I
104TH CONGRESS
1ST SESSION
H. R. 1629
To amend the Internal Revenue Code of 1986 with respect to treatment
of corporations, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MAY 12, 1995
Mr. SANDERS (for himself, Ms. NORTON, and Mr. OWENS) introduced the fol-
lowing bill; which was referred to the Committee on Ways and Means,
and in addition to the Committees on Banking and Financial Services
and International Relations, for a period to be subsequently determined
by the Speaker, in each case for consideration of such provisions as fall
within the jurisdiction of the committee concerned
A BILL
To amend the Internal Revenue Code of 1986 with respect
to treatment of corporations, 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 AND TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Come Home, Corporate America, Act of 1995’’.
(b) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title and table of contents.
Sec. 2. Elimination of credit for foreign taxes and allowance of deduction for
such taxes.
Sec. 3. Use of formulaic approach under section 482.
Sec. 4. Disposition of stock in domestic corporations by 10-percent foreign
shareholders.
Sec. 5. Portfolio debt.
Sec. 6. Termination of exclusion of certain income of citizens or residents of
United States living abroad.
Sec. 7. Elimination of exclusion of certain income of foreign sales corporations.
Sec. 8. Repeal of deferral of income of controlled foreign corporations.
Sec. 9. Extension of statute of limitations for certain foreign-related defi-
ciencies.
Sec. 10. Reduction of outstanding loan, guarantee, and insurance authority of
the Export-Import Bank of the United States.
Sec. 11. Abolition of Overseas Private Investment Corporation.
SEC. 2. ELIMINATION OF CREDIT FOR FOREIGN TAXES AND
ALLOWANCE 
OF 
DEDUCTION 
FOR 
SUCH
TAXES.
(a) IN GENERAL.—Section 901 of the Internal Reve-
nue Code of 1986 (relating to taxes of foreign countries
and of possessions of the United States) is amended by
redesignating subsection (k) as subsection (l) and by in-
serting after subsection (j) the following new subsection:
‘‘(k) TERMINATION OF FOREIGN TAX CREDIT.—
‘‘(1) IN GENERAL.—No credit shall be allowed
under subsection (a) for any income, war profits, or
excess profits taxes paid or accrued (or deemed paid
under section 902 or 960) for any taxable year be-
ginning after the date of the enactment of this sub-
section.
‘‘(2) TAXES ALLOWED AS DEDUCTION.—Section
275(a)(4) shall not apply to any tax for which credit
is not allowable by reason of this subsection.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 3. USE OF FORMULAIC APPROACH UNDER SECTION
482.
Not later than January 1, 1996, the Secretary of the
Treasury or his delegate shall prescribe regulations under
section 482 of the Internal Revenue Code of 1986 which
use a formulaic approach to clearly reflect income of mul-
tinational corporations.
SEC. 4. DISPOSITION OF STOCK IN DOMESTIC CORPORA-
TIONS BY 10-PERCENT FOREIGN SHAREHOLD-
ERS.
(a) GENERAL RULE.—Subpart D of part II of sub-
chapter N of chapter 1 of the Internal Revenue Code of
1986 (relating to miscellaneous provisions) is amended by
adding at the end the following new section:
‘‘SEC. 899. DISPOSITION OF STOCK IN DOMESTIC CORPORA-
TIONS BY 10-PERCENT FOREIGN SHAREHOLD-
ERS.
‘‘(a) GENERAL RULE.—
‘‘(1) TREATMENT AS EFFECTIVELY CONNECTED
WITH UNITED STATES TRADE OR BUSINESS.—For
purposes of this title, if any nonresident alien indi-
vidual or foreign corporation is a 10-percent share-
holder in any domestic corporation, any gain or loss
of such individual or foreign corporation from the
disposition of any stock in such domestic corporation
shall be taken into account—
‘‘(A) in the case of a nonresident alien in-
dividual, under section 871(b)(1), or
‘‘(B) in the case of a foreign corporation,
under section 882(a)(1),
as if the taxpayer were engaged during the taxable
year in a trade or business within the United States
through a permanent establishment in the United
States and as if such gain or loss were effectively
connected with such trade or business and attrib-
utable to such permanent establishment. Notwith-
standing section 865, any such gain or loss shall be
treated as from sources in the United States.
‘‘(2) 26-PERCENT
MINIMUM
TAX
ON
NON-
RESIDENT ALIEN INDIVIDUALS.—
‘‘(A) IN
GENERAL.—In the case of any
nonresident alien individual, the amount deter-
mined under section 55(b)(1)(A) shall not be
less than 26 percent of the lesser of—
‘‘(i) the individual’s alternative mini-
mum taxable income (as defined in section
55(b)(2)) for the taxable year, or
‘‘(ii) the individual’s net taxable stock
gain for the taxable year.
