I 
113TH CONGRESS 
2D SESSION 
H. R. 5857 
To eliminate the incentive for corporations to continue to hold accumulated 
earnings offshore, to invest in domestic infrastructure, to provide for 
international tax reform, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
DECEMBER 11, 2014 
Mr. DELANEY introduced the following bill; which was referred to the Com-
mittee on Ways and Means, and in addition to the Committee on Trans-
portation and Infrastructure, for a period to be subsequently determined 
by the Speaker, in each case for consideration of such provisions as fall 
within the jurisdiction of the committee concerned 
A BILL 
To eliminate the incentive for corporations to continue to 
hold accumulated earnings offshore, to invest in domestic 
infrastructure, to provide for international tax reform, 
and for other purposes. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE; ETC. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Infrastructure and Global Tax Competitiveness Act of 
2014’’. 
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(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment 
to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986. 
(c) TABLE OF CONTENTS.—The table of contents for 
this Act is as follows: 
Sec. 1. Short title; etc. 
TITLE I—DEEMED REPATRIATION AND INVESTMENT IN 
DOMESTIC INFRASTRUCTURE 
Sec. 101. Elimination of incentive for corporations to continue to hold accumu-
lated earnings offshore. 
Sec. 102. American Infrastructure Fund. 
Sec. 103. Dedication of remaining revenues to highway trust fund. 
Sec. 104. Highway Trust Fund Solvency Commission. 
TITLE II—DEADLINE FOR INTERNATIONAL TAX REFORM 
Sec. 201. 18-month deadline for international tax reform. 
TITLE III—FALLBACK INTERNATIONAL TAX REFORM 
Sec. 300. General effective date of title. 
Subtitle A—Reform of Taxation of Income Earned by Controlled Foreign 
Corporations 
PART I—GENERAL PROVISIONS 
Sec. 301. Modifications to subpart F income. 
PART II—FOREIGN TAX CREDIT LIMITATIONS 
Sec. 311. Reform of foreign tax credit limitation. 
Sec. 312. Denial of credit and deduction for foreign taxes with respect to ex-
cluded subpart F income. 
PART III—EXPENSE DISALLOWANCE 
Sec. 321. Disallowance of deduction for expenses allocable to exempt income of 
a controlled foreign corporation. 
PART IV—OTHER PROVISIONS RELATING TO SUBPART F 
SUBPART A—PREVIOUSLY DEFERRED FOREIGN INCOME 
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Sec. 331. Treatment of previously deferred foreign income. 
SUBPART B—OTHER PROVISIONS 
Sec. 336. Elimination of 30-day requirement. 
Sec. 337. Modification of definition of United States shareholder. 
Subtitle B—Reform of Foreign Tax Credit Provisions 
Sec. 341. Repeal of section 902 indirect foreign tax credits; foreign tax credit 
related to subpart F income. 
Sec. 342. Repeal of rule suspending foreign taxes and credits until related in-
come is taken into account. 
TITLE 
I—DEEMED 
REPATRI-
ATION AND INVESTMENT IN 
DOMESTIC INFRASTRUCTURE 
SEC. 101. ELIMINATION OF INCENTIVE FOR CORPORATIONS 
TO 
CONTINUE 
TO 
HOLD 
ACCUMULATED 
EARNINGS OFFSHORE. 
(a) IN GENERAL.—Section 965 is amended to read 
as follows: 
‘‘SEC. 965. ELIMINATION OF INCENTIVE TO HOLD ACCUMU-
LATED EARNINGS AND PROFITS OFFSHORE. 
‘‘(a) TREATMENT OF DEFERRED FOREIGN INCOME 
AS SUBPART F INCOME.—In the case of the last taxable 
year of a deferred foreign income corporation which begins 
before January 1, 2015, the subpart F income of such 
foreign corporation (as otherwise determined for such tax-
able year under section 952) shall be increased by the ac-
cumulated post-1986 deferred foreign income of such cor-
poration determined as of the close of such taxable year. 
‘‘(b) REDUCTION IN AMOUNTS INCLUDED IN GROSS 
INCOME OF UNITED STATES SHAREHOLDERS OF SPECI-
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FIED FOREIGN CORPORATIONS WITH DEFICITS IN EARN-
INGS AND PROFITS.— 
‘‘(1) IN GENERAL.—In the case of a taxpayer 
which is a United States shareholder with respect to 
at least one deferred foreign income corporation and 
at least one E&P deficit foreign corporation, the 
amount which would (but for this subsection) be 
taken into account under section 951(a)(1) by rea-
son of subsection (a) as such United States share-
holder’s pro rata share of the subpart F income of 
each deferred foreign income corporation shall be re-
duced (but not below zero) by the amount of such 
United States shareholder’s aggregate foreign E&P 
deficit which is allocated under paragraph (2) to 
such deferred foreign income corporation. 
‘‘(2) ALLOCATION OF AGGREGATE FOREIGN E&P 
DEFICIT.—The aggregate foreign E&P deficit of any 
United States shareholder shall be allocated among 
the deferred foreign income corporations of such 
United States shareholder in an amount which bears 
the same proportion to such aggregate as— 
‘‘(A) such United States shareholder’s pro 
rata share of the accumulated post-1986 de-
ferred foreign income of each such deferred for-
eign income corporation, bears to 
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‘‘(B) the aggregate of such United States 
shareholder’s pro rata share of the accumulated 
post-1986 deferred foreign income of all de-
ferred foreign income corporations of such 
United States shareholder. 
‘‘(3) DEFINITIONS
RELATED
TO
E&P
DEFI-
CITS.—For purposes of this subsection— 
‘‘(A) AGGREGATE
FOREIGN
E&P
DEF-
ICIT.—The term ‘aggregate foreign E&P deficit’ 
means, with respect to any United States share-
holder, the aggregate of such shareholder’s pro 
rata shares of the specified E&P deficits of the 
E&P deficit foreign corporations of such share-
holder. 
‘‘(B) E&P DEFICIT
FOREIGN
CORPORA-
TION.—The term ‘E&P deficit foreign corpora-
tion’ means, with respect to any taxpayer, any 
specified foreign corporation with respect to 
which such taxpayer is a United States share-
holder, if— 
‘‘(i) such specified foreign corporation 
has a deficit in post-1986 earnings and 
profits, and 
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‘‘(ii) as of the date of the introduction 
of Infrastructure and Global Tax Competi-
tiveness Act of 2014— 
‘‘(I) such corporation was a spec-
ified foreign corporation, and 
‘‘(II) such taxpayer was a United 
States shareholder of such corpora-
tion. 
‘‘(C) SPECIFIED E&P DEFICIT.—The term 
‘specified E&P deficit’ means, with respect to 
any E&P deficit foreign corporation, the 
amount of the deficit referred to in subpara-
graph (B). 
‘‘(c) DEDUCTION FOR PORTION OF INCLUDED IN-
COME.—In the case of a United States shareholder of a 
deferred foreign income corporation, there shall be allowed 
as a deduction for the taxable year in which an amount 
is included in the gross income of such United States 
shareholder under section 951(a)(1) by reason of this sec-
tion an amount equal to 75 percent of the amount so in-
cluded in gross income. 
‘‘(d) DEFERRED FOREIGN INCOME CORPORATION; 
ACCUMULATED
POST-1986 DEFERRED
FOREIGN
IN-
COME.—For purposes of this section— 
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‘‘(1) DEFERRED
FOREIGN
INCOME
CORPORA-
TION.—The term ‘deferred foreign income corpora-
tion’ means, with respect to any United States 
shareholder, any specified foreign corporation of 
such United States shareholder which has accumu-
lated post-1986 deferred foreign income (as of the 
close of the taxable year referred to in subsection 
(a)) greater than zero. 
‘‘(2) ACCUMULATED POST-1986 DEFERRED FOR-
EIGN
INCOME.—The term ‘accumulated post-1986 
deferred foreign income’ means the post-1986 earn-
ings and profits except to the extent such earnings— 
‘‘(A) are attributable to income of the 
specified foreign corporation which is effectively 
connected with the conduct of a trade or busi-
ness within the United States and subject to 
tax under this chapter, 
‘‘(B) if distributed, would— 
‘‘(i) in the case of a controlled foreign 
corporation, be excluded from the gross in-
come of a United States shareholder under 
section 959, or 
‘‘(ii) in the case of any passive foreign 
investment company (as defined in section 
1297) other than a controlled foreign cor-
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poration, be treated as a distribution which 
is not a dividend, or 
‘‘(C) in the case of any passive foreign in-
vestment company (as so defined), is properly 
attributable to an unreversed inclusion of a 
United States person under section 1296. 
To the extent provided in regulations or other guid-
ance prescribed by the Secretary, in the case of any 
controlled foreign corporation which has share-
holders which are not United States shareholders, 
accumulated post-1986 deferred foreign income shall 
be appropriately reduced by amounts which would be 
described in subparagraph (B)(i) if such share-
holders were United States shareholders. Such regu-
lations or other guidance may provide a similar rule 
for purposes of subparagraph (B)(ii) and (C). 
‘‘(3) POST-1986 EARNINGS AND PROFITS.—The 
term ‘post-1986 earnings and profits’ means the 
earnings and profits of the foreign corporation (com-
puted in accordance with sections 964(a) and 986) 
accumulated in taxable years beginning after Decem-
ber 31, 1986, and determined— 
‘‘(A) as of the close the taxable year re-
ferred to in subsection (a), and 
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‘‘(B) without diminution by reason of divi-
dends distributed during such taxable year. 
‘‘(e) SPECIFIED FOREIGN CORPORATION.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, 
the 
term 
‘specified 
foreign 
corporation’ 
means— 
‘‘(A) any controlled foreign corporation, 
and 
‘‘(B) any section 902 corporation (as de-
fined in section 909(d)(5)). 
‘‘(2) APPLICATION TO SECTION 902 CORPORA-
TIONS.—For purposes of section 951, a section 902 
corporation (as so defined) shall be treated as a con-
trolled foreign corporation solely for purposes of tak-
ing into account the subpart F income of such cor-
poration under subsection (a) (and for purposes of 
applying subsection (f)). 
‘‘(f) DETERMINATIONS OF PRO RATA SHARE.—For 
purposes of this section, the determination of any United 
States shareholder’s pro rata share of any amount with 
respect to any specified foreign corporation shall be deter-
mined under rules similar to the rules of section 951(a)(2) 
by treating such amount in the same manner as subpart 
F income (and by treating such specified foreign corpora-
tion as a controlled foreign corporation). 
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‘‘(g) DISALLOWANCE
OF FOREIGN TAX CREDIT, 
ETC.— 
‘‘(1) IN GENERAL.—No credit shall be allowed 
under section 901 for the applicable percentage of 
any taxes paid or accrued (or treated as paid or ac-
crued) with respect to any amount for which a de-
duction is allowed under this section. 
‘‘(2) APPLICABLE PERCENTAGE.—For purposes 
of this subsection, the term ‘applicable percentage’ 
means the percentage specified in subsection (c). 
‘‘(3) DENIAL
OF
DEDUCTION.—No deduction 
shall be allowed under this chapter for any tax for 
which credit is not allowable under section 901 by 
reason of paragraph (1) (determined by treating the 
taxpayer as having elected the benefits of subpart A 
of part III of subchapter N). 
‘‘(4) COORDINATION WITH SECTION 78.—Sec-
tion 78 shall not apply to any tax for which credit 
is not allowable under section 901 by reason of para-
graph (1). 
‘‘(h) ELECTION TO PAY LIABILITY
IN INSTALL-
MENTS.— 
‘‘(1) IN GENERAL.—In the case of a United 
States shareholder of a deferred foreign income cor-
poration, such United States shareholder may elect 
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to pay the net tax liability under this section in 8 
installments of the following amounts: 
‘‘(A) 8 percent of the net tax liability in 
the case of each of the first 5 of such install-
ments, 
‘‘(B) 15 percent of the net tax liability in 
the case of the 6th such installment, 
‘‘(C) 20 percent of the net tax liability in 
the case of the 7th such installment, and 
‘‘(D) 25 percent of the net tax liability in 
the case of the 8th such installment. 
‘‘(2) DATE FOR PAYMENT OF INSTALLMENTS.— 
If an election is made under paragraph (1), the first 
installment shall be paid on the due date (deter-
mined without regard to any extension of time for 
filing the return) for the return of tax for the tax-
able year described in subsection (b) and each suc-
ceeding installment shall be paid on the due date (as 
so determined) for the return of tax for the taxable 
year following the taxable year with respect to which 
the preceding installment was made. 
‘‘(3) ACCELERATION OF PAYMENT.—If there is 
an addition to tax for failure to pay timely assessed 
with respect to any installment required under this 
subsection, a liquidation or sale of substantially all 
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the assets of the taxpayer (including in a title 11 or 
similar case), a cessation of business by the tax-
payer, or any similar circumstance, then the unpaid 
portion of all remaining installments shall be due on 
the date of such event (or in the case of a title 11 
or similar case, the day before the petition is filed). 
The preceding sentence shall not apply to the sale 
of substantially all the assets of a taxpayer to a 
buyer if such buyer enters into an agreement with 
the Secretary under which such buyer is liable for 
the remaining installments due under this subsection 
in the same manner as if such buyer were the tax-
payer. 
‘‘(4) PRORATION OF DEFICIENCY TO INSTALL-
MENTS.—If an election is made under paragraph (1) 
to pay the net tax liability under this section in in-
stallments and a deficiency has been assessed with 
respect to such net tax liability, the deficiency shall 
be prorated to the installments payable under para-
graph (1). The part of the deficiency so prorated to 
any installment the date for payment of which has 
not arrived shall be collected at the same time as, 
and as a part of, such installment. The part of the 
deficiency so prorated to any installment the date 
for payment of which has arrived shall be paid upon 
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notice and demand from the Secretary. This sub-
section shall not apply if the deficiency is due to 
negligence, to intentional disregard of rules and reg-
ulations, or to fraud with intent to evade tax. 
‘‘(5) ELECTION.—Any election under paragraph 
(1) shall be made not later than the due date for the 
return of tax for the taxable year described in sub-
section (a) and shall be made in such manner as the 
Secretary may provide. 
‘‘(6) NET
TAX
LIABILITY
UNDER
THIS
SEC-
TION.—For purposes of this subsection— 
‘‘(A) IN GENERAL.—The net tax liability 
under this section with respect to any United 
States shareholder is the excess (if any) of— 
‘‘(i) such taxpayer’s net income tax 
for the taxable year described in subsection 
(a), over 
‘‘(ii) such taxpayer’s net income tax 
for such taxable year determined without 
regard to this section. 
‘‘(B) NET INCOME TAX.—The term ‘net 
income tax’ means the regular tax liability re-
duced by the credits allowed under subparts A, 
B, and D of part IV of subchapter A. 
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‘‘(i) INCLUSION
OF DEFERRED FOREIGN INCOME 
UNDER THIS SECTION NOT TO TRIGGER RECAPTURE OF 
OVERALL
FOREIGN
LOSS.—For purposes of section 
904(f)(1), in the case of a United States shareholder of 
a deferred foreign income corporation, such United States 
shareholder’s taxable income from sources without the 
United States shall be determined without regard to this 
section. 
‘‘(j) REGULATIONS.—The Secretary may prescribe 
such regulations or other guidance as may be necessary 
or appropriate to carry out the provisions of this section.’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for subpart F of part III of subchapter N of chapter 1 
of such Code is amended by striking the item relating to 
section 965 and inserting the following: 
‘‘Sec. 965. Elimination of incentive to hold accumulated earnings and profits 
offshore.’’. 
SEC. 102. AMERICAN INFRASTRUCTURE FUND. 
(a) AMERICAN INFRASTRUCTURE FUND.— 
(1) IN GENERAL.—There is established a wholly 
owned Government corporation— 
(A) which shall be called the American In-
frastructure Fund (referred to in this Act as 
the ‘‘AIF’’); 
(B) which shall be headed by the Board of 
Trustees established under subsection (b); 
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(C) which may have separate subaccounts 
or subsidiaries for funds used to make loans, 
bond guarantees, and equity investments under 
this section; 
(D) which shall be available to the AIF to 
pay for the costs of carrying out this section, 
including the compensation of the Board and 
other employees of the AIF; and 
(E) the funds of which may be invested by 
the Board in such manner as the Board deter-
mines appropriate. 
(2) DEPOSITS TO AIF.—All funds received from 
bond issuances, loan payments, bond guarantee fees, 
and any other funds received in carrying out this 
section shall be held by AIF. 
(3) LIMITATIONS.—The charter of the AIF 
shall limit its activities to those activities described 
as the mission of the Board under subsection (b)(2). 
(4) OVERSIGHT.—The AIF shall register with 
the Securities and Exchange Commission and the 
Chairman shall report to Congress annually as to 
whether the AIF is fulfilling the mission of the 
Board under subsection (b)(2). 
(5) TREATMENT OF AIF.— 
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(A) ACCOUNTS.—Title 31, United States 
Code, is amended in each of sections 9107(c)(3) 
and 9108(d)(2)— 
(i) by inserting ‘‘the American Infra-
structure Fund,’’ after ‘‘the Regional 
Banks for Cooperatives,’’; and 
(ii) by striking ‘‘those banks’’ and in-
serting ‘‘those entities’’. 
(B) BONDS.—Section 149(b)(3)(A)(i) is 
amended by inserting ‘‘American Infrastructure 
Fund,’’ after ‘‘Federal Home Loan Mortgage 
Corporation,’’. 
(b) BOARD OF TRUSTEES.— 
(1) IN GENERAL.—There is established a Board 
of Trustees of the AIF (referred to in this sub-
section as the ‘‘Board’’), which shall be composed of 
9 members who— 
(A) have substantial experience in bond 
guarantees or municipal credit; and 
(B) to the greatest extent practicable, have 
extensive experience working with municipal 
credit, risk management, and infrastructure fi-
nance. 
(2) MISSION.—The mission of the Board is— 
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(A) to operate the AIF and its subsidiaries 
to be a low cost provider of bond guarantees, 
loans, and equity investments to State and local 
governments and infrastructure providers for 
urban and rural infrastructure projects that— 
(i) provide a positive economic impact; 
and 
(ii) meet such other standards as the 
Board may develop; 
(B) to operate the AIF in a self-sustaining 
manner; 
(C) to not have a profit motive, but to seek 
at all times to pursue its mission of providing 
low cost bond guarantees and loans while— 
(i) covering its costs; 
(ii) maintaining such reserves as may 
be needed; and 
(iii) applying prudent underwriting 
standards; 
(D) to only consider projects put forth by 
State and local governments and not to seek 
projects directly; and 
(E) to engage in no other activities other 
than those permitted under this section. 
(3) MEMBERSHIP.— 
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(A) INITIAL MEMBERS.— 
(i) APPOINTMENT.—Not later than 
150 days after the date of the enactment 
of this Act, the President shall appoint, 
with the advice and consent of the Senate, 
as members of the Board— 
(I) 2 individuals from a list of at 
least 5 individuals selected by the 
Speaker of the House of Representa-
tives; 
(II) 2 individuals from a list of 
at least 5 individuals selected by the 
Minority Leader of the House of Rep-
resentatives; 
(III) 2 individuals from a list of 
at least 5 individuals selected by the 
Majority Leader of the Senate; 
(IV) 2 individuals from a list of 
at least 5 individuals selected by the 
Minority Leader of the Senate; and 
(V) 1 individual selected at will 
by the President. 
