(C) by inserting ‘‘and’’ at the end of para-
graph (7) (as so redesignated), and
(D) by striking ‘‘; and’’ at the end of para-
graph (8) (as so redesignated) and inserting a
period.
(2) TREATMENT OF INCOME FROM PERSONAL
SERVICE
CONTRACTS.—Paragraph (1) of section
954(c) is amended by adding at the end the fol-
lowing new subparagraph:
‘‘(H) PERSONAL SERVICE CONTRACTS.—
‘‘(i) Amounts received under a con-
tract under which the corporation is to fur-
nish personal services; if some person other
than the corporation has the right to des-
ignate (by name or by description) the in-
dividual who is to perform the services, or
if the individual who is to perform the
services is designated (by name or by de-
scription) in the contract; and
‘‘(ii) amounts received from the sale
or other disposition of such a contract.
This subparagraph shall apply with respect to
amounts received for services under a particular
contract only if at some time during the taxable
year 25 percent or more in value of the out-
standing stock of the corporation is owned, di-
rectly or indirectly, by or for the individual who
has performed, is to perform, or may be des-
ignated (by name or by description) as the one
to perform, such services.’’
(c) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 171(c) is
amended—
(A) by striking ‘‘, or by a foreign personal
holding company, as defined in section 552’’,
and
(B) by striking ‘‘, or a foreign personal
holding company’’.
(2) Paragraph (2) of section 245(a) is amended
by striking ‘‘foreign personal holding company or’’
(3) Section 312 is amended by striking sub-
section (j).
(4) Subsection (m) of section 312 is amended
by striking ‘‘, a foreign investment company (within
the meaning of section 1246(b)), or a foreign per-
sonal holding company (within the meaning of sec-
tion 552)’’.
(5) Subsection (e) of section 443 is amended by
striking paragraph (3) and by redesignating para-
graphs (4) and (5) as paragraphs (3) and (4), re-
spectively.
(6) Subparagraph (B) of section 465(c)(7) is
amended to by adding ‘‘or’’ at the end of clause (i),
by striking clause (ii), and by redesignating clause
(iii) as clause (ii).
(7) Paragraph (1) of section 543(b) is amended
by inserting ‘‘and’’ at the end of subparagraph (A),
by striking ‘‘, and’’ at the end of subparagraph (B)
and inserting a period, and by striking subparagraph
(C).
(8) Paragraph (1) of section 562(b) is amended
by striking ‘‘or a foreign personal holding company
described in section 552’’.
(9) Section 563 is amended—
(A) by striking subsection (c),
(B) by redesignating subsection (d) as sub-
section (c), and
(C) by striking ‘‘subsection (a), (b), or (c)’’
in subsection (c) (as so redesignated) and in-
serting ‘‘subsection (a) or (b)’’.
(10) Subsection (d) of section 751 is amended
by adding ‘‘and’’ at the end of paragraph (2), by
striking paragraph (3), by redesignating paragraph
(4) as paragraph (3), and by striking ‘‘paragraph
(1), (2), or (3)’’ in paragraph (3) (as so redesig-
nated) and inserting ‘‘paragraph (1) or (2)’’.
(11) Paragraph (2) of section 864(d) is amend-
ed by striking subparagraph (A) and by redesig-
nating subparagraphs (B) and (C) as subparagraphs
(A) and (B), respectively.
(12)(A) Subparagraph (A) of section 898(b)(1)
is amended to read as follows:
‘‘(A) which is treated as a controlled for-
eign corporation for any purpose under subpart
F of part III of this subchapter, and’’.
(B) Subparagraph (B) of section 898(b)(2) is
amended by striking ‘‘and sections 551(f) and 554,
whichever are applicable,’’.
(C) Paragraph (3) of section 898(b) is amended
to read as follows:
‘‘(3) UNITED
STATES
SHAREHOLDER.—The
term ‘United States shareholder’ has the meaning
given to such term by section 951(b), except that, in
the case of a foreign corporation having related per-
son insurance income (as defined in section
953(c)(2)), the Secretary may treat any person as a
United States shareholder for purposes of this sec-
tion if such person is treated as a United States
shareholder under section 953(c)(1).’’
(D) Subsection (c) of section 898 is amended to
read as follows:
‘‘(c) DETERMINATION OF REQUIRED YEAR.—
‘‘(1) IN GENERAL.—The required year is—
‘‘(A) the majority U.S. shareholder year,
or
‘‘(B) if there is no majority U.S. share-
holder year, the taxable year prescribed under
regulations.
‘‘(2) 1-MONTH DEFERRAL ALLOWED.—A speci-
fied foreign corporation may elect, in lieu of the tax-
able year under paragraph (1)(A), a taxable year be-
ginning 1 month earlier than the majority U.S.
shareholder year.
‘‘(3) MAJORITY U.S. SHAREHOLDER YEAR.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, the term ‘majority U.S. shareholder
year’ means the taxable year (if any) which, on
each testing day, constituted the taxable year
of—
‘‘(i) each United States shareholder
described in subsection (b)(2)(A), and
‘‘(ii) each United States shareholder
not described in clause (i) whose stock was
treated 
as 
owned 
under 
subsection
(b)(2)(B) by any shareholder described in
such clause.
‘‘(B) TESTING
DAY.—The testing days
shall be—
‘‘(i) the first day of the corporation’s
taxable year (determined without regard to
this section), or
‘‘(ii) the days during such representa-
tive period as the Secretary may pre-
scribe.’’
(13) Clause (ii) of section 904(d)(2)(A) is
amended to read as follows:
‘‘(ii) CERTAIN AMOUNTS INCLUDED.—
Except as provided in clause (iii), the term
‘passive income’ includes, except as pro-
vided in subparagraph (E)(iii) or para-
graph (3)(I), any amount includible in
gross income under section 1293 (relating
to certain passive foreign investment com-
panies).’’
