II 

108TH CONGRESS 

1ST SESSION S. 1894

To amend the Internal Revenue Code of 1986 to provide for the deduction 

of interest paid in certain situations where the debt is guaranteed by 

a related foreign person. 

IN THE SENATE OF THE UNITED STATES 

NOVEMBER 19, 2003

Mr. BINGAMAN (for himself, Mr. ALLEN, and Mr. HATCH) introduced the 

following bill; which was read twice and referred to the Committee on Finance 

A BILL

To amend the Internal Revenue Code of 1986 to provide 

for the deduction of interest paid in certain situations 

where the debt is guaranteed by a related foreign person.

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

3 SECTION 1. INTEREST PAYMENTS DEDUCTIBLE WHERE 

4 DISQUALIFIED GUARANTEE HAS NO ECO5 NOMIC EFFECT. 

6 (a) IN GENERAL.—Section 163(j)(6)(D)(ii) of the In7 ternal Revenue Code of 1986 (relating to exceptions to 

8 disqualified guarantee) is amended—

9 (1) by striking ‘‘or’’ at the end of subclause (I), 
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1 (2) by striking the period at the end of sub2 clause (II) and inserting ‘‘, or’’, 

3 (3) by inserting after subclause (II) the fol4 lowing new subclause: 

5 ‘‘(III) in the case of a guarantee 

6 by a foreign person, to the extent of 

7 the amount that the taxpayer estab8 lishes to the satisfaction of the Sec9 retary that the taxpayer could have 

10 borrowed from an unrelated person 

11 without the guarantee.’’. 

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

13 this section shall apply to guarantees issued on and after 

14 the date of the enactment of this Act. 

15 SEC. 2. INTEREST PAID TO CERTAIN LENDERS NOT DIS16 QUALIFIED INTEREST. 

17 (a) IN GENERAL.—Section 163(j)(3)(B) of the Inter18 nal Revenue Code of 1986 (defining disqualified interest) 

19 is amended by striking ‘‘and’’ at the end of clause (i) and 

20 by inserting after clause (ii) the following new clause: 

21 ‘‘(iii) the interest is not paid or ac22 crued to a qualified lender, and’’. 

23 (b) QUALIFIED LENDER.—Section 163(j)(6) of the 

24 Internal Revenue Code of 1986 (relating to other defini-
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1 tions and special rules) is amended by adding at the end 

2 the following new subparagraphs: 

3 ‘‘(F) QUALIFIED LENDER.—A holder of 

4 debt shall be a qualified lender with respect to 

5 such debt if such person is—

6 ‘‘(i) a United States person subject to 

7 the income tax imposed by this chapter 

8 (determined without regard to section 511) 

9 and—

10 ‘‘(I) such person is a financial in11 stitution, or 

12 ‘‘(II) such debt is publicly issued 

13 debt, or 

14 ‘‘(ii) a foreign person which is subject 

15 to either net basis or gross basis taxation 

16 and—

17 ‘‘(I) such person is a financial in18 stitution required to include the inter19 est on such debt in taxable income 

20 under section 882, or 

21 ‘‘(II) such debt is publicly issued 

22 debt. 

23 ‘‘(G) FINANCIAL INSTITUTION.—The term 

24 ‘financial institution’ means a person which 

25 is—
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1 ‘‘(i) predominantly engaged in the ac2 tive conduct of a banking, financing, or 

3 similar business within the meaning of sec4 tion 954(h), 

5 ‘‘(ii) a corporation described in section 

6 581 or 591 (relating to banks and other 

7 savings institutions), or 

8 ‘‘(iii) an insurance company subject to 

9 tax under subchapter L or which would be 

10 subject to tax under subchapter L if it 

11 were a domestic corporation. 

12 ‘‘(H) PUBLICLY ISSUED DEBT.—The term 

13 ‘publicly issued debt’ means—

14 ‘‘(i) commercial paper described in 

15 section 3(a)(3) or 4(2) of the Securities 

16 Act of 1933, 

17 ‘‘(ii) a debt instrument which is—

18 ‘‘(I) part of an issue of debt in19 struments meeting the requirements 

20 of section 871(h) or 881(c) (relating 

21 to the exemptions from withholding 

22 tax for certain portfolio debt invest23 ments) without regard to section 

24 871(h)(2)(B)(ii) and section 

25 881(c)(2)(B)(ii), and 
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1 ‘‘(II) readily tradable on an es2 tablished securities market, or 

3 ‘‘(iii) a debt instrument which is part 

4 of an issue of debt instruments the initial 

5 offering of which is registered with the Se6 curities and Exchange Commission or 

7 would be required to be registered under 

8 the Securities Act of 1933 but for an ex9 emption from registration—

10 ‘‘(I) under section 3 of the Secu11 rities Act of 1933, 

12 ‘‘(II) under any law (other than 

13 the Securities Act of 1933) because of 

14 the identity of the issuer or the nature 

15 of the security, 

16 ‘‘(III) because the issue is in17 tended for distribution to persons who 

18 are not United States persons, or 

19 ‘‘(IV) pursuant to section 

20 230.144A of title 17, Code of Federal 

21 Regulations (relating to securities 

22 placed with qualified institutional buy23 ers) or any successor rule or regula24 tion.’’. 
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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to debt issued on or after the date 

3 of the enactment of this Act.

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