II 

114TH CONGRESS 

1ST SESSION S. 397 

To amend the Internal Revenue Code of 1986 to allow a temporary dividends 

received deduction for dividends received from a controlled foreign corporation. 

IN THE SENATE OF THE UNITED STATES 

FEBRUARY 5, 2015 

Mr. MCCAIN 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 allow a 

temporary dividends received deduction for dividends received from a controlled foreign corporation. 

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. 

4 This Act may be cited as the ‘‘Foreign Earnings Re5 investment Act’’. 

6 SEC. 2. ALLOWANCE OF TEMPORARY DIVIDENDS RECEIVED 

7 DEDUCTION FOR DIVIDENDS RECEIVED 

8 FROM A CONTROLLED FOREIGN CORPORA9 TION. 

10 (a) APPLICABILITY OF PROVISION.— 


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1 (1) IN GENERAL.—Subsection (f) of section 965 

2 of the Internal Revenue Code of 1986 is amended to 

3 read as follows: 

4 ‘‘(f) ELECTION; ELECTION YEAR.— 

5 ‘‘(1) IN GENERAL.—The taxpayer may elect to 

6 apply this section to— 

7 ‘‘(A) the taxpayer’s last taxable year which 

8 begins before the date of the enactment of the 

9 Foreign Earnings Reinvestment Act, or 

10 ‘‘(B) the taxpayer’s first taxable year 

11 which begins during the 1-year period beginning 

12 on such date. 

13 Such election may be made for a taxable year only 

14 if made on or before the due date (including exten15 sions) for filing the return of tax for such taxable 

16 year. 

17 ‘‘(C) ELECTION YEAR.—For purposes of 

18 this section, the term ‘election year’ means the 

19 taxable year— 

20 ‘‘(i) which begins after the date that 

21 is one year before the date of the enact22 ment of the Foreign Earnings Reinvest23 ment Act, and 


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1 ‘‘(ii) to which the taxpayer elects 

2 under paragraph (1) to apply this sec3 tion.’’. 

4 (2) CONFORMING AMENDMENTS.— 

5 (A) EXTRAORDINARY DIVIDENDS.—Section 

6 965(b)(2) of such Code is amended— 

7 (i) by striking ‘‘June 30, 2003’’ and 

8 inserting ‘‘December 31, 2014’’, and 

9 (ii) by adding at the end the following 

10 new sentence: ‘‘The amounts described in 

11 clauses (i), (ii), and (iii) shall not include 

12 any amounts which were taken into ac13 count in determining the deduction under 

14 subsection (a) for any prior taxable year.’’. 

15 (B) DETERMINATIONS RELATING TO RE16 LATED PARTY INDEBTEDNESS.—Section 

17 965(b)(3)(B) of such Code is amended by strik18 ing ‘‘October 3, 2004’’ and inserting ‘‘Decem19 ber 31, 2014’’. 

20 (C) DETERMINATIONS RELATING TO BASE

21 PERIOD.—Section 965(c)(2) of such Code is 

22 amended by striking ‘‘June 30, 2003’’ and in23 serting ‘‘December 31, 2014’’. 

24 (b) DEDUCTION INCLUDES CURRENT AND ACCUMU25 LATED FOREIGN EARNINGS.— 


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1 (1) IN GENERAL.—Paragraph (1) of section 

2 965(b) of the Internal Revenue Code of 1986 is 

3 amended to read as follows: 

4 ‘‘(1) IN GENERAL.—The amount of dividends 

5 taken into account under subsection (a) shall not ex6 ceed the sum of the current and accumulated earn7 ings and profits described in section 959(c)(3) for 

8 the year a deduction is claimed under subsection (a), 

9 without diminution by reason of any distributions 

10 made during the election year, for all controlled for11 eign corporations of the United States shareholder.’’. 

12 (2) CONFORMING AMENDMENTS.— 

13 (A) Section 965(c) of such Code, as 

14 amended by subsection (a), is amended by 

15 striking paragraph (1) and by redesignating 

16 paragraphs (2), (3), (4), and (5), as paragraphs 

17 (1), (2), (3), and (4), respectively. 

18 (B) Paragraph (4) of section 965(c) of 

19 such Code, as redesignated by subparagraph 

20 (A), is amended to read as follows: 

21 ‘‘(4) CONTROLLED GROUPS.—All United States 

22 shareholders which are members of an affiliated 

23 group filing a consolidated return under section 

24 1501 shall be treated as one United States share25 holder.’’. 


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1 (c) AMOUNT OF DEDUCTION.— 

2 (1) IN GENERAL.—Paragraph (1) of section 

3 965(a) of the Internal Revenue Code of 1986 is 

4 amended by striking ‘‘85 percent’’ and inserting ‘‘75 

5 percent’’. 

6 (2) BONUS DEDUCTION IN SUBSEQUENT TAX7 ABLE YEAR FOR INCREASING JOBS.—Section 965 of 

8 the Internal Revenue Code of 1986 is amended by 

9 adding at the end the following new subsection: 

10 ‘‘(g) BONUS DEDUCTION.— 

11 ‘‘(1) IN GENERAL.—In the case of any taxpayer 

12 who makes an election to apply this section, there 

13 shall be allowed as a deduction for the first taxable 

14 year following the election year an amount equal to 

15 the applicable percentage of the cash dividends 

16 which are taken into account under subsection (a) 

17 with respect to such taxpayer for the election year. 

18 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes 

19 of paragraph (1), the applicable percentage is the 

20 amount which bears the same ratio (not greater 

21 than 1) to 10 percent as— 

22 ‘‘(A) the excess (if any) of— 

23 ‘‘(i) the qualified payroll of the tax24 payer for the calendar year which begins 


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1 with or within the first taxable year fol2 lowing the election year, over 

3 ‘‘(ii) the qualified payroll of the tax4 payer for calendar year 2014, bears to 

5 ‘‘(B) 10 percent of the qualified payroll of 

6 the taxpayer for calendar year 2014. 

7 ‘‘(3) QUALIFIED PAYROLL.—For purposes of 

8 this paragraph: 

9 ‘‘(A) IN GENERAL.—The term ‘qualified 

10 payroll’ means, with respect to a taxpayer for 

11 any calendar year, the aggregate wages (as de12 fined in section 3121(a)) paid by the corpora13 tion during such calendar year. 

14 ‘‘(B) EXCEPTION FOR CHANGES IN OWN15 ERSHIP OF TRADES OR BUSINESSES.— 

16 ‘‘(i) ACQUISITIONS.—If, after Decem17 ber 31, 2013, and before the close of the 

18 first taxable year following the election 

19 year, a taxpayer acquires the trade or busi20 ness of a predecessor, then the qualified 

21 payroll of such taxpayer for any calendar 

22 year shall be increased by so much of the 

23 qualified payroll of the predecessor for 

24 such calendar year as was attributable to 


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1 the trade or business acquired by the tax2 payer. 

3 ‘‘(ii) DISPOSITIONS.—If, after Decem4 ber 31, 2013, and before the close of the 

5 first taxable year following the election 

6 year, a taxpayer disposes of a trade or 

7 business, then— 

8 ‘‘(I) the qualified payroll of such 

9 taxpayer for calendar year 2014 shall 

10 be decreased by the amount of wages 

11 for such calendar year as were attrib12 utable to the trade or business which 

13 was disposed of by the taxpayer, and 

14 ‘‘(II) if the disposition occurs 

15 after the beginning of the first taxable 

16 year following the election year, the 

17 qualified payroll of such taxpayer for 

18 the calendar year which begins with 

19 or within such taxable year shall be 

20 decreased by the amount of wages for 

21 such calendar year as were attrib22 utable to the trade or business which 

23 was disposed of by the taxpayer. 

24 ‘‘(C) SPECIAL RULE.—For purposes of de25 termining qualified payroll for any calendar 


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1 year after calendar year 2015, such term shall 

2 not include wages paid to any individual if such 

3 individual received compensation from the tax4 payer for services performed— 

5 ‘‘(i) after the date of the enactment of 

6 this paragraph, and 

7 ‘‘(ii) at a time when such individual 

8 was not an employee of the taxpayer.’’. 

9 (3) REDUCTION FOR FAILURE TO MAINTAIN

10 EMPLOYMENT LEVELS.—Paragraph (4) of section 

11 965(b) of such Code is amended to read as follows: 

12 ‘‘(4) REDUCTION IN BENEFITS FOR FAILURE

13 TO MAINTAIN EMPLOYMENT LEVELS.— 

14 ‘‘(A) IN GENERAL.—If, during the period 

15 consisting of the calendar month in which the 

16 taxpayer first receives a distribution described 

17 in subsection (a)(1) and the succeeding 23 cal18 endar months, the taxpayer does not maintain 

19 an average employment level at least equal to 

20 the taxpayer’s prior average employment, an 

21 additional amount equal to $75,000 multiplied 

22 by the number of employees by which the tax23 payer’s average employment level during such 

24 period falls below the prior average employment 

25 (but not exceeding the aggregate amount alVerDate Sep 11 2014 00:42 Feb 14, 2015 Jkt 049200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S397.IS S397

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1 lowed as a deduction pursuant to subsection 

2 (a)(1)) shall be taken into income by the tax3 payer during the taxable year that includes the 

4 final day of such period. 

5 ‘‘(B) AVERAGE EMPLOYMENT LEVEL.— 

6 For purposes of this paragraph, the taxpayer’s 

7 average employment level for a period shall be 

8 the average number of full-time United States 

9 employees of the taxpayer, measured at the end 

10 of each month during the period. 

11 ‘‘(C) PRIOR AVERAGE EMPLOYMENT.—For 

12 purposes of this paragraph, the taxpayer’s 

13 ‘prior average employment’ shall be the average 

14 number of full-time United States employees of 

15 the taxpayer during the period consisting of the 

16 24 calendar months immediately preceding the 

17 calendar month in which the taxpayer first re18 ceives a distribution described in subsection 

19 (a)(1). 

20 ‘‘(D) FULL-TIME UNITED STATES EM21 PLOYEE.—For purposes of this paragraph— 

22 ‘‘(i) IN GENERAL.—The term ‘full23 time United States employee’ means an in24 dividual who provides services in the 

25 United States as a full-time employee, 


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1 based on the employer’s standards and 

2 practices; except that regardless of the em3 ployer’s classification of the employee, an 

4 employee whose normal schedule is 40 

5 hours or more per week is considered a 

6 full-time employee. 

7 ‘‘(ii) EXCEPTION FOR CHANGES IN

8 OWNERSHIP OF TRADES OR BUSINESSES.— 

9 Such term does not include— 

10 ‘‘(I) any individual who was an 

11 employee, on the date of acquisition, 

12 of any trade or business acquired by 

13 the taxpayer during the 24-month pe14 riod referred to in subparagraph (A), 

15 and 

16 ‘‘(II) any individual who was an 

17 employee of any trade or business dis18 posed of by the taxpayer during the 

19 24-month period referred to in sub20 paragraph (A) or the 24-month period 

21 referred to in subparagraph (C). 

22 ‘‘(E) AGGREGATION RULES.—In deter23 mining the taxpayer’s average employment level 

24 and prior average employment, all domestic 


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1 members of a controlled group shall be treated 

2 as a single taxpayer.’’. 

3 (d) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to taxable years ending after the 

5 date of the enactment of this Act. 

Æ 


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