(14)(A) Subparagraph (A) of section 904(g)(1)
is amended by adding ‘‘or’’ at the end of clause (i),
by striking clause (ii), and by redesignating clause
(iii) as clause (ii).
(B) The paragraph heading of paragraph (2) of
section 904(g) is amended by striking ‘‘FOREIGN
PERSONAL HOLDING OR’’.
(15) Section 951 is amended by striking sub-
sections (c) and (d) and by redesignating subsections
(e) and (f) as subsections (c) and (d), respectively.
(16) Paragraph (3) of section 989(b) is amend-
ed by striking ‘‘, 551(a),’’.
(17) Paragraph (5) of section 1014(b) is
amended by inserting ‘‘and before January 1,
2003,’’ after ‘‘August 26, 1937,’’.
(18) Subsection (a) of section 1016 is amended
by striking paragraph (13) and by redesignating the
following paragraphs accordingly.
(19)(A) Paragraph (3) of section 1212(a) is
amended to read as follows:
‘‘(3) SPECIAL RULES ON CARRYBACKS.—A net
capital loss of a corporation shall not be carried
back under paragraph (1)(A) to a taxable year—
‘‘(A) for which it is a regulated investment
company (as defined in section 851), or
‘‘(B) for which it is a real estate invest-
ment trust (as defined in section 856).’’
100
(B) The amendment made by subparagraph (A)
shall apply to taxable years beginning after Decem-
ber 31, 2004.
(20) Section 1223 is amended by striking para-
graph (10) and by redesignating the following para-
graphs accordingly.
(21) Subsection (d) of section 1248 is amended
by striking paragraph (5) and by redesignating
paragraphs (6) and (7) as paragraphs (5) and (6),
respectively.
(22) Paragraph (2) of section 1260(c) is
amended by striking subparagraphs (H) and (I) and
by redesignating subparagraph (J) as subparagraph
(H).
(23) Subparagraph (F) of section 1291(b)(3) is
amended by striking ‘‘551(d), 959(a),’’ and inserting
‘‘959(a)’’.
(24) Paragraph (2) of section 1294(a) is
amended to read as follows:
‘‘(2) 
ELECTION
NOT
PERMITTED
WHERE
AMOUNTS OTHERWISE INCLUDIBLE UNDER SECTION
951.—The taxpayer may not make an election under
paragraph (1) with respect to the undistributed
PFIC earnings tax liability attributable to a quali-
fied electing fund for the taxable year if any amount
101
is includible in the gross income of the taxpayer
under section 951 with respect to such fund for such
taxable year.’’
(25) Section 6035 is hereby repealed.
(26) Subparagraph (D) of section 6103(e)(1) is
amended by striking clause (iv) and redesignating
clauses (v) and (vi) as clauses (iv) and (v), respec-
tively.
(27) Subparagraph (B) of section 6501(e)(1) is
amended to read as follows:
‘‘(B) CONSTRUCTIVE
DIVIDENDS.—If the
taxpayer omits from gross income an amount
properly 
includible 
therein 
under 
section
951(a), the tax may be assessed, or a pro-
ceeding in court for the collection of such tax
may be done without assessing, at any time
within 6 years after the return was filed.’’
(28) Subsection (a) of section 6679 is
amended—
(A) by striking ‘‘6035, 6046, and 6046A’’
in paragraph (1) and inserting ‘‘6046 and
6046A’’, and
(B) by striking paragraph (3).
102
(29) Sections 170(f)(10)(A), 508(d), 4947, and
4948(c)(4) 
are 
each 
amended 
by 
striking
‘‘556(b)(2),’’ each place it appears.
(30) The table of parts for subchapter G of
chapter 1 is amended by striking the item relating
to part III.
(31) The table of sections for part IV of sub-
chapter P of chapter 1 is amended by striking the
items relating to sections 1246 and 1247.
(32) The table of sections for subpart A of part
III of subchapter A of chapter 61 is amended by
striking the item relating to section 6035.
SEC. 305. CLARIFICATION OF TREATMENT OF PIPELINE
TRANSPORTATION INCOME.
Section 954(g)(1) (defining foreign base company oil
related income) is amended by striking ‘‘or’’ at the end
of subparagraph (A), by striking the period at the end
of subparagraph (B) and inserting ‘‘, or’’, and by inserting
after subparagraph (B) the following new subparagraph:
‘‘(C) the pipeline transportation of oil or
gas within such foreign country.’’
106
such income in an amount equal to the excess
(if any) of—
‘‘(i) the total interest expense of the
worldwide affiliated group multiplied by
the ratio which the foreign assets of the
worldwide affiliated group bears to all the
assets of the worldwide affiliated group,
over
‘‘(ii) the interest expense of all foreign
corporations which are members of the
worldwide affiliated group to the extent
such interest expense of such foreign cor-
porations would have been allocated and
apportioned to foreign source income if
this subsection were applied to a group
consisting of all the foreign corporations in
such worldwide affiliated group.
‘‘(C) WORLDWIDE AFFILIATED GROUP.—
For purposes of this paragraph, the term
‘worldwide affiliated group’ means an affiliated
group as defined in section 1504(a), determined
without regard to paragraphs (2), (3), and (4)
of section 1504(b).
‘‘(2) ALLOCATION
AND
APPORTIONMENT
OF
OTHER
EXPENSES.—Expenses other than interest
107
which are not directly allocable or apportioned to
any specific income producing activity shall be allo-
cated and apportioned as if all members of the affili-
ated group were a single corporation. For purposes
of the preceding sentence, the term ‘affiliated group’
has the meaning given such term by section 1504
(determined without regard to paragraph (4) of sec-
tion 1504(b)).’’
(2) CONFORMING AMENDMENTS.—
(A) Clauses (i) and (ii) of section
864(e)(4)(B) are each amended by striking ‘‘af-
filiated group’’ and inserting ‘‘worldwide affili-
ated group (as defined in paragraph (1)(C))’’.