‘‘(B) NET
TAXABLE
STOCK
GAIN.—For
purposes of subparagraph (A), the term ‘net
taxable stock gain’ means the excess of—
‘‘(i) the aggregate gains for the tax-
able year from dispositions of stock in do-
mestic corporations with respect to which
such individual is a 10-percent share-
holder, over
‘‘(ii) the aggregate of the losses for
the taxable year from dispositions of such
stock.
‘‘(C) 
COORDINATION
WITH
SECTION
897(a)(2).—Section 897(a)(2)(A) shall not apply
to any nonresident alien individual for any tax-
able year for which such individual has a net
taxable stock gain, but the amount of such net
taxable stock gain shall be increased by the
amount of such individual’s net United States
real property gain (as defined in section
897(a)(2)(B)) for such taxable year.
‘‘(b) 10-PERCENT SHAREHOLDER.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘10-percent shareholder’ means any
person who at any time during the shorter of—
‘‘(A) the period beginning on January 1,
1995, and ending on the date of the disposition,
or
‘‘(B) the 5-year period ending on the date
of the disposition,
owned 10 percent or more (by vote or value) of the
stock in the domestic corporation.
‘‘(2) CONSTRUCTIVE OWNERSHIP.—
‘‘(A) IN GENERAL.—Section 318(a) (relat-
ing to constructive ownership of stock) shall
apply for purposes of paragraph (1).
‘‘(B) MODIFICATIONS.—For purposes of
subparagraph (A)—
‘‘(i) paragraph (2)(C) of section
318(a) shall be applied by substituting ‘10
percent’ for ‘50 percent’, and
‘‘(ii) paragraph (3)(C) of section
318(a) shall be applied—
‘‘(I) by substituting ‘10 percent’
for ‘50 percent’, and
‘‘(II) in any case where such
paragraph would not apply but for
subclause (I), by considering a cor-
poration as owning the stock (other
than stock in such corporation) owned
by or for any shareholder of such cor-
poration in that proportion which the
value of the stock which such share-
holder owns in such corporation bears
to the value of all stock in such cor-
poration.
‘‘(3) TREATMENT OF STOCK HELD BY CERTAIN
PARTNERSHIPS.—
‘‘(A) IN GENERAL.—For purposes of this
section, if—
‘‘(i) a partnership is a 10-percent
shareholder in any domestic corporation,
and
‘‘(ii) 10 percent or more of the capital
or profits interests in such partnership is
held (directly or indirectly) by nonresident
alien individuals or foreign corporations,
each partner in such partnership who is not
otherwise a 10-percent shareholder in such cor-
poration shall, with respect to the stock in such
corporation held by the partnership, be treated
as a 10-percent shareholder in such corpora-
tion.
‘‘(B) EXCEPTION.—
‘‘(i) IN GENERAL.—Subparagraph (A)
shall not apply with respect to stock in a
domestic corporation held by any partner-
ship if, at all times during the 5-year pe-
riod ending on the date of the disposition
involved—
‘‘(I) the aggregate bases of the
stock and securities in such domestic
corporation held by such partnership
were less than 25 percent of the part-
nership’s net adjusted asset cost, and
‘‘(II) the partnership did not own
50 percent or more (by vote or value)
of the stock in such domestic corpora-
tion.
The Secretary may by regulations dis-
regard any failure to meet the require-
ments of subclause (I) where the partner-
ship normally met such requirements dur-
ing such 5-year period.
‘‘(ii) NET ADJUSTED ASSET COST.—
For purposes of clause (i), the term ‘net
adjusted asset cost’ means—
‘‘(I) the aggregate bases of all of
the assets of the partnership other
than cash and cash items, reduced by
‘‘(II) the portion of the liabilities
of the partnership not allocable (on a
proportionate basis) to assets excluded
under subclause (I).
‘‘(C) EXCEPTION NOT TO APPLY TO 50-
PERCENT PARTNERS.—Subparagraph (B) shall
not apply in the case of any partner owning (di-
rectly or indirectly) more than 50 percent of the
capital or profits interests in the partnership at
any time during the 5-year period ending on the
date of the disposition.
‘‘(D) SPECIAL
RULES.—For purposes of
subparagraphs (B) and (C)—
‘‘(i) 
TREATMENT
OF
PREDE-
CESSORS.—Any reference to a partnership
or corporation shall be treated as including
a reference to any predecessor thereof.
‘‘(ii) PARTNERSHIP
NOT
IN
EXIST-
ENCE.—If any partnership was not in ex-
istence throughout the entire 5-year period
ending on the date of the disposition, only
the portion of such period during which
the partnership (or any predecessor) was
in existence shall be taken into account.
‘‘(E) 
OTHER
PASS-THRU
ENTITIES;
TIERED ENTITIES.—Rules similar to the rules
of the preceding provisions of this paragraph
shall also apply in the case of any pass-thru en-
tity other than a partnership and in the case of
tiered partnerships and other entities.
