I
107TH CONGRESS
2D SESSION
H. R. 4047
To amend the Internal Revenue Code of 1986 to simplify certain rules
relating to the taxation of United States businesses operating abroad,
and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH 20, 2002
Mr. HOUGHTON introduced the following bill; which was referred to the
Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to simplify
certain rules relating to the taxation of United States
businesses operating abroad, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE;
TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘International Tax Simplification and Fairness for Amer-
ican Competitiveness Act of 2002’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
(c) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title; amendment of 1986 Code; table of contents.
TITLE I—TREATMENT OF CONTROLLED FOREIGN CORPORATIONS
Sec. 101. Expansion of de minimis rule under subpart F.
Sec. 102. Clarification of treatment of pipeline transportation income.
Sec. 103. Look-through treatment for sales of partnership interests.
Sec. 104. Repeal of foreign personal holding company rules and foreign invest-
ment company rules.
Sec. 105. Determination of foreign personal holding company income with re-
spect to transactions in commodities.
Sec. 106. Study of proper treatment of European Union under same country
exceptions.
Sec. 107. Effective date.
TITLE II—PROVISIONS RELATING TO FOREIGN TAX CREDIT
Sec. 201. Extension of period to which excess foreign taxes may be carried.
Sec. 202. Recharacterization of overall domestic loss.
Sec. 203. Special rules relating to financial services income.
Sec. 204. Look-thru rules to apply to dividends from noncontrolled section 902
corporations.
Sec. 205. Application of look-thru rules to foreign tax credit.
Sec. 206. Ordering rules for foreign tax credit carryovers.
Sec. 207. Repeal of limitation of foreign tax credit under alternative minimum
tax.
Sec. 208. Attribution of stock ownership through partnerships to apply in de-
termining section 902 and 960 credits.
Sec. 209. Repeal of special rules for applying foreign tax credit in case of for-
eign oil and gas income.
TITLE III—OTHER PROVISIONS
Sec. 301. Deduction for dividends received from certain foreign corporations.
Sec. 302. Application of uniform capitalization rules to foreign persons.
Sec. 303. United States property not to include certain assets acquired by deal-
ers in ordinary course of trade or business.
Sec. 304. Treatment of certain dividends of regulated investment companies.
Sec. 305. Airline mileage awards to certain foreign persons.
Sec. 306. Interest payments deductible where disqualified guarantee has eco-
nomic effect.
Sec. 307. Modifications of reporting requirements for certain foreign-owned cor-
porations.
Sec. 308. Election not to use average exchange rate for foreign tax paid other
than in functional currency.
Sec. 309. Repeal of special capital gains tax on aliens present in the United
States for 183 days or more.
Sec. 310. Repeal of withholding tax on dividends from certain foreign corpora-
tions.
TITLE I—TREATMENT OF CON-
TROLLED 
FOREIGN 
COR-
PORATIONS
SEC. 101. EXPANSION OF DE MINIMIS RULE UNDER SUB-
PART F.
(a) 
IN
GENERAL.—Clause 
(ii) 
of 
section
954(b)(3)(A) (relating to de minimis, etc., rules) is
amended 
by 
striking 
‘‘$1,000,000’’ 
and 
inserting
‘‘$5,000,000’’.
(b) TECHNICAL AMENDMENTS.—
(1) Clause (ii) of section 864(d)(5)(A) is
amended by striking ‘‘$1,000,000’’ and inserting
‘‘$5,000,000’’.
(2) Clause (i) of section 881(c)(5)(A) is amend-
ed 
by 
striking 
‘‘$1,000,000’’ 
and 
inserting
‘‘$5,000,000’’.
SEC. 102. CLARIFICATION OF TREATMENT OF PIPELINE
TRANSPORTATION INCOME.
Section 954(g)(1) (defining foreign base company oil
related income) is amended by striking ‘‘or’’ at the end
of subparagraph (A), by striking the period at the end
of subparagraph (B) and inserting ‘‘, or’’, and by inserting
after subparagraph (B) the following new subparagraph:
‘‘(C) the pipeline transportation of oil or
gas within such foreign country.’’
SEC. 103. LOOK-THROUGH TREATMENT FOR SALES OF
PARTNERSHIP INTERESTS.
(a) IN GENERAL.—Section 954(c) (defining foreign
personal holding company income) is amended by adding
at the end the following new paragraph:
‘‘(4) LOOK-THROUGH
RULE
FOR
CERTAIN
PARTNERSHIP SALES.—
‘‘(A) IN
GENERAL.—In the case of any
sale by a controlled foreign corporation of an
interest in a partnership with respect to which
such corporation is a 25-percent owner, such
corporation shall be treated for purposes of this
subsection as selling the proportionate share of
the assets of the partnership attributable to
such interest.
