130
SEC. 1124. REPEAL OF SPECIAL RULES FOR FASITS. 
(a) IN GENERAL.—Part V of subchapter M of chap-
ter 1 (relating to financial asset securitization investment 
trusts) is hereby repealed. 
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (6) of section 56(g) is amended 
by striking ‘‘REMIC, or FASIT’’ and inserting ‘‘or 
REMIC’’. 
(2) Clause (ii) of section 382(l)(4)(B) is amend-
ed by striking ‘‘a REMIC to which part IV of sub-
chapter M applies, or a FASIT to which part V of 
subchapter M applies,’’ and inserting ‘‘or a REMIC 
to which part IV of subchapter M applies,’’. 
(3) Paragraph (1) of section 582(c) is amended 
by striking ‘‘, and any regular interest in a 
FASIT,’’. 
(4) Subparagraph (E) of section 856(c)(5) is 
amended by striking the last sentence. 
(5) Paragraph (5) of section 860G(a) is amend-
ed by adding ‘‘and’’ at the end of subparagraph (B), 
by striking ‘‘, and’’ at the end of subparagraph (C) 
and inserting a period, and by striking subparagraph 
(D). 
(6) Subparagraph (C) of section 1202(e)(4) is 
amended by striking ‘‘REMIC, or FASIT’’ and in-
serting ‘‘or REMIC’’.
131
(7) Subparagraph (C) of section 7701(a)(19) is 
amended by adding ‘‘and’’ at the end of clause (ix), 
by striking ‘‘, and’’ at the end of clause (x) and in-
serting a period, and by striking clause (xi). 
(8) The table of parts for subchapter M of 
chapter 1 is amended by striking the item relating 
to part V. 
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to taxable years beginning after Decem-
ber 31, 2003. 
(2) EXCEPTION FOR EXISTING FASITS.—
(A) IN GENERAL.—Paragraph (1) shall not 
apply to any FASIT in existence on the date of 
the enactment of this Act. 
(B) TRANSFER
OF
ADDITIONAL
ASSETS 
NOT PERMITTED.—Except as provided in regu-
lations prescribed by the Secretary of the 
Treasury or the Secretary’s delegate, subpara-
graph (A) shall cease to apply as of the earliest 
date after the date of the enactment of this Act 
that any property is transferred to the FASIT.
132
SEC. 1125. EXPANDED DISALLOWANCE OF DEDUCTION FOR 
INTEREST ON CONVERTIBLE DEBT. 
(a) IN GENERAL.—Paragraph (2) of section 163(l) 
is amended by striking ‘‘or a related party’’ and inserting 
‘‘or equity held by the issuer (or any related party) in any 
other person’’. 
(b) CONFORMING AMENDMENT.—Paragraph (3) of 
section 163(l) is amended by striking ‘‘or a related party’’ 
in the material preceding subparagraph (A) and inserting 
‘‘or any other person’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to debt instruments issued after 
the date of the enactment of this Act. 
SEC. 1126. EXPANDED AUTHORITY TO DISALLOW TAX BENE-
FITS UNDER SECTION 269. 
(a) IN GENERAL.—Subsection (a) of section 269 (re-
lating to acquisitions made to evade or avoid income tax) 
is amended to read as follows: 
‘‘(a) IN GENERAL.—If—
‘‘(1)(A) any person acquires stock in a corpora-
tion, or 
‘‘(B) any corporation acquires, directly or indi-
rectly, property of another corporation and the basis 
of such property, in the hands of the acquiring cor-
poration, is determined by reference to the basis in 
the hands of the transferor corporation, and
133
‘‘(2) the principal purpose for which such acqui-
sition was made is evasion or avoidance of Federal 
income tax by securing the benefit of a deduction, 
credit, or other allowance, 
then the Secretary may disallow such deduction, credit, 
or other allowance.’’
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to stock and property acquired 
after February 13, 2003. 
SEC. 1127. MODIFICATIONS OF CERTAIN RULES RELATING 
TO CONTROLLED FOREIGN CORPORATIONS. 