(ii) SUBMISSION OF LISTS.—Each of 
the lists described in clause (i) shall be 
submitted to the President not later than 
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90 days after the date of the enactment of 
this Act. If any of such lists are submitted 
after the date required under this clause, 
the President may appoint the 2 members 
of the Board who were to be selected from 
such list at will. 
(B) STAGGERED TERMS.—The members of 
the Board appointed pursuant to subparagraph 
(A)(i) shall serve staggered terms, with 2 each 
of the initial members of the Board serving for 
terms of 5, 6, 7, and 8 years, respectively, and 
the initial Chair selected under subparagraph 
(D) serving for 9 years. The decision of which 
Board members, other than the Chair, serve for 
which initial terms shall be made by the mem-
bers of the Board drawing lots. 
(C) ADDITIONAL MEMBERS.— 
(i) IN GENERAL.—Except as provided 
in subparagraph (A), if the term of a 
member of the Board expires or otherwise 
becomes vacant, the President shall ap-
point a replacement for such member, with 
the advice and consent of the Senate, from 
among a list of at least 5 individuals sub-
mitted by the Board. 
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(ii) TERM OF SERVICE.— 
(I) IN GENERAL.—Each member 
of the Board appointed to replace a 
member whose term is expiring shall 
serve for a 7-year term. 
(II) VACANCIES.—Any member 
of the Board appointed to fill a va-
cancy occurring before the expiration 
of the term to which that member’s 
predecessor was appointed shall be ap-
pointed only for the remainder of the 
term. 
(D) CHAIR.—The members of the Board 
shall choose 1 member to serve as the Chair of 
the Board for a term of 7 years, except that the 
initial Chair shall serve for a term of 9 years, 
pursuant to subsection (B). 
(E) CONTINUATION
OF
SERVICE.—Each 
member of the Board may continue to serve 
after the expiration of the term of office to 
which that member was appointed until a suc-
cessor has been appointed. 
(F) CONFLICTS OF INTEREST.—No mem-
ber of the Board may have a financial interest 
in, or be employed by, a Qualified Infrastruc-
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ture Project (‘‘QIP’’) related to assistance pro-
vided under this section. Owning municipal 
credit of any State or local government or own-
ing the securities of a diversified company that 
engages in infrastructure activities, provided 
those activities constitute less than 20 percent 
of the company’s revenues, or investing in 
broadly held investment funds shall not be 
deemed to create a conflict of interest. The 
Board may issue regulations to define terms 
used under this subparagraph. 
(4) COMPENSATION.—The members of the 
Board shall be compensated at an amount to be set 
by the Board, but under no circumstances may such 
compensation be higher than the rate prescribed for 
level IV of the Executive Schedule under section 
5315 of title 5, United States Code. 
(5) STAFF.—The Board shall employ and set 
compensation for such staff as the Board determines 
as is necessary to carry out the activities and mis-
sion of the AIF, and such staff may be paid without 
regard to the provisions of chapter 51 and sub-
chapter III of chapter 53, United States Code, relat-
ing to classification and General Schedule pay rates. 
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(6) PROCEDURES.—The Board shall establish 
such procedures as are necessary to carry out this 
section. 
(7) CORPORATE GOVERNANCE STANDARDS.— 
(A) BOARD
COMMITTEES
GENERALLY.— 
The Board shall maintain all of the committees 
required to be maintained by the board of direc-
tors of an issuer listed on the New York Stock 
Exchange as of the date of the enactment of 
this section. 
(B) RISK MANAGEMENT COMMITTEE.—The 
Board shall maintain a risk management com-
mittee, which shall— 
(i) employ additional staff who are 
certified by the Board as having significant 
and relevant experience in insurance un-
derwriting and credit risk management; 
and 
(ii) establish the risk management 
policies used by the Board. 
(C) STANDARDS.—The Board shall, to the 
extent practicable, follow all standards with re-
spect to corporate governance that are required 
to be followed by the board of directors of an 
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issuer listed on the New York Stock Exchange 
as of the date of the enactment of this section. 
(8) BIENNIAL REPORTS.—Not less frequently 
than once every 2 years, the Board shall produce a 
report that describes, of the materials, goods, and 
products that were used to construct, or to support 
the construction of, qualified infrastructure projects 
(as described in subsection (c)) and received financ-
ing from the American Infrastructure Fund within 
the most recent 2 calendar years, the percentage of 
such materials, goods, and products that were cre-
ated, sourced, or manufactured in the United States. 
(c) INFRASTRUCTURE INVESTMENT.— 
(1) ENTITIES ELIGIBLE FOR ASSISTANCE.—The 
AIF may provide assistance to State and local gov-
ernment entities, nonprofit infrastructure providers, 
private parties, and public-private partnerships (re-
ferred to in this section as ‘‘eligible entities’’) to help 
finance qualified infrastructure projects (referred to 
in this subsection as ‘‘QIPs’’). 
(2) FORMS OF ASSISTANCE.—The AIF may— 
(A) provide bond guarantees to debt issued 
by eligible entities; 
(B) make loans, including subordinated 
loans, to eligible entities; and 
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(C) make equity investments in QIPs. 
(3) QUALIFIED INFRASTRUCTURE PROJECTS.— 
A project qualifies as a QIP under this section if— 
(A) the project is sponsored by a State or 
local government; 
(B) the infrastructure is, or will be, owned 
by a State or local government; 
(C) the project involves the construction, 
maintenance, improvement, or repair of a trans-
portation, energy, water, communications, or 
educational facility; 
(D) the recipient of bond guarantees, 
loans, equity investments, or any other innova-
tive financing technique authorized under this 
Act provides written assurances prescribed by 
the AIF that the project will be performed in 
compliance with the requirements of all Federal 
laws that would otherwise apply to similar 
projects to which the United States is a party; 
and 
(E) in the case of a public transportation 
capital project as defined in section 5302 of 
title 49, United States Code, the recipient of 
bond guarantees, loans, equity investments, or 
any other innovative financing technique au-
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thorized under this Act complies with the grant 
requirements of section 5309 of such title. 
(4) APPLICATION FOR ASSISTANCE.— 
(A) IN GENERAL.—A State or local gov-
ernment that wishes to receive a loan or bond 
guarantee under this section shall submit an 
application to the Board in such form and man-
ner and containing such information as the 
Board may require. 
(B) REQUIREMENT FOR PUBLIC SPONSOR-
SHIP OF PRIVATE ENTITIES.—A private entity 
may only receive a bond guarantee, loan, or eq-
uity investment under this section if the State 
or local government for the jurisdiction in which 
the nonprofit infrastructure provider or private 
partner is located submits an application pursu-
ant to subparagraph (A) on behalf of such non-
profit infrastructure provider or private part-
ner. 
(5) LIMITATIONS ON SINGLE STATE AWARDS.— 
(A) ANNUAL
LIMITATION.—The Board 
shall set an annual limit, as a percentage of 
total assistance provided under this section dur-
ing a year, on the amount of assistance a single 
State (including local governments and other 
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infrastructure providers within such State) may 
receive in assistance provided under this sec-
tion. 
(B) 
CUMULATIVE
LIMITATION.—The 
Board shall set a limit, as a percentage of total 
assistance provided under this section out-
standing at any one time, on the amount of as-
sistance a single State (including local govern-
ments and other infrastructure providers within 
such State) may receive in assistance provided 
under this section. 
(6) LOAN SPECIFICATIONS.—Loans made under 
this section shall have such maturity and carry such 
interest rate as the Board determines appropriate. 
(7) BOND
GUARANTEE.—The Board shall 
charge such fees for Bond guarantees made under 
this section as the Board determines appropriate. 
(8) EQUITY INVESTMENTS.—With respect to a 
QIP, the amount of an equity investment made by 
the AIF in such QIP may not exceed 20 percent of 
the total cost of the QIP. 
(9) PUBLIC-PRIVATE
PARTNERSHIP
REQUIRE-
MENTS.—At least 35 percent of the assistance pro-
vided under this section shall be provided to QIPs 
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for which at least 10 percent of the financing for 
such QIPs comes from private debt or equity. 
(10) PROHIBITION
ON
PRINCIPAL
FORGIVE-
NESS.—With respect to a loan made under this sec-
tion, the Board may not forgive any amount of prin-
cipal on such loan. 
(d) DEFINITIONS.—For purposes of this section: 
(1) INFRASTRUCTURE
PROVIDER.—The term 
‘‘infrastructure provider’’ means an entity that seeks 
to finance a QIP. 
(2) SECRETARY.—The term ‘‘Secretary’’ means 
the Secretary of the Treasury. 
(3) STATE.—The term ‘‘State’’ means each of 
the several States, the District of Columbia, any ter-
ritory or possession of the United States, and each 
federally recognized Indian tribe. 
(e) APPROPRIATION.—Out of money in the Treasury 
not otherwise appropriated, there is hereby appropriated 
$50,000,000,000 to the American Infrastructure Fund. 
Amounts appropriated under this subsection shall remain 
available without fiscal year limitation. 
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SEC. 103. DEDICATION OF REMAINING REVENUES TO HIGH-
WAY TRUST FUND. 
(a) IN GENERAL.—Section 9503(f) is amended by re-
designating paragraph (5) as paragraph (6) and by insert-
ing after paragraph (4) the following new paragraph: 
‘‘(5) APPROPRIATION
OF
REVENUES
ATTRIB-
UTABLE TO SECTION 965.— 
‘‘(A) INITIAL
APPROPRIATION.—Out of 
money in the Treasury not otherwise appro-
priated, 
there 
is 
hereby 
appropriated 
$100,000,000,000 to the Highway Trust Fund. 
‘‘(B) REMAINING REVENUES.— 
‘‘(i) IN GENERAL.—Out of money in 
the Treasury not otherwise appropriated, 
there are hereby appropriated to the High-
way Trust Fund the excess of— 
‘‘(I) amounts equivalent to the 
aggregate net tax liabilities under sec-
tion 965 (as defined in such section) 
received in the Treasury, over 
‘‘(II) $150,000,000,000. 
‘‘(ii) ADDITIONAL
TRANSFERS
ONLY 
AFTER
REVENUES
EQUALING
INITIAL 
TRANSFERS HAVE BEEN RECEIVED IN THE 
TREASURY.—For purposes of applying sec-
tion 9601 to clause (i), no transfer shall be 
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made under clause (i) until the Secretary 
estimates that the amount described in 
clause (i)(I) has exceeded the amount de-
scribed in clause (i)(II).’’. 
(b) TRANSFERS TO MASS TRANSIT ACCOUNT.—Sec-
tion 9503(e)(2) of such Code is amended by striking ‘‘the 
mass transit portion’’ and inserting ‘‘, 20 percent of the 
amounts appropriated to the Highway Trust Fund under 
subsection (f)(5), and the mass transit portion’’. 
SEC. 104. HIGHWAY TRUST FUND SOLVENCY COMMISSION. 
(a) ESTABLISHMENT.—There is established in the 
legislative branch a commission to be known as the ‘‘High-
way Trust Fund Solvency Commission’’ (in this section 
referred to as the ‘‘Commission’’). 
(b) DUTY OF THE COMMISSION.—Not later than 1 
year after the initial meeting of the Commission, the Com-
mission shall transmit to Congress a written report that 
includes recommendations and proposed legislation for 
achieving long-term solvency of the Highway Trust Fund. 
(c) MEMBERS.— 
(1) NUMBER AND APPOINTMENT.—The Com-
mission shall be composed of 9 members. Of the 
members of the Commission— 
(A) 1 member shall be appointed by the 
President of the United States; 
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(B) 1 member shall be appointed by the 
chairman of the Committee on Finance of the 
Senate; 
(C) 1 member shall be appointed by the 
ranking minority member of the Committee on 
Finance of the Senate; 
(D) 1 member shall be appointed by the 
chairman of the Committee on Ways and Means 
of the House of Representatives; 
(E) 1 member shall be appointed by the 
ranking minority member of the Committee on 
Ways and Means of the House of Representa-
tives; 
(F) 1 member shall be appointed by the 
chairman of the Committee on Environment 
and Public Works of the Senate; 
(G) 1 member shall be appointed by the 
ranking minority member of the Committee on 
Environment and Public Works of the Senate; 
(H) 1 member shall be appointed by the 
chairman of the Committee on Transportation 
and Infrastructure of the House of Representa-
tives; and 
(I) 1 member shall be appointed by the 
ranking minority member of the Committee on 
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Transportation and Infrastructure of the House 
of Representatives. 
(2) TIMING OF APPOINTMENTS.—Each of the 
appointments made under paragraph (1) shall be 
made not later than 45 days after the date of the 
enactment of this Act. 
(3) TERMS; VACANCIES.—Each member shall be 
appointed for the life of the Commission, and a va-
cancy in the Commission shall be filled in the man-
ner in which the original appointment was made. 
(4) COMPENSATION.— 
(A) IN GENERAL.—Members of the Com-
mission shall serve without pay. 
(B) TRAVEL
EXPENSES.—Each member 
shall receive travel expenses, including per diem 
in lieu of subsistence, in accordance with appli-
cable provisions under subchapter I of chapter 
57 of title 5, United States Code. 
(d) OPERATION
AND POWERS
OF
THE COMMIS-
SION.— 
(1) CHAIR.—The chairperson of the Commis-
sion shall be elected by the members of the Commis-
sion. 
(2) MEETINGS.—The Commission shall meet 
not later than 30 days after the members of the 
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Commission have been appointed, and at such times 
thereafter as the chairperson shall determine. 
(3) RULES OF PROCEDURE.—The chairperson 
shall, with the approval of a majority of the mem-
bers of the Commission, establish written rules of 
procedure for the Commission, which shall include a 
quorum requirement to conduct the business of the 
Commission. 
(4) HEARINGS.—The Commission may, for the 
purpose of carrying out this section, hold hearings, 
sit and act at times and places, take testimony, and 
receive evidence as the Commission considers appro-
priate. 
(5) OBTAINING OFFICIAL DATA.—The Commis-
sion may secure directly from any department or 
agency of the United States, including the Congres-
sional Budget Office and the Government Account-
ability Office, any information or technical assist-
ance necessary to enable it to carry out this section. 
Upon request of the chairperson of the Commission, 
the head of that department or agency shall furnish 
that information or technical assistance to the Com-
mission. 
(6) CONTRACT AUTHORITY.—The Commission 
may contract with and compensate government and 
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private agencies or persons for any purpose nec-
essary to enable it to carry out this section. 
(7) MAILS.—The Commission may use the 
United States mails in the same manner and under 
the same conditions as other departments and agen-
cies of the United States. 
(e) PERSONNEL.— 
(1) DIRECTOR.—The Commission shall have a 
Director who shall be appointed by the Commission. 
The Director shall be paid at a rate of pay equiva-
lent to the annual rate of basic pay for a comparable 
position paid under the Executive Schedule, subject 
to the approval of the chairperson of the Commis-
sion. 
(2) STAFF.—The Director may appoint and fix 
the pay of additional staff as the Director considers 
appropriate. 
(3) EXPERTS AND CONSULTANTS.—The Com-
mission may procure temporary and intermittent 
services under section 3109(b) of title 5, United 
States Code, but at rates for individuals not to ex-
ceed the daily equivalent of the annual rate of basic 
pay for a comparable position paid under the Execu-
tive Schedule. 
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(4) STAFF OF FEDERAL AGENCIES.—Upon re-
quest of the Commission, the head of any Federal 
department or agency may detail, without reim-
bursement, any of the personnel of that department 
or agency to the Commission to assist it in carrying 
out its duties under this section. 
(5) ADMINISTRATIVE
SUPPORT
SERVICES.— 
Upon the request of the Commission, the Adminis-
trator of General Services shall provide to the Com-
mission, on a reimbursable basis, the administrative 
support services necessary for the Commission to 
carry out its responsibilities under this section. 
(f) TERMINATION.—The Commission shall terminate 
not later than 60 days after the submission of the report 
described in subsection (b). 
(g) AUTHORIZATION OF APPROPRIATIONS.—There is 
authorized to be appropriated such sums as may be nec-
essary to carry out this section. 
TITLE II—DEADLINE FOR 
INTERNATIONAL TAX REFORM 
SEC. 201. 18-MONTH DEADLINE FOR INTERNATIONAL TAX 
REFORM. 
Notwithstanding any provision of title III, the provi-
sions of, and amendments made by, title III shall not take 
effect if a bill which reforms the corporate international 
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tax system by eliminating the incentive to hold earnings 
in low-tax foreign jurisdictions is enacted into law during 
the 18-month period which begins on the date of the en-
actment of this Act. 
TITLE III—FALLBACK 
INTERNATIONAL TAX REFORM 
SEC. 300. GENERAL EFFECTIVE DATE OF TITLE. 
For purposes of this title, the term ‘‘applicable date’’ 
means the date which is 18 months after the date of the 
enactment of this Act. 
Subtitle A—Reform of Taxation of 
Income Earned by Controlled 
Foreign Corporations 
PART I—GENERAL PROVISIONS 
SEC. 301. MODIFICATIONS TO SUBPART F INCOME. 
(a) IN GENERAL.—Subpart F of part III of sub-
chapter N of chapter 1 is amended by striking sections 
952 through 956 and inserting the following: 
‘‘SEC. 952. SUBPART F INCOME DEFINED. 
‘‘(a) IN GENERAL.—For purposes of this subpart, the 
term ‘subpart F income’ means, with respect to any con-
trolled foreign corporation, the sum of— 
‘‘(1) the inclusion percentage of the corpora-
tion’s modified active income, plus 
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‘‘(2) 100 percent of the corporation’s modified 
nonactive income. 
‘‘(b) MODIFIED ACTIVE INCOME.— 
‘‘(1) IN GENERAL.—The term ‘modified active 
income’ means, with respect to any controlled for-
eign corporation, the excess (if any) of— 
‘‘(A) the corporation’s active foreign mar-
ket income, over 
‘‘(B) the amount of the reduction under 
subsection (e) for deductions properly allocable 
to such income. 
‘‘(2) REDUCTION FOR CERTAIN LOSSES.— 
‘‘(A) IN
GENERAL.—The modified active 
income determined under paragraph (1) for any 
taxable year shall be reduced (but not below 
zero)— 
‘‘(i) first by any active foreign market 
loss for any prior taxable year, and 
‘‘(ii) then by any qualified loss for 
such taxable year (or for any prior taxable 
year to the extent provided in subsection 
(c)(3)(B)). 
‘‘(B) LIMITATION.—An active foreign mar-
ket loss or qualified loss for any prior taxable 
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year shall only be taken into account under sub-
paragraph (A)— 
‘‘(i) if the prior taxable year is a tax-
able year which begins on or after the ap-
plicable date (as defined in section 300 of 
the Infrastructure and Global Tax Com-
petitiveness Act of 2014), and for which 
the controlled foreign corporation was a 
controlled foreign corporation, and 
‘‘(ii) to the extent such loss has not 
been previously taken into account under 
this subsection. 
‘‘(3) ACTIVE
FOREIGN
MARKET
LOSS.—The 
term ‘active foreign market loss’ means, with respect 
to any taxable year, the amount by which the 
amount determined under paragraph (1)(B) exceeds 
the amount determined under paragraph (1)(A). 
‘‘(c) MODIFIED NONACTIVE INCOME.— 
‘‘(1) IN GENERAL.—The term ‘modified non-
active income’ means, with respect to any controlled 
foreign corporation, the excess (if any) of— 
‘‘(A) the corporation’s gross income deter-
mined without regard to active foreign market 
income, over 
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‘‘(B) the amount of the reduction under 
subsection (e) for deductions properly allocable 
to such gross income. 
‘‘(2) REDUCTION
FOR
QUALIFIED
LOSSES.— 
The amount determined under paragraph (1) for 
any taxable year shall be reduced (but not below 
zero) by any qualified loss for any prior taxable year 
beginning on or after the applicable date (as defined 
in section 300 of the Infrastructure and Global Tax 
Competitiveness Act of 2014), for which the con-
trolled foreign corporation was a controlled foreign 
corporation, but only to the extent such loss has not 
been previously taken into account under subsection 
(b)(2) or this subsection. 
‘‘(3) QUALIFIED LOSS.—For purposes of this 
section— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
loss’ means, with respect to any taxable year, 
the amount by which the amount determined 
under paragraph (1)(B) exceeds the amount de-
termined under paragraph (1)(A). 
‘‘(B) ORDERING RULE FOR LOSSES CAR-
RIED
FROM
PRIOR
TAXABLE
YEARS.—In the 
case of any qualified losses carried to a taxable 
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year from 1 or more prior taxable years, such 
losses shall be taken into account— 
‘‘(i) first under paragraph (2), and 
‘‘(ii) then under subsection (b)(2)(B) 
to the extent such losses exceed the 
amount determined under paragraph (1). 
‘‘(d) INCLUSION PERCENTAGE.—For purposes of this 
section— 
‘‘(1) IN GENERAL.—The term ‘inclusion per-
centage’ means 20 percent increased by the number 
of percentage points (if any) determined under para-
graph (2). 
‘‘(2) ADDITIONAL
INCLUSION
FOR
EARNINGS 
NOT SUBJECT TO OECD AVERAGE FOREIGN TAX.— 
The number of percentage points determined under 
this paragraph with respect to any controlled foreign 
corporation for any taxable year, is the number of 
percentage points (not less than zero nor more than 
15) which bears the same ratio to 15 as— 
‘‘(A) the number of percentage points by 
which 25 percent exceeds the aggregate foreign 
rate of tax imposed on the modified active in-
come of such controlled foreign corporation for 
such taxable year, bears to 
‘‘(B) 25. 
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‘‘(e) EXCLUSION OF UNITED STATES INCOME.—For 
purposes of this subpart, any item of income of the con-
trolled foreign corporation which is effectively connected 
with the conduct by such corporation of a trade or busi-
ness within the United States shall not be taken into ac-
count in computing the subpart F income of such corpora-
tion unless such item is exempt from taxation (or is sub-
ject to a reduced rate of tax) pursuant to a treaty obliga-
tion of the United States. For purposes of this subsection, 
any exemption (or reductions) with respect to the tax im-
posed by section 884 shall not be taken into account. 
‘‘(f) DEDUCTIONS.—For purposes of subsections 
(b)(1)(B) and (c)(1)(B), the active foreign market income, 
and gross income other than active foreign market income, 
of a controlled foreign corporation shall each be reduced, 
under regulations prescribed by the Secretary, by any de-
ductions (including taxes) of such corporation properly al-
locable to items of income taken into account in computing 
such income. 
‘‘SEC. 953. ACTIVE FOREIGN MARKET INCOME. 
‘‘(a) ACTIVE FOREIGN MARKET INCOME DEFINED.— 
For purposes of this subpart, the term ‘active foreign mar-
ket income’ means, with respect to any controlled foreign 
corporation, the aggregate of all items of income which 
are— 
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‘‘(1) attributable to economically significant ac-
tivities with respect to a qualified trade or business, 
and 
‘‘(2) derived in connection with— 
‘‘(A) property which is sold, exchanged, or 
otherwise disposed of for use, consumption, or 
disposition outside of the United States, or 
‘‘(B) services which are provided outside of 
the United States with respect to persons or 
property located outside of the United States. 
‘‘(b) TREATMENT OF PASSIVE INCOME.— 
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the term ‘active foreign 
market income’ shall not include the passive income 
(as defined in section 954) of a controlled foreign 
corporation. 
‘‘(2) ACTIVE
FOREIGN
MARKET
INCOME
IN-
CLUDES CERTAIN INCOME.—The term ‘active foreign 
market income’ shall include— 
‘‘(A) if the controlled foreign corporation 
or a qualified business unit of the corporation 
is an eligible controlled foreign corporation (as 
defined in section 954(c)), any item of income 
of the corporation or unit which is qualified 
banking or financing income (as so defined), 
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‘‘(B) if the controlled foreign corporation 
or a qualified business unit of the corporation 
is a qualifying insurance company (as defined 
in section 954(d)) or a qualifying insurance 
company branch (as so defined), any item of in-
come of the corporation or unit which is quali-
fied insurance income (as so defined), 
‘‘(C) any item of income which is rents or 
royalties derived from the ownership and oper-
ation (including leasing) of real or personal 
property which is not treated as passive income 
under section 954(a)(2)(A), and 
‘‘(D) in the case of a regular dealer in 
property which is property described in section 
954(a)(1)(B), forward contracts, option con-
tracts, or similar financial instruments (includ-
ing notional principal contracts and all instru-
ments referenced to commodities), any item of 
income from any transaction (including hedging 
transactions and transactions involving physical 
settlement) entered into in the ordinary course 
of such dealer’s trade or business as such a 
dealer. 
‘‘(3) GAIN OR LOSS FROM SALES OF STOCK IN 
OTHER
CFCS.—If a controlled foreign corporation 
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sells, exchanges, or otherwise disposes of stock in 
another controlled foreign corporation which is a re-
lated person to the selling corporation— 
‘‘(A) gain from such sale, exchange, or dis-
position shall be treated as active foreign mar-
ket income to the extent that such gain would 
have been excluded from gross income under 
section 1203 if the selling corporation were a 
United States shareholder in the other con-
trolled foreign corporation, and 
‘‘(B) loss from such sale, exchange, or dis-
position shall not be allowed to the extent such 
loss would have been disallowed under section 
1213 if the selling corporation were a United 
States shareholder in the other controlled for-
eign corporation. 
‘‘(4) GAIN OR LOSS FROM SALES OF INTERESTS 
IN 25-PERCENT OWNED PARTNERSHIPS.— 
‘‘(A) IN GENERAL.— 
‘‘(i) PORTION
TREATED
AS
ACTIVE 
FOREIGN MARKET INCOME.—In the case of 
any sale or exchange by a controlled for-
eign corporation of an interest in a part-
nership with respect to which such cor-
poration is a 25-percent owner, gain or 
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loss on such sale shall be taken into ac-
count in determining active foreign market 
income in the amount which bears the 
same ratio to the amount of such gain or 
loss as the controlled foreign corporation’s 
distributable share of the active foreign 
market income from the partnership over 
the applicable period bears to the con-
trolled foreign corporation’s distributable 
share of gross income from the partnership 
over such period. The Secretary shall pre-
scribe such regulations as may be appro-
priate to prevent abuse of the purposes of 
this paragraph, including regulations pro-
viding for coordination of this paragraph 
with the provisions of subchapter K. 
‘‘(ii) APPLICABLE PERIOD.—For pur-
poses of this subparagraph, the term ‘ap-
plicable period’ means, with respect to any 
interest in a partnership, the shorter of the 
3-taxable year period immediately pre-
ceding the taxable year of the sale or ex-
change or the controlled foreign corpora-
tion’s holding period in the interest. In no 
event shall the applicable period include 
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any portion of any taxable year beginning 
before the applicable date (as defined in 
section 300 of the Infrastructure and Glob-
al Tax Competitiveness Act of 2014). 
‘‘(B) 25-PERCENT OWNER.—For purposes 
of this paragraph, the term ‘25-percent owner’ 
means a controlled foreign corporation which 
owns directly 25 percent or more of the capital 
or profits interest in a partnership. For pur-
poses of the preceding sentence, if a controlled 
foreign corporation is a shareholder or partner 
of a corporation or a partnership, the controlled 
foreign corporation shall be treated as owning 
directly its proportionate share of any capital or 
profits interest in any partnership held directly 
or indirectly by such corporation or partnership. 
If a controlled foreign corporation is treated as 
owning a capital or profits interest in a part-
nership under constructive ownership rules 
similar to the rules of section 958(b), the con-
trolled foreign corporation shall be treated as 
owning such interest directly for purposes of 
this subparagraph. 
‘‘(c) TREATMENT OF INSURANCE INCOME.— 
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‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the term ‘active foreign 
market income’ shall not include the insurance in-
come (as defined in section 955(a)) of a controlled 
foreign corporation. 
‘‘(2) ACTIVE
FOREIGN
MARKET
INCOME
IN-
CLUDES
EXEMPT
INSURANCE
INCOME.—The term 
‘active foreign market income’ shall include exempt 
insurance income (as defined in section 955(c)) shall 
be treated as active foreign market income. 
‘‘(d) TREATMENT
OF INCOME FROM PROPERTY 
USED, CONSUMED, OR DISPOSED OF IN THE UNITED 
STATES.—For purposes of subsection (a)(2)(A)— 
‘‘(1) IN
GENERAL.—The term ‘active foreign 
market income’ shall not include income derived in 
connection with property which is sold, exchanged, 
or otherwise disposed of to any person if it was rea-
sonable for the controlled foreign corporation (or a 
related person) to expect that— 
‘‘(A) such property would be used, con-
sumed, or disposed of in the United States, or 
‘‘(B) such property would be used in the 
manufacture or production of, or as a compo-
nent part in, other property which would be 
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used, consumed, or disposed of in the United 
States. 
‘‘(2) CHAIN OF RELATED PERSONS.—If— 
‘‘(A) property is ultimately used, con-
sumed, or disposed of as described in subpara-
graph (A) or (B) of paragraph (1), and 
‘‘(B) all sales, exchanges, or dispositions of 
such property (or of the other property de-
scribed in paragraph (1)(B)) before the sale for 
use, consumption, or disposition in the United 
States are between related persons, 
then, for purposes of paragraph (1), there shall be 
deemed to have been a reasonable expectation that 
the property (or the other property described in 
paragraph (1)(B)) would be used, consumed, or dis-
posed of in the United States. 
‘‘(3) 
EXCEPTION
FOR
PROPERTY
SUBSE-
QUENTLY EXPORTED.—Paragraphs (1) and (2) shall 
not apply with respect to property which, after entry 
into the United States is— 
‘‘(A) sold, leased, rented, or licensed by the 
controlled foreign corporation or a related per-
son for direct use, consumption, or disposition 
outside the United States, or 
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‘‘(B) used by the controlled foreign cor-
poration or a related person as a component in 
other property which is so sold, leased, rented, 
or licensed. 
‘‘(4) RELATED
PERSON
DEFINED.—For pur-
poses of this subsection, the term ‘related person’ 
has the meaning given such term under section 
954(b). 
‘‘(e) ECONOMICALLY SIGNIFICANT ACTIVITIES.—For 
purposes of this section, the term ‘economically significant 
activities’ means, with respect to any item of income, ac-
tivities— 
‘‘(1) performed outside the United States, 
‘‘(2) performed by officers or employees of the 
controlled foreign corporation which are part of the 
management and operational functions of the cor-
poration, and 
‘‘(3) which make a substantial contribution to 
the production of such item of income. 
‘‘(f) QUALIFIED TRADE
OR BUSINESS.—For pur-
poses of this section— 
‘‘(1) IN GENERAL.—The term ‘qualified trade 
or business’ means any trade or business which con-
sists of— 
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‘‘(A) manufacturing, producing, growing, 
or extracting property outside of the United 
States, or 
‘‘(B) providing services outside of the 
United States. 
‘‘(2) SPECIAL
RULE
FOR
SUBSTANTIAL
CON-
TRIBUTIONS TO MANUFACTURING AND SERVICES.— 
If a trade or business consists of making a substan-
tial contribution through the activities of the officers 
and employees of the controlled foreign corporation 
to a qualified trade or business which is described in 
subparagraph (A) or (B) of paragraph (1) of an-
other person, then the trade or business shall be 
treated as a qualified trade or business described in 
subparagraph (A) or (B) of paragraph (1), which-
ever is applicable. 
‘‘SEC. 954. DEFINITION OF PASSIVE INCOME. 
‘‘(a) PASSIVE INCOME.— 
‘‘(1) IN GENERAL.—For purposes of this part, 
the term ‘passive income’ means the portion of the 
gross income which consists of: 
‘‘(A) DIVIDENDS, ETC.—Dividends, inter-
est, royalties, rents, and annuities. 
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‘‘(B) 
CERTAIN
PROPERTY
TRANS-
ACTIONS.—The excess of gains over losses from 
the sale or exchange of property— 
‘‘(i) which gives rise to income de-
scribed in subparagraph (A) (after applica-
tion of paragraph (2)(A)) other than prop-
erty which gives rise to income not treated 
as passive income by reason of subsection 
(c) or (d) for the taxable year, 
‘‘(ii) which is an interest in a trust, 
partnership, or REMIC, or 
‘‘(iii) which does not give rise to any 
income. 
Gains and losses from the sale or exchange of 
any property which, in the hands of the con-
trolled foreign corporation, is property de-
scribed in section 1221(a)(1) shall not be taken 
into account under this subparagraph. 
‘‘(C) COMMODITIES
TRANSACTIONS.—The 
excess of gains over losses from transactions 
(including futures, forward, and similar trans-
actions) in any commodities. This subparagraph 
shall not apply to gains or losses which— 
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‘‘(i) arise out of commodity hedging 
transactions (as defined in paragraph 
(5)(A)), 
‘‘(ii) are active business gains or 
losses from the sale of commodities, but 
only if substantially all of the controlled 
foreign 
corporation’s 
commodities 
are 
property described in paragraph (1), (2), 
or (8) of section 1221(a), or 
‘‘(iii) are foreign currency gains or 
losses (as defined in section 988(b)) attrib-
utable to any section 988 transactions. 
‘‘(D) FOREIGN CURRENCY GAINS.—The ex-
cess of foreign currency gains over foreign cur-
rency losses (as defined in section 988(b)) at-
tributable to any section 988 transactions. This 
subparagraph shall not apply in the case of any 
transaction, other than a borrowing, directly re-
lated to the business needs of the controlled for-
eign corporation. 
‘‘(E) INCOME
EQUIVALENT
TO
INTER-
EST.—Any income equivalent to interest, in-
cluding income from commitment fees (or simi-
lar amounts) for loans actually made. 
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‘‘(F) INCOME FROM NOTIONAL PRINCIPAL 
CONTRACTS.— 
‘‘(i) IN GENERAL.—Net income from 
notional principal contracts. 
‘‘(ii) COORDINATION
WITH
OTHER 
CATEGORIES
OF
PASSIVE
INCOME.—Any 
item of income, gain, deduction, or loss 
from a notional principal contract entered 
into for purposes of hedging any item de-
scribed in any preceding subparagraph 
shall not be taken into account for pur-
poses of this subparagraph but shall be 
taken into account under such other sub-
paragraph. 
‘‘(G) PAYMENTS IN LIEU OF DIVIDENDS.— 
Payments in lieu of dividends which are made 
pursuant to an agreement to which section 
1058 applies. 
‘‘(H) PERSONAL SERVICE CONTRACTS.— 
‘‘(i) Amounts received under a con-
tract under which the corporation is to fur-
nish personal services if— 
‘‘(I) some person other than the 
corporation has the right to designate 
(by name or by description) the indi-
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vidual who is to perform the services, 
or 
‘‘(II) the individual who is to per-
form the services is designated (by 
name or by description) in the con-
tract, and 
‘‘(ii) amounts received from the sale 
or other disposition of such a contract. 
This subparagraph shall apply with respect to 
amounts received for services under a particular 
contract only if at some time during the taxable 
year 25 percent or more in value of the out-
standing stock of the corporation is owned, di-
rectly or indirectly, by or for the individual who 
has performed, is to perform, or may be des-
ignated (by name or by description) as the one 
to perform, such services. 
‘‘(2) EXCEPTION FOR CERTAIN AMOUNTS.— 
‘‘(A) RENTS AND ROYALTIES DERIVED IN 
ACTIVE
BUSINESS.—Passive income shall not 
include rents and royalties which are derived in 
the active conduct of a trade or business and 
which are received from a person other than a 
related person. For purposes of the preceding 
sentence, rents derived from leasing an aircraft 
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or vessel in foreign commerce shall not fail to 
be treated as derived in the active conduct of a 
trade or business if, as determined under regu-
lations prescribed by the Secretary, the active 
leasing expenses are not less than 10 percent of 
the profit on the lease. 
‘‘(B) EXCEPTION FOR DEALERS.—Except 
as provided by regulations, in the case of a reg-
ular dealer in property which is property de-
scribed in paragraph (1)(B), forward contracts, 
option contracts, or similar financial instru-
ments (including notional principal contracts 
and all instruments referenced to commodities), 
there shall not be taken into account in com-
puting passive income any item of income, gain, 
deduction, or loss from any transaction (includ-
ing hedging transactions and transactions in-
volving physical settlement) entered into in the 
ordinary course of such dealer’s trade or busi-
ness as such a dealer. 
‘‘(3) LOOK-THRU RULE FOR CERTAIN PARTNER-
SHIP SALES.— 
‘‘(A) IN
GENERAL.—In the case of any 
sale or exchange by a controlled foreign cor-
poration of an interest in a partnership with re-
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spect to which such corporation is a 25-percent 
owner, gain or loss on such sale shall be treated 
as being described in paragraph (1)(B)(ii) in 
the amount which bears the same ratio to the 
amount of such gain or loss as the controlled 
foreign corporation’s distributable share of pas-
sive income from the partnership over the appli-
cable 
period 
(as 
defined 
in 
section 
953(b)(4)(A)(ii)) bears to the controlled foreign 
corporation’s distributable share of gross in-
come from the partnership over such period. 
The Secretary shall prescribe such regulations 
as may be appropriate to prevent abuse of the 
purposes of this paragraph, including regula-
tions providing for the coordination of this 
paragraph with the provisions of subchapter K. 
‘‘(B) 25-PERCENT OWNER.—For purposes 
of this paragraph, the term ‘25-percent owner’ 
has the meaning given such term under section 
953(b)(4)(B). 
‘‘(4) DEFINITION AND SPECIAL RULES RELAT-
ING TO COMMODITY TRANSACTIONS.— 
‘‘(A) 
COMMODITY
HEDGING
TRANS-
ACTIONS.—For 
purposes 
of 
paragraph 
(1)(C)(i), the term ‘commodity hedging trans-
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action’ means any transaction with respect to a 
commodity if such transaction— 
‘‘(i) is a hedging transaction as de-
fined in section 1221(b)(2), determined— 
‘‘(I) without regard to subpara-
graph (A)(ii) thereof, 
‘‘(II) by applying subparagraph 
(A)(i) thereof by substituting ‘ordi-
nary property or property described in 
section 1231(b)’ for ‘ordinary prop-
erty’, and 
‘‘(III) by substituting ‘controlled 
foreign corporation’ for ‘taxpayer’ 
each place it appears, and 
‘‘(ii) is clearly identified as such in ac-
cordance with section 1221(a)(7). 
‘‘(B) TREATMENT OF DEALER ACTIVITIES 
UNDER PARAGRAPH (1)(C).—Commodities with 
respect to which gains and losses are not taken 
into account under paragraph (2)(B) in com-
puting a controlled foreign corporation’s passive 
income shall not be taken into account in apply-
ing the substantially all test under paragraph 
(1)(C)(ii) to such corporation. 
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‘‘(C) REGULATIONS.—The Secretary shall 
prescribe such regulations as are appropriate to 
carry out the purposes of paragraph (1)(C) in 
the case of transactions involving related per-
sons. 
‘‘(b) RELATED PERSON DEFINED.—For purposes of 
this section, a person is a related person with respect to 
a controlled foreign corporation, if— 
‘‘(1) such person is an individual, corporation, 
partnership, trust, or estate which controls, or is 
controlled by, the controlled foreign corporation, or 
‘‘(2) such person is a corporation, partnership, 
trust, or estate which is controlled by the same per-
son or persons which control the controlled foreign 
corporation. 
For purposes of the preceding sentence, control means, 
with respect to a corporation, the ownership, directly or 
indirectly, of stock possessing more than 50 percent of the 
total voting power of all classes of stock entitled to vote 
or of the total value of stock of such corporation. In the 
case of a partnership, trust, or estate, control means the 
ownership, directly or indirectly, of more than 50 percent 
(by value) of the beneficial interests in such partnership, 
trust, or estate. For purposes of this subsection, rules 
similar to the rules of section 958 shall apply. 
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‘‘(c) SPECIAL RULE FOR INCOME DERIVED IN THE 
ACTIVE CONDUCT OF BANKING, FINANCING, OR SIMILAR 
BUSINESSES.— 
‘‘(1) IN GENERAL.—For purposes of subsection 
(a)(1), passive income shall not include qualified 
banking or financing income of an eligible controlled 
foreign corporation. 
‘‘(2) ELIGIBLE
CONTROLLED
FOREIGN
COR-
PORATION.—For purposes of this subsection, the 
term ‘eligible controlled foreign corporation’ means 
any controlled foreign corporation if— 
‘‘(A) more than 80 percent of the gross in-
come of the controlled foreign corporation is de-
rived directly from the active and regular con-
duct of a lending, finance, or financial services 
business from transactions with customers 
which are located outside the United States and 
are not related persons, or 
‘‘(B) it is a regulated financial institution. 
‘‘(3) QUALIFIED BANKING OR FINANCING IN-
COME.—For purposes of this subsection— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
banking or financing income’ means income of 
an 
eligible 
controlled 
foreign 
corporation 
which— 
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‘‘(i) is derived in the active conduct of 
a banking, financing, or similar business 
by such eligible controlled foreign corpora-
tion, 
‘‘(ii) is derived from one or more 
transactions— 
‘‘(I) with customers located in a 
country other than the United States, 
and 
‘‘(II) substantially all of the ac-
tivities in connection with which are 
conducted directly by the corporation 
in its home country, and 
‘‘(iii) is treated as earned by such cor-
poration in its home country for purposes 
of such country’s tax laws. 
‘‘(B) INCOME DERIVED FROM CUSTOMERS 
TO INCLUDE CERTAIN INVESTMENT INCOME.— 
For purposes of subparagraph (A), in the case 
of a regulated financial institution, income de-
rived from customers includes income derived 
from— 
‘‘(i) reserves that are required to be 
held pursuant to banking regulations, 
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‘‘(ii) deposits placed with the central 
bank (or equivalent thereof) in the cor-
poration’s home country, and 
‘‘(iii) investments in debt instruments 
issued by the home country. 
‘‘(C) SUBSTANTIAL
ACTIVITY
REQUIRE-
MENT FOR CROSS BORDER INCOME.—The term 
‘qualified banking or financing income’ shall 
not include income derived from 1 or more 
transactions with customers located in a coun-
try other than the home country of the eligible 
controlled foreign corporation unless such cor-
poration conducts substantial activity with re-
spect to a banking, financing, or similar busi-
ness in its home country. 
‘‘(D) DIRECT CONDUCT OF ACTIVITIES.— 
For purposes of subparagraph (A)(ii)(II), an 
activity shall be treated as conducted directly by 
an eligible controlled foreign corporation in its 
home country if the activity is performed by 
employees of a related person and— 
‘‘(i) the related person is a resident 
subject to tax under the laws of the home 
country of the corporation to which sub-
paragraph (A)(ii)(II) is being applied, 
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‘‘(ii) the activity is performed in such 
home country, and 
‘‘(iii) the related person is com-
pensated on an arm’s-length basis for the 
performance of the activity by its employ-
ees and such compensation is treated as 
earned by such person in such home coun-
try for purposes of the home country’s tax 
laws. 
‘‘(4) LENDING, FINANCE, OR FINANCIAL SERV-
ICES BUSINESS.—For purposes of this subsection, 
except as provided in regulations, the term ‘lending, 
finance, or financial services business’ means the 
business of— 
‘‘(A) making loans, 
‘‘(B) purchasing, selling, discounting, or 
negotiating on a regular basis accounts receiv-
able, notes, or installment obligations, 
‘‘(C) engaging in leasing (including enter-
ing into leases and purchasing, servicing, and 
disposing of leases and leased assets), 
‘‘(D) issuing letters of credit or providing 
guarantees, 
‘‘(E) providing charge and credit card 
services, 
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‘‘(F) performing trust services, including 
as a fiduciary, agent, or custodian, other than 
trust services provided by a broker or dealer in 
stock, securities, or other financial instruments, 
‘‘(G) arranging interest rate or currency 
futures, forwards, options, or notional principal 
contracts for, or entering into such transactions 
with, customers, 
‘‘(H) providing traveler’s check and money 
order services for customers, 
‘‘(I) providing correspondent bank services 
for customers, 
‘‘(J) engaging in hedging activities directly 
related to an activity described in any other 
subparagraph of this paragraph, 
‘‘(K) underwriting issues of stock, debt, or 
other securities for customers, 
‘‘(L) providing financial, investment advi-
sory, or investment management services, 
‘‘(M) purchasing or selling stock, debt in-
struments, interest rate or currency futures, or 
other securities or derivative financial products 
(including notional principal contracts) from or 
to customers and holding such stock, debt in-
struments, futures, or other securities or prod-
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ucts as inventory for sale to customers, unless 
such stock, debt instruments, futures, or other 
securities or products are not held in a dealer 
capacity, 
‘‘(N) effecting transactions in securities for 
customers as a securities broker, or 
‘‘(O) rendering services or making facilities 
available in connection with activities described 
in subparagraphs (A) through (N) carried on 
by— 
‘‘(i) the corporation rendering services 
or making facilities available, or 
‘‘(ii) another corporation which is a 
member of the same affiliated group (as 
defined in section 1504, but determined 
without regard to section 1504(b)(3)). 
‘‘(5) OTHER
DEFINITIONS.—For purposes of 
this subsection— 
‘‘(A) CUSTOMER.—The term ‘customer’ 
means, with respect to any controlled foreign 
corporation, any person which has a customer 
relationship with such corporation and which is 
acting in its capacity as such. 
‘‘(B) HOME
COUNTRY.—Except as pro-
vided in regulations, the term ‘home country’ 
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means, with respect to any entity, the country 
with respect to which the entity is a resident for 
purposes of the country’s income tax laws. 
‘‘(C) LOCATED.—Except as provided in 
regulations, for purposes of paragraph (3)(A)— 
‘‘(i) if a customer is a natural person, 
the customer is considered to be located in 
the country in which the customer is phys-
ically located when entering into the trans-
action, and 
‘‘(ii) if a customer is not a natural 
person, the customer is considered to be lo-
cated in the country from which the cus-
tomer enters into the transaction. 
‘‘(D) QUALIFIED
BUSINESS
UNIT.—The 
term ‘qualified business unit’ has the meaning 
given such term by section 989(a). 
‘‘(E) REGULATED
FINANCIAL
INSTITU-
TION.—Except as provided in regulations, the 
term ‘regulated financial institution’ means a 
controlled foreign corporation which— 
‘‘(i) is engaged in the active conduct 
of a banking business and is an institution 
licensed to do business as a bank in the 
United States (or is any other corporation 
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not so licensed which is specified by the 
Secretary in regulations), or 
‘‘(ii) satisfies each of the following 
conditions: 
‘‘(I) The corporation is directly 
or indirectly wholly owned by a do-
mestic corporation that is a bank (as 
defined in section 581) or a depository 
institution holding company (as de-
fined in section 3(w)(1) of the Federal 
Deposit Insurance Act (12 U.S.C. 
1813(w)(1))). 
‘‘(II) The corporation is subject 
to bank regulatory supervision in a ju-
risdiction the central bank of which 
(or equivalent thereof) is a member of 
the Basel Committee on Banking Su-
pervision. 
‘‘(III) The corporation is licensed 
and regulated in such jurisdiction as a 
bank. 
‘‘(6) SEPARATE
APPLICATION
TO
QUALIFIED 
BUSINESS UNITS.— 
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‘‘(A) IN GENERAL.—If a controlled foreign 
corporation has 1 or more qualified business 
units— 
‘‘(i) this subsection shall be applied 
separately to each such unit in the same 
manner as if it were a controlled foreign 
corporation, and 
‘‘(ii) if any such unit is treated as an 
eligible controlled foreign corporation after 
application of clause (i), the qualified 
banking or financing income of such unit 
shall be treated as qualified banking or fi-
nancing income of the controlled foreign 
corporation of which such unit is a part. 
‘‘(B) 
DETERMINATIONS
MADE
SEPA-
RATELY.—For purposes of the separate applica-
tion of this subsection to a controlled foreign 
corporation and its qualified business units— 
‘‘(i) in the case of the controlled for-
eign corporation, only activities and items 
of income, deduction, gain, or loss and ac-
tivities of such corporation not properly al-
locable or attributable to any qualified 
business unit of such corporation shall be 
taken into account, and 
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‘‘(ii) in the case of a qualified busi-
ness unit, only activities and items of in-
come, deduction, gain, or loss and activities 
properly allocable or attributable to such 
unit shall be taken into account. 
‘‘(C) HOME
COUNTRY.—For purposes of 
this subsection, except as provided in regula-
tions, notwithstanding paragraph (5)(B), the 
home country with respect to any qualified 
business unit treated as a controlled foreign 
corporation under subparagraph (A) shall be 
the country in which such unit maintains its 
principal office. 
‘‘(7) ANTI-ABUSE RULES.—For purposes of ap-
plying this subsection— 
‘‘(A) there shall be disregarded any item of 
income, gain, loss, or deduction with respect to 
any transaction or series of transactions one of 
the principal purposes of which is qualifying in-
come or gain for the exclusion under this sec-
tion, including any transaction or series of 
transactions a principal purpose of which is the 
acceleration or deferral of any item in order to 
claim the benefits of such exclusion through the 
application of this subsection, 
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‘‘(B) there shall be disregarded any item of 
income, gain, loss, or deduction of an entity 
which is not engaged in regular and continuous 
transactions with customers which are not re-
lated persons, 
‘‘(C) there shall be disregarded any item of 
income, gain, loss, or deduction with respect to 
any transaction or series of transactions uti-
lizing, or doing business with— 
‘‘(i) one or more entities in order to 
satisfy any home country requirement 
under this subsection, or 
‘‘(ii) a special purpose entity or ar-
rangement, including a securitization, fi-
nancing, or similar entity or arrangement, 
if one of the principal purposes of such trans-
action or series of transactions is qualifying in-
come or gain for the exclusion under this sub-
section, and 
‘‘(D) a related person, an officer, a direc-
tor, or an employee with respect to any con-
trolled foreign corporation which would other-
wise be treated as a customer of such corpora-
tion with respect to any transaction shall not be 
so treated if a principal purpose of such trans-
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action is to satisfy any requirement of this sub-
section. 
‘‘(8) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary or ap-
propriate to carry out the purposes of this sub-
section and subsection (a)(1)(B)(i). 
‘‘(d) SPECIAL RULE FOR INCOME DERIVED IN THE 
ACTIVE CONDUCT OF INSURANCE BUSINESS.— 
‘‘(1) IN GENERAL.—For purposes of subsection 
(a)(1), passive income shall not include qualified in-
surance income of a qualifying insurance company. 
‘‘(2) QUALIFIED
INSURANCE
INCOME.—For 
purposes of this subsection, the term ‘qualified in-
surance income’ means income of a qualifying insur-
ance company which is— 
‘‘(A) received from a person other than a 
related person and derived from the invest-
ments made by a qualifying insurance company 
or a qualifying insurance company branch of its 
reserves allocable to exempt contracts or of 80 
percent of its unearned premiums from exempt 
contracts (as both are determined in the man-
ner prescribed under paragraph (4)), or 
‘‘(B) received from a person other than a 
related person and derived from investments 
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made by a qualifying insurance company or a 
qualifying insurance company branch of an 
amount of its assets allocable to exempt con-
tracts equal to— 
‘‘(i) in the case of property, casualty, 
or health insurance contracts, one-third of 
its premiums earned on such insurance 
contracts during the taxable year (as de-
fined in section 832(b)(4)), and 
‘‘(ii) in the case of life insurance or 
annuity contracts, 10 percent of the re-
serves described in subparagraph (A) for 
such contracts. 
‘‘(3) PRINCIPLES
FOR
DETERMINING
QUALI-
FIED INSURANCE INCOME.—Except as provided by 
the Secretary, for purposes of subparagraphs (A) 
and (B) of paragraph (2)— 
‘‘(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 
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‘‘(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 (2)(A)— 
‘‘(A) PROPERTY
AND
CASUALTY
CON-
TRACTS.—The unearned premiums and reserves 
of a qualifying insurance company or a quali-
fying insurance company branch with respect to 
property, casualty, or health insurance con-
tracts shall be determined using the same meth-
ods and interest rates which would be used if 
such company or branch were subject to tax 
under subchapter L, except that— 
‘‘(i) the interest rate determined for 
the functional currency of the company or 
branch, and which, except as provided by 
the Secretary, is calculated in the same 
manner as the Federal mid-term rate 
under section 1274(d), shall be substituted 
for the applicable Federal interest rate, 
and 
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‘‘(ii) such company or branch shall 
use the appropriate foreign loss payment 
pattern. 
‘‘(B) LIFE INSURANCE AND ANNUITY CON-
TRACTS.— 
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), the amount of the re-
serve of a qualifying insurance company or 
qualifying insurance company branch for 
any life insurance or annuity contract shall 
be equal to the greater of— 
‘‘(I) the net surrender value of 
such contract (as defined in section 
807(e)(1)(A)), or 
‘‘(II) 
the 
reserve 
determined 
under paragraph (5). 
‘‘(ii) RULING
REQUEST, ETC.—The 
amount of the reserve under clause (i) 
shall be the foreign statement reserve for 
the contract (less any catastrophe, defi-
ciency, equalization, or similar reserves), if, 
pursuant to a ruling request submitted by 
the taxpayer or as provided in published 
guidance, the Secretary determines that 
the factors taken into account in deter-
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mining the foreign statement reserve pro-
vide an appropriate means of measuring 
income. 
‘‘(C) LIMITATION
ON
RESERVES.—In no 
event shall the reserve determined under this 
paragraph for any contract as of any time ex-
ceed the amount which would be taken into ac-
count with respect to such contract as of such 
time in determining foreign statement reserves 
(less any catastrophe, deficiency, equalization, 
or similar reserves). 
‘‘(5) AMOUNT OF RESERVE.—The amount of 
the reserve determined under this paragraph with 
respect to any contract shall be determined in the 
same manner as it would be determined if the quali-
fying insurance company or qualifying insurance 
company branch were subject to tax under sub-
chapter L, except that in applying such sub-
chapter— 
‘‘(A) the interest rate determined for the 
functional currency of the company or branch, 
and which, except as provided by the Secretary, 
is calculated in the same manner as the Federal 
mid-term rate under section 1274(d), shall be 
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substituted for the applicable Federal interest 
rate, 
‘‘(B) the highest assumed interest rate 
permitted to be used in determining foreign 
statement reserves shall be substituted for the 
prevailing State assumed interest rate, and 
‘‘(C) tables for mortality and morbidity 
which reasonably reflect the current mortality 
and morbidity risks in the company’s or 
branch’s home country shall be substituted for 
the mortality and morbidity tables otherwise 
used for such subchapter. 
The Secretary may provide that the interest rate 
and mortality and morbidity tables of a qualifying 
insurance company may be used for 1 or more of its 
qualifying insurance company branches when appro-
priate. 
‘‘(6) DEFINITIONS.—For purposes of this sec-
tion, any term used in this subsection which is also 
used in section 955(c) shall have the meaning given 
such term under section 955(c). 
‘‘SEC. 955. DEFINITION OF INSURANCE INCOME. 
‘‘(a) INSURANCE INCOME.— 
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‘‘(1) IN
GENERAL.—For purposes of section 
953(c), the term ‘insurance income’ means the gross 
income which— 
‘‘(A) is attributable to the issuing (or rein-
suring) of an insurance or annuity contract, 
and 
‘‘(B) is of a kind that would be subject to 
tax under subchapter L of this chapter if such 
income were the income of a domestic insurance 
company. 
‘‘(2) EXCEPTION.—Such term shall not include 
any exempt insurance income (as defined in sub-
section (c)). 
‘‘(b) SPECIAL
RULES
FOR
DETERMINATION
OF 
GROSS INCOME
AND ALLOCABLE DEDUCTIONS.—For 
purposes of determining gross income under subsection (a) 
and deductions allocable to insurance income under sec-
tion 952(e), the following rules shall apply: 
‘‘(1) CERTAIN DEDUCTIONS NOT ALLOWED.— 
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). 
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‘‘(C) Section 832(c)(5) (relating to certain 
capital losses). 
‘‘(2) SPECIAL RULES FOR AMOUNTS INCLUDED 
IN INCOME.—The items referred to in— 
‘‘(A) section 803(a)(1) (relating to gross 
amount of premiums and other considerations), 
‘‘(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) TREATMENT OF RESERVES.—Reserves for 
any insurance or annuity contract shall be deter-
mined in the same manner as under section 954(d). 
‘‘(c) EXEMPT INSURANCE INCOME.—For purposes of 
this section— 
‘‘(1) EXEMPT INSURANCE INCOME DEFINED.— 
‘‘(A) IN GENERAL.—The term ‘exempt in-
surance income’ means income derived by a 
qualifying insurance company which— 
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‘‘(i) is attributable to the issuing (or 
reinsuring) of an exempt contract by such 
company or a qualifying insurance com-
pany branch of such company, and 
‘‘(ii) is treated as earned by such com-
pany or branch in its home country for 
purposes of such country’s tax laws. 