‘‘(B) 25-PERCENT OWNER.—For purposes
of this paragraph, the term ‘25-percent owner’
means a controlled foreign corporation which
owns 25 percent or more of the capital or prof-
its interest in the partnership. The constructive
ownership rules of section 958(b) shall apply
for purposes of the preceding sentence.’’
(b) 
CONFORMING
AMENDMENT.—Section
954(c)(1)(B)(ii) is amended by inserting ‘‘except as pro-
vided in paragraph (4),’’ before ‘‘which’’.
SEC. 104. REPEAL OF FOREIGN PERSONAL HOLDING COM-
PANY RULES AND FOREIGN INVESTMENT
COMPANY RULES.
(a) GENERAL RULE.—The following provisions are
hereby repealed:
(1) Part III of subchapter G of chapter 1 (re-
lating to foreign personal holding companies).
(2) Section 1246 (relating to gain on foreign in-
vestment company stock).
(3) Section 1247 (relating to election by foreign
investment companies to distribute income cur-
rently).
(b) EXEMPTION OF FOREIGN CORPORATIONS FROM
PERSONAL HOLDING COMPANY RULES.—
(1) IN
GENERAL.—Subsection (c) of section
542 (relating to exceptions) is amended—
(A) by striking paragraph (5) and insert-
ing the following:
‘‘(5) a foreign corporation,’’,
(B) by striking paragraphs (7) and (10)
and by redesignating paragraphs (8) and (9) as
paragraphs (7) and (8), respectively,
(C) by inserting ‘‘and’’ at the end of para-
graph (7) (as so redesignated), and
(D) by striking ‘‘; and’’ at the end of para-
graph (8) (as so redesignated) and inserting a
period.
(2) TREATMENT OF INCOME FROM PERSONAL
SERVICE
CONTRACTS.—Paragraph (1) of section
954(c) is amended by adding at the end the fol-
lowing new subparagraph:
‘‘(H) PERSONAL SERVICE CONTRACTS.—
‘‘(i) Amounts received under a con-
tract under which the corporation is to fur-
nish personal services; if some person other
than the corporation has the right to des-
ignate (by name or by description) the in-
dividual who is to perform the services, or
if the individual who is to perform the
services is designated (by name or by de-
scription) in the contract; and
‘‘(ii) amounts received from the sale
or other disposition of such a contract.
This subparagraph shall apply with respect to
amounts received for services under a particular
contract only if at some time during the taxable
year 25 percent or more in value of the out-
standing stock of the corporation is owned, di-
rectly or indirectly, by or for the individual who
has performed, is to perform, or may be des-
ignated (by name or by description) as the one
to perform, such services.’’
(c) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 171(c) is
amended—
(A) by striking ‘‘, or by a foreign personal
holding company, as defined in section 552’’,
and
(B) by striking ‘‘, or a foreign personal
holding company’’.
(2) Paragraph (2) of section 245(a) is amended
by striking ‘‘foreign personal holding company or’’
(3) Section 312 is amended by striking sub-
section (j).
(4) Subsection (m) of section 312 is amended
by striking ‘‘, a foreign investment company (within
the meaning of section 1246(b)), or a foreign per-
sonal holding company (within the meaning of sec-
tion 552)’’.
(5) Subsection (e) of section 443 is amended by
striking paragraph (3) and by redesignating para-
graphs (4) and (5) as paragraphs (3) and (4), re-
spectively.
(6) Subparagraph (B) of section 465(c)(7) is
amended to by adding ‘‘or’’ at the end of clause (i),
by striking clause (ii), and by redesignating clause
(iii) as clause (ii).
(7) Paragraph (1) of section 543(b) is amended
by inserting ‘‘and’’ at the end of subparagraph (A),
by striking ‘‘, and’’ at the end of subparagraph (B)
and inserting a period, and by striking subparagraph
(C).
(8) Paragraph (1) of section 562(b) is amended
by striking ‘‘or a foreign personal holding company
described in section 552’’.
(9) Section 563 is amended—
(A) by striking subsection (c),
(B) by redesignating subsection (d) as sub-
section (c), and
(C) by striking ‘‘subsection (a), (b), or (c)’’
in subsection (c) (as so redesignated) and in-
serting ‘‘subsection (a) or (b)’’.
(10) Subsection (d) of section 751 is amended
by adding ‘‘and’’ at the end of paragraph (2), by
striking paragraph (3), by redesignating paragraph
(4) as paragraph (3), and by striking ‘‘paragraph
(1), (2), or (3)’’ in paragraph (3) (as so redesig-
nated) and inserting paragraph (1) or (2)’’.
(11) Paragraph (2) of section 864(d) is amend-
ed by striking subparagraph (A) and by redesig-
nating subparagraphs (B) and (C) as subparagraphs
(A) and (B), respectively.
(12)(A) Subparagraph (A) of section 898(b)(1)
is amended to read as follows:
‘‘(A) which is treated as a controlled for-
eign corporation for any purpose under subpart
F of part III of this subchapter, and’’.
