I 
108TH CONGRESS 
1ST SESSION H. R. 1769
To amend the Internal Revenue Code of 1986 to comply with the World 
Trade Organization rulings on the FSC/ETI benefit in a manner that 
preserves jobs and production activities in the United States. 
IN THE HOUSE OF REPRESENTATIVES 
APRIL 11, 2003
Mr. CRANE (for himself, Mr. RANGEL, Mr. MANZULLO, Mr. LEVIN, Mr. COL-
LINS, Mr. MCDERMOTT, Mr. LAHOOD, Mr. NEAL of Massachusetts, Mr. 
SHIMKUS, and Mr. MATSUI) introduced the following bill; which was re-
ferred to the Committee on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to comply 
with the World Trade Organization rulings on the FSC/
ETI benefit in a manner that preserves jobs and produc-
tion activities in the United States.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Job Protection Act 
of 2003’’.
SEC. 2. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL 
INCOME. 
(a) IN GENERAL.—Section 114 of the Internal Rev-
enue Code of 1986 is hereby repealed. 
(b) CONFORMING AMENDMENTS.—
(1) Subpart E of part III of subchapter N of 
chapter 1 of such Code (relating to qualifying for-
eign trade income) is hereby repealed. 
(2) The table of subparts for such part III is 
amended by striking the item relating to subpart E. 
(3) The table of sections for part III of sub-
chapter B of chapter 1 of such Code is amended by 
striking the item relating to section 114. 
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by 
this section shall apply to transactions occurring 
after the date of the enactment of this Act. 
(2) BINDING
CONTRACTS.—The amendments 
made by this section shall not apply to any trans-
action in the ordinary course of a trade or business 
which occurs pursuant to a binding contract—
(A) which is between the taxpayer and a 
person who is not a related person (as defined 
in section 943(b)(3) of such Code, as in effect 
on the day before the date of the enactment of 
this Act), and
(B) which is in effect on April 11, 2003, 
and at all times thereafter. 
For purposes of this paragraph, a binding contract 
shall include a purchase option, renewal option, or 
replacement option which is included in such con-
tract. 
(d) REVOCATION OF SECTION 943(e) ELECTIONS.—
(1) IN GENERAL.—In the case of a corporation 
that elected to be treated as a domestic corporation 
under section 943(e) of the Internal Revenue Code 
of 1986 (as in effect on the day before the date of 
the enactment of this Act)—
(A) the corporation may revoke such elec-
tion, effective as of the date of the enactment 
of this Act, and 
(B) if the corporation does revoke such 
election—
(i) such corporation shall be treated 
as a domestic corporation transferring (as 
of the date of the enactment of this Act) 
all of its property to a foreign corporation 
in connection with an exchange described 
in section 354 of the Internal Revenue 
Code of 1986, and
(ii) no gain or loss shall be recognized 
on such transfer. 
(2) 
EXCEPTION.—Subparagraph 
(B)(ii) 
of 
paragraph (1) shall not apply to gain on any asset 
held by the revoking corporation if—
(A) the basis of such asset is determined 
in whole or in part by reference to the basis of 
such asset in the hands of the person from 
whom the revoking corporation acquired such 
asset, 
(B) the asset was acquired by transfer (not 
as a result of the election under section 943(e) 
of such Code) occurring on or after the 1st day 
on which its election under section 943(e) of 
such Code was effective, and 
(C) a principal purpose of the acquisition 
was the reduction or avoidance of tax. 
(e) GENERAL TRANSITION.—
(1) IN GENERAL.—In the case of a taxable year 
ending after the date of the enactment of this Act 
and beginning before January 1, 2009, for purposes 
of chapter 1 of such Code, each current FSC/ETI 
beneficiary shall be allowed a deduction equal to the 
transition amount determined under this subsection 
with respect to such beneficiary for such year.
(2) CURRENT
FSC/ETI
BENEFICIARY.—The 
term ‘‘current FSC/ETI beneficiary’’ means any cor-
poration which entered into one or more transactions 
during its taxable year beginning in calendar year 
2001 with respect to which FSC/ETI benefits were 
allowable. 
(3) TRANSITION
AMOUNT.—For purposes of 
this subsection—
(A) IN GENERAL.—The transition amount 
applicable to any current FSC/ETI beneficiary 
for any taxable year is the phaseout percentage 
of the adjusted base period amount. 
(B) PHASEOUT PERCENTAGE.—
(i) IN
GENERAL.—In the case of a 
taxpayer using the calendar year as its 
taxable year, the phaseout percentage shall 
be determined under the following table:
The phaseout 
‘‘Years: 
percentage is:
2004 and 2005 .......
100
2006 .......................
2007 .......................
2008 .......................
