the extent provided in regulations prescribed by the
Secretary which are necessary or appropriate to pre-
vent the avoidance of Federal income taxes. This
subsection shall not apply to a transaction in which
the foreign corporation is not treated as a corpora-
tion under subsection (a)(1).’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to transfers after December 31,
1997.
SEC. 305. INCREASE IN FILING THRESHOLDS FOR RETURNS
AS 
TO 
ORGANIZATION 
OF 
FOREIGN
CORPORATIONS 
AND 
ACQUISITIONS 
OF
STOCK IN SUCH CORPORATIONS.
(a) IN GENERAL.—Subsection (a) of section 6046
(relating to returns as to organization or reorganization
of foreign corporations and as to acquisitions of their
stock) is amended to read as follows:
‘‘(a) REQUIREMENT OF RETURN.—
‘‘(1) IN GENERAL.—A return complying with
the requirements of subsection (b) shall be made
by—
‘‘(A) each United States citizen or resident
who becomes an officer or director of a foreign
corporation if a United States person (as de-
fined in section 7701(a)(30)) meets the stock
ownership requirements of paragraph (2) with
respect to such corporation,
‘‘(B) each United States person—
‘‘(i) who acquires stock which, when
added to any stock owned on the date of
such acquisition, meets the stock owner-
ship requirements of paragraph (2) with
respect to a foreign corporation, or
‘‘(ii) who acquires stock which, with-
out regard to stock owned on the date of
such acquisition, meets the stock owner-
ship requirements of paragraph (2) with
respect to a foreign corporation,
‘‘(C) each person (not described in sub-
paragraph (B)) who is treated as a United
States shareholder under section 953(c) with
respect to a foreign corporation, and
‘‘(D) each person who becomes a United
States person while meeting the stock owner-
ship requirements of paragraph (2) with respect
to stock of a foreign corporation.
In the case of a foreign corporation with respect to
which any person is treated as a United States
shareholder under section 953(c), subparagraph (A)
shall be treated as including a reference to each
United States person who is an officer or director of
such corporation.
‘‘(2) STOCK
OWNERSHIP
REQUIREMENTS.—A
person meets the stock ownership requirements of
this paragraph with respect to any corporation if
such person owns 10 percent or more of—
‘‘(A) the total combined voting power of all
classes of stock of such corporation entitled to
vote, or
‘‘(B) the total value of the stock of such
corporation.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall take effect on January 1, 1998.
SEC. 306. 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.—This section shall
apply to any taxpayer who is not a United States
person only for purposes of applying sections
871(b)(1) and 882(a)(1) and subpart F of part III
of subchapter N.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1996. 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. 307. EXTENSION OF PERIOD TO WHICH EXCESS
FOREIGN TAXES MAY BE CARRIED.
(a) GENERAL RULE.—Subsection (c) of section 904
(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’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to excess foreign taxes for taxable
years beginning after December 31, 1997.
SEC. 308. RECHARACTERIZATION OF OVERALL DOMESTIC
LOSS.
(a) GENERAL RULE.—Section 904 is amended by re-
designating subsections (g), (h), (i), and (j) as subsections
(h), (i), (j), and (k), respectively, and by inserting after
subsection (f) the following new subsection:
‘‘(g) RECHARACTERIZATION OF OVERALL DOMESTIC
LOSS.—
‘‘(1) GENERAL
RULE.—For purposes of this
subpart, in the case of any taxpayer who sustains an
overall domestic loss for any taxable year beginning
after December 31, 1997, that portion of the tax-
payer’s taxable income from sources within the Unit-
ed 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—
‘‘(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
INCOME.—
‘‘(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
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 to 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 AMENDMENT.—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, 1997.
SEC. 309. TREATMENT OF FOREIGN SALES CORPORATIONS.
(a) EXPORT PROPERTY TO INCLUDE COMPUTER
SOFTWARE.—
(1) IN GENERAL.—Section 927(a)(2) is amend-
ed by adding at the end the following new sentence:
‘‘Computer software (whether or not patented) shall
not be treated as described in subparagraph (B).’’
(2) EFFECTIVE DATE.—The amendment made
by this subsection shall apply to sales, exchanges, or
other dispositions after the date of the enactment of
this Act.
(b) MILITARY PROPERTY.—
(1) IN GENERAL.—Section 923(a) (defining ex-
empt foreign trade income) is amended by striking
paragraph (5) and by redesignating paragraph (6)
as paragraph (5).