(B) Subparagraph (B) of section 898(b)(2) is
amended by striking ‘‘and sections 551(f) and 554,
whichever are applicable,’’.
(C) Paragraph (3) of section 898(b) is amended
to read as follows:
‘‘(3) UNITED
STATES
SHAREHOLDER.—The
term ‘United States shareholder’ has the meaning
given to such term by section 951(b), except that, in
the case of a foreign corporation having related per-
son insurance income (as defined in section
953(c)(2)), the Secretary may treat any person as a
United States shareholder for purposes of this sec-
tion if such person is treated as a United States
shareholder under section 953(c)(1).’’
(D) Subsection (c) of section 898 is amended to
read as follows:
‘‘(c) DETERMINATION OF REQUIRED YEAR.—
‘‘(1) IN GENERAL.—The required year is—
‘‘(A) the majority U.S. shareholder year,
or
‘‘(B) if there is no majority U.S. share-
holder year, the taxable year prescribed under
regulations.
‘‘(2) 1-MONTH DEFERRAL ALLOWED.—A speci-
fied foreign corporation may elect, in lieu of the tax-
able year under paragraph (1)(A), a taxable year be-
ginning 1 month earlier than the majority U.S.
shareholder year.
‘‘(3) MAJORITY U.S. SHAREHOLDER YEAR.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, the term ‘majority U.S. shareholder
year’ means the taxable year (if any) which, on
each testing day, constituted the taxable year
of—
‘‘(i) each United States shareholder
described in subsection (b)(2)(A), and
‘‘(ii) each United States shareholder
not described in clause (i) whose stock was
treated 
as 
owned 
under 
subsection
(b)(2)(B) by any shareholder described in
such clause.
‘‘(B) TESTING
DAY.—The testing days
shall be—
‘‘(i) the first day of the corporation’s
taxable year (determined without regard to
this section), or
‘‘(ii) the days during such representa-
tive period as the Secretary may pre-
scribe.’’
(13) Clause (ii) of section 904(d)(2) is amended
to read as follows:
‘‘(ii) CERTAIN AMOUNTS INCLUDED.—
Except as provided in clause (iii), the term
‘passive income’ includes, except as pro-
vided in subparagraph (E)(iii) or para-
graph (3)(I), any amount includible in
gross income under section 1293 (relating
to certain passive foreign investment com-
panies).’’
(14)(A) Subparagraph (A) of section 904(g)(1)
is amended by adding ‘‘or’’ at the end of clause (i),
by striking clause (ii), and by redesignating clause
(iii) as clause (ii).
(B) The paragraph heading of paragraph (2) of
section 904(g) is amended by striking ‘‘FOREIGN
PERSONAL HOLDING OR’’.
(15) Section 951 is amended by striking sub-
sections (c) and (d) and by redesignating subsections
(e) and (f) as subsections (c) and (d), respectively.
(16) Paragraph (3) of section 989(b) is amend-
ed by striking ‘‘, 551(a),’’.
(17) Paragraph (5) of section 1014(b) is hereby
repealed.
(18) Subsection (a) of section 1016 is amended
by striking paragraph (13) and by redesignating the
following paragraphs accordingly.
(19)(A) Paragraph (3) of section 1212(a) is
amended to read as follows:
‘‘(3) SPECIAL RULES ON CARRYBACKS.—A net
capital loss of a corporation shall not be carried
back under paragraph (1)(A) to a taxable year—
‘‘(A) for which it is a regulated investment
company (as defined in section 851), or
‘‘(B) for which it is a real estate invest-
ment trust (as defined in section 856).’’
(B) The amendment made by subparagraph (A)
shall apply to taxable years beginning after Decem-
ber 31, 2004.
(20) Section 1223 is amended by striking para-
graph (10) and by redesignating the following para-
graphs accordingly.
(21) Subsection (d) of section 1248 is amended
by striking paragraph (5) and by redesignating
paragraphs (6) and (7) as paragraphs (5) and (6),
respectively.
(22) Paragraph (2) of section 1260(c) is
amended by striking subparagraphs (H) and (I) and
by redesignating subparagraph (J) as subparagraph
(H).
(23) Subparagraph (F) of section 1291(b)(3) is
amended by striking ‘‘551(d), 959(a),’’ and inserting
‘‘959(a)’’.
(24) Paragraph (2) of section 1294(a) is
amended to read as follows:
‘‘(2) 
ELECTION
NOT
PERMITTED
WHERE
AMOUNTS OTHERWISE INCLUDIBLE UNDER SECTION
951.—The taxpayer may not make an election under
paragraph (1) with respect to the undistributed
PFIC earnings tax liability attributable to a quali-
fied electing fund for the taxable year if any amount
is includible in the gross income of the taxpayer
under section 951 with respect to such fund for such
taxable year.’’
(25) Section 6035 is hereby repealed.