(B) Subsection (e) of section 864 is
amended by striking paragraph (6).
(b) TREATMENT OF FINANCIAL INSTITUTIONS.—
(1) TREATMENT
AS
SEPARATE
WORLDWIDE
GROUP.—
(A) IN GENERAL.—Paragraph (5) of sec-
tion 864(e) is amended by striking so much of
such paragraph as precedes subparagraph (C),
by redesignating subparagraphs (C) and (D) as
subparagraphs (B) and (C), respectively, and
by inserting before subparagraph (B) (as so re-
designated) the following:
108
‘‘(5) TREATMENT OF CERTAIN FINANCIAL IN-
STITUTIONS.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), any corporation described in sub-
paragraph (B) shall be treated as an includible
corporation for purposes of section 1504 only
for purposes of applying this subsection sepa-
rately to corporations so described.’’
(B) CONFORMING AMENDMENT.—Subpara-
graph (C) of section 864(e)(5), as redesignated
by subparagraph (A), is amended by striking
‘‘subparagraph (C)’’ and inserting ‘‘subpara-
graph (B)’’.
(2) ELECTION TO EXPAND FINANCIAL INSTITU-
TION
GROUP
OF
WORLDWIDE
GROUP.—Subsection
(e) of section 864 is amended by inserting after
paragraph (5) the following new paragraph:
‘‘(6) ELECTION TO EXPAND FINANCIAL INSTI-
TUTION GROUP OF WORLDWIDE GROUP.—
‘‘(A) IN GENERAL.—If a worldwide affili-
ated group elects the application of this sub-
section, all financial corporations which—
‘‘(i) are members of such worldwide
affiliated group, but
109
‘‘(ii) are not corporations described in
paragraph (5)(B),
shall be treated as described in paragraph
(5)(B) for purposes of applying paragraph
(5)(A). This subsection (other than this para-
graph) shall apply to any such group in the
same manner as this subsection (other than this
paragraph) applies to the pre-election worldwide
affiliated group of which such group is a part.
‘‘(B) FINANCIAL CORPORATION.—For pur-
poses of this paragraph, the term ‘financial cor-
poration’ means any corporation if at least 80
percent of its gross income is income described
in section 904(d)(2)(C)(ii) and the regulations
thereunder which is derived from transactions
with persons who are not related (within the
meaning of section 267(b) or 707(b)(1)) to the
corporation. For purposes of the preceding sen-
tence, there shall be disregarded any item of in-
come or gain from a transaction or series of
transactions a principal purpose of which is the
qualification of any corporation as a financial
corporation.
‘‘(C) ANTIABUSE RULES.—In the case of a
corporation which is a member of an electing fi-
110
nancial institution group, to the extent that
such corporation—
‘‘(i) distributes dividends or makes
other distributions with respect to its stock
after the date of the enactment of this
paragraph to any member of the pre-elec-
tion worldwide affiliated group (other than
to a member of the electing financial insti-
tution group) in excess of the greater of—
‘‘(I) its average annual dividend
(expressed as a percentage of current
earnings and profits) during the 5-
taxable-year period ending with the
taxable year preceding the taxable
year, or
‘‘(II) 25 percent of its average
annual earnings and profits for such
5-taxable-year period, or
‘‘(ii) deals with any person in any
manner not clearly reflecting the income of
the corporation (as determined under prin-
ciples similar to the principles of section
482),
an amount of indebtedness of the electing fi-
nancial institution group equal to the excess
111
distribution or the understatement or overstate-
ment of income, as the case may be, shall be re-
characterized (for the taxable year and subse-
quent taxable years) for purposes of this para-
graph as indebtedness of the worldwide affili-
ated group (excluding the electing financial in-
stitution group). If a corporation has not been
in existence for 5 taxable years, this subpara-
graph shall be applied with respect to the pe-
riod it was in existence.
‘‘(D) ELECTION.—An election under this
paragraph with respect to any financial institu-
tion group may be made only by the common
parent of the pre-election worldwide affiliated
group and may be made only for the first tax-
able year beginning after December 31, 2002,
in which such affiliated group includes 1 or
more financial corporations. Such an election,
once made, shall apply to all financial corpora-
tions which are members of the electing finan-
cial institution group for such taxable year and
all subsequent years unless revoked with the
consent of the Secretary.
‘‘(E) 
DEFINITIONS
RELATING
TO
GROUPS.—For purposes of this paragraph—
112
‘‘(i) PRE-ELECTION WORLDWIDE AF-
FILIATED GROUP.—The term ‘pre-election
worldwide affiliated group’ means, with re-
spect to a corporation, the worldwide affili-
ated group of which such corporation
would (but for an election under this para-
graph) be a member for purposes of apply-
ing paragraph (1).
‘‘(ii) ELECTING
FINANCIAL
INSTITU-
TION GROUP.—The term ‘electing financial
institution group’ means the group of cor-
porations to which this subsection applies
separately by reason of the application of
paragraph (5)(A) and which includes fi-
nancial corporations by reason of an elec-
tion under subparagraph (A).
‘‘(F) REGULATIONS.—The Secretary shall
prescribe such regulations as may be appro-
priate to carry out this subsection, including
regulations—
‘‘(i) providing for the direct allocation
of interest expense in other circumstances
where such allocation would be appropriate
to carry out the purposes of this sub-
section,
113
‘‘(ii) preventing assets or interest ex-
pense from being taken into account more
than once, and
‘‘(iii) dealing with changes in mem-
bers of any group (through acquisitions or
otherwise) treated under this paragraph as
an affiliated group for purposes of this
subsection.’’.
