I
104TH CONGRESS
2D SESSION
H. R. 4122
To rescind restrictions on welfare and public benefits for legal immigrants
enacted by title 4 of the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996, to reduce corporate welfare, to strengthen
tax provisions regarding persons who relinquish United States citizenship,
and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
SEPTEMBER 19, 1996
Mr. GUTIERREZ (for himself, Mr. EVANS, Mrs. MEEK of Florida, Mr. FILNER,
Mr. DELLUMS, Mr. ABERCROMBIE, Ms. NORTON, Mr. SERRANO, Mr.
CONYERS, Mr. FRANK of Massachusetts, Mr. HILLIARD, Ms. WATERS,
Mr. STARK, Mr. TORRES, Mr. GONZALEZ, Mr. PASTOR, Mr. PAYNE of
New Jersey, and Ms. ROYBAL-ALLARD) introduced the following bill;
which was referred to the Committee on Ways and Means
A BILL
To rescind restrictions on welfare and public benefits for
legal immigrants enacted by title 4 of the Personal Re-
sponsibility and Work Opportunity Reconciliation Act of
1996, to reduce corporate welfare, to strengthen tax pro-
visions regarding persons who relinquish United States
citizenship, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Immigrant Fairness
Act of 1996’’.
TITLE I—TERMINATION OF PRO-
VISIONS OF PUBLIC LAW 104–
193 RESTRICTING WELFARE
AND PUBLIC BENEFITS FOR
LEGAL IMMIGRANTS
SEC 101. TERMINATION OF PROVISIONS OF PUBLIC LAW
104–193 RESTRICTING WELFARE AND PUBLIC
BENEFITS FOR LEGAL IMMIGRANTS.
Notwithstanding any other provision of law, on the
date of the enactment of this Act, the provisions of title
4 of the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996 (Public Law 104–193) shall
cease to be effective, the amendments made by that title
shall be repealed, and any provision of law repealed by
that title shall be reenacted.
TITLE II—TAX PROVISIONS
SECTION 201. REVISION OF TAX RULES ON EXPATRIATION.
(a) IN GENERAL.—Subpart A of part II of sub-
chapter N of chapter 1 of the Internal Revenue Code of
1986 is amended by inserting after section 877 the follow-
ing new section:
‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.
‘‘(a) GENERAL RULES.—For purposes of this sub-
title—
‘‘(1) MARK TO MARKET.—Except as provided in
subsection (f)(2), all property held by an expatriate
immediately before the expatriation date shall be
treated as sold at such time for its fair market
value.
‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the
case of any sale under paragraph (1)—
‘‘(A) notwithstanding any other provision
of this title, any gain arising from such sale
shall be taken into account for the taxable year
of the sale unless such gain is excluded from
gross income under part III of subchapter B,
and
‘‘(B) any loss arising from such sale shall
be taken into account for the taxable year of
the sale to the extent otherwise provided by this
title, except that section 1091 shall not apply
(and section 1092 shall apply) to any such loss.
‘‘(3) ELECTION TO CONTINUE TO BE TAXED AS
UNITED STATES CITIZEN.—
‘‘(A) IN GENERAL.—If an expatriate elects
the application of this paragraph with respect
to any property—
‘‘(i) this section (other than this para-
graph) shall not apply to such property,
but
‘‘(ii) such property shall be subject to
tax under this title in the same manner as
if the individual were a United States
citizen.
‘‘(B) LIMITATION ON AMOUNT OF ESTATE,
GIFT, AND
GENERATION-SKIPPING
TRANSFER
TAXES.—The aggregate amount of taxes im-
posed under subtitle B with respect to any
transfer of property by reason of an election
under subparagraph (A) shall not exceed the
amount of income tax which would be due if the
property were sold for its fair market value im-
mediately before the time of the transfer or
death (taking into account the rules of para-
graph (2)).
‘‘(C) REQUIREMENTS.—Subparagraph (A)
shall not apply to an individual unless the indi-
vidual—
‘‘(i) provides security for payment of
tax in such form and manner, and in such
amount, as the Secretary may require,
‘‘(ii) consents to the waiver of any
right of the individual under any treaty of
the United States which would preclude as-
sessment or collection of any tax which
may be imposed by reason of this para-
graph, and
‘‘(iii) complies with such other re-
quirements as the Secretary may prescribe.
‘‘(D) ELECTION.—An election under sub-
paragraph (A) shall apply only to the property
described in the election and, once made, shall
be irrevocable.
‘‘(b) EXCLUSION FOR CERTAIN GAIN.—The amount
which would (but for this subsection) be includible in the
gross income of any individual by reason of subsection (a)
shall be reduced (but not below zero) by $600,000.
‘‘(c) PROPERTY TREATED AS HELD.—For purposes
of this section, except as otherwise provided by the Sec-
retary, an individual shall be treated as holding—
‘‘(1) all property which would be includible in
his gross estate under chapter 11 if such individual
were a citizen or resident of the United States (with-
in the meaning of chapter 11) who died at the time
the property is treated as sold,
‘‘(2) any other interest in a trust which the in-
dividual is treated as holding under the rules of sub-
section (f)(1), and
‘‘(3) any other interest in property specified by
the Secretary as necessary or appropriate to carry
out the purposes of this section.
‘‘(d) EXCEPTIONS.—The following property shall not
be treated as sold for purposes of this section:
‘‘(1) UNITED STATES REAL PROPERTY INTER-
ESTS.—Any United States real property interest (as
defined in section 897(c)(1)), other than stock of a
United States real property holding corporation
which does not, on the expatriation date, meet the
requirements of section 897(c)(2).
‘‘(2) INTEREST
IN
CERTAIN
RETIREMENT
PLANS.—
‘‘(A) IN
GENERAL.—Any interest in a
qualified retirement plan (as defined in section
4974(c)), other than any interest attributable to
contributions which are in excess of any limita-
tion or which violate any condition for tax-
favored treatment.
‘‘(B) FOREIGN PENSION PLANS.—
‘‘(i) IN GENERAL.—Under regulations
prescribed by the Secretary, interests in
foreign pension plans or similar retirement
arrangements or programs.
‘‘(ii) LIMITATION.—The value of prop-
erty which is treated as not sold by reason
of this subparagraph shall not exceed
$500,000.
‘‘(e) DEFINITIONS.—For purposes of this section—
‘‘(1) 
EXPATRIATE.—The 
term 
‘expatriate’
means—
‘‘(A) any United States citizen who relin-
quishes his citizenship, or
‘‘(B) any long-term resident of the United
States who—
‘‘(i) ceases to be a lawful permanent
resident of the United States (within the
meaning of section 7701(b)(6)), or
‘‘(ii) 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.
An individual shall not be treated as an expatriate
for purposes of this section by reason of the individ-
ual relinquishing United States citizenship before at-
taining the age of 181⁄2 if the individual has been a
resident of the United States (as defined in section
7701(b)(1)(A)(ii)) for less than 5 taxable years be-
fore the date of relinquishment.
‘‘(2) EXPATRIATION
DATE.—The term ‘expa-
triation date’ means—
‘‘(A) the date an individual relinquishes
United States citizenship, or
‘‘(B) in the case of a long-term resident of
the United States, the date of the event de-
scribed in clause (i) or (ii) of paragraph (1)(B).
‘‘(3) RELINQUISHMENT
OF
CITIZENSHIP.—A
citizen shall be treated as relinquishing his United
States citizenship on the earliest of—
‘‘(A) the date the individual renounces his
United States nationality before a diplomatic or
consular officer of the United States pursuant
to paragraph (5) of section 349(a) of the Immi-
gration 
and 
Nationality 
Act 
(8 
U.S.C.
1481(a)(5)),
‘‘(B) the date the individual furnishes to
the United States Department of State a signed
statement 
of 
voluntary 
relinquishment 
of
United States nationality confirming the per-
formance of an act of expatriation specified in
paragraph (1), (2), (3), or (4) of section 349(a)
of the Immigration and Nationality Act (8
U.S.C. 1481(a) (1)–(4)),
‘‘(C) the date the United States Depart-
ment of State issues to the individual a certifi-
cate of loss of nationality, or
‘‘(D) the date a court of the United States
cancels a naturalized citizen’s certificate of nat-
uralization.
Subparagraph (A) or (B) shall not apply to any indi-
vidual unless the renunciation or voluntary relin-
quishment is subsequently approved by the issuance
to the individual of a certificate of loss of nationality
by the United States Department of State.
‘‘(4) LONG-TERM RESIDENT.—
‘‘(A) IN GENERAL.—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 dur-
ing which the sale under subsection (a)(1) is
treated as occurring. For purposes of the pre-
ceding sentence, an individual shall not be
treated as a lawful permanent resident 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 be-
tween the United States and the foreign coun-
try and does not waive the benefits of such
treaty applicable to residents of the foreign
country.
‘‘(B) SPECIAL
RULE.—For purposes of
subparagraph (A), there shall not be taken into
account—
‘‘(i) any taxable year during which
any prior sale is treated under subsection
(a)(1) as occurring, or
‘‘(ii) any taxable year prior to the tax-
able year referred to in clause (i).
‘‘(f) SPECIAL
RULES
APPLICABLE
TO
BENE-
FICIARIES’ INTERESTS IN TRUST.—
‘‘(1) DETERMINATION OF BENEFICIARIES’ IN-
TEREST IN TRUST.—For purposes of this section—
‘‘(A) GENERAL RULE.—A beneficiary’s in-
terest in a trust shall be based upon all relevant
facts and circumstances, including the terms of
the trust instrument and any letter of wishes or
similar document, historical patterns of trust
distributions, and the existence of and functions
performed by a trust protector or any similar
adviser.
‘‘(B) SPECIAL RULE.—The remaining in-
terests in the trust not determined under sub-
paragraph (A) to be held by any beneficiary
shall be allocated first to the grantor, if a bene-
ficiary, and then to other beneficiaries under
rules prescribed by the Secretary similar to the
rules of intestate succession.
