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vending machine. If the Secretary provides such a
benefit with respect to any person, the Secretary may
reduce the $500 amount in paragraph (3) with re-
spect to such person.
(3) CREDIT AGAINST TAX.—Each person shall be
allowed as a credit against the taxes imposed by
paragraph (1) an amount equal to $500. Such credit
shall not exceed the amount of taxes imposed by para-
graph (1) on October 1, 1997, for which such person
is liable.
(4) LIABILITY FOR TAX AND METHOD OF PAY-
MENT.—
(A) LIABILITY FOR TAX.—A person holding
cigarettes on October 1, 1997, to which any tax
imposed by paragraph (1) applies shall be liable
for such tax.
(B) METHOD OF PAYMENT.—The tax im-
posed by paragraph (1) shall be paid in such
manner as the Secretary shall prescribe by regu-
lations.
(C) TIME FOR PAYMENT.—The tax imposed
by paragraph (1) shall be paid on or before Jan-
uary 2, 1998.
(5) ARTICLES IN FOREIGN TRADE ZONES.—Not-
withstanding the Act of June 18, 1934 (48 Stat. 998,
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19 U.S.C. 81a) and any other provision of law, any
article which is located in a foreign trade zone on Oc-
tober 1, 1997, shall be subject to the tax imposed by
paragraph (1) if—
(A) internal revenue taxes have been deter-
mined, or customs duties liquidated, with respect
to such article before such date pursuant to a re-
quest made under the 1st proviso of section 3(a)
of such Act, or
(B) such article is held on such date under
the supervision of a customs officer pursuant to
the 2d proviso of such section 3(a).
(6) DEFINITIONS.—For purposes of this sub-
section—
(A) IN GENERAL.—Terms used in this sub-
section which are also used in section 5702 of the
Internal Revenue Code of 1986 shall have the re-
spective meanings such terms have in such sec-
tion, as amended by this Act.
(B) SECRETARY.—The term ‘‘Secretary’’
means the Secretary of the Treasury or the Sec-
retary’s delegate.
(7) CONTROLLED GROUPS.—Rules similar to the
rules of section 5061(e)(3) of such Code shall apply
for purposes of this subsection.
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(8) OTHER LAWS APPLICABLE.—All provisions of
law, including penalties, applicable with respect to
the taxes imposed by section 5701 of such Code shall,
insofar as applicable and not inconsistent with the
provisions of this subsection, apply to the floor stocks
taxes imposed by paragraph (1), to the same extent
as if such taxes were imposed by such section 5701.
The Secretary may treat any person who bore the ul-
timate burden of the tax imposed by paragraph (1)
as the person to whom a credit or refund under such
provisions may be allowed or made.
Subtitle F—Provisions Relating to
Tax-Exempt Entities
SEC. 851. EXPANSION OF LOOK-THRU RULE FOR INTEREST,
ANNUITIES, ROYALTIES, AND RENTS DERIVED
BY SUBSIDIARIES OF TAX-EXEMPT ORGANIZA-
TIONS.
(a) IN GENERAL.—Paragraph (13) of section 512(b)
is amended to read as follows:
‘‘(13) SPECIAL RULES FOR CERTAIN AMOUNTS
RECEIVED FROM CONTROLLED ENTITIES.—
‘‘(A) IN GENERAL.—If an organization (in
this paragraph referred to as the ‘controlling or-
ganization’) receives (directly or indirectly) a
specified payment from another entity which it
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controls (in this paragraph referred to as the
‘controlled entity’), notwithstanding paragraphs
(1), (2), and (3), the controlling organization
shall include such payment as an item of gross
income derived from an unrelated trade or busi-
ness to the extent such payment reduces the net
unrelated income of the controlled entity (or in-
creases any net unrelated loss of the controlled
entity). There shall be allowed all deductions of
the controlling organization directly connected
with amounts treated as derived from an unre-
lated trade or business under the preceding sen-
tence.
‘‘(B) NET UNRELATED INCOME OR LOSS.—
For purposes of this paragraph—
‘‘(i) NET
UNRELATED
INCOME.—The
term ‘net unrelated income’ means—
‘‘(I) in the case of a controlled en-
tity which is not exempt from tax
under section 501(a), the portion of
such entity’s taxable income which
would be unrelated business taxable in-
come if such entity were exempt from
tax under section 501(a) and had the
same exempt purposes (as defined in
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section 513A(a)(5)(A)) as the control-
ling organization, or
‘‘(II) in the case of a controlled
entity which is exempt from tax under
section 501(a), the amount of the unre-
lated business taxable income of the
controlled entity.
‘‘(ii) NET
UNRELATED
LOSS.—The
term ‘net unrelated loss’ means the net oper-
ating loss adjusted under rules similar to
the rules of clause (i).
‘‘(C) SPECIFIED PAYMENT.—For purposes of
this paragraph, the term ‘specified payment’
means any interest, annuity, royalty, or rent.
‘‘(D) DEFINITION OF CONTROL.—For pur-
poses of this paragraph—
‘‘(i) CONTROL.—The term ‘control’
means—
‘‘(I) in the case of a corporation,
ownership (by vote or value) of more
than 50 percent of the stock in such
corporation,
‘‘(II) in the case of a partnership,
ownership of more than 50 percent of
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the profits interests or capital interests
in such partnership, or
‘‘(III) in any other case, owner-
ship of more than 50 percent of the
beneficial interests in the entity.
‘‘(ii) 
CONSTRUCTIVE
OWNERSHIP.—
Section 318 (relating to constructive owner-
ship of stock) shall apply for purposes of de-
termining ownership of stock in a corpora-
tion. Similar principles shall apply for
purposes of determining ownership of inter-
ests in any other entity.
‘‘(E) RELATED
PERSONS.—The Secretary
shall prescribe such rules as may be necessary or
appropriate to prevent avoidance of the purposes
of this paragraph through the use of related per-
sons.’’.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to taxable years beginning after the date of the
enactment of this Act.
(2) CONTROL TEST.—In the case of taxable years
beginning before January 1, 1999, an organization
shall be treated as controlling another organization
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for purposes of section 512(b)(13) of the Internal Rev-
enue Code of 1986 (as amended by this section) only
if it controls such organization within the meaning of
such section, determined by substituting ‘‘80 percent’’
for ‘‘50 percent’’ each place it appears in subpara-
graph (D) thereof.
SEC. 852. LIMITATION ON INCREASE IN BASIS OF PROP-
ERTY RESULTING FROM SALE BY TAX-EXEMPT
ENTITY TO A RELATED PERSON.
(a) IN GENERAL.—Part IV of subchapter O of chapter
1 (relating to special rules for gain or loss on disposition
of property) is amended by redesignating section 1061 as
section 1062 and by inserting after section 1060 the follow-
ing new section:
‘‘SEC. 1061. BASIS LIMITATION FOR SALE OR EXCHANGE OF
PROPERTY BY TAX-EXEMPT ENTITY TO RE-
LATED PERSON.
‘‘(a) GENERAL RULE.—In the case of a sale or ex-
change of property directly or indirectly between a tax-ex-
empt entity and a related person, the basis of the related
person in the property acquired shall not exceed the ad-
justed basis of such property (immediately before the ex-
change) in the hands of the tax-exempt entity, increased by
the amount of gain recognized to the tax-exempt entity on
the transfer which is subject to tax under section 511.
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‘‘(b) DEFINITIONS.—For purposes of this section—
‘‘(1) TAX-EXEMPT
ENTITY.—The term ‘tax-ex-
empt entity’ has the meaning given such term by sec-
tion 168(h)(2) determined without regard to subpara-
graph (A)(iii) thereof.
‘‘(2) RELATED PERSON.—The term ‘related per-
son’ means any person bearing a relationship to the
tax-exempt entity which is described in section 267(b)
or 707(b)(1). For purposes of applying section
267(b)(2) under the preceding sentence, such an entity
shall be treated as if it were an individual.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
part IV of subchapter O of chapter 1 is amended by striking
the last item and inserting the following:
‘‘Sec. 1061. Basis limitation for sale or exchange of property by
tax-exempt entity to related person.
‘‘Sec. 1062. Cross references.’’.
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to sales and exchanges after
June 8, 1997.
(2) BINDING
CONTRACTS.—The amendments
made by this section shall not apply to any sale or
exchange pursuant to a written contract which was
binding on June 8, 1997, and at all times thereafter
before the sale or exchange.
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SEC. 853. TERMINATION OF EXCEPTION FROM RULES RE-
LATING TO EXEMPT ORGANIZATIONS WHICH
PROVIDE COMMERCIAL-TYPE INSURANCE.
(a) IN
GENERAL.—Subparagraph (A) of section
1012(c)(4) of the Tax Reform Act of 1986 shall not apply
to any taxable year beginning after December 31, 1997.
(b) SPECIAL RULES.—In the case of an organization
to which section 501(m) of the Internal Revenue Code of
1986 applies solely by reason of the amendment made by
subsection (a)—
(1) no adjustment shall be made under section
481 (or any other provision) of such Code on account
of a change in its method of accounting for its first
taxable year beginning after December 31, 1997, and
(2) for purposes of determining gain or loss, the
adjusted basis of any asset held on the 1st day of such
taxable year shall be treated as equal to its fair mar-
ket value as of such day.
(c) RESERVE WEAKENING AFTER JUNE 8, 1997.—Any
reserve weakening after June 8, 1997, by an organization
described in subsection (b) shall be treated as occurring in
such organizations 1st taxable year beginning after Decem-
ber 31, 1997.
(d) REGULATIONS.—The Secretary of the Treasury or
his delegate may prescribe rules for providing proper ad-
justments for organizations described in subsection (b) with
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(2) CONFORMING
AMENDMENT.—Subparagraph
(B) of section 954(c)(1) is amended—
(A) by striking the second sentence, and
(B) by striking ‘‘also’’ in the last sentence.
(b) EXCEPTION FOR DEALERS.—Paragraph (2) of sec-
tion 954(c) is amended by adding at the end the following
new subparagraph:
‘‘(C) EXCEPTION FOR DEALERS.—Except as
provided in subparagraph (A), (E), or (G) of
paragraph (1) or by regulations, in the case of
a regular dealer in property (within the mean-
ing of paragraph (1)(B)), forward contracts, op-
tion contracts, or similar financial instruments
(including notional principal contracts and all
instruments referenced to commodities), there
shall not be taken into account in computing for-
eign personal holding income any item of in-
come, gain, deduction, or loss from any trans-
action (including hedging transactions) entered
into in the ordinary course of such dealer’s trade
or business as such a dealer.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
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(2) 
BINDING
CONTRACTS.—The 
amendment
made by this section shall not apply to any transfer
pursuant to a written binding contract in effect on
June 8, 1997, and at all times thereafter before the
disposition of property. A contract shall not fail to
meet the requirements of the preceding sentence solely
because—
(A) it provides for a sale in lieu of an ex-
change, or
(B) the property to be acquired as replace-
ment property was not identified under such
contract before June 9, 1997.