‘‘(c) COORDINATION WITH NONRECOGNITION PROVI-
SIONS; ETC.—
‘‘(1) COORDINATION
WITH
NONRECOGNITION
PROVISIONS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), any nonrecognition provision
shall apply for purposes of this section to a
transaction only in the case of—
‘‘(i) an exchange of stock in a domes-
tic corporation for other property the sale
of which would be subject to taxation
under this chapter, or
‘‘(ii) a distribution with respect to
which gain or loss would not be recognized
under section 336 if the sale of the distrib-
uted property by the distributee would be
subject to tax under this chapter.
‘‘(B) REGULATIONS.—The Secretary shall
prescribe regulations (which are necessary or
appropriate to prevent the avoidance of Federal
income taxes) providing—
‘‘(i) the extent to which nonrecogni-
tion provisions shall, and shall not, apply
for purposes of this section, and
‘‘(ii) the extent to which—
‘‘(I) transfers of property in a re-
organization, and
‘‘(II) changes in interests in, or
distributions from, a partnership,
trust, or estate,
shall be treated as sales of property at fair
market value.
‘‘(C) NONRECOGNITION
PROVISION.—For
purposes of this paragraph, the term ‘non-
recognition provision’ means any provision of
this title for not recognizing gain or loss.
‘‘(2) CERTAIN OTHER RULES MADE APPLICA-
BLE.—For purposes of this section, rules similar to
the rules of subsections (g) and (j) of section 897
shall apply.
‘‘(d) CERTAIN INTEREST TREATED AS STOCK.—For
purposes of this section—
‘‘(1) any option or other right to acquire stock
in a domestic corporation,
‘‘(2) the conversion feature of any debt instru-
ment issued by a domestic corporation, and
‘‘(3) to the extent provided in regulations, any
other interest in a domestic corporation other than
an interest solely as creditor,
shall be treated as stock in such corporation.
‘‘(e) TREATMENT
OF CERTAIN GAIN
AS
A DIVI-
DEND.—In the case of any gain which would be subject
to tax by reason of this section but for a treaty and which
results from any distribution in liquidation or redemption,
for purposes of this subtitle, such gain shall be treated
as a dividend to the extent of the earnings and profits
of the domestic corporation attributable to the stock.
Rules similar to the rules of section 1248(c) (determined
without regard to paragraph (2)(D) thereof) shall apply
for purposes of the preceding sentence.
‘‘(f) REGULATIONS.—The Secretary shall prescribe
such regulations as may be appropriate to carry out the
purposes of this section, including—
‘‘(1) regulations coordinating the provisions of
this section with the provisions of section 897, and
‘‘(2) regulations aggregating stock held by a
group of persons acting together.’’
(b) WITHHOLDING OF TAX.—Subchapter A of chap-
ter 3 of such Code is amended by adding at the end the
following new section:
‘‘SEC. 1447. WITHHOLDING OF TAX ON CERTAIN STOCK
DISPOSITIONS.
‘‘(a) GENERAL RULE.—Except as otherwise provided
in this section, in the case of any disposition of stock in
a domestic corporation by a foreign person who is a 10-
percent shareholder in such corporation, the withholding
agent shall deduct and withhold a tax equal to 10 percent
of the amount realized on the disposition.
‘‘(b) EXCEPTIONS.—
‘‘(1) STOCK WHICH IS NOT REGULARLY TRAD-
ED.—In the case of a disposition of stock which is
not regularly traded, a withholding agent shall not
be required to deduct and withhold any amount
under subsection (a) if—
‘‘(A) the transferor furnishes to such with-
holding agent an affidavit by such transferor
stating, under penalty of perjury, that section
899 does not apply to such disposition be-
cause—
‘‘(i) the transferor is not a foreign
person, or
‘‘(ii) the transferor is not a 10-percent
shareholder, and
‘‘(B) such withholding agent does not
know (or have reason to know) that such affida-
vit is not correct.
‘‘(2) STOCK WHICH IS REGULARLY TRADED.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), a withholding agent shall
not be required to deduct and withhold any
amount under subsection (a) with respect to
any disposition of regularly traded stock if such
withholding agent does not know (or have rea-
son to know) that section 899 applies to such
disposition.
‘‘(B) SPECIAL RULE WHERE SUBSTANTIAL
DISPOSITION.—If—
‘‘(i) there is a disposition of regularly
traded stock in a corporation, and
‘‘(ii) the amount of stock involved in
such disposition constitutes 1 percent or
more (by vote or value) of the stock in
such corporation,
subparagraph (A) shall not apply but para-
graph (1) shall apply as if the disposition in-
volved stock which was not regularly traded.
‘‘(C) NOTIFICATION
BY
FOREIGN
PER-
SON.—If section 899 applies to any disposition
by a foreign person of regularly traded stock,
such foreign person shall notify the withholding
agent that section 899 applies to such disposi-
tion.
