H. R. 3448—68
prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, taking into
account all obligations supported by such enterprise.
‘‘(4) Compliance by the insurer with all requirements of the
regulations issued by the Secretary pursuant to paragraph (1) shall
be deemed compliance by such insurer with sections 404, 406,
and 407 with respect to those assets of the insurer’s general account
which support a policy described in paragraph (3).
‘‘(5)(A) Subject to subparagraph (B), any regulations issued
under paragraph (1) shall not take effect before the date on which
such regulations become final.
‘‘(B) No person shall be subject to liability under this part
or section 4975 of the Internal Revenue Code of 1986 for conduct
which occurred before the date which is 18 months following the
date described in subparagraph (A) on the basis of a claim that
the assets of an insurer (other than plan assets held in a separate
account) constitute assets of the plan, except—
‘‘(i) as otherwise provided by the Secretary in regulations
intended to prevent avoidance of the regulations issued under
paragraph (1), or
‘‘(ii) as provided in an action brought by the Secretary
pursuant to paragraph (2) or (5) of section 502(a) for a breach
of fiduciary responsibilities which would also constitute a viola-
tion of Federal or State criminal law.
The Secretary shall bring a cause of action described in clause
(ii) if a participant, beneficiary, or fiduciary demonstrates to the
satisfaction of the Secretary that a breach described in clause
(ii) has occurred.
‘‘(6) Nothing in this subsection shall preclude the application
of any Federal criminal law.
‘‘(7) For purposes of this subsection, the term ‘policy’ includes
a contract.’’.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendment made by this section shall take effect on January
1, 1975.
(2) CIVIL ACTIONS.—The amendment made by this section
shall not apply to any civil action commenced before November
7, 1995.
SEC. 1461. SPECIAL RULES FOR CHAPLAINS AND SELF-EMPLOYED
MINISTERS.
(a) IN GENERAL.—Section 414(e) (defining church plan) is
amended by adding at the end the following new paragraph:
‘‘(5) SPECIAL
RULES
FOR
CHAPLAINS
AND
SELF-EMPLOYED
MINISTERS.—
‘‘(A) CERTAIN MINISTERS MAY PARTICIPATE.—For pur-
poses of this part—
‘‘(i) IN GENERAL.—An employee of a church or a
convention or association of churches shall include a
duly ordained, commissioned, or licensed minister of
a church who, in connection with the exercise of his
or her ministry—
‘‘(I) is a self-employed individual (within the
meaning of section 401(c)(1)(B)), or
H. R. 3448—69
‘‘(II) is employed by an organization other than
an organization described in section 501(c)(3).
‘‘(ii) TREATMENT AS EMPLOYER AND EMPLOYEE.—
‘‘(I) SELF-EMPLOYED.—A minister described in
clause (i)(I) shall be treated as his or her own
employer which is an organization described in
section 501(c)(3) and which is exempt from tax
under section 501(a).
‘‘(II) OTHERS.—A minister described in clause
(i)(II) shall be treated as employed by an organiza-
tion described in section 501(c)(3) and exempt from
tax under section 501(a).
‘‘(B) SPECIAL RULES FOR APPLYING SECTION 403(b) TO
SELF-EMPLOYED
MINISTERS.—In the case of a minister
described in subparagraph (A)(i)(I)—
‘‘(i) the minister’s includible compensation under
section 403(b)(3) shall be determined by reference to
the minister’s earned income (within the meaning of
section 401(c)(2)) from such ministry rather than the
amount of compensation which is received from an
employer, and
‘‘(ii) the years (and portions of years) in which
such minister was a self-employed individual (within
the meaning of section 401(c)(1)(B)) with respect to
such ministry shall be included for purposes of section
403(b)(4).