‘‘(B) EXCEPTION FOR CERTAIN ARRANGE-
MENTS.—Such term shall not include income 
attributable to the issuing (or reinsuring) of an 
exempt contract as the result of any arrange-
ment whereby another corporation receives a 
substantially equal amount of premiums or 
other consideration in respect of issuing (or re-
insuring) a contract which is not an exempt 
contract. 
‘‘(C) 
DETERMINATIONS
MADE
SEPA-
RATELY.—For purposes of this subsection and 
section 954(d), the exempt insurance income 
and exempt contracts of a qualifying insurance 
company or any qualifying insurance company 
branch of such company shall be determined 
separately for such company and each such 
branch by taking into account— 
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‘‘(i) in the case of the qualifying in-
surance company, only items of income, de-
duction, gain, or loss, and activities of such 
company not properly allocable or attrib-
utable to any qualifying insurance com-
pany branch of such company, and 
‘‘(ii) in the case of a qualifying insur-
ance company branch, only items of in-
come, deduction, gain, or loss and activities 
properly allocable or attributable to such 
branch. 
‘‘(2) EXEMPT CONTRACT.— 
‘‘(A) IN
GENERAL.—The term ‘exempt 
contract’ means an insurance or annuity con-
tract issued or reinsured by a qualifying insur-
ance company or qualifying insurance company 
branch in connection with property in, liability 
arising out of activity in, or the lives or health 
of residents of, a country other than the United 
States. 
‘‘(B) MINIMUM NON-RELATED INCOME RE-
QUIRED.—No contract of a qualifying insurance 
company or of a qualifying insurance company 
branch shall be treated as an exempt contract 
unless such company or branch derives more 
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than 30 percent of its net written premiums 
from exempt contracts (determined without re-
gard to this subparagraph) with respect to 
which no policyholder, insured, annuitant, or 
beneficiary is a related person (as defined in 
section 954(b)). 
‘‘(C) SUBSTANTIAL
ACTIVITY
REQUIRE-
MENTS.—A contract issued by a qualifying in-
surance company or qualifying insurance com-
pany branch shall not be treated as an exempt 
contract unless such company or branch, as the 
case may be— 
‘‘(i) conducts substantial activity with 
respect to an insurance business in its 
home country, and 
‘‘(ii) performs in its home country 
substantially all of the activities necessary 
to give rise to the income generated by 
such contract. 
‘‘(3) QUALIFYING INSURANCE COMPANY.— 
‘‘(A) IN GENERAL.—The term ‘qualifying 
insurance company’ means any controlled for-
eign corporation— 
‘‘(i) which— 
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‘‘(I) is subject to regulation as an 
insurance (or reinsurance) company 
by its home country, and is licensed, 
authorized, or regulated by the appli-
cable insurance regulatory body for its 
home country to sell insurance, rein-
surance, or annuity contracts to per-
sons other than related persons (with-
in the meaning of section 954(b)) in 
such home country, and 
‘‘(II) is engaged in the insurance 
business and would be subject to tax 
under subchapter L if it were a do-
mestic corporation, 
‘‘(ii) which derives more than 50 per-
cent of its aggregate net written premiums 
from the issuance or reinsurance by such 
controlled foreign corporation and each of 
its qualifying insurance company branches 
of contracts with respect to which no pol-
icyholder, insured, annuitant, or bene-
ficiary is a related person (as defined in 
section 954(b)), except that in the case of 
a branch, such premiums shall only be 
taken into account to the extent such pre-
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miums are treated as earned by such 
branch in its home country for purposes of 
such country’s tax laws, 
‘‘(iii) more than 50 percent of the 
gross receipts of which for the taxable 
year— 
‘‘(I) consist of premiums for in-
surance or reinsurance in connection 
with property, liability, or the lives or 
health of individuals, and 
‘‘(II) are treated as earned by 
such controlled foreign corporation in 
its home country for purposes of such 
country’s tax laws, and 
‘‘(iv) the applicable insurance liabil-
ities of which constitute more than 35 per-
cent of its total assets as reported on the 
company’s applicable financial statement 
for the year with which or in which the 
taxable year ends. 
‘‘(B) APPLICABLE
INSURANCE
LIABIL-
ITIES.—For purposes of subparagraph (A)(iv), 
the 
term 
‘applicable 
insurance 
liabilities’ 
means— 
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‘‘(i) loss and loss adjustment ex-
penses, 
‘‘(ii) unearned premiums, and 
‘‘(iii) reserves (other than any catas-
trophe, deficiency, equalization, or similar 
reserves) for life and health insurance risks 
and life and health insurance claims with 
respect to contracts providing coverage for 
mortality or morbidity risks (not to exceed 
the amount of such reserve that is required 
to be reported to the home country insur-
ance regulatory body). 
‘‘(C) 
APPLICABLE
FINANCIAL
STATE-
MENT.—For purposes of subparagraph (A)(iv), 
the term ‘applicable financial statement’ means 
a statement for financial reporting purposes 
which— 
‘‘(i) is made on the basis of generally 
accepted accounting principles, 
‘‘(ii) is made on the basis of inter-
national financial reporting standards, but 
only if there is no statement that meets 
the requirement of clause (i), or 
‘‘(iii) except as otherwise provided by 
the Secretary in regulations, is the annual 
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statement which is required to be filed 
with the home country insurance regu-
latory body, but only if there is no state-
ment which meets the requirements of 
clause (i) or (ii). 
‘‘(D) REGULATIONS.—The Secretary shall 
prescribe such regulations as necessary to carry 
out the purposes of this paragraph. 
‘‘(4) 
QUALIFYING
INSURANCE
COMPANY 
BRANCH.—The term ‘qualifying insurance company 
branch’ means a qualified business unit (within the 
meaning of section 989(a)) of a controlled foreign 
corporation if— 
‘‘(A) such unit is licensed, authorized, or 
regulated by the applicable insurance regulatory 
body for its home country to sell insurance, re-
insurance, or annuity contracts to persons other 
than related persons (within the meaning of 
section 954(b)) in such home country, and 
‘‘(B) such controlled foreign corporation is 
a qualifying insurance company, determined 
under paragraph (3) as if such unit were a 
qualifying insurance company branch. 
‘‘(5) LIFE
INSURANCE
OR
ANNUITY
CON-
TRACT.—For purposes of this section and section 
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954, the determination of whether a contract issued 
by a controlled foreign corporation or a qualifying 
insurance company branch is a life insurance con-
tract or an annuity contract shall be made without 
regard to sections 72(s), 101(f), 817(h), and 7702 
if— 
‘‘(A) such contract is regulated as a life in-
surance or annuity contract by the corpora-
tion’s or branch’s home country, and 
‘‘(B) no policyholder, insured, annuitant, 
or beneficiary with respect to the contract is a 
United States person. 
‘‘(6) HOME
COUNTRY.—For purposes of this 
subsection, except as provided in regulations— 
‘‘(A) CONTROLLED
FOREIGN
CORPORA-
TION.—The term ‘home country’ means, with 
respect to a controlled foreign corporation, the 
country in which such corporation is created or 
organized. 
‘‘(B) QUALIFYING
INSURANCE
COMPANY 
BRANCH.—The term ‘home country’ means, 
with respect to a qualifying insurance company 
branch, the country in which the principal office 
of such branch is located and in which such 
branch is licensed, authorized, or regulated by 
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the applicable insurance regulatory body to sell 
insurance, reinsurance, or annuity contracts to 
persons other than related persons (as defined 
in section 954(b)) in such country. 
‘‘(7) ANTI-ABUSE RULES.—For purposes of ap-
plying this subsection and section 954(d)— 
‘‘(A) the rules of section 954(c)(7) (other 
than subparagraph (B) thereof) shall apply, 
‘‘(B) there shall be disregarded any item of 
income, gain, loss, or deduction of, or derived 
from, an entity which is not engaged in regular 
and continuous transactions with persons which 
are not related persons, 
‘‘(C) there shall be disregarded any change 
in the method of computing reserves a principal 
purpose of which is the acceleration or deferral 
of any item in order to claim the benefits of 
this subsection or section 954(d), 
‘‘(D) a contract of insurance or reinsur-
ance shall not be treated as an exempt contract 
(and premiums from such contract shall not be 
taken into account for purposes of paragraph 
(2)(B) or (3)) if— 
‘‘(i) any policyholder, insured, annu-
itant, or beneficiary is a resident of the 
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United States and such contract was mar-
keted to such resident and was written to 
cover a risk outside the United States, or 
‘‘(ii) the contract covers risks located 
within and without the United States and 
the qualifying insurance company or quali-
fying insurance company branch does not 
maintain such contemporaneous records, 
and file such reports, with respect to such 
contract as the Secretary may require, 
‘‘(E) the Secretary may prescribe rules for 
the allocation of contracts (and income from 
contracts) among 2 or more qualifying insur-
ance company branches of a qualifying insur-
ance company in order to clearly reflect the in-
come of such branches, and 
‘‘(F) premiums from a contract shall not 
be taken into account for purposes of para-
graph (2)(B) or (3) if such contract reinsures 
a contract issued or reinsured by a related per-
son (as defined in section 954(b)). 
‘‘(8) COORDINATION WITH SECTION 956(a).— 
‘‘(A) IN GENERAL.—In determining insur-
ance income for purposes of section 956(a), ex-
empt insurance income shall not include income 
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derived from exempt contracts which cover risks 
other than applicable home country risks. 
‘‘(B) 
APPLICABLE
HOME
COUNTRY 
RISKS.—For purposes of subparagraph (A), the 
term ‘applicable home country risks’ means 
risks in connection with property in, liability 
arising out of activity in, or the lives or health 
of residents of, the home country of the quali-
fying insurance company or qualifying insur-
ance company branch, as the case may be, 
issuing or reinsuring the contract covering the 
risks. 
‘‘(9) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary or ap-
propriate to carry out the purposes of this sub-
section and section 954(d). 
‘‘(10) CROSS REFERENCE.—For treatment of 
certain investment income derived by qualifying in-
surance companies, see section 954(d). 
‘‘SEC. 956. SPECIAL RULE FOR CERTAIN CAPTIVE INSUR-
ANCE COMPANIES. 
‘‘(a) TREATMENT AS CONTROLLED FOREIGN COR-
PORATIONS AND UNITED STATES SHAREHOLDERS.— 
‘‘(1) IN GENERAL.—For purposes only of tak-
ing into account related person insurance income— 
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‘‘(A) the term ‘United States shareholder’ 
means, with respect to any foreign corporation, 
a United States person (as defined in section 
957(c)) who owns (within the meaning of sec-
tion 958(a)) any stock of the foreign corpora-
tion, 
‘‘(B) the term ‘controlled foreign corpora-
tion’ has the meaning given to such term by 
section 957(a) determined by substituting ‘25 
percent or more’ for ‘more than 50 percent’, 
and 
‘‘(C) the pro rata share referred to in sec-
tion 951(a)(1) shall be determined under para-
graph (5) of this subsection. 
‘‘(2) RELATED PERSON INSURANCE INCOME.— 
For purposes of this subsection, the term ‘related 
person insurance income’ means any insurance in-
come (within the meaning of section 955(a)) attrib-
utable to a policy of insurance or reinsurance with 
respect to which the person (directly or indirectly) 
insured is a United States shareholder in the foreign 
corporation or a related person to such a share-
holder. 
‘‘(3) EXCEPTIONS.— 
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‘‘(A) CORPORATIONS
NOT
HELD
BY
IN-
SURED.—Paragraph (1) shall not apply to any 
foreign corporation if at all times during the 
taxable year of such foreign corporation— 
‘‘(i) less than 20 percent of the total 
combined voting power of all classes of 
stock of such corporation entitled to vote, 
and 
‘‘(ii) less than 20 percent of the total 
value of such corporation, 
is owned (directly or indirectly under the prin-
ciples of section 883(c)(4)) by persons who are 
(directly or indirectly) insured under any policy 
of insurance or reinsurance issued by such cor-
poration or who are related persons to any such 
person. 
‘‘(B) DE MINIMIS EXCEPTION.—Paragraph 
(1) shall not apply to any foreign corporation 
for a taxable year of such corporation if the re-
lated person insurance income (determined on a 
gross basis) of such corporation for such tax-
able year is less than 20 percent of its insur-
ance income (as so determined) for such taxable 
year. 
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‘‘(C) ELECTION TO TREAT INCOME AS EF-
FECTIVELY CONNECTED.—Paragraph (1) shall 
not apply to any foreign corporation for any 
taxable year if— 
‘‘(i) such corporation elects (at such 
time and in such manner as the Secretary 
may prescribe)— 
‘‘(I) to treat its related person in-
surance income for such taxable year 
as income effectively connected with 
the conduct of a trade or business in 
the United States, and 
‘‘(II) to waive all benefits (other 
than with respect to section 884) with 
respect to related person insurance in-
come granted by the United States 
under any treaty between the United 
States and any foreign country, and 
‘‘(ii) such corporation meets such re-
quirements as the Secretary shall prescribe 
to ensure that the tax imposed by this 
chapter on such income is paid. 
An election under this subparagraph made for 
any taxable year shall not be effective if the 
corporation (or any predecessor thereof) was a 
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disqualified corporation for the taxable year for 
which the election was made or for any prior 
taxable year beginning after 1986. 
‘‘(D) SPECIAL RULES FOR SUBPARAGRAPH 
(C).— 
‘‘(i) PERIOD
DURING
WHICH
ELEC-
TION IN EFFECT.— 
‘‘(I) IN
GENERAL.—Except as 
provided in subclause (II), any elec-
tion under subparagraph (C) shall 
apply to the taxable year for which 
made and all subsequent taxable years 
unless revoked with the consent of the 
Secretary. 
‘‘(II) TERMINATION.—If a for-
eign corporation which made an elec-
tion under subparagraph (C) for any 
taxable year is a disqualified corpora-
tion for any subsequent taxable year, 
such election shall not apply to any 
taxable year beginning after such sub-
sequent taxable year. 
‘‘(ii) EXEMPTION FROM TAX IMPOSED 
BY
SECTION
4371.—The tax imposed by 
section 4371 shall not apply with respect 
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to any related person insurance income 
treated as effectively connected with the 
conduct of a trade or business within the 
United States under subparagraph (C). 
‘‘(E) DISQUALIFIED
CORPORATION.—For 
purposes of this paragraph the term ‘disquali-
fied corporation’ means, with respect to any 
taxable year, any foreign corporation which is a 
controlled foreign corporation at any time dur-
ing such taxable year (determined without re-
gard to this subsection) but only if a United 
States shareholder (determined without regard 
to this subsection) owns (within the meaning of 
section 958(a)) stock in such corporation at 
some time during such taxable year. 
‘‘(4) TREATMENT OF MUTUAL INSURANCE COM-
PANIES.—In the case of a mutual insurance com-
pany— 
‘‘(A) this subsection shall apply, 
‘‘(B) policyholders of such company shall 
be treated as shareholders, and 
‘‘(C) appropriate adjustments in the appli-
cation of this subpart shall be made under reg-
ulations prescribed by the Secretary. 
‘‘(5) DETERMINATION OF PRO RATA SHARE.— 
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‘‘(A) IN
GENERAL.—The pro rata share 
determined under this paragraph for any 
United States shareholder is the lesser of— 
‘‘(i) the amount which would be deter-
mined under paragraph (2) of section 
951(a) if— 
‘‘(I) only related person insur-
ance income were taken into account, 
‘‘(II) stock owned (within the 
meaning of section 958(a)) by United 
States shareholders on the last day of 
the taxable year were the only stock 
in the foreign corporation, and 
‘‘(III) only distributions received 
by United States shareholders were 
taken into account under subpara-
graph (B) of such paragraph (2), or 
‘‘(ii) the amount which would be de-
termined under paragraph (2) of section 
951(a) if the entire earnings and profits of 
the foreign corporation for the taxable year 
were subpart F income. 
‘‘(B) COORDINATION WITH OTHER PROVI-
SIONS.—The Secretary shall prescribe regula-
tions providing for such modifications to the 
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provisions of this subpart as may be necessary 
or appropriate by reason of subparagraph (A). 
‘‘(6) RELATED PERSON.—For purposes of this 
subsection— 
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), the term ‘related person’ has 
the meaning given such term by section 954(b). 
‘‘(B) TREATMENT OF CERTAIN LIABILITY 
INSURANCE POLICIES.—In the case of any pol-
icy of insurance covering liability arising from 
services performed as a director, officer, or em-
ployee of a corporation or as a partner or em-
ployee of a partnership, the person performing 
such services and the entity for which such 
services are performed shall be treated as re-
lated persons. 
‘‘(7) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary to carry 
out the purposes of this subsection, including— 
‘‘(A) regulations preventing the avoidance 
of this subsection through cross insurance ar-
rangements or otherwise, and 
‘‘(B) regulations which may provide that a 
person will not be treated as a United States 
shareholder under paragraph (1) with respect 
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to any foreign corporation if neither such per-
son (nor any related person to such person) is 
(directly or indirectly) insured under any policy 
of insurance or reinsurance issued by such for-
eign corporation. 
‘‘(b) ELECTION BY FOREIGN INSURANCE COMPANY 
TO BE TREATED AS DOMESTIC CORPORATION.— 
‘‘(1) IN GENERAL.—If— 
‘‘(A) a foreign corporation is a controlled 
foreign corporation (as defined in section 
957(a) by substituting ‘25 percent or more’ for 
‘more than 50 percent’ and by using the defini-
tion of United States shareholder under sub-
section (a)(1)(B)), 
‘‘(B) such foreign corporation would qual-
ify under part I or II of subchapter L for the 
taxable year if it were a domestic corporation, 
‘‘(C) such foreign corporation meets such 
requirements as the Secretary shall prescribe to 
ensure that the taxes imposed by this chapter 
on such foreign corporation are paid, and 
‘‘(D) such foreign corporation makes an 
election to have this paragraph apply and 
waives all benefits to such corporation granted 
by the United States under any treaty, 
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for purposes of this title, such corporation shall be 
treated as a domestic corporation. 
‘‘(2) PERIOD DURING WHICH ELECTION IS IN 
EFFECT.— 
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), an election under paragraph 
(1) shall apply to the taxable year for which 
made and all subsequent taxable years unless 
revoked with the consent of the Secretary. 
‘‘(B) TERMINATION.—If a corporation 
which made an election under paragraph (1) for 
any taxable year fails to meet the requirements 
of subparagraphs (A), (B), and (C) of para-
graph (1) for any subsequent taxable year, such 
election shall not apply to any taxable year be-
ginning after such subsequent taxable year. 
‘‘(3) 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 of the 1st day of the 1st tax-
able year to which such election applies) all of 
its assets to a domestic corporation in connec-
tion with an exchange to which section 354 ap-
plies. 
