II 

Calendar No. 89 

109TH CONGRESS 

1ST SESSION S. 872 

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

of income of controlled foreign corporations attributable to imported property. 

IN THE SENATE OF THE UNITED STATES 

APRIL 21, 2005 

Mr. DORGAN (for himself, Ms. MIKULSKI, and Ms. STABENOW) introduced the 

following bill; which was read the first time 

APRIL 22, 2005 

Read the second time and placed on the calendar 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

for the taxation of income of controlled foreign corporations attributable to imported property. 

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

3 SECTION 1. TAXATION OF INCOME OF CONTROLLED FOR4 EIGN CORPORATIONS ATTRIBUTABLE TO IM5 PORTED PROPERTY. 

6 (a) GENERAL RULE.—Subsection (a) of section 954 

7 of the Internal Revenue Code of 1986 (defining foreign 
2 

•S 872 PCS

1 base company income) is amended by striking ‘‘and’’ at 

2 the end of paragraph (4), by striking the period at the 

3 end of paragraph (5) and inserting ‘‘, and’’, and by adding 

4 at the end the following new paragraph: 

5 ‘‘(6) imported property income for the taxable 

6 year (determined under subsection (j) and reduced 

7 as provided in subsection (b)(5)).’’. 

8 (b) DEFINITION OF IMPORTED PROPERTY IN9 COME.—Section 954 of the Internal Revenue Code of 1986 

10 is amended by adding at the end the following new sub11 section: 

12 ‘‘(j) IMPORTED PROPERTY INCOME.— 

13 ‘‘(1) IN GENERAL.—For purposes of subsection 

14 (a)(6), the term ‘imported property income’ means 

15 income (whether in the form of profits, commissions, 

16 fees, or otherwise) derived in connection with— 

17 ‘‘(A) manufacturing, producing, growing, 

18 or extracting imported property; 

19 ‘‘(B) the sale, exchange, or other disposi20 tion of imported property; or 

21 ‘‘(C) the lease, rental, or licensing of im22 ported property. 

23 Such term shall not include any foreign oil and gas 

24 extraction income (within the meaning of section 
3 

•S 872 PCS

1 907(c)) or any foreign oil related income (within the 

2 meaning of section 907(c)). 

3 ‘‘(2) IMPORTED PROPERTY.—For purposes of 

4 this subsection— 

5 ‘‘(A) IN GENERAL.—Except as otherwise 

6 provided in this paragraph, the term ‘imported 

7 property’ means property which is imported 

8 into the United States by the controlled foreign 

9 corporation or a related person. 

10 ‘‘(B) IMPORTED PROPERTY INCLUDES CER11 TAIN PROPERTY IMPORTED BY UNRELATED

12 PERSONS.—The term ‘imported property’ in13 cludes any property imported into the United 

14 States by an unrelated person if, when such 

15 property was sold to the unrelated person by 

16 the controlled foreign corporation (or a related 

17 person), it was reasonable to expect that— 

18 ‘‘(i) such property would be imported 

19 into the United States; or 

20 ‘‘(ii) such property would be used as 

21 a component in other property which would 

22 be imported into the United States. 

23 ‘‘(C) EXCEPTION FOR PROPERTY SUBSE24 QUENTLY EXPORTED.—The term ‘imported 
4 

•S 872 PCS

1 property’ does not include any property which is 

2 imported into the United States and which— 

3 ‘‘(i) before substantial use in the 

4 United States, is sold, leased, or rented by 

5 the controlled foreign corporation or a re6 lated person for direct use, consumption, 

7 or disposition outside the United States; or 

8 ‘‘(ii) is used by the controlled foreign 

9 corporation or a related person as a com10 ponent in other property which is so sold, 

11 leased, or rented. 

12 ‘‘(3) DEFINITIONS AND SPECIAL RULES.— 

13 ‘‘(A) IMPORT.—For purposes of this sub14 section, the term ‘import’ means entering, or 

15 withdrawal from warehouse, for consumption or 

16 use. Such term includes any grant of the right 

17 to use intangible property (as defined in section 

18 936(h)(3)(B)) in the United States. 

19 ‘‘(B) UNITED STATES.—For purposes of 

20 this subsection, the term ‘United States’ in21 cludes the Commonwealth of Puerto Rico, the 

22 Virgin Islands of the United States, Guam, 

23 American Samoa, and the Commonwealth of 

24 the Northern Mariana Islands. 
5 

•S 872 PCS

1 ‘‘(C) UNRELATED PERSON.—For purposes 

2 of this subsection, the term ‘unrelated person’ 

3 means any person who is not a related person 

4 with respect to the controlled foreign corpora5 tion. 

6 ‘‘(D) COORDINATION WITH FOREIGN BASE

7 COMPANY SALES INCOME.—For purposes of this 

8 section, the term ‘foreign base company sales 

9 income’ shall not include any imported property 

10 income.’’. 