‘‘(C) EFFECT
ON
NON-DENOMINATIONAL
PLANS.—If a
duly ordained, commissioned, or licensed minister of a
church in the exercise of his or her ministry participates
in a church plan (within the meaning of this section) and
in the exercise of such ministry is employed by an employer
not eligible to participate in such church plan, then such
employer may exclude such minister from being treated
as an employee of such employer for purposes of applying
sections 401(a)(3), 401(a)(4), and 401(a)(5), as in effect on
September 1, 1974, and sections 401(a)(4), 401(a)(5),
401(a)(26), 401(k)(3), 401(m), 403(b)(1)(D) (including section
403(b)(12)), and 410 to any stock bonus, pension, profit-
sharing, or annuity plan (including an annuity described
in section 403(b) or a retirement income account described
in section 403(b)(9)). The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry
out the purpose of, and prevent the abuse of, this
subparagraph.
‘‘(D) COMPENSATION
TAKEN
INTO
ACCOUNT
ONLY
ONCE.—If any compensation is taken into account in deter-
mining the amount of any contributions made to, or benefits
to be provided under, any church plan, such compensation
shall not also be taken into account in determining the
amount of any contributions made to, or benefits to be
provided under, any other stock bonus, pension, profit-
sharing, or annuity plan which is not a church plan.’’.
(b) CONTRIBUTIONS
BY CERTAIN MINISTERS
TO RETIREMENT
INCOME ACCOUNTS.—Section 404(a) (relating to deduction for con-
tributions of an employer to an employees’ trust or annuity plan
and compensation under a deferred-payment plan) is amended by
adding at the end the following new paragraph:
H. R. 3448—70
‘‘(10) CONTRIBUTIONS BY CERTAIN MINISTERS TO RETIREMENT
INCOME ACCOUNTS.—In the case of contributions made by a
minister described in section 414(e)(5) to a retirement income
account described in section 403(b)(9) and not by a person
other than such minister, such contributions—
‘‘(A) shall be treated as made to a trust which is
exempt from tax under section 501(a) and which is part
of a plan which is described in section 401(a), and
‘‘(B) shall be deductible under this subsection to the
extent such contributions do not exceed the limit on elective
deferrals under section 402(g), the exclusion allowance
under section 403(b)(2), or the limit on annual additions
under section 415.
For purposes of this paragraph, all plans in which the minister
is a participant shall be treated as one plan.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to years beginning after December 31, 1996.
SEC. 1462. DEFINITION OF HIGHLY COMPENSATED EMPLOYEE FOR
PRE-ERISA RULES FOR CHURCH PLANS.
(a) IN GENERAL.—Section 414(q) (defining highly compensated
employee), as amended by section 1431(c)(1)(A) of this Act, is
amended by adding at the end the following new paragraph:
‘‘(7) CERTAIN
EMPLOYEES
NOT
CONSIDERED
HIGHLY
COM-
PENSATED AND EXCLUDED EMPLOYEES UNDER PRE-ERISA RULES
FOR CHURCH PLANS.—In the case of a church plan (as defined
in subsection (e)), no employee shall be considered an officer,
a person whose principal duties consist of supervising the work
of other employees, or a highly compensated employee for any
year unless such employee is a highly compensated employee
under paragraph (1) for such year.’’.
(b) SAFEHARBOR AUTHORITY.—The Secretary of the Treasury
may design nondiscrimination and coverage safe harbors for church
plans.
(c) EFFECTIVE DATE.—The amendments made by subsection
(a) shall apply to years beginning after December 31, 1996.
SEC. 1463. RULE RELATING TO INVESTMENT IN CONTRACT NOT TO
APPLY TO FOREIGN MISSIONARIES.
(a) IN GENERAL.—The last sentence of section 72(f) is amended
by inserting ‘‘, or to the extent such credits are attributable to
services performed as a foreign missionary (within the meaning
of section 403(b)(2)(D)(iii))’’ before the last period.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after December 31, 1996.
SEC. 1464. WAIVER OF EXCISE TAX ON FAILURE TO PAY LIQUIDITY
SHORTFALL.