(c) EXPANSION
OF
REGULATORY
AUTHORITY.—
Paragraph (7) of section 864(e) is amended—
(1) by inserting before the comma at the end of
subparagraph (B) ‘‘and in other circumstances
where such allocation would be appropriate to carry
out the purposes of this subsection’’, and
(2) by striking ‘‘and’’ at the end of subpara-
graph (E), by redesignating subparagraph (F) as
subparagraph (G), and by inserting after subpara-
graph (E) the following new subparagraph:
‘‘(F) preventing assets or interest expense
from being taken into account more than once,
and’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2002.
114
SEC. 312. RECHARACTERIZATION OF OVERALL DOMESTIC
LOSS.
(a) GENERAL RULE.—Section 904 is amended by re-
designating subsections (g), (h), (i), (j), and (k) as sub-
sections (h), (i), (j), (k), and (l) respectively, and by in-
serting after subsection (f) the following new subsection:
‘‘(g) RECHARACTERIZATION OF OVERALL DOMESTIC
LOSS.—
‘‘(1) GENERAL
RULE.—For purposes of this
subpart and section 936, in the case of any taxpayer
who sustains an overall domestic loss for any taxable
year beginning after December 31, 2002, that por-
tion of the taxpayer’s taxable income from sources
within the United States for each succeeding taxable
year which is equal to the lesser of—
‘‘(A) the amount of such loss (to the extent
not used under this paragraph in prior taxable
years), or
‘‘(B) 50 percent of the taxpayer’s taxable
income from sources within the United States
for such succeeding taxable year,
shall be treated as income from sources without the
United States (and not as income from sources with-
in the United States).
‘‘(2) OVERALL DOMESTIC LOSS DEFINED.—For
purposes of this subsection—
115
‘‘(A) IN GENERAL.—The term ‘overall do-
mestic loss’ means any domestic loss to the ex-
tent such loss offsets taxable income from
sources without the United States for the tax-
able year or for any preceding taxable year by
reason of a carryback. For purposes of the pre-
ceding sentence, the term ‘domestic loss’ means
the amount by which the gross income for the
taxable year from sources within the United
States is exceeded by the sum of the deductions
properly apportioned or allocated thereto (deter-
mined without regard to any carryback from a
subsequent taxable year).
‘‘(B) TAXPAYER
MUST
HAVE
ELECTED
FOREIGN TAX CREDIT FOR YEAR OF LOSS.—
The term ‘overall domestic loss’ shall not in-
clude any loss for any taxable year unless the
taxpayer chose the benefits of this subpart for
such taxable year.
‘‘(3) CHARACTERIZATION OF SUBSEQUENT IN-
COME.—
‘‘(A) IN
GENERAL.—Any income from
sources within the United States that is treated
as income from sources without the United
States under paragraph (1) shall be allocated
116
among and increase the income categories in
proportion to the loss from sources within the
United States previously allocated to those in-
come categories.
‘‘(B) INCOME CATEGORY.—For purposes of
this paragraph, the term ‘income category’ has
the meaning given such term by subsection
(f)(5)(E)(i).
‘‘(4) COORDINATION WITH SUBSECTION (f).—
The Secretary shall prescribe such regulations as
may be necessary to coordinate the provisions of this
subsection with the provisions of subsection (f).’’
(b) CONFORMING AMENDMENTS.—
(1) Section 535(d)(2) is amended by striking
‘‘section 
904(g)(6)’’ 
and 
inserting 
‘‘section
904(h)(6)’’.
(2) Subparagraph (A) of section 936(a)(2) is
amended by striking ‘‘section 904(f)’’ and inserting
‘‘subsections (f) and (g) of section 904’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to losses for taxable years begin-
ning after December 31, 2002.
SEC. 313. REDUCTION TO 3 FOREIGN TAX CREDIT BASKETS.
(a) IN GENERAL.—Paragraph (1) of section 904(d)
(relating to separate application of section with respect to
117
certain categories of income) is amended to read as fol-
lows:
‘‘(1) IN
GENERAL.—The provisions of sub-
sections (a), (b), and (c) and sections 902, 907, and
960 shall be applied separately with respect to in-
come described in each of the following items of in-
come:
‘‘(A) passive income and other passive cat-
egory income,
‘‘(B) financial services income, and
‘‘(C) income other than income described
in subparagraph (A) or (B).’’
(b) OTHER PASSIVE CATEGORY INCOME.—Subpara-
graph (A) of section 904(d)(2) is amended by adding at
the end the following new clause:
‘‘(v) OTHER
PASSIVE
CATEGORY
IN-
COME.—The term ‘other passive category
income’ means—
‘‘(I) dividends from a DISC or
former DISC (as defined in section
992(a)) to the extent such dividends
are treated as income from sources
without the United States,
118
‘‘(II) taxable income attributable
to foreign trade income (within the
meaning of section 923(b)), and
‘‘(III) distributions from a FSC
(or a former FSC) out of earnings
and profits attributable to foreign
trade income (within the meaning of
section 923(b)) or interest or carrying
charges 
(as 
defined 
in 
section
927(d)(1)) derived from a transaction
which results in foreign trade income
(as defined in section 923(b)).’’
(c) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 904(d) is amended
by striking subparagraphs (B) and (D).
(2)(A) 
Subclause 
(III) 
of 
section
904(d)(2)(C)(i) is amended to read as follows:
‘‘(III) high-taxed export financ-
ing interest.’’
(B) Subparagraph (C) of section 904(d)(2) is
amended by adding at the end the following new
clause:
‘‘(iv) HIGH-TAXED
EXPORT
FINANC-
ING INTEREST.—The term ‘high-taxed ex-
119
port financing interest’ means any interest
if—
‘‘(I) such interest is subject to a
withholding tax of a foreign country
or possession of the United States (or
other tax determined on a gross
basis), and
‘‘(II) the rate of such tax appli-
cable to such interest is at least 5 per-
cent.