(a) LIMITATION ON EXCEPTION FROM PFIC RULES 
FOR UNITED STATES SHAREHOLDERS OF CONTROLLED 
FOREIGN
CORPORATIONS.—Paragraph (2) of section 
1297(e) (relating to passive investment company) is 
amended by adding at the end the following flush sen-
tence: 
‘‘Such term shall not include any period if there is 
only a remote likelihood of an inclusion in gross in-
come under section 951(a)(1)(A)(i) of subpart F in-
come of such corporation for such period.’’
(b) DETERMINATION OF PRO RATA SHARE OF SUB-
PART F INCOME.—Subsection (a) of section 951 (relating 
to amounts included in gross income of United States
134
shareholders) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(4) SPECIAL RULES FOR DETERMINING PRO 
RATA SHARE OF SUBPART F INCOME.—The pro rata 
share under paragraph (2) shall be determined by 
disregarding—
‘‘(A) any rights lacking substantial eco-
nomic effect, and 
‘‘(B) stock owned by a shareholder who is 
a tax-indifferent party (as defined in section 
7701(m)(3)) if the amount which would (but 
for this paragraph) be allocated to such share-
holder does not reflect such shareholder’s eco-
nomic share of the earnings and profits of the 
corporation.’’
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years on controlled for-
eign corporation beginning after February 13, 2003, and 
to taxable years of United States shareholder in which or 
with which such taxable years of controlled foreign cor-
porations end.
135
SEC. 1128. BASIS FOR DETERMINING LOSS ALWAYS RE-
DUCED BY NONTAXED PORTION OF DIVI-
DENDS. 
(a) IN GENERAL.—Section 1059 (relating to cor-
porate shareholder’s basis in stock reduced by nontaxed 
portion of extraordinary dividends) is amended by redesig-
nating subsection (g) as subsection (h) and by inserting 
after subsection (f) the following new subsection: 
‘‘(g) BASIS FOR DETERMINING LOSS ALWAYS RE-
DUCED BY NONTAXED PORTION OF DIVIDENDS.—The 
basis of stock in a corporation (for purposes of deter-
mining loss) shall be reduced by the nontaxed portion of 
any dividend received with respect to such stock if this 
section does not otherwise apply to such dividend.’’
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to dividends received after the date 
of the enactment of this Act. 
SEC. 1129. AFFIRMATION OF CONSOLIDATED RETURN REG-
ULATION AUTHORITY. 
(a) IN GENERAL.—Section 1502 (relating to consoli-
dated return regulations) is amended by adding at the end 
the following new sentence: ‘‘In prescribing such regula-
tions, the Secretary may prescribe rules applicable to cor-
porations filing consolidated returns under section 1501 
that are different from other provisions of this title that 
would apply if such corporations filed separate returns.’’
136
(b) RESULT NOT OVERTURNED.—Notwithstanding 
subsection (a), the Internal Revenue Code of 1986 shall 
be construed by treating Treasury regulation § 1.1502–
20(c)(1)(iii) (as in effect on January 1, 2001) as being 
inapplicable to the type of factual situation in 255 F.3d 
1357 (Fed. Cir. 2001). 
(c) EFFECTIVE DATE.—The provisions of this section 
shall apply to taxable years beginning before, on, or after 
the date of the enactment of this Act. 
SEC. 1130. EXTENSION OF CUSTOMS USER FEES. 
Section 13031(j)(3) of the Consolidated Omnibus 
Budget Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) 
is amended by striking ‘‘September 30, 2003’’ and insert-
ing ‘‘March 31, 2010’’. 
Subtitle 
C—Prevention 
of 
Cor-
porate Expatriation To Avoid 
United States Income Tax 
SEC. 1131. PREVENTION OF CORPORATE EXPATRIATION TO 
AVOID UNITED STATES INCOME TAX. 
(a) IN GENERAL.—Paragraph (4) of section 7701(a) 
(defining domestic) is amended to read as follows: 
‘‘(4) DOMESTIC.—
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), the term ‘domestic’ when ap-
plied to a corporation or partnership means cre-
137
ated or organized in the United States or under 
the law of the United States or of any State 
unless, in the case of a partnership, the Sec-
retary provides otherwise by regulations. 
