‘‘(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 rea-
son 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 para-
graph (1) shall apply as if the disposition in-
volved stock which was not regularly traded.
‘‘(C) NOTIFICATION
BY
FOREIGN
PER-
SON.—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 disposi-
tion.
‘‘(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 rea-
son 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 pur-
poses of this section—
‘‘(1) WITHHOLDING AGENT.—The term ‘with-
holding agent’ means—
‘‘(A) the last United States person to have
the control, receipt, custody, disposal, or pay-
ment of the amount realized on the disposition,
or
‘‘(B) if there is no such United States per-
son, the person prescribed in regulations.
‘‘(2) FOREIGN PERSON.—The term ‘foreign per-
son’ 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 jeopard-
ize 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 coordinat-
ing the provisions of this section with the provisions of
sections 1445 and 1446.’’
(c) EXCEPTION FROM BRANCH PROFITS TAX.—Sub-
paragraph (C) of section 884(d)(2) of such Code is amend-
ed 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 DIS-
TRIBUTIONS.—Paragraph (2) of section 6038B(a) of such
Code (relating to notice of certain transfers to foreign per-