494
HR 2264 PP
be in such form as the Secretary may prescribe by regula-
tions.
‘‘(c) DE MINIMUS EXCEPTION.—This section shall not
apply to any organization for any calendar year if the or-
ganization’s lobbying expenditures described in section
280I(a) for such year are less than $2,000. For purposes
of the preceding sentence, overhead costs otherwise allocable
to lobbying activities shall not be taken into account.
‘‘(d) WAIVER.—The Secretary may waive the reporting
requirements of this section with respect to any organiza-
tion or class of organizations if the Secretary determines
that such reporting is not necessary to carry out the pur-
poses of section 280I.
‘‘(e) DUES.—For purposes of this section, the term
‘dues’ includes assessments, contributions, and other similar
amounts.’’
(2) PENALTIES.—
(A) RETURNS.—Subparagraph (B) of sec-
tion 6724(d)(1) (defining information return) is
amended by striking ‘‘or’’ at the end of clause
(xi), by striking the period at the end of the
clause (xii) relating to section 4101(d) and in-
serting a comma, by redesignating the clause
(xii) relating to section 338(h)(10) as clause
(xiii), by striking the period at the end of clause
495
HR 2264 PP
(xiii) (as so redesignated) and inserting ‘‘, or’’,
and by adding at the end the following new
clause:
‘‘(xiv) section 6050O(a) (relating to in-
formation on nondeductible lobbying ex-
penditures).’’
(B) PAYEE
STATEMENTS.—Paragraph (2)
of section 6724(d) (defining payee statement) is
amended by striking ‘‘or’’ at the end of subpara-
graph (R), by striking the period at the end of
subparagraph (S) and inserting ‘‘, or’’, and by
adding at the end the following new subpara-
graph:
‘‘(T) section 6050O(b) (relating to returns
on nondeductible lobbying expenditures).’’
(3) CONFORMING AMENDMENT.—The table of sec-
tions for subpart B of part III of subchapter A of
chapter 61 is amended by adding at the end the fol-
lowing new item:
‘‘Sec. 6050O. Returns relating to lobbying expenditures of certain
organizations.’’
(4) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to calendar years begin-
ning after December 31, 1993.
496
HR 2264 PP
SEC. 8223. MARK TO MARKET ACCOUNTING METHOD FOR
SECURITIES DEALERS.
(a) GENERAL RULE.—Subpart D of part II of sub-
chapter E of chapter 1 (relating to inventories) is amended
by adding at the end thereof the following new section:
‘‘SEC. 475. MARK TO MARKET ACCOUNTING METHOD FOR
DEALERS IN SECURITIES.
‘‘(a) GENERAL RULE.—Notwithstanding any other
provision of this subpart, the following rules shall apply
to securities held by a dealer in securities:
‘‘(1) Any security which is inventory in the
hands of the dealer shall be included in inventory at
its fair market value.
‘‘(2) In the case of any security which is not in-
ventory in the hands of the dealer and which is held
at the close of any taxable year—
‘‘(A) the dealer shall recognize gain or loss
as if such security were sold for its fair market
value on the last business day of such taxable
year, and
‘‘(B) any gain or loss shall be taken into ac-
count for such taxable year.
Proper adjustment shall be made in the amount of
any gain or loss subsequently realized for gain or loss
taken into account under the preceding sentence. The
Secretary may provide by regulations for the applica-
497
HR 2264 PP
tion of this paragraph at times other than the times
provided in this paragraph.
‘‘(b) EXCEPTIONS.—
‘‘(1) IN
GENERAL.—Subsection (a) shall not
apply to—
‘‘(A) any security held for investment, and
‘‘(B) any security which is a hedge with re-
spect to—
‘‘(i) a security to which subsection (a)
does not apply, or
‘‘(ii) a position, right to income, or a
liability which is not a security in the
hands of the taxpayer.
To the extent provided in regulations, subparagraph
(B) shall not apply to any security held by a person
in its capacity as a dealer in securities.
‘‘(2) IDENTIFICATION
REQUIRED.—A security
shall not be treated as described in subparagraph (A)
or (B) of paragraph (1), as the case may be, unless
such security is clearly identified in the dealer’s
records as being described in such subparagraph be-
fore the close of the day on which it was acquired,
originated, or entered into (or such other time as the
Secretary may by regulations prescribe).
498
HR 2264 PP
‘‘(3) 
SECURITIES
SUBSEQUENTLY
NOT
EX-
EMPT.—If a security ceases to be described in para-
graph (1) at any time after it was identified as such
under paragraph (2), subsection (a) shall apply to
any changes in value of the security occurring after
the cessation.
‘‘(4) SPECIAL RULE FOR PROPERTY HELD FOR
INVESTMENT.—To the extent provided in regulations,
subparagraph (A) of paragraph (1) shall not apply to
any security described in subparagraph (D) or (E) of
subsection (c)(2) which is held by a dealer in such se-
curities.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) DEALER
IN
SECURITIES
DEFINED.—The
term ‘dealer in securities’ means a taxpayer who—
‘‘(A) regularly purchases securities from or
sells securities to customers in the ordinary
course of a trade or business; or
‘‘(B) regularly offers to enter into, assume,
offset, assign or otherwise terminate positions in
securities with customers in the ordinary course
of a trade or business.
‘‘(2) SECURITY
DEFINED.—The term ‘security’
means any—
‘‘(A) share of stock in a corporation;
500
HR 2264 PP
Subparagraph (E) shall not include any contract to
which section 1256(a) applies.
‘‘(3) HEDGE.—The term ‘hedge’ means any posi-
tion which reduces the dealer’s risk of interest rate or
price changes or currency fluctuations, including any
position which is reasonably expected to become a
hedge within 60 days after the acquisition of the posi-
tion.
‘‘(d) SPECIAL RULES.—For purposes of this section—
‘‘(1) COORDINATION WITH CERTAIN RULES.—The
rules of sections 263(g), 263A, and 1256(a) shall not
apply to securities to which subsection (a) applies,
and section 1091 shall not apply (and section 1092
shall apply) to any loss recognized under subsection
(a).
‘‘(2) IMPROPER
IDENTIFICATION.—If a tax-
payer—
‘‘(A) identifies any security under sub-
section (b)(2) as being described in subsection
(b)(1) and such security is not so described, or
‘‘(B) fails under subsection (c)(2)(F)(iii) to
identify any position which is described in sub-
section (c)(2)(F) (without regard to clause (iii)
thereof) at the time such identification is re-
quired,
501
HR 2264 PP
the provisions of subsection (a) shall apply to such se-
curity or position, except that any loss under this sec-
tion prior to the disposition of the security or posi-
tion shall be recognized only to the extent of gain pre-
viously recognized under this section (and not pre-
viously taken into account under this paragraph)
with respect to such security or position.
‘‘(3) CHARACTER OF GAIN OR LOSS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B) or section 1236(b)—
‘‘(i) IN GENERAL.—Any gain or loss
with respect to a security under subsection
(a)(2) shall be treated as ordinary income
or loss.
‘‘(ii) SPECIAL
RULE
FOR
DISPOSI-
TIONS.—If—
‘‘(I) gain or loss is recognized
with respect to a security before the
close of the taxable year, and
‘‘(II) subsection (a)(2) would have
applied if the security were held as of
the close of the taxable year,
such gain or loss shall be treated as ordi-
nary income or loss.
502
HR 2264 PP
‘‘(B) EXCEPTION.—Subparagraph (A) shall
not apply to any gain or loss which is allocable
to a period during which—
‘‘(i) the security is described in sub-
section (b)(1)(B) (without regard to sub-
section (b)(2)),
‘‘(ii) the security is held by a person
other than in connection with its activities
as a dealer in securities, or
‘‘(iii) the security is improperly identi-
fied (within the meaning of subparagraph
(A) or (B) of paragraph (2)).
‘‘(e) REGULATORY AUTHORITY.—The Secretary shall
prescribe such regulations as may be necessary or appro-
priate to carry out the purposes of this section, including
rules—
‘‘(1) to prevent the use of year-end transfers, re-
lated parties, or other arrangements to avoid the pro-
visions of this section, and
‘‘(2) to provide for the application of this section
to any security which is a hedge which cannot be
identified with a specific security, position, right to
income, or liability.’’
(b) CONFORMING AMENDMENTS.—
503
HR 2264 PP
(1) Paragraph (1) of section 988(d) is amend-
ed—
(A) by striking ‘‘section 1256’’ and insert-
ing ‘‘section 475 or 1256’’, and
(B) by striking ‘‘1092 and 1256’’ and in-
serting ‘‘475, 1092, and 1256’’.
(2) The table of sections for subpart D of part
II of subchapter E of chapter 1 is amended by adding
at the end thereof the following new item:
‘‘Sec. 475. Mark to market accounting method for dealers in securi-
ties.’’
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to all taxable years ending on
or after December 31, 1993.
(2) CHANGE IN METHOD OF ACCOUNTING.—In
the case of any taxpayer required by this section to
change its method of accounting for any taxable
year—
(A) such change shall be treated as initiated
by the taxpayer,
(B) such change shall be treated as made
with the consent of the Secretary, and
(C) except as provided in paragraph (3),
the net amount of the adjustments required to be
taken into account by the taxpayer under section
504
HR 2264 PP
481 of the Internal Revenue Code of 1986 shall
be taken into account ratably over the 5-taxable
year period beginning with the first taxable year
ending on or after December 31, 1993.
(3) SPECIAL RULE FOR FLOOR SPECIALISTS AND
MARKET MAKERS.—
(A) IN GENERAL.—If—
(i) a taxpayer (or any predecessor)
used the last-in first-out (LIFO) method of
accounting with respect to any qualified se-
curities for the 5-taxable year period ending
with its last taxable year ending before De-
cember 31, 1993, and
(ii) any portion of the net amount de-
scribed in paragraph (2)(C) is attributable
to the use of such method of accounting,
then paragraph (2)(C) shall be applied by taking
such portion into account ratably over the 15-
taxable year period beginning with the first tax-
able year ending on or after December 31, 1993.
(B) QUALIFIED SECURITY.—For purposes of
this paragraph, the term ‘‘qualified security’’
means any security acquired—
(i) by a floor specialist (as defined in
section 1236(d)(2) of the Internal Revenue
505
HR 2264 PP
Code of 1986) in connection with the spe-
cialist’s duties as a specialist on an ex-
change, but only if the security is one in
which the specialist is registered with the
exchange, or
(ii) by a taxpayer who is a market
maker in connection with the taxpayer’s du-
ties as a market maker, but only if—
(I) the security is included on the
National Association of Security Deal-
ers Automated Quotation System,
(II) the taxpayer is registered as
a market maker in such security with
the National Association of Security
Dealers, and
(III) as of the last day of the tax-
able year preceding the taxpayer’s first
taxable year ending on or after Decem-
ber 31, 1993, the taxpayer (or any
predecessor) has been actively and reg-
ularly engaged as a market maker in
such security for the 2-year period end-
ing on such date (or, if shorter, the pe-
riod beginning 61 days after the secu-
507
HR 2264 PP
of the Federal Home Loan Bank Act (or under any similar
provision of law).
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as otherwise provided
in this subsection—
(A) The provisions of this section shall
apply to taxable years ending on or after March
4, 1991, but only with respect to FSLIC assist-
ance not credited before March 4, 1991.
(B) If any FSLIC assistance not credited
before March 4, 1991, is with respect to a loss
sustained or charge-off in a taxable year ending
before March 4, 1991, for purposes of determin-
ing the amount of any net operating loss carry-
over to a taxable year ending on or after March
4, 1991, the provisions of this section shall apply
to such assistance for purposes of determining
the amount of the net operating loss for the tax-
able year in which such loss was sustained or
debt written off. Except as provided in the pre-
ceding sentence, this section shall not apply to
any FSLIC assistance with respect to a loss
sustained or charge-off in a taxable year ending
before March 4, 1991.
508
HR 2264 PP
(2) EXCEPTIONS.—The provisions of this section
shall not apply to any assistance to which the amend-
ments made by section 1401(a)(3) of the Financial
Institutions Reform, Recovery, and Enforcement Act
of 1989 apply.
SEC. 8225. MODIFICATION OF CORPORATE ESTIMATED TAX
RULES.
(a) INCREASE IN REQUIRED INSTALLMENT BASED ON
CURRENT YEAR TAX.—
(1) 
IN
GENERAL.—Clause 
(i) 
of 
section
6655(d)(1)(B) (relating to amount of required install-
ment) is amended by striking ‘‘91 percent’’ each place
it appears and inserting ‘‘100 percent’’.
(2) CONFORMING AMENDMENTS.—
(A) Subsection (d) of section 6655 is
amended—
(i) by striking paragraph (3), and
(ii) by striking ‘‘91 PERCENT’’ in the
paragraph heading of paragraph (2) and
inserting ‘‘100 PERCENT’’.
(B) Clause (ii) of section 6655(e)(2)(B) is
amended by striking the table contained therein
and inserting the following:
‘‘In the case of the following re-
The applicable
quired installments:
percentage is:
1st .......................................................................
2nd ......................................................................
509
HR 2264 PP
3rd ......................................................................
4th .......................................................................
100.’’
(C) Clause (i) of section 6655(e)(3)(A) is
amended by striking ‘‘91 percent’’ and inserting
‘‘100 percent’’.
(b) MODIFICATION
OF
PERIODS
FOR
APPLYING
ANNUALIZATION.—
(1) Clause (i) of section 6655(e)(2)(A) is amend-
ed—
(A) by striking ‘‘or for the first 5 months’’
in subclause (II),
(B) by striking ‘‘or for the first 8 months’’
in subclause (III), and
(C) by striking ‘‘or for the first 11 months’’
in subclause (IV).
(2) Paragraph (2) of section 6655(e) is amended
by adding at the end thereof the following new sub-
paragraph:
‘‘(C) 
ELECTION
FOR
DIFFERENT
ANNUALIZATION PERIODS.—
‘‘(i) If the taxpayer makes an election
under this clause—
‘‘(I) subclause (I) of subparagraph
(A)(i) shall be applied by substituting
‘2 months’ for ‘3 months’,
510
HR 2264 PP
‘‘(II) subclause (II) of subpara-
graph (A)(i) shall be applied by sub-
stituting ‘4 months’ for ‘3 months’,
‘‘(III) subclause (III) of subpara-
graph (A)(i) shall be applied by sub-
stituting ‘7 months’ for ‘6 months’, and
‘‘(IV) subclause (IV) of subpara-
graph (A)(i) shall be applied by sub-
stituting ‘10 months’ for ‘9 months’.
‘‘(ii) If the taxpayer makes an election
under this clause—
‘‘(I) subclause (II) of subpara-
graph (A)(i) shall be applied by sub-
stituting ‘5 months’ for ‘3 months’,
‘‘(II) subclause (III) of subpara-
graph (A)(i) shall be applied by sub-
stituting ‘8 months’ for ‘6 months’, and
‘‘(III) subclause (IV) of subpara-
graph (A)(i) shall be applied by sub-
stituting ‘11 months’ for ‘9 months’.
‘‘(iii) An election under clause (i) or
(ii) shall apply to the taxable year for
which made and such an election shall be
effective only if made on or before the date
511
HR 2264 PP
required for the payment of the first re-
quired installment for such taxable year.’’
(3) The last sentence of section 6655(g)(3) is
amended by striking ‘‘and subsection (e)(2)(A)’’ and
inserting ‘‘and, except in the case of an election under
subsection (e)(2)(C), subsection (e)(2)(A)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1993.
SEC. 8226. MODIFICATIONS OF DISCHARGE OF INDEBTED-
NESS PROVISIONS.
(a) REPEAL OF STOCK FOR DEBT EXCEPTION IN DE-
TERMINING INCOME FROM DISCHARGE
OF INDEBTED-
NESS.—
(1) IN GENERAL.—Subsection (e) of section 108
is amended—
(A) by striking paragraph (10) and by re-
designating paragraph (11) as paragraph (10),
and
(B) by amending paragraph (8) to read as
follows:
‘‘(8) INDEBTEDNESS
SATISFIED
BY
CORPORA-
TION’S STOCK.—For purposes of determining income
of a debtor from discharge of indebtedness, if a debtor
corporation transfers stock to a creditor in satisfac-
512
HR 2264 PP
tion of its indebtedness, such corporation shall be
treated as having satisfied the indebtedness with an
amount of money equal to the fair market value of the
stock.’’
(2) CONFORMING
AMENDMENT.—Subparagraph
(C) of section 382(l)(5) is amended to read as follows:
‘‘(C) COORDINATION WITH SECTION 108.—In
applying section 108(e)(8) to any case to which
subparagraph (A) applies, there shall not be
taken into account any indebtedness for interest
described in subparagraph (B).’’
(3) EFFECTIVE DATE.—
(A) IN GENERAL.—Except as otherwise pro-
vided in this paragraph, the amendments made
by this subsection shall apply to stock transferred
after June 17, 1993, in satisfaction of any in-
debtedness.
(B) EXCEPTION FOR TITLE 11 CASES.—The
amendments made by this subsection shall not
apply to stock transferred in satisfaction of any
indebtedness if such transfer is in a title 11 or
similar case (as defined in section 368(a)(3)(A)
of the Internal Revenue Code of 1986) which was
filed on or before June 17, 1993.
513
HR 2264 PP
(C) EXCEPTION FOR BINDING CONTRACTS.—
The amendments made by this section shall not
apply to any stock transferred after June 17,
1993, and before January 1, 1994, if such trans-
fer is pursuant to a binding contract in effect on
June 17, 1993, and at all times thereafter before
the transfer.
(D) EXCEPTION
FOR
CERTAIN
FILINGS.—
The amendments made by this section shall not
apply to any stock transferred in satisfaction of
any indebtedness if—
(i) such transfer occurs after June 17,
1993, and before January 1, 1994, and
(ii) the taxpayer had filed with the Se-
curities and Exchange Commission on or
before June 17, 1993, a registration state-
ment which proposed a stock-for-debt ex-
change with respect to such indebtedness,
and which discussed the possible application
of the stock-for-debt exception to such ex-
change.
(b) TAX ATTRIBUTES SUBJECT TO REDUCTION.—
(1) MINIMUM
TAX
CREDIT.—Section 108(b)(2)
(relating to tax attributes affected; order of reduction)
is amended by redesignating subparagraphs (C), (D),
514
HR 2264 PP
and (E) as subparagraphs (D), (E), and (F) and by
adding after subparagraph (B) the following new sub-
paragraph:
‘‘(C) MINIMUM TAX CREDIT.—The amount
of the minimum tax credit available under sec-
tion 53(b) as of the beginning of the taxable year
immediately following the taxable year of the
discharge.’’
(2) PASSIVE ACTIVITY LOSSES AND CREDITS.—
Section 108(b)(2), as amended by paragraph (1), is
amended by redesignating subparagraph (F) as sub-
paragraph (G) and by adding after subparagraph (E)
the following new subparagraph:
‘‘(F) PASSIVE ACTIVITY LOSS AND CREDIT
CARRYOVERS.—Any passive activity loss or cred-
it carryover of the taxpayer under section 469(b)
from the taxable year of the discharge.’’
(3) CONFORMING AMENDMENTS.—
(A) Subparagraph (B) of section 108(b)(3)
is amended to read as follows:
‘‘(B) CREDIT CARRYOVER REDUCTION.—The
reductions described in subparagraphs (B), (C),
and (G) shall be 331⁄3 cents for each dollar ex-
cluded by subsection (a). The reduction described
in subparagraph (F) in any passive activity
515
HR 2264 PP
credit carryover shall be 331⁄3 cents for each dol-
lar excluded by subsection (a).’’
(B) Subparagraph (B) of section 108(b)(4)
is amended by striking ‘‘(C)’’ in the text and
heading thereof and inserting ‘‘(D)’’.
(C) Subparagraph (C) of section 108(b)(4)
is amended by striking ‘‘(E)’’ in the text and
heading thereof and inserting ‘‘(G)’’.
(D) Subparagraph (B) of section 108(g)(3)
is amended—
(i) by striking ‘‘subparagraphs (A),
(B), (C), and (E)’’ and inserting ‘‘subpara-
graphs (A), (B), (C), (D), (F), and (G)’’,
(ii) by striking ‘‘subparagraphs (B)
and (E)’’ and inserting ‘‘subparagraphs
(B), (C), and (G)’’, and
(iii) by inserting before the period at
the end the following: ‘‘and the attribute de-
scribed in subparagraph (F) of subsection
(b)(2) to the extent attributable to any pas-
sive activity credit carryover’’.
(4) EFFECTIVE DATE.—The amendments made
by this section shall apply to taxable years beginning
after December 31, 1993.
516
HR 2264 PP
SEC. 8227. LIMITATION ON SECTION 936 CREDIT.
(a) GENERAL RULE.—Subsection (a) of section 936
(relating to Puerto Rico and possession tax credit) is
amended—
(1) by striking ‘‘as provided in paragraph (3)’’
in paragraph (1) and inserting ‘‘as otherwise pro-
vided in this section’’;
(2) by adding at the end thereof the following
new paragraph:
‘‘(4) LIMITATIONS ON CREDIT FOR ACTIVE BUSI-
NESS INCOME.—
‘‘(A) IN
GENERAL.—The amount of the
credit determined under paragraph (1)(A) for
any taxable year shall not exceed the sum of the
following amounts:
‘‘(i) 95 percent of the sum of—
‘‘(I) the aggregate amount of the
possession corporation’s qualified pos-
session wages for such taxable year,
plus
‘‘(II) the allocable employee fringe
benefit expenses of the possession cor-
poration for the taxable year.
‘‘(ii) The sum of—
‘‘(I) 50 percent of the depreciation
deductions allowable under section 167
517
HR 2264 PP
to the possession corporation for the
taxable year with respect to short-life
qualified tangible property,
‘‘(II) 75 percent of the deprecia-
tion deductions allowable under section
167 to the possession corporation for
the taxable year with respect to me-
dium-life qualified tangible property,
and
‘‘(III) 100 percent of the deprecia-
tion deductions allowable under section
167 to the possession corporation for
the taxable year with respect to long-
life qualified tangible property.
‘‘(iii) If the possession corporation does
not have an election to use the method de-
scribed in subsection (h)(5)(C)(ii) (relating
to profit split) in effect for the taxable year,
the amount of qualified possession income
taxes for the taxable year allocable to
nonsheltered income.
‘‘(B) ELECTION TO TAKE REDUCED CRED-
IT.—
518
HR 2264 PP
‘‘(i) IN
GENERAL.—If an election
under this subparagraph applies to a pos-
session corporation for any taxable year—
‘‘(I) subparagraph (A), and the
provisions of subsection (i), shall not
apply to such possession corporation
for such taxable year, and
‘‘(II) the credit determined under
paragraph (1)(A) for such taxable year
shall be the applicable percentage of the
credit which would otherwise have been
determined under such paragraph.
Notwithstanding subclause (I), a possession
corporation to which an election under this
subparagraph applies shall be entitled to the
benefits of subsection (i)(3)(B) for taxes al-
locable (on a pro rata basis) to taxable in-
come the tax on which is not offset by rea-
son of this subparagraph.
‘‘(ii) APPLICABLE PERCENTAGE.—The
term ‘applicable percentage’ means the per-
centage determined in accordance with the
following table:
‘‘In the case of taxable
The percentage is:
year beginning in:
1994 ................................................................................................
1995 ................................................................................................
1996 ................................................................................................
519
HR 2264 PP
‘‘In the case of taxable
The percentage is:
year beginning in:
1997 ................................................................................................
1998 and thereafter ........................................................................
40.
‘‘(iii) ELECTION.—
‘‘(I) IN
GENERAL.—An election
under this subparagraph by any pos-
session corporation may be made only
for the corporation’s first taxable year
beginning after December 31, 1993, for
which it is a possession corporation.
‘‘(II) PERIOD OF ELECTION.—An
election under this subparagraph shall
apply to the taxable year for which
made and all subsequent taxable years
unless revoked.
‘‘(III) AFFILIATED
GROUPS.—If,
for any taxable year, an election is not
in effect for any possession corporation
which is a member of an affiliated
group, any election under this sub-
paragraph for any other member of
such group is revoked for such taxable
year and all subsequent taxable years.
For purposes of this subclause, mem-
bers of an affiliated group shall be de-
termined without regard to the excep-
520
HR 2264 PP
tions contained in section 1504(b) and
as if the constructive ownership rules
of section 1563(e) applied for purposes
of section 1504(a). The Secretary may
prescribe regulations to prevent the
avoidance of this subclause through
deconsolidation or otherwise.
‘‘(C) CROSS REFERENCE.—
‘‘For definitions and special rules applicable to
this paragraph, see subsection (i).’’; and
(3) by inserting ‘‘97.5 percent of’’ after ‘‘equal
to’’ in paraagraph (1).
(b) DEFINITIONS AND SPECIAL RULES.—Section 936
is amended by adding at the end thereof the following new
subsection:
‘‘(i) DEFINITIONS AND SPECIAL RULES RELATING TO
LIMITATIONS OF SUBSECTION (a)(4).—
‘‘(1) QUALIFIED POSSESSION WAGES.—For pur-
poses of this section—
‘‘(A) IN
GENERAL.—The term ‘qualified
possession wages’ means wages paid or incurred
by the possession corporation during the taxable
year in connection with the active conduct of a
trade or business within a possession of the
United States to any employee for services per-
formed in such possession, but only if such serv-
521
HR 2264 PP
ices are performed while the principal place of
employment of such employee is within such pos-
session.
‘‘(B) LIMITATION
ON
AMOUNT
OF
WAGES
TAKEN INTO ACCOUNT.—
‘‘(i) IN
GENERAL.—The amount of
wages which may be taken into account
under subparagraph (A) with respect to any
employee for any taxable year shall not ex-
ceed 85 percent of the contribution and ben-
efit base determined under section 230 of
the Social Security Act for the calendar
year in which such taxable year begins.
‘‘(ii) TREATMENT OF PART-TIME EM-
PLOYEES, ETC.—If—
‘‘(I) any employee is not em-
ployed by the possession corporation on
a substantially full-time basis at all
times during the taxable year, or
‘‘(II) the principal place of em-
ployment of any employee with the
possession corporation is not within a
possession at all times during the tax-
able year,
522
HR 2264 PP
the limitation applicable under clause (i)
with respect to such employee shall be the
appropriate portion (as determined by the
Secretary) of the limitation which would
otherwise be in effect under clause (i).
‘‘(C) TREATMENT
OF
CERTAIN
EMPLOY-
EES.—The term ‘qualified possession wages’ shall
not include any wages paid to employees who
are assigned by the employer to perform services
for another person, unless the principal trade or
business of the employer is to make employees
available for temporary periods to other persons
in return for compensation. All possession cor-
porations treated as 1 corporation under para-
graph (6) shall be treated as 1 employer for pur-
poses of the preceding sentence.
‘‘(D) WAGES.—
‘‘(i) IN GENERAL.—Except as provided
in clause (ii), the term ‘wages’ has the
meaning given to such term by subsection
(b) of section 3306 (determined without re-
gard to any dollar limitation contained in
such section). For purposes of the preceding
sentence, such subsection (b) shall be ap-
523
HR 2264 PP
plied as if the term ‘United States’ included
all possessions of the United States.
‘‘(ii) SPECIAL
RULE
FOR
AGRICUL-
TURAL
LABOR
AND
RAILWAY
LABOR.—In
any case to which subparagraph (A) or (B)
of paragraph (1) of section 51(h) applies,
the term ‘wages’ has the meaning given to
such term by section 51(h)(2).
‘‘(2) ALLOCABLE
EMPLOYEE
FRINGE
BENEFIT
EXPENSES.—
‘‘(A) IN GENERAL.—The allocable employee
fringe benefit expenses of any possession corpora-
tion for any taxable year is an amount which
bears the same ratio to the amount determined
under subparagraph (B) for such taxable year
as—
‘‘(i) the aggregate amount of the pos-
session corporation’s qualified possession
wages for such taxable year, bears to
‘‘(ii) the aggregate amount of the wages
paid or incurred by such possession cor-
poration during such taxable year.
In no event shall the amount determined under
the preceding sentence exceed 15 percent of the
amount referred to in clause (i).
524
HR 2264 PP
‘‘(B) EXPENSES
TAKEN
INTO
ACCOUNT.—
For purposes of subparagraph (A), the amount
determined under this subparagraph for any tax-
able year is the aggregate amount allowable as
a deduction under this chapter to the possession
corporation for such taxable year (determined
without regard to paragraph (5)) with respect
to—
‘‘(i) employer contributions under a
stock bonus, pension, profit-sharing, or an-
nuity plan,
‘‘(ii) employer-provided coverage under
any accident or health plan for employees,
and
‘‘(iii) the cost of life or disability in-
surance provided to employees.
Any amount treated as wages under paragraph
(1)(D) shall not be taken into account under this
subparagraph.
‘‘(3) TREATMENT OF POSSESSION TAXES.—
‘‘(A) AMOUNT OF CREDIT FOR POSSESSION
CORPORATIONS NOT USING PROFIT SPLIT.—
‘‘(i) IN
GENERAL.—For purposes of
subsection (a)(4)(A)(iii), the amount of the
qualified possession income taxes for any
525
HR 2264 PP
taxable year allocable to nonsheltered in-
come shall be an amount which bears the
same ratio to the possession income taxes
for such taxable year as—
‘‘(I) the increase in the tax liabil-
ity of the possession corporation under
this chapter by reason of subsection
(a)(4)(A) (without regard to clause
(iii) thereof) and paragraph (5) of this
subsection, bears to
‘‘(II) the tax liability of the pos-
session corporation for the taxable year
determined without regard to the credit
allowable under this section and with-
out regard to paragraph (5) of this
subsection.
‘‘(ii) LIMITATION
ON
AMOUNT
OF
TAXES
TAKEN
INTO
ACCOUNT.—Possession
income taxes shall not be taken into account
under clause (i) for any taxable year to the
extent that the amount of such taxes exceeds
9 percent of the amount of the taxable in-
come for such taxable year.
‘‘(B) DEDUCTION
FOR
POSSESSION
COR-
PORATIONS USING PROFIT SPLIT.—Notwithstand-
526
HR 2264 PP
ing subsection (c) if a possession corporation is
not described in subsection (a)(4)(A)(iii) for any
taxable year, such possession corporation shall be
allowed a deduction for such taxable year in an
amount which bears the same ratio to the posses-
sion income taxes for such taxable year as—
‘‘(i) the increase in the tax liability of
the possession corporation under this chap-
ter by reason of subsection (a)(4)(A) and
paragraph (5) of this subsection, bears to
‘‘(ii) the tax liability of the possession
corporation for the taxable year determined
without regard to the credit allowable under
this section and without regard to para-
graph (5) of this subsection.
In determining the credit under subsection (a)
and in applying the preceding sentence, taxable
income shall be determined without regard to the
preceding sentence.
‘‘(C) POSSESSION
INCOME
TAXES.—For
purposes of this paragraph, the term ‘possession
income taxes’ means any taxes of a possession of
the United States which are treated as not being
income, war profits, or excess profits taxes paid
527
HR 2264 PP
or accrued to a possession of the United States
by reason of subsection (c).
‘‘(4) 
CATEGORIES
OF
DEPRECIABLE
PROP-
ERTY.—For purposes of this section—
‘‘(A) QUALIFIED
TANGIBLE
PROPERTY.—
The term ‘qualified tangible property’ means
any tangible property used by the possession cor-
poration in a possession of the United States in
the active conduct of a trade or business within
such possession.
‘‘(B) SHORT-LIFE
QUALIFIED
TANGIBLE
PROPERTY.—The term ‘short-life qualified tan-
gible property’ means any qualified tangible
property to which section 168 applies and which
is 3-year property or 5-year property for pur-
poses of such section.
‘‘(C) MEDIUM-LIFE
QUALIFIED
TANGIBLE
PROPERTY.—The term ‘medium-life qualified
tangible property’ means any qualified tangible
property to which section 168 applies and which
is 7-year property or 10-year property for pur-
poses of such section.
‘‘(D) 
LONG-LIFE
QUALIFIED
TANGIBLE
PROPERTY.—The term ‘long-life qualified tan-
gible property’ means any qualified tangible
528
HR 2264 PP
property to which section 168 applies and which
is not described in subparagraph (B) or (C).
‘‘(E) TRANSITIONAL RULE.—In the case of
any qualified tangible property to which section
168 (as in effect on the day before the date of the
enactment of the Tax Reform Act of 1986) ap-
plies, any reference in this paragraph to section
168 shall be treated as a reference to such section
as so in effect.
‘‘(5) DENIAL OF DOUBLE BENEFIT.—
‘‘(A) IN
GENERAL.—Notwithstanding any
other provision of this chapter, no deduction
shall be allowed to a possession corporation for—
‘‘(i) any qualified possession wages,
‘‘(ii) any allocable employee fringe
benefit expenses, and
‘‘(iii) any depreciation deductions re-
ferred to in subsection (a)(4)(A)(ii).
‘‘(B) COORDINATION
WITH
OTHER
PROVI-
SIONS.—Subparagraph (A) shall not apply for
purposes of—
‘‘(i) determining the amount of the
credit allowable under subsection (a)(1)(A)
or otherwise determining the taxable income
529
HR 2264 PP
of the possession corporation under any
other provision of this section, and
‘‘(ii) determining adjustments to the
basis of any property on account of depre-
ciation deductions.
‘‘(6) ELECTION TO COMPUTE CREDIT ON CON-
SOLIDATED BASIS.—
‘‘(A) IN
GENERAL.—Any affiliated group
may elect to treat all possession corporations
which would be members of such group but for
section 1504(b) (3) or (4) as 1 corporation for
purposes of this section. The credit determined
under this section with respect to such 1 corpora-
tion shall be allocated among such possession
corporations in such manner as the Secretary
may prescribe.
‘‘(B) ELECTION.—An election under sub-
paragraph (A) shall apply to the taxable year
for which made and all succeeding taxable years
unless revoked with the consent of the Secretary.
‘‘(7) POSSESSION CORPORATION.—The term ‘pos-
session corporation’ means a domestic corporation for
which the election provided in subsection (a) is in ef-
fect.’’
(c) MINIMUM TAX TREATMENT.—
530
HR 2264 PP
(1) 
IN
GENERAL.—Clause 
(ii) 
of 
section
56(g)(4)(C) (relating to treatment of special rule for
certain dividends) is amended by striking ‘‘sections
936 and 921’’ and inserting ‘‘sections 936 (including
subsections (a)(4) and (i) thereof) and 921’’.
(2) TREATMENT
OF
FOREIGN
TAXES.—Clause
(iii) of section 56(g)(4)(C) is amended by adding at
the end thereof the following subclauses:
‘‘(IV) SEPARATE APPLICATION OF
FOREIGN TAX CREDIT LIMITATIONS.—
In determining the alternative mini-
mum foreign tax credit, section 904(d)
shall be applied as if dividends from a
corporation eligible for the credit pro-
vided by section 936 were a separate
category of income referred to in a sub-
paragraph of section 904(d)(1).
‘‘(V) COORDINATION WITH LIMITA-
TION ON 936 CREDIT.—Any reference in
this clause to a dividend received from
a corporation eligible for the credit
provided by section 936 shall be treated
as a reference to the portion of any
such dividend for which the dividends
received deduction is disallowed under
531
HR 2264 PP
clause (i) after the application of
clause (ii)(I).’’
(d) CONFORMING AMENDMENT.—Paragraph (4) of sec-
tion 904(b) is amended by inserting before the period at
the end thereof the following: ‘‘(without regard to sub-
sections (a)(4) and (i) thereof)’’.
(e) INCREASE IN LIMITATION ON COVER OVER.—Para-
graph (1) of section 7652(f) is amended to read as follows:
‘‘(1) $10.50 ($11.30 in the case of distilled spir-
its brought into the United States during the 5-year
period beginning on July 1, 1995), or.’’
(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1993; except that the amendment made by subsection
(e) shall take effect on October 1, 1993.
SEC. 8228. MODIFICATION TO LIMITATION ON DEDUCTION
FOR CERTAIN INTEREST.
(a) GENERAL RULE.—Paragraph (3) of section 163(j)
(defining disqualified interest) is amended to read as fol-
lows:
‘‘(3) DISQUALIFIED INTEREST.—For purposes of
this subsection, the term ‘disqualified interest’
means—
‘‘(A) any interest paid or accrued by the
taxpayer (directly or indirectly) to a related per-
532
HR 2264 PP
son if no tax is imposed by this subtitle with re-
spect to such interest, and
‘‘(B) any interest paid or accrued by the
taxpayer with respect to any indebtedness to a
person who is not a related person if—
‘‘(i) there is a disqualified guarantee of
such indebtedness, and
‘‘(ii) no gross basis tax is imposed by
this subtitle with respect to such interest.’’
(b) DEFINITIONS.—Paragraph (6) of section 163(j) is
amended by adding at the end thereof the following new
subparagraphs:
‘‘(D) DISQUALIFIED GUARANTEE.—
‘‘(i) IN GENERAL.—Except as provided
in clause (ii), the term ‘disqualified guaran-
tee’ means any guarantee by a related per-
son which is—
‘‘(I) an organization exempt from
taxation under this subtitle, or
‘‘(II) a foreign person.
‘‘(ii) EXCEPTIONS.—The term ‘dis-
qualified guarantee’ shall not include a
guarantee—
‘‘(I) in any circumstances identi-
fied by the Secretary by regulation,
533
HR 2264 PP
where the interest on the indebtedness
would have been subject to a net basis
tax if the interest had been paid to the
guarantor, or
‘‘(II) if the taxpayer owns a con-
trolling interest in the guarantor.
For purposes of subclause (II), except as
provided in regulations, the term ‘a control-
ling interest’ means direct or indirect own-
ership of at least 80 percent of the total vot-
ing power and value of all classes of stock
of a corporation, or 80 percent of the profit
and capital interests in any other entity.
For purposes of the preceding sentence, the
rules of paragraphs (1) and (5) of section
267(c) shall apply; except that such rules
shall also apply to interest in entities other
than corporations.
‘‘(iii) GUARANTEE.—Except as pro-
vided in regulations, the term ‘guarantee’
includes any arrangement under which a
person (directly or indirectly through an
entity or otherwise) assures, on a condi-
tional or unconditional basis, the payment
534
HR 2264 PP
of another person’s obligation under any in-
debtedness.
‘‘(E) 
GROSS
BASIS
AND
NET
BASIS
TAXATION.—
‘‘(i) GROSS
BASIS
TAX.—The term
‘gross basis tax’ means any tax imposed by
this subtitle which is determined by ref-
erence to the gross amount of any item of
income without any reduction for any de-
duction allowed by this subtitle.
‘‘(ii) NET BASIS TAX.—The term ‘net
basis tax’ means any tax imposed by this
subtitle which is a not a gross basis tax.’’
(c) CONFORMING AMENDMENT.—Subparagraph (B) of
section 163(j)(5) is amended by striking ‘‘to a related per-
son’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to interest paid or accrued in taxable
years beginning after December 31, 1993.
535
HR 2264 PP
PART III—FOREIGN TAX PROVISIONS
Subpart A—Current Taxation of Certain Earnings of
Controlled Foreign Corporations
SEC. 8231. EARNINGS INVESTED IN EXCESS PASSIVE AS-
SETS.
(a) GENERAL RULE.—Paragraph (1) of section 951(a)
(relating to amounts included in gross income of United
States shareholders) 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 thereof the following new subparagraph:
‘‘(C) the amount determined under section
956A with respect to such shareholder for such
year (but only to the extent not excluded from
gross income under section 959(a)(3)).’’
(b) AMOUNT OF INCLUSION.—Subpart F of part III
of subchapter N of chapter 1 is amended by inserting after
section 956 the following new section:
‘‘SEC. 956A. EARNINGS INVESTED IN EXCESS PASSIVE AS-
SETS.
‘‘(a) GENERAL RULE.—In the case of any controlled
foreign corporation, the amount determined under this sec-
tion with respect to any United States shareholder for any
taxable year is the lesser of—
‘‘(1) the excess (if any) of—
536
HR 2264 PP
‘‘(A) such shareholder’s pro rata share of the
amount of the controlled foreign corporation’s ex-
cess passive assets for such taxable year, over
‘‘(B) the amount of earnings and profits de-
scribed in section 959(c)(1)(B) with respect to
such shareholder, or
‘‘(2) such shareholder’s pro rata share of the ap-
plicable earnings of such controlled foreign corpora-
tion determined after the application of section
951(a)(1)(B).
‘‘(b) APPLICABLE EARNINGS.—For purposes of this
section, the term ‘applicable earnings’ means, with respect
to any controlled foreign corporation, the sum of—
‘‘(1) the amount referred to in section 316(a)(1)
to the extent such amount was accumulated in taxable
years beginning after September 30, 1993, and
‘‘(2) the amount referred to in section 316(a)(2),
but reduced by distributions made during the taxable year
and reduced by the earnings and profits described in section
959(c)(1) to the extent that the earnings and profits so de-
scribed were accumulated in taxable years beginning after
September 30, 1993.
‘‘(c) EXCESS PASSIVE ASSETS.—For purposes of this
section—
537
HR 2264 PP
‘‘(1) IN GENERAL.—The excess passive assets of
any controlled foreign corporation for any taxable
year is the excess (if any) of—
‘‘(A) the average of the amounts of passive
assets held by such corporation as of the close of
each quarter of such taxable year, over
‘‘(B) 25 percent of the average of the
amounts of total assets held by such corporation
as of the close of each quarter of such taxable
year.
For purposes of the preceding sentence, the amount
taken into account with respect to any asset shall be
its adjusted basis as determined for purposes of com-
puting earnings and profits.
‘‘(2) PASSIVE ASSET.—
‘‘(A) IN
GENERAL.—Except as otherwise
provided in this section, the term ‘passive asset’
means any asset held by the controlled foreign
corporation which produces passive income (as
defined in section 1296(b)) or is held for the pro-
duction of such income.
‘‘(B) COORDINATION WITH SECTION 956.—
The term ‘passive asset’ shall not include any
United States property (as defined in section
956).
538
HR 2264 PP
‘‘(3) CERTAIN RULES TO APPLY.—For purposes of
this subsection, the rules of the following provisions
shall apply:
‘‘(A) Section 1296(c) (relating to look-thru
rules).
‘‘(B) Section 1297(d) (relating to leasing
rules).
‘‘(C) Section 1297(e) (relating to intangible
property).
‘‘(d) TREATMENT
OF CERTAIN CHAINS
OF CON-
TROLLED FOREIGN CORPORATION.—
‘‘(1) IN
GENERAL.—For purposes of applying
subsection (c)—
‘‘(A) all controlled foreign corporations
which are members of the same CFC chain shall
be treated as 1 controlled foreign corporation,
and
‘‘(B) the amount of the excess passive assets
determined with respect to such 1 corporation
shall be allocated among the controlled foreign
corporations which are members of such chain in
proportion to their respective amounts of appli-
cable earnings.
‘‘(2) CFC CHAIN.—For purposes of paragraph
(1), the term ‘CFC chain’ means any chain of con-
539
HR 2264 PP
trolled foreign corporations connected through stock
ownership, but only if more than 50 percent (by vote
or value) of the stock of each member of such chain
(other than the top tier corporation) is owned (di-
rectly or indirectly) by one or more other members of
the chain.
‘‘(e) SPECIAL RULE WHERE CORPORATION CEASES TO
BE CONTROLLED FOREIGN CORPORATION DURING TAX-
ABLE YEAR.—If any foreign corporation ceases to be a con-
trolled foreign corporation during any taxable year—
‘‘(1) the determination of any United States
shareholder’s pro rata share shall be made on the
basis of stock owned (within the meaning of section
958(a)) by such shareholder on the last day during
the taxable year on which the foreign corporation is
a controlled foreign corporation, and
‘‘(2) the amount of such corporation’s excess pas-
sive assets for such taxable year shall be determined
by only taking into account quarters ending on or be-
fore such last day, and
‘‘(3) in determining applicable earnings, the
amount taken into account by reason of being de-
scribed in paragraph (2) of section 316(a) shall be the
portion of the amount so described which is allocable
(on a pro rata basis) to the part of such year during
540
HR 2264 PP
which the corporation is a controlled foreign corpora-
tion.
‘‘(f) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary to carry out the pur-
poses of this section, including regulations to prevent the
avoidance of the provisions of this section through reorga-
nizations or otherwise.’’
(c) PREVIOUSLY TAXED INCOME RULES.—
(1) IN GENERAL.—Subsection (a) of section 959
(relating to exclusion from gross income of previously
taxed earnings and profits) is amended by striking
‘‘or’’ at the end of paragraph (1), by adding ‘‘or’’ at
the end of paragraph (2), and by inserting after
paragraph (2) the following new paragraph:
‘‘(3) such amounts would, but for this subsection,
be included under section 951(a)(1)(C) in the gross
income of,’’.
(2) ALLOCATION RULES.—
(A) Subsection (a) of section 959 is amend-
ed by adding at the end thereof the following new
sentence: ‘‘The rules of subsection (c) shall apply
for purposes of paragraph (1) of this subsection
and the rules of subsection (f) shall apply for
purposes of paragraphs (2) and (3) of this sub-
section.’’.
541
HR 2264 PP
(B) Section 959 is amended by adding at
the end thereof the following new subsection:
‘‘(f) ALLOCATION RULES FOR CERTAIN INCLUSIONS.—
‘‘(1) IN
GENERAL.—For purposes of this sec-
tion—
‘‘(A) amounts that would be included under
subparagraph (B) of section 951(a)(1) (deter-
mined without regard to this section) shall be
treated as attributable first to earnings described
in subsection (c)(2), and then to earnings de-
scribed in subsection (c)(3), and
‘‘(B) amounts that would be included under
subparagraph (C) of section 951(a)(1) (deter-
mined without regard to this section) shall be
treated as attributable first to earnings described
in subsection (c)(2) to the extent the earnings so
described were accumulated in taxable years be-
ginning after September 30, 1993, and then to
earnings described in subsection (c)(3).
‘‘(2) TREATMENT OF DISTRIBUTIONS.—In apply-
ing this section, actual distributions shall be taken
into account before amounts that would be included
under subparagraphs (B) and (C) of section 951(a)(1)
(determined without regard to this section).’’
542
HR 2264 PP
(C) Paragraph (1) of section 959(c) is
amended to read as follows:
‘‘(1) first to the aggregate of—
‘‘(A) earnings and profits attributable to
amounts included in gross income under section
951(a)(1)(B) (or which would have been included
except for subsection (a)(2) of this section), and
‘‘(B) earnings and profits attributable to
amounts included in gross income under section
951(a)(1)(C) (or which would have been included
except for subsection (a)(3) of this section),
with any distribution being allocated between earn-
ings and profits described in subparagraph (A) and
earnings and profits described in subparagraph (B)
proportionately on the basis of the respective amounts
of such earnings and profits,’’.
(3) CONFORMING AMENDMENTS.—
(A) Subsections (a) and (b) of section 959
are each amended by striking ‘‘earnings and
profits for a taxable year’’ and inserting ‘‘earn-
ings and profits’’.
(B) Paragraph (2) of section 959(c) is
amended to read as follows:
‘‘(2) then to earnings and profits attributable to
amounts included in gross income under section
543
HR 2264 PP
951(a)(1)(A) (but reduced by amounts not included
under subparagraph (B) or (C) of section 951(a)(1)
because of the exclusions in paragraphs (2) and (3)
of subsection (a) of this section), and’’
(C) Subsection (b) of section 989 is amend-
ed by striking ‘‘section 951(a)(1)(B)’’ and insert-
ing ‘‘subparagraph (B) or (C) of section
951(a)(1)’’.
(d) MODIFICATIONS
TO PASSIVE FOREIGN INVEST-
MENT COMPANY RULES.—
(1) ADJUSTED BASIS USED IN CERTAIN DETER-
MINATIONS.—Subsection (a) of section 1296 is amend-
ed by striking the material following paragraph (2)
and inserting the following:
‘‘In the case of a controlled foreign corporation (or any
other foreign corporation if such corporation so elects), the
determination under paragraph (2) shall be based on the
adjusted bases (as determined for purposes of computing
earnings and profits) of its assets in lieu of their value.
Such an election, once made, may be revoked only with the
consent of the Secretary.’’
(2) TREATMENT OF CERTAIN SUBPART F INCLU-
SIONS.—Subsection (b) of section 1297 is amended by
adding at the end thereof the following new para-
graph:
544
HR 2264 PP
‘‘(9) TREATMENT OF CERTAIN SUBPART F INCLU-
SIONS.—Any amount included in gross income under
subparagraph (B) or (C) of section 951(a)(1) shall be
treated as a distribution received with respect to the
stock.’’
(3) TREATMENT OF CERTAIN DEALERS IN SECU-
RITIES.—Subsection (b) of section 1296 is amended
by adding at the end thereof the following new para-
graph:
‘‘(3) TREATMENT OF CERTAIN DEALERS IN SECU-
RITIES.—
‘‘(A) IN GENERAL.—In the case of any for-
eign corporation which is a controlled foreign
corporation (as defined in section 957(a)), the
term ‘passive income’ does not include any in-
come derived in the active conduct of a securities
business by such corporation if such corporation
is registered as a securities broker or dealer
under section 15(a) of the Securities Exchange
Act of 1934 or is registered as a Government se-
curities broker or dealer under section 15C(a) of
such Act. To the extent provided in regulations,
such term shall not include any income derived
in the active conduct of a securities business by
545
HR 2264 PP
a controlled foreign corporation which is not so
registered.
‘‘(B) 
APPLICATION
OF
LOOK-THRU
RULES.—For purposes of paragraph (2)(C),
rules similar to the rules of subparagraph (A) of
this paragraph shall apply in determining
whether any income of a related person (whether
or not a corporation) is passive income.
‘‘(C) LIMITATION.—The preceding provi-
sions of this paragraph shall only apply in the
case of persons who are United States sharehold-
ers (as defined in section 951(b)) in the con-
trolled foreign corporation.’’
(4) LEASING AND INTANGIBLE ASSET RULES.—
Section 1297 is amended by redesignating subsection
(d) as subsection (f) and by inserting after subsection
(c) the following new subsections:
‘‘(d) TREATMENT OF CERTAIN LEASED PROPERTY.—
For purposes of this part:
‘‘(1) IN GENERAL.—Any tangible personal prop-
erty with respect to which a foreign corporation is the
lessee under a lease with a term of at least 12 months
shall be treated as an asset actually held by such cor-
poration.
‘‘(2) DETERMINATION OF ADJUSTED BASIS.—
546
HR 2264 PP
‘‘(A) IN GENERAL.—The adjusted basis of
any asset to which paragraph (1) applies shall
be the unamortized portion (as determined under
regulations prescribed by the Secretary) of the
present value of the payments under the lease for
the use of such property.
‘‘(B) PRESENT
VALUE.—For purposes of
subparagraph (A), the present value of payments
described in subparagraph (A) shall be deter-
mined in the manner provided in regulations
prescribed by the Secretary—
‘‘(i) as of the beginning of the lease
term, and
‘‘(ii) except as provided in such regula-
tions, by using a discount rate equal to the
applicable Federal rate determined under
section 1274(d)—
‘‘(I) by substituting the lease term
for the term of the debt instrument,
and
‘‘(II) without regard to paragraph
(2) or (3) thereof.
‘‘(3) EXCEPTIONS.—This subsection shall not
apply in any case where—
547
HR 2264 PP
‘‘(A) the lessor is a related person (as de-
fined in section 954(d)(3)) with respect to the
foreign corporation, or
‘‘(B) a principal purpose of leasing the
property was to avoid the provisions of this
section.
‘‘(e) SPECIAL RULES FOR CERTAIN INTANGIBLES.—
‘‘(1) RESEARCH EXPENDITURES.—The adjusted
basis of the total assets of a controlled foreign cor-
poration shall be increased by the research or experi-
mentation expenditures (within the meaning of sec-
tion 174) paid or incurred by such foreign corpora-
tion during the taxable year and the preceding 2 tax-
able years.
‘‘(2) CERTAIN LICENSED INTANGIBLES.—In the
case of any intangible property (as defined in section
936(h)(3)(B)) with respect to which a controlled for-
eign corporation is a licensee and which is used by
such foreign corporation in the active conduct of a
trade or business, the adjusted basis of the total assets
of such foreign corporation shall be increased by an
amount equal to 300 percent of the payments made
during the taxable year for the use of such intangible
property. For purposes of the preceding sentence, pay-
ments to a foreign person shall not be taken into ac-
548
HR 2264 PP
count if such foreign person is a related person (as
defined in section 954(d)(3)) with respect to the con-
trolled foreign corporation.
‘‘(3) CONTROLLED FOREIGN CORPORATION.—For
purposes of this subsection, the term ‘controlled for-
eign corporation’ has the meaning given such term by
section 957(a).’’
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years of foreign corporations
beginning after September 30, 1993, and to taxable years
of United States shareholders in which or with which such
taxable years of foreign corporations end.
SEC. 8232. MODIFICATION TO TAXATION OF INVESTMENT IN
UNITED STATES PROPERTY.
(a) GENERAL RULE.—Section 956 (relating to invest-
ment of earnings in United States property) is amended—
(1) by redesignating subsections (b) and (c) as
subsections (c) and (d), respectively, and
(2) by striking subsection (a) and inserting the
following:
‘‘(a) GENERAL RULE.—In the case of any controlled
foreign corporation, the amount determined under this sec-
tion with respect to any United States shareholder for any
taxable year is the lesser of—
‘‘(1) the excess (if any) of—
549
HR 2264 PP
‘‘(A) such shareholder’s pro rata share of the
average of the amounts of United States property
held (directly or indirectly) by the controlled for-
eign corporation as of the close of each quarter
of such taxable year, over
‘‘(B) the amount of earnings and profits de-
scribed in section 959(c)(1)(A) with respect to
such shareholder, or
‘‘(2) such shareholder’s pro rata share of the ap-
plicable earnings of such controlled foreign corpora-
tion.
The amount taken into account under paragraph (1) with
respect to any property shall be its adjusted basis as deter-
mined for purposes of computing earnings and profits, re-
duced by any liability to which the property is subject.
‘‘(b) ADJUSTMENTS
FOR CERTAIN DISTRIBUTIONS;
OTHER SPECIAL RULES.—
‘‘(1) APPLICABLE
EARNINGS.—For purposes of
this section, the term ‘applicable earnings’ has the
meaning given to such term by section 956A(b), ex-
cept that the provisions of such section disregarding
earnings and profits accumulated in taxable years be-
ginning before October 1, 1993 shall be disregarded.
‘‘(2) 
SPECIAL
RULE
WHERE
CORPORATION
CEASES
TO
BE
CONTROLLED
FOREIGN
CORPORA-
550
HR 2264 PP
TION.—Rules similar to the rules of section 956A(e)
shall apply for purposes of this section.’’
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (B) of section 951(a)(1) is
amended to read as follows:
‘‘(B) the amount determined under section
956 with respect to such shareholder for such
year (but only to the extent not excluded from
gross income under section 959(a)(2)); and’’
(2) Subsection (a) of section 951 is amended by
striking paragraph (4).
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years of controlled foreign cor-
porations beginning after September 30, 1993, and to tax-
able years of United States shareholders in which or with
which such taxable years of controlled foreign corporations
end.
SEC. 8233. OTHER MODIFICATIONS TO SUBPART F.
(a) SAME COUNTRY EXCEPTION NOT TO APPLY TO
CERTAIN DIVIDENDS.—
(1) IN
GENERAL.—Paragraph (3) of section
954(c) (relating to certain income received from relat-
ed persons) is amended by adding at the end thereof
the following new subparagraph:
551
HR 2264 PP
‘‘(C) 
EXCEPTION
FOR
CERTAIN
DIVI-
DENDS.—Subparagraph (A)(i) shall not apply to
any dividend with respect to any stock which is
attributable to earnings and profits of the dis-
tributing corporation accumulated during any
period during which the person receiving such
dividend did not hold such stock.’’
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall apply to taxable years of con-
trolled foreign corporations beginning after September
30, 1993, and to taxable years of United States share-
holders in which or with which such taxable years of
controlled foreign corporations end.
(b) SIMPLIFICATION OF SECTION 960(b).—
(1) IN GENERAL.—Subsection (b) of section 960
is amended—
(A) by redesignating paragraphs (3) and
(4) as paragraphs (4) and (5), respectively, and
(B) by striking paragraphs (1) and (2) and
inserting the following new paragraphs:
‘‘(1) INCREASE IN SECTION 904 LIMITATION.—In
the case of any taxpayer who—
‘‘(A) either (i) chose to have the benefits of
subpart A of this part for a taxable year begin-
ning after September 30, 1993, in which he was
552
HR 2264 PP
required under section 951(a) to include any
amount in his gross income, or (ii) did not pay
or accrue for such taxable year any income, war
profits, or excess profits taxes to any foreign
country or to any possession of the United
States,
‘‘(B) chooses to have the benefits of subpart
A of this part for any taxable year in which he
receives 1 or more distributions or amounts
which are excludable from gross income under
section 959(a) and which are attributable to
amounts included in his gross income for taxable
years referred to in subparagraph (A), and
‘‘(C) for the taxable year in which such dis-
tributions or amounts are received, pays, or is
deemed to have paid, or accrues income, war
profits, or excess profits taxes to a foreign coun-
try or to any possession of the United States
with respect to such distributions or amounts,
the limitation under section 904 for the taxable year
in which such distributions or amounts are received
shall be increased by the lesser of the amount of such
taxes paid, or deemed paid, or accrued with respect
to such distributions or amounts or the amount in the
553
HR 2264 PP
excess limitation account as of the beginning of such
taxable year.
‘‘(2) EXCESS LIMITATION ACCOUNT.—
‘‘(A) ESTABLISHMENT OF ACCOUNT.—Each
taxpayer meeting the requirements of paragraph
(1)(A) shall establish an excess limitation ac-
count. The opening balance of such account shall
be zero.
‘‘(B) INCREASES
IN
ACCOUNT.—For each
taxable year beginning after September 30, 1993,
the taxpayer shall increase the amount in the ex-
cess limitation account by the excess (if any)
of—
‘‘(i) the amount by which the limita-
tion under section 904(a) for such taxable
year was increased by reason of the total
amount of the inclusions in gross income
under section 951(a) for such taxable year,
over
‘‘(ii) the amount of any income, war
profits, and excess profits taxes paid, or
deemed paid, or accrued to any foreign
country or possession of the United States
which were allowable as a credit under sec-
tion 901 for such taxable year and which
554
HR 2264 PP
would not have been allowable but for the
inclusions in gross income described in
clause (i).
Proper reductions in the amount added to the
account under the preceding sentence for any
taxable year shall be made for any increase in
the credit allowable under section 901 for such
taxable year by reason of a carryback if such in-
crease would not have been allowable but for the
inclusions in gross income described in clause
(i).
‘‘(C) DECREASES
IN
ACCOUNT.—For each
taxable year beginning after September 30, 1993,
for which the limitation under section 904 was
increased under paragraph (1), the taxpayer
shall reduce the amount in the excess limitation
account by the amount of such increase.
‘‘(3) DISTRIBUTIONS
OF
INCOME
PREVIOUSLY
TAXED
IN
YEARS
BEGINNING
BEFORE
OCTOBER
1,
1993.—If the taxpayer receives a distribution or
amount in a taxable year beginning after September
30, 1993, which is excluded from gross income under
section 959(a) and is attributable to any amount in-
cluded in gross income under section 951(a) for a tax-
able year beginning before October 1, 1993, the limi-
555
HR 2264 PP
tation under section 904 for the taxable year in which
such amount or distribution is received shall be in-
creased by the amount determined under this sub-
section as in effect on the day before the date of the
enactment of the Revenue Reconcilation Act of 1993.’’
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall apply to taxable years beginning
after September 30, 1993.
Subpart B—Allocation of Research and Experimental
Expenditures
SEC. 8234. ALLOCATION OF RESEARCH AND EXPERIMENTAL
EXPENDITURES.
(a) GENERAL RULE.—Subparagraph (B) of section
864(f)(1) (relating to allocation of research and experi-
mental expenditures) is amended by striking ‘‘64 percent’’
each place it appears and inserting ‘‘50 percent’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (f) of section 864 is amended by
striking paragraph (5) and inserting the following
new paragraphs:
‘‘(5) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be appropriate to
carry out the purposes of this subsection, including
regulations relating to the determination of whether
any expenses are attributable to activities conducted
556
HR 2264 PP
in the United States or outside the United States and
regulations providing such adjustments to the provi-
sions of this subsection as may be appropriate in the
case of cost-sharing arrangements and contract re-
search.
‘‘(6) 
APPLICABILITY.—This 
subsection 
shall
apply to the taxpayer’s first taxable year (beginning
on or before August 1, 1994) following the taxpayer’s
last taxable year to which Revenue Procedure 92–56
applies or would apply if the taxpayer elected the
benefits of such Revenue Procedure.’’
(2) Subparagraph (D) of section 864(f)(4) is
amended by striking ‘‘subparagraph (C)’’ and insert-
ing ‘‘subparagraph (B) or (C)’’.
Subpart C—Other Provisions
SEC. 8235. REPEAL OF CERTAIN EXCEPTIONS FOR WORKING
CAPITAL.
(a) PROVISIONS RELATING
TO OIL
AND GAS IN-
COME.—
(1) AMENDMENTS TO SECTION 907.—
(A) Paragraph (1) of section 907(c) is
amended by adding at the end thereof the follow-
ing new flush sentence:
557
HR 2264 PP
‘‘Such term does not include any dividend or interest in-
come which is passive income (as defined in section
904(d)(2)(A)).’’.
(B) Paragraph (2) of section 907(c) is
amended by adding at the end thereof the follow-
ing new flush sentence:
‘‘Such term does not include any dividend or interest in-
come which is passive income (as defined in section
904(d)(2)(A)).’’.
(2) SEPARATE
APPLICATION
OF
FOREIGN
TAX
CREDIT.—Clause (iii) of section 904(d)(2)(A) is
amended by inserting ‘‘and’’ at the end of subclause
(II), by striking ‘‘, and’’ at the end of subclause (III)
and inserting a period, and by striking subclause
(IV).
(3) TREATMENT UNDER SUBPART F.—
(A) Paragraph (1) of section 954(g) is
amended by adding at the end thereof the follow-
ing new flush sentence:
Such term shall not include any foreign personal holding
company income (as defined in subsection (c)).’’.
(B) Paragraph (8) of section 954(b) is
amended by striking ‘‘(1),’’.
(b) TREATMENT OF SHIPPING INCOME.—Subsection (f)
of section 954 is amended by adding at the end thereof the
558
HR 2264 PP
following new sentence: ‘‘Such term shall not include any
dividend or interest income which is foreign personal hold-
ing company income (as defined in subsection (c)).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1992.
SEC. 8236. MODIFICATIONS OF ACCURACY-RELATED PEN-
ALTY.
(a) THRESHOLD REQUIREMENT.—Clause (ii) of sec-
tion 6662(e)(1)(B) (relating to substantial valuation
misstatement under chapter 1) is amended to read as
follows:
‘‘(ii) the net section 482 transfer price
adjustment for the taxable year exceeds the
lesser of $5,000,000 or 10 percent of the tax-
payer’s gross receipts.’’
(b) CERTAIN ADJUSTMENTS EXCLUDED IN DETERMIN-
ING THRESHOLD.—Subparagraph (B) of section 6662(e)(3)
is amended to read as follows:
‘‘(B) CERTAIN ADJUSTMENTS EXCLUDED IN
DETERMINING THRESHOLD.—For purposes of de-
termining whether the threshold requirements of
paragraph (1)(B)(ii) are met, the following shall
be excluded:
559
HR 2264 PP
‘‘(i) Any portion of the net increase in
taxable income referred to in subparagraph
(A) which is attributable to any redeter-
mination of a price if—
‘‘(I) it is established that the tax-
payer determined such price in accord-
ance with a specific pricing method set
forth in the regulations prescribed
under section 482 and that the tax-
payer’s use of such method was reason-
able,
‘‘(II) the taxpayer has documenta-
tion (which was in existence as of the
time of filing the return) which sets
forth the determination of such price
in accordance with such a method and
which establishes that the use of such
method was reasonable, and
‘‘(III) the taxpayer provides such
documentation to the Secretary within
30 days of a request for such docu-
mentation.
‘‘(ii) Any portion of the net increase in
taxable income referred to in subparagraph
(A) which is attributable to a redetermina-
560
HR 2264 PP
tion of price where such price was not deter-
mined in accordance with such a specific
pricing method if—
‘‘(I) the taxpayer establishes that
none of such pricing methods was like-
ly to result in a price that would clear-
ly reflect income, the taxpayer used an-
other pricing method to determine such
price, and such other pricing method
was likely to result in a price that
would clearly reflect income,
‘‘(II) the taxpayer has documenta-
tion (which was in existence as of the
time of filing the return) which sets
forth the determination of such price
in accordance with such other method
and which establishes that the require-
ments of subclause (I) were satisfied,
and
‘‘(III) the taxpayer provides such
documentation to the Secretary within
30 days of request for such documenta-
tion.
‘‘(iii) Any portion of such net increase
which is attributable to any transaction
561
HR 2264 PP
solely between foreign corporations unless,
in the case of any such corporations, the
treatment of such transaction affects the de-
termination of income from sources within
the United States or taxable income effec-
tively connected with the conduct of a trade
or business within the United States.’’
(c) COORDINATION WITH REASONABLE CAUSE EXCEP-
TION.—Paragraph (3) of section 6662(e) is amended by
adding at the end thereof the following new subparagraph:
‘‘(D) COORDINATION
WITH
REASONABLE
CAUSE
EXCEPTION.—For purposes of section
6664(c) the taxpayer shall not be treated as hav-
ing reasonable cause for any portion of an
underpayment attributable to a net section 482
transfer price adjustment unless such taxpayer
meets the requirements of clause (i), (ii), or (iii)
of subparagraph (B) with respect to such por-
tion.’’
(d) CONFORMING AMENDMENT.—Clause (iii) of section
6662(h)(2)(A) is amended to read as follows:
‘‘(iii) in paragraph (1)(B)(ii)—
‘‘(I) 
‘$20,000,000’ 
for
‘$5,000,000’, and
562
HR 2264 PP
‘‘(II) ‘20 percent’ for ‘10 per-
cent’.’’
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1993.
SEC. 8237. DENIAL OF PORTFOLIO INTEREST EXEMPTION
FOR CONTINGENT INTEREST.
(a) GENERAL RULE.—
(1) Subsection (h) of section 871 (relating to re-
peal of tax on interest of nonresident alien individ-
uals received from certain portfolio debt investments)
is amended by redesignating paragraphs (4), (5), and
(6) as paragraphs (5), (6), and (7), respectively, and
by inserting after paragraph (3) the following new
paragraph:
‘‘(4) PORTFOLIO
INTEREST
NOT
TO
INCLUDE
CERTAIN
CONTINGENT
INTEREST.—For purposes of
this subsection—
‘‘(A) IN
GENERAL.—Except as otherwise
provided in this paragraph, the term ‘portfolio
interest’ shall not include—
‘‘(i) any interest if the amount of such
interest is determined by reference to—
563
HR 2264 PP
‘‘(I) any receipts, sales or other
cash flow of the debtor or a related per-
son,
‘‘(II) any income or profits of the
debtor or a related person,
‘‘(III) any change in value of any
property of the debtor or a related per-
son, or
‘‘(IV) any dividend, partnership
distributions, or similar payments
made by the debtor or a related person,
or
‘‘(ii) any other type of contingent in-
terest that is identified by the Secretary by
regulation, where a denial of the portfolio
interest exemption is necessary or appro-
priate to prevent avoidance of Federal in-
come tax.
‘‘(B) RELATED PERSON.—The term ‘related
person’ means any person who is related to the
debtor within the meaning of section 267(b) or
707(b)(1), or who is a party to any arrangement
undertaken for a purpose of avoiding the appli-
cation of this paragraph.
564
HR 2264 PP
‘‘(C) EXCEPTIONS.—Subparagraph (A)(i)
shall not apply to—
‘‘(i) any amount of interest solely by
reason of the fact that the timing of any in-
terest or principal payment is subject to a
contingency,
‘‘(ii) any amount of interest solely by
reason of the fact that the interest is paid
with respect to nonrecourse or limited re-
course indebtedness,
‘‘(iii) any amount of interest all or
substantially all of which is determined by
reference to any other amount of interest
not described in subparagraph (A) (or by
reference to the principal amount of indebt-
edness on which such other interest is paid),
‘‘(iv) any amount of interest solely by
reason of the fact that the debtor or a relat-
ed person enters into a hedging transaction
to reduce the risk of interest rate or cur-
rency fluctuations with respect to such in-
terest,
‘‘(v) any amount of interest determined
by reference to—
565
HR 2264 PP
‘‘(I) changes in the value of prop-
erty (including stock) that is actively
traded (within the meaning of section
1092(d)) other than property described
in section 897(c)(1) or (g),
‘‘(II) the yield on property de-
scribed in subclause (I), other than a
debt instrument that pays interest de-
scribed in subparagraph (A), or stock
or other property that represents a ben-
eficial interest in the debtor or a relat-
ed person, or
‘‘(III) changes in any index of the
value 
of 
property 
described 
in
subclause (I) or of the yield on prop-
erty described in subclause (II), and
‘‘(vi) any other type of interest identi-
fied by the Secretary by regulation.
‘‘(D) EXCEPTION
FOR
CERTAIN
EXISTING
INDEBTEDNESS.—Subparagraph (A) shall not
apply to any interest paid or accrued with re-
spect to any indebtedness with a fixed term—
‘‘(i) which was issued on or before
April 7, 1993, or
566
HR 2264 PP
‘‘(ii) which was issued after such date
pursuant to a written binding contract in
effect on such date and at all times there-
after before such indebtedness was issued.’’
(2) Subsection (c) of section 881 is amended by
redesignating paragraphs (4), (5), and (6) as para-
graphs (5), (6), and (7), respectively, and by insert-
ing after paragraph (3) the following new paragraph:
‘‘(4) PORTFOLIO
INTEREST
NOT
TO
INCLUDE
CERTAIN
CONTINGENT
INTEREST.—For purposes of
this subsection, the term ‘portfolio interest’ shall not
include any interest which is treated as not being
portfolio interest under the rules of section 871(h)(4).’’