(a) IN GENERAL.—Section 4971(f) (relating to failure to pay
liquidity shortfall) is amended by adding at the end the following
new paragraph:
‘‘(4) WAIVER BY SECRETARY.—If the taxpayer establishes
to the satisfaction of the Secretary that—
‘‘(A) the liquidity shortfall described in paragraph (1)
was due to reasonable cause and not willful neglect, and
‘‘(B) reasonable steps have been taken to remedy such
liquidity shortfall,
H. R. 3448—71
the Secretary may waive all or part of the tax imposed by
this subsection.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall take effect as if included in the amendment made by clause
(ii) of section 751(a)(9)(B) of the Retirement Protection Act of 1994
(108 Stat. 5020).
SEC. 1465. DATE FOR ADOPTION OF PLAN AMENDMENTS.
If any amendment made by this subtitle requires an amend-
ment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after January 1, 1998, if—
(1) during the period after such amendment takes effect
and before such first plan year, the plan or contract is operated
in accordance with the requirements of such amendment, and
(2) such amendment applies retroactively to such period.
In the case of a governmental plan (as defined in section 414(d)
of the Internal Revenue Code of 1986), this section shall be applied
by substituting ‘‘2000’’ for ‘‘1998’’.
Subtitle E—Foreign Simplification
SEC. 1501. REPEAL OF INCLUSION OF CERTAIN EARNINGS INVESTED
IN EXCESS PASSIVE ASSETS.
(a) IN GENERAL.—
(1) REPEAL OF INCLUSION.—Paragraph (1) of section 951(a)
(relating to amounts included in gross income of United States
shareholders) is amended by striking subparagraph (C), by
striking ‘‘; and’’ at the end of subparagraph (B) and inserting
a period, and by adding ‘‘and’’ at the end of subparagraph
(A).
(2) REPEAL OF INCLUSION AMOUNT.—Section 956A (relating
to earnings invested in excess passive assets) is repealed.
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (G) of section 904(d)(3), as amended by
section 1703(i)(1), is amended by striking ‘‘subparagraph (B)
or (C) of section 951(a)(1)’’ and inserting ‘‘section 951(a)(1)(B)’’.
(2) Paragraph (1) of section 956(b) is amended to read
as follows:
‘‘(1) APPLICABLE EARNINGS.—For purposes of this section,
the term ‘applicable earnings’ means, with respect to any con-
trolled foreign corporation, the sum of—
‘‘(A) the amount (not including a deficit) referred to
in section 316(a)(1), and
‘‘(B) the amount referred to in section 316(a)(2),
but reduced by distributions made during the taxable year
and by earnings and profits described in section 959(c)(1).’’.
(3) Paragraph (3) of section 956(b) is amended to read
as follows:
‘‘(3) SPECIAL RULE WHERE CORPORATION CEASES TO BE CON-
TROLLED
FOREIGN
CORPORATION.—If any foreign corporation
ceases to be a controlled foreign corporation during any taxable
year—
‘‘(A) the determination of any United States sharehold-
er’s pro rata share shall be made on the basis of stock
owned (within the meaning of section 958(a)) by such share-
H. R. 3448—72
holder on the last day during the taxable year on which
the foreign corporation is a controlled foreign corporation,
‘‘(B) the average referred to in subsection (a)(1)(A) for
such taxable year shall be determined by only taking into
account quarters ending on or before such last day, and
‘‘(C) in determining applicable earnings, the amount
taken into account by reason of being described in para-
graph (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 which the corporation
is a controlled foreign corporation.’’.
(4) Subsection (a) of section 959 (relating to exclusion from
gross income of previously taxed earnings and profits) is
amended by adding ‘‘or’’ at the end of paragraph (1), by striking
‘‘or’’ at the end of paragraph (2), and by striking paragraph
(3).
