(3) WITHHOLDING TAXES.—
(A) Subsection (c) of section 1441 is
amended by adding at the end thereof the fol-
lowing new paragraph:
‘‘(12) CERTAIN
DIVIDENDS
RECEIVED
FROM
REGULATED INVESTMENT COMPANIES.—
‘‘(A) IN GENERAL.—No tax shall be re-
quired to be deducted and withheld under sub-
section (a) from any amount exempt from the
tax imposed by section 871(a)(1)(A) by reason
of section 871(k).
‘‘(B) SPECIAL
RULE.—For purposes of
subparagraph 
(A), 
clause 
(i) 
of 
section
871(k)(1)(B) shall not apply to any dividend
unless the regulated investment company knows
that such dividend is a dividend referred to in
such clause. A similar rule shall apply with re-
spect to the exception contained in section
871(k)(2)(B).’’.
(B) Subsection (a) of section 1442 is
amended—
(i) by striking ‘‘and the reference in
section 1441(c)(10)’’ and inserting ‘‘the
reference in section 1441(c)(10)’’, and
(ii) by inserting before the period at
the end thereof the following: ‘‘, and the
references in section 1441(c)(12) to sec-
tions 871(a) and 871(k) shall be treated as
referring to sections 881(a) and 881(e)
(except that for purposes of applying sub-
paragraph (A) of section 1441(c)(12), as
so 
modified, 
clause 
(ii) 
of 
section
881(e)(1)(B) shall not apply to any divi-
dend unless the regulated investment com-
pany knows that such dividend is a divi-
dend referred to in such clause)’’.
(b) ESTATE TAX TREATMENT OF INTEREST IN CER-
TAIN
REGULATED
INVESTMENT
COMPANIES.—Section
2105 (relating to property without the United States for
estate tax purposes) is amended by adding at the end
thereof the following new subsection:
‘‘(d) STOCK IN A REGULATED INVESTMENT COM-
PANY.—
‘‘(1) IN GENERAL.—For purposes of this sub-
chapter, stock in a regulated investment company
(as defined in section 851) owned by a nonresident
not a citizen of the United States shall not be
deemed property within the United States in the
proportion that, at the end of the quarter of such in-
vestment company’s taxable year immediately pre-
ceding the decedent’s date of death (or at such other
time as the Secretary may designate in regulations),
the assets of the investment company that were
qualifying assets with respect to the decedent bore
to the total assets of the investment company.
‘‘(2) QUALIFYING
ASSETS.—For purposes of
this subsection, qualifying assets with respect to a
decedent are assets that, if owned directly by the de-
cedent, would have been—
‘‘(A) amounts, deposits, or debt obligations
described in subsection (b) of this section,
‘‘(B) debt obligations described in the last
sentence of section 2104(c), or
‘‘(C) other property not within the United
States.’’.
(c) TREATMENT OF REGULATED INVESTMENT COM-
PANIES UNDER SECTION 897.—
(1) Paragraph (1) of section 897(h) is amended
by striking ‘‘REIT’’ each place it appears and in-
serting ‘‘qualified investment entity’’.
(2) Paragraphs (2) and (3) of section 897(h)
are amended to read as follows:
‘‘(2) SALE OF STOCK IN DOMESTICALLY-CON-
TROLLED ENTITY NOT TAXED.—The term ‘United
States real property interest’ does not include any
interest in a domestically-controlled qualified invest-
ment entity.
‘‘(3) DISTRIBUTIONS
BY
DOMESTICALLY-CON-
TROLLED
QUALIFIED
INVESTMENT
ENTITIES.—In
the case of a domestically-controlled qualified invest-
ment entity, rules similar to the rules of subsection
(d) shall apply to the foreign ownership percentage
of any gain.’’.
(3) Subparagraphs (A) and (B) of section
897(h)(4) are amended to read as follows:
‘‘(A) QUALIFIED INVESTMENT ENTITY.—
The term ‘qualified investment entity’ means
any real estate investment trust and any regu-
lated investment company.
‘‘(B) DOMESTICALLY-CONTROLLED.—The
term ‘domestically-controlled qualified invest-
ment entity’ means any qualified investment en-
tity in which at all times during the testing pe-
riod less than 50 percent in value of the stock
was held directly or indirectly by foreign per-
sons.’’.
(4) Subparagraphs (C) and (D) of section
897(h)(4) are each amended by striking ‘‘REIT’’
and inserting ‘‘qualified investment entity’’.
(5) The subsection heading for subsection (h) of
section 897 is amended by striking ‘‘REITS’’ and
inserting ‘‘CERTAIN INVESTMENT ENTITIES’’.
(d) EFFECTIVE DATE.—
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by
this section shall apply to dividends with respect to
taxable years of regulated investment companies be-
ginning after the date of the enactment of this Act.
(2) ESTATE
TAX
TREATMENT.—The amend-
ment made by subsection (b) shall apply to estates
of decedents dying after the date of the enactment
of this Act.
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