I 
109TH CONGRESS 
2D SESSION 
H. R. 6288 
To amend the Internal Revenue Code of 1986 to improve the rules relating 
to income earned abroad. 
IN THE HOUSE OF REPRESENTATIVES 
SEPTEMBER 29, 2006 
Mr. SAM JOHNSON of Texas 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 improve 
the rules relating to income earned abroad. 
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 Act of 2006’’. 
(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 
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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. 
Sec. 2. Permanent Subpart F exemption for active financing income. 
Sec. 3. Permanent look-thru rule for related controlled foreign corporations. 
Sec. 4. Repeal of foreign base company sales and services income rules. 
Sec. 5. Repeal of foreign base company oil related income rules. 
Sec. 6. Repeal of special rules for applying foreign tax credit in case of foreign 
oil and gas income. 
Sec. 7. Extension of carryforward period for excess foreign taxes. 
Sec. 8. Subpart F earnings and profits determined under generally accepted ac-
counting principles. 
Sec. 9. Acceleration of election to allocate interest on a worldwide basis. 
Sec. 10. Expansion of de minimis rule under subpart F. 
SEC. 2. PERMANENT SUBPART F EXEMPTION FOR ACTIVE 
FINANCING INCOME. 
(a) EXEMPT INSURANCE INCOME.—Paragraph (10) 
of section 953(e) is amended— 
(1) by striking ‘‘and before January 1, 2009,’’, 
and 
(2) by striking the second sentence. 
(b) FOREIGN PERSONAL HOLDING COMPANY IN-
COME.—Paragraph (9) of section 954(h) is amended by 
striking ‘‘and before January 1, 2009,’’. 
SEC. 3. PERMANENT LOOK-THRU RULE FOR RELATED CON-
TROLLED FOREIGN CORPORATIONS. 
Subparagraph (B) of section 954(c)(6) (relating to 
application) is amended by striking ‘‘and before January 
1, 2009,’’. 
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SEC. 4. REPEAL OF FOREIGN BASE COMPANY SALES AND 
SERVICES INCOME RULES. 
(a) IN GENERAL.—Subsection (a) of section 954 (re-
lating to foreign base company income) is amended by 
striking paragraphs (2) and (3). 
(b) CERTAIN SALES.—Paragraph (1) of section 
954(c) is amended by adding at the end the following new 
subparagraph: 
‘‘(I) CERTAIN SALES.—Income (whether in 
the form of profits, commissions, fees, or other-
wise) derived in connection with the purchase of 
personal property from a related person and its 
sale to any person, the sale of personal property 
to any person on behalf of a related person, the 
purchase of personal property from any person 
and its sale to a related person, or the purchase 
of personal property from any person on behalf 
of a related person where— 
‘‘(i) the property which is purchased 
(or in the case of property sold on behalf 
of a related person, the property which is 
sold) is manufactured, produced, grown, or 
extracted in the United States, and 
‘‘(ii) the property is sold for use, con-
sumption, or disposition in the United 
States, or, in the case of property pur-
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chased on behalf of a related person, is 
purchased for use, consumption, or disposi-
tion in the United States.’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Clause (iii) of section 952(c)(1)(B) is 
amended by striking subclauses (II) and (III) and 
by redesignating subclauses (IV) and (V) as sub-
clauses (II) and (III), respectively. 
(2) Paragraph (5) of section 954(b) is amended 
by striking ‘‘, the foreign base company sales in-
come, the foreign base company services income,’’. 
(3) Section 954 is amended by striking sub-
sections (d) and (e). 
(4)(A) Subsection (b) of section 954 is amended 
by adding at the end the following new paragraph: 
‘‘(7) RELATED
PERSON
DEFINED.—For pur-
poses of this section, a person is a related person 
with respect to a controlled foreign corporation if— 
‘‘(A) such person is an individual, corpora-
tion, partnership, trust, or estate which con-
trols, or is controlled by, the controlled foreign 
corporation, or— 
‘‘(B) such person is a corporation, partner-
ship, trust, or estate which is controlled by the 
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same person or persons which control the con-
trolled foreign corporation. 
For purposes of the preceding sentence, control 
means, with respect to a corporation, the ownership, 
directly or indirectly, of stock possessing more than 
50 percent of the total voting power of all classes of 
stock entitled to vote or of the total value of stock 
of such corporation. In the case of a partnership, 
trust, or estate, control means the ownership, di-
rectly or indirectly, of more than 50 percent (by 
value) of the beneficial interests in such partnership, 
trust, or estate. For purposes of this paragraph, 
rules similar to the rules of section 958 shall 
apply.’’. 
