II 

108TH CONGRESS 

1ST SESSION S. 1922

To amend the Internal Revenue Code of 1986 to comply with the World 

Trade Organization rulings on the FSC/ETI benefit in a manner that 

preserves manufacturing jobs and production activities in the United 

States, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

NOVEMBER 21, 2003

Mr. SMITH (for himself and Mr. BREAUX) 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 comply 

with the World Trade Organization rulings on the FSC/

ETI benefit in a manner that preserves manufacturing 

jobs and production activities in the United States, 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,

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

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

5 ‘‘American Manufacturing Jobs Act of 2003’’. 

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend-
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•S 1922 IS 

1 ment or repeal is expressed in terms of an amendment 

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

3 shall be considered to be made to a section or other provi4 sion of the Internal Revenue Code of 1986.

5 SEC. 2. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL 

6 INCOME. 

7 (a) IN GENERAL.—Section 114 is hereby repealed. 

8 (b) CONFORMING AMENDMENTS.—

9 (1)(A) Subpart E of part III of subchapter N 

10 of chapter 1 (relating to qualifying foreign trade in11 come) is hereby repealed. 

12 (B) The table of subparts for such part III is 

13 amended by striking the item relating to subpart E. 

14 (2) The table of sections for part III of sub15 chapter B of chapter 1 is amended by striking the 

16 item relating to section 114. 

17 (3) The second sentence of section 

18 56(g)(4)(B)(i) is amended by striking ‘‘or under sec19 tion 114’’. 

20 (4) Section 275(a) is amended—

21 (A) by inserting ‘‘or’’ at the end of para22 graph (4)(A), by striking ‘‘or’’ at the end of 

23 paragraph (4)(B) and inserting a period, and 

24 by striking subparagraph (C), and 

25 (B) by striking the last sentence. 
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•S 1922 IS 

1 (5) Paragraph (3) of section 864(e) is amend2 ed—

3 (A) by striking: 

4 ‘‘(3) TAX-EXEMPT ASSETS NOT TAKEN INTO

5 ACCOUNT.—

6 ‘‘(A) IN GENERAL.—For purposes of’’; and 

7 inserting:

8 ‘‘(3) TAX-EXEMPT ASSETS NOT TAKEN INTO

9 ACCOUNT.—For purposes of’’, and 

10 (B) by striking subparagraph (B). 

11 (6) Section 903 is amended by striking ‘‘114, 

12 164(a),’’ and inserting ‘‘164(a)’’. 

13 (7) Section 999(c)(1) is amended by striking 

14 ‘‘941(a)(5),’’. 

15 (c) EFFECTIVE DATE.—

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

17 this section shall apply to transactions occurring 

18 after the date of the enactment of this Act. 

19 (2) BINDING CONTRACTS.—The amendments 

20 made by this section shall not apply to any trans21 action in the ordinary course of a trade or business 

22 which occurs pursuant to a binding contract—

23 (A) which is between the taxpayer and a 

24 person who is not a related person (as defined 

25 in section 943(b)(3) of such Code, as in effect 
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•S 1922 IS 

1 on the day before the date of the enactment of 

2 this Act), and 

3 (B) which is in effect on September 17, 

4 2003, and at all times thereafter. 

5 (d) REVOCATION OF SECTION 943(e) ELECTIONS.—

6 (1) IN GENERAL.—In the case of a corporation 

7 that elected to be treated as a domestic corporation 

8 under section 943(e) of the Internal Revenue Code 

9 of 1986 (as in effect on the day before the date of 

10 the enactment of this Act)—

11 (A) the corporation may, during the 1-year 

12 period beginning on the date of the enactment 

13 of this Act, revoke such election, effective as of 

14 such date of enactment, and 

15 (B) if the corporation does revoke such 

16 election—

17 (i) such corporation shall be treated 

18 as a domestic corporation transferring (as 

19 of such date of enactment) all of its prop20 erty to a foreign corporation in connection 

21 with an exchange described in section 354 

22 of such Code, and 

23 (ii) no gain or loss shall be recognized 

24 on such transfer.
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1 (2) EXCEPTION.—Subparagraph (B)(ii) of 