(5) Subsection (a) of section 959 is amended by striking
‘‘paragraphs (2) and (3)’’ in the last sentence and inserting
‘‘paragraph (2)’’.
(6) Subsection (c) of section 959 is amended by adding
at the end the following flush sentence:
‘‘References in this subsection to section 951(a)(1)(C) and subsection
(a)(3) shall be treated as references to such provisions as in effect
on the day before the date of the enactment of the Small Business
Job Protection Act of 1996.’’.
(7) Paragraph (1) of section 959(f) is amended to read
as follows:
‘‘(1) IN GENERAL.—For purposes of this section, amounts
that would be included under subparagraph (B) of section
951(a)(1) (determined without regard to this section) shall be
treated as attributable first to earnings described in subsection
(c)(2), and then to earnings described in subsection (c)(3).’’.
(8) Paragraph (2) of section 959(f) is amended by striking
‘‘subparagraphs (B) and (C) of section 951(a)(1)’’ and inserting
‘‘section 951(a)(1)(B)’’.
(9) Subsection (b) of section 989 is amended by striking
‘‘subparagraph (B) or (C) of section 951(a)(1)’’ and inserting
‘‘section 951(a)(1)(B)’’.
(10) Paragraph (9) of section 1297(b) is amended by striking
‘‘subparagraph (B) or (C) of section 951(a)(1)’’ and inserting
‘‘section 951(a)(1)(B)’’.
(11) Subsections (d)(3)(B) and (e)(2)(B)(ii) of section 1297
are each amended by striking ‘‘or section 956A’’.
(12) Subparagraph (G) of section 904(d)(3) is amended by
striking ‘‘subparagraph (B) or (C) of section 951(a)(1)’’ and
inserting ‘‘section 951(a)(1)(B)’’.
(c) CLERICAL AMENDMENT.—The table of sections for subpart
F of part III of subchapter N of chapter 1 is amended by striking
the item relating to section 956A.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years of foreign corporations beginning after
December 31, 1996, and to taxable years of United States sharehold-
ers within which or with which such taxable years of foreign cor-
porations end.
H. R. 3448—73
Subtitle F—Revenue Offsets
PART I—GENERAL PROVISIONS
SEC. 1601. TERMINATION OF PUERTO RICO AND POSSESSION TAX
CREDIT.
(a) IN GENERAL.—Section 936 is amended by adding at the
end the following new subsection:
‘‘(j) TERMINATION.—
‘‘(1) IN GENERAL.—Except as otherwise provided in this
subsection, this section shall not apply to any taxable year
beginning after December 31, 1995.
‘‘(2) TRANSITION
RULES
FOR
ACTIVE
BUSINESS
INCOME
CREDIT.—Except as provided in paragraph (3)—
‘‘(A) ECONOMIC ACTIVITY CREDIT.—In the case of an
existing credit claimant—
‘‘(i) with respect to a possession other than Puerto
Rico, and
‘‘(ii) to which subsection (a)(4)(B) does not apply,
the credit determined under subsection (a)(1)(A) shall be
allowed for taxable years beginning after December 31,
1995, and before January 1, 2002.
‘‘(B) SPECIAL RULE FOR REDUCED CREDIT.—
‘‘(i) IN GENERAL.—In the case of an existing credit
claimant to which subsection (a)(4)(B) applies, the
credit determined under subsection (a)(1)(A) shall be
allowed for taxable years beginning after December
31, 1995, and before January 1, 1998.
‘‘(ii) ELECTION IRREVOCABLE AFTER 1997.—An elec-
tion under subsection (a)(4)(B)(iii) which is in effect
for the taxpayer’s last taxable year beginning before
1997 may not be revoked unless it is revoked for the
taxpayer’s first taxable year beginning in 1997 and
all subsequent taxable years.
‘‘(C) ECONOMIC ACTIVITY CREDIT FOR PUERTO RICO.—
‘‘For economic activity credit for Puerto Rico, see section 30A.
