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periods after December 31, 1997, in taxable years ending
after such date.
(c) PHASEIN OF TREATMENT.—For purposes of the
Internal Revenue Code of 1986—
(1) 1998.—In the case of gross receipts attrib-
utable to calendar year 1998, the amendment made
by subsection (a) shall apply to only 1⁄3 of such gross
receipts.
(2) 1999.—In the case of gross receipts attrib-
utable to calendar year 1999, the amendment made
by subsection (a) shall apply to only 2⁄3 of such gross
receipts.
SEC. 1102. ADJUSTMENT OF DOLLAR LIMITATION ON SEC-
TION 911 EXCLUSION.
(a) GENERAL RULE.—Paragraph (2) of section
911(b) is amended by—
(1) by striking ‘‘of $70,000’’ in subparagraph
(A) and inserting ‘‘equal to the exclusion amount for
the calendar year in which such taxable year be-
gins’’, and
(2) by adding at the end the following new sub-
paragraph:
‘‘(D) EXCLUSION AMOUNT.—
‘‘(i) IN
GENERAL.—The exclusion
amount for any calendar year is the exclu-
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sion amount determined in accordance with
the following table (as adjusted by clause
(ii)):
‘‘For calendar year—
The exclusion amount is—
1998 .........................................................................................
$72,000
1999 .........................................................................................
74,000
2000 .........................................................................................
76,000
2001 .........................................................................................
78,000
2002 and thereafter .................................................................
80,000.
‘‘(ii) INFLATION
ADJUSTMENT.—In
the case of any taxable year beginning in
a calendar year after 2007, the $80,000
amount in clause (i) shall be increased by
an amount equal to the product of—
‘‘(I) such dollar amount, and
‘‘(II) the cost-of-living adjust-
ment determined under section 1(f)(3)
for the calendar year in which the tax-
able year begins, determined by sub-
stituting ‘2006’ for ‘1992’ in subpara-
graph (B) thereof.
If any increase determined under the pre-
ceding sentence is not a multiple of $100,
such increase shall be rounded to the next
lowest multiple of $100.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1997.
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SEC. 1103. CERTAIN INDIVIDUALS EXEMPT FROM FOREIGN
TAX CREDIT LIMITATION.
(a) GENERAL RULE.—Section 904 (relating to limi-
tations on foreign tax credit) is amended by redesignating
subsection (j) as subsection (k) and by inserting after sub-
section (i) the following new subsection:
‘‘(j) CERTAIN INDIVIDUALS EXEMPT.—
‘‘(1) IN GENERAL.—In the case of an individual
to whom this subsection applies for any taxable
year—
‘‘(A) the limitation of subsection (a) shall
not apply,
‘‘(B) no taxes paid or accrued by the indi-
vidual during such taxable year may be deemed
paid or accrued under subsection (c) in any
other taxable year, and
‘‘(C) no taxes paid or accrued by the indi-
vidual during any other taxable year may be
deemed paid or accrued under subsection (c) in
such taxable year.
‘‘(2) INDIVIDUALS TO WHOM SUBSECTION AP-
PLIES.—This subsection shall apply to an individual
for any taxable year if—
‘‘(A) the entire amount of such individual’s
gross income for the taxable year from sources
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without the United States consists of qualified
passive income,
‘‘(B) the amount of the creditable foreign
taxes paid or accrued by the individual during
the taxable year does not exceed $300 ($600 in
the case of a joint return), and
‘‘(C) such individual elects to have this
subsection apply for the taxable year.
‘‘(3) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) QUALIFIED
PASSIVE
INCOME.—The
term ‘qualified passive income’ means any item
of gross income if—
‘‘(i) such item of income is passive in-
come (as defined in subsection (d)(2)(A)
without regard to clause (iii) thereof), and
‘‘(ii) such item of income is shown on
a payee statement furnished to the individ-
ual.
