Code is amended by striking 
        subsection (d) and by redesignating subsection (e) as 
        subsection (d).
            (5) Paragraph (10) of section 7701(b) of such Code is 
        amended by adding at the end the following new sentence: ``This 
        paragraph shall not apply to any long-term resident of the 
        United States who is an expatriate (as defined in section 
        877A(e)(1)).''
    (e) Clerical Amendment.--The table of sections for subpart A of 
part II of subchapter N of chapter 1 of the Internal Revenue Code of 
1986 is amended by inserting after the item relating to section 877 the 
following new item:

                              ``Sec. 877A. Tax responsibilities of 
                                        expatriation.''
    (f) Effective Date.--
            (1) In general.--The amendments made by this section (other 
        than subsection (c)) shall apply to expatriates (within the 
        meaning of section 877A(e) of the Internal Revenue Code of 
        1986, as added by this section) whose expatriation date (as so 
        defined) occurs on or after February 6, 1995.
            (2) Due date for tentative tax.--The due date under section 
        877A(h)(1)(B) of such Code shall in no event occur before the 
        90th day after the date of the enactment of this Act.

SEC. 202. BASIS OF ASSETS OF NONRESIDENT INDIVIDUALS BECOMING CITIZENS 
              OR RESIDENTS.

    (a) In General.--Part IV of subchapter O of chapter 1 of the 
Internal Revenue Code of 1986 (relating to special rules for gain or 
loss on disposition of property) is amended by redesignating section 
1061 as section 1062 and by inserting after section 1060 the following 
new section:

``SEC. 1061. BASIS OF ASSETS OF NONRESIDENT INDIVIDUALS BECOMING 
              CITIZENS OR RESIDENTS.

    ``(a) General Rule.--If a nonresident alien individual becomes a 
citizen or resident of the United States, gain or loss on the 
disposition of any property held on the date the individual becomes 
such a citizen or resident shall be determined by substituting, as of 
the applicable date, the fair market value of such property (on the 
applicable date) for its cost basis.
    ``(b) Exception for Depreciation.--Any deduction under this chapter 
for depreciation, depletion, or amortization shall be determined 
without regard to the application of this section.
    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Applicable date.--The term `applicable date' means, 
        with respect to any property to which subsection (a) applies, 
        the earlier of--
                    ``(A) the date the individual becomes a citizen or 
                resident of the United States, or
                    ``(B) the date the property first becomes subject 
                to tax under this subtitle by reason of being used in a 
                United States trade or business or by reason of 
                becoming a United States real property interest (within 
                the meaning of section 897(c)(1)).
            ``(2) Resident.--The term `resident' does not include an 
        individual who is treated as a resident of a foreign country 
        under the provisions of a tax treaty between the United States 
        and a foreign country and who does not waive the benefits of 
        such treaty applicable to residents of the foreign country.
            ``(3) Trusts.--A trust shall not be treated as an 
        individual.
            ``(4) Election not to have section apply.--An individual 
        may elect not to have this section apply solely for purposes of 
        determining gain with respect to any property. Such election 
        shall apply only to property specified in the election and, 
        once made, shall be irrevocable.
            ``(5) Section only to apply once.--This section shall apply 
        only with respect to the first time the individual becomes 
        either a citizen or resident of the United States.
    ``(d) Regulations.--The Secretary shall prescribe regulations for 
purposes of this section, including regulations--
            ``(1) for application of this section in the case of 
        property which consists of a direct or indirect interest in a 
        trust, and
            ``(2) providing look-thru rules in the case of any indirect 
        interest in any United States real property interest (within 
        the meaning of section 897(c)(1)) or property used in a United 
        States trade or business.''
    (b) Conforming Amendment.--The table of sections for part IV of 
subchapter O of chapter 1 of the Internal Revenue Code of 1986 is 
amended by striking the item relating to section 1061 and inserting the 
following new items:

                              ``Sec. 1061. Basis of assets of 
                                        nonresident individuals 
                                        becoming citizens or residents.
                              ``Sec. 1062. Cross references.''
    (c) Effective Date.--The amendments made by this section shall 
apply to dispositions after the date of the enactment of this Act, and 
to any disposition occurring on or before such date to which section 
877A of the Internal Revenue Code of 1986 (as added by section 201 of 
this Act) applies.