‘‘(3) ADDITIONAL RESTRICTED CREDIT.—
‘‘(A) IN GENERAL.—In the case of an existing credit
claimant—
‘‘(i) the credit under subsection (a)(1)(A) shall be
allowed for the period beginning with the first taxable
year after the last taxable year to which subparagraph
(A) or (B) of paragraph (2), whichever is appropriate,
applied and ending with the last taxable year begin-
ning before January 1, 2006, except that
‘‘(ii) the aggregate amount of taxable income taken
into account under subsection (a)(1)(A) for any such
taxable year shall not exceed the adjusted base period
income of such claimant.
‘‘(B) COORDINATION
WITH
SUBSECTION
(a)(4).—The
amount of income described in subsection (a)(1)(A) which
is taken into account in applying subsection (a)(4) shall
be such income as reduced under this paragraph.
‘‘(4) ADJUSTED BASE PERIOD INCOME.—For purposes of para-
graph (3)—
H. R. 3448—74
‘‘(A) IN
GENERAL.—The term ‘adjusted base period
income’ means the average of the inflation-adjusted posses-
sion incomes of the corporation for each base period year.
‘‘(B) INFLATION-ADJUSTED
POSSESSION
INCOME.—For
purposes of subparagraph (A), the inflation-adjusted posses-
sion income of any corporation for any base period year
shall be an amount equal to the sum of—
‘‘(i) the possession income of such corporation for
such base period year, plus
‘‘(ii) such possession income multiplied by the infla-
tion adjustment percentage for such base period year.
‘‘(C) INFLATION
ADJUSTMENT
PERCENTAGE.—For pur-
poses of subparagraph (B), the inflation adjustment
percentage for any base period year means the percentage
(if any) by which—
‘‘(i) the CPI for 1995, exceeds
‘‘(ii) the CPI for the calendar year in which the
base period year for which the determination is being
made ends.
For purposes of the preceding sentence, the CPI for any
calendar year is the CPI (as defined in section 1(f)(5))
for such year under section 1(f)(4).
‘‘(D) INCREASE IN INFLATION ADJUSTMENT PERCENTAGE
FOR GROWTH DURING BASE YEARS.—The inflation adjust-
ment percentage (determined under subparagraph (C) with-
out regard to this subparagraph) for each of the 5 taxable
years referred to in paragraph (5)(A) shall be increased
by—
‘‘(i) 5 percentage points in the case of a taxable
year ending during the 1-year period ending on October
13, 1995;
‘‘(ii) 10.25 percentage points in the case of a taxable
year ending during the 1-year period ending on October
13, 1994;
‘‘(iii) 15.76 percentage points in the case of a tax-
able year ending during the 1-year period ending on
October 13, 1993;
‘‘(iv) 21.55 percentage points in the case of a tax-
able year ending during the 1-year period ending on
October 13, 1992; and
‘‘(v) 27.63 percentage points in the case of a taxable
year ending during the 1-year period ending on October
13, 1991.
‘‘(5) BASE PERIOD YEAR.—For purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘base period year’ means
each of 3 taxable years which are among the 5 most recent
taxable years of the corporation ending before October 14,
1995, determined by disregarding—
‘‘(i) one taxable year for which the corporation
had the largest inflation-adjusted possession income,
and
‘‘(ii) one taxable year for which the corporation
had the smallest inflation-adjusted possession income.
‘‘(B) CORPORATIONS NOT HAVING SIGNIFICANT POSSES-
SION INCOME THROUGHOUT 5-YEAR PERIOD.—
‘‘(i) IN GENERAL.—If a corporation does not have
significant possession income for each of the most
H. R. 3448—75
recent 5 taxable years ending before October 14, 1995,
then, in lieu of applying subparagraph (A), the term
‘base period year’ means only those taxable years (of
such 5 taxable years) for which the corporation has
significant possession income; except that, if such cor-
poration has significant possession income for 4 of
such 5 taxable years, the rule of subparagraph (A)(ii)
shall apply.