‘‘(3) 
NONRECOGNITION
TRANSACTIONS.—A
withholding agent shall not be required to deduct
and withhold any amount under subsection (a) in
any case where gain or loss is not recognized by rea-
son of section 899(c) (or the regulations prescribed
under such section).
‘‘(c) SPECIAL RULE WHERE NO WITHHOLDING.—
If—
‘‘(1) there is no amount deducted and withheld
under this section with respect to any disposition to
which section 899 applies, and
‘‘(2) the foreign person does not pay the tax
imposed by this subtitle to the extent attributable to
such disposition on the date prescribed therefor,
for purposes of determining the amount of such tax, the
foreign person’s basis in the stock disposed of shall be
treated as zero or such other amount as the Secretary may
determine (and, for purposes of section 6501, the
underpayment of such tax shall be treated as due to a
willful attempt to evade such tax).
‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) WITHHOLDING AGENT.—The term ‘with-
holding agent’ means—
‘‘(A) the last United States person to have
the control, receipt, custody, disposal, or pay-
ment of the amount realized on the disposition,
or
‘‘(B) if there is no such United States per-
son, the person prescribed in regulations.
‘‘(2) FOREIGN PERSON.—The term ‘foreign per-
son’ means any person other than a United States
person.
‘‘(3) REGULARLY TRADED STOCK.—The term
‘regularly traded stock’ means any stock of a class
which is regularly traded on an established securities
market.
‘‘(4) AUTHORITY
TO
PRESCRIBE
REDUCED
AMOUNT.—At the request of the person making the
disposition or the withholding agent, the Secretary
may prescribe a reduced amount to be withheld
under this section if the Secretary determines that
to substitute such reduced amount will not jeopard-
ize the collection of the tax imposed by section
871(b)(1) or 882(a)(1).
‘‘(5) OTHER
TERMS.—Except as provided in
this section, terms used in this section shall have the
same respective meanings as when used in section
899.
‘‘(6) CERTAIN
RULES
MADE
APPLICABLE.—
Rules similar to the rules of section 1445(e) shall
apply for purposes of this section.
‘‘(e) REGULATIONS.—The Secretary shall prescribe
such regulations as may be appropriate to carry out the
purposes of this section, including regulations coordinat-
ing the provisions of this section with the provisions of
sections 1445 and 1446.’’
(c) EXCEPTION FROM BRANCH PROFITS TAX.—Sub-
paragraph (C) of section 884(d)(2) of such Code is amend-
ed to read as follows:
‘‘(C) gain treated as effectively connected
with the conduct of a trade or business within
the United States under—
‘‘(i) section 897 in the case of the dis-
position of a United States real property
interest 
described 
in 
section
897(c)(1)(A)(ii), or
‘‘(ii) section 899,’’.
(d) REPORTS WITH RESPECT
TO CERTAIN DIS-
TRIBUTIONS.—Paragraph (2) of section 6038B(a) of such
Code (relating to notice of certain transfers to foreign per-
son) is amended by striking ‘‘section 336’’ and inserting
‘‘section 302, 331, or 336’’.
(e) CLERICAL AMENDMENTS.—
(1) The table of sections for subpart D of part
II of subchapter N of chapter 1 of such Code is
amended by adding at the end the following new
item:
‘‘Sec. 899. Dispositions of stock in domestic corporations by 10-
percent foreign shareholders.’’
(2) The table of sections for subchapter A of
chapter 3 of such Code is amended by adding at the
end the following new item:
‘‘Sec. 1447. Withholding of tax on certain stock dispositions.’’
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to dispositions after December 31,
1995, except that section 1447 of such Code (as added
by this section) shall not apply to any disposition before
July 1, 1996.
SEC. 5. PORTFOLIO DEBT.
(a) IN GENERAL.—Section 871(h)(3) of the Internal
Revenue Code of 1986 (relating to tax on nonresident
alien individuals) is amended to read as follows:
‘‘(3) PORTFOLIO INTEREST TO INCLUDE ONLY
INTEREST
ON
GOVERNMENT
OBLIGATIONS.—The
term ‘portfolio interest’ shall include only interest
paid on an obligation issued by a governmental en-
tity.’’
(b) CONFORMING AMENDMENTS.—
(1) Section 881(c)(3) of such Code is amend-
ed—
(A) in subparagraph (A), by adding ‘‘or’’
at the end, and
(B) by striking subparagraph (B) and re-
designating subparagraph (C) as subparagraph
(B).
(2) Section 881(c)(4) of such Code is amend-
ed—
(A) by striking ‘‘section 871(h)(4)’’ and in-
serting ‘‘section 871(h)(3) or (4)’’, and
(B) in the heading, by striking ‘‘CONTIN-
GENT’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to interest received after December
31, 1995, with respect to obligations issued after such
date.