SEC. 863. HOLDING PERIOD REQUIREMENT FOR CERTAIN
FOREIGN TAXES.
(a) IN GENERAL.—Section 901 is amended by redesig-
nating subsection (k) as subsection (l) and by inserting
after subsection (j) the following new subsection:
‘‘(k) MINIMUM
HOLDING
PERIOD
FOR
CERTAIN
TAXES.—
‘‘(1) WITHHOLDING TAXES.—
‘‘(A) IN
GENERAL.—In no event shall a
credit be allowed under subsection (a) for any
withholding tax on a dividend with respect to
stock in a corporation if—
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‘‘(i) such stock is held by the recipient
of the dividend for 15 days or less during
the 30-day period beginning on the date
which is 15 days before the date on which
such share becomes ex-dividend with respect
to such dividend, or
‘‘(ii) to the extent that the recipient of
the dividend is under an obligation (wheth-
er pursuant to a short sale or otherwise) to
make related payments with respect to posi-
tions in substantially similar or related
property.
‘‘(B) WITHHOLDING TAX.—For purposes of
this paragraph, the term ‘withholding tax’ in-
cludes any tax determined on a gross basis; but
does not include any tax which is in the nature
of a prepayment of a tax imposed on a net basis.
‘‘(2) DEEMED PAID TAXES.—In the case of in-
come, war profits, or excess profits taxes deemed paid
under section 853, 902, or 960 through a chain of
ownership of stock in 1 or more corporations, no cred-
it shall be allowed under subsection (a) for such taxes
if—
‘‘(A) any stock of any corporation in such
chain (the ownership of which is required to ob-
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tain credit under subsection (a) for such taxes)
is held for less than the period described in para-
graph (1)(A)(i), or
‘‘(B) the corporation holding the stock is
under an obligation referred to in paragraph
(1)(A)(ii).
‘‘(3) 45-DAY RULE IN THE CASE OF CERTAIN
PREFERENCE DIVIDENDS.—In the case of stock having
preference in dividends and dividends with respect to
such stock which are attributable to a period or peri-
ods aggregating in excess of 366 days, paragraph
(1)(A)(i) shall be applied—
‘‘(A) by substituting ‘45 days’ for ‘15 days’
each place it appears, and
‘‘(B) by substituting ‘90-day period’ for ‘30-
day period’.
‘‘(4) EXCEPTION FOR CERTAIN TAXES PAID BY
SECURITIES DEALERS.—
‘‘(A) IN GENERAL.—Paragraphs (1) and (2)
shall not apply to any qualified tax with respect
to any security held in the active conduct in a
foreign country of a securities business of any
person—
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‘‘(i) who is registered as a securities
broker or dealer under section 15(a) of the
Securities Exchange Act of 1934,
‘‘(ii) who is registered as a Govern-
ment securities broker or dealer under sec-
tion 15C(a) of such Act, or
‘‘(iii) who is licensed or authorized in
such foreign country to conduct securities
activities in such country and is subject to
bona fide regulation by a securities regulat-
ing authority of such country.
‘‘(B) QUALIFIED TAX.—For purposes of sub-
paragraph (A), the term ‘qualified tax’ means a
tax paid to a foreign country (other than the for-
eign country referred to in subparagraph (A))
if—
‘‘(i) the dividend to which such tax is
attributable is subject to taxation on a net
basis by the country referred to in subpara-
graph (A), and
‘‘(ii) such country allows a credit
against its net basis tax for the full amount
of the tax paid to such other foreign coun-
try.
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‘‘(C) REGULATIONS.—The Secretary may
prescribe such regulations as may be appropriate
to prevent the abuse of the exception provided by
this paragraph.
‘‘(5) CERTAIN RULES TO APPLY.—For purposes
of this subsection, the rules of paragraphs (3) and (4)
of section 246(c) shall apply.
‘‘(6) TREATMENT OF BONA FIDE SALES.—If a
person’s holding period is reduced by reason of the
application of the rules of section 246(c)(4) to any
contract for the bona fide sale of stock, the determina-
tion of whether such person’s holding period meets the
requirements of paragraph (2) with respect to taxes
deemed paid under section 902 or 960 shall be made
as of the date such contract is entered into.
‘‘(7) TAXES
ALLOWED
AS
DEDUCTION, ETC.—
Sections 275 and 78 shall not apply to any tax which
is not allowable as a credit under subsection (a) by
reason of this subsection.’’.
(b) NOTICE OF WITHHOLDING TAXES PAID BY REGU-
LATED INVESTMENT COMPANY.—Subsection (c) of section
853 (relating to foreign tax credit allowed to shareholders)
is amended by adding at the end the following new sentence:
‘‘Such notice shall also include the amount of such taxes
which (without regard to the election under this section)
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would not be allowable as a credit under section 901(a) to
the regulated investment company by reason of section
901(k).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to dividends paid or accrued more than
30 days after the date of the enactment of this Act.
SEC. 864. SOURCE RULES FOR INVENTORY PROPERTY.
(a) IN GENERAL.—Section 865(b) is amended by add-
ing at the end the following new paragraph:
‘‘(2) CERTAIN
SALES
FOR
USE
IN
UNITED
STATES.—If—
‘‘(A) a United States resident sells (directly
or indirectly) inventory property to another
United States resident for use, consumption, or
disposition in the United States, and
‘‘(B) such sale is not attributable to an of-
fice or other fixed place of business maintained
by the seller outside the United States,
any income of such United States resident (or any re-
lated person) from such sale shall be sourced in the
United States.’’.
(b) CONFORMING AMENDMENTS.—Section 865(b) is
amended—
(1) by striking ‘‘In the case of’’ and inserting:
‘‘(1) IN GENERAL.—In the case of’’, and
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(2) by redesignating paragraphs (1) and (2) as
subparagraphs (A) and (B), respectively.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
SEC. 865. INTEREST ON UNDERPAYMENTS NOT REDUCED
BY FOREIGN TAX CREDIT CARRYBACKS.
(a) IN GENERAL.—Subsection (d) of section 6601 is
amended by redesignating paragraphs (2) and (3) as para-
graphs (3) and (4), respectively, and by inserting after
paragraph (1) the following new paragraph:
‘‘(2) FOREIGN TAX CREDIT CARRYBACKS.—If any
credit allowed for any taxable year is increased by
reason of a carryback of tax paid or accrued to for-
eign countries or possessions of the United States,
such increase shall not affect the computation of in-
terest under this section for the period ending with
the filing date for the taxable year in which such
taxes were in fact paid or accrued, or, with respect
to any portion of such credit carryback from a tax-
able year attributable to a net operating loss
carryback or a capital loss carryback from a subse-
quent taxable year, such increase shall not affect the
computation of interest under this section for the pe-
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riod ending with the filing date for such subsequent
taxable year.’’.
(b) CONFORMING AMENDMENT TO REFUNDS ATTRIB-
UTABLE TO FOREIGN TAX CREDIT CARRYBACKS.—
(1) IN GENERAL.—Subsection (f) of section 6611
is amended by redesignating paragraphs (2) and (3)
as paragraphs (3) and (4), respectively, and by in-
serting after paragraph (1) the following new para-
graph:
‘‘(2) FOREIGN TAX CREDIT CARRYBACKS.—For
purposes of subsection (a), if any overpayment of tax
imposed by subtitle A results from a carryback of tax
paid or accrued to foreign countries or possessions of
the United States, such overpayment shall be deemed
not to have been made before the filing date for the
taxable year in which such taxes were in fact paid or
accrued, or, with respect to any portion of such credit
carryback from a taxable year attributable to a net
operating loss carryback or a capital loss carryback
from a subsequent taxable year, such overpayment
shall be deemed not to have been made before the fil-
ing date for such subsequent taxable year.’’.
(2) CONFORMING AMENDMENTS.—
(A) Paragraph (4) of section 6611(f) (as so
redesignated) is amended—
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(i) by striking ‘‘PARAGRAPHS (1) AND
(2)’’ and inserting ‘‘PARAGRAPHS
(1), (2),
AND (3)’’, and
(ii) by striking ‘‘paragraph (1) or (2)’’
each place it appears and inserting ‘‘para-
graph (1), (2), or (3)’’.
(B) Clause (ii) of section 6611(f)(4)(B) (as
so redesignated) is amended by striking ‘‘and’’ at
the end of subclause (I), by redesignating sub-
clause (II) as subclause (III), and by inserting
after subclause (I) the following new subclause:
‘‘(II) in the case of a carryback of
taxes paid or accrued to foreign coun-
tries or possessions of the United
States, the taxable year in which such
taxes were in fact paid or accrued (or,
with respect to any portion of such
carryback from a taxable year attrib-
utable 
to 
a 
net 
operating 
loss
carryback or a capital loss carryback
from a subsequent taxable year, such
subsequent taxable year), and’’.
(C) 
Subclause 
(III) 
of 
section
6611(f)(4)(B)(ii) (as so redesignated) is amended
by inserting ‘‘(as defined in paragraph (3)(B))’’
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after ‘‘credit carryback’’ the first place it ap-
pears.
(D) Section 6611 is amended by striking
subsection (g) and by redesignating subsections
(h) and (i) as subsections (g) and (h), respec-
tively.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to carrybacks arising in taxable years
beginning after the date of the enactment of this Act.
SEC. 866. CLARIFICATION OF PERIOD OF LIMITATIONS ON
CLAIM FOR CREDIT OR REFUND ATTRIB-
UTABLE 
TO 
FOREIGN 
TAX 
CREDIT
CARRYFORWARD.
(a) IN
GENERAL.—Subparagraph (A) of section
6511(d)(3) is amended by striking ‘‘for the year with re-
spect to which the claim is made’’ and inserting ‘‘for the
year in which such taxes were actually paid or accrued’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxes paid or accrued in taxable
years beginning after the date of the enactment of this Act.
SEC. 
867. 
MODIFICATION 
TO 
FOREIGN 
TAX 
CREDIT
CARRYBACK AND CARRYOVER PERIODS.
(a) IN GENERAL.—Subsection (c) of section 904 (relat-
ing to limitation on credit) is amended—
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(1) by striking ‘‘in the second preceding taxable
year,’’, and
(2) by striking ‘‘or fifth’’ and inserting ‘‘fifth,
sixth, or seventh’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to credits arising in taxable years
beginning after December 31, 1997.
SEC. 868. REPEAL OF EXCEPTION TO ALTERNATIVE MINI-
MUM FOREIGN TAX CREDIT LIMIT.
(a) IN GENERAL.—Section 59(a)(2) (relating to limi-
tation to 90 percent of tax) is amended by striking subpara-
graph (C).