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‘‘(B) EXCEPTION FOR PRE-1988 EARNINGS 
AND PROFITS.— 
‘‘(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 
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.—Sec-
tion 884 to the extent the foreign corpora-
tion reinvested 1987 earnings and profits 
in United States assets shall be applied 
without regard to paragraph (1), except 
that, in the case of a corporation to which 
an election under paragraph (1) applies, 
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only earnings and profits accumulated in 
taxable years beginning before January 1, 
1988, shall be taken into account. 
‘‘(4) 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. 
‘‘(5) ADDITIONAL TAX ON CORPORATION MAK-
ING ELECTION.— 
‘‘(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— 
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‘‘(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.’’. 
(b) TREATMENT OF CERTAIN EXCLUDED SUBPART 
F INCOME
AS PREVIOUSLY TAXED INCOME.—Section 
959(g), as added by section 331, is amended to read as 
follows: 
‘‘(g) SPECIAL RULES FOR NONTAXED PORTION OF 
CERTAIN INCOME.—For purposes of this section— 
‘‘(1) IN
GENERAL.—A United States share-
holder’s pro rata share of the excludable portion of 
the controlled foreign corporation’s subpart F in-
come shall be treated as an amount which has been 
included in gross income under section 951(a). 
‘‘(2) ORDERING RULE.—Notwithstanding sub-
section (c), for purposes of subsections (a) and (b), 
section 316(a) shall be applied by applying para-
graph (2) thereof and then paragraph (1) thereof— 
‘‘(A) first to the deductible portion (as de-
fined in section 965(c)(3)) of the increase in 
subpart 
F 
income 
described 
in 
section 
965(a)(1) included in the gross income of 
United 
States 
shareholders 
under 
section 
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100 
951(a)(1) 
(after 
application 
of 
section 
965(a)(2)(A)), 
‘‘(B) second to the excludable portion of 
the controlled foreign corporation’s subpart F 
income, and 
‘‘(C) then to the amounts described in 
paragraphs (1), (2), or (3) of subsection (c) in 
accordance with the provisions of subsection (c). 
‘‘(3) DEFINITIONS.—For purposes of this sub-
section— 
‘‘(A) DEDUCTIBLE
PORTION.—The term 
‘deductible portion’ has the meaning given such 
term by section 965(c)(3). 
‘‘(B) EXCLUDABLE
PORTION.—The term 
‘excludable portion’ means, with respect to the 
subpart F income of a controlled foreign cor-
poration, so much of such controlled foreign 
corporation’s modified active income as is not 
taken into account in computing subpart F in-
come under section 952(a)(1).’’. 
(c) GAINS AND LOSSES FROM THE SALE OF CFC 
STOCK.— 
(1) GAINS.— 
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101 
(A) IN GENERAL.—Part I of subchapter P 
of chapter 1 is amended by adding at the end 
the following new section: 
‘‘SEC. 1203. GAINS FROM SALES OR EXCHANGES OF STOCK 
IN CONTROLLED FOREIGN CORPORATIONS. 
‘‘(a) IN GENERAL.—In the case of a United States 
shareholder (as defined in section 951), there shall be ex-
cluded from gross income an amount equal to the applica-
ble portion of the amount of any gain recognized from the 
sale or exchange of stock in a controlled foreign corpora-
tion. 
‘‘(b) APPLICABLE PORTION.—For purposes of this 
section— 
‘‘(1) IN GENERAL.—The term ‘applicable por-
tion’ means the amount which bears the same ratio 
to the gain recognized from such sale or exchange 
as— 
‘‘(A) the shareholder’s pro rata share (de-
termined under section 951(a)(2)) of the ex-
cludable portion of the aggregate subpart F in-
come of the controlled foreign corporation for 
the applicable period, bears to 
‘‘(B) the sum of the amount determined 
under subparagraph (A) plus the shareholder’s 
pro rata share (determined under section 
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102 
951(a)(2)) of the aggregate subpart F income 
of the controlled foreign corporation for the ap-
plicable period. 
‘‘(2) EXCLUDABLE PORTION.—For purposes of 
this section, the term ‘excludable portion’ has the 
meaning given such term by section 959(g)(3)(B). 
‘‘(3) APPLICABLE PERIOD.—The term ‘applica-
ble period’ means, with respect to any stock, the 
shorter of the 3-taxable year period immediately pre-
ceding the taxable year of the sale or exchange or 
the shareholder’s holding period in the stock. In no 
event shall the applicable period include any portion 
of any taxable year beginning before the applicable 
date (as defined in section 300 of the Infrastructure 
and Global Tax Competitiveness Act of 2014).’’. 
(B) CLERICAL AMENDMENT.—The table of 
sections for part I of subchapter P of chapter 
1 is amended by adding at the end the following 
new item: 
‘‘Sec. 1203. Gains from sales or exchanges of stock in controlled foreign cor-
porations.’’. 
(2) LOSSES.— 
(A) IN GENERAL.—Part II of subchapter P 
of chapter 1 is amended by adding at the end 
the following new section: 
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103 
‘‘SEC. 1213. LOSSES FROM SALES OR EXCHANGES OF STOCK 
IN CONTROLLED FOREIGN CORPORATIONS. 
‘‘(a) IN GENERAL.—In the case of a United States 
shareholder (as defined in section 951), any loss from the 
sale or exchange of stock in a controlled foreign corpora-
tion shall be reduced (but not below zero) by an amount 
equal to the shareholder’s aggregate pro rata share (deter-
mined under section 951(a)(2)) of the excludable portion 
of the subpart F income of the controlled foreign corpora-
tion during the shareholder’s holding period in the stock. 
‘‘(b) EXCLUDABLE PORTION.—For purposes of this 
section, the term ‘excludable portion’ has the meaning 
given such term by section 959(g)(3)(B).’’. 
(B) CLERICAL AMENDMENT.—The table of 
sections for part I of subchapter P of chapter 
1 is amended by adding at the end the following 
new item: 
‘‘Sec. 1213. Losses from sales or exchanges of stock in controlled foreign cor-
porations.’’. 
(d) REPEAL OF ORDINARY INCOME TREATMENT FOR 
GAINS FROM THE SALE OF STOCK IN CERTAIN FOREIGN 
CORPORATIONS.— 
(1) IN GENERAL.—Part IV of subchapter P of 
chapter 1 is amended by striking section 1248. 
(2) CONFORMING AMENDMENTS.— 
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104 
(A) Section (a) is amended by striking 
paragraph (11). 
(B) Section 338(h) is amended— 
(i) in paragraph (6)(B)(ii), by striking 
‘‘or described in section 1248(e)’’, and 
(ii) in paragraph (16), by striking the 
second sentence. 
(C) Section 751 is amended— 
(i) in subsection (c), by striking 
‘‘stock in certain foreign corporations (as 
described in section 1248),’’, and 
(ii) by striking subsection (e) and re-
designating subsection (f) as subsection 
(e). 
(D) Section 865(k) is amended to read as 
follows: 
‘‘(k) CROSS REFERENCE.—For sourcing of income 
from certain foreign currency transactions, see section 
988.’’. 
(E) Section 904(h)(7) is amended by strik-
ing ‘‘or as a dividend under section 1248’’. 
(F) Section 951(a)(2) is amended by strik-
ing the last sentence thereof. 
(G) Section 964 is amended by striking 
subsection (e). 
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105 
(H) Section 989(b) is amended by striking 
paragraph (2) and by redesignating paragraphs 
(3) and (4) as paragraphs (2) and (3), respec-
tively. 
(e) COORDINATION WITH AMOUNTS INCLUDED IN 
GROSS INCOME OF UNITED STATES SHAREHOLDERS.— 
(1) IN
GENERAL.—Paragraph (1) of section 
951(a) is amended by striking ‘‘such taxable year of 
the corporation ends—’’ and all that follows through 
the end period and inserting: ‘‘such taxable year of 
the corporation ends, the shareholder’s pro rata 
share (determined under paragraph (2)) of the cor-
poration’s subpart F income for such taxable year.’’. 
(2) CONFORMING AMENDMENTS.— 
(A) Section 951(a) is amended— 
(i) by striking ‘‘paragraph (1)(A)(i)’’ 
in paragraph (2) and inserting ‘‘paragraph 
(1)’’, and 
(ii) by striking paragraph (3). 
(B) 
Subparagraph 
(A) 
of 
section 
512(b)(17) 
is 
amended 
by 
striking 
‘‘951(a)(1)(A)’’ and inserting ‘‘951(a)(1)’’. 
(C) Section 851(b) is amended by striking 
‘‘951(a)(1)(A)(i)’’ in the first sentence following 
paragraph (3) and inserting ‘‘951(a)(1)’’. 
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106 
(D) Section 959(a) is amended— 
(i) by striking ‘‘shall not, when’’ and 
all that follows through ‘‘such shareholder’’ 
and inserting ‘‘shall not, when actually dis-
tributed to such shareholder’’, and 
(ii) by striking ‘‘and the rules of sub-
section (f) shall apply for purposes of para-
graph (2) of this subsection’’. 
(E) Section 959(c) is amended by adding 
at the end the following: ‘‘References in this 
subsection 
and 
subsection 
(f) 
to 
section 
951(a)(1)(B) shall be treated as references to 
such provisions as in effect on the day before 
the enactment of the Infrastructure and Global 
Tax Competitiveness Act of 2014.’’. 
(F) Section 959(e) is amended by striking 
‘‘951(a)(1)(A)’’ and inserting ‘‘951(a)(1)’’. 
(G) Section 989(b)(3) is amended by strik-
ing ‘‘951(a)(1)(A)’’ and inserting ‘‘951(a)(1)’’. 
(H) Section 1298(b) is amended by strik-
ing paragraph (8). 
(f) APPLICATION
OF
ANTI-LOSS
IMPORTATION 
RULES.—Section 362(e)(1)(B) is amended by adding at 
the end the following new sentence: ‘‘For purposes of 
clause (i), except as provided under regulations, a con-
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107 
trolled foreign corporation shall be considered to be sub-
ject to tax under this subtitle.’’. 
(g) OTHER CONFORMING AMENDMENTS.— 
(1) 
Sections 
163(e)(3)(B)(i) 
and 
267(a)(3)(B)(i) are each amended by striking ‘‘and 
qualified deficits under section 952(c)(1)(B)’’ and 
inserting ‘‘and loss carryforwards under sections 
952(d) and 953(b)’’. 
(2) Section 304(b)(5)(B)(ii) is amended by 
striking ‘‘953(c)’’ and inserting ‘‘956(a)’’. 
(3) Section 355(g)(2)(B)(ii)(I) is amended by 
striking ‘‘section 954(h)(4)’’ and inserting ‘‘section 
954(c)(4)’’. 
(4) Section 512(b)(17) is amended by striking 
‘‘953’’ and inserting ‘‘section 955’’. 
(5) Section 864(d)(8) is amended by striking 
‘‘or section 956(b)(3)’’. 
(6) Section 864(d)(5)(A) is amended— 
(A) by striking clause (iii) and redesig-
nating clause (iv) as clause (iii), and 
(B) by striking ‘‘954(c)(3)(A)’’ in clause 
(iii) (as redesignated by subparagraph (A)) and 
inserting ‘‘954(a)(3)(A)’’. 
(7) Section 864(d)(7)(B) is amended by strik-
ing ‘‘foreign base company income (as defined in 
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108 
section 954(a), determined without regard to section 
954(b)(3)(A))’’ and inserting ‘‘passive income (as 
defined in section 954(a))’’. 
(8) Section 881(c)(5)(A)(iii) is amended by 
striking 
‘‘954(c)(3)(A)’’ 
and 
inserting 
‘‘954(a)(3)(A)’’. 
(9) Section 884(d)(2)(D) is amended by strik-
ing ‘‘953(c)(3)(C)’’ and inserting ‘‘956(a)(3)(C)’’. 
(10) Section 898(b)(3) is amended— 
(A) by striking ‘‘953(c)(2)’’ and inserting 
‘‘956(a)(2)’’, and 
(B) by striking ‘‘953(c)(1)’’ and inserting 
‘‘956(a)(1)’’. 
(11) Section 936(h)(5) is amended— 
(A) by inserting ‘‘(as in effect on the day 
before the enactment of the Infrastructure and 
Global Tax Competitiveness Act of 2014)’’ after 
‘‘section 954’’ in the last sentence of subpara-
graph (B)(ii), and 
(B) in subparagraph (F)(iv)(II)— 
(i) by inserting ‘‘(as in effect on the 
day before the enactment of the Infrastruc-
ture and Global Tax Competitiveness Act 
of 2014)’’ after ‘‘section 954’’, and 
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(ii) by inserting ‘‘(as so in effect)’’ 
after ‘‘section 954(a)’’. 
(12) Section 957(b) is amended— 
(A) by striking ‘‘income described in sec-
tion 953(a)’’ and inserting ‘‘income described in 
section 955(a)’’, and 
(B) by striking ‘‘contracts described in sec-
tion 953(a)(1)’’ and inserting ‘‘contracts de-
scribed in section 955(a)(1)’’. 
(13) Section 958(b) is amended— 
(A) by striking ‘‘956(c)(2),’’ before ‘‘and 
957’’, 
(B) by striking ‘‘to treat the stock of a do-
mestic corporation as owned by a United States 
shareholder of the controlled foreign corpora-
tion for purposes of section 956(c)(2),’’, and 
(C) by striking the last sentence. 
(14) Section 964(b) is amended by striking 
‘‘sections 952, 955, and 956’’ and inserting ‘‘section 
952’’. 
(15) Section 964(e)(2) is amended by striking 
‘‘954(c)(3)(A)’’ and inserting ‘‘954(a)(3)(A)’’. 
(16)(A) Part III of subchapter N of chapter 1 
is amended by striking subpart G. 
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110 
(B) Section 865(e)(2)(A) is amended by strik-
ing the last sentence. 
(C) The table of subparts for part III of sub-
chapter N of chapter 1 is amended by striking the 
item relating to subpart G. 
(17) Section 999(c) is amended— 
(A) by striking ‘‘, 952(a)(3)’’ in paragraph 
(1), and 
(B) by striking ‘‘, the addition to subpart 
F income under section 952(a)(3),’’ in para-
graph (2). 
(18) Section 1296(f)(2) is amended— 
(A) by striking ‘‘foreign personal holding 
company 
income 
described 
in 
section 
954(c)(1)(A)’’ in subparagraph (A) and insert-
ing ‘‘passive income (as defined in section 
954(a))’’, and 
(B) by striking ‘‘foreign personal holding 
company income so described’’ and inserting 
‘‘such passive income’’. 
(19) Section 1297(b) is amended to read as fol-
lows: 
‘‘(b) PASSIVE INCOME.— 
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the term ‘passive income’ means any in-
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111 
come received or accrued by any foreign corporation 
which is of a kind which would be passive income as 
defined in section 954 if the foreign corporation 
were a controlled foreign corporation. 
‘‘(2) EXCEPTION.—Except as provided in regu-
lations, the term ‘passive income’ does not include 
any income which is interest, a dividend, or a rent 
or royalty, which is received or accrued from a re-
lated person (within the meaning of section 954(b)) 
to the extent that such amount is properly allocable 
(under regulations prescribed by the Secretary) to 
income of such related person which is not passive 
income.’’. 
(20) Section 2057(e)(2)(D)(ii) is amended by 
striking ‘‘section 954(c)(1)’’ and inserting ‘‘section 
954(a)(1)’’. 
(21) The following sections are amended by 
striking ‘‘954(d)(3)’’ each place it appears and in-
serting ‘‘954(b)’’: 
(A) Section 861(c)(2)(B). 
(B) Section 958(b). 
(C) Section 988(a)(3)(C). 
(D) Subsections (d)(3)(A) and (e)(2)(B)(i) 
of section 1298. 
(E) Section 1471(e)(2). 
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(F) Section 3121(z)(2). 
(22) The table of sections for subpart F of part 
III of subchapter 1 is amended by striking the items 
relating to sections 952 through 956 and inserting 
the following: 
‘‘Sec. 952. Subpart F income defined. 
‘‘Sec. 953. Active foreign market income. 
‘‘Sec. 954. Definition of passive income. 
‘‘Sec. 955. Definition of insurance income. 
‘‘Sec. 956. Special rule for certain captive insurance companies.’’. 
(h) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to taxable years of foreign corporations 
beginning on or after the applicable date, and to tax-
able years of United States shareholders with or 
within which such taxable years of foreign corpora-
tions end. 
(2) GAINS AND LOSSES FROM THE SALE OF CFC 
STOCK; REPEAL
OF
SECTION
1248.—The amend-
ments made by subsections (c) and (d) shall apply 
to sales or exchanges on or after the applicable date. 
PART II—FOREIGN TAX CREDIT LIMITATIONS 
SEC. 311. REFORM OF FOREIGN TAX CREDIT LIMITATION. 
(a) IN GENERAL.—Subsection (d) of section 904 is 
amended to read as follows: 
‘‘(d) SEPARATE APPLICATION OF SECTION WITH RE-
SPECT TO CERTAIN CATEGORIES OF INCOME.— 
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‘‘(1) IN
GENERAL.—The provisions of sub-
sections (a), (b), and (c) and section 907 and 960 
shall be applied separately with respect to— 
‘‘(A) amounts included under section 
951(a) which are attributable to active foreign 
market income (as defined in section 953), 
‘‘(B) passive category income, and 
‘‘(C) income other than income described 
in either of the preceding subparagraphs. 
‘‘(2) DEFINITIONS AND SPECIAL RULES.— 
‘‘(A) PASSIVE CATEGORY INCOME.— 
‘‘(i) IN GENERAL.—The term ‘passive 
category income’ means— 
‘‘(I) United States taxpayer pas-
sive income described in subparagraph 
(B), and 
‘‘(II) income which is included in 
gross income of the taxpayer under 
section 951(a)(1) to the extent such 
income is attributable to passive in-
come (as defined in section 954(a)). 
‘‘(ii) EXCEPTION
FOR
HIGH-TAXED 
INCOME.—Passive category income shall 
not include any high-taxed income. 
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‘‘(iii) CLARIFICATION OF APPLICATION 
OF
SECTION 864(d)(6).—In determining 
whether any income is passive category in-
come, the rules of section 864(d)(6) shall 
apply only in the case of income of a con-
trolled foreign corporation. 
‘‘(B) UNITED STATES TAXPAYER PASSIVE 
INCOME.—United States taxpayer passive in-
come described in this subparagraph is income 
received or accrued by the taxpayer which is of 
a kind that would be passive income as defined 
under section 954(a) if such taxpayer were a 
controlled foreign corporation. 
‘‘(C) TREATMENT OF FINANCIAL SERVICES 
INCOME AND COMPANIES.— 
‘‘(i) IN GENERAL.—Financial services 
income which is not active foreign market 
category income shall be treated as income 
described in paragraph (1)(C) in the case 
of— 
‘‘(I) a member of a financial 
services group, and 
‘‘(II) any other person if such 
person is predominantly engaged in 
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the active conduct of a banking, insur-
ance, financing, or similar business. 