‘‘(B) CREDITABLE FOREIGN TAXES.—The
term ‘creditable foreign taxes’ means any taxes
for which a credit is allowable under section
901; except that such term shall not include
any tax unless such tax is shown on a payee
statement furnished to such individual.
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‘‘(C) 
PAYEE
STATEMENT.—The 
term
‘payee statement’ has the meaning given to
such term by section 6724(d)(2).
‘‘(D) ESTATES
AND
TRUSTS
NOT
ELIGI-
BLE.—This subsection shall not apply to any
estate or trust.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1997.
SEC. 1104. EXCHANGE RATE USED IN TRANSLATING FOR-
EIGN TAXES.
(a) ACCRUED TAXES TRANSLATED BY USING AVER-
AGE RATE FOR YEAR TO WHICH TAXES RELATE.—
(1) IN
GENERAL.—Subsection (a) of section
986 (relating to translation of foreign taxes) is
amended to read as follows:
‘‘(a) FOREIGN INCOME TAXES.—
‘‘(1) TRANSLATION OF ACCRUED TAXES.—
‘‘(A) IN GENERAL.—For purposes of deter-
mining the amount of the foreign tax credit, in
the case of a taxpayer who takes foreign income
taxes into account when accrued, the amount of
any foreign income taxes (and any adjustment
thereto) shall be translated into dollars by using
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the average exchange rate for the taxable year
to which such taxes relate.
‘‘(B) EXCEPTION FOR CERTAIN TAXES.—
Subparagraph (A) shall not apply to any for-
eign income taxes—
‘‘(i) paid after the date 2 years after
the close of the taxable year to which such
taxes relate, or
‘‘(ii) paid before the beginning of the
taxable year to which such taxes relate.
‘‘(C) EXCEPTION FOR INFLATIONARY CUR-
RENCIES.—Subparagraph (A) shall not apply to
any foreign income taxes the liability for which
is denominated in any inflationary currency (as
determined under regulations).
‘‘(D) CROSS REFERENCE.—
‘‘For adjustments where tax is not paid within 2
years, see section 905(c).
‘‘(2) TRANSLATION OF TAXES TO WHICH PARA-
GRAPH (1) DOES NOT APPLY.—For purposes of de-
termining the amount of the foreign tax credit, in
the case of any foreign income taxes to which sub-
paragraph (A) of paragraph (1) does not apply—
‘‘(A) such taxes shall be translated into
dollars using the exchange rates as of the time
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such taxes were paid to the foreign country or
possession of the United States, and
‘‘(B) any adjustment to the amount of
such taxes shall be translated into dollars
using—
‘‘(i) except as provided in clause (ii),
the exchange rate as of the time when such
adjustment is paid to the foreign country
or possession, or
‘‘(ii) in the case of any refund or cred-
it of foreign income taxes, using the ex-
change rate as of the time of the original
payment of such foreign income taxes.
‘‘(3) FOREIGN INCOME TAXES.—For purposes
of this subsection, the term ‘foreign income taxes’
means any income, war profits, or excess profits
taxes paid or accrued to any foreign country or to
any possession of the United States.’’.
(2) ADJUSTMENT WHEN NOT PAID WITHIN 2
YEARS AFTER YEAR TO WHICH TAXES RELATE.—
Subsection (c) of section 905 is amended to read as
follows:
‘‘(c) ADJUSTMENTS TO ACCRUED TAXES.—
‘‘(1) IN GENERAL.—If—
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‘‘(A) accrued taxes when paid differ from
the amounts claimed as credits by the taxpayer,
‘‘(B) accrued taxes are not paid before the
date 2 years after the close of the taxable year
to which such taxes relate, or
‘‘(C) any tax paid is refunded in whole or
in part,
the taxpayer shall notify the Secretary, who shall re-
determine the amount of the tax for the year or
years affected. The Secretary may prescribe adjust-
ments to tax pools under sections 902 and 960 in
lieu of the redetermination under the preceding sen-
tence.