(26) Subparagraph (D) of section 6103(e)(1) is
amended by striking clause (iv) and redesignating
clauses (v) and (vi) as clauses (iv) and (v), respec-
tively.
(27) Subparagraph (B) of section 6501(e)(1) is
amended to read as follows:
‘‘(B) CONSTRUCTIVE
DIVIDENDS.—If the
taxpayer omits from gross income an amount
properly 
includible 
therein 
under 
section
951(a), the tax may be assessed, or a pro-
ceeding in court for the collection of such tax
may be done without assessing, at any time
within 6 years after the return was filed.’’
(28) Subsection (a) of section 6679 is
amended—
(A) by striking ‘‘6035, 6046, and 6046A’’
in paragraph (1) and inserting ‘‘6046 and
6046A’’, and
(B) by striking paragraph (3).
(29) Sections 170(f)(10)(A), 508(d), 4947 and
section 4948(c)(4) are each amended by striking
‘‘556(b)(2),’’ each place it appears.
(30) The table of parts for subchapter G of
chapter 1 is amended by striking the item relating
to part III.
(31) The table of sections for part IV of sub-
chapter P of chapter 1 is amended by striking the
items relating to sections 1246 and 1247.
(32) The table of sections for subpart A of part
III of subchapter A of chapter 61 of such Code is
amended by striking the item relating to section
6035.
SEC. 105. DETERMINATION OF FOREIGN PERSONAL HOLD-
ING COMPANY INCOME WITH RESPECT TO
TRANSACTIONS IN COMMODITIES.
(a) IN GENERAL.—Clauses (i) and (ii) of section
954(c)(1)(C) (relating to commodity transactions) are
amended to read as follows:
‘‘(i) arise out of commodity hedging
transactions (as defined in paragraph
(5)(A)),
‘‘(ii) are active business gains or
losses from the sale of commodities, but
only if substantially all of the controlled
foreign 
corporation’s 
commodities 
are
property described in paragraph (1), (2) or
(8) of section 1221(a), or’’.
(b) DEFINITION AND SPECIAL RULES.—Subsection
(c) of section 954 is amended by adding after paragraph
(4) the following new paragraph:
‘‘(5) DEFINITION AND SPECIAL RULES RELAT-
ING TO COMMODITY TRANSACTIONS.—
‘‘(A) 
COMMODITY
HEDGING
TRANS-
ACTIONS.—For 
purposes 
of 
paragraph
(1)(C)(i), the term ‘commodity hedging trans-
action’ means any transaction with respect to a
commodity if such transaction—
‘‘(i) is a hedging transaction as de-
fined in section 1221(b)(2), determined—
‘‘(I) without regard to subpara-
graph (A)(ii) thereof,
‘‘(II) by applying subparagraph
(A)(i) thereof by substituting ‘ordi-
nary property or property described in
section 1231(b)’ for ‘ordinary prop-
erty’, and
‘‘(III) by substituting ’controlled
foreign corporation’ for ‘taxpayer’
each place it appears, and
‘‘(ii) is clearly identified as such in ac-
cordance with section 1221(a)(7).
‘‘(B) REGULATIONS.—The Secretary shall
prescribe such regulations as are appropriate to
carry out the purposes of paragraph (1)(C) in
the case of transactions involving related par-
ties.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to commodity hedging transactions
entered into on or after the date of enactment of this Act.
SEC. 106. STUDY OF PROPER TREATMENT OF EUROPEAN
UNION UNDER SAME COUNTRY EXCEPTIONS.
(a) STUDY.—The Secretary of the Treasury or the
Secretary’s delegate shall conduct a study on the feasi-
bility of treating all countries included in the European
Union as 1 country for purposes of applying the same
country exceptions under subpart F of part III of sub-
chapter N of chapter 1 of the Internal Revenue Code of
1986. Such study shall include consideration of methods
of ensuring that taxpayers are subject to a substantial ef-
fective rate of foreign tax in such countries if such treat-
ment is adopted.
(b) REPORT.—Not later than 6 months after the date
of the enactment of this Act, the Secretary of the Treasury
shall report to the Committee on Ways and Means of the
House of Representatives and the Committee on Finance
of the Senate the results of the study conducted under
subsection (a), including recommendations (if any) for leg-
islation.
SEC. 107. EFFECTIVE DATE.
Except as otherwise provided in this title, the amend-
ments made by this title shall apply to taxable years of
foreign corporations beginning after December 31, 2002,
and taxable years of United States persons owning stock
in such corporations with or within which such corpora-
tions’ taxable years end.
TITLE 
II—PROVISIONS 
RELAT-
ING TO FOREIGN TAX CREDIT
SEC. 201. EXTENSION OF PERIOD TO WHICH EXCESS FOR-
EIGN TAXES MAY BE CARRIED.
(a) GENERAL RULE.—Section 904(c) (relating to
carryback and carryover of excess tax paid) is amended
by striking ‘‘in the first, second, third, fourth, or fifth’’
and inserting ‘‘in any of the first 10’’.