‘‘(ii) FINANCIAL SERVICES GROUP.— 
The term ‘financial services group’ means 
any affiliated group (as defined in section 
1504(a) without regard to paragraphs (2) 
and (3) of section 1504(b)) which is pre-
dominantly engaged in the active conduct 
of a banking, insurance, financing, or simi-
lar business. In determining whether such 
a group is so engaged, there shall be taken 
into account only the income of members 
of the group that are— 
‘‘(I) United States corporations, 
or 
‘‘(II) controlled foreign corpora-
tions in which such United States cor-
porations own, directly or indirectly, 
at least 80 percent of the total voting 
power and value of the stock. 
‘‘(iii) 
PASS-THRU
ENTITIES.—The 
Secretary shall by regulation specify for 
purposes of this subparagraph the treat-
ment of financial services income received 
or accrued by partnerships and by other 
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pass-thru entities which are not members 
of a financial services group. 
‘‘(D) FINANCIAL SERVICES INCOME.— 
‘‘(i) IN GENERAL.—Except as other-
wise provided in this subparagraph, the 
term ‘financial services income’ means any 
income which is received or accrued by any 
person predominantly engaged in the active 
conduct of a banking, insurance, financing, 
or similar business, and which is— 
‘‘(I) described in clause (ii), or 
‘‘(II) United States taxpayer pas-
sive income (determined without re-
gard to subparagraph (A)(ii)). 
‘‘(ii) GENERAL DESCRIPTION OF FI-
NANCIAL
SERVICES
INCOME.—Income is 
described in this clause if such income is— 
‘‘(I) derived in the active conduct 
of a banking, financing, or similar 
business, 
‘‘(II) derived from the investment 
by an insurance company of its un-
earned premiums or reserves ordinary 
and necessary for the proper conduct 
of its insurance business, or 
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‘‘(III) of a kind which would be 
insurance income as defined in section 
955(a). 
‘‘(E) HIGH-TAXED
INCOME.—The term 
‘high-taxed income’ means any income which 
(but for this subparagraph) would be passive 
category income if the sum of— 
‘‘(i) the foreign income taxes paid or 
accrued by the taxpayer with respect to 
such income, and 
‘‘(ii) the foreign income taxes deemed 
paid by the taxpayer with respect to such 
income under section 960, 
exceeds the highest rate of tax specified in sec-
tion 1 or 11 (whichever applies) multiplied by 
the amount of such income (determined with re-
gard to section 78). For purposes of the pre-
ceding sentence, the term ‘foreign income taxes’ 
means any income, war profits, or excess profits 
tax imposed by any foreign country or posses-
sion of the United States. 
‘‘(F) TREATMENT OF INCOME TAX BASE 
DIFFERENCES.— 
‘‘(i) IN GENERAL.—In the case of tax-
able years beginning after December 31, 
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2006, tax imposed under the law of a for-
eign country or possession of the United 
States on an amount which does not con-
stitute income under United States tax 
principles shall be treated as imposed on 
income described in paragraph (1)(C). 
‘‘(ii) SPECIAL
RULES
FOR
YEARS 
AFTER 2006 AND BEFORE THE APPLICABLE 
DATE.—In the case of taxable years begin-
ning after December 31, 2006, and on or 
before the applicable date (as defined in 
section 300 of the Infrastructure and Glob-
al Tax Competitiveness Act of 2014), tax 
imposed under the law of a foreign country 
or possession of the United States on an 
amount which does not constitute income 
under United States tax principles shall be 
treated as imposed on income described in 
paragraph (1)(B) (as in effect for taxable 
years beginning the day before such appli-
cable date). 
‘‘(iii) SPECIAL RULE FOR YEARS BE-
FORE 2007.— 
‘‘(I) IN GENERAL.—In the case 
of taxes paid or accrued in taxable 
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years beginning after December 31, 
2004, and before January 1, 2007, a 
taxpayer may elect to treat tax im-
posed under the law of a foreign coun-
try or possession of the United States 
on an amount which does not con-
stitute income under United States 
tax principles as tax imposed on in-
come described in subparagraph (C) 
or (I) of paragraph (1) (as in effect 
for taxable years beginning in 2006). 
‘‘(II) REVOCATION.—Any such 
election shall apply to the taxable year 
for which made and all subsequent 
taxable years described in subclause 
(I) unless revoked with the consent of 
the Secretary. 
‘‘(G) TRANSITION
RULES
FOR
CERTAIN 
CARRYFORWARDS AND CARRYBACKS.—For pur-
poses of paragraph (1)— 
‘‘(i) in the case of any taxes carried 
from any taxable year beginning before the 
applicable date (as defined in section 300 
of the Infrastructure and Global Tax Com-
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120 
petitiveness Act of 2014), to any taxable 
year beginning on or after such date— 
‘‘(I) if such taxes were treated as 
attributable to income described in 
paragraph (1)(A) (as in effect for tax-
able years beginning the day before 
such applicable date), such taxes shall 
be treated as attributable to income 
described in paragraph (1)(B), and 
‘‘(II) if such taxes were treated 
as attributable to income described in 
paragraph (1)(B) (as in effect for tax-
able years beginning the day before 
such applicable date), such taxes shall 
be treated as attributable to income 
described in paragraph (1)(C), and 
‘‘(ii) the Secretary may by regulations 
provide for the allocation of any carryback 
of taxes with respect to income from a tax-
able year beginning on or after such appli-
cable date, to a taxable year beginning be-
fore such date for purposes of allocating 
such income among the separate categories 
in effect for the taxable year to which car-
ried. 
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121 
‘‘(3) CONTROLLED
FOREIGN
CORPORATION; 
UNITED STATES SHAREHOLDER.—For purposes of 
this subsection— 
‘‘(A) CONTROLLED
FOREIGN
CORPORA-
TION.—The term ‘controlled foreign corpora-
tion’ has the meaning given such term by sec-
tion 957 (taking into account section 956(a)). 
‘‘(B) UNITED
STATES
SHAREHOLDER.— 
The term ‘United States shareholder’ has the 
meaning given such term by section 951(b) 
(taking into account section 956(a)). 
‘‘(4) 
SEPARATE
APPLICATION
TO
ITEMS 
RESOURCED UNDER TREATIES.— 
‘‘(A) IN GENERAL.—If— 
‘‘(i) without regard to any treaty obli-
gation of the United States, any item of 
income would be treated as derived from 
sources within the United States, 
‘‘(ii) under a treaty obligation of the 
United States, such item would be treated 
as arising from sources outside the United 
States, and 
‘‘(iii) the taxpayer chooses the bene-
fits of such treaty obligation, 
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122 
subsections (a), (b), and (c) of this section and 
sections 907 and 960 shall be applied sepa-
rately with respect to each such item. 
‘‘(B) COORDINATION WITH OTHER PROVI-
SIONS.—This paragraph shall not apply to any 
item of income to which subsection (h)(10) or 
section 865(h) applies. 
‘‘(C) REGULATIONS.—The Secretary may 
issue such regulations as may be necessary or 
appropriate to carry out the purposes of this 
paragraph, including regulations which provide 
that related items of income may be aggregated 
for purposes of this paragraph. 
‘‘(5) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary or ap-
propriate for the purposes of this subsection, includ-
ing preventing the manipulation of the character of 
income the effect of which is to avoid the purposes 
of this subsection.’’. 
(b) APPLICATION OF PER COUNTRY LIMITATION.— 
Section 904 is amended by inserting after subsection (d) 
the following new subsection: 
‘‘(e) LIMITATIONS APPLIED
ON
A PER COUNTRY 
BASIS.—The provisions of subsections (a), (b), (c), and 
(d) and sections 907 and 960 shall be applied separately 
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123 
with respect to each foreign country or possession with 
respect to which taxes described in section 901(b) are paid 
or accrued.’’. 
(c) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning on or 
after the applicable date. 
SEC. 312. DENIAL OF CREDIT AND DEDUCTION FOR FOR-
EIGN TAXES WITH RESPECT TO EXCLUDED 
SUBPART F INCOME. 
(a) IN GENERAL.—Section 901 is amended by redes-
ignating subsection (n) as subsection (o) and by inserting 
after subsection (m) the following: 
‘‘(n) DENIAL OF FOREIGN TAX CREDIT AND DEDUC-
TION WITH RESPECT TO EXCLUDED SUBPART F IN-
COME.— 
‘‘(1) IN
GENERAL.—Notwithstanding section 
960(b), no credit shall be allowed under subsection 
(a) for any income, war profits, or excess profits 
taxes paid or accrued (or deemed paid or accrued 
under section 960) with respect to the excludable 
portion of subpart F income or any distribution re-
ceived by a United States shareholder (as defined in 
section 951(b)) which is properly attributable to 
such excludable portion. No deduction shall be al-
lowed to a taxpayer under this chapter for any tax 
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124 
for which a credit is not allowable by reason of the 
preceding sentence. 
‘‘(2) EXCLUDABLE
PORTION.—The term ‘ex-
cludable portion’ has the meaning given such term 
by section 959(g)(3)(B). 
‘‘(3) COORDINATION WITH SECTION 78.—Sec-
tion 78 shall not apply to any tax which is not allow-
able as a credit under this section by reason of this 
subsection.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years of foreign corpora-
tions beginning on or after the applicable date, and to tax-
able years of United States shareholders with or within 
which such taxable years of foreign corporations end. 
PART III—EXPENSE DISALLOWANCE 
SEC. 321. DISALLOWANCE OF DEDUCTION FOR EXPENSES 
ALLOCABLE TO EXEMPT INCOME OF A CON-
TROLLED FOREIGN CORPORATION. 
(a) IN GENERAL.—Part IX of subchapter B of chap-
ter 1 is amended by adding at the end the following: 
‘‘SEC. 265A. EXPENSES ALLOCABLE TO EXEMPT INCOME OF 
A CONTROLLED FOREIGN CORPORATION. 
‘‘(a) IN GENERAL.—In the case of a United States 
shareholder of a controlled foreign corporation for any tax-
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125 
able year, no deduction shall be allowed under this chapter 
for— 
‘‘(1) the disallowed portion of any allocable 
CFC interest, or 
‘‘(2) expenses directly allocable to the exclud-
able portion of subpart F income (as defined in sec-
tion 959(g)(3)(B)). 
‘‘(b) DISALLOWED PORTION.—For purposes of this 
section— 
‘‘(1) IN GENERAL.—The term ‘disallowed por-
tion’ means, with respect to any allocable CFC inter-
est in connection with a controlled foreign corpora-
tion, the exclusion percentage of the amount which 
bears the same ratio to the amount of such interest 
as— 
‘‘(A) the corporation’s modified active in-
come (as defined in section 952) for the appli-
cable taxable year, bears to 
‘‘(B) the corporation’s current earnings 
and profits. 
‘‘(2) CURRENT EARNINGS AND PROFITS.—For 
purposes of this subsection— 
‘‘(A) IN
GENERAL.—The term ‘current 
earnings and profits’ means the earnings and 
profits of the controlled foreign corporation for 
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126 
the applicable taxable year, without diminution 
by reason of distributions made during the tax-
able year. 
‘‘(B) SPECIAL
RULE
FOR
DETERMINING 
EARNINGS AND PROFITS.—Earnings and profits 
of any controlled foreign corporation shall be 
determined without regard to paragraphs (4), 
(5), and (6) of section 312(n). Under regula-
tions, the preceding sentence shall not apply to 
the extent it would increase earnings and prof-
its by an amount which was previously distrib-
uted by the controlled foreign corporation. 
‘‘(3) EXCLUSION PERCENTAGE.—The term ‘ex-
clusion percentage’ means, with respect to any con-
trolled foreign corporation for any taxable year, the 
number of percentage points by which 100 percent 
exceeds the inclusion percentage determined under 
section 952(d) with respect to such controlled for-
eign corporation for such taxable year. 
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section— 
‘‘(1) ALLOCABLE
CFC
INTEREST.—The term 
‘allocable CFC interest’ means any interest expense 
paid or accrued during the taxable year by a United 
States shareholder of a controlled foreign corpora-
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127 
tion which under section 861, and subsection (e) or 
(f) of section 864 (whichever is applicable), is appor-
tioned to income of the controlled foreign corpora-
tion. 
‘‘(2) APPLICABLE TAXABLE YEAR.—The term 
‘applicable taxable year’ means, with respect to any 
controlled foreign corporation, the taxable year of 
such corporation which ends with or within the tax-
able year of the United States shareholder described 
in subsection (a). 
‘‘(3) UNITED
STATES
SHAREHOLDER; CON-
TROLLED
FOREIGN
CORPORATION.—The 
term 
‘United States shareholder’ has the meaning given 
such term by section 951(b) and the term ‘controlled 
foreign corporation’ shall have the meaning given 
such term by section 957(a). 
‘‘(4) SPECIAL RULE FOR MEMBERS OF AN AF-
FILIATED GROUP.—If a United States shareholder 
to which subsection (a) applies is a domestic cor-
poration which is a member of a group all members 
of which are treated as a single corporation under 
subsection (e) or (f) of section 864, whichever is ap-
plicable, all domestic corporations which are mem-
bers of such group shall be treated as a single cor-
poration for purposes of this section. 
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‘‘(5) SPECIAL RULES.— 
‘‘(A) COORDINATION WITH OTHER PROVI-
SIONS.—Except as provided in regulations, this 
section shall be applied before any other provi-
sion of this chapter limiting the deductibility of 
any allocable CFC interest. 
‘‘(B) SEPARATE APPLICATION TO INCOME 
IN SEPARATE BASKETS.—This section shall be 
applied separately with respect to the categories 
of income under section 904(d)(1). 
‘‘(d) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary to carry out the pur-
poses of this section, including regulations providing— 
‘‘(1) for the sharing of information between 
shareholders if necessary to carry out the provisions 
of this section, 
‘‘(2) for directly associating interest or other 
expenses disallowed under this section with income 
of a controlled foreign corporation and for coordi-
nating this section with other provisions of this 
chapter limiting the deductibility of interest or other 
expenses, and 
‘‘(3) for the proper application of this section 
with respect to the taxpayer’s share of net operating 
losses of a controlled foreign corporation.’’. 
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(b) CONFORMING AMENDMENT.—The table of sec-
tions for part IX of subchapter B of chapter 1 is amended 
by inserting after the item relating to section 265 the fol-
lowing: 
‘‘Sec. 265A. Expense allocable to exempt income of a controlled foreign cor-
poration.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years of foreign corpora-
tions beginning on or after the applicable date, and to tax-
able years of United States shareholders with or within 
which such taxable years of foreign corporations end. 
PART IV—OTHER PROVISIONS RELATING TO 
SUBPART F 
Subpart A—Previously Deferred Foreign Income 
SEC. 331. TREATMENT OF PREVIOUSLY DEFERRED FOR-
EIGN INCOME. 
(a) IN GENERAL.—Subpart F of part III of sub-
chapter N of chapter 1 is amended by adding at the end 
the following new section: 
‘‘SEC. 966. INCLUSION OF PREVIOUSLY DEFERRED FOR-
EIGN INCOME. 
‘‘(a) INCLUSION AS SUBPART F INCOME.— 
‘‘(1) IN GENERAL.—Subject to the provisions of 
paragraph (2), the subpart F income (determined 
under section 952 without regard to this section) of 
a controlled foreign corporation for its last taxable 
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130 
year beginning before the applicable date (as defined 
in section 300 of the Infrastructure and Global Tax 
Competitiveness Act of 2014), shall be increased by 
the accumulated deferred foreign income of the cor-
poration. 
‘‘(2) INCLUSION ONLY TO APPLY TO DOMESTIC 
CORPORATIONS.—In the case of any increase in sub-
part F income of a controlled foreign corporation by 
reason of paragraph (1)— 
‘‘(A) notwithstanding section 951(a)(1), 
the inclusion in gross income under such section 
of a United States shareholder’s pro rata por-
tion (as determined under section 951(a)(2)) of 
such increased subpart F income shall only 
apply if the United States shareholder is a do-
mestic corporation, and 
‘‘(B) there shall be allowed as a deduction 
for the taxable year of such United States 
shareholder in which such increased subpart F 
income is included in such shareholder’s gross 
income under section 951(a)(1) an amount 
equal to the applicable percentage of the 
amount of the income so included. 
‘‘(b) 
ACCUMULATED
DEFERRED
FOREIGN
IN-
COME.—For purposes of this section— 
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131 
‘‘(1) IN GENERAL.—The term ‘accumulated de-
ferred foreign income’ means the excess of— 
‘‘(A) the undistributed earnings of the con-
trolled foreign corporation, over 
‘‘(B) the undistributed U.S. earnings of 
such controlled foreign corporation. 
‘‘(2) UNDISTRIBUTED EARNINGS.— 
‘‘(A) IN GENERAL.—The term ‘undistrib-
uted earnings’ means the earnings and profits 
of the controlled foreign corporation described 
in section 959(c)(3), determined— 
‘‘(i) as of the close of the taxable year 
described in subsection (a)(1), 
‘‘(ii) without diminution by reason of 
distributions made during such taxable 
year, and 
‘‘(iii) without regard to this section. 
‘‘(B) SPECIAL RULE FOR CURRENT YEAR 
DISTRIBUTIONS.—For purposes of this chapter, 
any determination with respect to the treatment 
of distributions described in subparagraph 
(A)(ii) shall be made after the application of 
this section to the earnings and profits de-
scribed in subparagraph (A). 
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132 
‘‘(3) UNDISTRIBUTED
U.S. 
EARNINGS.—The 
term ‘undistributed U.S. earnings’ has the meaning 
given the term ‘post-1986 undistributed U.S. earn-
ings’ in section 245(a)(5) (as in effect for taxable 
years beginning the day before the applicable date 
(as defined in section 300 of the Infrastructure and 
Global Tax Competitiveness Act of 2014)), deter-
mined— 
‘‘(A) without regard to ‘post-1986’ each 
place it appears in the matter before subpara-
graph (A), and 
‘‘(B) without regard to the last sentence 
thereof. 
‘‘(c) DISALLOWANCE
OF FOREIGN TAX CREDIT, 
ETC.— 
‘‘(1) IN GENERAL.—No credit shall be allowed 
under section 901 to a United States shareholder of 
a controlled foreign corporation for any taxes paid 
or accrued (or treated as paid or accrued) with re-
spect to the deductible portion of— 
‘‘(A) the increased subpart F income of 
the corporation included in the gross income of 
the shareholder under subsection (a)(2)(A), or 
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133 
‘‘(B) any distribution received by the 
shareholder which is properly attributable to 
such increased subpart F income. 
‘‘(2) DENIAL
OF
DEDUCTION.—No deduction 
shall be allowed under this chapter to a United 
States shareholder of a controlled foreign corpora-
tion for any tax for which a credit is not allowable 
under section 901 by reason of paragraph (1). 
‘‘(3) DEDUCTIBLE PORTION.—For purposes of 
this subsection, the term ‘deductible portion’ means, 
with respect to the increased subpart F income of 
the corporation included in the gross income of the 
shareholder under subsection (a)(2)(A), the applica-
ble percentage of such income with respect to which 
a deduction is allowable under subsection (a)(2)(B). 
‘‘(4) COORDINATION WITH SECTION 78.—Sec-
tion 78 shall not apply to the portion of any tax for 
which credit is not allowable under section 901 by 
reason of paragraph (1). 