SEC. 203. ELIMINATION OF EXCLUSION FOR CITIZENS OR RESIDENTS OF UNITED 
              STATES LIVING ABROAD.

    Section 911 of the Internal Revenue Code of 1986 (relating to 
citizens or residents of the United States living abroad) is amended by 
redesignating subsection (f) as subsection (g) and by inserting after 
subsection (e) the following new subsection:
    ``(f) Termination.--This section shall not apply to any taxable 
year beginning after December 31, 1996.''

SEC. 204. DISPOSITION OF STOCK IN DOMESTIC CORPORATIONS BY 10-PERCENT 
              FOREIGN SHAREHOLDERS.

    (a) General Rule.--Subpart D of part II of subchapter N of chapter 
1 of the Internal Revenue Code of 1986 (relating to miscellaneous 
provisions) is amended by adding at the end the following new section:

``SEC. 899. DISPOSITION OF STOCK IN DOMESTIC CORPORATIONS BY 10-PERCENT 
              FOREIGN SHAREHOLDERS.

    ``(a) General Rule.--
            ``(1) Treatment as effectively connected with united states 
        trade or business.--For purposes of this title, if any 
        nonresident alien individual or foreign corporation is a 10-
        percent shareholder in any domestic corporation, any gain or 
        loss of such individual or foreign corporation from the 
        disposition of any stock in such domestic corporation shall be 
        taken into account--
                    ``(A) in the case of a nonresident alien 
                individual, under section 871(b)(1), or
                    ``(B) in the case of a foreign corporation, under 
                section 882(a)(1),
        as if the taxpayer were engaged during the taxable year in a 
        trade or business within the United States through a permanent 
        establishment in the United States and as if such gain or loss 
        were effectively connected with such trade or business and 
        attributable to such permanent establishment. Notwithstanding 
        section 865, any such gain or loss shall be treated as from 
        sources in the United States.
            ``(2) 26-percent minimum tax on nonresident alien 
        individuals.--
                    ``(A) In general.--In the case of any nonresident 
                alien individual, the amount determined under section 
                55(b)(1)(A) shall not be less than 26 percent of the 
                lesser of--
                            ``(i) the individual's alternative minimum 
                        taxable income (as defined in section 55(b)(2)) 
                        for the taxable year, or
                            ``(ii) the individual's net taxable stock 
                        gain for the taxable year.
                    ``(B) Net taxable stock gain.--For purposes of 
                subparagraph (A), the term `net taxable stock gain' 
                means the excess of--
                            ``(i) the aggregate gains for the taxable 
                        year from dispositions of stock in domestic 
                        corporations with respect to which such 
                        individual is a 10-percent shareholder, over
                            ``(ii) the aggregate of the losses for the 
                        taxable year from dispositions of such stock.
                    ``(C) Coordination with section 897(a)(2).--Section 
                897(a)(2)(A) shall not apply to any nonresident alien 
                individual for any taxable year for which such 
                individual has a net taxable stock gain, but the amount 
                of such net taxable stock gain shall be increased by 
                the amount of such individual's net United States real 
                property gain (as defined in section 897(a)(2)(B)) for 
                such taxable year.
    ``(b) 10-Percent Shareholder.--
            ``(1) In general.--For purposes of this section, the term 
        `10-percent shareholder' means any person who at any time 
        during the shorter of--
                    ``(A) the period beginning on January 1, 1996, and 
                ending on the date of the disposition, or
                    ``(B) the 5-year period ending on the date of the 
                disposition,
        owned 10 percent or more (by vote or value) of the stock in the 
        domestic corporation.
            ``(2) Constructive ownership.--
                    ``(A) In general.--Section 318(a) (relating to 
                constructive ownership of stock) shall apply for 
                purposes of paragraph (1).
                    ``(B) Modifications.--For purposes of subparagraph 