2 paragraph (1) shall not apply to gain on any asset 

3 held by the revoking corporation if—

4 (A) the basis of such asset is determined 

5 in whole or in part by reference to the basis of 

6 such asset in the hands of the person from 

7 whom the revoking corporation acquired such 

8 asset, 

9 (B) the asset was acquired by transfer (not 

10 as a result of the election under section 943(e) 

11 of such Code) occurring on or after the 1st day 

12 on which its election under section 943(e) of 

13 such Code was effective, and 

14 (C) a principal purpose of the acquisition 

15 was the reduction or avoidance of tax (other 

16 than a reduction in tax under section 114 of 

17 such Code, as in effect on the day before the 

18 date of the enactment of this Act). 

19 (e) GENERAL TRANSITION.—

20 (1) IN GENERAL.—In the case of a taxable year 

21 ending after the date of the enactment of this Act 

22 and beginning before January 1, 2007, for purposes 

23 of chapter 1 of such Code, a current FSC/ETI bene24 ficiary shall be allowed a deduction equal to the 
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•S 1922 IS 

1 transition amount determined under this subsection 

2 with respect to such beneficiary for such year. 

3 (2) CURRENT FSC/ETI BENEFICIARY.—The 

4 term ‘‘current FSC/ETI beneficiary’’ means any cor5 poration which entered into one or more transactions 

6 during its taxable year beginning in calendar year 

7 2002 with respect to which FSC/ETI benefits were 

8 allowable. 

9 (3) TRANSITION AMOUNT.—For purposes of 

10 this subsection—

11 (A) IN GENERAL.—The transition amount 

12 applicable to any current FSC/ETI beneficiary 

13 for any taxable year is the phaseout percentage 

14 of the base period amount. 

15 (B) PHASEOUT PERCENTAGE.—

16 (i) IN GENERAL.—In the case of a 

17 taxpayer using the calendar year as its 

18 taxable year, the phaseout percentage shall 

19 be determined under the following table:

Years: The phaseout percentage is: 

2004 ................................................................................................... 80

2005 ................................................................................................... 80

2006 ................................................................................................... 60.

20 (ii) SPECIAL RULE FOR 2003.—The 

21 phaseout percentage for 2003 shall be the 

22 amount that bears the same ratio to 100 

23 percent as the number of days after the 
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•S 1922 IS 

1 date of the enactment of this Act bears to 

2 365. 

3 (iii) SPECIAL RULE FOR FISCAL YEAR

4 TAXPAYERS.—In the case of a taxpayer 

5 not using the calendar year as its taxable 

6 year, the phaseout percentage is the 

7 weighted average of the phaseout percent8 ages determined under the preceding provi9 sions of this paragraph with respect to cal10 endar years any portion of which is in11 cluded in the taxpayer’s taxable year. The 

12 weighted average shall be determined on 

13 the basis of the respective portions of the 

14 taxable year in each calendar year. 

15 (C) SHORT TAXABLE YEAR.—The Sec16 retary shall prescribe guidance for the computa17 tion of the transition amount in the case of a 

18 short taxable year. 

19 (4) BASE PERIOD AMOUNT.—For purposes of 

20 this subsection, the base period amount is the FSC/

21 ETI benefit for the taxpayer’s taxable year begin22 ning in calendar year 2002. 

23 (5) FSC/ETI BENEFIT.—For purposes of this 

24 subsection, the term ‘‘FSC/ETI benefit’’ means—
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•S 1922 IS 

1 (A) amounts excludable from gross income 

2 under section 114 of such Code, and 

3 (B) the exempt foreign trade income of re4 lated foreign sales corporations from property 

5 acquired from the taxpayer (determined without 

6 regard to section 923(a)(5) of such Code (relat7 ing to special rule for military property), as in 

8 effect on the day before the date of the enact9 ment of the FSC Repeal and Extraterritorial 

10 Income Exclusion Act of 2000). 

11 In determining the FSC/ETI benefit there shall be 

12 excluded any amount attributable to a transaction 

13 with respect to which the taxpayer is the lessor un14 less the leased property was manufactured or pro15 duced in whole or in significant part by the tax16 payer. 

