Union Calendar No. 196
105TH CONGRESS
1ST SESSION
H. R. 2513
[Report No. 105–318, Part I]
A BILL
To amend the Internal Revenue Code of 1986 to
restore and modify the provision of the Taxpayer
Relief Act of 1997 relating to exempting active
financing income from foreign personal holding
company income and to provide for the non-
recognition of gain on the sale of stock in agri-
cultural processors to certain farmers’ coopera-
tives.
OCTOBER 22, 1997
Committee on the Budget discharged; committed to the
Committee of the Whole House on the State of the
Union and ordered to be printed
IB
Union Calendar No. 196
105TH CONGRESS
1ST SESSION
H. R. 2513
[Report No. 105–318, Part I]
To amend the Internal Revenue Code of 1986 to restore and modify the
provision of the Taxpayer Relief Act of 1997 relating to exempting
active financing income from foreign personal holding company income
and to provide for the nonrecognition of gain on the sale of stock
in agricultural processors to certain farmers’ cooperatives.
IN THE HOUSE OF REPRESENTATIVES
SEPTEMBER 23, 1997
Mr. ARCHER (for himself, Mr. HULSHOF, Mr. RANGEL, Mr. THOMAS, Mr.
HOUGHTON, Mr. NUSSLE, Ms. DUNN, and Mr. LEVIN) introduced the fol-
lowing bill; which was referred to the Committee on Ways and Means,
and in addition to the Committee on the Budget, for a period to be subse-
quently determined by the Speaker, in each case for consideration of such
provisions as fall within the jurisdiction of the committee concerned
OCTOBER 9, 1997
Reported from the Committee on Ways and Means with an amendment
[Strike out all after the enacting clause and insert the part printed in italic]
OCTOBER 9, 1997
Referral to the Committee on the Budget extended for a period ending not
later than October 20, 1997
OCTOBER 20, 1997
Referral to the Committee on the Budget extended for a period ending not
later than October 21, 1997
OCTOBER 21, 1997
Referral to the Committee on the Budget extended for a period ending not
later than October 22, 1997
OCTOBER 22, 1997
Committee on the Budget discharged; committed to the Committee of the
Whole House on the State of the Union and ordered to be printed
[For text of introduced bill, see copy as introduced on September 23, 1997]
A BILL
To amend the Internal Revenue Code of 1986 to restore
and modify the provision of the Taxpayer Relief Act
of 1997 relating to exempting active financing income
from foreign personal holding company income and to
provide for the nonrecognition of gain on the sale of
stock in agricultural processors to certain farmers’ co-
operatives.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. EXEMPTION FOR ACTIVE FINANCING INCOME.
(a) EXEMPTION FROM FOREIGN PERSONAL HOLDING
COMPANY INCOME.—Section 954 of the Internal Revenue
Code of 1986 (as amended by subsection (d)) is amended
by adding at the end the following new subsection:
‘‘(h) SPECIAL RULE FOR INCOME DERIVED IN THE AC-
TIVE CONDUCT OF INSURANCE BUSINESSES AND BANKING,
FINANCING, OR SIMILAR BUSINESSES.—
‘‘(1) IN GENERAL.—For purposes of subsection
(c)(1), foreign personal holding company income shall
not include income which is—
‘‘(A) derived in the active conduct by a con-
trolled foreign corporation of a banking, financ-
ing, or similar business, but only if—
‘‘(i) the corporation is predominantly
engaged in the active conduct of such busi-
ness, and
‘‘(ii) such income is derived from
transactions with customers located within
the country under the laws of which the cor-
poration is created or organized,
‘‘(B) received from a person other than a re-
lated person (within the meaning of subsection
(d)(3)) and derived from the investments made
by a qualifying insurance company of its re-
serves or of 80 percent of its unearned premiums
(as both are determined in the manner pre-
scribed under paragraph (4)), or
‘‘(C) received from a person other than a re-
lated person (within the meaning of subsection
(d)(3)) and derived from investments made by a
qualifying insurance company of an amount of
its assets equal to—
‘‘(i) in the case of property, casualty,
or health insurance contracts, one-third of
its premiums earned on such insurance con-
tracts during the taxable year (as defined in
section 832(b)(4)), and
‘‘(ii) in the case of life insurance or
annuity contracts, 10 percent of the reserves
described in subparagraph (B) for such con-
tracts.
‘‘(2) PREDOMINANTLY ENGAGED.—For purposes
of paragraph (1)(A), a controlled foreign corporation
shall be deemed predominantly engaged in the active
conduct of a banking, financing, or similar business
only if—
‘‘(A) more than 70 percent of its gross in-
come is derived from such business from trans-
actions with customers which are located within
the country under the laws of which the corpora-
tion is created or organized, or
‘‘(B) the corporation is—
‘‘(i) engaged in the active conduct of a
banking business and is an institution li-
censed to do business as a bank in the Unit-
ed States (or is any other corporation not
so licensed which is specified by the Sec-
retary in regulations), or
‘‘(ii) engaged in the active conduct of
a securities business and is registered as a
securities broker or dealer under section
15(a) of the Securities Exchange Act of
1934 or is registered as a Government secu-
rities broker or dealer under section 15C(a)
of such Act (or is any other corporation not
so registered which is specified by the Sec-
retary in regulations).
‘‘(3) PRINCIPLES FOR DETERMINING INSURANCE
INCOME.—Except as provided by the Secretary, for
purposes of paragraphs (1) (B) and (C)—
‘‘(A) in the case of any contract which is a
separate account-type contract (including any
variable contract not meeting the requirements of
section 817), income credited under such contract
shall be allocable only to such contract, and
‘‘(B) income not allocable under subpara-
graph (A) shall be allocated ratably among con-
tracts not described in subparagraph (A).
‘‘(4) METHODS
FOR
DETERMINING
UNEARNED
PREMIUMS AND RESERVES.—For purposes of para-
graph (1)(B)—
‘‘(A) 
PROPERTY
AND
CASUALTY
CON-
TRACTS.—The unearned premiums and reserves
of a qualifying insurance company with respect
to property, casualty, or health insurance con-