‘‘(ii) SPECIAL RULE.—If there is no year (of such
5 taxable years) for which a corporation has significant
possession income—
‘‘(I) the term ‘base period year’ means the first
taxable year ending on or after October 14, 1995,
but
‘‘(II) the amount of possession income for such
year which is taken into account under paragraph
(4) shall be the amount which would be determined
if such year were a short taxable year ending
on September 30, 1995.
‘‘(iii) SIGNIFICANT POSSESSION INCOME.—For pur-
poses of this subparagraph, the term ‘significant
possession income’ means possession income which
exceeds 2 percent of the possession income of the tax-
payer for the taxable year (of the period of 6 taxable
years ending with the first taxable year ending on
or after October 14, 1995) having the greatest posses-
sion income.
‘‘(C) ELECTION TO USE ONE BASE PERIOD YEAR.—
‘‘(i) IN GENERAL.—At the election of the taxpayer,
the term ‘base period year’ means—
‘‘(I) only the last taxable year of the corpora-
tion ending in calendar year 1992, or
‘‘(II) a deemed taxable year which includes
the first ten months of calendar year 1995.
‘‘(ii) BASE PERIOD INCOME FOR 1995.—In determin-
ing the adjusted base period income of the corporation
for the deemed taxable year under clause (i)(II), the
possession income shall be annualized and shall be
determined without regard to any extraordinary item.
‘‘(iii) ELECTION.—An election under this subpara-
graph by any possession corporation may be made
only for the corporation’s first taxable year beginning
after December 31, 1995, for which it is a possession
corporation. The rules of subclauses (II) and (III) of
subsection (a)(4)(B)(iii) shall apply to the election under
this subparagraph.
‘‘(D) ACQUISITIONS AND DISPOSITIONS.—Rules similar
to the rules of subparagraphs (A) and (B) of section 41(f)(3)
shall apply for purposes of this subsection.
‘‘(6) POSSESSION INCOME.—For purposes of this subsection,
the term ‘possession income’ means, with respect to any posses-
sion, the income referred to in subsection (a)(1)(A) determined
with respect to that possession. In no event shall possession
income be treated as being less than zero.
‘‘(7) SHORT YEARS.—If the current year or a base period
year is a short taxable year, the application of this subsection
H. R. 3448—76
shall be made with such annualizations as the Secretary shall
prescribe.
‘‘(8) SPECIAL RULES FOR CERTAIN POSSESSIONS.—
‘‘(A) IN GENERAL.—In the case of an existing credit
claimant with respect to an applicable possession, this sec-
tion (other than the preceding paragraphs of this sub-
section) shall apply to such claimant with respect to such
applicable possession for taxable years beginning after
December 31, 1995, and before January 1, 2006.
‘‘(B) APPLICABLE
POSSESSION.—For purposes of this
paragraph, the term ‘applicable possession’ means Guam,
American Samoa, and the Commonwealth of the Northern
Mariana Islands.
‘‘(9) EXISTING CREDIT CLAIMANT.—For purposes of this sub-
section—
‘‘(A) IN GENERAL.—The term ‘existing credit claimant’
means a corporation—
‘‘(i)(I) which was actively conducting a trade or
business in a possession on October 13, 1995, and
‘‘(II) with respect to which an election under this
section is in effect for the corporation’s taxable year
which includes October 13, 1995, or
‘‘(ii) which acquired all of the assets of a trade
or business of a corporation which—
‘‘(I) satisfied the requirements of subclause (I)
of clause (i) with respect to such trade or busi-
ness, and
‘‘(II) satisfied the requirements of subclause
(II) of clause (i).
