H. R. 2491—588
(c) TREATMENT OF PROPERTY DISPOSED OF IN NONRECOGNITION
TRANSACTIONS; TREATMENT OF DISTRIBUTIONS FROM CERTAIN CON-
TROLLED FOREIGN CORPORATIONS.—Subsection (d) of section 877,
as redesignated by subsection (b), is amended to read as follows:
‘‘(d) SPECIAL RULES FOR SOURCE, ETC.—For purposes of sub-
section (b)—
‘‘(1) SOURCE RULES.—The following items of gross income
shall be treated as income from sources within the United
States:
‘‘(A) SALE OF PROPERTY.—Gains on the sale or exchange
of property (other than stock or debt obligations) located
in the United States.
‘‘(B) STOCK OR DEBT OBLIGATIONS.—Gains on the sale
or exchange of stock issued by a domestic corporation or
debt obligations of United States persons or of the United
States, a State or political subdivision thereof, or the Dis-
trict of Columbia.
‘‘(C) INCOME OR GAIN DERIVED FROM CONTROLLED FOR-
EIGN CORPORATION.—Any income or gain derived from stock
in a foreign corporation but only—
‘‘(i) if the individual losing United States citizen-
ship owned (within the meaning of section 958(a)),
or is considered as owning (by applying the ownership
rules of section 958(b)), at any time during the 2-
year period ending on the date of the loss of United
States citizenship, more than 50 percent of—
‘‘(I) the total combined voting power of all
classes of stock entitled to vote of such corporation,
or
‘‘(II) the total value of the stock of such cor-
poration, and
‘‘(ii) to the extent such income or gain does not
exceed the earnings and profits attributable to such
stock which were earned or accumulated before the
loss of citizenship and during periods that the owner-
ship requirements of clause (i) are met.
‘‘(2) GAIN RECOGNITION ON CERTAIN EXCHANGES.—
‘‘(A) IN GENERAL.—In the case of any exchange of prop-
erty to which this paragraph applies, notwithstanding any
other provision of this title, such property shall be treated
as sold for its fair market value on the date of such
exchange, and any gain shall be recognized for the taxable
year which includes such date.
‘‘(B) EXCHANGES TO WHICH PARAGRAPH APPLIES.—This
paragraph shall apply to any exchange during the 10-
year period described in subsection (a) if—
‘‘(i) gain would not (but for this paragraph) be
recognized on such exchange in whole or in part for
purposes of this subtitle,
‘‘(ii) income derived from such property was from
sources within the United States (or, if no income
was so derived, would have been from such sources),
and
‘‘(iii) income derived from the property acquired
in the exchange would be from sources outside the
United States.
H. R. 2491—589
‘‘(C) EXCEPTION.—Subparagraph (A) shall not apply
if the individual enters into an agreement with the Sec-
retary which specifies that any income or gain derived
from the property acquired in the exchange (or any other
property which has a basis determined in whole or part
by reference to such property) during such 10-year period
shall be treated as from sources within the United States.
If the property transferred in the exchange is disposed
of by the person acquiring such property, such agreement
shall terminate and any gain which was not recognized
by reason of such agreement shall be recognized as of
the date of such disposition.
‘‘(D) SECRETARY MAY EXTEND PERIOD.—To the extent
provided in regulations prescribed by the Secretary,
subparagraph (B) shall be applied by substituting the 15-
year period beginning 5 years before the loss of United
States citizenship for the 10-year period referred to therein.
‘‘(E) SECRETARY MAY REQUIRE RECOGNITION OF GAIN
IN CERTAIN CASES.—To the extent provided in regulations
prescribed by the Secretary—
‘‘(i) the removal of appreciated tangible personal
property from the United States, and
‘‘(ii) any other occurrence which (without recogni-
tion of gain) results in a change in the source of the
income or gain from property from sources within the
United States to sources outside the United States,
shall be treated as an exchange to which this paragraph
applies.
‘‘(3) SUBSTANTIAL DIMINISHING OF RISKS OF OWNERSHIP.—
For purposes of determining whether this section applies to
any gain on the sale or exchange of any property, the running
of the 10-year period described in subsection (a) shall be sus-
pended for any period during which the individual’s risk of
loss with respect to the property is substantially diminished
by—
‘‘(A) the holding of a put with respect to such property
(or similar property),
‘‘(B) the holding by another person of a right to acquire
the property, or
‘‘(C) a short sale or any other transaction.’’
(d) CREDIT FOR FOREIGN TAXES IMPOSED ON UNITED STATES
SOURCE INCOME.—
(1) Subsection (b) of section 877 is amended by adding
at the end the following new sentence: ‘‘The tax imposed solely
by reason of this section shall be reduced (but not below zero)
by the amount of any income, war profits, and excess profits
taxes (within the meaning of section 903) paid to any foreign
country or possession of the United States on any income
of the taxpayer on which tax is imposed solely by reason of
this section.’’
(2) Subsection (a) of section 877, as amended by subsection
(a), is amended by inserting ‘‘(after any reduction in such
tax under the last sentence of such subsection)’’ after ‘‘such
subsection’’.
(e) COMPARABLE ESTATE AND GIFT TAX TREATMENT.—
(1) ESTATE TAX.—
H. R. 2491—590
(A) IN
GENERAL.—Subsection (a) of section 2107 is
amended to read as follows:
‘‘(a) TREATMENT OF EXPATRIATES.—
‘‘(1) RATE OF TAX.—A tax computed in accordance with
the table contained in section 2001 is hereby imposed on the
transfer of the taxable estate, determined as provided in section
2106, of every decedent nonresident not a citizen of the United
States if, within the 10-year period ending with the date of
death, such decedent lost United States citizenship, unless
such loss did not have for 1 of its principal purposes the
avoidance of taxes under this subtitle or subtitle A.
