rules of subparagraphs (C) and (D) of section 
904(d)(3)) to income of the related person which is 
not subpart F income (as defined in section 952).’’
SEC. 108. REDUCTION TO 3 FOREIGN TAX CREDIT BASKETS. 
(a) IN GENERAL.—Paragraph (1) of section 904(d) 
(relating to separate application of section with respect to 
certain categories of income) is amended to read as fol-
lows: 
‘‘(1) IN
GENERAL.—The provisions of sub-
sections (a), (b), and (c) and sections 902, 907, and 
960 shall be applied separately with respect to in-
come described in each of the following items of in-
come: 
‘‘(A) passive income and other passive cat-
egory income, 
‘‘(B) financial services income, and 
‘‘(C) income other than income described 
in subparagraph (A) or (B).’’
(b) OTHER PASSIVE CATEGORY INCOME.—Subpara-
graph (A) of section 904(d)(2) is amended by adding at 
the end the following new clause: 
‘‘(v) OTHER
PASSIVE
CATEGORY
IN-
COME.—The term ‘other passive category 
income’ means—
‘‘(I) dividends from a DISC or 
former DISC (as defined in section 
992(a)) to the extent such dividends 
are treated as income from sources 
without the United States, 
‘‘(II) taxable income attributable 
to foreign trade income (within the 
meaning of section 923(b)), and 
‘‘(III) distributions from a FSC 
(or a former FSC) out of earnings 
and profits attributable to foreign 
trade income (within the meaning of 
section 923(b)) or interest or carrying 
charges 
(as 
defined 
in 
section 
927(d)(1)) derived from a transaction 
which results in foreign trade income 
(as defined in section 923(b)).’’
(c) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 904(d) is amended 
by striking subparagraphs (B) and (D). 
(2)(A) 
Subclause 
(III) 
of 
section 
904(d)(2)(C)(i) is amended to read as follows: 
‘‘(III) high-taxed export financ-
ing interest.’’
(B) Subparagraph (C) of section 904(d)(2) is 
amended by adding at the end the following new 
clause: 
‘‘(iv) HIGH-TAXED
EXPORT
FINANC-
ING INTEREST.—The term ‘high-taxed ex-
port financing interest’ means any interest 
if—
‘‘(I) such interest is subject to a 
withholding tax of a foreign country 
or possession of the United States (or 
other tax determined on a gross 
basis), and 
‘‘(II) the rate of such tax appli-
cable to such interest is at least 5 per-
cent. 
The Secretary may by regulations provide 
that export financing interest (not other-
wise high-taxed export financing interest) 
shall be treated as high-taxed export fi-
nancing interest where necessary to pre-
vent avoidance of the purposes of this sub-
paragraph, and a tax shall not be treated 
as a withholding tax or other tax imposed 
on a gross basis if such tax is in the na-
ture of a prepayment of a tax imposed on 
a net basis.’’
(3) Clause (iii) of section 904(d)(2)(C) is 
amended to read as follows: 
‘‘(iii) EXCEPTIONS.—The term ‘finan-
cial services income’ does not include—
‘‘(I) in the case of a corporation, 
dividends from noncontrolled section 
902 corporations out of earnings and 
profits accumulated in taxable years 
beginning before January 1, 2003, 
and 
‘‘(II) any export financing inter-
est which is not high-taxed export fi-
nancing interest.’’
(4) Subparagraph (E) of section 904(d)(2) is 
amended by striking clause (ii) and by redesignating 
clauses (iii) and (iv) as clauses (ii) and (iii), respec-
tively.
(5) Clause (i) of section 904(d)(3)(F) is amend-
ed to read as follows: 
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), the separate categories 
are—
‘‘(I) passive income and other 
passive category income, and 
‘‘(II) financial services income.’’
(6) Paragraph (3) of section 904(d) is amended 
by striking subparagraph (H) and by redesignating 
subparagraph (I) as subparagraph (H). 
(7) Paragraph (2) of section 904(d) is amended 
by adding at the end the following new subpara-
graph: 
‘‘(I) 
TRANSITIONAL
RULE
FOR
2003 
CHANGES.—For purposes of paragraph (1), 
taxes carried from any taxable year beginning 
before January 1, 2004, to any taxable year be-
ginning on or after such date, with respect to 
any item of income shall be treated as described 
in the subparagraph of paragraph (1) in which 
such income would be described were such taxes 
paid or accrued in a taxable year beginning on 
or after such date.’’
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
SEC. 109. EFFECTIVE DATE. 
Except as otherwise provided in this title, the amend-
ments made by this title shall apply to taxable years of
taxpayer chose the benefits of this subpart for 
such taxable year. 
‘‘(3) CHARACTERIZATION OF SUBSEQUENT IN-
COME.—
‘‘(A) IN
GENERAL.—Any income from 
sources within the United States that is treated 
as income from sources without the United 
States under paragraph (1) shall be allocated 
among and increase the income categories in 
proportion to the loss from sources within the 
United States previously allocated to those in-
come categories.
‘‘(B) INCOME CATEGORY.—For purposes of 
this paragraph, the term ‘income category’ has 
the meaning given such term by subsection 
(f)(5)(E)(i). 
‘‘(4) COORDINATION WITH SUBSECTION (f).—
The Secretary shall prescribe such regulations as 
may be necessary to coordinate the provisions of this 
subsection with the provisions of subsection (f).’’
(b) CONFORMING AMENDMENTS.—
(1) Section 535(d)(2) is amended by striking 
‘‘section 
904(g)(6)’’ 
and 
inserting 
‘‘section 
904(h)(6)’’.
(2) Subparagraph (A) of section 936(a)(2) is 
amended by striking ‘‘section 904(f)’’ and inserting 
‘‘subsections (f) and (g) of section 904’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to losses for taxable years begin-
ning after December 31, 2003. 
SEC. 202. SPECIAL RULES RELATING TO FINANCIAL SERV-
ICES INCOME. 
(a) FINANCIAL SERVICES INCOME IN EXCESS OF 80 
PERCENT OF GROSS INCOME.—Section 904(d)(2)(C) (re-
lating to financial services income) is amended by adding 
at the end the following new clause: 
‘‘(iv) INCOME EXCEEDING 80 PERCENT 
OF GROSS INCOME.—If the financial serv-
ices income (as defined in clause (i)) of 
any person exceeds 80 percent of gross in-
come, the entire gross income for the tax-
able year shall be treated as financial serv-
ices income.’’
(b) EXCEPTION
FOR INCOME
ON DEALER PROP-
ERTY.—Subsection 904(g) (relating to source rules in case 
of United States-owned foreign corporations) is amended 
by redesignating paragraph (11) as paragraph (12) and 
by adding after paragraph (10) the following new para-
graph:
‘‘(11) EXCEPTION
FOR
INCOME
ON
DEALER 
PROPERTY.—Paragraph (1) shall not apply to any 
amount derived from a United States-owned foreign 
corporation that is derived from income on a secu-
rity (within the meaning of section 475(c)(2)) which 
is received or accrued by a person that holds the se-
curity in connection with the holder’s activities as a 
dealer in securities (within the meaning of section 
475(c)(1)).’’
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by 
this section shall apply to taxable years beginning 
after December 31, 2003. 
(2) DEEMED PAID CREDITS.—In the case of 
any credit under section 901 of the Internal Revenue 
Code of 1986 by reason of section 902 or 960 of 
such Code, the amendments made by this section 
shall apply to taxable years of foreign corporations 
beginning after December 31, 2003, and to taxable 
years of United States shareholders in such corpora-
tions with or within which such taxable years of for-
eign corporations end.
SEC. 203. LOOK-THRU RULES TO APPLY TO DIVIDENDS 
FROM NONCONTROLLED SECTION 902 COR-
PORATIONS. 
(a) IN GENERAL.—Section 904(d)(4) (relating to 
look-thru rules apply to dividends from noncontrolled sec-
tion 902 corporations) is amended to read as follows: 
‘‘(4) LOOK-THRU APPLIES TO DIVIDENDS FROM 
NONCONTROLLED SECTION 902 CORPORATIONS.—
‘‘(A) IN GENERAL.—For purposes of this 
subsection, any dividend from a noncontrolled 
section 902 corporation with respect to the tax-
payer shall be treated as income in a separate 
category in proportion to the ratio of—
‘‘(i) the portion of earnings and prof-
its attributable to income in such category, 
to 
‘‘(ii) the total amount of earnings and 
profits. 
‘‘(B) SPECIAL
RULES.—For purposes of 
this paragraph—
‘‘(i) IN
GENERAL.—Rules similar to 
the rules of paragraph (3)(F) shall apply. 
‘‘(ii) EARNINGS AND PROFITS.—
‘‘(I) IN GENERAL.—The rules of 
section 316 shall apply.
‘‘(II) REGULATIONS.—The Sec-
retary may prescribe regulations re-
garding the treatment of distributions 
out of earnings and profits for periods 
before the taxpayer’s acquisition of 
the stock to which the distributions 
relate. 
‘‘(iii) DIVIDENDS NOT ALLOCABLE TO 
SEPARATE CATEGORY.—The portion of any 
dividend from a noncontrolled section 902 
corporation which is not treated as income 
in a separate category under subparagraph 
(A) shall be treated as a dividend to which 
subparagraph (A) does not apply. 
‘‘(iv) LOOK-THRU WITH RESPECT TO 
CARRYFORWARDS OF CREDIT.—Rules simi-
lar to subparagraph (A) also shall apply to 
any carryforward under subsection (c) 
from a taxable year beginning before Janu-
ary 1, 2003, of tax allocable to a dividend 
from a noncontrolled section 902 corpora-
tion with respect to the taxpayer.’’. 
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (E) of section 904(d)(1), as 
in effect both before and after the amendments
made by section 1105 of the Taxpayer Relief Act of 
1997, is hereby repealed. 
(2) Section 904(d)(2)(C)(iii), as so in effect, is 
amended by striking subclause (II) and by redesig-
nating subclause (III) as subclause (II). 
(3) The last sentence of section 904(d)(2)(D), 
as so in effect, is amended to read as follows: ‘‘Such 
term does not include any financial services income.’’ 
(4) Section 904(d)(2)(E) is amended—
(A) by inserting ‘‘or (4)’’ after ‘‘paragraph 
(3)’’ in clause (i), and 
(B) by striking clauses (ii) and (iv) and by 
redesignating clause (iii) as clause (ii). 
(5) Section 904(d)(3)(F) is amended by strik-
ing ‘‘(D), or (E)’’ and inserting ‘‘or (D)’’. 
(6) Section 864(d)(5)(A)(i) is amended by 
striking ‘‘(C)(iii)(III)’’ and inserting ‘‘(C)(iii)(II)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2002. 
SEC. 204. APPLICATION OF LOOK-THRU RULES TO FOREIGN 
TAX CREDIT. 
(a) INTEREST, RENTS, AND ROYALTIES.—
(1) NONCONTROLLED
SECTION
902
CORPORA-
TION.—Section 904(d)(4)(A), as amended by section 
203, is amended to read as follows:
‘‘(A) IN GENERAL.—For purposes of this 
subsection—
‘‘(i) any applicable dividend shall be 
treated as income in a separate category in 
proportion to the ratio of—
‘‘(I) the portion of the earnings 
and profits attributable to income in 
such category, to 
‘‘(II) the total amount of earn-
ings and profits, and 
‘‘(ii) any interest, rent, or royalty 
which is received or accrued from a non-
controlled section 902 corporation with re-
spect to the taxpayer shall be treated as 
income in a separate category to the extent 
it is properly allocable (under regulations 
prescribed by the Secretary) to income of 
such corporation in such category.’’
(2) PARTNERSHIPS.—Section 904(d)(6)(C) (re-
lating to regulations) is amended—
(A) by inserting ‘‘or (4)(A)(ii)’’ after 
‘‘paragraph (3)(C)’’, and
(B) by inserting ‘‘or noncontrolled section 
902 corporations, whichever is applicable’’ after 
‘‘controlled foreign corporations’’. 
(3) CONFORMING AMENDMENT.—The heading 
for section 904(d)(4), as amended by section 203, is 
amended by inserting ‘‘, INTEREST, RENTS, OR ROY-
ALTIES’’ after ‘‘DIVIDENDS’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
SEC. 205. 10-YEAR FOREIGN TAX CREDIT CARRYFORWARD. 
(a) GENERAL RULE.—Section 904(c) (relating to 
carryback and carryover of excess tax paid) is amended 
by striking ‘‘in the first, second, third, fourth, or fifth’’ 
and inserting ‘‘in any of the first 10’’. 
(b) EXCESS EXTRACTION TAXES.—Paragraph (1) of 
section 907(f) is amended by striking ‘‘in the first, second, 
third, fourth, or fifth’’ and inserting ‘‘in any of the first 
10’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to excess foreign taxes which (with-
out regard to the amendments made by this section) may 
be carried to any taxable year beginning after December 
31, 2002.
SEC. 206. REPEAL OF LIMITATION OF FOREIGN TAX CREDIT 
UNDER ALTERNATIVE MINIMUM TAX. 
(a) IN GENERAL.—Section 59(a) (relating to alter-
native minimum tax foreign tax credit) is amended by 
striking paragraph (2) and by redesignating paragraphs 
(3) and (4) as paragraphs (2) and (3), respectively. 
(b) 
CONFORMING
AMENDMENT.—Section 
53(d)(1)(B)(i)(II) is amended by striking ‘‘and if section 
59(a)(2) did not apply’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003.
SEC. 207. ATTRIBUTION OF STOCK OWNERSHIP THROUGH 
PARTNERSHIPS TO APPLY IN DETERMINING 
SECTION 902 AND 960 CREDITS. 
(a) IN GENERAL.—Subsection (c) of section 902 is 
amended by redesignating paragraph (7) as paragraph (8) 
and by inserting after paragraph (6) the following new 
paragraph: 
‘‘(7) CONSTRUCTIVE
OWNERSHIP
THROUGH 
PARTNERSHIPS.—Stock owned, directly or indirectly, 
by or for a partnership shall be considered as being 
owned proportionately by its partners. Stock consid-
ered to be owned by a person by reason of the pre-
ceding sentence shall, for purposes of applying such 
sentence, be treated as actually owned by such per-
son. The Secretary may prescribe such regulations 
as may be necessary to carry out the purposes of 
this paragraph, including rules to account for special 
partnership allocations of dividends, credits, and 
other incidents of ownership of stock in determining 
proportionate ownership.’’
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxes of foreign corporations 
for taxable years of such corporations beginning after De-
cember 31, 2003. 
SEC. 208. REPEAL OF SPECIAL RULES FOR APPLYING FOR-
EIGN TAX CREDIT IN CASE OF FOREIGN OIL 
AND GAS INCOME. 
(a) IN GENERAL.—Section 907 (relating to special 
rules in case of foreign oil and gas income) is repealed. 
(b) CONFORMING AMENDMENTS.—
(1) Each of the following provisions are amend-
ed by striking ‘‘907,’’: 
(A) Section 245(a)(10). 
(B) Section 865(h)(1)(B). 
(C) Section 904(d)(1). 
(D) Section 904(g)(10)(A). 
(2) Section 904(f)(5)(E)(iii) is amended by in-
serting ‘‘, as in effect before its repeal by the Fair-
ness, Simplification and Competitiveness for Amer-
ican 
Business 
Act 
of 
2003’’ 
after 
‘‘section 
907(c)(4)(B)’’. 
(3) Section 954(g)(1) is amended by inserting 
‘‘, as in effect before its repeal by the Fairness, Sim-
plification and Competitiveness for American Busi-
ness Act of 2003’’ after ‘‘907(c)’’. 
(4) Section 6501(i) is amended—
(A) by striking ‘‘, or under section 907(f) 
(relating to carryback and carryover of dis-
allowed oil and gas extraction taxes)’’, and 
(B) by striking ‘‘or 907(f)’’. 
(5) 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 907. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
TITLE III—OTHER PROVISIONS 
SEC. 301. APPLICATION OF UNIFORM CAPITALIZATION 
RULES TO FOREIGN PERSONS. 
(a) IN GENERAL.—Section 263A(c) (relating to ex-
ceptions) is amended by adding at the end the following 
new paragraph: 
‘‘(7) FOREIGN PERSONS.—Except for purposes 
of applying sections 871(b)(1) and 882(a)(1), this
section shall not apply to any taxpayer who is not 
a United States person if such taxpayer capitalizes 
costs of produced property or property acquired for 
resale by applying the method used to ascertain the 
income, profit, or loss for purposes of reports or 
statements to shareholders, partners, other propri-
etors, or beneficiaries, or for credit purposes.’’
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to taxable years beginning after 
December 31, 2003. Section 481 of the Internal Revenue 
Code of 1986 shall not apply to any change in a method 
of accounting by reason of such amendment. 
SEC. 302. UNITED STATES PROPERTY NOT TO INCLUDE 
CERTAIN ASSETS ACQUIRED BY DEALERS IN 
ORDINARY COURSE OF TRADE OR BUSINESS. 
(a) IN GENERAL.—Section 956(c)(2) (relating to ex-
ceptions from property treated as United States property)
is amended by striking ‘‘and’’ at the end of subparagraph 
(J), by striking the period at the end of subparagraph (K) 
and inserting ‘‘; and’’, and by adding at the end the fol-
lowing new subparagraph: 
‘‘(L) securities acquired and held by a con-
trolled foreign corporation in the ordinary 
course of its business as a dealer in securities 
if (i) the dealer accounts for the securities as
‘‘(1) INTEREST-RELATED DIVIDENDS.—
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), no tax shall be imposed 
under paragraph (1)(A) of subsection (a) on 
any interest-related dividend received from a 
regulated investment company. 
‘‘(B) 
EXCEPTIONS.—Subparagraph 
(A) 
shall not apply—
‘‘(i) to any interest-related dividend 
received from a regulated investment com-
pany by a person to the extent such divi-
dend is attributable to interest (other than 
interest described in subparagraph (E) (i) 
or (iii)) received by such company on in-
debtedness issued by such person or by any 
corporation or partnership with respect to 
which such person is a 10-percent share-
holder, 
‘‘(ii) to any interest-related dividend 
with respect to stock of a regulated invest-
ment company unless the person who 
would otherwise be required to deduct and 
withhold tax from such dividend under 
chapter 3 receives a statement (which 
meets requirements similar to the require-
ments of subsection (h)(5)) that the bene-
ficial owner of such stock is not a United 
States person, and 
‘‘(iii) to any interest-related dividend 
paid to any person within a foreign coun-
try (or any interest-related dividend pay-
ment addressed to, or for the account of, 
persons within such foreign country) dur-
ing any period described in subsection 
(h)(6) with respect to such country. 
Clause (iii) shall not apply to any dividend with 
respect to any stock which was acquired on or 
before the date of the publication of the Sec-
retary’s determination under subsection (h)(6). 
‘‘(C) INTEREST-RELATED DIVIDEND.—For 
purposes of this paragraph, an interest-related 
dividend is any dividend (or part thereof) which 
is designated by the regulated investment com-
pany as an interest-related dividend in a writ-
ten notice mailed to its shareholders not later 
than 60 days after the close of its taxable year. 
If the aggregate amount so designated with re-
spect to a taxable year of the company (includ-
ing amounts so designated with respect to divi-
dends paid after the close of the taxable year
described in section 855) is greater than the 
qualified net interest income of the company for 
such taxable year, the portion of each distribu-
tion which shall be an interest-related dividend 
shall be only that portion of the amounts so 
designated which such qualified net interest in-
come bears to the aggregate amount so des-
ignated. 
‘‘(D) 
QUALIFIED
NET
INTEREST
IN-
COME.—For purposes of subparagraph (C), the 
term ‘qualified net interest income’ means the 
qualified interest income of the regulated in-
vestment company reduced by the deductions 
properly allocable to such income. 
‘‘(E) QUALIFIED INTEREST INCOME.—For 
purposes of subparagraph (D), the term ‘quali-
fied interest income’ means the sum of the fol-
lowing amounts derived by the regulated invest-
ment company from sources within the United 
States: 
‘‘(i) Any amount includible in gross 
income as original issue discount (within 
the meaning of section 1273) on an obliga-
tion payable 183 days or less from the date
of original issue (without regard to the pe-
riod held by the company). 
‘‘(ii) Any interest includible in gross 
income (including amounts recognized as 
ordinary income in respect of original issue 
discount or market discount or acquisition 
discount under part V of subchapter P and 
such other amounts as regulations may 
provide) on an obligation which is in reg-
istered form; except that this clause shall 
not apply to—
‘‘(I) any interest on an obligation 
issued by a corporation or partnership 
if the regulated investment company 
is a 10-percent shareholder in such 
corporation or partnership, and
‘‘(II) any interest which is treat-
ed as not being portfolio interest 
under the rules of subsection (h)(4). 
‘‘(iii) Any interest referred to in sub-
section (i)(2)(A) (without regard to the 
trade or business of the regulated invest-
ment company).
‘‘(iv) Any interest-related dividend in-
cludable in gross income with respect to
stock of another regulated investment com-
pany. 
‘‘(F) 10-PERCENT
SHAREHOLDER.—For 
purposes of this paragraph, the term ‘10-per-
cent shareholder’ has the meaning given such 
term by subsection (h)(3)(B).
‘‘(2) SHORT-TERM CAPITAL GAIN DIVIDENDS.—
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), no tax shall be imposed 
under paragraph (1)(A) of subsection (a) on 
any short-term capital gain dividend received 
from a regulated investment company. 
‘‘(B) EXCEPTION
FOR
ALIENS
TAXABLE 
UNDER SUBSECTION (a)(2).—In the case of divi-
dends received from a regulated investment 
company before January 1, 2003, subparagraph 
(A) shall not apply in the case of any non-
resident alien individual subject to tax under 
subsection (a)(2).
‘‘(C) SHORT-TERM
CAPITAL
GAIN
DIVI-
DEND.—For purposes of this paragraph, a 
short-term capital gain dividend is any dividend 
(or part thereof) which is designated by the reg-
ulated investment company as a short-term cap-
ital gain dividend in a written notice mailed to
its shareholders not later than 60 days after the 
close of its taxable year. If the aggregate 
amount so designated with respect to a taxable 
year of the company (including amounts so des-
ignated with respect to dividends paid after the 
close of the taxable year described in section 
855) is greater than the qualified short-term 
gain of the company for such taxable year, the 
portion of each distribution which shall be a 
short-term capital gain dividend shall be only 
that portion of the amounts so designated 
which such qualified short-term gain bears to 
the aggregate amount so designated. 
‘‘(D) QUALIFIED SHORT-TERM GAIN.—For 
purposes of subparagraph (C), the term ‘quali-
fied short-term gain’ means the excess of the 
net short-term capital gain of the regulated in-
vestment company for the taxable year over the 
net long-term capital loss (if any) of such com-
pany for such taxable year. For purposes of this 
subparagraph—
‘‘(i) the net short-term capital gain of 
the regulated investment company shall be 
computed by treating any short-term cap-
ital gain dividend includible in gross in-
come with respect to stock of another regu-
lated investment company as a short-term 
capital gain, and 
‘‘(ii) the excess of the net short-term 
capital gain for a taxable year over the net 
long-term capital loss for a taxable year (to 
which an election under section 4982(e)(4) 
does not apply) shall be determined with-
out regard to any net capital loss or net 
short-term capital loss attributable to 
transactions after October 31 of such year, 
and any such net capital loss or net short-
term capital loss shall be treated as arising 
on the 1st day of the next taxable year. 
To the extent provided in regulations, clause 
(ii) shall apply also for purposes of computing 
the taxable income of the regulated investment 
company.’’
(2) FOREIGN CORPORATIONS.—Section 881 (re-
lating to tax on income of foreign corporations not 
connected with United States business) is amended 
by redesignating subsection (e) as subsection (f) and 
by inserting after subsection (d) the following new 
subsection:
‘‘(e) TAX NOT TO APPLY TO CERTAIN DIVIDENDS 
OF REGULATED INVESTMENT COMPANIES.—
‘‘(1) INTEREST-RELATED DIVIDENDS.—
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), no tax shall be imposed 
under paragraph (1) of subsection (a) on any 
interest-related dividend (as defined in section 
871(k)(1)) received from a regulated investment 
company. 
‘‘(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 clause (ii) of section 871(k)(1)(E) 
(and not described in clause (i) or (iii) of such 
section). 
‘‘(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) Section 1441(c) (relating to excep-
tions) is amended by adding at the end 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) Section 1442(a) (relating to with-
holding of tax on foreign corporations) 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 the following: ‘‘, and the references 
in section 1441(c)(12) to sections 871(a) 
and 871(k) shall be treated as referring to 
sections 881(a) and 881(e) (except that for 
purposes of applying subparagraph (A) of 
section 1441(c)(12), as so modified, clause 
(ii) of section 881(e)(1)(B) shall not apply 
to any dividend unless the regulated invest-
ment company knows that such dividend is 
a dividend 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 the 
following new subsection: 
‘‘(d) STOCK IN A RIC.—
‘‘(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 a 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. 