2009 and thereafter 
(ii) SPECIAL
RULE
FOR
2003.—The 
phaseout percentage for 2003 shall be the 
amount that bears the same ratio to 100
percent as the number of days after the
date of the enactment of this Act bears to 
365. 
(iii) SPECIAL RULE FOR FISCAL YEAR 
TAXPAYERS.—In the case of a taxpayer 
not using the calendar year as its taxable 
year, the phaseout percentage is the 
weighted average of the phaseout percent-
ages determined under the preceding provi-
sions of this paragraph with respect to cal-
endar years any portion of which is in-
cluded in the taxpayer’s taxable year. The 
weighted average shall be determined on 
the basis of the respective portions of the 
taxable year in each calendar year. 
(4) ADJUSTED BASE PERIOD AMOUNT.—
For purposes of this subsection—
(A) IN GENERAL.—In the case of a 
taxpayer using the calendar year as its 
taxable year, the adjusted base period 
amount for any taxable year is the base 
period amount multiplied by the applicable 
percentage, as determined in the following 
table:
The applicable 
‘‘Years: 
percentage is:
2003 .......................
100
2004 .......................
100
2005 .......................
105
The applicable 
‘‘Years: 
percentage is:
2006 .......................
110
2007 .......................
115
2008 .......................
120
2009 and thereafter 
(B) BASE
PERIOD
AMOUNT.—The 
base period amount is the aggregate FSC/
ETI benefits for the taxpayer’s taxable 
year beginning in calendar year 2001. 
(C) SPECIAL RULES FOR FISCAL YEAR 
TAXPAYERS, ETC.—Rules similar to rules 
of clauses (ii) and (iii) of paragraph (3)(B) 
shall apply for purposes of this paragraph. 
(5) FSC/ETI BENEFIT.—For purposes of this 
subsection, the term ‘FSC/ETI benefit’ means—
(A) amounts excludable from gross income 
under section 114 of such Code, and 
(B) the exempt foreign trade income of re-
lated foreign sales corporations from property 
acquired from the taxpayer (determined without 
regard to section 923(a)(5) of such Code (relat-
ing to special rule for military property), as in 
effect on the day before the date of the enact-
ment of the FSC Repeal and Extraterritorial 
Income Exclusion Act of 2000). 
In determining the FSC/ETI benefit there shall be 
excluded any amount attributable to a transaction
with respect to which the taxpayer is the lessor un-
less the leased property was manufactured or pro-
duced in whole or in part by the taxpayer. 
(6) SPECIAL RULE FOR FARM COOPERATIVES.—
Under regulations prescribed by the Secretary, de-
terminations under this subsection with respect to 
an organization described in section 943(g)(1) of 
such Code, as in effect on the day before the date 
of the enactment of this Act, shall be made at the 
cooperative level and the purposes of this subsection 
shall be carried out by excluding amounts from the 
gross income of its patrons. 
(7) CERTAIN RULES TO APPLY.—Rules similar 
to the rules of section 41(f) of such Code shall apply 
for purposes of this subsection. 
(8) COORDINATION WITH BINDING CONTRACT 
RULE.—The deduction determined under paragraph 
(1) for any taxable year shall be reduced by the 
phaseout percentage of any FSC/ETI benefit real-
ized for the taxable year by reason of subsection 
(c)(2). The preceding sentence shall not apply to any 
FSC/ETI benefit attributable to a transaction de-
scribed in the last sentence of paragraph (5). 
(9) SPECIAL RULE FOR TAXABLE YEAR WHICH 
INCLUDES DATE OF ENACTMENT.—In the case of a
taxable year which includes the date of the enact-
ment of this Act, the deduction allowed under this 
subsection to any current FSC/ETI beneficiary shall 
in no event exceed—
(A) 100 percent of such beneficiary’s ad-
justed base period amount for calendar year 
2003, reduced by 
(B) the aggregate FSC/ETI benefits of 
such beneficiary with respect to transactions oc-
curring during the portion of the taxable year 
ending on the date of the enactment of this Act. 
SEC. 3. DEDUCTION RELATING TO INCOME ATTRIBUTABLE 
TO UNITED STATES PRODUCTION ACTIVI-
TIES. 
(a) IN GENERAL.—Part VIII of subchapter B of 
chapter 1 of the Internal Revenue Code of 1986 (relating 
to special deductions for corporations) is amended by add-
ing at the end the following new section: 
‘‘SEC. 250. INCOME ATTRIBUTABLE TO DOMESTIC PRODUC-
TION ACTIVITIES. 
‘‘(a) IN GENERAL.—In the case of a corporation, 
there shall be allowed as a deduction an amount equal to 
10 percent of the qualified production activities income of 
the corporation for the taxable year.