‘‘(B) NEW
LINES
OF
BUSINESS
PROHIBITED.—If, after
October 13, 1995, a corporation which would (but for this
subparagraph) be an existing credit claimant adds a
substantial new line of business (other than in an acquisi-
tion described in subparagraph (A)(ii)), such corporation
shall cease to be treated as an existing credit claimant
as of the close of the taxable year ending before the date
of such addition.
‘‘(C) BINDING CONTRACT EXCEPTION.—If, on October 13,
1995, and at all times thereafter, there is in effect with
respect to a corporation a binding contract for the acquisi-
tion of assets to be used in, or for the sale of assets
to be produced from, a trade or business, the corporation
shall be treated for purposes of this paragraph as actively
conducting such trade or business on October 13, 1995.
The preceding sentence shall not apply if such trade or
business is not actively conducted before January 1, 1996.
‘‘(10) SEPARATE
APPLICATION
TO
EACH
POSSESSION.—For
purposes of determining—
‘‘(A) whether a taxpayer is an existing credit claim-
ant, and
‘‘(B) the amount of the credit allowed under this
section,
this subsection (and so much of this section as relates to this
subsection) shall be applied separately with respect to each
possession.’’.
(b) ECONOMIC ACTIVITY CREDIT FOR PUERTO RICO.—
H. R. 3448—77
(1) IN GENERAL.—Subpart B of part IV of subchapter A
of chapter 1 is amended by adding at the end the following
new section:
‘‘SEC. 30A. PUERTO RICAN ECONOMIC ACTIVITY CREDIT.
‘‘(a) ALLOWANCE OF CREDIT.—
‘‘(1) IN GENERAL.—Except as otherwise provided in this
section, if the conditions of both paragraph (1) and paragraph
(2) of subsection (b) are satisfied with respect to a qualified
domestic corporation, there shall be allowed as a credit against
the tax imposed by this chapter an amount equal to the portion
of the tax which is attributable to the taxable income, from
sources without the United States, from—
‘‘(A) the active conduct of a trade or business within
Puerto Rico, or
‘‘(B) the sale or exchange of substantially all of the
assets used by the taxpayer in the active conduct of such
trade or business.
In the case of any taxable year beginning after December
31, 2001, the aggregate amount of taxable income taken into
account under the preceding sentence (and in applying sub-
section (d)) shall not exceed the adjusted base period income
of such corporation, as determined in the same manner as
under section 936(j).
‘‘(2) QUALIFIED DOMESTIC CORPORATION.—For purposes of
paragraph (1), the term ‘qualified domestic corporation’ means
a domestic corporation—
‘‘(A) which is an existing credit claimant with respect
to Puerto Rico, and
‘‘(B) with respect to which section 936(a)(4)(B) does
not apply for the taxable year.
‘‘(3) SEPARATE
APPLICATION.—For purposes of deter-
mining—
‘‘(A) whether a taxpayer is an existing credit claimant
with respect to Puerto Rico, and
‘‘(B) the amount of the credit allowed under this
section,
this section (and so much of section 936 as relates to this
section) shall be applied separately with respect to Puerto Rico.
‘‘(b) CONDITIONS WHICH MUST BE SATISFIED.—The conditions
referred to in subsection (a) are—
‘‘(1) 3-YEAR PERIOD.—If 80 percent or more of the gross
income of the qualified domestic corporation for the 3-year
period immediately preceding the close of the taxable year
(or for such part of such period immediately preceding the
close of such taxable year as may be applicable) was derived
from sources within a possession (determined without regard
to section 904(f)).
‘‘(2) TRADE OR BUSINESS.—If 75 percent or more of the
gross income of the qualified domestic corporation for such
period or such part thereof was derived from the active conduct
of a trade or business within a possession.
‘‘(c) CREDIT NOT ALLOWED AGAINST CERTAIN TAXES.—The credit
provided by subsection (a) shall not be allowed against the tax
imposed by—
‘‘(1) section 59A (relating to environmental tax),