‘‘(C) CONSTRUCTIVE
OWNERSHIP.—If a
beneficiary of a trust is a corporation, partner-
ship, trust, or estate, the shareholders, part-
ners, or beneficiaries shall be deemed to be the
trust beneficiaries for purposes of this section.
‘‘(D) TAXPAYER
RETURN
POSITION.—A
taxpayer shall clearly indicate on its income tax
return—
‘‘(i) the methodology used to deter-
mine that taxpayer’s trust interest under
this section, and
‘‘(ii) if the taxpayer knows (or has
reason to know) that any other beneficiary
of such trust is using a different methodol-
ogy to determine such beneficiary’s trust
interest under this section.
‘‘(2) DEEMED SALE IN CASE OF TRUST INTER-
EST.—If an individual who is an expatriate is treat-
ed under paragraph (1) as holding an interest in a
trust for purposes of this section—
‘‘(A) the individual shall not be treated as
having sold such interest,
‘‘(B) such interest shall be treated as a
separate share in the trust, and
‘‘(C)(i) such separate share shall be treat-
ed as a separate trust consisting of the assets
allocable to such share,
‘‘(ii) the separate trust shall be treated as
having sold its assets immediately before the ex-
patriation date for their fair market value and
as having distributed all of its assets to the in-
dividual as of such time, and
‘‘(iii) the individual shall be treated as hav-
ing recontributed the assets to the separate
trust.
Subsection (a)(2) shall apply to any income, gain, or
loss of the individual arising from a distribution de-
scribed in subparagraph (C)(ii).
‘‘(g) TERMINATION OF DEFERRALS, ETC.—On the
date any property held by an individual is treated as sold
under subsection (a), notwithstanding any other provision
of this title—
‘‘(1) any period during which recognition of in-
come or gain is deferred shall terminate, and
‘‘(2) any extension of time for payment of tax
shall cease to apply and the unpaid portion of such
tax shall be due and payable at the time and in the
manner prescribed by the Secretary.
‘‘(h) RULES RELATING TO PAYMENT OF TAX.—
‘‘(1) IMPOSITION OF TENTATIVE TAX.—
‘‘(A) IN GENERAL.—If an individual is re-
quired to include any amount in gross income
under subsection (a) for any taxable year, there
is hereby imposed, immediately before the expa-
triation date, a tax in an amount equal to the
amount of tax which would be imposed if the
taxable year were a short taxable year ending
on the expatriation date.
‘‘(B) DUE DATE.—The due date for any
tax imposed by subparagraph (A) shall be the
90th day after the expatriation date.
‘‘(C) TREATMENT OF TAX.—Any tax paid
under subparagraph (A) shall be treated as a
payment of the tax imposed by this chapter for
the taxable year to which subsection (a) applies.
‘‘(2) DEFERRAL OF TAX.—The payment of any
tax attributable to amounts included in gross income
under subsection (a) may be deferred to the same
extent, and in the same manner, as any tax imposed
by chapter 11, except that the Secretary may extend
the period for extension of time for paying tax under
section 6161 to such number of years as the Sec-
retary determines appropriate.
‘‘(3) RULES
RELATING
TO
SECURITY
INTER-
ESTS.—
‘‘(A) ADEQUACY
OF
SECURITY
INTER-
ESTS.—In determining the adequacy of any se-
curity to be provided under this section, the
Secretary may take into account the principles
of section 2056A.
‘‘(B) SPECIAL
RULE
FOR
TRUST.—If a
taxpayer is required by this section to provide
security in connection with any tax imposed by
reason of this section with respect to the hold-
ing of an interest in a trust and any trustee of
such trust is an individual citizen of the United
States or a domestic corporation, such trustee
shall be required to provide such security upon
notification 
by 
the 
taxpayer 
of 
such
requirement.
‘‘(i) COORDINATION
WITH
ESTATE
AND
GIFT
TAXES.—If subsection (a) applies to property held by an
individual for any taxable year and—
‘‘(1) such property is includible in the gross es-
tate of such individual solely by reason of section
2107, or
‘‘(2) section 2501 applies to a transfer of such
property by such individual solely by reason of sec-
tion 2501(a)(3),
then there shall be allowed as a credit against the addi-
tional tax imposed by section 2101 or 2501, whichever is
applicable, solely by reason of section 2107 or 2501(a)(3)
an amount equal to the increase in the tax imposed by
this chapter for such taxable year by reason of this
section.
‘‘(j) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section, including regula-
tions to prevent double taxation by ensuring that—
‘‘(1) appropriate adjustments are made to basis
to reflect gain recognized by reason of subsection (a)
and the exclusion provided by subsection (b),
‘‘(2) no interest in property is treated as held
for purposes of this section by more than one tax-
payer, and
‘‘(3) any gain by reason of a deemed sale under
subsection (a) of an interest in a corporation, part-
nership, trust, or estate is reduced to reflect that
portion of such gain which is attributable to an in-
terest in a trust which a shareholder, partner, or
beneficiary is treated as holding directly under sub-
section (f)(1)(C).
‘‘(k) CROSS REFERENCE.—
‘‘For income tax treatment of individuals who ter-
minate 
United 
States 
citizenship, 
see 
section
7701(a)(47).’’
(b) DEFINITION
OF
TERMINATION
OF
UNITED
STATES CITIZENSHIP.—Section 7701(a) of the Internal
Revenue Code of 1986 is amended by adding at the end
the following new paragraph:
‘‘(47) TERMINATION OF UNITED STATES CITI-
ZENSHIP.—An individual shall not cease to be treat-
ed as a United States citizen before the date on
which the individual’s citizenship is treated as relin-
quished under section 877A(e)(3).’’
(c) COORDINATION
WITH
HEALTH
INSURANCE
PORTABILITY AND ACCOUNTABILITY ACT OF 1996.—Sec-
tion 511 of the Health Insurance Portability and Account-
ability Act of 1996, and the amendments made by such
section, are hereby repealed and the Internal Revenue
Code of 1986 shall be applied as if such section and such
amendments had never been enacted.
(d) CONFORMING AMENDMENTS.—
(1) Section 877 of the Internal Revenue Code
of 1986 is amended by adding at the end the follow-
ing new subsection:
‘‘(f) APPLICATION.—This section shall not apply to
any individual who relinquishes (within the meaning of
section 877A(e)(3)) United States citizenship on or after
February 6, 1995.’’
(2) Section 2107(c) of such Code is amended by
adding at the end the following new paragraph:
‘‘(3) CROSS
REFERENCE.—For credit against
the tax imposed by subsection (a) for expatriation
tax, see section 877A(i).’’
(3) Section 2501(a)(3) of such Code is amended
by adding at the end the following new flush
sentence:
‘‘For credit against the tax imposed under this sec-
tion by reason of this paragraph, see section
877A(i).’’
(4) Section 6851 of such Code is amended by
striking subsection (d) and by redesignating sub-
section (e) as subsection (d).
(5) Paragraph (10) of section 7701(b) of such
Code is amended by adding at the end the following
new sentence: ‘‘This paragraph shall not apply to
any long-term resident of the United States who is
an expatriate (as defined in section 877A(e)(1)).’’
(e) CLERICAL AMENDMENT.—The table of sections
for subpart A of part II of subchapter N of chapter 1
of the Internal Revenue Code of 1986 is amended by in-
serting after the item relating to section 877 the following
new item:
‘‘Sec. 877A. Tax responsibilities of expatriation.’’
(f) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section (other than subsection (c)) shall apply to
expatriates (within the meaning of section 877A(e)
of the Internal Revenue Code of 1986, as added by
this section) whose expatriation date (as so defined)
occurs on or after February 6, 1995.
(2) DUE DATE FOR TENTATIVE TAX.—The due
date under section 877A(h)(1)(B) of such Code shall
in no event occur before the 90th day after the date
of the enactment of this Act.
SEC. 202. BASIS OF ASSETS OF NONRESIDENT INDIVIDUALS
BECOMING CITIZENS OR RESIDENTS.
(a) IN GENERAL.—Part IV of subchapter O of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
special rules for gain or loss on disposition of property)
is amended by redesignating section 1061 as section 1062
and by inserting after section 1060 the following new sec-
tion:
‘‘SEC. 1061. BASIS OF ASSETS OF NONRESIDENT INDIVID-
UALS BECOMING CITIZENS OR RESIDENTS.
‘‘(a) GENERAL RULE.—If a nonresident alien individ-
ual becomes a citizen or resident of the United States,
gain or loss on the disposition of any property held on
the date the individual becomes such a citizen or resident
shall be determined by substituting, as of the applicable
date, the fair market value of such property (on the appli-
cable date) for its cost basis.
‘‘(b) EXCEPTION FOR DEPRECIATION.—Any deduc-
tion under this chapter for depreciation, depletion, or am-
ortization shall be determined without regard to the appli-
cation of this section.
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) APPLICABLE DATE.—The term ‘applicable
date’ means, with respect to any property to which
subsection (a) applies, the earlier of—
‘‘(A) the date the individual becomes a citi-
zen or resident of the United States, or
‘‘(B) the date the property first becomes
subject to tax under this subtitle by reason of
being used in a United States trade or business
or by reason of becoming a United States real
property interest (within the meaning of section
897(c)(1)).
‘‘(2) RESIDENT.—The term ‘resident’ does not
include an individual who is treated as a resident of
a foreign country under the provisions of a tax trea-
ty between the United States and a foreign country
and who does not waive the benefits of such treaty
applicable to residents of the foreign country.
‘‘(3) TRUSTS.—A trust shall not be treated as
an individual.
‘‘(4) 
ELECTION
NOT
TO
HAVE
SECTION
APPLY.—An individual may elect not to have this
section apply solely for purposes of determining gain
with respect to any property. Such election shall
apply only to property specified in the election and,
once made, shall be irrevocable.
‘‘(5) SECTION
ONLY
TO
APPLY
ONCE.—This
section shall apply only with respect to the first time
the individual becomes either a citizen or resident of
the United States.
SEC. 203. ELIMINATION OF EXCLUSION FOR CITIZENS OR
RESIDENTS 
OF 
UNITED 
STATES 
LIVING
ABROAD.
Section 911 of the Internal Revenue Code of 1986
(relating to citizens or residents of the United States living
abroad) is amended by redesignating subsection (f) as sub-
section (g) and by inserting after subsection (e) the follow-
ing new subsection:
‘‘(f) TERMINATION.—This section shall not apply to
any taxable year beginning after December 31, 1996.’’
SEC. 204. DISPOSITION OF STOCK IN DOMESTIC CORPO-
RATIONS BY 10-PERCENT FOREIGN SHARE-
HOLDERS.
(a) GENERAL RULE.—Subpart D of part II of sub-
chapter N of chapter 1 of the Internal Revenue Code of
1986 (relating to miscellaneous provisions) is amended by
adding at the end the following new section:
‘‘SEC. 899. DISPOSITION OF STOCK IN DOMESTIC CORPO-
RATIONS BY 10-PERCENT FOREIGN SHARE-
HOLDERS.
‘‘(a) GENERAL RULE.—
‘‘(1) TREATMENT AS EFFECTIVELY CONNECTED
WITH UNITED STATES TRADE OR BUSINESS.—For
purposes of this title, if any nonresident alien indi-
vidual or foreign corporation is a 10-percent share-
holder in any domestic corporation, any gain or loss
of such individual or foreign corporation from the
disposition of any stock in such domestic corporation
shall be taken into account—
‘‘(A) in the case of a nonresident alien in-
dividual, under section 871(b)(1), or
‘‘(B) in the case of a foreign corporation,
under section 882(a)(1),
as if the taxpayer were engaged during the taxable
year in a trade or business within the United States
through a permanent establishment in the United
States and as if such gain or loss were effectively
connected with such trade or business and attrib-
utable to such permanent establishment. Notwith-
standing section 865, any such gain or loss shall be
treated as from sources in the United States.
‘‘(2) 26-PERCENT
MINIMUM
TAX
ON
NON-
RESIDENT ALIEN INDIVIDUALS.—
‘‘(A) IN
GENERAL.—In the case of any
nonresident alien individual, the amount deter-
mined under section 55(b)(1)(A) shall not be
less than 26 percent of the lesser of—
‘‘(i) the individual’s alternative mini-
mum taxable income (as defined in section
55(b)(2)) for the taxable year, or
‘‘(ii) the individual’s net taxable stock
gain for the taxable year.
‘‘(B) NET
TAXABLE
STOCK
GAIN.—For
purposes of subparagraph (A), the term ‘net
taxable stock gain’ means the excess of—
‘‘(i) the aggregate gains for the tax-
able year from dispositions of stock in do-
mestic corporations with respect to which
such individual is a 10-percent share-
holder, over
‘‘(ii) the aggregate of the losses for
the taxable year from dispositions of such
stock.
‘‘(C) 
COORDINATION
WITH
SECTION
897(a)(2).—Section 897(a)(2)(A) shall not apply
to any nonresident alien individual for any tax-
able year for which such individual has a net
taxable stock gain, but the amount of such net
taxable stock gain shall be increased by the
amount of such individual’s net United States
real property gain (as defined in section
897(a)(2)(B)) for such taxable year.
‘‘(b) 10-PERCENT SHAREHOLDER.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘10-percent shareholder’ means any
person who at any time during the shorter of—
‘‘(A) the period beginning on January 1,
1996, and ending on the date of the disposition,
or
‘‘(B) the 5-year period ending on the date
of the disposition,
owned 10 percent or more (by vote or value) of the
stock in the domestic corporation.
‘‘(2) CONSTRUCTIVE OWNERSHIP.—
‘‘(A) IN GENERAL.—Section 318(a) (relat-
ing to constructive ownership of stock) shall
apply for purposes of paragraph (1).
‘‘(B) MODIFICATIONS.—For purposes of
subparagraph (A)—
‘‘(i) paragraph (2)(C) of section
318(a) shall be applied by substituting ‘10
percent’ for ‘50 percent’, and
‘‘(ii) paragraph (3)(C) of section
318(a) shall be applied—
‘‘(I) by substituting ‘10 percent’
for ‘50 percent’, and
‘‘(II) in any case where such
paragraph would not apply but for
subclause (I), by considering a cor-
poration as owning the stock (other
than stock in such corporation) owned
by or for any shareholder of such cor-
poration in that proportion which the
value of the stock which such share-
holder owns in such corporation bears
to the value of all stock in such cor-
poration.
‘‘(3) TREATMENT OF STOCK HELD BY CERTAIN
PARTNERSHIPS.—
‘‘(A) IN GENERAL.—For purposes of this
section, if—
‘‘(i) a partnership is a 10-percent
shareholder in any domestic corporation,
and
‘‘(ii) 10 percent or more of the capital
or profits interests in such partnership is
held (directly or indirectly) by nonresident
alien individuals or foreign corporations,
each partner in such partnership who is not
otherwise a 10-percent shareholder in such cor-
poration shall, with respect to the stock in such
corporation held by the partnership, be treated
as a 10-percent shareholder in such corpora-
tion.
‘‘(B) EXCEPTION.—
‘‘(i) IN GENERAL.—Subparagraph (A)
shall not apply with respect to stock in a
domestic corporation held by any partner-
ship if, at all times during the 5-year pe-
riod ending on the date of the disposition
involved—
‘‘(I) the aggregate bases of the
stock and securities in such domestic
corporation held by such partnership
were less than 25 percent of the part-
nership’s net adjusted asset cost, and
‘‘(II) the partnership did not own
50 percent or more (by vote or value)
of the stock in such domestic corpora-
tion.
The Secretary may by regulations dis-
regard any failure to meet the require-
ments of subclause (I) where the partner-
ship normally met such requirements dur-
ing such 5-year period.
‘‘(ii) NET ADJUSTED ASSET COST.—
For purposes of clause (i), the term ‘net
adjusted asset cost’ means—
‘‘(I) the aggregate bases of all of
the assets of the partnership other
than cash and cash items, reduced by
‘‘(II) the portion of the liabilities
of the partnership not allocable (on a
proportionate basis) to assets excluded
under subclause (I).
‘‘(C) EXCEPTION NOT TO APPLY TO 50-
PERCENT PARTNERS.—Subparagraph (B) shall
not apply in the case of any partner owning (di-
rectly or indirectly) more than 50 percent of the
capital or profits interests in the partnership at
any time during the 5-year period ending on the
date of the disposition.
‘‘(D) SPECIAL
RULES.—For purposes of
subparagraphs (B) and (C)—
‘‘(i) 
TREATMENT
OF
PREDE-
CESSORS.—Any reference to a partnership
or corporation shall be treated as including
a reference to any predecessor thereof.
‘‘(ii) PARTNERSHIP
NOT
IN
EXIST-
ENCE.—If any partnership was not in ex-
istence throughout the entire 5-year period
ending on the date of the disposition, only
the portion of such period during which
the partnership (or any predecessor) was
in existence shall be taken into account.
‘‘(E) 
OTHER
PASS-THRU
ENTITIES;
TIERED ENTITIES.—Rules similar to the rules
of the preceding provisions of this paragraph
shall also apply in the case of any pass-thru en-
tity other than a partnership and in the case of
tiered partnerships and other entities.
‘‘(c) COORDINATION WITH NONRECOGNITION PROVI-
SIONS; ETC.—
‘‘(1) COORDINATION
WITH
NONRECOGNITION
PROVISIONS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), any nonrecognition provision
shall apply for purposes of this section to a
transaction only in the case of—
‘‘(i) an exchange of stock in a domes-
tic corporation for other property the sale
of which would be subject to taxation
under this chapter, or
‘‘(ii) a distribution with respect to
which gain or loss would not be recognized
under section 336 if the sale of the distrib-
uted property by the distributee would be
subject to tax under this chapter.
‘‘(B) REGULATIONS.—The Secretary shall
prescribe regulations (which are necessary or
appropriate to prevent the avoidance of Federal
income taxes) providing—
‘‘(i) the extent to which nonrecogni-
tion provisions shall, and shall not, apply
for purposes of this section, and
‘‘(ii) the extent to which—
‘‘(I) transfers of property in a re-
organization, and
‘‘(II) changes in interests in, or
distributions from, a partnership,
trust, or estate,
shall be treated as sales of property at fair
market value.
‘‘(C) NONRECOGNITION
PROVISION.—For
purposes of this paragraph, the term ‘non-
recognition provision’ means any provision of
this title for not recognizing gain or loss.
‘‘(2) CERTAIN OTHER RULES MADE APPLICA-
BLE.—For purposes of this section, rules similar to
the rules of subsections (g) and (j) of section 897
shall apply.
‘‘(d) CERTAIN INTEREST TREATED AS STOCK.—For
purposes of this section—
‘‘(1) any option or other right to acquire stock
in a domestic corporation,
‘‘(2) the conversion feature of any debt instru-
ment issued by a domestic corporation, and
‘‘(3) to the extent provided in regulations, any
other interest in a domestic corporation other than
an interest solely as creditor,
shall be treated as stock in such corporation.
‘‘(e) TREATMENT
OF CERTAIN GAIN
AS
A DIVI-
DEND.—In the case of any gain which would be subject
to tax by reason of this section but for a treaty and which
results from any distribution in liquidation or redemption,
for purposes of this subtitle, such gain shall be treated
as a dividend to the extent of the earnings and profits
of the domestic corporation attributable to the stock.
Rules similar to the rules of section 1248(c) (determined
without regard to paragraph (2)(D) thereof) shall apply
for purposes of the preceding sentence.