The Secretary may by regulations provide
that export financing interest (not other-
wise high-taxed export financing interest)
shall be treated as high-taxed export fi-
nancing interest where necessary to pre-
vent avoidance of the purposes of this sub-
paragraph, and a tax shall not be treated
as a withholding tax or other tax imposed
on a gross basis if such tax is in the na-
ture of a prepayment of a tax imposed on
a net basis.’’
(3) Clause (iii) of section 904(d)(2)(C) is
amended to read as follows:
‘‘(iii) EXCEPTIONS.—The term ‘finan-
cial services income’ does not include—
120
‘‘(I) in the case of a corporation,
dividends from noncontrolled section
902 corporations out of earnings and
profits accumulated in taxable years
beginning before January 1, 2003,
and
‘‘(II) any export financing inter-
est which is not high-taxed export fi-
nancing interest.’’
(4) Subparagraph (E) of section 904(d)(2) is
amended by striking clause (ii) and by redesignating
clauses (iii) and (iv) as clauses (ii) and (iii), respec-
tively.
(5) Clause (i) of section 904(d)(3)(F) is amend-
ed to read as follows:
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), the separate categories
are—
‘‘(I) passive income and other
passive category income, and
‘‘(II) financial services income.’’
(6) Paragraph (3) of section 904(d) is amended
by striking subparagraph (H) and by redesignating
subparagraph (I) as subparagraph (H).
121
(7) Paragraph (2) of section 904(d) is amended
by adding at the end the following new subpara-
graph:
‘‘(I) 
TRANSITIONAL
RULE
FOR
2002
CHANGES.—For purposes of paragraph (1),
taxes carried from any taxable year beginning
before January 1, 2003, to any taxable year be-
ginning on or after such date, with respect to
any item of income shall be treated as described
in the subparagraph of paragraph (1) in which
such income would be described were such taxes
paid or accrued in a taxable year beginning on
or after such date.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2002.
SEC. 314. 10-YEAR FOREIGN TAX CREDIT CARRYFORWARD.
(a) GENERAL RULE.—Section 904(c) (relating to
carryback and carryover of excess tax paid) is amended
by striking ‘‘in the first, second, third, fourth, or fifth’’
and inserting ‘‘in any of the first 10’’.
(b) EXCESS EXTRACTION TAXES.—Paragraph (1) of
section 907(f) is amended by striking ‘‘in the first, second,
third, fourth, or fifth’’ and inserting ‘‘in any of the first
10’’.
122
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to excess foreign taxes which (with-
out regard to the amendments made by this section) may
be carried to any taxable year beginning after December
31, 2002.
SEC. 315. REPEAL OF LIMITATION OF FOREIGN TAX CREDIT
UNDER ALTERNATIVE MINIMUM TAX.
(a) IN GENERAL.—Section 59(a) (relating to alter-
native minimum tax foreign tax credit) is amended by
striking paragraph (2) and by redesignating paragraphs
(3) and (4) as paragraphs (2) and (3), respectively.
(b) 
CONFORMING
AMENDMENT.—Section
53(d)(1)(B)(i)(II) is amended by striking ‘‘and if section
59(a)(2) did not apply’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2002.
SEC. 316. LOOK-THRU RULES TO APPLY TO DIVIDENDS
FROM NONCONTROLLED SECTION 902 COR-
PORATIONS.
(a) IN GENERAL.—Section 904(d)(4) (relating to
look-thru rules apply to dividends from noncontrolled sec-
tion 902 corporations) is amended to read as follows:
‘‘(4) LOOK-THRU APPLIES TO DIVIDENDS FROM
NONCONTROLLED SECTION 902 CORPORATIONS.—
123
‘‘(A) IN GENERAL.—For purposes of this
subsection, any dividend from a noncontrolled
section 902 corporation with respect to the tax-
payer shall be treated as income in a separate
category in proportion to the ratio of—
‘‘(i) the portion of earnings and prof-
its attributable to income in such category,
to
‘‘(ii) the total amount of earnings and
profits.
‘‘(B) SPECIAL
RULES.—For purposes of
this paragraph—
‘‘(i) IN
GENERAL.—Rules similar to
the rules of paragraph (3)(F) shall apply.
‘‘(ii) EARNINGS AND PROFITS.—
‘‘(I) IN GENERAL.—The rules of
section 316 shall apply.
‘‘(II) REGULATIONS.—The Sec-
retary may prescribe regulations re-
garding the treatment of distributions
out of earnings and profits for periods
before the taxpayer’s acquisition of
the stock to which the distributions
relate.
124
‘‘(iii) DIVIDENDS NOT ALLOCABLE TO
SEPARATE CATEGORY.—The portion of any
dividend from a noncontrolled section 902
corporation which is not treated as income
in a separate category under subparagraph
(A) shall be treated as a dividend to which
subparagraph (A) does not apply.
‘‘(iv) LOOK-THRU WITH RESPECT TO
CARRYFORWARDS OF CREDIT.—Rules simi-
lar to subparagraph (A) also shall apply to
any carryforward under subsection (c)
from a taxable year beginning before Janu-
ary 1, 2003, of tax allocable to a dividend
from a noncontrolled section 902 corpora-
tion with respect to the taxpayer.’’.
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (E) of section 904(d)(1), as
in effect both before and after the amendments
made by section 1105 of the Taxpayer Relief Act of
1997, is hereby repealed.
(2) Section 904(d)(2)(C)(iii), as so in effect, is
amended by striking subclause (II) and by redesig-
nating subclause (III) as subclause (II).
125
(3) The last sentence of section 904(d)(2)(D),
as so in effect, is amended to read as follows: ‘‘Such
term does not include any financial services income.’’
(4) Section 904(d)(2)(E) is amended by strik-
ing clauses (ii) and (iv) and by redesignating clause
(iii) as clause (ii).
(5) Section 904(d)(3)(F) is amended by strik-
ing ‘‘(D), or (E)’’ and inserting ‘‘or (D)’’.