‘‘(2) SPECIAL
RULE
FOR
TAXES
NOT
PAID
WITHIN 2 YEARS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), in making the redetermina-
tion under paragraph (1), no credit shall be al-
lowed for accrued taxes not paid before the date
referred to in subparagraph (B) of paragraph
(1).
‘‘(B) TAXES
SUBSEQUENTLY
PAID.—Any
such taxes if subsequently paid shall be taken
into account for the taxable year to which such
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taxes relate (and translated as provided in sec-
tion 986(a)(2)(A)).
‘‘(3) ADJUSTMENTS.—The amount of tax (if
any) due on any redetermination under paragraph
(1) shall be paid by the taxpayer on notice and de-
mand by the Secretary, and the amount of tax over-
paid (if any) shall be credited or refunded to the
taxpayer in accordance with subchapter B of chapter
66 (section 6511 et seq.).
‘‘(4) BOND
REQUIREMENTS.—In the case of
any tax accrued but not paid, the Secretary, as a
condition precedent to the allowance of the credit
provided in this subpart, may require the taxpayer
to give a bond, with sureties satisfactory to and ap-
proved by the Secretary, in such sum as the Sec-
retary may require, conditioned on the payment by
the taxpayer of any amount of tax found due on any
such redetermination. Any such bond shall contain
such further conditions as the Secretary may re-
quire.
‘‘(5) OTHER SPECIAL RULES.—In any redeter-
mination under paragraph (1) by the Secretary of
the amount of tax due from the taxpayer for the
year or years affected by a refund, the amount of
the taxes refunded for which credit has been allowed
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under this section shall be reduced by the amount of
any tax described in section 901 imposed by the for-
eign country or possession of the United States with
respect to such refund; but no credit under this sub-
part, or deduction under section 164, shall be al-
lowed for any taxable year with respect to any such
tax imposed on the refund. No interest shall be as-
sessed or collected on any amount of tax due on any
redetermination by the Secretary, resulting from a
refund to the taxpayer, for any period before the re-
ceipt of such refund, except to the extent interest
was paid by the foreign country or possession of the
United States on such refund for such period.’’.
(b) AUTHORITY TO USE AVERAGE RATES.—
(1) IN
GENERAL.—Subsection (a) of section
986 (as amended by subsection (a)) is amended by
redesignating paragraph (3) as paragraph (4) and
inserting after paragraph (2) the following new
paragraph:
‘‘(3) AUTHORITY TO PERMIT USE OF AVERAGE
RATES.—To the extent prescribed in regulations, the
average exchange rate for the period (specified in
such regulations) during which the taxes or adjust-
ment is paid may be used instead of the exchange
rate as of the time of such payment.’’.
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‘‘(3) ELECTION TO USE SIMPLIFIED SECTION
904 LIMITATION.—
‘‘(A) IN GENERAL.—In determining the al-
ternative minimum tax foreign tax credit for
any taxable year to which an election under this
paragraph applies—
‘‘(i) subparagraph (B) of paragraph
(1) shall not apply, and
‘‘(ii) the limitation of section 904
shall be based on the proportion which—
‘‘(I) the taxpayer’s taxable in-
come (as determined for purposes of
the regular tax) from sources without
the United States (but not in excess
of the taxpayer’s entire alternative
minimum taxable income), bears to
‘‘(II) the taxpayer’s entire alter-
native minimum taxable income for
the taxable year.
‘‘(B) ELECTION.—
‘‘(i) IN GENERAL.—An election under
this paragraph may be made only for the
taxpayer’s first taxable year which begins
after December 31, 1997, and for which
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the taxpayer claims an alternative mini-
mum tax foreign tax credit.
‘‘(ii) ELECTION
REVOCABLE
ONLY
WITH
CONSENT.—An election under this
paragraph, once made, shall apply to the
taxable year for which made and all subse-
quent taxable years unless revoked with
the consent of the Secretary.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1997.
SEC. 1106. TREATMENT OF PERSONAL TRANSACTIONS BY
INDIVIDUALS UNDER FOREIGN CURRENCY
RULES.
(a) GENERAL RULE.—Subsection (e) of section 988
(relating to application to individuals) is amended to read
as follows:
‘‘(e) APPLICATION TO INDIVIDUALS.—
‘‘(1) IN GENERAL.—The preceding provisions of
this section shall not apply to any section 988 trans-
action entered into by an individual which is a per-
sonal transaction.
‘‘(2) EXCLUSION
FOR
CERTAIN
PERSONAL
TRANSACTIONS.—If—
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‘‘(A) nonfunctional currency is disposed of
by an individual in any transaction, and
‘‘(B) such transaction is a personal trans-
action,
no gain shall be recognized for purposes of this sub-
title by reason of changes in exchange rates after
such currency was acquired by such individual and
before such disposition. The preceding sentence shall
not apply if the gain which would otherwise be rec-
ognized on the transaction exceeds $200.
‘‘(3) PERSONAL TRANSACTIONS.—For purposes
of this subsection, the term ‘personal transaction’
means any transaction entered into by an individual,
except that such term shall not include any trans-
action to the extent that expenses properly allocable
to such transaction meet the requirements of section
162 or 212 (other than that part of section 212
dealing with expenses incurred in connection with
taxes).’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1997.
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SEC. 1107. ALL NONCONTROLLED SECTION 902 CORPORA-
TIONS WHICH ARE NOT PASSIVE FOREIGN IN-
VESTMENT COMPANIES IN ONE FOREIGN TAX
LIMITATION BASKET.
(a) IN GENERAL.—Subparagraph (E) of section
904(d)(2) (relating to noncontrolled section 902 corpora-
tions) is amended by adding at the end the following new
clause:
‘‘(iv) ALL
NON-PFIC’S
TREATED
AS
ONE.—All noncontrolled section 902 cor-
porations which are not passive foreign in-
vestment companies (as defined in section
1297) shall be treated as one noncontrolled
section 902 corporation for purposes of
paragraph (1). The Secretary may pre-
scribe regulations regarding the treatment
of distributions out of earnings and profits
for periods prior to the taxpayer’s acquisi-
tion of such stock.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 2001.
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Subtitle B—Treatment of
Controlled Foreign Corporations
SEC. 1111. GAIN ON CERTAIN STOCK SALES BY CON-
TROLLED FOREIGN CORPORATIONS TREAT-
ED AS DIVIDENDS.
(a) GENERAL RULE.—Section 964 (relating to mis-
cellaneous provisions) is amended by adding at the end
thereof the following new subsection:
‘‘(e) GAIN
ON CERTAIN STOCK SALES
BY CON-
TROLLED FOREIGN CORPORATIONS TREATED AS DIVI-
DENDS.—
‘‘(1) IN GENERAL.—If a controlled foreign cor-
poration sells or exchanges stock in any other for-
eign corporation, gain recognized on such sale or ex-
change shall be included in the gross income of such
controlled foreign corporation as a dividend to the
same extent that it would have been so included
under section 1248(a) if such controlled foreign cor-
poration were a United States person. For purposes
of determining the amount which would have been so
includible, the determination of whether such other
foreign corporation was a controlled foreign corpora-
tion shall be made without regard to the preceding
sentence.
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‘‘(2) SAME COUNTRY EXCEPTION NOT APPLICA-
BLE.—Clause (i) of section 954(c)(3)(A) shall not
apply to any amount treated as a dividend by reason
of paragraph (1).
‘‘(3) CLARIFICATION OF DEEMED SALES.—For
purposes of this subsection, a controlled foreign cor-
poration shall be treated as having sold or ex-
changed any stock if, under any provision of this
subtitle, such controlled foreign corporation is treat-
ed as having gain from the sale or exchange of such
stock.’’.
(b) AMENDMENT OF SECTION 904(d).—Clause (i) of
section 904(d)(2)(E) is amended by striking ‘‘and except
as provided in regulations, the taxpayer was a United
States shareholder in such corporation’’.