‘‘(f) REGULATIONS.—The Secretary shall prescribe
such regulations as may be appropriate to carry out the
purposes of this section, including—
‘‘(1) regulations coordinating the provisions of
this section with the provisions of section 897, and
‘‘(2) regulations aggregating stock held by a
group of persons acting together.’’
(b) WITHHOLDING OF TAX.—Subchapter A of chap-
ter 3 of such Code is amended by adding at the end the
following new section:
‘‘SEC. 1447. WITHHOLDING OF TAX ON CERTAIN STOCK
DISPOSITIONS.
‘‘(a) GENERAL RULE.—Except as otherwise provided
in this section, in the case of any disposition of stock in
a domestic corporation by a foreign person who is a 10-
percent shareholder in such corporation, the withholding
agent shall deduct and withhold a tax equal to 10 percent
of the amount realized on the disposition.
‘‘(b) EXCEPTIONS.—
‘‘(1) STOCK WHICH IS NOT REGULARLY TRAD-
ED.—In the case of a disposition of stock which is
not regularly traded, a withholding agent shall not
be required to deduct and withhold any amount
under subsection (a) if—
‘‘(A) the transferor furnishes to such with-
holding agent an affidavit by such transferor
stating, under penalty of perjury, that section
899 does not apply to such disposition be-
cause—
‘‘(i) the transferor is not a foreign
person, or
‘‘(ii) the transferor is not a 10-percent
shareholder, and
‘‘(B) such withholding agent does not
know (or have reason to know) that such affida-
vit is not correct.
‘‘(2) STOCK WHICH IS REGULARLY TRADED.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), a withholding agent shall
not be required to deduct and withhold any
amount under subsection (a) with respect to
any disposition of regularly traded stock if such
withholding agent does not know (or have rea-
son to know) that section 899 applies to such
disposition.
‘‘(B) SPECIAL RULE WHERE SUBSTANTIAL
DISPOSITION.—If—
‘‘(i) there is a disposition of regularly
traded stock in a corporation, and
‘‘(ii) the amount of stock involved in
such disposition constitutes 1 percent or
more (by vote or value) of the stock in
such corporation,
subparagraph (A) shall not apply but para-
graph (1) shall apply as if the disposition in-
volved stock which was not regularly traded.
‘‘(C) NOTIFICATION
BY
FOREIGN
PER-
SON.—If section 899 applies to any disposition
by a foreign person of regularly traded stock,
such foreign person shall notify the withholding
agent that section 899 applies to such disposi-
tion.
‘‘(3) 
NONRECOGNITION
TRANSACTIONS.—A
withholding agent shall not be required to deduct
and withhold any amount under subsection (a) in
any case where gain or loss is not recognized by rea-
son of section 899(c) (or the regulations prescribed
under such section).
‘‘(c) SPECIAL RULE WHERE NO WITHHOLDING.—
If—
‘‘(1) there is no amount deducted and withheld
under this section with respect to any disposition to
which section 899 applies, and
‘‘(2) the foreign person does not pay the tax
imposed by this subtitle to the extent attributable to
such disposition on the date prescribed therefor
for purposes of determining the amount of such tax, the
foreign person’s basis in the stock disposed of shall be
treated as zero or such other amount as the Secretary may
determine (and, for purposes of section 6501, the under-
payment of such tax shall be treated as due to a willful
attempt to evade such tax).
‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) WITHHOLDING AGENT.—The term ‘with-
holding agent’ means—
‘‘(A) the last United States person to have
the control, receipt, custody, disposal, or pay-
ment of the amount realized on the disposition,
or
‘‘(B) if there is no such United States per-
son, the person prescribed in regulations.
‘‘(2) FOREIGN PERSON.—The term ‘foreign per-
son’ means any person other than a United States
person.
‘‘(3) REGULARLY TRADED STOCK.—The term
‘regularly traded stock’ means any stock of a class
which is regularly traded on an established securities
market.
‘‘(4) AUTHORITY
TO
PRESCRIBE
REDUCED
AMOUNT.—At the request of the person making the
disposition or the withholding agent, the Secretary
may prescribe a reduced amount to be withheld
under this section if the Secretary determines that
to substitute such reduced amount will not jeopard-
ize the collection of the tax imposed by section
871(b)(1) or 882(a)(1).
‘‘(5) OTHER
TERMS.—Except as provided in
this section, terms used in this section shall have the
same respective meanings as when used in section
899.
‘‘(6) CERTAIN
RULES
MADE
APPLICABLE.—
Rules similar to the rules of section 1445(e) shall
apply for purposes of this section.
‘‘(e) REGULATIONS.—The Secretary shall prescribe
such regulations as may be appropriate to carry out the
purposes of this section, including regulations coordinat-
ing the provisions of this section with the provisions of
sections 1445 and 1446.’’
(c) EXCEPTION FROM BRANCH PROFITS TAX.—Sub-
paragraph (C) of section 884(d)(2) of such Code is amend-
ed to read as follows:
‘‘(C) gain treated as effectively connected
with the conduct of a trade or business within
the United States under—
‘‘(i) section 897 in the case of the
disposition of a United States real property
interest 
described 
in 
section
897(c)(1)(A)(ii), or
‘‘(ii) section 899,’’.