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
Subtitle H—Other Revenue
Provisions
SEC. 871. TERMINATION OF SUSPENSE ACCOUNTS FOR
FAMILY CORPORATIONS REQUIRED TO USE
ACCRUAL METHOD OF ACCOUNTING.
(a) IN GENERAL.—Subsection (i) of section 447 (relat-
ing to method of accounting for corporations engaged in
farming) is amended by striking paragraph (3), by redesig-
nating paragraphs (4), (5), and (6) as paragraphs (3), (4),
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and (5), respectively, and by adding at the end the following
new paragraph:
‘‘(6) TERMINATION.—
‘‘(A) IN
GENERAL.—No suspense account
may be established under this subsection by any
corporation required by this section to change its
method of accounting for any taxable year end-
ing after June 8, 1997.
‘‘(B) PHASEOUT
OF
EXISTING
SUSPENSE
ACCOUNTS.—
‘‘(i) IN GENERAL.—Each suspense ac-
count under this subsection shall be reduced
(but not below zero) for each taxable year
beginning after June 8, 1997, by an amount
equal to the lesser of—
‘‘(I) the applicable portion of such
account, or
‘‘(II) 50 percent of the taxable in-
come of the corporation for the taxable
year, or, if the corporation has no tax-
able income for such year, the amount
of any net operating loss (as defined in
section 172(c)) for such taxable year.
For purposes of the preceding sentence, the
amount of taxable income and net operating
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loss shall be determined without regard to
this paragraph.
‘‘(ii) COORDINATION WITH OTHER RE-
DUCTIONS.—The amount of the applicable
portion for any taxable year shall be re-
duced (but not below zero) by the amount of
any reduction required for such taxable
year under any other provision of this sub-
section.
‘‘(iv) INCLUSION IN INCOME.—Any re-
duction in a suspense account under this
paragraph shall be included in gross income
for the taxable year of the reduction.
‘‘(C) APPLICABLE PORTION.—For purposes
of subparagraph (B), the term ‘applicable por-
tion’ means, for any taxable year, the amount
which would ratably reduce the amount in the
account (after taking into account prior reduc-
tions) to zero over the period consisting of such
taxable year and the remaining taxable years in
such first 20 taxable years.
‘‘(D) AMOUNTS
AFTER
20TH
YEAR.—Any
amount in the account as of the close of the 20th
year referred to in subparagraph (C) shall be
treated as the applicable portion for each suc-
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ceeding year thereafter to the extent not reduced
under this paragraph for any prior taxable year
after such 20th year.’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years ending after June 8,
1997.
SEC. 872. MODIFICATION OF TAXABLE YEARS TO WHICH
NET OPERATING LOSSES MAY BE CARRIED.
(a) IN
GENERAL.—Subparagraph (A) of section
172(b)(1) (relating to years to which loss may be carried)
is amended—
(1) by striking ‘‘3’’ in clause (i) and inserting
‘‘2’’, and
(2) by striking ‘‘15’’ in clause (ii) and inserting
‘‘20’’.
(b) RETENTION OF 3-YEAR CARRYBACK FOR CASUALTY
LOSSES OF INDIVIDUALS.—Paragraph (1) of section 172(b)
is amended by adding at the end the following new subpara-
graph:
‘‘(F) RETENTION OF 3-YEAR CARRYBACK IN
CERTAIN CASES.—
‘‘(i) 
IN
GENERAL.—Subparagraph
(A)(i) shall be applied by substituting ‘3
years’ for ‘2 years’ with respect to the por-
tion of the net operating loss for the taxable
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year which is an eligible loss with respect to
the taxpayer.
‘‘(ii) ELIGIBLE LOSS.—For purposes of
clause (i), the term ‘eligible loss’ means—
‘‘(I) in the case of an individual,
losses of property arising from fire,
storm, shipwreck, or other casualty, or
from theft,
‘‘(II) in the case of a taxpayer
which is a small business, losses attrib-
utable to Presidentially declared disas-
ters (as defined in section 1033(h)(3)),
and
‘‘(III) in the case of a taxpayer
engaged in the trade or business of
farming 
(as 
defined 
in 
section
263A(e)(4)), losses attributable to such
Presidentially declared disasters.
‘‘(iii) SMALL BUSINESS.—For purposes
of this subparagraph, the term ‘small busi-
ness’ means a corporation or partnership
which meets the gross receipts test of section
448(c) for the taxable year in which the loss
arose (or, in the case of a sole proprietor-
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HR 2014 EAS
ship, which would meet such test if such
proprietorship were a corporation).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to net operating losses for taxable years
beginning after the date of the enactment of this Act.
SEC. 873. EXPANSION OF DENIAL OF DEDUCTION FOR CER-
TAIN AMOUNTS PAID IN CONNECTION WITH
INSURANCE.
(a) DENIAL OF DEDUCTION FOR PREMIUMS.—Para-
graph (1) of section 264(a) is amended to read as follows:
‘‘(1) Premiums on any life insurance policy, or
endowment or annuity contract, if the taxpayer is di-
rectly or indirectly a beneficiary under the policy or
contract.’’.
(b) INTEREST ON POLICY LOANS.—Paragraph (4) of
section 264(a) is amended by striking ‘‘individual, who’’
and all that follows and inserting ‘‘individual.’’.
(c) PRO RATA ALLOCATION OF INTEREST EXPENSE TO
POLICY CASH VALUES.—Section 264 is amended by adding
at the end the following new subsection:
‘‘(e) PRO RATA ALLOCATION OF INTEREST EXPENSE
TO POLICY CASH VALUES.—
‘‘(1) IN
GENERAL.—No deduction shall be al-
lowed for that portion of the taxpayer’s interest ex-
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HR 2014 EAS
pense which is allocable to unborrowed policy cash
values.
‘‘(2) ALLOCATION.—For purposes of paragraph
(1), the portion of the taxpayer’s interest expense
which is allocable to unborrowed policy cash values is
an amount which bears the same ratio to such inter-
est expense as—
‘‘(A) the taxpayer’s average unborrowed pol-
icy cash values of life insurance policies, and an-
nuity and endowment contracts, issued after
June 8, 1997, bears to
‘‘(B) the average adjusted bases (within the
meaning of section 1016) for all assets of the tax-
payer.
‘‘(3) UNBORROWED POLICY CASH VALUES.—The
term ‘unborrowed policy cash value’ means, with re-
spect to any life insurance policy or annuity or en-
dowment contract, the excess of—
‘‘(A) the cash surrender value of such policy
or contract determined without regard to any
surrender charge, over
‘‘(B) the amount of any loan in respect of
such policy or contract.
‘‘(4) EXCEPTION
FOR
CERTAIN
POLICIES
AND
CONTRACTS
COVERING
OFFICERS, DIRECTORS, AND
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EMPLOYEES.—Paragraph (1) shall not apply to any
policy or contract owned by an entity engaged in a
trade or business which covers any individual who is
an officer, director, or employee of such trade or busi-
ness at the time first covered by the policy or con-
tract, and such policies and contracts shall not be
taken into account under paragraph (2).
‘‘(5) EXCEPTION FOR POLICIES AND CONTRACTS
HELD BY NATURAL PERSONS; TREATMENT OF PART-
NERSHIPS AND S CORPORATIONS.—
‘‘(A) POLICIES AND CONTRACTS HELD BY
NATURAL PERSONS.—
‘‘(i) IN
GENERAL.—This subsection
shall not apply to any policy or contract
held by a natural person.
‘‘(ii) EXCEPTION WHERE BUSINESS IS
BENEFICIARY.—If a trade or business is di-
rectly or indirectly the beneficiary under
any policy or contract, to the extent of the
unborrowed cash value of such policy or
contract, such policy or contract shall be
treated as held by such trade or business
and not by a natural person.
‘‘(iii) SPECIAL RULES.—
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‘‘(I) CERTAIN TRADES OR BUSI-
NESSES NOT TAKEN INTO ACCOUNT.—
Clause (ii) shall not apply to any
trade or business carried on as a sole
proprietorship and to any trade or
business performing services as an em-
ployee.
‘‘(II) 
LIMITATION
ON
UNBORROWED
CASH
VALUE.—The
amount of the unborrowed cash value
of any policy or contract which is
taken into account by reason of clause
(ii) shall not exceed the benefit to
which the trade or business is entitled
under the policy or contract.
‘‘(iv) 
REPORTING.—The 
Secretary
shall require such reporting from policy-
holders and issuers as is necessary to carry
out clause (ii). Any report required under
the preceding sentence shall be treated as a
statement referred to in section 6724(d)(1).
‘‘(B) TREATMENT OF PARTNERSHIPS AND S
CORPORATIONS.—In the case of a partnership or
S corporation, this subsection shall be applied at
the partnership and corporate levels.
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‘‘(6) SPECIAL RULES.—
‘‘(A) COORDINATION WITH SUBSECTION (a)
AND SECTION 265.—If interest on any indebted-
ness is disallowed under subsection (a) or section
265—
‘‘(i) such disallowed interest shall not
be taken into account for purposes of apply-
ing this subsection, and
‘‘(ii) for purposes of applying para-
graph (2)(B), the adjusted bases otherwise
taken into account shall be reduced (but not
below zero) by the amount of such indebted-
ness.
‘‘(B) COORDINATION WITH SECTION 263A.—
This subsection shall be applied before the appli-
cation of section 263A (relating to capitalization
of certain expenses where taxpayer produces
property).’’.
‘‘(7) INTEREST EXPENSE.—The term ‘interest ex-
pense’ means the aggregate amount allowable to the
taxpayer as a deduction for interest (within the
meaning of section 265(b)(4)) for the taxable year (de-
termined without regard to this subsection, section
265(b), and section 291).
‘‘(8) AGGREGATION RULES.—
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‘‘(A) IN GENERAL.—All members of a con-
trolled group (within the meaning of subsection
(d)(5)(B)) shall be treated as 1 taxpayer for pur-
poses of this subsection.
‘‘(B) TREATMENT
OF
INSURANCE
COMPA-
NIES.—This subsection shall not apply to an in-
surance company, and subparagraph (A) shall be
applied without regard to any insurance com-
pany.’’.
(b) TREATMENT OF INSURANCE COMPANIES.—
(1) Clause (ii) of section 805(a)(4)(C) is amend-
ed by inserting ‘‘, or out of the increase for the tax-
able year in policy cash values (within the meaning
of section 264(e)(3)(A)) of life insurance policies and
annuity and endowment contracts to which section
264(e) applies’’ after ‘‘tax-exempt interest’’.
(2) Clause (iii) of section 805(a)(4)(D) is
amended by striking ‘‘and’’ and inserting ‘‘, the in-
crease for the taxable year in policy cash values
(within the meaning of section 264(e)(3)(A)) of life
insurance policies and annuity and endowment con-
tracts to which section 264(e) applies, and’’.