‘‘(d) APPLICABLE PERCENTAGE.—For purposes of 
this section, the term ‘applicable percentage’ means the 
percentage which is equal to the ratio of— 
‘‘(1) the excess of— 
‘‘(A) the highest rate of tax in effect under 
section 11(b) for the taxable year of the United 
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134 
States shareholder described in subsection 
(a)(2)(B), over 
‘‘(B) 20 percent, to 
‘‘(2) the highest rate of tax in effect under sec-
tion 11(b) for the taxable year of the United States 
shareholder described in subsection (a)(2)(B). 
The percentage determined under the preceding sentence 
shall be rounded to the nearest whole percentage point. 
‘‘(e) ELECTION TO PAY LIABILITY
IN INSTALL-
MENTS.— 
‘‘(1) IN GENERAL.—In the case of a United 
States shareholder with respect to one or more con-
trolled foreign corporations to which subsection (a) 
applies, such United States shareholder may elect to 
pay the net tax liability under this section in 2 or 
more (but not exceeding 8) equal installments. 
‘‘(2) DATE FOR PAYMENT OF INSTALLMENTS.— 
If an election is made under paragraph (1), the due 
date for the first installment shall be the due date 
(determined without regard to any extension of time 
for filing the return) for the return of tax for the 
taxable year described in subsection (a)(2)(B) and 
the due date for each succeeding installment shall be 
the due date (as so determined) for the return of tax 
for the taxable year following the taxable year with 
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135 
respect to which the preceding installment was 
made. 
‘‘(3) ACCELERATION
OF
PAYMENT.—If there 
is— 
‘‘(A) an assessment of an addition to tax 
for failure to pay timely with respect to any in-
stallment required under this subsection, 
‘‘(B) a liquidation or sale of substantially 
all the assets of the taxpayer (including in a 
title 11 or similar case), 
‘‘(C) a cessation of business by the tax-
payer, or 
‘‘(D) any similar circumstance, 
then the unpaid portion of all remaining installments 
shall be due on the date of such event (or in the case 
of a title 11 or similar case, the day before the peti-
tion is filed). 
‘‘(4) PRORATION OF DEFICIENCY TO INSTALL-
MENTS.—If an election is made under paragraph (1) 
to pay the net tax liability under this section in in-
stallments and a deficiency has been assessed, the 
deficiency shall be prorated to the installments pay-
able under paragraph (1). The part of the deficiency 
so prorated to any installment the date for payment 
of which has not arrived shall be collected at the 
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136 
same time as, and as a part of, such installment. 
The part of the deficiency so prorated to any install-
ment the date for payment of which has arrived 
shall be paid upon notice and demand from the Sec-
retary. This paragraph shall not apply if the defi-
ciency is due to negligence, to intentional disregard 
of rules and regulations, or to fraud with intent to 
evade tax. 
‘‘(5) RULES RELATING TO INTEREST.— 
‘‘(A) IN GENERAL.—In the case of any net 
tax liability prorated to an installment under 
this subsection, the last date prescribed for pay-
ment of the tax for purposes of section 6601(a) 
shall be the last date for payment of the install-
ment rather than the last date for payment of 
tax for the taxable year in which the net tax li-
ability arose. 
‘‘(B) 
SPECIAL
RULES
FOR
DEFI-
CIENCIES.— 
‘‘(i) INTEREST PAYABLE FOR ENTIRE 
PERIOD.—Subparagraph 
(A) 
shall 
not 
apply to any deficiency prorated to an in-
stallment under paragraph (4). 
‘‘(ii) PAYMENT OF INTEREST ATTRIB-
UTABLE TO PRIOR PERIODS.—In the case 
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137 
of a deficiency to which paragraph (4) ap-
plies, interest with respect to such defi-
ciency which is assigned under paragraph 
(4) to any installment the date for pay-
ment of which has arrived on or before the 
date of the assessment of the deficiency, 
shall be paid upon notice and demand from 
the Secretary. 
‘‘(6) 
PERIOD
OF
ASSESSMENT.—Notwith-
standing section 6501, the period for assessing the 
net tax liability under this section for which an elec-
tion is made under paragraph (1) shall not expire 
before the due date for the last installment. 
‘‘(7) ELECTION.—Any election under paragraph 
(1) shall be made not later than the due date for the 
return of tax for the taxable year of the United 
States shareholder described in subsection (a)(2)(B) 
and shall be made in such manner as the Secretary 
may provide. 
‘‘(8) NET
TAX
LIABILITY
UNDER
THIS
SEC-
TION.—For purposes of this subsection— 
‘‘(A) IN GENERAL.—The net tax liability 
under this section with respect to any United 
States shareholder is the excess (if any) of— 
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138 
‘‘(i) such taxpayer’s net income tax 
for the taxable year, over 
‘‘(ii) such taxpayer’s net income tax 
for such taxable year determined without 
regard to this section. 
‘‘(B) NET INCOME TAX.—The term ‘net 
income tax’ means the net income tax (as de-
fined in section 38(c)(1)) reduced by the credit 
allowed under section 38. 
‘‘(C) REGULATIONS.—The Secretary shall 
prescribe such regulations as may be necessary 
for the determination under this subsection of 
the net tax liability under this section in the 
case of any pass-thru entity. 
‘‘(f) REGULATIONS.—The Secretary shall promulgate 
such regulations as necessary to carry out the purposes 
of this section, including regulations for the application 
of this section to pass-through entities all or part of which 
are owned by 1 or more domestic corporations.’’. 
(b) ORDERING RULE FOR PURPOSES OF TREATMENT 
OF PREVIOUSLY TAXED INCOME.— 
(1) IN GENERAL.—Section 959 is amended by 
adding at the end the following new subsection: 
‘‘(g) SPECIAL ORDERING RULE.—Notwithstanding 
subsection (c), for purposes of subsections (a) and (b), sec-
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tion 316(a) shall be applied by applying paragraph (2) 
thereof and then paragraph (1) thereof— 
‘‘(1) first to the deductible portion (as defined 
in section 965(c)(3)) of the increase in subpart F in-
come described in section 965(a)(1) included in the 
gross income of United States shareholders under 
section 951(a)(1) (after application of section 
965(a)(2)(A)), and 
‘‘(2) then to amounts described in paragraphs 
(1), (2), or (3) of subsection (c).’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
959(c) is amended by inserting ‘‘except as provided 
in subsection (g),’’ after ‘‘subsections (a) and (b),’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Clause (vi) of section 56(g)(4)(C) is amend-
ed— 
(A) by inserting ‘‘or section 966(a)(2)’’ 
after ‘‘section 965’’, and 
(B) by inserting ‘‘AND INCLUSIONS’’ after 
‘‘CERTAIN
DISTRIBUTIONS’’ in the heading 
thereof. 
(2) Paragraph (3) of section 245(a) is amend-
ed— 
(A) by striking ‘‘post-1986’’ in subpara-
graph (A), and 
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140 
(B) by striking ‘‘total post-1986’’ in sub-
paragraph (B). 
(3) Paragraph (4) of section 245(a) is amended 
to read as follows: 
‘‘(4) UNDISTRIBUTED
EARNINGS.—The term 
‘undistributed earnings’ means the amount of the 
earnings and profits of the controlled foreign cor-
poration (computed in accordance with sections 
964(a) and 986)— 
‘‘(A) as of the close of the taxable year of 
the controlled foreign corporation in which the 
dividend is distributed, and 
‘‘(B) without diminution by reason of divi-
dends distributed during such taxable year.’’. 
(4) Paragraph (5) of section 245(a) is amend-
ed— 
(A) by striking ‘‘post-1986’’ both places it 
appears in the matter preceding subparagraph 
(A), and 
(B) by striking ‘‘POST-1986 UNDISTRIB-
UTED’’ in the heading thereof and inserting 
‘‘UNDISTRIBUTED’’. 
(5) Paragraph (6) of section 245(a) is amend-
ed— 
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141 
(A) by striking ‘‘beginning after December 
31, 1986’’ and inserting ‘‘which is after the 
first taxable year of such corporation’’, and 
(B) by striking ‘‘post-1986’’ both places it 
appears. 
(6) Paragraph (2) of section 6601(b) is amend-
ed— 
(A) by striking ‘‘section 6156(a)’’ in the 
matter preceding subparagraph (A) and insert-
ing ‘‘section 965(d)(1) or 6156(a)’’, and 
(B) by striking ‘‘section 6156(b)’’ in sub-
paragraph (A) and inserting ‘‘section 965(d)(2) 
or 6156(b), as the case may be’’. 
(7) The table of sections for subpart F of part 
III of subchapter N of chapter 1 is amended by 
striking the item relating to section 965 and insert-
ing the following: 
‘‘Sec. 965. Inclusion of previously deferred foreign income.’’. 
(d) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to the last taxable year of foreign cor-
porations beginning before the applicable date, and 
to taxable years of United States shareholders with 
or within which such taxable years of foreign cor-
porations end. 
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(2) CONFORMING
AMENDMENTS
RELATED
TO 
SECTION
245.—The amendments made by para-
graphs (2), (3), (4), and (5) of subsection (c) shall 
apply to taxable years of foreign corporations begin-
ning on or after the applicable date, and to taxable 
years of United States shareholders with or within 
which such taxable years of foreign corporations 
end. 
Subpart B—Other Provisions 
SEC. 336. ELIMINATION OF 30-DAY REQUIREMENT. 
(a) IN GENERAL.—Section 951(a)(1) is amended by 
striking ‘‘for an uninterrupted period of 30 days or more’’ 
and inserting ‘‘at any time’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years of foreign corpora-
tions beginning on or after the applicable date, and to tax-
able years of United States shareholders with or within 
which such taxable years of foreign corporations end. 
SEC. 337. MODIFICATION OF DEFINITION OF UNITED 
STATES SHAREHOLDER. 
(a) IN GENERAL.—Section 951(b) is amended by in-
serting ‘‘, or 10 percent or more of the total value of 
shares of all classes of stock of such foreign corporation’’ 
after ‘‘such foreign corporation’’. 
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143 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years of foreign corpora-
tions beginning on or after the applicable date, and to tax-
able years of United States shareholders with or within 
which such taxable years of foreign corporations end. 
Subtitle B—Reform of Foreign Tax 
Credit Provisions 
SEC. 341. REPEAL OF SECTION 902 INDIRECT FOREIGN TAX 
CREDITS; FOREIGN TAX CREDIT RELATED TO 
SUBPART F INCOME. 
(a) REPEAL OF SECTION 902 INDIRECT FOREIGN 
TAX CREDITS.—Subpart A of part III of subchapter N 
of chapter 1 is amended by striking section 902. 
(b) FOREIGN TAX CREDIT RELATED TO SUBPART F 
INCOME.— 
(1) IN GENERAL.—Section 960 is amended by 
redesignating subsections (b) and (c) as subsections 
(c) and (d), respectively, and by striking subsection 
(a) and inserting the following: 
‘‘(a) DETERMINATION
OF CREDIT
ON CURRENT 
YEAR BASIS.—For purposes of this subpart, if there is 
included in the gross income of a domestic corporation any 
amount under section 951(a) with respect to any con-
trolled foreign corporation with respect to which such do-
mestic corporation is a United States shareholder, such 
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144 
domestic corporation shall be deemed to have paid so 
much of such foreign corporation’s foreign income taxes 
as are properly attributable to the amount so included. 
‘‘(b) TREATMENT OF FOREIGN TAXES NOT PRE-
VIOUSLY DEEMED PAID.—For purposes of this subpart— 
‘‘(1) IN GENERAL.—If any portion of a dis-
tribution from a controlled foreign corporation re-
ceived by a domestic corporation is excluded from 
gross income under section 959(a), such domestic 
corporation shall be deemed to have paid so much of 
such foreign corporation’s foreign income taxes as 
are properly attributable to the amount so excluded 
to the extent such taxes were not deemed paid by 
the domestic corporation under this section for any 
prior taxable year. 
‘‘(2) TAXES OF LOWER-TIER CFCS.—If a con-
trolled foreign corporation receives a distribution 
any portion of which is described in section 959(b) 
from another controlled foreign corporation, such 
foreign corporation shall be deemed to have paid so 
much of such other foreign corporation’s foreign in-
come taxes as are properly attributable to the 
amount so described to the extent such taxes were 
not deemed paid by a domestic corporation under 
this section for any prior taxable year.’’. 
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145 
(2) APPLICATION WITH RESPECT TO FOREIGN 
TAX CREDIT LIMITATION.—Section 960(c), as redes-
ignated by paragraph (1), is amended by adding at 
the end the following new paragraph: 
‘‘(6) APPLICATION WITH RESPECT TO FOREIGN 
TAX CREDIT LIMITATION.—This subsection shall be 
applied separately with respect to each category of 
income described in section 904(d)(1).’’. 
(3) CONFORMING AMENDMENTS.— 
(A) Section 960 is amended by striking 
subsection (d), as redesignated by paragraph 
(1), and inserting the following: 
‘‘(d) FOREIGN INCOME TAXES.—For purposes of this 
section, the term ‘foreign income taxes’ means any income, 
war profits, or excess profits taxes paid or accrued by a 
foreign corporation to any foreign country or possession 
of the United States. 
‘‘(e) REGULATIONS.—The Secretary shall provide 
such regulations as may be necessary or appropriate to 
carry out the provisions of this section, including rules for 
the application of this section to domestic partnerships 
with partners that are domestic corporations.’’. 
(B) Section 960 is amended by striking the 
heading and inserting ‘‘DEEMED PAID CRED-
IT FOR SUBPART F INCLUSIONS’’. 
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146 
(c) MODIFICATION TO SECTION 78 GROSS UP.—Sec-
tion 78 is amended to read as follows: 
‘‘SEC. 78. AMOUNTS RECEIVED FROM CERTAIN FOREIGN 
CORPORATIONS 
BY 
DOMESTIC 
CORPORA-
TIONS CHOOSING FOREIGN TAX CREDIT. 
‘‘If a domestic corporation which is a United States 
shareholder chooses to have the benefits of subpart A of 
part III of subchapter N (relating to foreign tax credits) 
for any taxable year, an amount equal to the taxes deemed 
to be paid by such corporation under section 960 for such 
taxable year— 
‘‘(1) shall be treated as an amount included in 
the gross income under section 951(a), and 
‘‘(2) for purposes of section 904, shall be 
deemed to be attributable to the same category of 
income described in section 904(d)(1) as the income 
which gave rise to the taxes deemed paid by such 
corporation.’’. 
(d) CONFORMING AMENDMENTS.— 
(1) Subclause (III) of section 56(g)(4)(C)(iii) is 
amended by inserting ‘‘as in effect before its repeal’’ 
after ‘‘section 902’’. 
(2) Sections 535(b)(1) and 545(b)(1) are each 
amended by striking ‘‘section 902(a) or 960(a)(1)’’ 
and inserting ‘‘section 960’’. 
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147 
(3) Subparagraph (B) of section 814(f)(1) is 
repealed. 
(4) Subsection (a) of section 901 is amended by 
striking ‘‘sections 902 and 960’’ and inserting ‘‘sec-
tion 960’’. 
(5) Paragraph (2) of section 901(e) is amended 
by striking ‘‘but is not limited to—’’ and all that fol-
lows through ‘‘that portion’’ and inserting ‘‘but is 
not limited to that portion’’. 
(6) Subsection (f) of section 901 is amended by 
striking ‘‘sections 902 and 960’’ and inserting ‘‘sec-
tion 960’’. 
(7) Subparagraph (A) of section 901(j)(1) is 
amended by striking ‘‘902 or’’. 
(8) Subparagraph (A) of section 904(h)(10) is 
amended by striking ‘‘sections 902, 907, and 960’’ 
and inserting ‘‘sections 907 and 960’’. 
(9) Subsection (k) of section 904 is amended to 
read as follows: 
‘‘(k) CROSS REFERENCE.—For modification of limi-
tation under subsection (a) for purposes of determining 
the amount of credit which can be taken against the alter-
native minimum tax, see section 59(a).’’. 
(10) Paragraph (1) of section 905(c) is amend-
ed by striking the last sentence. 
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148 
(11) Subclause (I) of section 905(c)(2)(B) is 
amended by striking ‘‘902 or’’. 
(12) Subsection (a) of section 906 is amended 
by striking ‘‘(or deemed, under section 902, paid or 
accrued during the taxable year)’’. 
(13) Subsection (b) of section 906 is amended 
by striking paragraphs (4) and (5). 
(14) Subparagraph (B) of section 907(b)(2) is 
amended by striking ‘‘902 or’’. 
(15) Paragraph (3) of section 907(c) is amend-
ed— 
(A) by striking subparagraph (A) and re-
designating subparagraphs (B) and (C) as sub-
paragraphs (A) and (B), respectively, and 
(B) by striking ‘‘section 960(a)’’ in sub-
paragraph (A) (as so redesignated) and insert-
ing ‘‘section 960’’. 
(16) Paragraph (5) of section 907(c) is amend-
ed by striking ‘‘902 or’’. 
(17) Clause (i) of section 907(f)(2)(B) is 
amended by striking ‘‘902 or’’. 
(18) Subsection (a) of section 908 is amended 
by striking ‘‘902 or’’. 
(19) Paragraph (1) of section 958(a) is amend-
ed by striking ‘‘960(a)(1)’’ and inserting ‘‘960’’. 
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149 
(20) Subparagraph (B) of section 6038(c)(1) is 
amended by striking ‘‘sections 902 (relating to for-
eign tax credit for corporate stockholder in foreign 
corporation) and 960 (relating to special rules for 
foreign tax credit)’’ and inserting ‘‘section 960’’. 
(21) Paragraph (4) of section 6038(c) is 
amended by striking subparagraph (C). 
(22) The table of sections for subpart A of part 
III of subchapter N of chapter 1 is amended by 
striking the item relating to section 902. 
(23) The table of sections for part II of sub-
chapter B of chapter 1 is amended by striking 
‘‘Dividends’’ in the item relating to section 78 and 
inserting ‘‘Amounts’’. 
(24) The table of sections for subpart F of part 
III of subchapter N of chapter 1 is amended by 
striking the item relating to section 960 and insert-
ing the following: 
‘‘Sec. 960. Deemed paid credit for subpart F inclusions.’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years of foreign corpora-
tions beginning on or after the applicable date, and to tax-
able years of United States shareholders with or within 
which such taxable years of foreign corporations end. 
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SEC. 342. REPEAL OF RULE SUSPENDING FOREIGN TAXES 
AND CREDITS UNTIL RELATED INCOME IS 
TAKEN INTO ACCOUNT. 
(a) IN GENERAL.—Subpart A of part III of sub-
chapter N of chapter 1 is amended by striking section 909. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 901(m)(1)(B) is amended by strik-
ing ‘‘a section 902 corporation (as defined in section 
909(d)(5))’’ and inserting ‘‘a controlled foreign cor-
poration (as defined in section 957(a))’’. 
(2) The table of sections of subpart A of part 
III of subchapter N of chapter 1 is amended by 
striking the item relating to section 909. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to foreign taxes paid or accrued 
in taxable years beginning on or after the applicable date. 
Æ 
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