(6) Section 864(d)(5)(A)(i) is amended by
striking ‘‘(C)(iii)(III)’’ and inserting ‘‘(C)(iii)(II)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2002.
SEC. 317. ATTRIBUTION OF STOCK OWNERSHIP THROUGH
PARTNERSHIPS TO APPLY IN DETERMINING
SECTION 902 AND 960 CREDITS.
(a) IN GENERAL.—Subsection (c) of section 902 is
amended by redesignating paragraph (7) as paragraph (8)
and by inserting after paragraph (6) the following new
paragraph:
‘‘(7) CONSTRUCTIVE
OWNERSHIP
THROUGH
PARTNERSHIPS.—Stock owned, directly or indirectly,
by or for a partnership shall be considered as being
owned proportionately by its partners. Stock consid-
ered to be owned by a person by reason of the pre-
126
ceding sentence shall, for purposes of applying such
sentence, be treated as actually owned by such per-
son. The Secretary may prescribe such regulations
as may be necessary to carry out the purposes of
this paragraph, including rules to account for special
partnership allocations of dividends, credits, and
other incidents of ownership of stock in determining
proportionate ownership.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxes of foreign corporations
for taxable years of such corporations beginning after De-
cember 31, 2002.
Subtitle C—Other Provisions
SEC. 321. APPLICATION OF UNIFORM CAPITALIZATION
RULES TO FOREIGN PERSONS.
(a) IN GENERAL.—Section 263A(c) (relating to ex-
ceptions) is amended by adding at the end the following
new paragraph:
‘‘(7) FOREIGN PERSONS.—Except for purposes
of applying sections 871(b)(1) and 882(a)(1), this
section shall not apply to any taxpayer who is not
a United States person if such taxpayer capitalizes
costs of produced property or property acquired for
resale by applying the method used to ascertain the
income, profit, or loss for purposes of reports or
127
statements to shareholders, partners, other propri-
etors, or beneficiaries, or for credit purposes.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 2002. Section 481 of the Internal Revenue
Code of 1986 shall not apply to any change in a method
of accounting by reason of such amendment.
SEC. 322. UNITED STATES PROPERTY NOT TO INCLUDE
CERTAIN ASSETS ACQUIRED BY DEALERS IN
ORDINARY COURSE OF TRADE OR BUSINESS.
(a) IN GENERAL.—Section 956(c)(2) (relating to ex-
ceptions from property treated as United States property)
is amended by striking ‘‘and’’ at the end of subparagraph
(J), by striking the period at the end of subparagraph (K)
and inserting ‘‘; and’’, and by adding at the end the fol-
lowing new subparagraph:
‘‘(L) securities acquired and held by a con-
trolled foreign corporation in the ordinary
course of its business as a dealer in securities
if (i) the dealer accounts for the securities as
securities held primarily for sale to customers
in the ordinary course of business, and (ii) the
dealer disposes of the securities (or such securi-
ties mature while held by the dealer) within a
period consistent with the holding of securities
128
for sale to customers in the ordinary course of
business.’’
(b) CONFORMING AMENDMENT.—Section 956(c)(2)
is amended by striking ‘‘and (K)’’ in the last sentence and
inserting ‘‘, (K), and (L)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years of foreign corpora-
tions beginning after December 31, 2002, and to taxable
years of United States shareholders with or within which
such taxable years of foreign corporations end.
SEC. 323. TREATMENT OF CERTAIN DIVIDENDS OF REGU-
LATED INVESTMENT COMPANIES.
(a) TREATMENT OF CERTAIN DIVIDENDS.—
(1) NONRESIDENT ALIEN INDIVIDUALS.—Sec-
tion 871 (relating to tax on nonresident alien indi-
viduals) is amended by redesignating subsection (k)
as subsection (l) and by inserting after subsection (j)
the following new subsection:
‘‘(k) EXEMPTION FOR CERTAIN DIVIDENDS OF REG-
ULATED INVESTMENT COMPANIES.—
‘‘(1) INTEREST-RELATED DIVIDENDS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), no tax shall be imposed
under paragraph (1)(A) of subsection (a) on
129
any interest-related dividend received from a
regulated investment company.
‘‘(B) 
EXCEPTIONS.—Subparagraph 
(A)
shall not apply—
‘‘(i) to any interest-related dividend
received from a regulated investment com-
pany by a person to the extent such divi-
dend is attributable to interest (other than
interest described in subparagraph (E) (i)
or (iii)) received by such company on in-
debtedness issued by such person or by any
corporation or partnership with respect to
which such person is a 10-percent share-
holder,
‘‘(ii) to any interest-related dividend
with respect to stock of a regulated invest-
ment company unless the person who
would otherwise be required to deduct and
withhold tax from such dividend under
chapter 3 receives a statement (which
meets requirements similar to the require-
ments of subsection (h)(5)) that the bene-
ficial owner of such stock is not a United
States person, and
130
‘‘(iii) to any interest-related dividend
paid to any person within a foreign coun-
try (or any interest-related dividend pay-
ment addressed to, or for the account of,
persons within such foreign country) dur-
ing any period described in subsection
(h)(6) with respect to such country.
Clause (iii) shall not apply to any dividend with
respect to any stock which was acquired on or
before the date of the publication of the Sec-
retary’s determination under subsection (h)(6).
‘‘(C) INTEREST-RELATED DIVIDEND.—For
purposes of this paragraph, an interest-related
dividend is any dividend (or part thereof) which
is designated by the regulated investment com-
pany as an interest-related dividend in a writ-
ten notice mailed to its shareholders not later
than 60 days after the close of its taxable year.