17 (6) SPECIAL RULE FOR AGRICULTURAL AND

18 HORTICULTURAL COOPERATIVES.—Determinations 

19 under this subsection with respect to an organization 

20 described in section 943(g)(1) of such Code, as in 

21 effect on the day before the date of the enactment 

22 of this Act, shall be made at the cooperative level 

23 and the purposes of this subsection shall be carried 

24 out in a manner similar to section 199(h)(2) of such 

25 Code, as added by this Act. Such determinations 
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1 shall be in accordance with such requirements and 

2 procedures as the Secretary may prescribe. 

3 (7) CERTAIN RULES TO APPLY.—Rules similar 

4 to the rules of section 41(f) of such Code shall apply 

5 for purposes of this subsection. 

6 (8) COORDINATION WITH BINDING CONTRACT

7 RULE.—The deduction determined under paragraph 

8 (1) for any taxable year shall be reduced by the 

9 phaseout percentage of any FSC/ETI benefit real10 ized for the taxable year by reason of subsection 

11 (c)(2) or section 5(c)(1)(B) of the FSC Repeal and 

12 Extraterritorial Income Exclusion Act of 2000, ex13 cept that for purposes of this paragraph the phase14 out percentage for 2003 shall be treated as being 

15 equal to 100 percent. 

16 (9) SPECIAL RULE FOR TAXABLE YEAR WHICH

17 INCLUDES DATE OF ENACTMENT.—In the case of a 

18 taxable year which includes the date of the enact19 ment of this Act, the deduction allowed under this 

20 subsection to any current FSC/ETI beneficiary shall 

21 in no event exceed—

22 (A) 100 percent of such beneficiary’s base 

23 period amount for calendar year 2003, reduced 

24 by
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•S 1922 IS 

1 (B) the FSC/ETI benefit of such bene2 ficiary with respect to transactions occurring 

3 during the portion of the taxable year ending on 

4 the date of the enactment of this Act. 

5 SEC. 3. DEDUCTION RELATING TO INCOME ATTRIBUTABLE 

6 TO UNITED STATES PRODUCTION ACTIVI7 TIES. 

8 (a) IN GENERAL.—Part VI of subchapter B of chap9 ter 1 (relating to itemized deductions for individuals and 

10 corporations) is amended by adding at the end the fol11 lowing new section: 

12 ‘‘SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUC13 TION ACTIVITIES. 

14 ‘‘(a) ALLOWANCE OF DEDUCTION.—

15 ‘‘(1) IN GENERAL.—There shall be allowed as a 

16 deduction an amount equal to 9 percent of the quali17 fied production activities income of the taxpayer for 

18 the taxable year. 

19 ‘‘(2) PHASEIN.—In the case of taxable years 

20 beginning in 2003, 2004, 2005, 2006, 2007, or 

21 2008, paragraph (1) shall be applied by substituting 

22 for the percentage contained therein the transition 

23 percentage determined under the following table:

‘‘Taxable years beginning in: The transition percentage is: 

2003 or 2004 ..................................................................................... 1

2005 ................................................................................................... 2

2006 ................................................................................................... 3

2007 or 2008 ..................................................................................... 6.
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1 ‘‘(b) DEDUCTION LIMITED TO WAGES PAID.—

2 ‘‘(1) IN GENERAL.—The amount of the deduc3 tion allowable under subsection (a) for any taxable 

4 year shall not exceed 50 percent of the W–2 wages 

5 of the employer for the taxable year. 

6 ‘‘(2) W–2 WAGES.—For purposes of paragraph 

7 (1), the term ‘W–2 wages’ means the sum of the ag8 gregate amounts the taxpayer is required to include 

9 on statements under paragraphs (3) and (8) of sec10 tion 6051(a) with respect to employment of employ11 ees of the taxpayer during the taxpayer’s taxable 

12 year. 

13 ‘‘(3) SPECIAL RULES.—

14 ‘‘(A) PASS-THRU ENTITIES.—In the case 

15 of an S corporation, partnership, estate or 

16 trust, or other pass-thru entity, the limitation 

17 under this subsection shall apply at the entity 

18 level. 

19 ‘‘(B) ACQUISITIONS AND DISPOSITIONS.—

20 The Secretary shall provide for the application 

21 of this subsection in cases where the taxpayer 

22 acquires, or disposes of, the major portion of a 

23 trade or business or the major portion of a sep24 arate unit of a trade or business during the tax25 able year. 
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•S 1922 IS 

1 ‘‘(c) QUALIFIED PRODUCTION ACTIVITIES IN2 COME.—For purposes of this section, the term ‘qualified 

3 production activities income’ means an amount equal to 

4 the portion of the modified taxable income of the taxpayer 

5 which is attributable to domestic production activities. 

6 ‘‘(d) DETERMINATION OF INCOME ATTRIBUTABLE

7 TO DOMESTIC PRODUCTION ACTIVITIES.—For purposes 

8 of this section—

9 ‘‘(1) IN GENERAL.—The portion of the modified 

10 taxable income which is attributable to domestic pro11 duction activities is so much of the modified taxable 

12 income for the taxable year as does not exceed—

13 ‘‘(A) the taxpayer’s domestic production 

14 gross receipts for such taxable year, reduced by 

15 ‘‘(B) the sum of—

16 ‘‘(i) the costs of goods sold that are 

17 allocable to such receipts, 

18 ‘‘(ii) other deductions, expenses, or 

19 losses directly allocable to such receipts, 

20 and 

21 ‘‘(iii) a proper share of other deduc22 tions, expenses, and losses that are not di23 rectly allocable to such receipts or another 

24 class of income. 
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•S 1922 IS 

1 ‘‘(2) ALLOCATION METHOD.—The Secretary 

2 shall prescribe rules for the proper allocation of 

3 items of income, deduction, expense, and loss for 

4 purposes of determining income attributable to do5 mestic production activities. 

6 ‘‘(3) SPECIAL RULES FOR DETERMINING

7 COSTS.—

8 ‘‘(A) IN GENERAL.—For purposes of deter9 mining costs under clause (i) of paragraph 

10 (1)(B), any item or service brought into the 

11 United States shall be treated as acquired by 

12 purchase, and its cost shall be treated as not 

13 less than its fair market value immediately 

14 after it entered the United States. A similar 

15 rule shall apply in determining the adjusted 

16 basis of leased or rented property where the 

17 lease or rental gives rise to domestic production 

18 gross receipts. 

19 ‘‘(B) EXPORTS FOR FURTHER MANUFAC20 TURE.—In the case of any property described 

21 in subparagraph (A) that had been exported by 

22 the taxpayer for further manufacture, the in23 crease in cost or adjusted basis under subpara24 graph (A) shall not exceed the difference be25 tween the value of the property when exported 
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•S 1922 IS 

1 and the value of the property when brought 

2 back into the United States after the further 

3 manufacture. 

4 ‘‘(4) MODIFIED TAXABLE INCOME.—The term 

5 ‘modified taxable income’ means taxable income 

6 computed without regard to the deduction allowable 

7 under this section. 

8 ‘‘(e) DOMESTIC PRODUCTION GROSS RECEIPTS.—

9 For purposes of this section—

10 ‘‘(1) IN GENERAL.—The term ‘domestic produc11 tion gross receipts’ means the gross receipts of the 

12 taxpayer which are derived from—

13 ‘‘(A) any sale, exchange, or other disposi14 tion of, or 

15 ‘‘(B) any lease, rental, or license of, 

16 qualifying production property which was manufac17 tured, produced, grown, or extracted in whole or in 

18 significant part by the taxpayer within the United 

19 States. 

20 ‘‘(2) SPECIAL RULES FOR CERTAIN PROP21 ERTY.—In the case of any qualifying production 

22 property described in subsection (f)(1)(C)—

23 ‘‘(A) such property shall be treated for 

24 purposes of paragraph (1) as produced in sig25 nificant part by the taxpayer within the United 
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•S 1922 IS 

1 States if more than 50 percent of the aggregate 

2 development and production costs are incurred 

3 by the taxpayer within the United States, and 

4 ‘‘(B) if a taxpayer acquires such property 

5 before such property begins to generate sub6 stantial gross receipts, any development or pro7 duction costs incurred before the acquisition 

8 shall be treated as incurred by the taxpayer for 

9 purposes of subparagraph (A) and paragraph 

10 (1). 

11 ‘‘(f) QUALIFYING PRODUCTION PROPERTY.—For 

12 purposes of this section—

13 ‘‘(1) IN GENERAL.—Except as otherwise pro14 vided in this paragraph, the term ‘qualifying produc15 tion property’ means—

16 ‘‘(A) any tangible personal property, 

17 ‘‘(B) any computer software, and 

18 ‘‘(C) any property described in section 

19 168(f) (3) or (4), including any underlying 

20 copyright or trademark. 

21 ‘‘(2) EXCLUSIONS FROM QUALIFYING PRODUC22 TION PROPERTY.—The term ‘qualifying production 

23 property’ shall not include—
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•S 1922 IS 

1 ‘‘(A) consumable property that is sold, 

2 leased, or licensed by the taxpayer as an inte3 gral part of the provision of services, 

4 ‘‘(B) oil or gas, 

5 ‘‘(C) electricity, 

6 ‘‘(D) water supplied by pipeline to the con7 sumer,

8 ‘‘(E) utility services, or 

9 ‘‘(F) any film, tape, recording, book, mag10 azine, newspaper, or similar property the mar11 ket for which is primarily topical or otherwise 

12 essentially transitory in nature. 

13 ‘‘(g) DEFINITIONS AND SPECIAL RULES.—

14 ‘‘(1) APPLICATION OF SECTION TO PASS-THRU

15 ENTITIES.—In the case of an S corporation, partner16 ship, estate or trust, or other pass-thru entity—

17 ‘‘(A) subject to the provisions of paragraph 

18 (2) and subsection (b)(3)(A), this section shall 

19 be applied at the shareholder, partner, or simi20 lar level, and 

21 ‘‘(B) the Secretary shall prescribe rules for 

22 the application of this section, including rules 

23 relating to—
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•S 1922 IS 

1 ‘‘(i) restrictions on the allocation of 

2 the deduction to taxpayers at the partner 

3 or similar level, and 

4 ‘‘(ii) additional reporting require5 ments. 

6 ‘‘(2) EXCLUSION FOR PATRONS OF AGRICUL7 TURAL AND HORTICULTURAL COOPERATIVES.—

8 ‘‘(A) IN GENERAL.—If any amount de9 scribed in paragraph (1) or (3) of section 

10 1385(a)—

11 ‘‘(i) is received by a person from an 

12 organization to which part I of subchapter 

13 T applies which is engaged in the mar14 keting of agricultural or horticultural prod15 ucts, and 

16 ‘‘(ii) is allocable to the portion of the 

17 qualified production activities income of 

18 the organization which is deductible under 

19 subsection (a) and designated as such by 

20 the organization in a written notice mailed 

21 to its patrons during the payment period 

22 described in section 1382(d), 

23 then such person shall be allowed an exclusion 

24 from gross income with respect to such amount. 

25 The taxable income of the organization shall 
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•S 1922 IS 

1 not be reduced under section 1382 by the por2 tion of any such amount with respect to which 

3 an exclusion is allowable to a person by reason 

4 of this paragraph. 

5 ‘‘(B) SPECIAL RULES.—For purposes of 

6 applying subparagraph (A), in determining the 

7 qualified production activities income of the or8 ganization under this section—

9 ‘‘(i) there shall not be taken into ac10 count in computing the organization’s 

11 modified taxable income any deduction al12 lowable under subsection (b) or (c) of sec13 tion 1382 (relating to patronage dividends, 

14 per-unit retain allocations, and nonpatron15 age distributions), and 

16 ‘‘(ii) the organization shall be treated 

17 as having manufactured, produced, grown, 

18 or extracted in whole or significant part 

19 any qualifying production property mar20 keted by the organization which its patrons 

21 have so manufactured, produced, grown, or 

22 extracted.