(3) Subparagraph (B) of section 807(a)(2) is
amended by striking ‘‘interest,’’ and inserting ‘‘inter-
est and the amount of the policyholder’s share of the
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HR 2014 EAS
increase for the taxable year in policy cash values
(within the meaning of section 264(e)(3)(A)) of life
insurance policies and annuity and endowment con-
tracts to which section 264(e) applies,’’.
(4) Subparagraph (B) of section 807(b)(1) is
amended by striking ‘‘interest,’’ and inserting ‘‘inter-
est and the amount of the policyholder’s share of the
increase for the taxable year in policy cash values
(within the meaning of section 264(e)(3)(A)) of life
insurance policies and annuity and endowment con-
tracts to which section 264(e) applies,’’.
(5) Paragraph (1) of section 812(d) is amended
by striking ‘‘and’’ at the end of subparagraph (B), by
striking the period at the end of subparagraph (C)
and inserting ‘‘, and’’, and by adding at the end the
following new subparagraph:
‘‘(D) the increase for any taxable year in
the policy cash values (within the meaning of
section 264(e)(3)(A)) of life insurance policies
and annuity and endowment contracts to which
section 264(e) applies.’’.
(6) Subparagraph (B) of section 832(b)(5) is
amended by striking ‘‘and’’ at the end of clause (i),
by striking the period at the end of clause (ii) and
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HR 2014 EAS
inserting ‘‘, and’’, and by adding at the end the fol-
lowing new clause:
‘‘(iii) the increase for the taxable year
in policy cash values (within the meaning
of section 264(e)(3)(A)) of life insurance
policies and annuity and endowment con-
tracts to which section 264(e) applies.’’.
(c) CONFORMING AMENDMENT.—Subparagraph (A) of
section 265(b)(4) is amended by inserting ‘‘, section 264,’’
before ‘‘and section 291’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to contracts issued after June 8, 1997,
in taxable years ending after such date. For purposes of
the preceding sentence, any material increase in the death
benefit or other material change in the contract shall be
treated as a new contract but the addition of covered lives
shall be treated as a new contract only with respect to such
additional covered lives. For purposes of this subsection, an
increase in the death benefit under a policy or contract is-
sued in connection with a lapse described in section
501(d)(2) of the Health Insurance Portability and Account-
ability Act of 1996 shall not be treated as a new contract.
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SEC. 874. ALLOCATION OF BASIS AMONG PROPERTIES DIS-
TRIBUTED BY PARTNERSHIP.
(a) IN GENERAL.—Subsection (c) of section 732 is
amended to read as follows:
‘‘(c) ALLOCATION OF BASIS.—
‘‘(1) IN
GENERAL.—The basis of distributed
properties to which subsection (a)(2) or (b) is appli-
cable shall be allocated—
‘‘(A)(i) first to any unrealized receivables
(as defined in section 751(c)) and inventory
items (as defined in section 751(d)(2)) in an
amount equal to the adjusted basis of each such
property to the partnership, and
‘‘(ii) if the basis to be allocated is less than
the sum of the adjusted bases of such properties
to the partnership, then, to the extent any de-
crease is required in order to have the adjusted
bases of such properties equal the basis to be allo-
cated, in the manner provided in paragraph (3),
and
‘‘(B) to the extent of any basis not allocated
under subparagraph (A), to other distributed
properties—
‘‘(i) first by assigning to each such
other property such other property’s ad-
justed basis to the partnership, and
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HR 2014 EAS
‘‘(ii) then, to the extent any increase or
decrease in basis is required in order to
have the adjusted bases of such other distrib-
uted properties equal such remaining basis,
in the manner provided in paragraph (2)
or (3), whichever is appropriate.
‘‘(2) METHOD OF ALLOCATING INCREASE.—Any
increase required under paragraph (1)(B) shall be al-
located among the properties—
‘‘(A) first to properties with unrealized ap-
preciation in proportion to their respective
amounts of unrealized appreciation before such
increase (but only to the extent of each property’s
unrealized appreciation), and
‘‘(B) then, to the extent such increase is not
allocated under subparagraph (A), in proportion
to their respective fair market values.
‘‘(3) METHOD OF ALLOCATING DECREASE.—Any
decrease required under paragraph (1)(A) or (1)(B)
shall be allocated—
‘‘(A) first to properties with unrealized de-
preciation in proportion to their respective
amounts of unrealized depreciation before such
decrease (but only to the extent of each property’s
unrealized depreciation), and
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HR 2014 EAS
‘‘(B) then, to the extent such decrease is not
allocated under subparagraph (A), in proportion
to their respective adjusted bases (as adjusted
under subparagraph (A)).’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to distributions after the date of the
enactment of this Act.
SEC. 875. REPEAL OF REQUIREMENT THAT INVENTORY BE
SUBSTANTIALLY APPRECIATED.
(a) IN GENERAL.—Paragraph (2) of section 751(a) is
amended to read as follows:
‘‘(2) inventory items of the partnership,’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (d) of section 751 is amended to
read as follows:
‘‘(d) INVENTORY ITEMS.—For purposes of this sub-
chapter, the term ‘inventory items’ means—
‘‘(1) property of the partnership of the kind de-
scribed in section 1221(1),
‘‘(2) any other property of the partnership
which, on sale or exchange by the partnership, would
be considered property other than a capital asset and
other than property described in section 1231,
‘‘(3) any other property of the partnership
which, if sold or exchanged by the partnership, would
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result in a gain taxable under subsection (a) of sec-
tion 1246 (relating to gain on foreign investment
company stock), and
‘‘(4) any other property held by the partnership
which, if held by the selling or distributee partner,
would be considered property of the type described in
paragraph (1), (2), or (3).’’.
(2) Sections 724(d)(2), 731(a)(2)(B), 731(c)(6),
732(c)(1)(A) (as amended by the preceding section),
735(a)(2), and 735(c)(1) are each amended by strik-
ing ‘‘section 751(d)(2)’’ and inserting ‘‘section
751(d)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to sales, exchanges, and distributions
after the date of the enactment of this Act.
SEC. 876. LIMITATION ON PROPERTY FOR WHICH INCOME
FORECAST METHOD MAY BE USED.
(a) LIMITATION.—Subsection (g) of section 167 is
amended by adding at the end the following new paragraph:
‘‘(6) LIMITATION ON PROPERTY FOR WHICH IN-
COME FORECAST METHOD MAY BE USED.—The depre-
ciation deduction allowable under this section may be
determined under the income forecast method or any
similar method only with respect to—
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HR 2014 EAS
‘‘(A) property described in paragraph (3) or
(4) of section 168(f),
‘‘(B) copyrights,
‘‘(C) books,
‘‘(D) patents, and
‘‘(E) other property specified in regulations.
Such methods may not be used with respect to any
amortizable section 197 intangible (as defined in sec-
tion 197(c)).’’.
(b) DEPRECIATION PERIOD FOR RENT-TO-OWN PROP-
ERTY.—
(1) IN GENERAL.—Subparagraph (A) of section
168(e)(3) (relating to 3-year property) is amended by
striking ‘‘and’’ at the end of clause (i), by striking the
period at the end of clause (ii) and inserting ‘‘, and’’,
and by adding at the end the following new clause:
‘‘(iii) any qualified rent-to-own prop-
erty.’’.
(2) 4-YEAR CLASS LIFE.—The table contained in
section 168(g)(3)(B) is amended by inserting before
the first item the following new item:
‘‘(A)(iii) .......................................................................................
4’’.
(3) DEFINITION
OF
QUALIFIED
RENT-TO-OWN
PROPERTY.—Subsection (i) of section 168 is amended
by adding at the end the following new paragraph:
‘‘(14) QUALIFIED RENT-TO-OWN PROPERTY.—
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‘‘(A) IN
GENERAL.—The term ‘qualified
rent-to-own property’ means property held by a
rent-to-own dealer for purposes of being subject
to a rent-to-own contract.
‘‘(B) RENT-TO-OWN
DEALER.—The term
‘rent-to-own dealer’ means a person that, in the
ordinary course of business, regularly enters into
rent-to-own contracts with customers for the use
of consumer property, if a substantial portion of
those contracts terminate and the property is re-
turned to such person before the receipt of all
payments required to transfer ownership of the
property from such person to the customer.
‘‘(C) CONSUMER
PROPERTY.—The term
‘consumer property’ means tangible personal
property of a type generally used within the
home. Such term shall not include cellular tele-
phones and any computer or peripheral equip-
ment (as defined in section 168(i)).
‘‘(D) RENT-TO-OWN CONTRACT.—The term
‘rent-to-own contract’ means any lease for the
use of consumer property between a rent-to-own
dealer and a customer who is an individual
which—
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‘‘(i) is titled ‘Rent-to-Own Agreement’
or ‘Lease Agreement with Ownership Op-
tion,’ or uses other similar language,
‘‘(ii) provides for level, regular periodic
payments (for a payment period which is a
week or month),
‘‘(iii) provides that legal title to such
property remains with the rent-to-own deal-
er until the customer makes all the pay-
ments described in clause (ii) or early pur-
chase payments required under the contract
to acquire legal title to the item of property,
‘‘(iv) provides a beginning date and a
maximum period of time for which the con-
tract may be in effect that does not exceed
156 weeks or 36 months from such begin-
ning date (including renewals or options to
extend),
‘‘(v) provides for level payments within
the 156-week or 36-month period that, in
the aggregate, generally exceed the normal
retail price of the consumer property plus
interest,
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SEC. 877. EXPANSION OF REQUIREMENT THAT INVOLUN-
TARILY 
CONVERTED 
PROPERTY 
BE 
RE-
PLACED WITH PROPERTY ACQUIRED FROM
AN UNRELATED PERSON.
(a) IN GENERAL.—Subsection (i) of section 1033 is
amended to read as follows:
‘‘(i) REPLACEMENT PROPERTY MUST BE ACQUIRED
FROM UNRELATED PERSON IN CERTAIN CASES.—
‘‘(1) IN GENERAL.—If the property which is in-
voluntarily converted is held by a taxpayer to which
this subsection applies, subsection (a) shall not apply
if the replacement property or stock is acquired from
a related person. The preceding sentence shall not
apply to the extent that the related person acquired
the replacement property or stock from an unrelated
person during the period applicable under subsection
(a)(2)(B).
‘‘(2) TAXPAYERS
TO
WHICH
SUBSECTION
AP-
PLIES.—This subsection shall apply to—
‘‘(A) a C corporation,
‘‘(B) a partnership in which 1 or more C
corporations own, directly or indirectly (deter-
mined in accordance with section 707(b)(3)),
more than 50 percent of the capital interest, or
profits interest, in such partnership at the time
of the involuntary conversion, and
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‘‘(C) any other taxpayer if, with respect to
property which is involuntarily converted during
the taxable year, the aggregate of the amount of
realized gain on such property on which there is
realized gain exceeds $100,000.