(b) EXCESS EXTRACTION TAXES.—Paragraph (1) of
section 907(f) is amended by striking ‘‘in the first, second,
third, fourth, or fifth’’ and inserting ‘‘in any of the first
10’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to excess foreign taxes arising in
taxable years beginning after December 31, 2002.
SEC. 202. RECHARACTERIZATION OF OVERALL DOMESTIC
LOSS.
(a) GENERAL RULE.—Section 904 is amended by re-
designating subsections (g), (h), (i), (j), and (k) as sub-
sections (h), (i), (j), (k), and (l) respectively, and by in-
serting after subsection (f) the following new subsection:
‘‘(g) RECHARACTERIZATION OF OVERALL DOMESTIC
LOSS.—
‘‘(1) GENERAL
RULE.—For purposes of this
subpart, in the case of any taxpayer who sustains an
overall domestic loss for any taxable year beginning
after December 31, 2002, that portion of the tax-
payer’s taxable income from sources within the
United States for each succeeding taxable year
which is equal to the lesser of—
‘‘(A) the amount of such loss (to the extent
not used under this paragraph in prior taxable
years), or
‘‘(B) 50 percent of the taxpayer’s taxable
income from sources within the United States
for such succeeding taxable year,
shall be treated as income from sources without the
United States (and not as income from sources with-
in the United States).
‘‘(2) OVERALL DOMESTIC LOSS DEFINED.—For
purposes of this subsection and section 936—
‘‘(A) IN GENERAL.—The term ‘overall do-
mestic loss’ means any domestic loss to the ex-
tent such loss offsets taxable income from
sources without the United States for the tax-
able year or for any preceding taxable year by
reason of a carryback. For purposes of the pre-
ceding sentence, the term ‘domestic loss’ means
the amount by which the gross income for the
taxable year from sources within the United
States is exceeded by the sum of the deductions
properly apportioned or allocated thereto (deter-
mined without regard to any carryback from a
subsequent taxable year).
‘‘(B) TAXPAYER
MUST
HAVE
ELECTED
FOREIGN TAX CREDIT FOR YEAR OF LOSS.—
The term ‘overall domestic loss’ shall not in-
clude any loss for any taxable year unless the
taxpayer chose the benefits of this subpart for
such taxable year.
‘‘(3) CHARACTERIZATION OF SUBSEQUENT IN-
COME.—
‘‘(A) IN
GENERAL.—Any income from
sources within the United States that is treated
as income from sources without the United
States under paragraph (1) shall be allocated
among and increase the income categories in
proportion to the loss from sources within the
United States previously allocated to those in-
come categories.
‘‘(B) INCOME CATEGORY.—For purposes of
this paragraph, the term ‘income category’ has
the meaning given such term by subsection
(f)(5)(E)(i).
‘‘(4) COORDINATION WITH SUBSECTION (f).—
The Secretary shall prescribe such regulations as
may be necessary to coordinate the provisions of this
subsection with the provisions of subsection (f).’’
(b) CONFORMING AMENDMENTS.—
(1) Section 535(d)(2) is amended by striking
‘‘section 
904(g)(6)’’ 
and 
inserting 
‘‘section
904(h)(6)’’.
(2) Subparagraph (A) of section 936(a)(2) is
amended by striking ‘‘section 904(f)’’ and inserting
‘‘subsections (f) and (g) of section 904’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to losses for taxable years begin-
ning after December 31, 2002.
SEC. 203. SPECIAL RULES RELATING TO FINANCIAL SERV-
ICES INCOME.
(a) EXCEPTION FOR INTEREST ON CERTAIN SECURI-
TIES.—Section 904(d)(2)(B) (relating to high withholding
tax interest) is amended by redesignating clause (iii) as
clause (iv) and by inserting after clause (ii) the following
new clause:
‘‘(iii) EXCEPTION FOR INTEREST ON
DEALER PROPERTY.—The term ‘high with-
holding tax interest’ shall not include any
interest on a security (within the meaning
of section 475(c)(2)) which is received or
accrued by a person that holds the security
in connection with the holder’s activities as
a dealer in securities (within the meaning
of section 475(c)(1)).’’
(b) FINANCIAL SERVICES INCOME IN EXCESS OF 80
PERCENT OF GROSS INCOME.—Section 904(d)(2)(C) (re-
lating to financial services income) is amended by adding
at the end the following new clause:
‘‘(iv) INCOME EXCEEDING 80 PERCENT
OF GROSS INCOME.—If the financial serv-
ices income (as defined in clause (i)) of
any person exceeds 80 percent of gross in-
come, the entire gross income for the tax-
able year shall be treated as financial serv-
ices income.’’