SEC. 6. TERMINATION OF EXCLUSION OF CERTAIN INCOME
OF CITIZENS OR RESIDENTS OF UNITED
STATES LIVING ABROAD.
(a) IN GENERAL.—Section 911 of the Internal Reve-
nue Code of 1986 (relating to citizens or residents of the
United States living abroad) is amended by redesignating
subsection (f) as subsection (g) and by inserting after sub-
section (e) the following new subsection:
‘‘(f) TERMINATION.—This section shall not apply to
any taxable year beginning after December 31, 1995.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1995.
SEC. 7. ELIMINATION OF EXCLUSION OF CERTAIN INCOME
OF FOREIGN SALES CORPORATIONS.
(a) IN GENERAL.—Section 921 of the Internal Reve-
nue Code of 1986 (relating to exempt foreign trade income
excluded from gross income) is amended by adding at the
end the following new subsection:
‘‘(e) TERMINATION.—This section shall not apply to
any taxable year beginning after December 31, 1995.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1995.
SEC. 8. REPEAL OF DEFERRAL OF INCOME OF CON-
TROLLED FOREIGN CORPORATIONS.
(a) GENERAL RULE.—Subpart F of part III of sub-
chapter N of chapter 1 of the Internal Revenue Code of
1986 is amended by striking sections 952, 953, and 954
and inserting the following new sections:
‘‘SEC. 952. SUBPART F INCOME.
‘‘(a) GENERAL RULE.—For purposes of this subpart,
the term ‘subpart F income’ means the earnings and prof-
its of the controlled foreign corporation for the taxable
year computed with the following adjustments:
‘‘(1) There shall be excluded the amount of the
earnings and profits which are attributable to in-
come from sources within the United States which
is effectively connected with the conduct by the con-
trolled foreign corporation of a trade or business
within the United States, except to the extent such
income is exempt from taxation (or subject to a re-
duced rate of tax) pursuant to a treaty obligation of
the United States. For purposes of the preceding
sentence, income described in paragraph (2) or (3)
of section 921(d) shall be treated as derived from
sources within the United States.
‘‘(2) In determining earnings and profits (or
the deficit in earnings and profits), the amount of
any illegal bribe, kickback, or other payment (within
the meaning of section 162(c), except as otherwise
provided in this paragraph) shall not be taken into
account to decrease such earnings and profits or to
increase such deficit. The payments referred to in
the preceding sentence include payments which
would be unlawful under the Foreign Corrupt Prac-
tices Act of 1977 if the payor were a United States
person.
‘‘(3) Under regulations prescribed by the Sec-
retary, there shall be excluded any part of any earn-
ings and profits if it is established to the satisfaction
of the Secretary that such part could not have been
distributed by the controlled foreign corporation to
United States shareholders who own (within the
meaning of section 958(a)) stock of such controlled
foreign corporation because of currency or other re-
strictions or limitations imposed under the laws of
any foreign country.
‘‘(4) Earnings and profits shall be determined
without regard to paragraphs (4), (5), and (6) of
section 312(n). Under regulations, the preceding
sentence shall not apply to the extent it would in-
crease earnings and profits by an amount which was
previously distributed by the controlled foreign cor-
poration.
Except as provided in this subsection and section
312(k)(4), the earnings and profits of any foreign corpora-
tion, and the deficit and earnings and profits of any for-
eign corporation for any taxable year shall be determined
according to rules similar to those applicable to domestic
corporations, under regulations prescribed by the Sec-
retary.
‘‘(b) CERTAIN DEFICITS MAY BE TAKEN INTO AC-
COUNT.—
‘‘(1) TREATMENT
OF
CERTAIN
PRIOR
YEAR
DEFICITS.—
‘‘(A) IN GENERAL.—The amount included
in the gross income of any United States share-
holder under section 951(a)(1)(A)(i) for any
taxable year with respect to any controlled for-
eign corporation shall be reduced by the amount
of such shareholder’s pro rata share of any
qualified deficit of such controlled foreign cor-
poration.
‘‘(B) QUALIFIED DEFICIT.—For purposes
of this paragraph—
‘‘(i) IN GENERAL.—The term ‘quali-
fied deficit’ means any deficit in the earn-
ings and profits of the controlled foreign
corporation for any prior taxable year
which began after December 31, 1995, and
for which such corporation was a con-
trolled foreign corporation, but only to the
extent such deficit has not previously been
taken into account under this paragraph.
‘‘(ii) SPECIAL
RULE
FOR
DEFICITS
BEFORE 1996.—The term ‘qualified deficit’
includes any deficit in earnings and profits
for any taxable year beginning before Jan-
uary 1, 1996, to the extent that such defi-
cit qualified as a qualified deficit under
subsection (c)(1)(B) of this section (as in
effect on the day before the date of the en-
actment of this subsection); except that
any such deficit may be taken into account
under this paragraph only to offset
amounts attributable to the same activity
as the activity giving rise to such deficit.