‘‘(b) PHASEIN.—In the case of taxable years begin-
ning in 2006, 2007, 2008 or 2009, subsection (a) shall 
be applied by substituting for the percentage contained 
therein the transition percentage determined under the 
following table:
‘‘Taxable years 
The transition 
beginning in: 
percentage is:
2006 .......................
2007 .......................
2008 .......................
2009 .......................
‘‘(c) 
QUALIFIED
PRODUCTION
ACTIVITIES
IN-
COME.—For purposes of this section, the term ‘qualified 
production activities income’ means the product of—
‘‘(1) the portion of the modified taxable income 
of the taxpayer which is attributable to domestic 
production activities, and 
‘‘(2) the domestic/foreign fraction. 
‘‘(d) DETERMINATION OF INCOME ATTRIBUTABLE 
TO DOMESTIC PRODUCTION ACTIVITIES.—For purposes 
of this section—
‘‘(1) IN GENERAL.—The portion of the modified 
taxable income which is attributable to domestic pro-
duction activities is so much of the modified taxable 
income for the taxable year as does not exceed—
‘‘(A) the taxpayer’s domestic production 
gross receipts for such taxable year, reduced by 
‘‘(B) the sum of—
‘‘(i) the costs of goods sold that are 
allocable to such receipts, 
‘‘(ii) other deductions, expenses, or 
losses directly allocable to such receipts, 
and 
‘‘(iii) a ratable portion of other deduc-
tions, expenses, and losses that are not di-
rectly allocable to such receipts or another 
class of income. 
‘‘(2) ALLOCATION
METHOD.—Except as pro-
vided in regulations, allocations under clauses (ii) 
and (iii) of paragraph (1)(B) shall be made under 
the principles used in determining the portion of tax-
able income from sources within and without the 
United States. 
‘‘(3) SPECIAL RULE.—
‘‘(A) For purposes of determining costs 
under clause (i) of paragraph (1)(B), any item 
or service brought into the United States with-
out a transfer price meeting the requirements 
of section 482 shall be treated as acquired by 
purchase, and its cost shall be treated as not 
less than its value when it entered the United 
States. A similar rule shall apply in determining 
the adjusted basis of leased or rented property
where the lease or rental gives rise to domestic 
production gross receipts. 
‘‘(B) In the case of any property described 
in subparagraph (A) that had been exported by 
the taxpayer for further manufacture, the in-
crease in cost (or adjusted basis) under sub-
paragraph (A) shall not exceed the difference 
between the value of the property when ex-
ported and the value of the property when 
brought back into the United States after the 
further manufacture. 
‘‘(4) MODIFIED TAXABLE INCOME.—The term 
‘modified taxable income’ means taxable income 
computed without regard to the deduction allowable 
under this section. 
‘‘(e) DOMESTIC PRODUCTION GROSS RECEIPTS.—
For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘domestic produc-
tion gross receipts’ means the gross receipts of the 
taxpayer which are derived from—
‘‘(A) any sale, exchange, or other disposi-
tion of, or 
‘‘(B) any lease, rental or license of, 
qualifying production property which was manufac-
tured, produced, grown, or extracted in whole or in
significant part by the taxpayer within the United 
States. 
‘‘(2) SPECIAL RULE.—The term ‘domestic pro-
duction gross receipts’ includes gross receipts of the 
taxpayer from the sale, exchange, or other disposi-
tion of replacement parts if— 
‘‘(A) such parts are sold by the taxpayer 
as replacement parts for qualified production 
property produced or manufactured in whole or 
significant part by the taxpayer in the United 
States, and 
‘‘(B) the taxpayer (or a related party) 
owns the designs for such parts. 
‘‘(3) RELATED
PARTY.—The term ‘related 
party’ means any corporation which is a member of 
the taxpayer’s expanded afiliated group. 
‘‘(f) QUALIFYING
PRODUCTION
PROPERTY.—For 
purposes of this section—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this paragraph, the term ‘qualifying produc-
tion property’ means—
‘‘(A) any tangible personal property, 
‘‘(B) any computer software, and 
‘‘(C) any films, tapes, records, or similar 
reproductions.
‘‘(2) EXCLUSIONS FROM QUALIFYING PRODUC-
TION PROPERTY.—The term ‘qualifying production 
property’ shall not include—
‘‘(A) consumable property that is sold, 
leased, or licensed by the taxpayer as an inte-
gral part of the provision of services, 
‘‘(B) oil or gas (or any primary product 
thereof), 
‘‘(C) electricity, 
‘‘(D) water supplied by pipeline to the con-
sumer, 
‘‘(E) any unprocessed timber which is 
softwood, 
‘‘(F) utility services, or 
‘‘(G) any property (not described in para-
graph (1)(B)) which is a film, tape, recording, 
book, magazine, newspaper, or similar property 
the market for which is primarily topical or oth-
erwise essentially transitory in nature. 