(B) 
Sections 
552(c)(2), 
861(c)(2)(B), 
904(d)(2)(H), 953(d)(3), 953(e), 955(b), 958(b), 
971(f), 988(e)(3)(C), 1297(b)(2), 1298(d)(3), and 
1298(e)(2)(B) are each amended by striking 
‘‘954(d)(3)’’ each place it appears and inserting 
‘‘954(b)(7)’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years of a foreign cor-
poration beginning after December 31, 2006, and to tax-
able years of United States shareholders with or within 
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which any such taxable year of such foreign corporation 
ends. 
SEC. 5. REPEAL OF FOREIGN BASE COMPANY OIL RELATED 
INCOME RULES. 
(a) IN GENERAL.—Subsection (a) of section 954 (re-
lating to foreign base company income) is amended by 
striking paragraph (5). 
(b) CONFORMING AMENDMENTS.— 
(1) Clause (iii) of section 952(c)(1)(B), as 
amended by this Act, is amended by striking sub-
clause (I) and by redesignating subclauses (II) and 
(III) as subclauses (I) and (II), respectively. 
(2) Paragraph (5) of section 954(b), as amend-
ed by this Act, is amended by striking ‘‘and the for-
eign base company oil related income’’. 
(3) Section 954 is amended by striking sub-
section (g). 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years of foreign corpora-
tions beginning after December 31, 2006, and to taxable 
years of United States shareholders with or within which 
such taxable years of foreign corporations end. 
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SEC. 6. 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), as amended 
by this Act, 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 Act of 2006’’ after ‘‘sec-
tion 907(c)(4)(B)’’. 
(3) Section 954(g)(1) is amended by inserting 
‘‘, as in effect before its repeal by the International 
Tax Simplification Act of 2006’’ 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)’’. 
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(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, 2006. 
SEC. 7. EXTENSION OF CARRYFORWARD PERIOD FOR EX-
CESS FOREIGN TAXES. 
(a) IN GENERAL.—Section 904(c)(1) is amended by 
striking ‘‘10’’ and inserting ‘‘20’’. 
(b) EXCESS EXTRACTION TAXES.—Paragraph (1) of 
section 907(f) is amended by striking ‘‘10 succeeding tax-
able year’’ and inserting ‘‘20 succeeding taxable years’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to excess foreign taxes arising in 
taxable years beginning after December 31, 2006. 
SEC. 8. SUBPART F EARNINGS AND PROFITS DETERMINED 
UNDER GENERALLY ACCEPTED ACCOUNTING 
PRINCIPLES. 
(a) IN GENERAL.—Section 964(a) (relating to earn-
ings and profits) is amended by striking ‘‘rules substan-
tially similar to those applicable to domestic corporations, 
under regulations prescribed by the Secretary’’ and insert-
ing ‘‘generally accepted accounting principles in the 
United States’’. 
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(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to distributions during, and the 
determination of the inclusion under section 951 of the 
Internal Revenue Code of 1986 with respect to, taxable 
years of foreign corporations beginning after December 
31, 2006. 
SEC. 9. ACCELERATION OF ELECTION TO ALLOCATE INTER-
EST ON A WORLDWIDE BASIS. 
(a) IN GENERAL.—Section 864(f)(6) is amended by 
striking ‘‘December 31, 2008’’ and inserting ‘‘December 
31, 2006’’. 
(b) CONFORMING AMENDMENT.—Section 401(c) of 
the American Jobs Creation Act of 2004 is amended by 
striking ‘‘December 31, 2008’’ and inserting ‘‘December 
31, 2006’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall take effect as if included in section 401 
of the American Jobs Creation Act of 2004. 
SEC. 10. EXPANSION OF DE MINIMIS RULE UNDER SUB-
PART F. 
(a) 
IN
GENERAL.—Sections 
954(b)(3)(A)(ii), 
864(d)(5)(A)(ii), and 881(c)(5)(A)(i) are each amended 
by striking ‘‘$1,000,000’’ and inserting ‘‘$5,000,000’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years of foreign corpora-
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tions beginning after December 31, 2006, and to taxable 
years of United States shareholders with or within which 
such taxable years of foreign corporations end. 
Æ 
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