‘‘(C) PRO RATA SHARE.—For purposes of
this paragraph, the shareholder’s pro rata share
of any deficit shall be determined under rules
similar to the rules of section 951(a)(2) for
whichever of the following yields the smallest
share:
‘‘(i) the close of the taxable year, or
‘‘(ii) the close of the taxable year in
which the deficit arose.
‘‘(2) CERTAIN DEFICITS OF MEMBER OF THE
SAME
CHAIN
OF
CORPORATIONS
MAY
BE
TAKEN
INTO ACCOUNT.—
‘‘(A) IN GENERAL.—A controlled foreign
corporation may elect to reduce the amount of
its subpart F income for any taxable year by
the amount of any deficit in earnings and prof-
its of a qualified chain member for a taxable
year ending with (or within) the taxable year of
such controlled foreign corporation. To the ex-
tent any deficit reduces subpart F income
under the preceding sentence, such deficit shall
not be taken into account under paragraph (1).
‘‘(B) QUALIFIED
CHAIN
MEMBER.—For
purposes of this paragraph, the term ‘qualified
chain member’ means, with respect to any con-
trolled foreign corporation, any other corpora-
tion which is created or organized under the
laws of the same foreign country as the con-
trolled foreign corporation but only if—
‘‘(i) all the stock of such other cor-
poration (other than directors’ qualifying
shares) is owned at all times during the
taxable year in which the deficit arose (di-
rectly or through 1 or more corporations
other than the common parent) by such
controlled foreign corporation, or
‘‘(ii) all the stock of such controlled
foreign corporation (other than directors’
qualifying shares) is owned at all times
during the taxable year in which the deficit
arose (directly or through 1 or more cor-
porations other than the common parent)
by such other corporation.
‘‘(C) 
COORDINATION.—This 
paragraph
shall be applied after paragraph (1).
‘‘(3) DETERMINATION OF DEFICIT.—In deter-
mining the amount of any deficit in earnings and
profits, the adjustments set forth in subsection (a)
shall apply.
‘‘SEC. 953. SPECIAL RULES FOR CERTAIN INSURANCE COM-
PANIES.
‘‘(a) SPECIAL RULE FOR CERTAIN CAPTIVE INSUR-
ANCE COMPANIES.—
‘‘(1) IN GENERAL.—For purposes only of tak-
ing into account subpart F income which is attrib-
utable to related person insurance income—
‘‘(A) the term ‘United States shareholder’
means, with respect to any foreign corporation,
a United States person (as defined in section
957(c)) who owns (within the meaning of sec-
tion 958(a)) any stock of the foreign corpora-
tion,
‘‘(B) the term ‘controlled foreign corpora-
tion’ has the meaning given to such term by
section 957(a) determined by substituting ‘25
percent or more’ for ‘more than 50 percent’,
and
‘‘(C) the pro rata share referred to in sec-
tion 951(a)(1)(A)(i) shall be determined under
paragraph (5) of this subsection.
‘‘(2) RELATED PERSON INSURANCE INCOME.—
For purposes of this subsection, the term ‘related
person insurance income’ means any insurance in-
come (within the meaning of subsection (c)) attrib-
utable to a policy of insurance or reinsurance with
respect to which the person (directly or indirectly)
insured is a United States shareholder in the foreign
corporation or a related person to such a share-
holder.
‘‘(3) EXCEPTIONS.—
‘‘(A) 
CORPORATIONS
NOT
HELD
BY
INSUREDS.—Paragraph (1) shall not apply to
any foreign corporation if at all times during
the taxable year of such foreign corporation—
‘‘(i) less than 20 percent of the total
combined voting power of all classes of
stock of such corporation entitled to vote,
and
‘‘(ii) less than 20 percent of the total
value of such corporation,
is owned (directly or indirectly) under the prin-
ciples of section 883(c)(4) by persons who are
(directly or indirectly) insured under any policy
of insurance or reinsurance issued by such cor-
poration or who are related persons to any such
person.
‘‘(B) DE MINIMIS EXCEPTION.—Paragraph
(1) shall not apply to any foreign corporation
for a taxable year of such corporation if the re-
lated person insurance income (determined on a
gross basis) of such corporation for such tax-
able year is less than 20 percent of its insur-
ance income (as so determined) for such taxable
year determined without regard to those provi-
sions of subsection (c)(1) which limit insurance
income to income from countries other than the
country in which the corporation was created or
organized.