For purposes of subparagraph (E), the term ‘un-
processed timber’ means any log, cant, or similar 
form of timber. 
‘‘(g) DOMESTIC/FOREIGN FRACTION.—For purposes 
of this section—
‘‘(1) IN GENERAL.—The term ‘domestic/foreign 
fraction’ means a fraction—
‘‘(A) the numerator of which is the value 
of the domestic production of the taxpayer, and 
‘‘(B) the denominator of which is the value 
of the worldwide production of the taxpayer. 
‘‘(2) VALUE OF DOMESTIC PRODUCTION.—The 
value of domestic production is the excess of—
‘‘(A) the domestic production gross re-
ceipts, over 
‘‘(B) the cost of purchased inputs allocable 
to such receipts that are deductible under this 
chapter for the taxable year. 
‘‘(3) PURCHASED INPUTS.—
‘‘(A) IN GENERAL.—Purchased inputs are 
any of the following items acquired by pur-
chase: 
‘‘(i) Services (other than services of 
employees) used in manufacture, produc-
tion, growth, or extraction activities. 
‘‘(ii) Items consumed in connection 
with such activities.
‘‘(iii) Items incorporated as part of 
the property being manufactured, pro-
duced, grown, or extracted.
‘‘(B) SPECIAL RULE.—Rules similar to the 
rules of subsection (d)(3) shall apply for pur-
poses of this subsection. 
‘‘(4) VALUE OF WORLDWIDE PRODUCTION.—
‘‘(A) IN GENERAL.—The value of world-
wide production shall be determined under the 
principles of paragraph (2), except that—
‘‘(i) worldwide production gross re-
ceipts shall be taken into account, and 
‘‘(ii) paragraph (3)(B) shall not apply. 
‘‘(B) WORLDWIDE PRODUCTION GROSS RE-
CEIPTS.—The worldwide production gross re-
ceipts is the amount that would be determined 
under subsection (e) if such subsection were ap-
plied without any reference to the United 
States. 
‘‘(5) 
SPECIAL
RULE
FOR
AFFILIATED 
GROUPS.—
‘‘(A) IN GENERAL.—In the case of a tax-
payer that is a member of an expanded affili-
ated group, the domestic/foreign fraction shall 
be the amount determined under the preceding 
provisions of this subsection by treating all 
members of such group as a single corporation.
‘‘(B) EXPANDED
AFFILIATED
GROUP.—
The term ‘expanded affiliated group’ means an 
affiliated group as defined in section 1504(a), 
determined—
‘‘(i) by substituting ‘50 percent’ for 
‘80 percent’ each place it appears, and 
‘‘(ii) without regard to paragraphs 
(2), (3), and (4) of section 1504(b). 
‘‘(h) DEFINITIONS AND SPECIAL RULES.—
‘‘(1) UNITED
STATES.—For purposes of this 
section, the term ‘United States’ includes the Com-
monwealth of Puerto Rico and any other possession 
of the United States. 
‘‘(2) SPECIAL RULE FOR PARTNERSHIPS.—For 
purposes of this section, a corporation’s distributive 
share of any partnership item shall be taken into ac-
count as if directly realized by the corporation. 
‘‘(3) COORDINATION WITH MINIMUM TAX.—The 
deduction under this section shall be allowed for 
purposes of the tax imposed by section 55; except 
that for purposes of section 55, alternative minimum 
taxable income shall be taken into account in deter-
mining the deduction under this section.
‘‘(4) ORDERING
RULE.—The amount of any 
other deduction allowable under this chapter shall be 
determined as if this section had not been enacted. 
‘‘(5) 
COORDINATION
WITH
TRANSITION 
RULES.—For purposes of this section—
‘‘(A) domestic production gross receipts 
shall not include gross receipts from any trans-
action if the binding contract transition relief of 
section 2(c)(2) of the Job Protection Act of 
2003 applies to such transaction, and 
‘‘(B) any deduction allowed under section 
2(e) of such Act shall be disregarded in deter-
mining the portion of the taxable income which 
is attributable to domestic production gross re-
ceipts.’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for part VIII of subchapter B of chapter 1 of such Code 
is amended by adding at the end the following new item:
‘‘Sec. 250. Income attributable to domestic production activi-
ties.’’.
(c) EFFECTIVE DATE.—
‘‘(1) IN GENERAL.—The amendments made by 
this section shall apply to taxable years beginning 
after 2005. 
‘‘(2) APPLICATION OF SECTION 15.—Section 15 
of the Internal Revenue Code of 1986 shall apply to
the amendments made by this section as if they were 
changes in a rate of tax.
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