(c) EXCEPTION
FOR INCOME
ON DEALER PROP-
ERTY.—Subsection 904(g) (relating to source rules in case
of United States-owned foreign corporations) is amended
by redesignating paragraph (11) as paragraph (12) and
by adding after paragraph (10) the following new para-
graph:
‘‘(11) EXCEPTION
FOR
INCOME
ON
DEALER
PROPERTY.—Paragraph (1) shall not apply to any
amount derived from a United States-owned foreign
corporation that is derived from income on a secu-
rity (within the meaning of section 475(c)(2)) which
is received or accrued by a person that holds the se-
curity in connection with the holder’s activities as a
dealer in securities (within the meaning of section
475(c)(1)).’’
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section shall apply to taxable years beginning
after December 31, 2002.
(2) DEEMED PAID CREDITS.—In the case of
any credit under section 901 of the Internal Revenue
Code of 1986 by reason of section 902 or 960 of
such Code, the amendments made by this section
shall apply to taxable years of foreign corporations
beginning after December 31, 2002, and to taxable
years of United States shareholders in such corpora-
tions with or within which such taxable years of for-
eign corporations end.
SEC. 204. LOOK-THRU RULES TO APPLY TO DIVIDENDS
FROM NONCONTROLLED SECTION 902 COR-
PORATIONS.
(a) IN GENERAL.—Section 904(d)(4) (relating to
look-thru rules apply to dividends from noncontrolled sec-
tion 902 corporations) is amended to read as follows:
‘‘(4) LOOK-THRU APPLIES TO DIVIDENDS FROM
NONCONTROLLED SECTION 902 CORPORATIONS.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, any dividend from a noncontrolled
section 902 corporation with respect to the tax-
payer shall be treated as income in a separate
category in proportion to the ratio of—
‘‘(i) the portion of earnings and prof-
its attributable to income in such category,
to
‘‘(ii) the total amount of earnings and
profits.
‘‘(B) SPECIAL
RULES.—For purposes of
this paragraph—
‘‘(i) IN
GENERAL.—Rules similar to
the rules of paragraph (3)(F) shall apply.
‘‘(ii) EARNINGS AND PROFITS.—
‘‘(I) IN GENERAL.—The rules of
section 316 shall apply.
‘‘(II) REGULATIONS.—The Sec-
retary may prescribe regulations re-
garding the treatment of distributions
out of earnings and profits for periods
before the taxpayer’s acquisition of
the stock to which the distributions
relate.
‘‘(iii) DIVIDENDS NOT ALLOCABLE TO
SEPARATE CATEGORY.—The portion of any
dividend from a noncontrolled section 902
corporation which is not treated as income
in a separate category under subparagraph
(A) shall be treated as a dividend to which
subparagraph (A) does not apply.
‘‘(iv) LOOK-THRU WITH RESPECT TO
CARRYFORWARDS OF CREDIT.—Rules simi-
lar to subparagraph (A) also shall apply to
any carryforward under subsection (c)
from a taxable year beginning before Janu-
ary 1, 2002, of tax allocable to a dividend
from a noncontrolled section 902 corpora-
tion with respect to the taxpayer.’’.
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (E) of section 904(d)(1), as
in effect both before and after the amendments
made by section 1105 of the Taxpayer Relief Act of
1997, is hereby repealed.
(2) Section 904(d)(2)(C)(iii), as so in effect, is
amended by striking subclause (II) and by redesig-
nating subclause (III) as subclause (II).
(3) The last sentence of section 904(d)(2)(D),
as so in effect, is amended to read as follows: ‘‘Such
term does not include any financial services income.’’
(4) Section 904(d)(2)(E) is amended by strik-
ing clauses (ii) and (iv) and by redesignating clause
(iii) as clause (ii).
(5) Section 904(d)(3)(F) is amended by strik-
ing ‘‘(D), or (E)’’ and inserting ‘‘or (D)’’.
(6) Section 864(d)(5)(A)(i) is amended by
striking ‘‘(C)(iii)(III)’’ and inserting ‘‘(C)(iii)(II)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 205. APPLICATION OF LOOK-THRU RULES TO FOREIGN
TAX CREDIT.
(a) INTEREST, RENTS, AND ROYALTIES.—
(1) NONCONTROLLED
SECTION
902
CORPORA-
TION.—Section 904(d)(4)(A), as amended by section
204, is amended to read as follows:
‘‘(A) IN GENERAL.—For purposes of this
subsection—
‘‘(i) any applicable dividend shall be
treated as income in a separate category in
proportion to the ratio of—
‘‘(I) the portion of the earnings
and profits attributable to income in
such category, to
‘‘(II) the total amount of earn-
ings and profits, and
‘‘(ii) any interest, rent, or royalty
which is received or accrued from a non-
controlled section 902 corporation with re-
spect to the taxpayer shall be treated as
income in a separate category to the extent
it is properly allocable (under regulations
prescribed by the Secretary) to income of
such corporation in such category.’’
