subpart F income. The determination under
the preceding sentence shall be made by
treating all members of an affiliated group
as 1 corporation. For purposes of this
clause, the term ‘subpart F income’ has the
meaning given such term by section 952(a)
but determined without regard to section
952(c) and paragraphs (3) and (4) of sub-
section (b) of this section.
‘‘(ii) ELECTION
NOT
TO
HAVE
SUB-
SECTION AND CERTAIN OTHER PROVISIONS
APPLY.—Clause (i) shall not apply for any
taxable year of a foreign corporation if such
corporation (and all members of the affili-
ated group of which such corporation is a
member) elect not to have this subsection,
subsection 
(c)(2)(C)(ii), 
and 
subsection
(e)(2)(C) apply for such taxable year.
‘‘(B) TREATMENT
OF
INCOME
TO
WHICH
SECTION 953 APPLIES.—Subparagraphs (B) and
(C) of paragraph (1) shall not apply to invest-
ment income allocable to contracts that insure
related party risks or risks located in a foreign
country other than the country in which the
qualifying insurance company is created or or-
ganized.
‘‘(9) APPLICATION.—This subsection, subsection
(c)(2)(C)(ii), and subsection (e)(2)(C) shall apply
only to the first full taxable year of a foreign corpora-
tion beginning after December 31, 1997, and before
January 1, 1999, and to taxable years of United
States shareholders with or within which such taxable
year of such foreign corporation ends.’’
(b) 
SPECIAL
RULES
FOR
DEALERS.—Section
954(c)(2)(C) of such Code is amended to read as follows:
‘‘(C) EXCEPTION FOR DEALERS.—Except as
provided by regulations, in the case of a regular
dealer in property (within the meaning of para-
graph (1)(B)), forward contracts, option con-
tracts, or similar financial instruments (includ-
ing notional principal contracts and all instru-
ments referenced to commodities), there shall not
be taken into account in computing foreign per-
sonal holding income—
‘‘(i) any item of income, gain, deduc-
tion, or loss (other than any item described
in subparagraph (A), (E), or (G) of para-
graph (1)) from any transaction (including
hedging transactions) entered into in the or-
dinary course of such dealer’s trade or busi-
ness as such a dealer, and
‘‘(ii) if such dealer is a dealer in secu-
rities (within the meaning of section 475),
any interest or dividend or equivalent
amount described in subparagraph (E) or
(G) of paragraph (1) from any transaction
(including any hedging transaction or
transaction 
described 
in 
section
956(c)(2)(J)) entered into in the ordinary
course of such dealer’s trade or business as
such a dealer in securities, but only if em-
ployees of the dealer which are located in
the country under the laws of which the
dealer is created or organized (or in the case
of a qualified business unit described in sec-
tion 989(a) which both maintains its prin-
cipal office and conducts substantial busi-
ness activity in a country, employees of
such unit which are located in such coun-
try) materially participate in such trans-
action.’’.
(c) EXEMPTION FROM FOREIGN BASE COMPANY SERV-
ICES INCOME.—Paragraph (2) of section 954(e) of such
Code (as amended by subsection (d)) 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 adding at the end the following:
‘‘(C)(i) a transaction by the controlled for-
eign corporation if the income from the trans-
action is not foreign personal holding company
income by reason of subsection (h), or
‘‘(ii) a transaction by the controlled foreign
corporation if subsection (c)(2)(C)(ii) applies to
such transaction.’’.
(d) REPEAL
OF
CANCELED
PROVISIONS.—Section
1175 of the Taxpayer Relief Act of 1997, and the amend-
ments made by such section, are hereby repealed, and the
Internal Revenue Code of 1986 shall be applied and admin-
istered as if such section (and amendments) had never been
enacted.
(e) BUDGETARY TREATMENT.—For purposes of section
10213 of the Balanced Budget Act of 1997, the provisions
of this section shall be considered to have been enacted as
part of the Taxpayer Relief Act of 1997.
SEC. 2. NONRECOGNITION OF GAIN ON SALE OF STOCK TO
CERTAIN FARMERS’ COOPERATIVES.
(a) IN GENERAL.—Part III of subchapter O of chapter
1 of the Internal Revenue Code of 1986 (relating to non-
taxable exchanges) is amended by inserting after section
1042 the following new section:
‘‘SEC. 1042A. SALES OF STOCK TO CERTAIN FARMERS’ CO-
OPERATIVES.
‘‘(a) NONRECOGNITION OF GAIN.—If—
‘‘(1) the taxpayer elects the application of this
section with respect to any sale of qualified agricul-
tural processor stock,
‘‘(2) the taxpayer purchases qualified replace-
ment property within the replacement period, and
‘‘(3) the requirements of subsection (c) are met
with respect to such sale,
then the gain (if any) on such sale which would be recog-
nized as long-term capital gain shall be recognized only to
the extent that the amount realized on such sale exceeds the
cost to the taxpayer of such qualified replacement property.
The preceding sentence shall not apply to a sale by an eligi-
ble farmers’ cooperative.
‘‘(b) LIMITATION.—
‘‘(1) IN GENERAL.—If subsection (a) applies to
the sale of any stock by the taxpayer in a qualified
agricultural processor, the aggregate amount of gain
taken into account by the taxpayer under subsection
(a) with respect to stock in such processor shall not
exceed the amount of the limitation under paragraph
(2) which is allocated to such sale by the eligible
farmers’ cooperative.
‘‘(2) ALLOCATION.—The amount allocated under
this paragraph by any cooperative with respect to
stock acquired by such cooperative during any taxable
year of such cooperative shall not exceed $75,000,000.
‘‘(3) AGGREGATION RULES.—All eligible farmers’
cooperatives which are under common control (within
the meaning of subsection (a) or (b) of section 52)
shall be treated as 1 cooperative for purposes of para-
graph (2), and the limitation under such paragraph
shall be allocated among such cooperatives in such
manner as the Secretary shall prescribe.
‘‘(c) REQUIREMENTS TO QUALIFY FOR NONRECOGNI-
TION.—A sale of qualified agricultural processor stock meets
the requirements of this subsection if—
‘‘(1) SALE
TO
ELIGIBLE
FARMERS’ COOPERA-
TIVE.—Such stock is sold to an eligible farmers’ coop-
erative.
‘‘(2) SPECIAL
RULE
FOR
CERTAIN
COOPERA-
TIVES.—
‘‘(A) IN GENERAL.—In the case of a sale of
such stock to an eligible farmers’ cooperative de-
scribed in subparagraph (B), the processor pur-
chased, during at least 3 of the 5 most recent
taxable years of such processor ending on or be-
fore the date of the sale, more than one-half of
the agricultural or horticultural products to be
refined or processed by such processor from such
cooperative or farmers who are members of such
cooperative.
‘‘(B) COOPERATIVES DESCRIBED.—A coop-
erative is described in this subparagraph with
respect to any sale if, for any taxable year end-
ing before the date of such sale—
‘‘(i) such cooperative had gross receipts
of more than $1,000,000,000, or
‘‘(ii) such cooperative sold more than a
de minimis amount of specialty produce.
‘‘(C) SPECIALTY
PRODUCE.—For purposes
of subparagraph (B), the term ‘specialty produce’
means any agricultural or horticultural product
other than wheat, feed grains, oil seeds, cotton,
rice, cattle, hogs, sheep, or dairy products.
‘‘(D) SPECIAL RULES.—
‘‘(i) GROSS RECEIPTS.—For purposes
of subparagraph (B)(i), rules similar to the
rules of paragraph (2), and subparagraphs
(B) and (C) of paragraph (3), of section
448(c) shall apply.