120
election shall not apply to any taxable year be-
ginning after such subsequent taxable year.
‘‘(3) TREATMENT OF LOSSES.—If any corpora-
tion treated as a domestic corporation under this
subsection is treated as a member of an affiliated
group for purposes of chapter 6 (relating to consoli-
dated returns), any loss of such corporation shall be
treated as a dual consolidated loss for purposes of
section 1503(d) without regard to paragraph (2)(B)
thereof.
‘‘(4) EFFECT OF ELECTION.—
‘‘(A) IN GENERAL.—For purposes of sec-
tion 367, any foreign corporation making an
election under paragraph (1) shall be treated as
transferring (as the 1st day of the 1st taxable
year to which such election applies) all of its as-
sets to a domestic corporation in connection
with an exchange to which section 354 applies.
‘‘(B) EXCEPTION FOR PRE-1988 EARNINGS
AND PROFIT.—
‘‘(i) IN
GENERAL.—Earnings and
profits of the foreign corporation accumu-
lated in taxable years beginning before
January 1, 1988, shall not be included in
the gross income of the persons holding
121
stock in such corporation by reason of sub-
paragraph (A).
‘‘(ii) 
TREATMENT
OF
DISTRIBU-
TIONS.—For purposes of this title, any dis-
tribution made by a corporation to which
an election under paragraph (1) applies
out of earnings and profits accumulated in
taxable years beginning before January 1,
1988, shall be treated as a distribution
made by a foreign corporation.
‘‘(iii) CERTAIN RULES TO CONTINUE
TO
APPLY
TO
PRE-1988
EARNINGS.—The
provisions specified in clause (iv) shall be
applied without regard to paragraph (1),
except that, in the case of a corporation to
which an election under paragraph (1) ap-
plies, only earnings and profits accumu-
lated in taxable years beginning before
January 1, 1988, shall be taken into ac-
count.
‘‘(iv) SPECIFIED
PROVISIONS.—The
provisions specified in this clause are:
‘‘(I) Section 1248 (relating to
gain from certain sales or exchanges
122
of stock in certain foreign corpora-
tions).
‘‘(II) This subpart to the extent
such subpart related to earnings in-
vested in United States property or
amounts referred to in clause (ii) or
(iii) of section 951(a)(1)(A).
‘‘(III) Section 884 to the extent
the foreign corporation reinvested
1987 earnings and profits in United
States assets.
‘‘(5) EFFECT OF TERMINATION.—For purposes
of section 367, if—
‘‘(A) an election is made by a corporation
under paragraph (1) for any taxable year, and
‘‘(B) such election ceases to apply for any
subsequent taxable year,
such corporation shall be treated as a domestic cor-
poration transferring (as of the 1st day of such sub-
sequent taxable year) all of its property to a foreign
corporation in connection with an exchange to which
section 354 applies.
‘‘(6) ADDITIONAL TAX ON CORPORATION MAK-
ING ELECTION.—
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‘‘(A) IN
GENERAL.—If a corporation
makes an election under paragraph (1), the
amount of tax imposed by this chapter for the
1st taxable year to which such election applies
shall be increased by the amount determined
under subparagraph (B).
‘‘(B) AMOUNT OF TAX.—The amount of
tax determined under this paragraph shall be
equal to the lesser of—
‘‘(i) 3⁄4 of 1 percent of the aggregate
amount of capital and accumulated surplus
of the corporation as of December 31,
1987, or
‘‘(ii) $1,500,000.
‘‘(c) INSURANCE INCOME DEFINED.—For purposes
of this section, the term ‘insurance income’ means any in-
come which—
‘‘(1) is attributable to the issuing (or reinsur-
ing) of any insurance or annuity contract—
‘‘(A) in connection with property in, liabil-
ity arising out of activity in, or in connection
with the lives or health of residents of, a coun-
try other than the country under the laws of
which the controlled foreign corporation is cre-
ated or organized, or
124
‘‘(B) in connection with risks not described
in subparagraph (A) as the result of any ar-
rangement whereby another corporation receives
a substantially equal amount of premiums or
other consideration in respect of issuing (or re-
insuring) a contract described in subparagraph
(A), and
‘‘(2) would (subject to the modifications pro-
vided by paragraphs (1) and (2) of subsection (d))
be taxed under subchapter L of this chapter if such
income were the income of a domestic insurance
company.
‘‘(d) SPECIAL RULES.—In determining the amount
of insurance income—
‘‘(1) The following provisions of subchapter L
shall not apply:
‘‘(A) The small life insurance company de-
duction.
‘‘(B) Section 805(a)(5) (relating to oper-
ations loss deduction).
‘‘(C) Section 832(c)(5) (relating to certain
capital losses).
‘‘(2) The items referred to in—
‘‘(A) section 803(a)(1) (relating to gross
amount of premiums and other considerations),
125
‘‘(B) section 803(a)(2) (relating to net de-
crease in reserves),
‘‘(C) section 805(a)(2) (relating to net in-
crease in reserves), and
‘‘(D) section 832(b)(4) (relating to pre-
miums earned on insurance contracts),
shall be taken into account only to the extent they
are in respect of any reinsurance or the issuing of
any insurance or annuity contract described in sub-
section (a)(1).
‘‘(3) All items of income, expenses, losses, and
deductions shall be properly allocated or apportioned
under regulations prescribed by the Secretary.’’
(b) REPEAL OF EXPORT TRADE CORPORATION PRO-
VISIONS.—Subpart G of part III of subchapter N of chap-
ter 1 of such Code (relating to export trade corporations)
is hereby repealed.
(c) CONFORMING AMENDMENTS TO SUBPART F.—
(1) Subparagraph (A) of section 955(a)(1) of
such Code is amended by inserting ‘‘(as in effect for
taxable years beginning before 1987)’’ after ‘‘section
954(b)(2)’’.
(2) Subsection (b) of section 955 of such Code
is amended by striking ‘‘within the meaning of sec-