In the case of a partnership, subparagraph (C) shall
apply with respect to the partnership and with re-
spect to each partner. A similar rule shall apply in
the case of an S corporation and its shareholders.
‘‘(3) RELATED PERSON.—For purposes of this
subsection, a person is related to another person if the
person bears a relationship to the other person de-
scribed in section 267(b) or 707(b)(1).’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to involuntary conversions occurring
after June 8, 1997.
SEC. 878. TREATMENT OF EXCEPTION FROM INSTALLMENT
SALES RULES FOR SALES OF PROPERTY BY A
MANUFACTURER TO A DEALER.
(a) IN GENERAL.—Paragraph (2) of section 811(c) of
the Tax Reform Act of 1986 is hereby repealed.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendment made by this
section shall apply to taxable years beginning more
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HR 2014 EAS
than 1 year after the date of the enactment of this
Act.
(2) COORDINATION WITH SECTION 481.—In the
case of any taxpayer required by this section to
change its method of accounting for any taxable
year—
(A) such changes shall be treated as initi-
ated by the taxpayer,
(B) such changes shall be treated as made
with the consent of the Secretary, and
(C) the net amount of the adjustments re-
quired to be taken into account under section
481(a) of the Internal Revenue Code of 1986
shall be taken into account ratably over the 4
taxable year period beginning with the first tax-
able year beginning after the date of the enact-
ment of this Act.
SEC. 879. MINIMUM PENSION ACCRUED BENEFIT DISTRIB-
UTABLE WITHOUT CONSENT INCREASED TO
$5,000.
(a) AMENDMENT TO 1986 CODE.—
(1) IN GENERAL.—Subparagraph (A) of section
411(a)(11) (relating to restrictions on certain manda-
tory distributions) is amended by striking ‘‘$3,500’’
and inserting ‘‘the applicable limit’’.
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(2) APPLICABLE LIMIT.—Paragraph (11) of sec-
tion 411(a) is amended by adding at the end the fol-
lowing new subparagraph:
‘‘(D) APPLICABLE LIMIT.—
‘‘(i) IN
GENERAL.—For purposes of
subparagraph (A), the applicable limit is
$5,000.
‘‘(ii) INFLATION ADJUSTMENT.—In the
case of plan years beginning in a calendar
year after 1997, the dollar amount con-
tained in clause (i) shall be increased by an
amount equal to—
‘‘(I) such dollar amount, multi-
plied by
‘‘(II) the cost-of-living adjustment
determined under section 1(f)(3) for
such calendar year by substituting ‘cal-
endar year 1996’ for ‘calendar year
1992’ in subparagraph (B) thereof.
If any amount as adjusted under the pre-
ceding sentence is not a multiple of $50,
such amount shall be rounded to the next
lowest multiple of $50.’’.
(3) CONFORMING AMENDMENTS.—
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(A) Section 411(a)(7)(B), paragraphs (1)
and (2) of section 417(e), and section 457(e)(9)
are each amended by striking ‘‘$3,500’’ each
place it appears (other than the headings) and
inserting ‘‘the applicable limit under section
411(a)(11)(D)’’.
(B) The headings for paragraphs (1) and
(2) of section 417(e) and subparagraph (A) of
section 457(e)(9) are each amended by striking
‘‘$3,500’’ and inserting ‘‘APPLICABLE LIMIT’’.
(b) AMENDMENTS TO ERISA.—
(1) IN GENERAL.—Section 203(e)(1) of the Em-
ployee Retirement Income Security Act of 1974 (29
U.S.C. 1053(e)(1)) is amended by striking ‘‘$3,500’’
and inserting ‘‘the applicable limit under section
411(a)(11) of the Internal Revenue Code of 1986 for
the plan year’’.
(2) 
CONFORMING
AMENDMENTS.—Sections
204(d)(1) and 205(g) (1) and (2) (29 U.S.C.
1054(d)(1) and 1055(g) (1) and (2)) are each amend-
ed by striking ‘‘$3,500’’ and inserting ‘‘the applicable
limit under section 411(a)(11) of the Internal Reve-
nue Code of 1986 for the plan year’’.
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HR 2014 EAS
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to plan years beginning after the date
of the enactment of this Act.
SEC. 880. ELECTION TO RECEIVE TAXABLE CASH COM-
PENSATION IN LIEU OF NONTAXABLE PARK-
ING BENEFITS.
(a) IN GENERAL.—Section 132(f)(4) (relating to bene-
fits not in lieu of compensation) is amended by adding at
the end the following new sentence: ‘‘This paragraph shall
not apply to any qualified parking provided in lieu of com-
pensation which otherwise would have been includible in
gross income of the employee, and no amount shall be in-
cluded in the gross income of the employee solely because
the employee may choose between the qualified parking and
compensation.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1997.
SEC. 881. EXTENSION OF TEMPORARY UNEMPLOYMENT
TAX.
Section 3301 (relating to rate of unemployment tax)
is amended—
(1) by striking ‘‘1998’’ in paragraph (1) and in-
serting ‘‘2007’’, and
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HR 2014 EAS
(2) by striking ‘‘1999’’ in paragraph (2) and in-
serting ‘‘2008’’.
SEC. 882. REPEAL OF EXCESS DISTRIBUTION AND EXCESS
RETIREMENT ACCUMULATION TAX.
(a) REPEAL OF EXCESS DISTRIBUTION AND EXCESS
RETIREMENT ACCUMULATION TAX.—Section 4980A (relat-
ing to excess distributions from qualified retirement plans)
is repealed.
(b) CONFORMING AMENDMENTS.—
(1) Section 691(c)(1) is amended by striking
subparagraph (C).
(2) Section 2013 is amended by striking sub-
section (g).
(3) Section 2053(c)(1)(B) is amended by striking
the last sentence.
(4) Section 6018(a) is amended by striking
paragraph (4).
(c) EFFECTIVE DATES.—
(1) EXCESS DISTRIBUTION TAX REPEAL.—Except
as provided in paragraph (2), the repeal made by
subsection (a) shall apply to excess distributions re-
ceived after December 31, 1996.
(2) EXCESS
RETIREMENT
ACCUMULATION
TAX
REPEAL.—The repeal made by subsection (a) with re-
spect to section 4980A(d) of the Internal Revenue
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Code of 1986 and the amendments made by subsection
(b) shall apply to estates of decedents dying after De-
cember 31, 1996.
SEC. 883. LIMITATION ON CHARITABLE REMAINDER TRUST
ELIGIBILITY FOR CERTAIN TRUSTS.
(a) IN GENERAL.—Paragraphs (1)(A) and (2)(A) of
section 664(d) (relating to charitable remainder annuity
trust) are each amended by inserting ‘‘nor more than 50
percent’’ after ‘‘not less than 5 percent’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to transfers in trust after June 18, 1997.
SEC. 884. INCREASE IN TAX ON PROHIBITED TRANS-
ACTIONS.
(a) IN GENERAL.—Section 4975(a) is amended by
striking ‘‘10 percent’’ and inserting ‘‘15 percent’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to prohibited transactions occurring
after the date of the enactment of this Act.
SEC. 885. BASIS RECOVERY RULES FOR ANNUITIES OVER
MORE THAN ONE LIFE.
(a) IN GENERAL.—Section 72(d)(1)(B) is amended by
adding at the end the following new clause:
‘‘(iv) NUMBER OF ANTICIPATED PAY-
MENTS WHERE MORE THAN ONE LIFE.—If
the annuity is payable over the lives of
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more than 1 individual, the number of an-
ticipated payments shall be determined as
follows:
‘‘If the combined ages of an-
nuitants are:
The number is:
Not more than 110 .........................................................................
410
More than 110 but not more than 120 .........................................
360
More than 120 but not more than 130 .........................................
310
More than 130 but not more than 140 .........................................
260
More than 140 ................................................................................
210.’’.
(b) 
CONFORMING
AMENDMENT.—Section
72(d)(1)(B)(iii) is amended—
(1) by inserting ‘‘If the annuity is payable over
the life of a single individual, the number of antici-
pated payments shall be determined as follows:’’ after
the heading and before the table, and
(2) by striking ‘‘primary’’ in the table.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply with respect to annuity starting dates
beginning after December 31, 1997.
TITLE IX—FOREIGN-RELATED
SIMPLIFICATION PROVISIONS
Subtitle A—General Provisions
SEC. 901. CERTAIN INDIVIDUALS EXEMPT FROM FOREIGN
TAX CREDIT LIMITATION.
(a) GENERAL RULE.—Section 904 (relating to limita-
tions on foreign tax credit) is amended by redesignating
subsection (j) as subsection (k) and by inserting after sub-
section (i) the following new subsection:
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‘‘(j) CERTAIN INDIVIDUALS EXEMPT.—
‘‘(1) IN GENERAL.—In the case of an individual
to whom this subsection applies for any taxable
year—
‘‘(A) the limitation of subsection (a) shall
not apply,
‘‘(B) no taxes paid or accrued by the indi-
vidual during such taxable year may be deemed
paid or accrued under subsection (c) in any
other taxable year, and
‘‘(C) no taxes paid or accrued by the indi-
vidual during any other taxable year may be
deemed paid or accrued under subsection (c) in
such taxable year.
‘‘(2) INDIVIDUALS
TO
WHOM
SUBSECTION
AP-
PLIES.—This subsection shall apply to an individual
for any taxable year if—
‘‘(A) the entire amount of such individual’s
gross income for the taxable year from sources
without the United States consists of qualified
passive income,
‘‘(B) the amount of the creditable foreign
taxes paid or accrued by the individual during
the taxable year does not exceed $300 ($600 in
the case of a joint return), and
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‘‘(C) such individual elects to have this sub-
section apply for the taxable year.
‘‘(3) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) QUALIFIED
PASSIVE
INCOME.—The
term ‘qualified passive income’ means any item
of gross income if—
‘‘(i) such item of income is passive in-
come (as defined in subsection (d)(2)(A)
without regard to clause (iii) thereof), and
‘‘(ii) such item of income is shown on
a payee statement furnished to the individ-
ual.
‘‘(B) CREDITABLE
FOREIGN
TAXES.—The
term ‘creditable foreign taxes’ means any taxes
for which a credit is allowable under section 901;
except that such term shall not include any tax
unless such tax is shown on a payee statement
furnished to such individual.
‘‘(C) PAYEE STATEMENT.—The term ‘payee
statement’ has the meaning given to such term
by section 6724(d)(2).
‘‘(D) ESTATES
AND
TRUSTS
NOT
ELIGI-
BLE.—This subsection shall not apply to any es-
tate or trust.’’.
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(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 1997.
SEC. 902. EXCHANGE RATE USED IN TRANSLATING FOR-
EIGN TAXES.
(a) ACCRUED TAXES TRANSLATED BY USING AVERAGE
RATE FOR YEAR TO WHICH TAXES RELATE.—
(1) IN GENERAL.—Subsection (a) of section 986
(relating to translation of foreign taxes) is amended
to read as follows:
‘‘(a) FOREIGN INCOME TAXES.—
‘‘(1) TRANSLATION OF ACCRUED TAXES.—
‘‘(A) IN GENERAL.—For purposes of deter-
mining the amount of the foreign tax credit, in
the case of a taxpayer who takes foreign income
taxes into account when accrued, the amount of
any foreign income taxes (and any adjustment
thereto) shall be translated into dollars by using
the average exchange rate for the taxable year to
which such taxes relate.
‘‘(B) EXCEPTION
FOR
CERTAIN
TAXES.—
Subparagraph (A) shall not apply to any foreign
income taxes—
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‘‘(i) paid after the date 2 years after
the close of the taxable year to which such
taxes relate, or
‘‘(ii) paid before the beginning of the
taxable year to which such taxes relate.
‘‘(C) EXCEPTION FOR INFLATIONARY CUR-
RENCIES.—Subparagraph (A) shall not apply to
any foreign income taxes the liability for which
is denominated in any inflationary currency (as
determined under regulations).
‘‘(D) CROSS REFERENCE.—
‘‘For adjustments where tax is not paid within 2
years, see section 905(c).
‘‘(2) TRANSLATION OF TAXES TO WHICH PARA-
GRAPH (1) DOES NOT APPLY.—For purposes of deter-
mining the amount of the foreign tax credit, in the
case of any foreign income taxes to which subpara-
graph (A) of paragraph (1) does not apply—
‘‘(A) such taxes shall be translated into dol-
lars using the exchange rates as of the time such
taxes were paid to the foreign country or posses-
sion of the United States, and
‘‘(B) any adjustment to the amount of such
taxes shall be translated into dollars using—
‘‘(i) except as provided in clause (ii),
the exchange rate as of the time when such
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adjustment is paid to the foreign country or
possession, or
‘‘(ii) in the case of any refund or cred-
it of foreign income taxes, using the ex-
change rate as of the time of the original
payment of such foreign income taxes.
‘‘(3) FOREIGN INCOME TAXES.—For purposes of
this subsection, the term ‘foreign income taxes’ means
any income, war profits, or excess profits taxes paid
or accrued to any foreign country or to any posses-
sion of the United States.’’.
(2) ADJUSTMENT
WHEN
NOT
PAID
WITHIN
YEARS AFTER YEAR TO WHICH TAXES RELATE.—Sub-
section (c) of section 905 is amended to read as fol-
lows:
‘‘(c) ADJUSTMENTS TO ACCRUED TAXES.—
‘‘(1) IN GENERAL.—If—
‘‘(A) accrued taxes when paid differ from
the amounts claimed as credits by the taxpayer,
‘‘(B) accrued taxes are not paid before the
date 2 years after the close of the taxable year to
which such taxes relate, or
‘‘(C) any tax paid is refunded in whole or
in part,
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the taxpayer shall notify the Secretary, who shall re-
determine the amount of the tax for the year or years
affected. The Secretary may prescribe adjustments to
the pools of post-1986 foreign income taxes under sec-
tions 902 and 960 in lieu of the redetermination
under the preceding sentence.
‘‘(2) SPECIAL RULE FOR TAXES NOT PAID WITH-
IN 2 YEARS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), in making the redetermina-
tion under paragraph (1), no credit shall be al-
lowed for accrued taxes not paid before the date
referred to in subparagraph (B) of paragraph
(1).
‘‘(B) TAXES
SUBSEQUENTLY
PAID.—Any
such taxes if subsequently paid—
‘‘(i) shall be taken into account—
‘‘(I) in the case of taxes deemed
paid under section 902 or section 960,
for the taxable year in which paid
(and no redetermination shall be made
under this section by reason of such
payment), and
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‘‘(II) in any other case, for the
taxable year to which such taxes relate,
and
‘‘(ii) shall be translated as provided in
section 986(a)(2)(A).
‘‘(3) ADJUSTMENTS.—The amount of tax (if
any) due on any redetermination under paragraph
(1) shall be paid by the taxpayer on notice and de-
mand by the Secretary, and the amount of tax over-
paid (if any) shall be credited or refunded to the tax-
payer in accordance with subchapter B of chapter 66
(section 6511 et seq.).
‘‘(4) BOND REQUIREMENTS.—In the case of any
tax accrued but not paid, the Secretary, as a condi-
tion precedent to the allowance of the credit provided
in this subpart, may require the taxpayer to give a
bond, with sureties satisfactory to and approved by
the Secretary, in such sum as the Secretary may re-
quire, conditioned on the payment by the taxpayer of
any amount of tax found due on any such redeter-
mination. Any such bond shall contain such further
conditions as the Secretary may require.
‘‘(5) OTHER SPECIAL RULES.—In any redeter-
mination under paragraph (1) by the Secretary of the
amount of tax due from the taxpayer for the year or
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years affected by a refund, the amount of the taxes re-
funded for which credit has been allowed under this
section shall be reduced by the amount of any tax de-
scribed in section 901 imposed by the foreign country
or possession of the United States with respect to such
refund; but no credit under this subpart, or deduction
under section 164, shall be allowed for any taxable
year with respect to any such tax imposed on the re-
fund. No interest shall be assessed or collected on any
amount of tax due on any redetermination by the
Secretary, resulting from a refund to the taxpayer, for
any period before the receipt of such refund, except to
the extent interest was paid by the foreign country or
possession of the United States on such refund for
such period.’’.
(b) AUTHORITY TO USE AVERAGE RATES.—
(1) IN GENERAL.—Subsection (a) of section 986
(as amended by subsection (a)) is amended by redes-
ignating paragraph (3) as paragraph (4) and insert-
ing after paragraph (2) the following new paragraph:
‘‘(3) AUTHORITY TO PERMIT USE OF AVERAGE
RATES.—To the extent prescribed in regulations, the
average exchange rate for the period (specified in such
regulations) during which the taxes or adjustment is
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paid may be used instead of the exchange rate as of
the time of such payment.’’.
(2) DETERMINATION OF AVERAGE RATES.—Sub-
section (c) of section 989 is amended by striking
‘‘and’’ at the end of paragraph (4), by striking the pe-
riod at the end of paragraph (5) and inserting ‘‘,
and’’, and by adding at the end thereof the following
new paragraph:
‘‘(6) setting forth procedures for determining the
average exchange rate for any period.’’.
(3) CONFORMING AMENDMENTS.—Subsection (b)
of section 989 is amended by striking ‘‘weighted’’ each
place it appears.
(c) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by
subsections (a)(1) and (b) shall apply to taxes paid
or accrued in taxable years beginning after December
31, 1997.
(2) SUBSECTION (a)(2).—The amendment made
by subsection (a)(2) shall apply to taxes which relate
to taxable years beginning after December 31, 1997.
SEC. 903. ELECTION TO USE SIMPLIFIED SECTION 904 LIMI-
TATION FOR ALTERNATIVE MINIMUM TAX.
(a) GENERAL RULE.—Subsection (a) of section 59 (re-
lating to alternative minimum tax foreign tax credit) is
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amended by adding at the end thereof the following new
paragraph:
‘‘(3) ELECTION TO USE SIMPLIFIED SECTION 904
LIMITATION.—
‘‘(A) IN GENERAL.—In determining the al-
ternative minimum tax foreign tax credit for
any taxable year to which an election under this
paragraph applies—
‘‘(i) subparagraph (B) of paragraph
(1) shall not apply, and
‘‘(ii) the limitation of section 904 shall
be based on the proportion which—
‘‘(I) the taxpayer’s taxable income
(as determined for purposes of the reg-
ular tax) from sources without the
United States (but not in excess of the
taxpayer’s entire alternative minimum
taxable income), bears to
‘‘(II) the taxpayer’s entire alter-
native minimum taxable income for
the taxable year.
‘‘(B) ELECTION.—
‘‘(i) IN GENERAL.—An election under
this paragraph may be made only for the
taxpayer’s first taxable year which begins
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after December 31, 1997, and for which the
taxpayer claims an alternative minimum
tax foreign tax credit.
‘‘(ii) 
ELECTION
REVOCABLE
ONLY
WITH
CONSENT.—An election under this
paragraph, once made, shall apply to the
taxable year for which made and all subse-
quent taxable years unless revoked with the
consent of the Secretary.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1997.
SEC. 904. TREATMENT OF PERSONAL TRANSACTIONS BY IN-
DIVIDUALS 
UNDER 
FOREIGN 
CURRENCY
RULES.
(a) GENERAL RULE.—Subsection (e) of section 988
(relating to application to individuals) is amended to read
as follows:
‘‘(e) APPLICATION TO INDIVIDUALS.—
‘‘(1) IN GENERAL.—The preceding provisions of
this section shall not apply to any section 988 trans-
action entered into by an individual which is a per-
sonal transaction.
‘‘(2) EXCLUSION FOR CERTAIN PERSONAL TRANS-
ACTIONS.—If—
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‘‘(A) nonfunctional currency is disposed of
by an individual in any transaction, and
‘‘(B) such transaction is a personal trans-
action,
no gain shall be recognized for purposes of this sub-
title by reason of changes in exchange rates after such
currency was acquired by such individual and before
such disposition. The preceding sentence shall not
apply if the gain which would otherwise be recognized
on the transaction exceeds $200.
‘‘(3) PERSONAL TRANSACTIONS.—For purposes of
this subsection, the term ‘personal transaction’ means
any transaction entered into by an individual, except
that such term shall not include any transaction to
the extent that expenses properly allocable to such
transaction meet the requirements of section 162 or
212 (other than that part of section 212 dealing with
expenses incurred in connection with taxes).’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1997.
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Subtitle B—Treatment of
Controlled Foreign Corporations
SEC. 911. GAIN ON CERTAIN STOCK SALES BY CONTROLLED
FOREIGN CORPORATIONS TREATED AS DIVI-
DENDS.
(a) GENERAL RULE.—Section 964 (relating to mis-
cellaneous provisions) is amended by adding at the end
thereof the following new subsection:
‘‘(e) GAIN ON CERTAIN STOCK SALES BY CONTROLLED
FOREIGN CORPORATIONS TREATED AS DIVIDENDS.—
‘‘(1) IN GENERAL.—If a controlled foreign cor-
poration sells or exchanges stock in any other foreign
corporation, gain recognized on such sale or exchange
shall be included in the gross income of such con-
trolled foreign corporation as a dividend to the same
extent that it would have been so included under sec-
tion 1248(a) if such controlled foreign corporation
were a United States person. For purposes of deter-
mining the amount which would have been so includ-
ible, the determination of whether such other foreign
corporation was a controlled foreign corporation shall
be made without regard to the preceding sentence.