                (A)--
                            ``(i) paragraph (2)(C) of section 318(a) 
                        shall be applied by substituting `10 percent' 
                        for `50 percent', and
                            ``(ii) paragraph (3)(C) of section 318(a) 
                        shall be applied--
                                    ``(I) by substituting `10 percent' 
                                for `50 percent', and
                                    ``(II) in any case where such 
                                paragraph would not apply but for 
                                subclause (I), by considering a 
                                corporation as owning the stock (other 
                                than stock in such corporation) owned 
                                by or for any shareholder of such 
                                corporation in that proportion which 
                                the value of the stock which such 
                                shareholder owns in such corporation 
                                bears to the value of all stock in such 
                                corporation.
            ``(3) Treatment of stock held by certain partnerships.--
                    ``(A) In general.--For purposes of this section, 
                if--
                            ``(i) a partnership is a 10-percent 
                        shareholder in any domestic corporation, and
                            ``(ii) 10 percent or more of the capital or 
                        profits interests in such partnership is held 
                        (directly or indirectly) by nonresident alien 
                        individuals or foreign corporations,
                each partner in such partnership who is not otherwise a 
                10-percent shareholder in such corporation shall, with 
                respect to the stock in such corporation held by the 
                partnership, be treated as a 10-percent shareholder in 
                such corporation.
                    ``(B) Exception.--
                            ``(i) In general.--Subparagraph (A) shall 
                        not apply with respect to stock in a domestic 
                        corporation held by any partnership if, at all 
                        times during the 5-year period ending on the 
                        date of the disposition involved--
                                    ``(I) the aggregate bases of the 
                                stock and securities in such domestic 
                                corporation held by such partnership 
                                were less than 25 percent of the 
                                partnership's net adjusted asset cost, 
                                and
                                    ``(II) the partnership did not own 
                                50 percent or more (by vote or value) 
                                of the stock in such domestic 
                                corporation.
                        The Secretary may by regulations disregard any 
                        failure to meet the requirements of subclause 
                        (I) where the partnership normally met such 
                        requirements during such 5-year period.
                            ``(ii) Net adjusted asset cost.--For 
                        purposes of clause (i), the term `net adjusted 
                        asset cost' means--
                                    ``(I) the aggregate bases of all of 
                                the assets of the partnership other 
                                than cash and cash items, reduced by
                                    ``(II) the portion of the 
                                liabilities of the partnership not 
                                allocable (on a proportionate basis) to 
                                assets excluded under subclause (I).
                    ``(C) Exception not to apply to 50-percent 
                partners.--Subparagraph (B) shall not apply in the case 
                of any partner owning (directly or indirectly) more 
                than 50 percent of the capital or profits interests in 
                the partnership at any time during the 5-year period 
                ending on the date of the disposition.
                    ``(D) Special rules.--For purposes of subparagraphs 
                (B) and (C)--
                            ``(i) Treatment of predecessors.--Any 
                        reference to a partnership or corporation shall 