(b) CONFORMING AMENDMENTS.—
(1) Clause (ii) of section 871(h)(2)(B) is amend-
ed by striking ‘‘paragraph (4)’’ and inserting ‘‘para-
graph (5)’’.
(2) Clause (ii) of section 881(c)(2)(B) is amend-
ed by striking ‘‘section 871(h)(4)’’ and inserting ‘‘sec-
tion 871(h)(5)’’.
(3) Paragraph (6) of section 881(c) (as redesig-
nated by subsection (a)) is amended by striking ‘‘sec-
tion 871(h)(5)’’ each place it appears and inserting
‘‘section 871(h)(6)’’.
567
HR 2264 PP
(4) Paragraph (9) of section 1441(c) is amended
by striking ‘‘section 871(h)(3)’’ and inserting ‘‘section
871(h)(3) or (4)’’.
(5) Subsection (a) of section 1442 is amended—
(A) by striking ‘‘871(h)(3)’’ and inserting
‘‘871(h)(3) or (4)’’, and
(B) by striking ‘‘881(c)(3)’’ and inserting
‘‘881(c)(3) or (4)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to interest received after December 31,
1993.
SEC. 8238. REGULATIONS DEALING WITH CONDUIT AR-
RANGEMENTS.
Section 7701 is amended by redesignating subsection
(l) as subsection (m) and by inserting after subsection (k)
the following new subsection:
‘‘(l) REGULATIONS RELATING TO CONDUIT ARRANGE-
MENTS.—The 
Secretary 
may 
prescribe 
regulations
recharacterizing any multiple-party financing transaction
as a transaction directly among any 2 or more of such par-
ties 
where 
the 
Secretary 
determines 
that 
such
recharacterization is appropriate to prevent avoidance of
any tax imposed by this title.’’
568
HR 2264 PP
SEC. 8239. TREATMENT OF EXPORT OF CERTAIN SOFTWOOD
LOGS.
(a) FOREIGN SALES CORPORATIONS.—Paragraph (2)
of section 927(a) (relating to exclusion of certain property)
is amended by striking ‘‘or’’ at the end of subparagraph
(C), by striking the period at the end of subparagraph (D)
and inserting ‘‘, or’’, and by adding at the end the follow-
ing:
‘‘(E) any unprocessed timber which is a
softwood.
For purposes of subparagraph (E), the term ‘unproc-
essed timber’ means any log, cant, or similar form of
timber.’’
(b) DOMESTIC
INTERNATIONAL
SALES
CORPORA-
TIONS.—Paragraph (2) of section 993(c) (relating to exclu-
sion of certain property) is amended—
(1) by striking ‘‘or’’ at the end of subparagraph
(C), by striking the period at the end of subparagraph
(D) and inserting ‘‘, or’’, and by adding after sub-
paragraph (D) the following new subparagraph:
‘‘(E) any unprocessed timber which is a
softwood.’’, and
(2) by adding at the end the following new sen-
tence: ‘‘For purposes of subparagraph (E), the term
‘unprocessed timber’ means any log, cant, or similar
form of timber.’’
569
HR 2264 PP
(c) SOURCE RULE.—Subsection (b) of section 865 (re-
lating to source rules for personal property sales) is amend-
ed by adding at the end the following: ‘‘Notwithstanding
the preceding sentence, any income from the sale of any
unprocessed timber which is a softwood and was cut from
an area in the United States shall be sourced in the United
States and the rules of sections 862(a)(6) and 863(b) shall
not apply to any such income. For purposes of the preceding
sentence, the term ‘unprocessed timber’ means any log, cant,
or similar form of timber.’’
(d) ELIMINATION OF DEFERRAL.—Subsection (d) of
section 954 is amended by adding at the end the following
new paragraph:
‘‘(4) SPECIAL RULE FOR CERTAIN TIMBER PROD-
UCTS.—For purposes of subsection (a)(2), the term
‘foreign base company sales income’ includes any in-
come (whether in the form of profits, commissions,
fees, or otherwise) derived in connection with—
‘‘(A) the sale of any unprocessed timber re-
ferred to in section 865(b), or
‘‘(B) the milling of any such timber outside
the United States.
Subpart G shall not apply to any amount treated as
subpart F income by reason of this paragraph.’’
570
HR 2264 PP
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to sales, exchanges, or other dispositions
after the date of the enactment of this Act.
PART IV—TRANSPORTATION FUELS PROVISIONS
Subpart A—Transportation Fuels Tax
SEC. 8241. TRANSPORTATION FUELS TAX.
(a) GASOLINE.—
(1) 
IN
GENERAL.—Clause 
(iii) 
of 
section
4081(a)(2)(B) (relating to rates of tax) is amended to
read as follows:
‘‘(iii) the deficit reduction rate is 6.8 cents
a gallon (4.3 cents a gallon on and after October
1, 1995).’’
(2) DEFICIT
REDUCTION
RATE
MADE
PERMA-
NENT.—Section 4081(d) (relating to termination) is
amended by striking paragraph (3).
(b) DIESEL FUEL AND AVIATION FUEL.—
(1) DIESEL FUEL.—
(A) IN GENERAL.—Paragraph (4) of section
4091(b) (relating to rate of tax) is amended by
striking ‘‘2.5 cents per gallon’’ and inserting
‘‘6.8 cents per gallon (4.3 cents per gallon on
and after October 1, 1995)’’.
(B) DIESEL
FUEL
DEFICIT
REDUCTION
RATE
MADE
PERMANENT.—Section 4091(b)(6)
571
HR 2264 PP
(relating to termination) is amended by striking
subparagraph (D).
(2) AVIATION FUEL.—
(A) GASOLINE
IN
NONCOMMERCIAL
AVIA-
TION.—Paragraph (3) of section 4041(c) is
amended to read as follows:
‘‘(3) RATE OF TAX.—The rate of tax imposed by
paragraph (2) on any gasoline is 1 cent.’’
(3) CONFORMING AMENDMENTS.—
(A) Subparagraphs (A) and (B) of section
4093(c)(2) are amended to read as follows:
‘‘(A) NO REFUND OF CERTAIN TAXES ON
FUEL
USED
IN
DIESEL-POWERED
TRAINS.—In
the case of fuel sold for use in a diesel-powered
train, paragraph (1) shall not apply to so much
of the tax imposed by section 4091 as is attrib-
utable to the Leaking Underground Storage Tank
Trust Fund financing rate and the diesel fuel
deficit reduction rate imposed under such sec-
tion. The preceding sentence shall not apply in
the case of fuel sold for exclusive use by a State
or any political subdivision thereof.
‘‘(B) NO REFUND OF CERTAIN TAXES ON
FUEL USED IN AIRCRAFT.—In the case of fuel
sold for use in any aircraft (except supplies for
572
HR 2264 PP
vessels or aircraft within the meaning of section
4221(d)(3)), paragraph (1) also shall not apply
to so much of the tax imposed by section 4091
as is attributable to the Leaking Underground
Storage Tank Trust Fund financing rate and the
aviation fuel deficit reduction rate imposed by
such section. The preceding sentence shall not
apply in the case of fuel sold for exclusive use by
a State or any political subdivision thereof.’’
(B) Section 4093(d) is amended by insert-
ing ‘‘and the aviation fuel deficit reduction rate’’
after ‘‘rate’’.
(c) SPECIAL
FUELS.—Section 4041(m)(1)(A) is
amended by striking ‘‘1.25 cents’’ and inserting ‘‘5.55 cents
(4.3 cents on and after October 1, 1995)’’.
(d) FUEL USED IN COMMERCIAL TRANSPORTATION ON
INLAND WATERWAYS.—
(1) IN GENERAL.—Section 4042(b)(1) (relating
to amount of tax) is amended—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (A),
(B) by striking the period at the end of sub-
paragraph (B) and inserting ‘‘, and’’, and
(C) by adding at the end thereof the follow-
ing new subparagraph:
573
HR 2264 PP
‘‘(C) the deficit reduction rate.’’
(2) RATE.—Section 4042(b)(2) (relating to rates)
is amended by adding at the end the following new
subparagraph:
‘‘(C) The deficit reduction rate is 4.3 cents
per gallon.’’
(e) CONFORMING AMENDMENTS.—
(1) Section 6421(f) is amended—
(A) by striking subparagraph (B) of para-
graph (2) and inserting the following:
‘‘(B) in aviation which is not noncommer-
cial aviation (as so defined) with respect to the
tax imposed by section 4081 at the Leaking Un-
derground Storage Tank Trust Fund financing
rate and at the deficit reduction rate to the ex-
tent such deficit reduction rate does not exceed
4.3 cents per gallon.’’, and
(B) by inserting ‘‘and at the deficit reduc-
tion rate to the extent such deficit reduction rate
does not exceed 4.3 cents per gallon’’ after ‘‘fi-
nancing rate’’ in paragraph (3), and
(C) by inserting ‘‘AND DEFICIT REDUCTION
TAX’’ after ‘‘TAX’’ in the heading for paragraph
(3).
574
HR 2264 PP
(2) Section 6427(l) is amended by striking para-
graphs (3) and (4) and inserting the following new
paragraphs:
‘‘(3) NO REFUND OF CERTAIN TAXES ON FUEL
USED IN DIESEL-POWERED TRAINS.—In the case of
fuel used in a diesel-powered train, paragraph (1)
shall not apply to so much of the tax imposed by sec-
tion 4091 as is attributable to the Leaking Under-
ground Storage Tank Trust Fund financing rate and
the diesel fuel deficit reduction rate imposed by such
section. The preceding sentence shall not apply in the
case of fuel sold for exclusive use by a State or any
political subdivision thereof.
‘‘(4) NO REFUND OF CERTAIN TAXES ON FUEL
USED IN AIRCRAFT.—In the case of fuel used in any
aircraft (except supplies for vessels or aircraft within
the meaning of section 4221(d)(3)), paragraph (1)
also shall not apply to so much of the tax imposed
by section 4091 as is attributable to the Leaking Un-
derground Storage Tank Trust Fund financing rate
and the aviation fuel deficit reduction rate imposed
by such section. The preceding sentence shall not
apply in the case of fuel sold for exclusive use by a
State or any political subdivision thereof.’’
575
HR 2264 PP
(3) Section 9502(b)(3) is amended by inserting
‘‘and the deficit reduction rate’’ after ‘‘financing
rate’’.
(4) Section 9503(b)(4)(B) is amended by insert-
ing ‘‘and the deficit reduction rates under such sec-
tions to the extent such rates do not exceed 4.3 cents
per gallon’’ after ‘‘such sections’’.
(5) Section 9503(c)(4)(D) is amended by insert-
ing ‘‘and the deficit reduction rates under such sec-
tions to the extent such rates do not exceed 4.3 cents
per gallon’’ after ‘‘such sections’’.
(6) Section 9503(c)(5)(B) is amended by insert-
ing ‘‘and the deficit reduction rate under such section
to the extent such rate does not exceed 4.3 cents per
gallon’’ after ‘‘such section’’.
(7) Section 9503(c)(6)(D) is amended by insert-
ing ‘‘and the deficit reduction rate to the extent such
rate does not exceed 4.3 cents per gallon’’ after ‘‘fi-
nancing rate’’.
(8) Section 9506(b) is amended by inserting
‘‘and the deficit reduction rate’’ after ‘‘financing
rate’’.
(f) EFFECTIVE DATE.—The amendments made by this
section shall take effect on October 1, 1993.
(g) FLOOR STOCKS TAXES.—
576
HR 2264 PP
(1) IMPOSITION OF TAX.—In the case of gasoline,
diesel fuel, and aviation fuel on which tax was im-
posed under section 4081 or 4091 of the Internal Rev-
enue Code of 1986 before October 1, 1993, and which
is held on such date by any person, there is hereby
imposed a floor stocks tax of 4.3 cents per gallon on
such gasoline, diesel fuel, and aviation fuel.