(2) EFFECTIVE DATE.—The amendment made
by this section shall apply to taxable years beginning
after December 31, 1997.
SEC. 
310. 
SPECIAL 
RULES 
RELATING 
TO 
FINANCIAL
SERVICES INCOME.
(a) EXCEPTION FOR INTEREST ON CERTAIN SECURI-
TIES.—Subparagraph (B) of section 904(d)(2) (relating to
high withholding tax interest) is amended by redesignating
clause (iii) as clause (iv) and by inserting after clause (ii)
the following new clause:
‘‘(iii) EXCEPTION FOR INTEREST ON
DEALER PROPERTY.—The term ‘high with-
holding tax interest’ shall not include any
interest on a security (within the meaning
of section 475(c)(2)) which is received or
accrued by a person that holds the security
in connection with the holder’s activities as
a dealer in securities (within the meaning
of section 475(c)(1)).’’
(b) DE MINIMIS RULE.—Subparagraph (C) of sec-
tion 904(d)(2) (relating to financial services income) is
amended by adding at the end the following new clause:
‘‘(iv) DE MINIMIS RULE.—If the fi-
nancial services income (as defined by
clause (i)) of any person exceeds 80 per-
cent of gross income, the entire gross in-
come for the taxable year shall be treated
as financial services income.’’
(c) EXCEPTION
FOR INCOME
ON DEALER PROP-
ERTY.—Subsection 904(g) is amended by redesignating
paragraph (11) as paragraph (12) and by adding after
paragraph (10) the following new paragraph:
‘‘(11) EXCEPTION
FOR
INCOME
ON
DEALER
PROPERTY.—Paragraph (1) shall not apply to any
amount derived from a United States-owned foreign
corporation that is derived from income on a secu-
rity (within the meaning of section 475(c)(2)) which
is received or accrued by a person that holds the se-
curity in connection with the holder’s activities as a
dealer in securities (within the meaning of section
475(c)(1)).’’
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section shall apply to taxable years beginning
after December 31, 1997.
(2) DEEMED PAID CREDITS.—In the case of
any credit under section 901 of the Internal Revenue
Code of 1986 by reason of section 902 or 960 of
such Code, the amendments made by this section
shall apply to taxable years of foreign corporations
beginning after December 31, 1997, and to taxable
years of United States shareholders in such corpora-
tions with or within which such taxable years of for-
eign corporations end.
SEC. 311. 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) is amended by
striking ‘‘and’’ at the end of subparagraph (H), by strik-
ing the period at the end of subparagraph (I) and insert-
ing a semicolon, and by adding at the end the following
new subparagraphs:
‘‘(J) deposits of cash or securities made or
received on commercial terms in the ordinary
course of a United States or foreign person’s
business as a dealer in securities or in commod-
ities, but only to the extent such deposits are
made or received as collateral or margin for (i)
a securities loan, notional principal contract,
options contract, forward contract, or futures
contract, or (ii) any other financial transaction
in which the Secretary determines that it is cus-
tomary to post collateral or margin;
‘‘(K) an obligation of a United States per-
son to the extent the principal amount of the
obligation does not exceed the fair market value
of readily marketable securities sold or pur-
chased pursuant to a sale and repurchase
agreement or otherwise posted or received as
collateral for the obligation in the ordinary
course of its business by a United States or for-
eign person which is a dealer in securities or
commodities; and
‘‘(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 they mature
while held by the dealer) within a period con-
sistent with the holding of securities for sale to
customers in the ordinary course of business.
For purposes of subparagraphs (J), (K), and (L),
the term ‘dealer in securities’ has the meaning given
such term by section 475(c)(1), and the term ‘dealer
in commodities’ means a futures commission mer-
chant or any person which would be a dealer in se-
curities if securities under section 475(c)(2) included
commodities, evidences of an interest in commod-
ities, and derivative instruments in respect of com-
modities (other than any activity gain or loss from
which is described in section 1256(a)(3)).’’
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years of foreign corpora-
tions beginning after December 31, 1997, and to taxable
years of United States shareholders or with or within
which such taxable years of foreign corporations end.
SEC. 
312. 
TREATMENT 
OF 
CERTAIN 
DIVIDENDS 
OF
REGULATED 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: