320 
‘‘(i) is not an excluded employee, and 
‘‘(ii) agrees in the election made 
under this subsection to meet such require-
ments as determined by the Secretary to 
be necessary to ensure that the with-
holding requirements of the corporation 
under chapter 24 with respect to the quali-
fied stock are met. 
‘‘(B) EXCLUDED
EMPLOYEE.—The term 
‘excluded employee’ means, with respect to any 
corporation, any individual— 
‘‘(i) who was a 1-percent owner (with-
in the meaning of section 416(i)(1)(B)(ii)) 
at any time during the 10 preceding cal-
endar years, 
‘‘(ii) who is or has been at any prior 
time— 
‘‘(I) the chief executive officer of 
such corporation or an individual act-
ing in such a capacity, or 
‘‘(II) the chief financial officer of 
such corporation or an individual act-
ing in such a capacity, 
‘‘(iii) who bears a relationship de-
scribed in section 318(a)(1) to any indi-
321 
vidual described in subclause (I) or (II) of 
clause (ii), or 
‘‘(iv) who has been for any of the 10 
preceding taxable years one of the 4 high-
est compensated officers of such corpora-
tion determined with respect to each such 
taxable year on the basis of the share-
holder disclosure rules for compensation 
under the Securities Exchange Act of 1934 
(as if such rules applied to such corpora-
tion). 
‘‘(4) ELECTION.— 
‘‘(A) TIME FOR MAKING ELECTION.—An 
election with respect to qualified stock shall be 
made under this subsection no later than 30 
days after the first time the rights of the em-
ployee in such stock are transferable or are not 
subject to a substantial risk of forfeiture, 
whichever occurs earlier, and shall be made in 
a manner similar to the manner in which an 
election is made under subsection (b). 
‘‘(B) LIMITATIONS.—No election may be 
made under this section with respect to any 
qualified stock if—
322 
‘‘(i) the qualified employee has made 
an election under subsection (b) with re-
spect to such qualified stock, 
‘‘(ii) any stock of the corporation 
which issued the qualified stock is readily 
tradable on an established securities mar-
ket 
(as 
determined 
under 
paragraph 
(1)(B)(iii)) at any time before the election 
is made, or 
‘‘(iii) such corporation purchased any 
of its outstanding stock in the calendar 
year preceding the calendar year which in-
cludes the first time the rights of the em-
ployee in such stock are transferable or are 
not subject to a substantial risk of for-
feiture, unless— 
‘‘(I) not less than 25 percent of 
the total dollar amount of the stock so 
purchased is deferral stock, and 
‘‘(II) the determination of which 
individuals from whom deferral stock 
is purchased is made on a reasonable 
basis.
323 
‘‘(C) DEFINITIONS
AND
SPECIAL
RULES 
RELATED TO LIMITATION ON STOCK REDEMP-
TIONS.— 
‘‘(i) DEFERRAL
STOCK.—For pur-
poses of this paragraph, the term ‘deferral 
stock’ means stock with respect to which 
an election is in effect under this sub-
section. 
‘‘(ii) DEFERRAL
STOCK
WITH
RE-
SPECT
TO
ANY
INDIVIDUAL
NOT
TAKEN 
INTO ACCOUNT IF INDIVIDUAL HOLDS DE-
FERRAL STOCK WITH LONGER DEFERRAL 
PERIOD.—Stock purchased by a corpora-
tion from any individual shall not be treat-
ed as deferral stock for purposes of clause 
(iii) if such individual (immediately after 
such purchase) holds any deferral stock 
with respect to which an election has been 
in effect under this subsection for a longer 
period than the election with respect to the 
stock so purchased. 
‘‘(iii) 
PURCHASE
OF
ALL
OUT-
STANDING
DEFERRAL
STOCK.—The re-
quirements of subclauses (I) and (II) of 
subparagraph (B)(iii) shall be treated as
324 
met if the stock so purchased includes all 
of the corporation’s outstanding deferral 
stock. 
‘‘(iv) REPORTING.—Any corporation 
which has outstanding deferral stock as of 
the beginning of any calendar year and 
which purchases any of its outstanding 
stock during such calendar year shall in-
clude on its return of tax for the taxable 
year in which, or with which, such calendar 
year ends the total dollar amount of its 
outstanding stock so purchased during 
such calendar year and such other infor-
mation as the Secretary may require for 
purposes of administering this paragraph. 
‘‘(5) CONTROLLED GROUPS.—For purposes of 
this subsection, all corporations which are members 
of the same controlled group of corporations (as de-
fined in section 1563(a)) shall be treated as one cor-
poration. 
‘‘(6) NOTICE REQUIREMENT.—Any corporation 
that transfers qualified stock to a qualified employee 
shall, at the time that (or a reasonable period be-
fore) an amount attributable to such stock would
325 
(but for this subsection) first be includible in the 
gross income of such employee— 
‘‘(A) certify to such employee that such 
stock is qualified stock, and 
‘‘(B) notify such employee— 
‘‘(i) that the employee may elect to 
defer income on such stock under this sub-
section, and 
‘‘(ii) that, if the employee makes such 
an election— 
‘‘(I) the amount of income recog-
nized at the end of the deferral period 
will be based on the value of the stock 
at the time at which the rights of the 
employee in such stock first become 
transferable or not subject to substan-
tial risk of forfeiture, notwithstanding 
whether the value of the stock has de-
clined during the deferral period, 
‘‘(II) the amount of such income 
recognized at the end of the deferral 
period will be subject to withholding 
under section 3401(i) at the rate de-
termined under section 3402(t), and
326 
‘‘(III) the responsibilities of the 
employee (as determined by the Sec-
retary under paragraph (3)(A)(ii)) 
with respect to such withholding. 
‘‘(7) RESTRICTED STOCK UNITS.—This section 
(other than this subsection), including any election 
under subsection (b), shall not apply to restricted 
stock units.’’. 
(2) DEDUCTION BY EMPLOYER.—Subsection (h) 
of section 83 is amended by striking ‘‘or (d)(2)’’ and 
inserting ‘‘(d)(2), or (i)’’. 
(b) WITHHOLDING.— 
(1) TIME OF WITHHOLDING.—Section 3401 is 
amended by adding at the end the following new 
subsection: 
‘‘(i) QUALIFIED STOCK FOR WHICH AN ELECTION IS 
IN EFFECT UNDER SECTION 83(i).—For purposes of sub-
section (a), qualified stock (as defined in section 83(i)) 
with respect to which an election is made under section 
83(i) shall be treated as wages— 
‘‘(1) received on the earliest date described in 
section 83(i)(1)(B), and 
‘‘(2) in an amount equal to the amount in-
cluded in income under section 83 for the taxable 
year which includes such date.’’.
327 
(2) AMOUNT OF WITHHOLDING.—Section 3402 
is amended by adding at the end the following new 
subsection: 
‘‘(t) 
RATE
OF
WITHHOLDING
FOR
CERTAIN 
STOCK.—In the case of any qualified stock (as defined in 
section 83(i)) with respect to which an election is made 
under section 83(i)— 
‘‘(1) the rate of tax under subsection (a) shall 
not be less than the maximum rate of tax in effect 
under section 1, and 
‘‘(2) such stock shall be treated for purposes of 
section 3501(b) in the same manner as a non-cash 
fringe benefit.’’. 
(c) COORDINATION WITH OTHER DEFERRED COM-
PENSATION RULES.— 
(1) ELECTION TO APPLY DEFERRAL TO STATU-
TORY OPTIONS.— 
(A) INCENTIVE STOCK OPTIONS.—Section 
422(b) is amended by adding at the end the fol-
lowing: ‘‘Such term shall not include any option 
if an election is made under section 83(i) with 
respect to the stock received in connection with 
the exercise of such option.’’.
328 
(B) 
EMPLOYEE
STOCK
PURCHASE 
PLANS.—Section 423(a) is amended by adding 
at the end the following flush sentence: 
‘‘The preceding sentence shall not apply to any share of 
stock with respect to which an election is made under sec-
tion 83(i).’’. 
(2) EXCLUSION
FROM
DEFINITION
OF
NON-
QUALIFIED DEFERRED COMPENSATION PLAN.—Sub-
section (d) of section 409A is amended by adding at 
the end the following new paragraph: 
‘‘(7) TREATMENT OF QUALIFIED STOCK.—An 
arrangement under which an employee may receive 
qualified stock (as defined in section 83(i)(2)) shall 
not be treated as a nonqualified deferred compensa-
tion plan solely because of an employee’s election, or 
ability to make an election, to defer recognition of 
income under section 83(i).’’. 
(d) INFORMATION REPORTING.—Section 6051(a) is 
amended by striking ‘‘and’’ at the end of paragraph (13), 
by striking the period at the end of paragraph (14) and 
inserting a comma, and by inserting after paragraph (14) 
the following new paragraphs: 
‘‘(15) the amount excludable from gross income 
under subparagraph (A) of section 83(i)(1),
329 
‘‘(16) the amount includible in gross income 
under subparagraph (B) of section 83(i)(1) with re-
spect to an event described in such subparagraph 
which occurs in such calendar year, and 
‘‘(17) the aggregate amount of income which is 
being deferred pursuant to elections under section 
83(i), determined as of the close of the calendar 
year.’’. 
(e) PENALTY FOR FAILURE OF EMPLOYER TO PRO-
VIDE NOTICE OF TAX CONSEQUENCES.—Section 6652 is 
amended by adding at the end the following new sub-
section: 
‘‘(o) FAILURE TO PROVIDE NOTICE UNDER SECTION 
83(i).—In the case of each failure to provide a notice as 
required by section 83(i)(6), at the time prescribed there-
for, unless it is shown that such failure is due to reason-
able cause and not to willful neglect, there shall be paid, 
on notice and demand of the Secretary and in the same 
manner as tax, by the person failing to provide such no-
tice, an amount equal to $100 for each such failure, but 
the total amount imposed on such person for all such fail-
ures during any calendar year shall not exceed $50,000.’’. 
(f) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
330 
shall apply to stock attributable to options exercised, 
or restricted stock units settled, after December 31, 
2017. 
(2) REQUIREMENT TO PROVIDE NOTICE.—The 
amendments made by subsection (e) shall apply to 
failures after December 31, 2017. 
(g) TRANSITION RULE.—Until such time as the Sec-
retary (or the Secretary’s delegate) issue regulations or 
other guidance for purposes of implementing the require-
ments of paragraph (2)(C)(i)(II) of section 83(i) of the 
Internal Revenue Code of 1986 (as added by this section), 
or the requirements of paragraph (6) of such section, a 
corporation shall be treated as being in compliance with 
such requirements (respectively) if such corporation com-
plies with a reasonable good faith interpretation of such 
requirements.
331 
TITLE IV—TAXATION OF FOR-
EIGN INCOME AND FOREIGN 
PERSONS 
Subtitle A—Establishment of Par-
ticipation Exemption System for 
Taxation of Foreign Income 
SEC. 4001. DEDUCTION FOR FOREIGN-SOURCE PORTION OF 
DIVIDENDS RECEIVED BY DOMESTIC COR-
PORATIONS FROM SPECIFIED 10-PERCENT 
OWNED FOREIGN CORPORATIONS. 
(a) IN GENERAL.—Part VIII of subchapter B of 
chapter 1 is amended by inserting after section 245 the 
following new section: 
‘‘SEC. 245A. DEDUCTION FOR FOREIGN-SOURCE PORTION 
OF DIVIDENDS RECEIVED BY DOMESTIC COR-
PORATIONS FROM SPECIFIED 10-PERCENT 
OWNED FOREIGN CORPORATIONS. 
‘‘(a) IN GENERAL.—In the case of any dividend re-
ceived from a specified 10-percent owned foreign corpora-
tion by a domestic corporation which is a United States 
shareholder with respect to such foreign corporation, there 
shall be allowed as a deduction an amount equal to the 
foreign-source portion of such dividend. 
‘‘(b) SPECIFIED 10-PERCENT OWNED FOREIGN COR-
PORATION.—For purposes of this section, the term ‘speci-
332 
fied 10-percent owned foreign corporation’ means any for-
eign corporation with respect to which any domestic cor-
poration is a United States shareholder. Such term shall 
not include any passive foreign investment company (with-
in the meaning of subpart D of part VI of subchapter P) 
that is not a controlled foreign corporation. 
‘‘(c) FOREIGN-SOURCE PORTION.—For purposes of 
this section— 
‘‘(1) IN GENERAL.—The foreign-source portion 
of any dividend is an amount which bears the same 
ratio to such dividend as— 
‘‘(A) the post-1986 undistributed foreign 
earnings of the specified 10-percent owned for-
eign corporation, bears to 
‘‘(B) the total post-1986 undistributed 
earnings of such foreign corporation. 
‘‘(2) POST-1986
UNDISTRIBUTED
EARNINGS.— 
The term ‘post-1986 undistributed earnings’ means 
the amount of the earnings and profits of the speci-
fied 10-percent owned foreign corporation (computed 
in accordance with sections 964(a) and 986) accu-
mulated in taxable years beginning after December 
31, 1986—
333 
‘‘(A) as of the close of the taxable year of 
the specified 10-percent owned foreign corpora-
tion in which the dividend is distributed, and 
‘‘(B) without diminution by reason of divi-
dends distributed during such taxable year. 
‘‘(3) 
POST-1986
UNDISTRIBUTED
FOREIGN 
EARNINGS.—The term ‘post-1986 undistributed for-
eign earnings’ means the portion of the post-1986 
undistributed earnings which is attributable to nei-
ther— 
‘‘(A) income described in subparagraph (A) 
of section 245(a)(5), nor 
‘‘(B) dividends described in subparagraph 
(B) of such section (determined without regard 
to section 245(a)(12)). 
‘‘(4) TREATMENT
OF
DISTRIBUTIONS
FROM 
EARNINGS BEFORE 1987.— 
‘‘(A) IN GENERAL.—In the case of any div-
idend paid out of earnings and profits of the 
specified 10-percent owned foreign corporation 
(computed in accordance with sections 964(a) 
and 986) accumulated in taxable years begin-
ning before January 1, 1987—
334 
‘‘(i) paragraphs (1), (2), and (3) shall 
be applied without regard to the phrase 
‘post-1986’ each place it appears, and 
‘‘(ii) paragraph (2) shall be applied by 
substituting ‘after the date specified in sec-
tion 316(a)(1)’ for ‘in taxable years begin-
ning after December 31, 1986’. 
‘‘(B) DIVIDENDS
PAID
FIRST
OUT
OF 
POST-1986 EARNINGS.—Dividends shall be treat-
ed as paid out of post-1986 undistributed earn-
ings to the extent thereof. 
‘‘(5) TREATMENT OF CERTAIN DIVIDENDS IN 
EXCESS OF UNDISTRIBUTED EARNINGS.—In the case 
of any dividend from the specified 10-percent owned 
foreign corporation which is in excess of undistrib-
uted earnings (as determined under paragraph (2) 
after taking into account the modifications described 
in clauses (i) and (ii) of paragraph (4)(A)), the for-
eign-source portion of such dividend is an amount 
which bears the same ratio to such dividend as— 
‘‘(A) the portion of the earnings and prof-
its described in subparagraph (B) which is at-
tributable to neither income described in para-
graph (3)(A) nor dividends described in para-
graph (3)(B), bears to
335 
‘‘(B) the earnings and profits of such cor-
poration for the taxable year in which such dis-
tribution is made (computed as of the close of 
the taxable year without diminution by reason 
of any distributions made during the taxable 
year). 