(c) EFFECTIVE DATES.—
(1) The amendment made by subsection (a)
shall apply to gain recognized on transactions occur-
ring after the date of the enactment of this Act.
(2) The amendment made by subsection (b)
shall apply to distributions after the date of the en-
actment of this Act.
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SEC. 1112. MISCELLANEOUS MODIFICATIONS TO SUBPART
F.
(a) SECTION 1248 GAIN TAKEN INTO ACCOUNT IN
DETERMINING PRO RATA SHARE.—
(1) IN
GENERAL.—Paragraph (2) of section
951(a) (defining pro rata share of subpart F in-
come) is amended by adding at the end thereof the
following new sentence: ‘‘For purposes of subpara-
graph (B), any gain included in the gross income of
any person as a dividend under section 1248 shall
be treated as a distribution received by such person
with respect to the stock involved.’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to dispositions after the
date of the enactment of this Act.
(b) BASIS ADJUSTMENTS IN STOCK HELD BY FOR-
EIGN CORPORATION.—
(1) IN GENERAL.—Section 961 (relating to ad-
justments to basis of stock in controlled foreign cor-
porations and of other property) is amended by add-
ing at the end thereof the following new subsection:
‘‘(c) BASIS ADJUSTMENTS IN STOCK HELD BY FOR-
EIGN CORPORATION.—Under regulations prescribed by
the Secretary, if a United States shareholder is treated
under section 958(a)(2) as owning any stock in a con-
trolled foreign corporation which is actually owned by an-
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other controlled foreign corporation, adjustments similar
to the adjustments provided by subsections (a) and (b)
shall be made to the basis of such stock in the hands of
such other controlled foreign corporation, but only for the
purposes of determining the amount included under sec-
tion 951 in the gross income of such United States share-
holder (or any other United States shareholder who ac-
quires from any person any portion of the interest of such
United States shareholder by reason of which such share-
holder was treated as owning such stock, but only to the
extent of such portion, and subject to such proof of iden-
tity of such interest as the Secretary may prescribe by reg-
ulations).’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply for purposes of deter-
mining inclusions for taxable years of United States
shareholders beginning after December 31, 1997.
(c) CLARIFICATION OF TREATMENT OF BRANCH TAX
EXEMPTIONS OR REDUCTIONS.—
(1) IN
GENERAL.—Subsection (b) of section
952 is amended by adding at the end thereof the fol-
lowing new sentence: ‘‘For purposes of this sub-
section, any exemption (or reduction) with respect to
the tax imposed by section 884 shall not be taken
into account.’’.
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(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to taxable years begin-
ning after December 31, 1986.
SEC. 1113. INDIRECT FOREIGN TAX CREDIT ALLOWED FOR
CERTAIN LOWER TIER COMPANIES.
(a) SECTION 902 CREDIT.—
(1) IN
GENERAL.—Subsection (b) of section
902 (relating to deemed taxes increased in case of
certain 2nd and 3rd tier foreign corporations) is
amended to read as follows:
‘‘(b) DEEMED TAXES INCREASED IN CASE OF CER-
TAIN LOWER TIER CORPORATIONS.—
‘‘(1) IN GENERAL.—If—
‘‘(A) any foreign corporation is a member
of a qualified group, and
‘‘(B) such foreign corporation owns 10 per-
cent or more of the voting stock of another
member of such group from which it receives
dividends in any taxable year,
such foreign corporation shall be deemed to have
paid the same proportion of such other member’s
post-1986 foreign income taxes as would be deter-
mined under subsection (a) if such foreign corpora-
tion were a domestic corporation.
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‘‘(2) QUALIFIED
GROUP.—For purposes of
paragraph (1), the term ‘qualified group’ means—
‘‘(A) the foreign corporation described in
subsection (a), and
‘‘(B) any other foreign corporation if—
‘‘(i) the domestic corporation owns at
least 5 percent of the voting stock of such
other 
foreign 
corporation 
indirectly
through a chain of foreign corporations
connected through stock ownership of at
least 10 percent of their voting stock,
‘‘(ii) the foreign corporation described
in subsection (a) is the first tier corpora-
tion in such chain, and
‘‘(iii) such other corporation is not
below the sixth tier in such chain.
The term ‘qualified group’ shall not include any for-
eign corporation below the third tier in the chain re-
ferred to in clause (i) unless such foreign corpora-
tion is a controlled foreign corporation (as defined in
section 957) and the domestic corporation is a Unit-
ed States shareholder (as defined in section 951(b))
in such foreign corporation. Paragraph (1) shall
apply to those taxes paid by a member of the quali-
fied group below the third tier only with respect to
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periods during which it was a controlled foreign cor-
poration.’’.
(2) CONFORMING AMENDMENTS.—
(A) Subparagraph (B) of section 902(c)(3)
is amended by adding ‘‘or’’ at the end of clause
(i) and by striking clauses (ii) and (iii) and in-
serting the following new clause:
‘‘(ii) the requirements of subsection
(b)(2) are met with respect to such foreign
corporation.’’.
(B) Subparagraph (B) of section 902(c)(4)
is amended by striking ‘‘3rd foreign corpora-
tion’’ and inserting ‘‘sixth tier foreign corpora-
tion’’.
(C) The heading for paragraph (3) of sec-
tion 902(c) is amended by striking ‘‘WHERE DO-
MESTIC
CORPORATION
ACQUIRES
PERCENT
OF
FOREIGN
CORPORATION’’ and inserting
‘‘WHERE FOREIGN CORPORATION FIRST QUALI-
FIES’’.
(D) Paragraph (3) of section 902(c) is
amended by striking ‘‘ownership’’ each place it
appears.
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(b) SECTION 960 CREDIT.—Paragraph (1) of section
960(a) (relating to special rules for foreign tax credits)
is amended to read as follows:
‘‘(1) DEEMED PAID CREDIT.—For purposes of
subpart A of this part, if there is included under
section 951(a) in the gross income of a domestic cor-
poration any amount attributable to earnings and
profits of a foreign corporation which is a member
of a qualified group (as defined in section 902(b))
with respect to the domestic corporation, then, ex-
cept to the extent provided in regulations, section
902 shall be applied as if the amount so included
were a dividend paid by such foreign corporation
(determined by applying section 902(c) in accord-
ance with section 904(d)(3)(B)).’’.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to taxes of foreign corpora-
tions for taxable years of such corporations begin-
ning after the date of enactment of this Act.
(2) SPECIAL RULE.—In the case of any chain
of foreign corporations described in clauses (i) and
(ii) of section 902(b)(2)(B) of the Internal Revenue
Code of 1986 (as amended by this section), no liq-
uidation, reorganization, or similar transaction in a
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taxable year beginning after the date of the enact-
ment of this Act shall have the effect of permitting
taxes to be taken into account under section 902 of
the Internal Revenue Code of 1986 which could not
have been taken into account under such section but
for such transaction.
Subtitle C—Treatment of Passive
Foreign Investment Companies
SEC. 1121. UNITED STATES SHAREHOLDERS OF CON-
TROLLED 
FOREIGN 
CORPORATIONS 
NOT
SUBJECT TO PFIC INCLUSION.
Section 1296 is amended by adding at the end the
following new subsection:
‘‘(e) EXCEPTION FOR UNITED STATES SHAREHOLD-
ERS OF CONTROLLED FOREIGN CORPORATIONS.—
‘‘(1) IN GENERAL.—For purposes of this part,
a corporation shall not be treated with respect to a
shareholder as a passive foreign investment company
during the qualified portion of such shareholder’s
holding period with respect to stock in such corpora-
tion.
‘‘(2) QUALIFIED
PORTION.—For purposes of
this subsection, the term ‘qualified portion’ means
the portion of the shareholder’s holding period—
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‘‘(A) which is after December 31, 1997,
and
‘‘(B) during which the shareholder is a
United States shareholder (as defined in section
951(b)) of the corporation and the corporation
is a controlled foreign corporation.
‘‘(3) NEW HOLDING PERIOD IF QUALIFIED POR-
TION ENDS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), if the qualified portion of a
shareholder’s holding period with respect to any
stock ends after December 31, 1997, solely for
purposes of this part, the shareholder’s holding
period with respect to such stock shall be treat-
ed as beginning as of the first day following
such period.
‘‘(B) 
EXCEPTION.—Subparagraph 
(A)
shall not apply if such stock was, with respect
to such shareholder, stock in a passive foreign
investment company at any time before the
qualified portion of the shareholder’s holding
period with respect to such stock and no elec-
tion under section 1298(b)(1) is made.’’.
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SEC. 1122. ELECTION OF MARK TO MARKET FOR MARKET-
ABLE STOCK IN PASSIVE FOREIGN INVEST-
MENT COMPANY.
(a) IN GENERAL.—Part VI of subchapter P of chap-
ter 1 is amended by redesignating subpart C as subpart
D, by redesignating sections 1296 and 1297 as sections
1297 and 1298, respectively, and by inserting after sub-
part B the following new subpart:
‘‘Subpart C—Election of Mark to Market For
Marketable Stock
‘‘Sec. 1296. Election of mark to market for marketable stock.
‘‘SEC. 1296. ELECTION OF MARK TO MARKET FOR MARKET-
ABLE STOCK.
‘‘(a) GENERAL RULE.—In the case of marketable
stock in a passive foreign investment company which is
owned (or treated under subsection (g) as owned) by a
United States person at the close of any taxable year of
such person, at the election of such person—
‘‘(1) If the fair market value of such stock as
of the close of such taxable year exceeds its adjusted
basis, such United States person shall include in
gross income for such taxable year an amount equal
to the amount of such excess.
‘‘(2) If the adjusted basis of such stock exceeds
the fair market value of such stock as of the close
of such taxable year, such United States person
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shall be allowed a deduction for such taxable year
equal to the lesser of—
‘‘(A) the amount of such excess, or
‘‘(B) the unreversed inclusions with respect
to such stock.
‘‘(b) BASIS ADJUSTMENTS.—
‘‘(1) IN GENERAL.—The adjusted basis of stock
in a passive foreign investment company—
‘‘(A) shall be increased by the amount in-
cluded in the gross income of the United States
person under subsection (a)(1) with respect to
such stock, and
‘‘(B) shall be decreased by the amount al-
lowed as a deduction to the United States per-
son under subsection (a)(2) with respect to
such stock.
‘‘(2) SPECIAL
RULE
FOR
STOCK
CONSTRUC-
TIVELY OWNED.—In the case of stock in a passive
foreign investment company which the United States
person is treated as owning under subsection (g)—
‘‘(A) the adjustments under paragraph (1)
shall apply to such stock in the hands of the
person actually holding such stock but only for
purposes of determining the subsequent treat-
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HR 2014 RDS
not apply to any exchange having the effect of transferring
property to any person other than a United States per-
son.’’.
(2) TRANSFERS TO FOREIGN CORPORATIONS.—
Section 367 is amended by adding at the end the
following new subsection:
‘‘(f) OTHER TRANSFERS.—To the extent provided in
regulations, if a United States person transfers property
to a foreign corporation as paid-in surplus or as a con-
tribution to capital (in a transaction not otherwise de-
scribed in this section), such foreign corporation shall not,
for purposes of determining the extent to which gain shall
be recognized on such transfer, be considered to be a cor-
poration.’’.
(3) CERTAIN TRANSFERS TO PARTNERSHIPS.—
Section 721 is amended by adding at the end the
following new subsection:
‘‘(c) REGULATIONS RELATING TO TRANSFERS TO
FOREIGN PERSONS.—The Secretary may provide by regu-
lations that subsection (a) shall not apply to gain realized
on the transfer of property to a partnership if such gain,
when recognized, will be includible in the gross income of
a person other than a United States person.’’.