(3) CERTAIN OTHER PROVISIONS.—The amend-
ments made by subsection (c) (other than paragraph 
(1) thereof) shall take effect on the date of the en-
actment of this Act. 
SEC. 304. AIRLINE MILEAGE AWARDS TO CERTAIN FOREIGN 
PERSONS. 
(a) IN GENERAL.—The last sentence of section 
4261(e)(3)(C) (relating to regulations) is amended by in-
serting ‘‘and mileage awards which are issued to individ-
uals whose mailing addresses on record with the person 
providing the right to air transportation are outside the 
United States’’ before the period at the end thereof. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to amounts paid, and benefits pro-
vided, after December 31, 2003.
SEC. 305. INTEREST PAYMENTS DEDUCTIBLE WHERE DIS-
QUALIFIED GUARANTEE HAS ECONOMIC EF-
FECT. 
(a) IN GENERAL.—Section 163(j)(6)(D)(ii) (relating 
to exceptions to disqualified guarantee) is amended—
(1) by striking ‘‘or’’ at the end of subclause (I), 
(2) by striking the period at the end of sub-
clause (II) and inserting ‘‘, or’’,
(3) by inserting after subclause (II) the fol-
lowing new subclause: 
‘‘(III) if, in the case of a guar-
antee by a foreign person, the tax-
payer establishes to the satisfaction of 
the Secretary that the taxpayer could 
have borrowed substantially the same 
principal amount from an unrelated 
person without the guarantee.’’, and 
(4) by adding at the end the following new sen-
tence: ‘‘For purposes of subclause (III), to the ex-
tent provided in regulations, the Secretary may re-
ject a showing that a taxpayer could have borrowed 
substantially the same principal amount if such bor-
rowing is on terms substantially dissimilar to those 
of the actual loan.’’
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to guarantees issued on and after 
the date of the enactment of this Act. 
SEC. 306. MODIFICATIONS OF REPORTING REQUIREMENTS 
FOR CERTAIN FOREIGN-OWNED CORPORA-
TIONS. 
(a) DE MINIMIS EXCEPTION.—Section 6038A(b) (re-
lating to required information) is amended by adding at 
the end the following new flush sentence:
‘‘The Secretary shall not require the reporting corporation 
to report any information with respect to any foreign per-
son which is a related person if the aggregate value of 
the transactions between the corporation and the related 
person (and any person related to such person) during the 
taxable year does not exceed $5,000,000.’’
(b) TIME FOR PROVIDING TRANSLATIONS OF SPE-
CIFIC DOCUMENTS.—Notwithstanding Internal Revenue 
Service Regulation § 1.6038A–3(f)(2), a taxpayer shall 
have at least 60 days to provide translations of specific 
documents it is requested to translate. Nothing in this 
subsection shall limit the right of a taxpayer to file a writ-
ten request for an extension of time to comply with the 
request. 
(c) EFFECTIVE DATES.—
(1) EXCEPTION.—The amendment made by 
subsection (a) shall apply to taxable years beginning 
after December 31, 2003. 
(2) TRANSLATIONS.—Subsection (b) shall apply 
to requests made by the Internal Revenue Service 
after December 31, 2003.
SEC. 307. ELECTION NOT TO USE AVERAGE EXCHANGE 
RATE FOR FOREIGN TAX PAID OTHER THAN 
IN FUNCTIONAL CURRENCY. 
(a) IN GENERAL.—Paragraph (1) of section 986(a) 
(relating to determination of foreign taxes and foreign cor-
poration’s earnings and profits) is amended by redesig-
nating subparagraph (D) as subparagraph (E) and by in-
serting after subparagraph (C) the following new subpara-
graph: 
‘‘(D) ELECTIVE
EXCEPTION
FOR
TAXES 
PAID
OTHER
THAN
IN
FUNCTIONAL
CUR-
RENCY.—
‘‘(i) IN GENERAL.—At the election of 
the taxpayer, subparagraph (A) shall not 
apply to any foreign income taxes the li-
ability for which is denominated in any 
currency other than in the taxpayer’s func-
tional currency. 
‘‘(ii) APPLICATION
TO
QUALIFIED 
BUSINESS UNITS.—An election under this 
subparagraph may apply to foreign income 
taxes attributable to a qualified business 
unit in accordance with regulations pre-
scribed by the Secretary. 
‘‘(iii) ELECTION.—Any such election 
shall apply to the taxable year for which