(d) REPORTS WITH RESPECT
TO CERTAIN DIS-
TRIBUTIONS.—Paragraph (2) of section 6038B(a) of such
Code (relating to notice of certain transfers to foreign per-
son) is amended by striking ‘‘section 336’’ and inserting
‘‘section 302, 331, or 336’’.
(e) CLERICAL AMENDMENTS.—
(1) The table of sections for subpart D of part
II of subchapter N of chapter 1 of such Code is
amended by adding at the end the following new
item:
‘‘Sec. 899. Dispositions of stock in domestic corporations by 10-
percent foreign shareholders.’’
(2) The table of sections for subchapter A of
chapter 3 of such Code is amended by adding at the
end the following new item:
‘‘Sec. 1447. Withholding of tax on certain stock dispositions.’’
(f) EFFECTIVE DATE.—
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by
this section shall apply to dispositions after the date
of the enactment of this Act, except that section
1447 of such Code (as added by this section) shall
not apply to any disposition before the date 6
months after the date of the enactment of this Act.
(2) COORDINATION WITH TREATIES.—
(A) IN
GENERAL.—Sections 899 (other
than subsection (e) thereof) and 1447 of such
Code (as added by this section) shall not apply
to any disposition if such disposition is by a
qualified resident of a foreign country and the
application of such sections to such disposition
would be contrary to any treaty between the
United States and such foreign country which
is in effect on the date of the enactment of this
Act and at the time of such disposition.
(B) QUALIFIED RESIDENT.—For purposes
of subparagraph (A), the term ‘‘qualified resi-
dent’’ means any resident of the foreign country
entitled to the benefits of the treaty referred to
in subparagraph (A); except that such term
shall not include a corporation unless such cor-
poration is a qualified resident of such country
(as defined in section 884(e)(4) of such Code).
SEC. 205. ALTERNATIVE MINIMUM TAX ON CORPORATIONS
IMPORTING PRODUCTS INTO THE UNITED
STATES AT ARTIFICIALLY INFLATED PRICES.
(a) IN GENERAL.—Subchapter A of chapter 1 of the
Internal Revenue Code of 1986 (relating to determination
of tax liability) is amended by adding at the end the fol-
lowing new part:
‘‘PART VIII—ALTERNATIVE MINIMUM TAX ON
CORPORATIONS 
IMPORTING 
PRODUCTS
INTO THE UNITED STATES AT ARTIFICIALLY
INFLATED PRICES
‘‘Sec. 59B. Alternative minimum tax on corporations importing products into
the United States at artificially inflated prices.
‘‘SEC. 59B. ALTERNATIVE MINIMUM TAX ON CORPORA-
TIONS 
IMPORTING 
PRODUCTS 
INTO 
THE
UNITED STATES AT ARTIFICIALLY INFLATED
PRICES.
‘‘(a) IMPOSITION OF TAX.—In the case of a corpora-
tion to which this section applies, there is hereby imposed
an alternative minimum tax equal to 3 percent of net busi-
ness receipts of the corporation for the taxable year.
‘‘(b) TAXPAYERS TO WHICH SECTION APPLIES.—
This section shall apply to any corporation, foreign or do-
mestic, if—
‘‘(1) gross sales in the United States during the
tax year of parts or products manufactured by the
corporation, or any subsidiary or affiliate controlled
by the corporation, exceeded $10,000,000,
‘‘(2) during that same tax year parts or prod-
ucts manufactured by the corporation, or any sub-
sidiary or affiliate controlled by the corporation, with
a customs value in excess of $10,000,000 were im-
ported into the United States, and
‘‘(3) its tax obligation under this section ex-
ceeds its total tax obligation under all other sections
of this title.
‘‘(c) CREDIT FOR TAXES PAID.—There shall be a
nonrefundable credit against the taxes owed under this
section equal to the total of all other taxes paid by the
corporation under this title.
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) NET BUSINESS RECEIPTS.—The term ‘net
business receipts’ means the value of all parts or
products sold in the United States, excluding—
‘‘(A) the value of parts or products sold for
export,
‘‘(B) expenses paid for parts or products
produced in the United States,
‘‘(C) expenses paid for services performed
in the United States, and
‘‘(D) amounts paid for income, sales or use
taxes imposed by any State, or political subdivi-
sion thereof, or by the District of Columbia,
Puerto Rico, Guam, or the Virgin Islands.
‘‘(2) SUBSIDIARY OR AFFILIATE CONTROLLED
BY THE CORPORATION.—An entity shall be consid-
ered to be a ‘subsidiary or affiliate controlled by the
corporation’ if the corporation owns 5 percent or
more of any class of stock of the entity or if the cor-
poration exercises control over a majority of the
board of directors of the entity.’’
(b) CLERICAL AMENDMENT.—The table of parts for
such subchapter A is amended by adding at the end the
following new item:
‘‘Part VIII. Alternative minimum tax on corporations importing
products into the United States at artificially in-
flated prices.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
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