(2) LIABILITY FOR TAX AND METHOD OF PAY-
MENT.—
(A) LIABILITY FOR TAX.—A person holding
gasoline, diesel fuel, or aviation fuel on October
1, 1993, to which the tax imposed by paragraph
(1) applies shall be liable for such tax.
(B) METHOD OF PAYMENT.—The tax im-
posed by paragraph (1) shall be paid in such
manner as the Secretary shall prescribe.
(C) TIME FOR PAYMENT.—The tax imposed
by paragraph (1) shall be paid on or before No-
vember 30, 1993.
(3) DEFINITIONS.—For purposes of this sub-
section—
(A) HELD BY A PERSON.—Gasoline, diesel
fuel, and aviation fuel shall be considered as
‘‘held by a person’’ if title thereto has passed to
577
HR 2264 PP
such person (whether or not delivery to the per-
son has been made).
(B) GASOLINE.—The term ‘‘gasoline’’ has
the meaning given such term by section 4082 of
such Code.
(C) DIESEL FUEL.—The term ‘‘diesel fuel’’
has the meaning given such term by section 4092
of such Code.
(D) AVIATION FUEL.—The term ‘‘aviation
fuel’’ has the meaning given such term by section
4092 of such Code.
(E) SECRETARY.—The term ‘‘Secretary’’
means the Secretary of the Treasury or his dele-
gate.
(4) EXCEPTION
FOR
EXEMPT
USES.—The tax
imposed by paragraph (1) shall not apply to gasoline,
diesel fuel, or aviation fuel held by any person exclu-
sively for any use to the extent a credit or refund of
the tax imposed by section 4081 or 4091 of such Code,
as the case may be, is allowable for such use.
(5) EXCEPTION
FOR
FUEL
HELD
IN
VEHICLE
TAX.—No tax shall be imposed by paragraph (1) on
gasoline or diesel fuel held in the tank of a motor ve-
hicle or motorboat.
578
HR 2264 PP
(6) EXCEPTION
FOR
CERTAIN
AMOUNTS
OF
FUEL.—
(A) IN GENERAL.—No tax shall be imposed
by paragraph (1)—
(i) on gasoline held on October 1, 1993,
by any person if the aggregate amount of
gasoline held by such person on such date
does not exceed 4,000 gallons, and
(ii) on diesel fuel or aviation fuel held
on October 1, 1993, by any person if the ag-
gregate amount of diesel fuel or aviation
fuel held by such person on such date does
not exceed 2,000 gallons.
The preceding sentence shall apply only if such
person submits to the Secretary (at the time and
in the manner required by the Secretary) such
information as the Secretary shall require for
purposes of this paragraph.
(B) EXEMPT FUEL.—For purposes of sub-
paragraph (A), there shall not be taken into ac-
count fuel held by any person which is exempt
from the tax imposed by paragraph (1) by rea-
son of paragraph (4) or (5).
(C) CONTROLLED GROUPS.—For purposes of
this paragraph—
579
HR 2264 PP
(i) CORPORATIONS.—
(I) IN
GENERAL.—All persons
treated as a controlled group shall be
treated as 1 person.
(II) CONTROLLED
GROUP.—The
term ‘‘controlled group’’ has the mean-
ing given to such term by subsection
(a) of section 1563 of such Code; except
that for such purposes the phrase
‘‘more than 50 percent’’ shall be sub-
stituted for the phrase ‘‘at least 80 per-
cent’’ each place it appears in such
subsection.
(ii) 
NONINCORPORATED
PERSONS
UNDER COMMON CONTROL.—Under regula-
tions prescribed by the Secretary, principles
similar to the principles of clause (i) shall
apply to a group of persons under common
control where 1 or more of such persons is
not a corporation.
(7) OTHER LAW APPLICABLE.—All provisions of
law, including penalties, applicable with respect to
the taxes imposed by section 4081 of such Code in the
case of gasoline and section 4091 of such Code in the
case of diesel fuel shall, insofar as applicable and not
580
HR 2264 PP
inconsistent with the provisions of this subsection,
apply with respect to the floor stock taxes imposed by
paragraph (1) to the same extent as if such taxes were
imposed by such section 4081 or 4091.
Subpart B—Modifications to Tax on Diesel Fuel
SEC. 8242. MODIFICATIONS TO TAX ON DIESEL FUEL.
(a) IN GENERAL.—Subparts A and B of part III of
subchapter A of chapter 32 (relating to manufacturers ex-
cise taxes), as amended by subpart A, are amended to read
as follows:
‘‘Subpart A—Gasoline and Diesel Fuel
‘‘Sec. 4081. Imposition of tax.
‘‘Sec. 4082. Exemptions for diesel fuel.
‘‘Sec. 4083. Definitions and special rule.
‘‘Sec. 4084. Cross references.
‘‘SEC. 4081. IMPOSITION OF TAX.
‘‘(a) TAX IMPOSED.—
‘‘(1) TAX ON REMOVAL, ENTRY, OR SALE.—
‘‘(A) IN
GENERAL.—There is hereby im-
posed a tax at the rate specified in paragraph
(2) on—
‘‘(i) the removal of a taxable fuel from
any refinery,
‘‘(ii) the removal of a taxable fuel from
any terminal,
581
HR 2264 PP
‘‘(iii) the entry into the United States
of any taxable fuel for consumption, use, or
warehousing, and
‘‘(iv) the sale of a taxable fuel to any
person who is not registered under section
4101 unless there was a prior taxable re-
moval or entry of such fuel under clause (i),
(ii), or (iii).
‘‘(B) EXEMPTION FOR BULK TRANSFERS TO
REGISTERED TERMINALS OR REFINERIES.—The
tax imposed by this paragraph shall not apply
to any removal or entry of a taxable fuel trans-
ferred in bulk to a terminal or refinery if the
person removing or entering the taxable fuel and
the operator of such terminal or refinery are reg-
istered under section 4101.
‘‘(2) RATES OF TAX.—
‘‘(A) IN GENERAL.—The rate of the tax im-
posed by this section is the sum of—
‘‘(i) the Highway Trust Fund financ-
ing rate,
‘‘(ii) the Leaking Underground Storage
Tank Trust Fund financing rate, and
‘‘(iii) the deficit reduction rate.
582
HR 2264 PP
‘‘(B) RATES.—For purposes of subpara-
graph (A)—
‘‘(i) the Highway Trust Fund financ-
ing rate is—
‘‘(I) 11.5 cents per gallon in the
case of gasoline, and
‘‘(II) 17.5 cents per gallon in the
case of diesel fuel,
‘‘(ii) the Leaking Underground Storage
Tank Trust Fund financing rate is 0.1 cent
per gallon, and
‘‘(iii) the deficit reduction rate is 6.8
cents per gallon (4.3 cents per gallon on
and after October 1, 1995).
‘‘(b) TREATMENT OF REMOVAL OR SUBSEQUENT SALE
BY BLENDER.—
‘‘(1) IN GENERAL.—There is hereby imposed a
tax at the rate specified in subsection (a) on taxable
fuel removed or sold by the blender thereof.
‘‘(2) CREDIT FOR TAX PREVIOUSLY PAID.—If—
‘‘(A) tax is imposed on the removal or sale
of a taxable fuel by reason of paragraph (1), and
‘‘(B) the blender establishes the amount of
the tax paid with respect to such fuel by reason
of subsection (a),
583
HR 2264 PP
the amount of the tax so paid shall be allowed as a
credit against the tax imposed by reason of para-
graph (1).
‘‘(c) TAXABLE FUELS MIXED WITH ALCOHOL AT RE-
FINERY, ETC.—
‘‘(1) REDUCED RATES.—
‘‘(A) IN GENERAL.—Under regulations pre-
scribed by the Secretary, subsection (a) shall be
applied by substituting rates which are the ap-
plicable fraction of the otherwise applicable rates
in the case of the removal or entry of any taxable
fuel for use in producing at the time of such re-
moval or entry a qualified alcohol mixture. Sub-
ject to such terms and conditions as the Sec-
retary may prescribe (including the application
of section 4101), the treatment under the preced-
ing sentence also shall apply to use in producing
such a mixture after the time of such removal or
entry.
‘‘(B) APPLICABLE FRACTION.—For purposes
of subparagraph (A), the applicable fraction is—
‘‘(i) in the case of a qualified alcohol
mixture which contains gasoline, the frac-
tion the numerator of which is 10 and the
denominator of which is—
584
HR 2264 PP
‘‘(I) 9 in the case of 10 percent
gasohol,
‘‘(II) 9.23 in the case of 7.7 per-
cent gasohol, and
‘‘(III) 9.43 in the case of 5.7 per-
cent gasohol, and
‘‘(ii) in the case of a qualified alcohol
mixture which does not contain gasoline,
10⁄9.
‘‘(2) LATER SEPARATION OF FUEL FROM QUALI-
FIED ALCOHOL MIXTURE.—If any person separates
the taxable fuel from a qualified alcohol mixture on
which tax was imposed under subsection (a) at the
otherwise applicable Highway Trust Fund financing
rate (or its equivalent) by reason of this subsection
(or with respect to which a credit or payment was al-
lowed or made by reason of section 6427(f)(1)), such
person shall be treated as the refiner of such taxable
fuel. The amount of tax imposed on any removal of
such fuel by such person shall be reduced by the
amount of tax imposed (and not credited or refunded)
on any prior removal or entry of such fuel.
‘‘(3) ALCOHOL; QUALIFIED ALCOHOL MIXTURE.—
For purposes of this subsection—
585
HR 2264 PP
‘‘(A) ALCOHOL.—The term ‘alcohol’ includes
methanol and ethanol but does not include alco-
hol produced from petroleum, natural gas, or
coal (including peat). Such term does not in-
clude alcohol with a proof of less than 190 (de-
termined without regard to any added dena-
turants).
‘‘(B) QUALIFIED ALCOHOL MIXTURE.—The
term ‘qualified alcohol mixture’ means—
‘‘(i) any mixture of gasoline with alco-
hol if at least 5.7 percent of such mixture
is alcohol, and
‘‘(ii) any mixture of diesel fuel with al-
cohol if at least 10 percent of such mixture
is alcohol.
‘‘(4) OTHERWISE APPLICABLE RATES FOR GASO-
LINE MIXTURES.—For purposes of this subsection—
‘‘(A) IN GENERAL.—In the case of the High-
way Trust Fund financing rate, the otherwise
applicable rate for gasoline in a qualified alcohol
mixture is—
‘‘(i) 6.1 cents a gallon for 10 percent
gasohol,
‘‘(ii) 7.342 cents a gallon for 7.7 per-
cent gasohol, and
592
HR 2264 PP
‘‘(1) IN
GENERAL.—The Airport and Airway
Trust Fund financing rate shall be—
‘‘(A) 4.1 cents per gallon in the case of the
sale of any mixture of aviation fuel if—
‘‘(i) at least 10 percent of such mixture
consists of alcohol (as defined in section
4081(c)(3)), and
‘‘(ii) the aviation fuel in such mixture
was not taxed under subparagraph (B), and
‘‘(B) 4.56 cents per gallon in the case of the
sale of aviation fuel for use (at the time of such
sale) in producing a mixture described in sub-
paragraph (A).
In the case of a sale described in subparagraph (B),
the Leaking Underground Storage Tank Trust Fund
financing rate shall be 1⁄9 cent per gallon and the def-
icit reduction rate shall be 10⁄9 of such rate.
‘‘(2) LATER SEPARATION.—If any person sepa-
rates the aviation fuel from a mixture of the aviation
fuel and alcohol on which tax was imposed under sub-
section (a) at the Airport and Airway Trust Fund fi-
nancing rate equivalent to 4.1 cents per gallon by
reason of this subsection (or with respect to which a
credit or payment was allowed or made by reason of
section 6427(f)(1)), such person shall be treated as the