‘‘(G) There shall be excluded the amount
of the net capital gain, if any.’’
(B) Paragraph (3) of section 857(b) of such
Code is amended by striking subparagraph (A).
(C) Subparagraph (C) of section 857(b)(3) of
such Code is amended by striking ‘‘the excess de-
scribed in subparagraph (A)(ii) of this paragraph’’
and inserting ‘‘the excess (if any) of the net capital
gain over the deduction for dividends paid (as de-
fined in section 561 and determined with reference
to capital gain dividends only)’’.
(18) The second sentence of section 871(a)(2)
of such Code is amended by striking ‘‘1202’’ and in-
serting ‘‘1201’’.
(19) Paragraph (1) of section 882(a) of such
Code is amended by striking ‘‘section 11, 55, 59A,
or 1201(a)’’ and inserting ‘‘section 11, 55, or 59A’’.
(20)(A) Paragraph (2) of section 904(b) of
such Code is amended to read as follows:
‘‘(2) CAPITAL
GAINS.—Taxable income from
sources outside the United States shall include gain
from the sale or exchange of capital assets only to
the extent of foreign source capital gain net in-
come.’’
(B) Paragraph (3) of section 904(b) of such
Code is amended by striking subparagraphs (B),
(D), and (E) and by redesignating subparagraph (C)
as subparagraph (B).
(21) Section 1202 of such Code is hereby re-
pealed.
(22) Subsection (b) of section 1374 of such
Code is amended by striking paragraph (4).
(23) Subsection (b) of section 1381 of such
Code is amended by striking ‘‘or 1201’’.
(24) Paragraph (1) of section 1402(i) of such
Code is amended by inserting ‘‘, and the deduction
provided by section 1201 shall not apply’’ before the
period at the end thereof.
(25) Subsection (e) of section 1445 of such
Code is amended—
(A) in paragraph (1) by striking ‘‘35 per-
cent (or, to the extent provided in regulations,
28 percent)’’ and inserting ‘‘the rate specified
by the Secretary’’, and
(B) in paragraph (2) by striking ‘‘35 per-
cent’’ and inserting ‘‘the rate specified by the
Secretary’’.
(26) Clause (i) of section 6425(c)(1)(A) of such
Code is amended by striking ‘‘or 1201(a)’’.
(27) Clause (i) of section 6655(g)(1)(A) of such
Code is amended by striking ‘‘or 1201(a)’’.
(28)(A) 
The 
second 
sentence 
of 
section
7518(g)(6)(A) of such Code is amended to read as
follows:
‘‘No tax shall be imposed under the preceding
sentence with respect to the portion of any non-
qualified withdrawal made out of the capital
gain account.’’
(B) 
The 
second 
sentence 
of 
section
607(h)(6)(A) of the Merchant Marine Act, 1936, is
amended to read as follows:
‘‘No tax shall be imposed under the preceding
sentence with respect to the portion of any non-
qualified withdrawal made out of the capital
gain account.’’
(29) The table of sections for part I of sub-
chapter P of chapter 1 of such Code is amended to
read as follows:
‘‘Sec. 1201. Capital gains deduction.’’
(d) EFFECTIVE DATES.—
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by
this section shall apply to taxable years ending after
December 31, 2001.
(2) REPEAL
OF
SECTION
1(h).—The amend-
ment made by subsection (c)(1) shall apply to tax-
able years beginning after December 31, 2001.
(3) CONTRIBUTIONS.—The amendment made
by subsection (c)(4) shall apply only to contributions
on or after January 1, 2002.
(4) WITHHOLDING.—The amendment made by
subsection (c)(25) shall apply only to amounts paid
after the date of the enactment of this Act.
(5) COORDINATION
WITH
PRIOR
TRANSITION
RULE.—Any amount treated as long-term capital
gain by reason of paragraph (3) of section 1122(h)
of the Tax Reform Act of 1986 shall not be taken
into account for purposes of applying section 1201
of the Internal Revenue Code of 1986 (as added by
this section).
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