11 (c) SEPARATE APPLICATION OF LIMITATIONS ON

12 FOREIGN TAX CREDIT FOR IMPORTED PROPERTY IN13 COME.— 

14 (1) BEFORE 2007.— 

15 (A) IN GENERAL.—Paragraph (1) of sec16 tion 904(d) of the Internal Revenue Code of 

17 1986 (relating to separate application of section 

18 with respect to certain categories of income), as 

19 in effect for taxable years beginning before Jan20 uary 1, 2007, is amended by striking ‘‘and’’ at 

21 the end of subparagraph (H), by redesignating 

22 subparagraph (I) as subparagraph (J), and by 

23 inserting after subparagraph (H) the following 

24 new subparagraph: 

25 ‘‘(I) imported property income, and’’. 
6 

•S 872 PCS

1 (B) IMPORTED PROPERTY INCOME DE2 FINED.—Paragraph (2) of section 904(d) of 

3 such Code, as so in effect, is amended by redes4 ignating subparagraphs (H) and (I) as subpara5 graphs (I) and (J), respectively, and by insert6 ing after subparagraph (G) the following new 

7 subparagraph: 

8 ‘‘(H) IMPORTED PROPERTY INCOME.—The 

9 term ‘imported property income’ means any in10 come received or accrued by any person which 

11 is of a kind which would be imported property 

12 income (as defined in section 954(j)).’’. 

13 (C) LOOK-THRU RULES TO APPLY.—Sub14 paragraph (F) of section 904(d)(3) of such 

15 Code, as so in effect, is amended by striking 

16 ‘‘or (D)’’ and inserting ‘‘(D), or (I)’’. 

17 (2) AFTER 2006.— 

18 (A) IN GENERAL.—Paragraph (1) of sec19 tion 904(d) of such Code (relating to separate 

20 application of section with respect to certain 

21 categories of income), as in effect for taxable 

22 years beginning after December 31, 2006, is 

23 amended by striking ‘‘and’’ at the end of sub24 paragraph (A), by redesignating subparagraph 

25 (B) as subparagraph (C), and by inserting after 
7 

•S 872 PCS

1 subparagraph (A) the following new subpara2 graph: 

3 ‘‘(B) imported property income, and’’. 

4 (B) IMPORTED PROPERTY INCOME DE5 FINED.—Paragraph (2) of section 904(d) of 

6 such Code, as so in effect, is amended by redes7 ignating subparagraphs (I) and (J) as subpara8 graphs (J) and (K), respectively, and by insert9 ing after subparagraph (H) the following new 

10 subparagraph: 

11 ‘‘(I) IMPORTED PROPERTY INCOME.—The 

12 term ‘imported property income’ means any in13 come received or accrued by any person which 

14 is of a kind which would be imported property 

15 income (as defined in section 954(j)).’’. 

16 (C) CONFORMING AMENDMENT.—Clause 

17 (ii) of section 904(d)(2)(A) of such Code, as so 

18 in effect, is amended by inserting ‘‘or imported 

19 property income’’ after ‘‘passive category in20 come’’. 

21 (d) TECHNICAL AMENDMENTS.— 

22 (1) Clause (iii) of section 952(c)(1)(B) of the 

23 Internal Revenue Code of 1986 (relating to certain 

24 prior year deficits may be taken into account) is 

25 amended— 
8 

•S 872 PCS

1 (A) by redesignating subclauses (II), (III), 

2 (IV), and (V) as subclauses (III), (IV), (V), and 

3 (VI), and 

4 (B) by inserting after subclause (I) the fol5 lowing new subclause: 

6 ‘‘(II) imported property in7 come,’’. 

8 (2) Paragraph (5) of section 954(b) of such 

9 Code (relating to deductions to be taken into ac10 count) is amended by striking ‘‘and the foreign base 

11 company oil related income’’ and inserting ‘‘the for12 eign base company oil related income, and the im13 ported property income’’. 

14 (e) EFFECTIVE DATES.— 

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

17 shall apply to taxable years of foreign corporations 

18 beginning after the date of the enactment of this 

19 Act, and to taxable years of United States share20 holders within which or with which such taxable 

21 years of such foreign corporations end. 

22 (2) SUBSECTION (c).—The amendments made 

23 by subsection (c)(1) shall apply to taxable years be24 ginning after the date of the enactment of this Act 

25 and before January 1, 2007, and the amendments 
9 

•S 872 PCS

1 made by subsection (c)(2) shall apply to taxable 

2 years beginning after December 31, 2006. 
Calendar No. 89 

109TH CONGRESS 

1ST SESSION S. 872 

A BILL 

To amend the Internal Revenue Code of 1986 to 

property. foreign corporations attributable to imported provide for the taxation of income of controlled 

APRIL 22, 2005 

Read the second time and placed on the calendar