If the aggregate amount so designated with re-
spect to a taxable year of the company (includ-
ing amounts so designated with respect to divi-
dends paid after the close of the taxable year
described in section 855) is greater than the
qualified net interest income of the company for
such taxable year, the portion of each distribu-
132
ordinary income in respect of original issue
discount or market discount or acquisition
discount under part V of subchapter P and
such other amounts as regulations may
provide) on an obligation which is in reg-
istered form; except that this clause shall
not apply to—
‘‘(I) any interest on an obligation
issued by a corporation or partnership
if the regulated investment company
is a 10-percent shareholder in such
corporation or partnership, and
‘‘(II) any interest which is treat-
ed as not being portfolio interest
under the rules of subsection (h)(4).
‘‘(iii) Any interest referred to in sub-
section (i)(2)(A) (without regard to the
trade or business of the regulated invest-
ment company).
‘‘(iv) Any interest-related dividend in-
cludable in gross income with respect to
stock of another regulated investment com-
pany.
‘‘(F) 10-PERCENT
SHAREHOLDER.—For
purposes of this paragraph, the term ‘10-per-
133
cent shareholder’ has the meaning given such
term by subsection (h)(3)(B).
‘‘(2) SHORT-TERM CAPITAL GAIN DIVIDENDS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), no tax shall be imposed
under paragraph (1)(A) of subsection (a) on
any short-term capital gain dividend received
from a regulated investment company.
‘‘(B) EXCEPTION
FOR
ALIENS
TAXABLE
UNDER SUBSECTION (a)(2).—In the case of divi-
dends received from a regulated investment
company before January 1, 2003, subparagraph
(A) shall not apply in the case of any non-
resident alien individual subject to tax under
subsection (a)(2).
‘‘(C) SHORT-TERM
CAPITAL
GAIN
DIVI-
DEND.—For purposes of this paragraph, a
short-term capital gain dividend is any dividend
(or part thereof) which is designated by the reg-
ulated investment company as a short-term cap-
ital gain dividend in a written notice mailed to
its shareholders not later than 60 days after the
close of its taxable year. If the aggregate
amount so designated with respect to a taxable
year of the company (including amounts so des-
134
ignated with respect to dividends paid after the
close of the taxable year described in section
855) is greater than the qualified short-term
gain of the company for such taxable year, the
portion of each distribution which shall be a
short-term capital gain dividend shall be only
that portion of the amounts so designated
which such qualified short-term gain bears to
the aggregate amount so designated.
‘‘(D) QUALIFIED SHORT-TERM GAIN.—For
purposes of subparagraph (C), the term ‘quali-
fied short-term gain’ means the excess of the
net short-term capital gain of the regulated in-
vestment company for the taxable year over the
net long-term capital loss (if any) of such com-
pany for such taxable year. For purposes of this
subparagraph—
‘‘(i) the net short-term capital gain of
the regulated investment company shall be
computed by treating any short-term cap-
ital gain dividend includible in gross in-
come with respect to stock of another regu-
lated investment company as a short-term
capital gain, and
135
‘‘(ii) the excess of the net short-term
capital gain for a taxable year over the net
long-term capital loss for a taxable year (to
which an election under section 4982(e)(4)
does not apply) shall be determined with-
out regard to any net capital loss or net
short-term capital loss attributable to
transactions after October 31 of such year,
and any such net capital loss or net short-
term capital loss shall be treated as arising
on the 1st day of the next taxable year.
To the extent provided in regulations, clause
(ii) shall apply also for purposes of computing
the taxable income of the regulated investment
company.’’
(2) FOREIGN CORPORATIONS.—Section 881 (re-
lating to tax on income of foreign corporations not
connected with United States business) is amended
by redesignating subsection (e) as subsection (f) and
by inserting after subsection (d) the following new
subsection:
‘‘(e) TAX NOT TO APPLY TO CERTAIN DIVIDENDS
OF REGULATED INVESTMENT COMPANIES.—
‘‘(1) INTEREST-RELATED DIVIDENDS.—
136
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), no tax shall be imposed
under paragraph (1) of subsection (a) on any
interest-related dividend (as defined in section
871(k)(1)) received from a regulated investment
company.
‘‘(B) 
EXCEPTION.—Subparagraph 
(A)
shall not apply—
‘‘(i) to any dividend referred to in sec-
tion 871(k)(1)(B), and
‘‘(ii) to any interest-related dividend
received by a controlled foreign corporation
(within the meaning of section 957(a)) to
the extent such dividend is attributable to
interest received by the regulated invest-
ment company from a person who is a re-
lated person (within the meaning of section
864(d)(4)) with respect to such controlled
foreign corporation.
‘‘(C) TREATMENT
OF
DIVIDENDS
RE-
CEIVED
BY
CONTROLLED
FOREIGN
CORPORA-
TIONS.—The rules of subsection (c)(5)(A) shall
apply to any interest-related dividend received
by a controlled foreign corporation (within the
meaning of section 957(a)) to the extent such
137
dividend is attributable to interest received by
the regulated investment company which is de-
scribed in clause (ii) of section 871(k)(1)(E)
(and not described in clause (i) or (iii) of such
section).
‘‘(2) SHORT-TERM CAPITAL GAIN DIVIDENDS.—
No tax shall be imposed under paragraph (1) of sub-
section (a) on any short-term capital gain dividend
(as defined in section 871(k)(2)) received from a
regulated investment company.’’
(3) WITHHOLDING TAXES.—
(A) Section 1441(c) (relating to excep-
tions) is amended by adding at the end 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
138
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) Section 1442(a) (relating to with-
holding of tax on foreign corporations) 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 the following: ‘‘, and the references
in section 1441(c)(12) to sections 871(a)
and 871(k) shall be treated as referring to
sections 881(a) and 881(e) (except that for
purposes of applying subparagraph (A) of
section 1441(c)(12), as so modified, clause
(ii) of section 881(e)(1)(B) shall not apply
to any dividend unless the regulated invest-
ment company knows that such dividend is
a dividend 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
139
estate tax purposes) is amended by adding at the end the
following new subsection:
‘‘(d) STOCK IN A RIC.—
‘‘(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 a 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.’’
