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.—
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by
this section shall apply to dispositions after the date
of the enactment of this Act, except that section
1447 of such Code (as added by this section) shall
not apply to any disposition before the date 6
months after the date of the enactment of this Act.
(2) COORDINATION WITH TREATIES.—
(A) IN
GENERAL.—Sections 899 (other
than subsection (e) thereof) and 1447 of such
Code (as added by this section) shall not apply
to any disposition if such disposition is by a
qualified resident of a foreign country and the
application of such sections to such disposition
would be contrary to any treaty between the
United States and such foreign country which
is in effect on the date of the enactment of this
Act and at the time of such disposition.
(B) QUALIFIED RESIDENT.—For purposes
of subparagraph (A), the term ‘‘qualified resi-
dent’’ means any resident of the foreign country
entitled to the benefits of the treaty referred to
in subparagraph (A); except that such term
shall not include a corporation unless such cor-
poration is a qualified resident of such country
(as defined in section 884(e)(4) of such Code).
SEC. 6. PORTFOLIO DEBT.
(a) IN GENERAL.—Section 871(h)(3) of the Internal
Revenue Code of 1986 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 inserting ‘‘INTER-
EST ON NON-GOVERNMENT OBLIGATIONS OR’’
after ‘‘INCLUDE’’.
(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. 7. SOURCE OF INCOME FROM CERTAIN SALES OF IN-
VENTORY PROPERTY.
(a) GENERAL RULE.—Subsection (b) of section 865
of the Internal Revenue Code of 1986 (relating to excep-
tion for inventory property) is amended to read as follows:
‘‘(b) INVENTORY PROPERTY.—
‘‘(1) INCOME ATTRIBUTABLE TO PRODUCTION
ACTIVITY.—In the case of income from the sale of
inventory property produced (in whole or in part) by
the taxpayer—
‘‘(A) a portion (determined under regula-
tions) of such income shall be allocated to pro-
duction activity (and sourced in the United
States or outside the United States depending
on where such activity occurs), and
‘‘(B) the remaining portion of such income
shall be sourced under the other provisions of
this section.
The regulations prescribed under subparagraph (A)
shall provide that at least 50 percent of such income
shall be allocated to production activities.
‘‘(2) SALES INCOME.—
‘‘(A) UNITED
STATES
RESIDENTS.—In-
come from the sale of inventory property by a
United States resident shall be sourced outside
the United States if—
‘‘(i) the property is sold for use, con-
sumption, or disposition outside the United
States and an office or another fixed place
of business of the taxpayer outside the
United States participated materially in
the sale, and