‘‘(2) SAME COUNTRY EXCEPTION NOT APPLICA-
BLE.—Clause (i) of section 954(c)(3)(A) shall not
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apply to any amount treated as a dividend by reason
of paragraph (1).
‘‘(3) CLARIFICATION
OF
DEEMED
SALES.—For
purposes of this subsection, a controlled foreign cor-
poration shall be treated as having sold or exchanged
any stock if, under any provision of this subtitle, such
controlled foreign corporation is treated as having
gain from the sale or exchange of such stock.’’.
(b) AMENDMENT OF SECTION 904(d).—Clause (i) of
section 904(d)(2)(E) is amended by striking ‘‘and except
as provided in regulations, the taxpayer was a United
States shareholder in such corporation’’.
(c) EFFECTIVE DATES.—
(1) The amendment made by subsection (a) shall
apply to gain recognized on transactions occurring
after the date of the enactment of this Act.
(2) The amendment made by subsection (b) shall
apply to distributions after the date of the enactment
of this Act.
SEC. 912. MISCELLANEOUS MODIFICATIONS TO SUBPART F.
(a) SECTION 1248 GAIN TAKEN INTO ACCOUNT IN DE-
TERMINING PRO RATA SHARE.—
(1) IN
GENERAL.—Paragraph (2) of section
951(a) (defining pro rata share of subpart F income)
is amended by adding at the end thereof the following
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new sentence: ‘‘For purposes of subparagraph (B),
any gain included in the gross income of any person
as a dividend under section 1248 shall be treated as
a distribution received by such person with respect to
the stock involved.’’.
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall apply to dispositions after the
date of the enactment of this Act.
(b) BASIS ADJUSTMENTS IN STOCK HELD BY FOREIGN
CORPORATION.—
(1) IN GENERAL.—Section 961 (relating to ad-
justments to basis of stock in controlled foreign cor-
porations and of other property) is amended by add-
ing at the end thereof the following new subsection:
‘‘(c) BASIS ADJUSTMENTS IN STOCK HELD BY FOR-
EIGN CORPORATION.—Under regulations prescribed by the
Secretary, if a United States shareholder is treated under
section 958(a)(2) as owning any stock in a controlled for-
eign corporation which is actually owned by another con-
trolled foreign corporation, adjustments similar to the ad-
justments provided by subsections (a) and (b) shall be made
to the basis of such stock in the hands of such other con-
trolled foreign corporation, but only for the purposes of de-
termining the amount included under section 951 in the
gross income of such United States shareholder (or any
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other United States shareholder who acquires from any per-
son any portion of the interest of such United States share-
holder by reason of which such shareholder was treated as
owning such stock, but only to the extent of such portion,
and subject to such proof of identity of such interest as the
Secretary may prescribe by regulations).’’.
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall apply for purposes of determin-
ing inclusions for taxable years of United States
shareholders beginning after December 31, 1997.
(c) CLARIFICATION OF TREATMENT OF BRANCH TAX
EXEMPTIONS OR REDUCTIONS.—
(1) IN GENERAL.—Subsection (b) of section 952
is amended by adding at the end thereof the following
new sentence: ‘‘For purposes of this subsection, any
exemption (or reduction) with respect to the tax im-
posed by section 884 shall not be taken into account.’’.
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall apply to taxable years beginning
after December 31, 1986.
SEC. 913. INDIRECT FOREIGN TAX CREDIT ALLOWED FOR
CERTAIN LOWER TIER COMPANIES.
(a) SECTION 902 CREDIT.—
(1) IN GENERAL.—Subsection (b) of section 902
(relating to deemed taxes increased in case of certain
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2nd and 3rd tier foreign corporations) is amended to
read as follows:
‘‘(b) DEEMED TAXES INCREASED IN CASE OF CERTAIN
LOWER TIER CORPORATIONS.—
‘‘(1) IN GENERAL.—If—
‘‘(A) any foreign corporation is a member
of a qualified group, and
‘‘(B) such foreign corporation owns 10 per-
cent or more of the voting stock of another mem-
ber of such group from which it receives divi-
dends in any taxable year,
such foreign corporation shall be deemed to have paid
the same proportion of such other member’s post-1986
foreign income taxes as would be determined under
subsection (a) if such foreign corporation were a do-
mestic corporation.
‘‘(2) QUALIFIED GROUP.—For purposes of para-
graph (1), the term ‘qualified group’ means—
‘‘(A) the foreign corporation described in
subsection (a), and
‘‘(B) any other foreign corporation if—
‘‘(i) the domestic corporation owns at
least 5 percent of the voting stock of such
other foreign corporation indirectly through
a chain of foreign corporations connected
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through stock ownership of at least 10 per-
cent of their voting stock,
‘‘(ii) the foreign corporation described
in subsection (a) is the first tier corporation
in such chain, and
‘‘(iii) such other corporation is not
below the sixth tier in such chain.
The term ‘qualified group’ shall not include any for-
eign corporation below the third tier in the chain re-
ferred to in clause (i) unless such foreign corporation
is a controlled foreign corporation (as defined in sec-
tion 957) and the domestic corporation is a United
States shareholder (as defined in section 951(b)) in
such foreign corporation. Paragraph (1) shall apply
to those taxes paid by a member of the qualified
group below the third tier only with respect to periods
during which it was a controlled foreign corpora-
tion.’’.
(2) CONFORMING AMENDMENTS.—
(A) Subparagraph (B) of section 902(c)(3)
is amended by adding ‘‘or’’ at the end of clause
(i) and by striking clauses (ii) and (iii) and in-
serting the following new clause:
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‘‘(ii) the requirements of subsection
(b)(2) are met with respect to such foreign
corporation.’’.
(B) Subparagraph (B) of section 902(c)(4)
is amended by striking ‘‘3rd foreign corporation’’
and inserting ‘‘sixth tier foreign corporation’’.
(C) The heading for paragraph (3) of sec-
tion 902(c) is amended by striking ‘‘WHERE DO-
MESTIC CORPORATION ACQUIRES 10 PERCENT OF
FOREIGN CORPORATION’’ and inserting ‘‘WHERE
FOREIGN CORPORATION FIRST QUALIFIES’’.
(D) Paragraph (3) of section 902(c) is
amended by striking ‘‘ownership’’ each place it
appears.
(b) SECTION 960 CREDIT.—Paragraph (1) of section
960(a) (relating to special rules for foreign tax credits) is
amended to read as follows:
‘‘(1) DEEMED PAID CREDIT.—For purposes of
subpart A of this part, if there is included under sec-
tion 951(a) in the gross income of a domestic corpora-
tion any amount attributable to earnings and profits
of a foreign corporation which is a member of a
qualified group (as defined in section 902(b)) with re-
spect to the domestic corporation, then, except to the
extent provided in regulations, section 902 shall be
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applied as if the amount so included were a dividend
paid by such foreign corporation (determined by ap-
plying section 902(c) in accordance with section
904(d)(3)(B)).’’.
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to taxes of foreign corpora-
tions for taxable years of such corporations beginning
after the date of enactment of this Act.
(2) SPECIAL RULE.—In the case of any chain of
foreign corporations described in clauses (i) and (ii)
of section 902(b)(2)(B) of the Internal Revenue Code
of 1986 (as amended by this section), no liquidation,
reorganization, or similar transaction in a taxable
year beginning after the date of the enactment of this
Act shall have the effect of permitting taxes to be
taken into account under section 902 of the Internal
Revenue Code of 1986 which could not have been
taken into account under such section but for such
transaction.
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Subtitle C—Repeal of Excise Tax on
Transfers to Foreign Entities
SEC. 921. REPEAL OF EXCISE TAX ON TRANSFERS TO FOR-
EIGN ENTITIES; RECOGNITION OF GAIN ON
CERTAIN TRANSFERS TO FOREIGN TRUSTS
AND ESTATES.
(a) REPEAL OF EXCISE TAX.—Chapter 5 (relating to
transfers to avoid income tax) is hereby repealed.
(b) RECOGNITION OF GAIN ON CERTAIN TRANSFERS
TO FOREIGN TRUSTS AND ESTATES.—Subpart F of part
I of subchapter J of chapter 1 is amended by adding at
the end the following new section:
‘‘SEC. 684. RECOGNITION OF GAIN ON CERTAIN TRANSFERS
TO CERTAIN FOREIGN TRUSTS AND ESTATES.
‘‘(a) IN GENERAL.—Except as provided in regulations,
in the case of any transfer of property by a United States
person to a foreign estate or trust, for purposes of this sub-
title, such transfer shall be treated as a sale or exchange
for an amount equal to the fair market value of the property
transferred, and the transferor shall recognize as gain the
excess of—
‘‘(1) the fair market value of the property so
transferred, over
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‘‘(2) the adjusted basis (for purposes of determin-
ing gain) of such property in the hands of the trans-
feror.
‘‘(b) EXCEPTION.—Subsection (a) shall not apply to
a transfer to a trust by a United States person to the extent
that any person is treated as the owner of such trust under
section 671.’’.
(b) OTHER ANTI-AVOIDANCE PROVISIONS REPLACING
REPEALED EXCISE TAX.—
(1) GAIN RECOGNITION ON EXCHANGES INVOLV-
ING FOREIGN PERSONS.—Section 1035 is amended by
redesignating subsection (c) as subsection (d) and by
inserting after subsection (b) the following new sub-
section:
‘‘(c) EXCHANGES INVOLVING FOREIGN PERSONS.—To
the extent provided in regulations, subsection (a) shall not
apply to any exchange having the effect of transferring
property to any person other than a United States person.’’.
(2) TRANSFERS TO FOREIGN CORPORATIONS.—
Section 367 is amended by adding at the end the fol-
lowing new subsection:
‘‘(f) OTHER TRANSFERS.—To the extent provided in
regulations, if a United States person transfers property to
a foreign corporation as paid-in surplus or as a contribu-
tion to capital (in a transaction not otherwise described in
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this section), such foreign corporation shall not, for pur-
poses of determining the extent to which gain shall be recog-
nized on such transfer, be considered to be a corporation.’’.
(3) CERTAIN TRANSFERS TO PARTNERSHIPS.—
Section 721 is amended by adding at the end the fol-
lowing new subsection:
‘‘(c) REGULATIONS RELATING TO CERTAIN TRANS-
FERS TO PARTNERSHIPS.—The Secretary may provide by
regulations that subsection (a) shall not apply to gain real-
ized on the transfer of property to a partnership if such
gain, when recognized, will be includible in the gross income
of a person other than a United States person.’’.
(4) REPEAL OF UNITED STATES SOURCE TREAT-
MENT OF DEEMED ROYALTIES.—Subparagraph (C) of
section 367(d)(2) is amended to read as follows:
‘‘(C) AMOUNTS RECEIVED TREATED AS OR-
DINARY INCOME.—For purposes of this chapter,
any amount included in gross income by reason
of this subsection shall be treated as ordinary in-
come.’’.