‘‘(2) CERTAIN INDIVIDUALS TREATED AS HAVING TAX AVOID-
ANCE PURPOSE.—
‘‘(A) IN GENERAL.—For purposes of paragraph (1), an
individual shall be treated as having a principal purpose
to avoid such taxes if such individual is so treated under
section 877(a)(2).
‘‘(B) EXCEPTION.—Subparagraph (A) shall not apply
to a decedent meeting the requirements of section
877(c)(1).’’
(B) CREDIT FOR FOREIGN DEATH TAXES.—Subsection (c)
of section 2107 is amended by redesignating paragraph
(2) as paragraph (3) and by inserting after paragraph (1)
the following new paragraph:
‘‘(2) CREDIT FOR FOREIGN DEATH TAXES.—
‘‘(A) IN GENERAL.—The tax imposed by subsection (a)
shall be credited with the amount of any estate, inherit-
ance, legacy, or succession taxes actually paid to any foreign
country in respect of any property which is included in
the gross estate solely by reason of subsection (b).
‘‘(B) LIMITATION
ON
CREDIT.—The credit allowed by
subparagraph (A) for such taxes paid to a foreign country
shall not exceed the lesser of—
‘‘(i) the amount which bears the same ratio to
the amount of such taxes actually paid to such foreign
country in respect of property included in the gross
estate as the value of the property included in the
gross estate solely by reason of subsection (b) bears
to the value of all property subjected to such taxes
by such foreign country, or
‘‘(ii) such property’s proportionate share of the
excess of—
‘‘(I) the tax imposed by subsection (a), over
‘‘(II) the tax which would be imposed by section
2101 but for this section.
‘‘(C) PROPORTIONATE SHARE.—For purposes of subpara-
graph (B), a property’s proportionate share is the percent-
age of the value of the property which is included in the
gross estate solely by reason of subsection (b) bears to
the total value of the gross estate.’’
(C) EXPANSION
OF
INCLUSION
IN
GROSS
ESTATE
OF
STOCK OF FOREIGN CORPORATIONS.—Paragraph (2) of section
2107(b) is amended by striking ‘‘more than 50 percent
of’’ and all that follows and inserting ‘‘more than 50 percent
of—
‘‘(A) the total combined voting power of all classes
of stock entitled to vote of such corporation, or
H. R. 2491—591
‘‘(B) the total value of the stock of such corporation,’’.
(2) GIFT TAX.—
(A) IN GENERAL.—Paragraph (3) of section 2501(a) is
amended to read as follows:
‘‘(3) EXCEPTION.—
‘‘(A) CERTAIN
INDIVIDUALS.—Paragraph (2) shall not
apply in the case of a donor who, within the 10-year period
ending with the date of transfer, lost United States citizen-
ship, unless such loss did not have for 1 of its principal
purposes the avoidance of taxes under this subtitle or sub-
title A.
‘‘(B) CERTAIN
INDIVIDUALS
TREATED
AS
HAVING
TAX
AVOIDANCE PURPOSE.—For purposes of subparagraph (A),
an individual shall be treated as having a principal purpose
to avoid such taxes if such individual is so treated under
section 877(a)(2).
‘‘(C) EXCEPTION FOR CERTAIN INDIVIDUALS.—Subpara-
graph (B) shall not apply to a decedent meeting the require-
ments of section 877(c)(1).
‘‘(D) CREDIT
FOR
FOREIGN
GIFT
TAXES.—The tax
imposed by this section solely by reason of this paragraph
shall be credited with the amount of any gift tax actually
paid to any foreign country in respect of any gift which
is taxable under this section solely by reason of this para-
graph.’’
(f) COMPARABLE TREATMENT OF LAWFUL PERMANENT RESIDENTS
WHO CEASE TO BE TAXED AS RESIDENTS.—
(1) IN GENERAL.—Section 877 is amended by redesignating
subsection (e) as subsection (f) and by inserting after subsection
(d) the following new subsection:
‘‘(e) COMPARABLE TREATMENT
OF LAWFUL PERMANENT RESI-
DENTS WHO CEASE TO BE TAXED AS RESIDENTS.—
‘‘(1) IN GENERAL.—Any long-term resident of the United
States who—
‘‘(A) ceases to be a lawful permanent resident of the
United States (within the meaning of section 7701(b)(6)),
or
‘‘(B) commences to be treated as a resident of a foreign
country under the provisions of a tax treaty between the
United States and the foreign country and who does not
waive the benefits of such treaty applicable to residents
of the foreign country,
shall be treated for purposes of this section and sections 2107,
2501, and 6039F in the same manner as if such resident were
a citizen of the United States who lost United States citizenship
on the date of such cessation or commencement.
‘‘(2) LONG-TERM RESIDENT.—For purposes of this subsection,
the term ‘long-term resident’ means any individual (other than
a citizen of the United States) who is a lawful permanent
resident of the United States in at least 8 taxable years during
the period of 15 taxable years ending with the taxable year
during which the event described in subparagraph (A) or (B)
of paragraph (1) occurs. For purposes of the preceding sentence,
an individual shall not be treated as a lawful permanent resi-
dent for any taxable year if such individual is treated as a
resident of a foreign country for the taxable year under the
provisions of a tax treaty between the United States and the