income tax imposed by the country or pos-
session, or 
‘‘(ii) would be paid if the generally ap-
plicable income tax imposed by the country 
or possession were applicable to such dual 
capacity taxpayer. 
Nothing in this paragraph shall be construed to 
imply the proper treatment of any such amount 
not in excess of the amount determined under 
subparagraph (B). 
‘‘(2) DUAL
CAPACITY
TAXPAYER.—For pur-
poses of this subsection, the term ‘dual capacity tax-
payer’ means, with respect to any foreign country or 
possession of the United States, a person who— 
‘‘(A) is subject to a levy of such country or 
possession, and 
‘‘(B) receives (or will receive) directly or 
indirectly a specific economic benefit (as deter-
mined in accordance with regulations) from 
such country or possession. 
‘‘(3) GENERALLY APPLICABLE INCOME TAX.— 
For purposes of this subsection— 
‘‘(A) IN
GENERAL.—The term ‘generally 
applicable income tax’ means an income tax (or 
a series of income taxes) which is generally im-
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posed under the laws of a foreign country or 
possession on income derived from the conduct 
of a trade or business within such country or 
possession. 
‘‘(B) EXCEPTIONS.—Such term shall not 
include a tax unless it has substantial applica-
tion, by its terms and in practice, to— 
‘‘(i) persons who are not dual capacity 
taxpayers, and 
‘‘(ii) persons who are citizens or resi-
dents of the foreign country or posses-
sion.’’ 
(b) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply to taxes paid or accrued in 
taxable years beginning after the date of the enact-
ment of this Act. 
(2) 
CONTRARY
TREATY
OBLIGATIONS 
UPHELD.—The amendments made by this section 
shall not apply to the extent contrary to any treaty 
obligation of the United States. 
SEC. 9. RULES RELATING TO FOREIGN OIL AND GAS IN-
COME. 
(a) SEPARATE BASKET FOR FOREIGN TAX CRED-
IT.— 
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(1) YEARS
BEFORE
2007.—Paragraph (1) of 
section 904(d) (relating to separate application of 
section with respect to certain categories of income), 
as in effect for years beginning before 2007, is 
amended by striking ‘‘and’’ at the end of subpara-
graph (H), by redesignating subparagraph (I) as 
subparagraph (J), and by inserting after subpara-
graph (H) the following new subparagraph: 
‘‘(I) foreign oil and gas income, and’’. 
(2) 2007 AND AFTER.—Paragraph (1) of sec-
tion 904(d), as in effect for years beginning after 
2006, is amended by striking ‘‘and’’ at the end of 
subparagraph (A), by striking the period at the end 
of subparagraph (B) and inserting ‘‘, and’’, and by 
adding at the end the following: 
‘‘(C) foreign oil and gas income.’’. 
(b) DEFINITION.— 
(1) YEARS
BEFORE
2007.—Paragraph (2) of 
section 904(d), as in effect for years beginning be-
fore 2007, is amended by redesignating subpara-
graphs (H) and (I) as subparagraphs (I) and (J), 
respectively, and by inserting after subparagraph 
(G) the following new subparagraph: 
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‘‘(H) FOREIGN OIL AND GAS INCOME.— 
The term ‘foreign oil and gas income’ has the 
meaning given such term by section 954(g).’’. 
(2) 2007 AND AFTER.—Section 904(d)(2), as in 
effect for years after 2006, is amended by redesig-
nating subparagraphs (J) and (K) as subparagraphs 
(K) and (L) and by inserting after subparagraph (I) 
the following: 
‘‘(J) FOREIGN OIL AND GAS INCOME.—For 
purposes of this section— 
‘‘(i) IN GENERAL.—The term ‘foreign 
oil and gas income’ has the meaning given 
such term by section 954(g). 
‘‘(ii) COORDINATION.—Passive cat-
egory income and general category income 
shall not include foreign oil and gas income 
(as so defined).’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Section 904(d)(3)(F)(i) is amended by 
striking ‘‘or (E)’’ and inserting ‘‘(E), or (I)’’. 
(2) Section 907(a) is hereby repealed. 
(3) Section 907(c)(4) is hereby repealed. 
(4) Section 907(f) is hereby repealed. 
(d) EFFECTIVE DATES.— 
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