‘‘(B) 
EXCEPTION.—Subparagraph 
(A) 
shall not apply—
‘‘(i) to any dividend referred to in sec-
tion 871(k)(1)(B), and 
‘‘(ii) to any interest-related dividend 
received by a controlled foreign corporation 
(within the meaning of section 957(a)) to 
the extent such dividend is attributable to 
interest received by the regulated invest-
ment company from a person who is a re-
lated person (within the meaning of section 
864(d)(4)) with respect to such controlled 
foreign corporation. 
‘‘(C) TREATMENT
OF
DIVIDENDS
RE-
CEIVED
BY
CONTROLLED
FOREIGN
CORPORA-
TIONS.—The rules of subsection (c)(5)(A) shall 
apply to any interest-related dividend received 
by a controlled foreign corporation (within the 
meaning of section 957(a)) to the extent such 
dividend is attributable to interest received by 
the regulated investment company which is de-
scribed 
in 
subclause 
(II) 
of 
section
871(k)(1)(E)(i) (and not described in subclause 
(I) or (III) thereof).
‘‘(2) SHORT-TERM CAPITAL GAIN DIVIDENDS.—
No tax shall be imposed under paragraph (1) of sub-
section (a) on any short-term capital gain dividend 
(as defined in section 871(k)(2)) received from a 
regulated investment company.’’. 
(3) WITHHOLDING TAXES.—
(A) Subsection (c) of section 1441 is 
amended by adding at the end thereof the fol-
lowing new paragraph: 
‘‘(12) CERTAIN
DIVIDENDS
RECEIVED
FROM 
REGULATED INVESTMENT COMPANIES.—
‘‘(A) IN GENERAL.—No tax shall be re-
quired to be deducted and withheld under sub-
section (a) from any amount exempt from the 
tax imposed by section 871(a)(1)(A) by reason 
of section 871(k). 
‘‘(B) SPECIAL
RULE.—For purposes of 
subparagraph 
(A), 
clause 
(i) 
of 
section 
871(k)(1)(B) shall not apply to any dividend 
unless the regulated investment company knows 
that such dividend is a dividend referred to in 
such clause. A similar rule shall apply with re-
spect to the exception contained in section 
871(k)(2)(B).’’.
(B) Subsection (a) of section 1442 is 
amended—
(i) by striking ‘‘and the reference in 
section 1441(c)(10)’’ and inserting ‘‘the 
reference in section 1441(c)(10)’’, and 
(ii) by inserting before the period at 
the end thereof the following: ‘‘, and the 
references in section 1441(c)(12) to sec-
tions 871(a) and 871(k) shall be treated as 
referring to sections 881(a) and 881(e) 
(except that for purposes of applying sub-
paragraph (A) of section 1441(c)(12), as 
so 
modified, 
clause 
(ii) 
of 
section 
881(e)(1)(B) shall not apply to any divi-
dend unless the regulated investment com-
pany knows that such dividend is a divi-
dend referred to in such clause)’’. 
(b) ESTATE TAX TREATMENT OF INTEREST IN CER-
TAIN
REGULATED
INVESTMENT
COMPANIES.—Section 
2105 (relating to property without the United States for 
estate tax purposes) is amended by adding at the end 
thereof the following new subsection: 
‘‘(d) STOCK IN A REGULATED INVESTMENT COM-
PANY.—
‘‘(1) IN GENERAL.—For purposes of this sub-
chapter, stock in a regulated investment company 
(as defined in section 851) owned by a nonresident 
not a citizen of the United States shall not be 
deemed property within the United States in the 
proportion that, at the end of the quarter of such in-
vestment company’s taxable year immediately pre-
ceding the decedent’s date of death (or at such other 
time as the Secretary may designate in regulations), 
the assets of the investment company that were 
qualifying assets with respect to the decedent bore 
to the total assets of the investment company. 
‘‘(2) QUALIFYING
ASSETS.—For purposes of 
this subsection, qualifying assets with respect to a 
decedent are assets that, if owned directly by the de-
cedent, would have been—
‘‘(A) amounts, deposits, or debt obligations 
described in subsection (b) of this section, 
‘‘(B) debt obligations described in the last 
sentence of section 2104(c), or 
‘‘(C) other property not within the United 
States.’’. 
(c) TREATMENT OF REGULATED INVESTMENT COM-
PANIES UNDER SECTION 897.—
(1) Paragraph (1) of section 897(h) is amended 
by striking ‘‘REIT’’ each place it appears and in-
serting ‘‘qualified investment entity’’. 
(2) Paragraphs (2) and (3) of section 897(h) 
are amended to read as follows: 
‘‘(2) SALE OF STOCK IN DOMESTICALLY-CON-
TROLLED ENTITY NOT TAXED.—The term ‘United 
States real property interest’ does not include any 
interest in a domestically-controlled qualified invest-
ment entity. 
‘‘(3) DISTRIBUTIONS
BY
DOMESTICALLY-CON-
TROLLED
QUALIFIED
INVESTMENT
ENTITIES.—In 
the case of a domestically-controlled qualified invest-
ment entity, rules similar to the rules of subsection 
(d) shall apply to the foreign ownership percentage 
of any gain.’’. 
(3) Subparagraphs (A) and (B) of section 
897(h)(4) are amended to read as follows: 
‘‘(A) QUALIFIED INVESTMENT ENTITY.—
The term ‘qualified investment entity’ means 
any real estate investment trust and any regu-
lated investment company. 
‘‘(B) DOMESTICALLY-CONTROLLED.—The 
term ‘domestically-controlled qualified invest-
ment entity’ means any qualified investment en-
tity in which at all times during the testing pe-
riod less than 50 percent in value of the stock 
was held directly or indirectly by foreign per-
sons.’’. 
(4) Subparagraphs (C) and (D) of section 
897(h)(4) are each amended by striking ‘‘REIT’’ 
and inserting ‘‘qualified investment entity’’. 
(5) The subsection heading for subsection (h) of 
section 897 is amended by striking ‘‘REITS’’ and 
inserting ‘‘CERTAIN INVESTMENT ENTITIES’’. 
(d) EFFECTIVE DATE.—
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by 
this section shall apply to dividends with respect to 
taxable years of regulated investment companies be-
ginning after the date of the enactment of this Act. 
(2) ESTATE
TAX
TREATMENT.—The amend-
ment made by subsection (b) shall apply to estates 
of decedents dying after the date of the enactment 
of this Act.
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