‘‘(C) ELECTION TO TREAT INCOME AS EF-
FECTIVELY CONNECTED.—Paragraph (1) shall
not apply to any foreign corporation for any
taxable year if—
‘‘(i) such corporation elects (at such
time and in such manner as the Secretary
may prescribe)—
‘‘(I) to treat its related person in-
surance income for such taxable year
as income effectively connected with
the conduct of a trade or business in
the United States, and
‘‘(II) to waive all benefits (other
than with respect to section 884) with
respect to related person insurance in-
come granted by the United States
under any treaty between the United
States and any foreign country, and
‘‘(ii) such corporation meets such re-
quirements as the Secretary shall prescribe
to ensure that the tax imposed by this
chapter on such income is paid.
An election under this subparagraph made for
any taxable year shall not be effective if the
corporation (or any predecessor thereof) was a
disqualified corporation for the taxable year for
which the election was made or for any prior
taxable year beginning after 1986.
‘‘(D) SPECIAL RULES FOR SUBPARAGRAPH
(C).—
‘‘(i) PERIOD
DURING
WHICH
ELEC-
TION IN EFFECT.—
‘‘(I) IN
GENERAL.—Except as
provided in subclause (II), any elec-
tion under subparagraph (C) shall
apply to the taxable year for which
made and all subsequent taxable years
unless revoked with the consent of the
Secretary.
‘‘(II) TERMINATION.—If a for-
eign corporation which made an elec-
tion under subparagraph (C) for any
taxable year is a disqualified corpora-
tion for any subsequent taxable year,
such election shall not apply to any
taxable year beginning after such sub-
sequent taxable year.
‘‘(ii) EXEMPTION FROM TAX IMPOSED
BY
SECTION
4371.—The tax imposed by
section 4371 shall not apply with respect
to any related person insurance income
treated as effectively connected with the
conduct of a trade or business within the
United States under subparagraph (C).
‘‘(E) DISQUALIFIED
CORPORATION.—For
purposes of this paragraph the term ‘disquali-
fied corporation’ means, with respect to any
taxable year, any foreign corporation which is a
controlled foreign corporation for an uninter-
rupted period of 30 days or more during such
taxable year (determined without regard to this
subsection) but only if a United States share-
holder (determined without regard to this sub-
section) owns (within the meaning of section
958(a)) stock in such corporation at some time
during such taxable year.
‘‘(4) TREATMENT OF MUTUAL INSURANCE COM-
PANIES.—In the case of a mutual insurance com-
pany—
‘‘(A) this subsection shall apply,
‘‘(B) policyholders of such company shall
be treated as shareholders, and
‘‘(C) appropriate adjustments in the appli-
cation of this subpart shall be made under reg-
ulations prescribed by the Secretary.
‘‘(5) DETERMINATION OF PRO RATA SHARE.—
‘‘(A) IN
GENERAL.—The pro rata share
determined under this paragraph for any
United States shareholder is the lesser of—
‘‘(i) the amount which would be deter-
mined under paragraph (2) of section
951(a) if—
‘‘(I) only related person insur-
ance income were taken into account,
‘‘(II) stock owned (within the
meaning of section 958(a)) by United
States shareholders on the last day of
the taxable year were the only stock
in the foreign corporation, and
‘‘(III) only distributions received
by United States shareholders were
taken into account under subpara-
graph (B) of such paragraph (2), or
‘‘(ii) the amount which would be de-
termined under paragraph (2) of section
951(a) on the basis of the entire subpart
F income of the foreign corporation for the
taxable year.
‘‘(B) COORDINATION WITH OTHER PROVI-
SIONS.—The Secretary shall prescribe regula-
tions providing for such modifications to the
provisions of this subpart as may be necessary
or appropriate by reason of subparagraph (A).
‘‘(6) RELATED PERSON.—For purposes of this
subsection—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘related person’ has
the meaning given such term by section 964(a).
‘‘(B) TREATMENT OF CERTAIN LIABILITY
INSURANCE POLICIES.—In the case of any pol-
icy of insurance covering liability arising from
services performed as a director, officer, or em-
ployee of a corporation or as a partner or em-
ployee of a partnership, the person performing
such services and the entity for which such
services are performed shall be treated as relat-
ed persons.
‘‘(7) COORDINATION WITH SECTION 1248.—For
purposes of section 1248, if any person is (or would
be but for paragraph (3)) treated under paragraph
(1) as a United States shareholder with respect to
any foreign corporation which would be taxed under
subchapter L if it were a domestic corporation and
which is (or would be but for paragraph (3)) treated
under paragraph (1) as a controlled foreign corpora-
tion—
‘‘(A) such person shall be treated as meet-
ing the stock ownership requirements of section
1248(a)(2) with respect to such foreign cor-
poration, and
‘‘(B) such foreign corporation shall be
treated as a controlled foreign corporation.
‘‘(8) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary to carry
out the purposes of this subsection, including—
‘‘(A) regulations preventing the avoidance
of this subsection through cross insurance ar-
rangements or otherwise, and
‘‘(B) regulations which may provide that a
person will not be treated as a United States
shareholder under paragraph (1) with respect
to any foreign corporation if neither such per-
son (nor any related person to such person) is
(directly or indirectly) insured under any policy
of insurance or reinsurance issued by such for-
eign corporation.
