I
103D CONGRESS
2D SESSION
H. R. 3933
To amend the Internal Revenue Code of 1986 to provide that distributions
from a controlled foreign corporation to a United States shareholder
shall be excluded from gross income if at least a portion of the distribu-
tion is invested in certain property located in the United States and
in the employment of new employees in the United States.
IN THE HOUSE OF REPRESENTATIVES
MARCH 1, 1994
Ms. SLAUGHTER introduced the following bill; which was referred to the
Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to provide
that distributions from a controlled foreign corporation
to a United States shareholder shall be excluded from
gross income if at least a portion of the distribution
is invested in certain property located in the United
States and in the employment of new employees in the
United States.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. EXCLUSION FROM GROSS INCOME FOR DIS-
TRIBUTIONS FROM CONTROLLED FOREIGN
CORPORATIONS WHICH ARE INVESTED IN
CERTAIN PROPERTY LOCATED IN THE UNIT-
ED STATES OR USED TO HIRE NEW EMPLOY-
EES IN THE UNITED STATES.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
items specifically excluded from gross income) is amended
by redesignating section 137 as section 138 and by insert-
ing after section 136 the following new section:
‘‘SEC. 137. DISTRIBUTIONS FROM CONTROLLED FOREIGN
CORPORATIONS WHICH ARE INVESTED IN
CERTAIN UNITED STATES PROPERTY OR
WHICH ARE USED TO HIRE NEW EMPLOYEES
IN THE UNITED STATES.
‘‘(a) EXCLUSION.—The gross income of a United
States shareholder of a controlled foreign corporation shall
not include the amount of any distribution received during
the taxable year by such shareholder from such corpora-
tion.
‘‘(b) MAXIMUM EXCLUSION.—
‘‘(1) IN
GENERAL.—The amount distributed
from a controlled foreign corporation which is ex-
cluded from a shareholder’s gross income under sub-
section (a) for any taxable year shall not exceed the
excess (if any) of—
‘‘(A) the amount equal to such sharehold-
er’s ownership percentage of the excess passive
assets of such corporation for its base year,
over
‘‘(B) the aggregate amount distributed
from such corporation which was excluded from
such shareholder’s gross income under sub-
section (a) for all prior taxable years of such
shareholder ending on or after the close of the
base year of such corporation.
‘‘(2) SHAREHOLDER’S
OWNERSHIP
PERCENT-
AGE.—For purposes of paragraph (1), a sharehold-
er’s ownership percentage is the percentage of the
total combined voting power of all classes of stock
entitled to vote in the controlled foreign corporation
which the shareholder owns (within the meaning of
section 958(a)) or is considered as owning under
section 958(b). Such percentage shall be determined
as of the close of the base year.
‘‘(3) BASE YEAR.—For purposes of this sub-
section, the base year is the controlled foreign cor-
poration’s first taxable year ending after December
31, 1992.
‘‘(4) LOWER LIMITATION IF REDUCTION IN EX-
CESS PASSIVE ASSETS.—If, for any taxable year of
the corporation after the base year, the excess pas-
sive assets of such corporation are less than such ex-
cess passive assets for the base year, then, for pur-
poses of applying this subsection to any taxable year
of a United States shareholder ending after the close
of such taxable year of the corporation, the limita-
tion under paragraph (1) shall be the lesser of—
‘‘(A) such limitation (determined without
regard to this paragraph), or
‘‘(B) such limitation determined as if such
taxable year of the corporation were the base
year of such corporation.
‘‘(5) EXCESS PASSIVE ASSETS.—For purposes
of this subsection, the term ‘excess passive assets’
has the meaning given such term by section
956A(c).
‘‘(6) PREDECESSORS.—Under regulations pre-
scribed by the Secretary, to the extent necessary to
carry out the purposes of this subsection, any ref-
erence to a shareholder shall be treated as including
a reference to any predecessor of such shareholder
and to any person from whom such shareholder ac-
quired any portion of such shareholder’s stock in
such corporation.
‘‘(c) REINVESTMENT REQUIREMENTS.—
‘‘(1) IN GENERAL.—If, as of the close of the re-
investment period with respect to any distribution,
the taxpayer fails to meet—
‘‘(A) the investment in property require-
ment of subsection (d), or
‘‘(B) the job creation requirement of sub-
section (e),
then the taxpayer’s tax imposed by this chapter for
the taxable year in which such reinvestment period
ends shall be increased by an amount equal to the
recapture amount with respect to such distribution.
‘‘(2) RECAPTURE
AMOUNT.—For purposes of
paragraph (1), the term ‘recapture amount’ means
an amount equal to the sum of—
‘‘(A) the shortfall percentage of the reduc-
tion in the taxpayer’s liability for tax under this
chapter which resulted from excluding such dis-
tribution from gross income under subsection
(a), plus
‘‘(B) the aggregate amount of interest (de-
termined in the manner provided in subsection
(f)(3)) on the amount determined under sub-
paragraph (A).
‘‘(3) SHORTFALL PERCENTAGE.—For purposes
of paragraph (2), the term ‘shortfall percentage’
means the greater of—
‘‘(A) the investment in property shortfall
percentage, or
‘‘(B) the job creation shortfall percentage.
‘‘(4) INVESTMENT
IN
PROPERTY
SHORTFALL
PERCENTAGE.—For purposes of paragraph (3), the
term ‘investment in property shortfall percentage’
means the percentage which—
‘‘(A) the excess (if any) of—
‘‘(i) an amount equal to 50 percent of
the distribution involved, over
‘‘(ii) the amount of qualified invest-
ment made during the reinvestment period
which allocable to such distribution, bears
to
‘‘(B) the amount described in subpara-
graph (A)(i).
‘‘(5) JOB
CREATION
SHORTFALL
PERCENT-
AGE.—For purposes of paragraph (3), the term ‘job
creation shortfall percentage’ means the percentage
which—
‘‘(A) the excess (if any) of—
‘‘(i) an amount equal to 12.5 percent
of the distribution involved, over
‘‘(ii) the amount of new employee
wages paid during the last taxable year of
the reinvestment period allocable to such
distribution, bears to
‘‘(B) the amount described in subpara-
graph (A)(i).
‘‘(d) INVESTMENT IN PROPERTY REQUIREMENT.—
For purposes of this section—
‘‘(1) REQUIREMENT.—A taxpayer meets the in-
vestment in property requirement of this subsection
if the qualified investment of the taxpayer during
the reinvestment period (to the extent not taken into
account under this paragraph with respect to any
prior distribution) is not less than 50 percent of the
amount of the distribution.
‘‘(2) 
QUALIFIED
INVESTMENT.—The 
term
‘qualified investment’ means the sum of—
‘‘(A) the aggregate bases of new qualified
property placed in service by the taxpayer, and
‘‘(B) the aggregate cost of used qualified
property placed in service by the taxpayer.
Rules similar to the rules of subsections (b) and (c)
of section 48 (as in effect on the day before the date
of the enactment of the Revenue Reconciliation Act
of 1990) shall apply for purposes of this paragraph.
‘‘(3) QUALIFIED PROPERTY.—For purposes of
paragraph 
(2), 
the 
term 
‘qualified 
property’
means—
‘‘(A) section 38 property (as defined by
section 48(a) as in effect on the day before the
date of the enactment of the Omnibus Budget
Reconciliation Act of 1990), and
‘‘(B) real property (not described in sub-
paragraph (A)) used as an integral part of
manufacturing facility (as defined in section
144(a)(12)(C)).
The term ‘qualified property’ shall not include any
property if the taxpayer is the lessor of the property.
‘‘(4) RECAPTURE IF PROPERTY DISPOSED OF,
ETC.—
‘‘(A) IN GENERAL.—If any qualified prop-
erty is disposed of, or otherwise ceases to be
qualified property with respect to the taxpayer,
before the close of the recapture period, then
the taxpayer’s tax imposed by this chapter for
the taxable year in which such disposition or
cessation occurs shall be increased by the sum
of—
‘‘(i) the recapture percentage of such
property’s share of the tax benefit under
this section, plus
‘‘(ii) the aggregate amount of interest
(determined in the manner provided in
subsection (f)(3)) on the amount deter-
mined under subparagraph (A).
‘‘(B) DEFINITIONS.—For purposes of this
paragraph—
‘‘(i) RECAPTURE PERIOD.—The term
‘recapture period’ means, with respect to
any property, the period consisting of the
first full year after the property is placed
in service and—
‘‘(I) the 2 succeeding full years
in the case of 3-year property (within
the meaning of section 168),
‘‘(II) the 4 succeeding full years
in the case of section 38 property
other than 3-year property, and
‘‘(III) the 9 succeeding full years
in the case of property referred to in
paragraph (2)(B).
‘‘(ii) RECAPTURE PERCENTAGE.—The
term ‘recapture percentage’ means the per-
centage 
determined 
under 
section
50(a)(1)(B); except that—
‘‘(I) in the case of 3-year prop-
erty, the percentage set forth in
clause (ii) of the table contained in
paragraph (1)(B) shall be 66 percent,
the percentage set forth in clause (iii)
of such table shall be 33 percent, and
clauses (iv) and (v) of such table shall
not apply, and
‘‘(II) in the case of property re-
ferred to in paragraph (2)(B), the
percentage shall be 100 percent for
the first full year of the recapture pe-
riod and, for each full year thereafter,
shall be 10 percentage points less
than the recapture percentage for the
prior year.
‘‘(C) PROPERTY’S SHARE OF TAX BENE-
FIT.—A property’s share of the tax benefit
under this section shall be—
‘‘(i) an amount which bears the same
ratio to the reduction in the taxpayer’s li-
ability for tax under this chapter which re-
sulted from excluding the distribution in-
volved from gross income under subsection
(a), as
‘‘(ii) the unadjusted basis of such
property bears to the aggregate unadjusted
bases of all qualified property placed in
service during the reinvestment period with
respect to such distribution.
‘‘(e) JOB CREATION REQUIREMENT.—For purposes
of this section—
‘‘(1) REQUIREMENT.—A taxpayer meets the job
creation requirement of this subsection if the new
employee wages paid by the taxpayer during the last
taxable year of the reinvestment period (to the ex-
tent not taken into account under this paragraph
with respect to any prior distribution) is not less
than 12.5 percent of the amount of the distribution.
‘‘(2) NEW EMPLOYEE WAGES.—The term ‘new
employee wages’ means, with respect to any distribu-
tion, wages paid to employees—
‘‘(A) who are first hired after the date of
such distribution, and
‘‘(I) the job creation shortfall
percentage of the reduction in the tax-
payer’s liability for tax under this
chapter which resulted from excluding
such distribution from gross income
under subsection (a) (determined for
the redetermination year), over
‘‘(II) the amount determined
under subsection (c)(2)(A) (increased
by any prior increase in tax under this
paragraph with respect to such dis-
tribution), plus
‘‘(ii) the aggregate amount of interest
(determined in the manner provided in
subsection (f)(3)) on the excess determined
under clause (i).
‘‘(C) EMPLOYMENT
MAINTENANCE
PE-
RIOD.—For purposes of this paragraph, the
term ‘employment maintenance period’ means
any period of 4 consecutive taxable years se-
lected by the taxpayer so long as at least 1 of
such taxable years is during the reinvestment
period.
‘‘(f) OTHER DEFINITIONS AND SPECIAL RULES.—
For purposes of this section—
‘‘(1) REINVESTMENT PERIOD.—The term ‘rein-
vestment period’ means, with respect to any dis-
tribution received during a taxable year, such tax-
able year and the 4 succeeding taxable years.
‘‘(2) UNITED
STATES
SHAREHOLDER; CON-
TROLLED
FOREIGN
CORPORATION.—The 
terms
‘United States shareholder’ and ‘controlled foreign
corporation’ have the respective meanings given such
terms by sections 951 and 957.
‘‘(3) RULES RELATING TO DETERMINATION OF
INTEREST.—
‘‘(A) IN GENERAL.—The amount of inter-
est referred to in subsections (c)(2), (d)(4), and
(e)(3) for any taxable year shall be determined
for the period—
‘‘(i) beginning on the due date for
taxable year during which the distribution
involved was made, and
‘‘(ii) ending on the due date for the
taxable year for which the increase in tax
is being determined,
by using the rates and method applicable under
section 6621 for underpayment of tax for such
period.
‘‘(B) DUE DATE.—For purposes of sub-
paragraph (A), the term ‘due date’ means the
date prescribed by law (determined without re-
gard to extensions) for filing the return of the
tax imposed by this chapter for the taxable
year.
‘‘(C) TREATMENT
OF
INCREASE
IN
TAX
ATTRIBUTABLE TO INTEREST AS INTEREST.—
Any increase in tax imposed by this chapter for
a taxable year by reason of this section to the
extent attributable to an amount referred to in
subsection (c)(2)(B), (d)(4)(A)(ii), or (e)(3)(B)
shall be treated as interest paid under section
6601 on the due date for such taxable year.
‘‘(4) CONTROLLED
GROUPS.—All taxpayers
treated as a single employer under subsection (a) or
(b) of section 52 shall be treated as a single tax-
payer.
‘‘(g) BASIS ADJUSTMENT.—
‘‘(1) IN GENERAL.—For purposes of this sub-
title, the basis of any qualified property placed in
service during any taxable year for which an amount
was excluded from gross income under this section
shall be reduced by an amount equal to such prop-
erty’s share of such exclusion (determined under
subsection (d)(4)).
‘‘(2) CERTAIN DISPOSITIONS.—If there is an in-
crease in tax by reason of this section for any tax-
able year, proper adjustments shall be made under
regulations prescribed by the Secretary with respect
to any property the basis of which was reduced
under paragraph (1).’’
(b) TECHNICAL AMENDMENT.—Subsection (a) of
section 1016 of such Code is amended by striking ‘‘and’’
at the end of paragraph (24), by striking the period at
the end of paragraph (25) and inserting ‘‘, and’’, and by
adding at the end thereof the following new paragraph:
‘‘(26) to the extent provided in section 137(g).’’
(c) CLERICAL AMENDMENT.—The table of sections
for part III of subchapter B of chapter 1 of such Code
is amended by striking the last item and inserting the fol-
lowing new items:
‘‘Sec. 137. Distributions from controlled foreign corporations
which are invested in certain United States prop-
erty or which are used to hire new employees in the
United States.
‘‘Sec. 138. Cross references to other Acts.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions received after the
date of the enactment of this Act in taxable years ending
after such date.