                        be treated as including a reference to any 
                        predecessor thereof.
                            ``(ii) Partnership not in existence.--If 
                        any partnership was not in existence throughout 
                        the entire 5-year period ending on the date of 
                        the disposition, only the portion of such 
                        period during which the partnership (or any 
                        predecessor) was in existence shall be taken 
                        into account.
                    ``(E) Other pass-thru entities; tiered entities.--
                Rules similar to the rules of the preceding provisions 
                of this paragraph shall also apply in the case of any 
                pass-thru entity other than a partnership and in the 
                case of tiered partnerships and other entities.
    ``(c) Coordination With Nonrecognition Provisions; Etc.--
            ``(1) Coordination with nonrecognition provisions.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), any nonrecognition provision shall 
                apply for purposes of this section to a transaction 
                only in the case of--
                            ``(i) an exchange of stock in a domestic 
                        corporation for other property the sale of 
                        which would be subject to taxation under this 
                        chapter, or
                            ``(ii) a distribution with respect to which 
                        gain or loss would not be recognized under 
                        section 336 if the sale of the distributed 
                        property by the distributee would be subject to 
                        tax under this chapter.
                    ``(B) Regulations.--The Secretary shall prescribe 
                regulations (which are necessary or appropriate to 
                prevent the avoidance of Federal income taxes) 
                providing--
                            ``(i) the extent to which nonrecognition 
                        provisions shall, and shall not, apply for 
                        purposes of this section, and
                            ``(ii) the extent to which--
                                    ``(I) transfers of property in a 
                                reorganization, and
                                    ``(II) changes in interests in, or 
                                distributions from, a partnership, 
                                trust, or estate,
                        shall be treated as sales of property at fair 
                        market value.
                    ``(C) Nonrecognition provision.--For purposes of 
                this paragraph, the term `nonrecognition provision' 
                means any provision of this title for not recognizing 
                gain or loss.
            ``(2) Certain other rules made applicable.--For purposes of 
        this section, rules similar to the rules of subsections (g) and 
        (j) of section 897 shall apply.
    ``(d) Certain Interest Treated as Stock.--For purposes of this 
section--
            ``(1) any option or other right to acquire stock in a 
        domestic corporation,
            ``(2) the conversion feature of any debt instrument issued 
        by a domestic corporation, and
            ``(3) to the extent provided in regulations, any other 
        interest in a domestic corporation other than an interest 
        solely as creditor,
shall be treated as stock in such corporation.
    ``(e) Treatment of Certain Gain as a Dividend.--In the case of any 
gain which would be subject to tax by reason of this section but for a 
treaty and which results from any distribution in liquidation or 
redemption, for purposes of this subtitle, such gain shall be treated 
as a dividend to the extent of the earnings and profits of the domestic 
corporation attributable to the stock. Rules similar to the rules of 
section 1248(c) (determined without regard to paragraph (2)(D) thereof) 
shall apply for purposes of the preceding sentence.
    ``(f) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out the purposes of this section, 
including--
            ``(1) regulations coordinating the provisions of this 
        section with the provisions of section 897, and
            ``(2) regulations aggregating stock held by a group of 
        persons acting together.''
    (b) Withholding of Tax.--Subchapter A of chapter 3 of such Code is 
amended by adding at the end the following new section:

``SEC. 1447. WITHHOLDING OF TAX ON CERTAIN STOCK DISPOSITIONS.

    ``(a) General Rule.--Except as otherwise provided in this section, 
in the case of any disposition of stock in a domestic corporation by a 
foreign person who is a 10-percent shareholder in such corporation, the 
withholding agent shall deduct and withhold a tax equal to 10 percent 
of the amount realized on the disposition.
    ``(b) Exceptions.--
            ``(1) Stock which is not regularly traded.--In the case of 
        a disposition of stock which is not regularly traded, a 
        withholding agent shall not be required to deduct and withhold 
        any amount under subsection (a) if--
                    ``(A) the transferor furnishes to such withholding 
                agent an affidavit by such transferor stating, under 
                penalty of perjury, that section 899 does not apply to 
                such disposition because--
                            ``(i) the transferor is not a foreign 
                        person, or
                            ``(ii) the transferor is not a 10-percent 
                        shareholder, and
                    ``(B) such withholding agent does not know (or have 
                reason to know) that such affidavit is not correct.
            ``(2) Stock which is regularly traded.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), a withholding agent shall not be 
                required to deduct and withhold any amount under 
                subsection (a) with respect to any disposition of 
                regularly traded stock if such withholding agent does 
                not know (or have reason to know) that section 899 
                applies to such disposition.
                    ``(B) Special rule where substantial disposition.--
                If--
                            ``(i) there is a disposition of regularly 
                        traded stock in a corporation, and
                            ``(ii) the amount of stock involved in such 
                        disposition constitutes 1 percent or more (by 
                        vote or value) of the stock in such 
                        corporation,
                subparagraph (A) shall not apply but paragraph (1) 
                shall apply as if the disposition involved stock which 
                was not regularly traded.
                    ``(C) Notification by foreign person.--If section 
                899 applies to any disposition by a foreign person of 
                regularly traded stock, such foreign person shall 
                notify the withholding agent that section 899 applies 
                to such disposition.
            ``(3) Nonrecognition transactions.--A withholding agent 
        shall not be required to deduct and withhold any amount under 
        subsection (a) in any case where gain or loss is not recognized 
        by reason of section 899(c) (or the regulations prescribed 
        under such section).
    ``(c) Special Rule Where No Withholding.--If--
            ``(1) there is no amount deducted and withheld under this 
        section with respect to any disposition to which section 899 
        applies, and
            ``(2) the foreign person does not pay the tax imposed by 
        this subtitle to the extent attributable to such disposition on 
        the date prescribed therefor
for purposes of determining the amount of such tax, the foreign 
person's basis in the stock disposed of shall be treated as zero or 
such other amount as the Secretary may determine (and, for purposes of 
section 6501, the underpayment of such tax shall be treated as due to a 
willful attempt to evade such tax).
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Withholding agent.--The term `withholding agent' 
        means--
                    ``(A) the last United States person to have the 
                control, receipt, custody, disposal, or payment of the 
                amount realized on the disposition, or
                    ``(B) if there is no such United States person, the 
                person prescribed in regulations.
            ``(2) Foreign person.--The term `foreign person' means any 
        person other than a United States person.
            ``(3) Regularly traded stock.--The term `regularly traded 
        stock' means any stock of a class which is regularly traded on 
        an established securities market.
            ``(4) Authority to prescribe reduced amount.--At the 
        request of the person making the disposition or the withholding 
        agent, the Secretary may prescribe a reduced amount to be 
        withheld under this section if the Secretary determines that to 
        substitute such reduced amount will not jeopardize the 
        collection of the tax imposed by section 871(b)(1) or 
        882(a)(1).
            ``(5) Other terms.--Except as provided in this section, 
        terms used in this section shall have the same respective 
        meanings as when used in section 899.
            ``(6) Certain rules made applicable.--Rules similar to the 
        rules of section 1445(e) shall apply for purposes of this 
        section.
    ``(e) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out the purposes of this section, 
including regulations coordinating the provisions of this section with 
the provisions of sections 1445 and 1446.''
    (c) Exception From Branch Profits Tax.--Subparagraph (C) of section 
884(d)(2) of such Code is amended to read as follows:
                    ``(C) gain treated as effectively connected with 
                the conduct of a trade or business within the United 
                States under--
                            ``(i) section 897 in the case of the 
                        disposition of a United States real property 
                        interest described in section 897(c)(1)(A)(ii), 
                        or
                            ``(ii) section 899,''.
    (d) Reports With Respect to Certain Distributions.--Paragraph (2) 
of section 6038B(a) of such Code (relating to notice of certain 
transfers to foreign person) is amended by striking ``section 336'' and 
inserting ``section 302, 331, or 336''.
    (e) Clerical Amendments.--
            (1) The table of sections for subpart D of part II of 
        subchapter N of chapter 1 of such Code is amended by adding at 
        the end the following new item:

                              ``Sec. 899. Dispositions of stock in 
                                        domestic corporations by 10-
                                        percent foreign shareholders.''
            (2) The table of sections for subchapter A of chapter 3 of 
        such Code is amended by adding at the end the following new 
        item:

                              ``Sec. 1447. Withholding of tax on 
                                        certain stock dispositions.''
    (f) Effective Date.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        dispositions after the date of the enactment of this Act, 
        except that section 1447 of such Code (as added by this 
        section) shall not apply to any disposition before the date 6 
        months after the date of the enactment of this Act.
            (2) Coordination with treaties.--
                    (A) In general.--Sections 899 (other than 
                subsection (e) thereof) and 1447 of such Code (as added 
                by this section) shall not apply to any disposition if 
                such disposition is by a qualified resident of a 
                foreign country and the application of such sections to 
                such disposition would be contrary to any treaty 
                between the United States and such foreign country 
                which is in effect on the date of the enactment of this 
                Act and at the time of such disposition.
                    (B) Qualified resident.--For purposes of 
                subparagraph (A), the term ``qualified resident'' means 
                any resident of the foreign country entitled to the 
                benefits of the treaty referred to in subparagraph (A); 
                except that such term shall not include a corporation 
                unless such corporation is a qualified resident of such 
                country (as defined in section 884(e)(4) of such Code).

SEC. 205. ALTERNATIVE MINIMUM TAX ON CORPORATIONS IMPORTING PRODUCTS 
              INTO THE UNITED STATES AT ARTIFICIALLY INFLATED PRICES.

    (a) In General.--Subchapter A of chapter 1 of the Internal Revenue 
Code of 1986 (relating to determination of tax liability) is amended by 
adding at the end the following new part:

``PART VIII--ALTERNATIVE MINIMUM TAX ON CORPORATIONS IMPORTING PRODUCTS 
         INTO THE UNITED STATES AT ARTIFICIALLY INFLATED PRICES

``Sec. 59B. Alternative minimum tax on corporations importing products 
                            into the United States at artificially 
                            inflated prices.

``SEC. 59B. ALTERNATIVE MINIMUM TAX ON CORPORATIONS IMPORTING PRODUCTS 
              INTO THE UNITED STATES AT ARTIFICIALLY INFLATED PRICES.

    ``(a) Imposition of Tax.--In the case of a corporation to which 
this section applies, there is hereby imposed an alternative minimum 
tax equal to 3 percent of net business receipts of the corporation for 
the taxable year.
    ``(b) Taxpayers to Which Section Applies.--This section shall apply 
to any corporation, foreign or domestic, if--
            ``(1) gross sales in the United States during the tax year 
        of parts or products manufactured by the corporation, or any 
        subsidiary or affiliate controlled by the corporation, exceeded 
        $10,000,000,
            ``(2) during that same tax year parts or products 
        manufactured by the corporation, or any subsidiary or affiliate 
        controlled by the corporation, with a customs value in excess 
        of $10,000,000 were imported into the United States, and
            ``(3) its tax obligation under this section exceeds its 
        total tax obligation under all other sections of this title.
    ``(c) Credit For Taxes Paid.--There shall be a nonrefundable credit 
against the taxes owed under this section equal to the total of all 
other taxes paid by the corporation under this title.
    ``(d) Definitions.--For purposes of this section--
            ``(1) Net business receipts.--The term `net business 
        receipts' means the value of all parts or products sold in the 
        United States, excluding--
                    ``(A) the value of parts or products sold for 
                export,
                    ``(B) expenses paid for parts or products produced 
                in the United States,
                    ``(C) expenses paid for services performed in the 
                United States, and
                    ``(D) amounts paid for income, sales or use taxes 
                imposed by any State, or political subdivision thereof, 
                or by the District of Columbia, Puerto Rico, Guam, or 
                the Virgin Islands.
            ``(2) Subsidiary or affiliate controlled by the 
        corporation.--An entity shall be considered to be a `subsidiary 
        or affiliate controlled by the corporation' if the corporation 
        owns 5 percent or more of any class of stock of the entity or 
        if the corporation exercises control over a majority of the 
        board of directors of the entity.''
    (b) Clerical Amendment.--The table of parts for such subchapter A 
is amended by adding at the end the following new item:

                              ``Part VIII. Alternative minimum tax on 
                                        corporations importing products 
                                        into the United States at 
                                        artificially inflated prices.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.
                                 <all>
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