(2) PARTNERSHIPS.—Section 904(d)(6)(C) (re-
lating to regulations) is amended—
(A) by inserting ‘‘or (4)(A)(ii)’’ after
‘‘paragraph (3)(C)’’, and
(B) by inserting ‘‘or noncontrolled section
902 corporations, whichever is applicable’’ after
‘‘controlled foreign corporations’’.
(3) CONFORMING AMENDMENT.—The heading
for section 904(d)(4), as amended by section 204, is
amended by inserting ‘‘, INTEREST, RENTS, OR ROY-
ALTIES’’ after ‘‘DIVIDENDS’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2002.
SEC. 
206. 
ORDERING 
RULES 
FOR 
FOREIGN 
TAX
CARRYOVERS.
(a) IN
GENERAL.—Section 904(c) (relating to
carryback and carryover of excess tax paid), as amended
by section 201, is amended to read as follows:
‘‘(c) CARRYBACK AND CARRYFORWARD OF EXCESS
FOREIGN TAXES.—
‘‘(1) CARRYFORWARDS
USED
FIRST.—If, for
any taxable year for which the taxpayer elects to
have the benefits of this subpart apply, the sum of—
‘‘(A) the foreign tax carryforwards under
this subsection to such taxable year, and
‘‘(B) the amount of foreign taxes paid or
accrued for the taxable year,
exceeds the limitation under subsection (a), such ex-
cess (to the extent attributable to the taxes de-
scribed in subparagraph (B)) shall be a foreign tax
carryback to each of the 2 preceding taxable years
and a foreign tax carryforward to each of the 10 fol-
lowing taxable years.
‘‘(2) 
AMOUNTS
CARRIED
TO
EARLIEST
YEARS.—The entire amount of the excess described
in paragraph (1) for any taxable year shall be car-
ried to the earliest of the 12 taxable years to which
(by reason of paragraph (1)) such excess may be
carried. The amount of such excess shall be carried
to each of the other 11 taxable years to the extent
that such excess may not be taken into account
under subsection (a) for a prior taxable year because
of the limitations of paragraph (3).
‘‘(3) ORDERING RULES.—For purposes of de-
termining under this subsection whether foreign
taxes are taken into account for a taxable year or
as a carryback or carryforward, such taxes shall be
treated as taken into account in the order of the tax-
able years in which such taxes were actually paid or
accrued, beginning with the earliest such year.
‘‘(4) LIMITATIONS.—
‘‘(A) CARRYBACKS USED LAST.—The ex-
cess described in paragraph (1) for any taxable
year (hereafter in this paragraph referred to as
the ‘current taxable year’) which is carried to
any preceding taxable year shall not exceed the
amount by which the limitation under sub-
section (a) for such preceding taxable year ex-
ceeds the sum of—
‘‘(i) the foreign taxes paid or accrued
for such preceding taxable year, and
‘‘(ii) the amount of the foreign taxes
paid or accrued for any taxable year earlier
than the current taxable year which have
been carried to such preceding taxable year
(whether or not the taxpayer chooses to
have the benefits of this subpart with re-
spect to such earlier taxable year).
‘‘(B) CREDIT ONLY.—Taxes may be car-
ried to a taxable year under this subsection only
if the taxpayer chooses for such taxable year to
have the benefits of this subpart apply to for-
eign taxes paid or accrued for such year. Any
amount so carried may be availed of only as a
credit and not a deduction.
‘‘(C) CARRYFORWARDS.—The excess de-
scribed in paragraph (1) for a taxable year
which is carried to any succeeding taxable year
shall not exceed the amount by which the limi-
tation under subsection (a) for such succeeding
taxable year exceeds the sum of the amounts
which, by reason of this subsection, are carried
to such succeeding taxable year and are attrib-
utable to taxable years preceding the taxable
year of such excess.
‘‘(5) FOREIGN
TAXES.—For purposes of this
subsection, the term ‘foreign taxes’ means taxes paid
or accrued to foreign countries or any possessions of
the United States.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxes paid or accrued for taxable
years beginning after December 31, 2002, and to
carryforwards of taxes from taxable years beginning after
December 31, 1996.
SEC. 207. REPEAL OF LIMITATION OF FOREIGN TAX CREDIT
UNDER ALTERNATIVE MINIMUM TAX.
(a) IN GENERAL.—Section 59(a) (relating to alter-
native minimum tax foreign tax credit) is amended by
striking paragraph (2) and by redesignating paragraphs
(3) and (4) as paragraphs (2) and (3), respectively.
(b) 
CONFORMING
AMENDMENT.—Section
53(d)(1)(B)(i)(II) is amended by striking ‘‘and if section
59(a)(2) did not apply’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2002.
SEC. 208. ATTRIBUTION OF STOCK OWNERSHIP THROUGH
PARTNERSHIPS TO APPLY IN DETERMINING
SECTION 902 AND 960 CREDITS.