‘‘(B) CERTAIN
CORPORATIONS
TREATED 
AS DOMESTIC.—
‘‘(i) IN GENERAL.—The acquiring cor-
poration in a corporate expatriation trans-
action shall be treated as a domestic cor-
poration. 
‘‘(ii) 
CORPORATE
EXPATRIATION 
TRANSACTION.—For purposes of this sub-
paragraph, the term ‘corporate expatria-
tion transaction’ means any transaction 
if—
‘‘(I) a nominally foreign corpora-
tion (referred to in this subparagraph 
as the ‘acquiring corporation’) ac-
quires, as a result of such transaction, 
directly or indirectly substantially all 
of the properties held directly or indi-
rectly by a domestic corporation, and 
‘‘(II) immediately after the trans-
action, more than 80 percent of the 
stock (by vote or value) of the acquir-
138
ing corporation is held by former 
shareholders of the domestic corpora-
tion by reason of holding stock in the 
domestic corporation. 
‘‘(iii) LOWER STOCK OWNERSHIP RE-
QUIREMENT
IN
CERTAIN
CASES.—Sub-
clause (II) of clause (ii) shall be applied by 
substituting ‘50 percent’ for ‘80 percent’ 
with respect to any nominally foreign cor-
poration if—
‘‘(I) such corporation does not 
have substantial business activities 
(when compared to the total business 
activities of the expanded affiliated 
group) in the foreign country in which 
or under the law of which the corpora-
tion is created or organized, and 
‘‘(II) the stock of the corporation 
is publicly traded and the principal 
market for the public trading of such 
stock is in the United States. 
‘‘(iv) PARTNERSHIP TRANSACTIONS.—
The term ‘corporate expatriation trans-
action’ includes any transaction if—
139
‘‘(I) a nominally foreign corpora-
tion (referred to in this subparagraph 
as the ‘acquiring corporation’) ac-
quires, as a result of such transaction, 
directly or indirectly properties consti-
tuting a trade or business of a domes-
tic partnership, 
‘‘(II) immediately after the trans-
action, more than 80 percent of the 
stock (by vote or value) of the acquir-
ing corporation is held by former 
partners of the domestic partnership 
or related foreign partnerships (deter-
mined without regard to stock of the 
acquiring corporation which is sold in 
a public offering related to the trans-
action), and 
‘‘(III) the acquiring corporation 
meets the requirements of subclauses 
(I) and (II) of clause (iii). 
‘‘(v) SPECIAL RULES.—For purposes 
of this subparagraph—
‘‘(I) a series of related trans-
actions shall be treated as 1 trans-
action, and
140
‘‘(II) stock held by members of 
the expanded affiliated group which 
includes the acquiring corporation 
shall not be taken into account in de-
termining ownership. 
‘‘(vi) OTHER DEFINITIONS.—For pur-
poses of this subparagraph—
‘‘(I) NOMINALLY FOREIGN COR-
PORATION.—The term ‘nominally for-
eign corporation’ means any corpora-
tion which would (but for this sub-
paragraph) be treated as a foreign 
corporation. 
‘‘(II) 
EXPANDED
AFFILIATED 
GROUP.—The term ‘expanded affili-
ated group’ means an affiliated group 
(as defined in section 1504(a) without 
regard to section 1504(b)). 
‘‘(III) RELATED FOREIGN PART-
NERSHIP.—A foreign partnership is 
related to a domestic partnership if 
they are under common control (with-
in the meaning of section 482), or 
they shared the same trademark or 
tradename.’’
141
(b) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendment made by 
this section shall apply to corporate expatriation 
transactions completed after September 11, 2001. 
(2) SPECIAL RULE.—The amendment made by 
this section shall also apply to corporate expatriation 
transactions completed on or before September 11, 
2001, but only with respect to taxable years of the 
acquiring corporation beginning after December 31, 
2003.
Æ