‘‘(b) ELECTION BY FOREIGN INSURANCE COMPANY
TO BE TREATED AS DOMESTIC CORPORATION.—
‘‘(1) IN GENERAL.—If—
‘‘(A) a foreign corporation is a controlled
foreign corporation (as defined in section
957(a) by substituting ‘25 percent or more’ for
‘more than 50 percent’ and by using the defini-
tion of United States shareholder under sub-
section (a)(1)(A) of this section),
‘‘(B) such foreign corporation would qual-
ify under part I or II of subchapter L for the
taxable year if it were a domestic corporation,
‘‘(C) such foreign corporation meets such
requirements as the Secretary shall prescribe to
ensure that the taxes imposed by this chapter
on such foreign corporation are paid, and
‘‘(D) such foreign corporation makes an
election to have this paragraph apply and
waives all benefits to such corporation granted
by the United States under any treaty,
for purposes of this title, such corporation shall be
treated as a domestic corporation.
‘‘(2) PERIOD DURING WHICH ELECTION IS IN
EFFECT.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), an election under paragraph
(1) shall apply to the taxable year for which
made and all subsequent taxable years unless
revoked with the consent of the Secretary.
‘‘(B) TERMINATION.—If a corporation
which made an election under paragraph (1) for
any taxable year fails to meet the requirements
of subparagraph (A), (B), or (C) of paragraph
(1) for any subsequent taxable year, such elec-
tion shall not apply to any taxable year begin-
ning after such subsequent taxable year.
‘‘(3) TREATMENT OF LOSSES.—If any corpora-
tion treated as a domestic corporation under this
subsection is treated as a member of an affiliated
group for purposes of chapter 6 (relating to consoli-
dated returns), any loss of such corporation shall be
treated as a dual consolidated loss for purposes of
section 1503(d) without regard to paragraph (2)(B)
thereof.
‘‘(4) EFFECT OF ELECTION.—
‘‘(A) IN GENERAL.—For purposes of sec-
tion 367, any foreign corporation making an
election under paragraph (1) shall be treated as
transferring (as the 1st day of the 1st taxable
year to which such election applies) all of its as-
sets to a domestic corporation in connection
with an exchange to which section 354 applies.
‘‘(B) EXCEPTION FOR PRE-1988 EARNINGS
AND PROFIT.—
‘‘(i) IN
GENERAL.—Earnings and
profits of the foreign corporation accumu-
lated in taxable years beginning before
January 1, 1988, shall not be included in
the gross income of the persons holding
stock in such corporation by reason of sub-
paragraph (A).
‘‘(ii) 
TREATMENT
OF
DISTRIBU-
TIONS.—For purposes of this title, any dis-
tribution made by a corporation to which
an election under paragraph (1) applies
out of earnings and profits accumulated in
taxable years beginning before January 1,
1988, shall be treated as a distribution
made by a foreign corporation.
‘‘(iii) CERTAIN RULES TO CONTINUE
TO
APPLY
TO
PRE-1988
EARNINGS.—The
provisions specified in clause (iv) shall be
applied without regard to paragraph (1),
except that, in the case of a corporation to
which an election under paragraph (1) ap-
plies, only earnings and profits accumu-
lated in taxable years beginning before
January 1, 1988, shall be taken into ac-
count.
‘‘(iv) SPECIFIED
PROVISIONS.—The
provisions specified in this clause are:
‘‘(I) Section 1248 (relating to
gain from certain sales or exchanges
of stock in certain foreign corpora-
tions).
‘‘(II) This subpart to the extent
such subpart relates to earnings in-
vested in United States property or
amounts referred to in clause (ii) or
(iii) of section 951(a)(1)(A).
‘‘(III) Section 884 to the extent
the foreign corporation reinvested
1987 earnings and profits in United
States assets.
‘‘(5) EFFECT OF TERMINATION.—For purposes
of section 367, if—
‘‘(A) an election is made by a corporation
under paragraph (1) for any taxable year, and
‘‘(B) such election ceases to apply for any
subsequent taxable year,
such corporation shall be treated as a domestic cor-
poration transferring (as of the 1st day of such sub-
sequent taxable year) all of its property to a foreign
corporation in connection with an exchange to which
section 354 applies.
‘‘(6) ADDITIONAL TAX ON CORPORATION MAK-
ING ELECTION.—
‘‘(A) IN
GENERAL.—If a corporation
makes an election under paragraph (1), the
amount of tax imposed by this chapter for the
1st taxable year to which such election applies
shall be increased by the amount determined
under subparagraph (B).
‘‘(B) AMOUNT OF TAX.—The amount of
tax determined under this paragraph shall be
equal to the lesser of—