(a) IN GENERAL.—Subsection (c) of section 902 is
amended by redesignating paragraph (7) as paragraph (8)
and by inserting after paragraph (6) the following new
paragraph:
‘‘(7) CONSTRUCTIVE
OWNERSHIP
THROUGH
PARTNERSHIPS.—Stock owned, directly or indirectly,
by or for a partnership shall be considered as being
owned proportionately by its partners. Stock consid-
ered to be owned by a person by reason of the pre-
ceding sentence shall, for purposes of applying such
sentence, be treated as actually owned by such per-
son. The Secretary may prescribe such regulations
as may be necessary to carry out the purposes of
this paragraph, including rules to account for special
partnership allocations of dividends, credits, and
other incidents of ownership of stock in determining
proportionate ownership.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxes of foreign corporations
for taxable years of such corporations beginning after De-
cember 31, 2002.
SEC. 209. REPEAL OF SPECIAL RULES FOR APPLYING FOR-
EIGN TAX CREDIT IN CASE OF FOREIGN OIL
AND GAS INCOME.
(a) IN GENERAL.—Section 907 (relating to special
rules in case of foreign oil and gas income) is repealed.
(b) CONFORMING AMENDMENTS.—
(1) Each of the following provisions are amend-
ed by striking ‘‘907,’’:
(A) Section 245(a)(10).
(B) Section 865(h)(1)(B).
(C) Section 904(d)(1).
(D) Section 904(g)(10)(A).
(2) Section 904(f)(5)(E)(iii) is amended by in-
serting ‘‘, as in effect before its repeal by the Inter-
national Tax Simplification and Fairness for Amer-
ican Competitiveness Act of 2002’’ after ‘‘section
907(c)(4)(B)’’.
(3) Section 954(g)(1) is amended by inserting
‘‘, as in effect before its repeal by the International
Tax Simplification for American Competitiveness
Act of 2001’’ after ‘‘907(c)’’.
(4) Section 6501(i) is amended—
(A) by striking ‘‘, or under section 907(f)
(relating to carryback and carryover of dis-
allowed oil and gas extraction taxes)’’, and
(B) by striking ‘‘or 907(f)’’.
(5) The table of sections for subpart A of part
III of subchapter N of chapter 1 is amended by
striking the item relating to section 907.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2002.
TITLE III—OTHER PROVISIONS
SEC. 301. DEDUCTION FOR DIVIDENDS RECEIVED FROM
CERTAIN FOREIGN CORPORATIONS.
(a) CONSTRUCTIVE OWNERSHIP RULES TO APPLY IN
DETERMINING 80-PERCENT OWNERSHIP.—Section 245
(a)(5) (relating to post-1986 undistributed U.S. earnings)
is amended by adding at the end the following flush sen-
tence:
‘‘Section 318(a) shall apply for purposes of subpara-
graph (B).’’
(b) DIVIDENDS TO INCLUDE SUBPART F DISTRIBU-
TIONS.—Section 245(a) (relating to dividends from 10-
percent owned foreign corporations) is amended by adding
at the end the following new paragraph:
‘‘(12) SUBPART
F
INCLUSIONS
TREATED
AS
DIVIDENDS.—For purposes of this subsection, the
term ‘dividend’ shall include any amount the tax-
payer is required to include in gross income for the
taxable year under section 951(a).’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2002.
SEC. 302. APPLICATION OF UNIFORM CAPITALIZATION
RULES TO FOREIGN PERSONS.
(a) IN GENERAL.—Section 263A(c) (relating to ex-
ceptions) is amended by adding at the end the following
new paragraph:
‘‘(7) FOREIGN PERSONS.—Except for purposes
of applying sections 871(b)(1) and 882(a)(1), this
section shall not apply to any taxpayer who is not
a United States person if such taxpayer capitalizes
costs of produced property or property acquired for
resale by applying the method used to ascertain the
income, profit, or loss for purposes of reports or
statements to shareholders, partners, other propri-
etors, or beneficiaries, or for credit purposes.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 2002. Section 481 of the Internal Revenue
Code of 1986 shall not apply to any change in a method
of accounting by reason of such amendment.
SEC. 303. UNITED STATES PROPERTY NOT TO INCLUDE
CERTAIN ASSETS ACQUIRED BY DEALERS IN
ORDINARY COURSE OF TRADE OR BUSINESS.
(a) IN GENERAL.—Section 956(c)(2) (relating to ex-
ceptions from property treated as United States property)
is amended by striking ‘‘and’’ at the end of subparagraph
(J), by striking the period at the end of subparagraph (K)
and inserting ‘‘; and’’, and by adding at the end the fol-
lowing new subparagraph:
‘‘(L) securities acquired and held by a con-
trolled foreign corporation in the ordinary
course of its business as a dealer in securities
if (i) the dealer accounts for the securities as
securities held primarily for sale to customers
in the ordinary course of business, and (ii) the
dealer disposes of the securities (or such securi-
ties mature while held by the dealer) within a