23 ‘‘(3) SPECIAL RULE FOR AFFILIATED

24 GROUPS.—
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•S 1922 IS 

1 ‘‘(A) IN GENERAL.—All members of an ex2 panded affiliated group shall be treated as a 

3 single corporation for purposes of this section. 

4 ‘‘(B) EXPANDED AFFILIATED GROUP.—

5 The term ‘expanded affiliated group’ means an 

6 affiliated group as defined in section 1504(a), 

7 determined—

8 ‘‘(i) by substituting ‘50 percent’ for 

9 ‘80 percent’ each place it appears, and 

10 ‘‘(ii) without regard to paragraphs (2) 

11 and (4) of section 1504(b). 

12 ‘‘(4) COORDINATION WITH MINIMUM TAX.—The 

13 deduction under this section shall be allowed for 

14 purposes of the tax imposed by section 55; except 

15 that for purposes of section 55, alternative minimum 

16 taxable income shall be taken into account in deter17 mining the deduction under this section.

18 ‘‘(5) ORDERING RULE.—The amount of any 

19 other deduction allowable under this chapter shall be 

20 determined as if this section had not been enacted. 

21 ‘‘(6) TRADE OR BUSINESS REQUIREMENT.—

22 This section shall be applied by only taking into ac23 count items which are attributable to the actual con24 duct of a trade or business. 

25 ‘‘(7) POSSESSIONS, ETC.—
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•S 1922 IS 

1 ‘‘(A) IN GENERAL.—For purposes of sub2 sections (d) and (e), the term ‘United States’ 

3 includes the Commonwealth of Puerto Rico, 

4 Guam, American Samoa, the Commonwealth of 

5 the Northern Mariana Islands, and the Virgin 

6 Islands of the United States. 

7 ‘‘(B) SPECIAL RULES FOR APPLYING WAGE

8 LIMITATION.—For purposes of applying the 

9 limitation under subsection (b) for any taxable 

10 year—

11 ‘‘(i) the determination of W–2 wages 

12 of a taxpayer shall be made without regard 

13 to any exclusion under section 3401(a)(8) 

14 for remuneration paid for services per15 formed in a jurisdiction described in sub16 paragraph (A), and 

17 ‘‘(ii) in determining the amount of 

18 any credit allowable under section 30A or 

19 936 for the taxable year, there shall not be 

20 taken into account any wages which are 

21 taken into account in applying such limita22 tion. 

23 ‘‘(8) COORDINATION WITH TRANSITION

24 RULES.—For purposes of this section—
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•S 1922 IS 

1 ‘‘(A) domestic production gross receipts 

2 shall not include gross receipts from any trans3 action if the binding contract transition relief of 

4 section 2(c)(2) of the American Manufacturing 

5 Jobs Act of 2003 applies to such transaction, 

6 and 

7 ‘‘(B) any deduction allowed under section 

8 2(e) of such Act shall be disregarded in deter9 mining the portion of the taxable income which 

10 is attributable to domestic production gross re11 ceipts.’’. 

12 (b) MINIMUM TAX.—Section 56(g)(4)(C) (relating to 

13 disallowance of items not deductible in computing earnings 

14 and profits) is amended by adding at the end the following 

15 new clause: 

16 ‘‘(v) DEDUCTION FOR DOMESTIC PRO17 DUCTION.—Clause (i) shall not apply to 

18 any amount allowable as a deduction under 

19 section 199.’’. 

20 (c) CLERICAL AMENDMENT.—The table of sections 

21 for part VI of subchapter B of chapter 1 is amended by 

22 adding at the end the following new item:

‘‘Sec. 199. Income attributable to domestic production activities.’’.

23 (d) EFFECTIVE DATE.—
22

•S 1922 IS 

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

2 this section shall apply to taxable years ending after 

3 the date of the enactment of this Act. 

4 (2) APPLICATION OF SECTION 15.—Section 15 

5 of the Internal Revenue Code of 1986 shall apply to 

6 the amendments made by this section as if they were 

7 changes in a rate of tax.

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