140
(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.
141
‘‘(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.
(3) CERTAIN OTHER PROVISIONS.—The amend-
ments made by subsection (c) (other than paragraph
142
(1) thereof) shall take effect on the date of the en-
actment of this Act.
SEC. 324. ELECTION NOT TO USE AVERAGE EXCHANGE
RATE FOR FOREIGN TAX PAID OTHER THAN
IN FUNCTIONAL CURRENCY.
(a) IN GENERAL.—Paragraph (1) of section 986(a)
(relating to determination of foreign taxes and foreign cor-
poration’s earnings and profits) is amended by redesig-
nating subparagraph (D) as subparagraph (E) and by in-
serting after subparagraph (C) the following new subpara-
graph:
‘‘(D) ELECTIVE
EXCEPTION
FOR
TAXES
PAID
OTHER
THAN
IN
FUNCTIONAL
CUR-
RENCY.—
‘‘(i) IN GENERAL.—At the election of
the taxpayer, subparagraph (A) shall not
apply to any foreign income taxes the li-
ability for which is denominated in any
currency other than in the taxpayer’s func-
tional currency.
‘‘(ii) APPLICATION
TO
QUALIFIED
BUSINESS UNITS.—An election under this
subparagraph may apply to foreign income
taxes attributable to a qualified business
143
unit in accordance with regulations pre-
scribed by the Secretary.
‘‘(iii) ELECTION.—Any such election
shall apply to the taxable year for which
made and all subsequent taxable years un-
less revoked with the consent of the Sec-
retary.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2002.
SEC. 325. REPEAL OF WITHHOLDING TAX ON DIVIDENDS
FROM CERTAIN FOREIGN CORPORATIONS.
(a) IN GENERAL.—Paragraph (2) of section 871(i)
(relating to tax not to apply to certain interest and divi-
dends) is amended by adding at the end the following new
subparagraph:
‘‘(D) Dividends paid by a foreign corpora-
tion.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to payments made after December
31, 2002.
SEC. 326. INCREASE IN EXPENSING UNDER SECTION 179.
(a) INCREASE IN DOLLAR LIMITATIONS.—
144
(1) IN
GENERAL.—Paragraph (1) of section
179(b) (relating to dollar limitation) is amended to
read as follows:
‘‘(1) DOLLAR LIMITATION.—The aggregate cost
which may be taken into account under subsection
(a) for any taxable year shall not exceed $25,000
($40,000 in the case of taxable years beginning after
December 31, 2012).’’
(2) INCREASE
IN
PHASEOUT
THRESHOLD.—
Paragraph (2) of section 179(b) is amended by in-
serting before the period ‘‘($325,000 in the case of
taxable years beginning after December 31, 2012).’’.
(b) INFLATION ADJUSTMENTS.—
(1) IN
GENERAL.—Subsection (b) of section
179 is amended by redesignating paragraphs (3) and
(4) as paragraphs (4) and (5), respectively, and by
inserting after paragraph (2) the following new
paragraph:
‘‘(3) INFLATION ADJUSTMENT.—In the case of
any taxable year beginning in a calendar year after
2004, the dollar amounts contained in paragraphs
(1) and (2) which would (but for this paragraph)
apply to such taxable year shall be increased by an
amount equal to the product of—
‘‘(A) such dollar amount, and
145
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar
year in which the taxable year begins, deter-
mined by substituting in subparagraph (B)
thereof—
‘‘(i) ‘calendar year 2003’ for ‘calendar
year 1992’ with respect to the $25,000
and $200,000 amounts, and
‘‘(ii) ‘calendar year 2011’ for ‘cal-
endar year 1992’ with respect to the
$40,000 and $325,000 amounts.
If any amount after adjustment under the preceding
sentence is not a multiple of $1,000, such amount
shall be rounded to the next lowest multiple of
$1,000.’’
(2) CONFORMING AMENDMENT.—Subparagraph
(B) of section 179(b)(5), as redesignated by para-
graph (1), is amended by striking ‘‘paragraph (3)’’
and inserting ‘‘paragraph (4)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2002.
SEC. 327. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL
INCOME.
(a) IN GENERAL.—Section 114 is hereby repealed.
146
(b) CONFORMING AMENDMENTS.—
(1) Subpart E of part III of subchapter N of
chapter 1 (relating to qualifying foreign trade in-
come) 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 is amended by striking the
item relating to section 114.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2002.
SEC. 328. REPEAL OF FSC TRANSITIONAL RULES.
(a) IN GENERAL.—Subsections (c) and (d) of section
5 of the FSC Repeal and Extraterritorial Income Exclu-
sion Act of 2000 are hereby repealed.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
the calendar year which includes the date of the enactment
of this Act.
147
TITLE IV—OTHER PROVISIONS
SEC. 401. EXTENSION OF INTERNAL REVENUE SERVICE
USER FEES.
(a) IN GENERAL.—Chapter 77 (relating to miscella-
neous provisions) is amended by adding at the end the
following new section:
‘‘SEC. 7527. INTERNAL REVENUE SERVICE USER FEES.
‘‘(a) GENERAL RULE.—The Secretary shall establish
a program requiring the payment of user fees for—
‘‘(1) requests to the Internal Revenue Service
for ruling letters, opinion letters, and determination
letters, and
‘‘(2) other similar requests.
‘‘(b) PROGRAM CRITERIA.—
‘‘(1) IN GENERAL.—The fees charged under the
program required by subsection (a)—
‘‘(A) shall vary according to categories (or
subcategories) established by the Secretary,
‘‘(B) shall be determined after taking into
account the average time for (and difficulty of)
complying with requests in each category (and
subcategory), and
‘‘(C) shall be payable in advance.
‘‘(2) EXEMPTIONS, ETC.—