(5) TRANSFERS OF INTANGIBLES TO PARTNER-
SHIPS.—
(A) Subsection (d) of section 367 is amend-
ed by adding at the end the following new para-
graph:
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‘‘(3) REGULATIONS RELATING TO TRANSFERS OF
INTANGIBLES TO PARTNERSHIPS.—The Secretary may
provide by regulations that the rules of paragraph (2)
also apply to the transfer of intangible property by
a United States person to a partnership in cir-
cumstances consistent with the purposes of this sub-
section.’’.
(B) Section 721 is amended by adding at
the end the following new subsection:
‘‘(d) TRANSFERS OF INTANGIBLES.—
‘‘For regulatory authority to treat intangibles
transferred to a partnership as sold, see section
367(d)(3).’’.
(c) TECHNICAL AND CONFORMING AMENDMENTS.—
(1) Subsection (h) of section 814 is amended by
striking ‘‘or 1491’’.
(2) Section 1057 (relating to election to treat
transfer to foreign trust, etc., as taxable exchange) is
hereby repealed.
(3) Section 6422 is amended by striking para-
graph (5) and by redesignating paragraphs (6)
through (13) as paragraphs (5) through (12), respec-
tively.
(4) The table of chapters for subtitle A is amend-
ed by striking the item relating to chapter 5.
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(5) The table of sections for part IV of sub-
chapter O of chapter 1 is amended by striking the
item relating to section 1057.
(6) The table of sections for subpart F of part I
of subchapter J of chapter 1 is amended by adding
at the end the following new item:
‘‘Sec. 684. Recognition of gain on certain transfers to certain for-
eign trusts and estates.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of the enactment of this
Act.
Subtitle D—Information Reporting
SEC. 931. CLARIFICATION OF APPLICATION OF RETURN RE-
QUIREMENT TO FOREIGN PARTNERSHIPS.
(a) IN GENERAL.—Section 6031 (relating to return of
partnership income) is amended by adding at the end the
following new subsection:
‘‘(e) FOREIGN PARTNERSHIPS.—
‘‘(1) EXCEPTION FOR FOREIGN PARTNERSHIP.—
Except as provided in paragraph (2), the preceding
provisions of this section shall not apply to a foreign
partnership.
‘‘(2) CERTAIN
FOREIGN
PARTNERSHIPS
RE-
QUIRED TO FILE RETURN.—Except as provided in
regulations prescribed by the Secretary, this section
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shall apply to a foreign partnership for any taxable
year if for such year, such partnership has—
‘‘(A) gross income derived from sources
within the United States, or
‘‘(B) gross income which is effectively con-
nected with the conduct of a trade or business
within the United States.
The Secretary may provide simplified filing proce-
dures for foreign partnerships to which this section
applies.’’.
(b) SANCTION FOR FAILURE BY FOREIGN PARTNER-
SHIP TO COMPLY WITH SECTION 6031 TO INCLUDE DE-
NIAL OF DEDUCTIONS.—Subsection (f) of section 6231 is
amended—
(1) by striking ‘‘LOSSES AND’’ in the heading
and inserting ‘‘DEDUCTIONS, LOSSES, AND’’, and
(2) by striking ‘‘loss or’’ each place it appears
and inserting ‘‘deduction, loss, or’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
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SEC. 932. CONTROLLED FOREIGN PARTNERSHIPS SUBJECT
TO INFORMATION REPORTING COMPARABLE
TO 
INFORMATION 
REPORTING 
FOR 
CON-
TROLLED FOREIGN CORPORATIONS.
(a) IN GENERAL.—So much of section 6038 (relating
to information with respect to certain foreign corporations)
as precedes paragraph (2) of subsection (a) is amended to
read as follows:
‘‘SEC. 6038. INFORMATION REPORTING WITH RESPECT TO
CERTAIN 
FOREIGN 
CORPORATIONS 
AND
PARTNERSHIPS.
‘‘(a) REQUIREMENT.—
‘‘(1) IN GENERAL.—Every United States person
shall furnish, with respect to any foreign business en-
tity which such person controls, such information as
the Secretary may prescribe relating to—
‘‘(A) the name, the principal place of busi-
ness, and the nature of business of such entity,
and the country under whose laws such entity is
incorporated (or organized in the case of a part-
nership);
‘‘(B) in the case of a foreign corporation, its
post-1986 undistributed earnings (as defined in
section 902(c));
‘‘(C) a balance sheet for such entity listing
assets, liabilities, and capital;
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HR 2014 EAS
‘‘(D) transactions between such entity
and—
‘‘(i) such person,
‘‘(ii) any corporation or partnership
which such person controls, and
‘‘(iii) any United States person own-
ing, at the time the transaction takes
place—
‘‘(I) in the case of a foreign cor-
poration, 10 percent or more of the
value of any class of stock outstanding
of such corporation, and
‘‘(II) in the case of a foreign part-
nership, at least a 10-percent interest
in such partnership; and
‘‘(E)(i) in the case of a foreign corporation,
a description of the various classes of stock out-
standing, and a list showing the name and ad-
dress of, and number of shares held by, each
United States person who is a shareholder of
record owning at any time during the annual
accounting period 5 percent or more in value of
any class of stock outstanding of such foreign
corporation, and
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HR 2014 EAS
‘‘(ii) information comparable to the infor-
mation described in clause (i) in the case of a
foreign partnership.
The Secretary may also require the furnishing of any
other information which is similar or related in na-
ture to that specified in the preceding sentence or
which the Secretary determines to be appropriate to
carry out the provisions of this title.’’.
(b) DEFINITIONS.—
(1) IN GENERAL.—Subsection (e) of section 6038
(relating to definitions) is amended—
(A) by redesignating paragraphs (1) and
(2) as paragraphs (2) and (4), respectively,
(B) by inserting before paragraph (2) (as so
redesignated) the following new paragraph:
‘‘(1) FOREIGN BUSINESS ENTITY.—The term ‘for-
eign business entity’ means a foreign corporation and
a foreign partnership.’’, and
(C) by inserting after paragraph (2) (as so
redesignated) the following new paragraph:
‘‘(3) PARTNERSHIP-RELATED DEFINITIONS.—
‘‘(A) CONTROL.—A person is in control of a
partnership if such person owns directly or indi-
rectly more than a 50 percent interest in such
partnership.
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‘‘(B) 50-PERCENT INTEREST.—For purposes
of subparagraph (A), a 50-percent interest in a
partnership is—
‘‘(i) an interest equal to 50 percent of
the capital interest, or 50 percent of the
profits interest, in such partnership, or
‘‘(ii) to the extent provided in regula-
tions, an interest to which 50 percent of the
deductions or losses of such partnership are
allocated.
For purposes of the preceding sentence, rules
similar to the rules of section 267(c) (other than
paragraph (3)) shall apply, except so as to con-
sider a United States person as owning such an
interest which is owned by a person which is not
a United States person.
‘‘(C) 10-PERCENT INTEREST.—A 10-percent
interest in a partnership is an interest which
would be described in subparagraph (B) if ‘10
percent’ were substituted for ‘50 percent’ each
place it appears.’’.
(2) CLERICAL
AMENDMENT.—The paragraph
heading for paragraph (2) of section 6038(e) (as so
redesignated) is amended by inserting ‘‘OF CORPORA-
TION’’ after ‘‘CONTROL’’.
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(c) MODIFICATION OF SANCTIONS ON PARTNERSHIPS
AND CORPORATIONS FOR FAILURE TO FURNISH INFORMA-
TION.—
(1) IN GENERAL.—Subsection (b) of section 6038
is amended—
(A) by striking ‘‘$1,000’’ each place it ap-
pears and inserting ‘‘$10,000’’, and
(B) by striking ‘‘$24,000’’ in paragraph (2)
and inserting ‘‘$50,000’’.
(d) REPORTING
BY 10-PERCENT PARTNERS.—Sub-
section (a) of section 6038 is amended by adding at the
end the following new paragraph:
‘‘(5) INFORMATION REQUIRED FROM 10-PERCENT
PARTNER OF CONTROLLED FOREIGN PARTNERSHIP.—
In the case of a foreign partnership which is con-
trolled by United States persons holding at least 10-
percent interests (but not by any one United States
person), the Secretary may require each United States
person who holds a 10-percent interest in such part-
nership to furnish information relating to such part-
nership, including information relating to such part-
ner’s ownership interests in the partnership and allo-
cations to such partner of partnership items.’’.
(e) TECHNICAL AMENDMENTS.—
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HR 2014 EAS
(1) The following provisions of section 6038 are
each amended by striking ‘‘foreign corporation’’ each
place it appears and inserting ‘‘foreign business en-
tity’’:
(A) Paragraphs (2) and (3) of subsection
(a).
(B) Subsection (b).
(C) Subsection (c) other than paragraph
(1)(B) thereof.
(D) Subsection (d).
(E) Subsection (e)(4) (as redesignated by
subsection (b)).
(2) Subparagraph (B) of section 6038(c)(1) is
amended by inserting ‘‘in the case of a foreign busi-
ness entity which is a foreign corporation,’’ after
‘‘(B)’’.
(3) Paragraph (8) of section 318(b) is amended
by striking ‘‘6038(d)(1)’’ and inserting ‘‘6038(d)(2)’’.
(4) Paragraph (4) of section 901(k) is amended
by striking ‘‘foreign corporation’’ and inserting ‘‘for-
eign corporation or partnership’’.
(5) The table of sections for subpart A of part III
of subchapter A of chapter 61 is amended by striking
the item relating to section 6038 and inserting the
following new item:
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HR 2014 EAS
‘‘Sec. 6038. Information reporting with respect to certain foreign
corporations and partnerships.’’.
(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to annual accounting periods of foreign
partnerships beginning after the date of the enactment of
this Act.
SEC. 933. MODIFICATIONS RELATING TO RETURNS RE-
QUIRED 
TO 
BE 
FILED 
BY 
REASON 
OF
CHANGES IN OWNERSHIP INTERESTS IN FOR-
EIGN PARTNERSHIP.
(a) NO RETURN REQUIRED UNLESS CHANGES IN-
VOLVE 10-PERCENT INTEREST IN PARTNERSHIP.—
(1) IN
GENERAL.—Subsection (a) of section
6046A (relating to returns as to interests in foreign
partnerships) is amended by adding at the end the
following new sentence: ‘‘Paragraphs (1) and (2) shall
apply to any acquisition or disposition only if the
United States person directly or indirectly holds at
least a 10-percent interest in such partnership either
before or after such acquisition or disposition, and
paragraph (3) shall apply to any change only if the
change is equivalent to at least a 10-percent interest
in such partnership.’’.
(2) 10-PERCENT
INTEREST.—Section 6046A is
amended by redesignating subsection (d) as subsection