‘‘(d) DISALLOWANCE
OF FOREIGN TAX CREDIT, 
ETC.— 
‘‘(1) IN GENERAL.—No credit shall be allowed 
under section 901 for any taxes paid or accrued (or 
treated as paid or accrued) with respect to any divi-
dend for which a deduction is allowed under this sec-
tion. 
‘‘(2) DENIAL
OF
DEDUCTION.—No deduction 
shall be allowed under this chapter for any tax for 
which credit is not allowable under section 901 by 
reason of paragraph (1) (determined by treating the 
taxpayer as having elected the benefits of subpart A 
of part III of subchapter N). 
‘‘(e) REGULATIONS.—The Secretary may prescribe 
such regulations or other guidance as may be necessary 
or appropriate to carry out the provisions of this section.’’. 
(b) APPLICATION OF HOLDING PERIOD REQUIRE-
MENT.—Section 246(c) is amended—
336 
(1) by striking ‘‘or 245’’ in paragraph (1) and 
inserting ‘‘245, or 245A’’, and 
(2) by adding at the end the following new 
paragraph: 
‘‘(5) SPECIAL
RULES
FOR
FOREIGN
SOURCE 
PORTION OF DIVIDENDS RECEIVED FROM SPECIFIED 
10-PERCENT OWNED FOREIGN CORPORATIONS.— 
‘‘(A) 6-MONTH HOLDING PERIOD REQUIRE-
MENT.—For purposes of section 245A— 
‘‘(i) paragraph (1)(A) shall be ap-
plied— 
‘‘(I) by substituting ‘180 days’ 
for ‘45 days’each place it appears, and 
‘‘(II) by substituting ‘361-day pe-
riod’ for ‘91-day period’, and 
‘‘(ii) paragraph (2) shall not apply. 
‘‘(B) STATUS MUST BE MAINTAINED DUR-
ING HOLDING PERIOD.—For purposes of apply-
ing paragraph (1) with respect to section 245A, 
the taxpayer shall be treated as holding the 
stock referred to in paragraph (1) for any pe-
riod only if— 
‘‘(i) the specified 10-percent owned 
foreign corporation referred to in section
337 
245A(a) is a specified 10-percent owned 
foreign corporation for such period, and 
‘‘(ii) the taxpayer is a United States 
shareholder with respect to such specified 
10-percent owned foreign corporation for 
such period.’’. 
(c) APPLICATION OF RULES GENERALLY APPLICA-
BLE TO DEDUCTIONS FOR DIVIDENDS RECEIVED.— 
(1) TREATMENT OF DIVIDENDS FROM CERTAIN 
CORPORATIONS.—Section 246(a)(1) is amended by 
striking ‘‘and 245’’ and inserting ‘‘245, and 245A’’. 
(2) COORDINATION WITH SECTION 1059.—Sec-
tion 1059(b)(2)(B) is amended by striking ‘‘or 245’’ 
and inserting ‘‘245, or 245A’’. 
(d) COORDINATION WITH FOREIGN TAX CREDIT 
LIMITATION.—Section 904(b) is amended by adding at 
the end the following new paragraph: 
‘‘(5) TREATMENT OF DIVIDENDS FOR WHICH 
DEDUCTION IS ALLOWED UNDER SECTION 245A.— 
For purposes of subsection (a), in the case of a 
United States shareholder with respect to a specified 
10-percent owned foreign corporation, such share-
holder’s taxable income from sources without the 
United States (and entire taxable income) shall be 
determined without regard to—
338 
‘‘(A) the foreign-source portion of any divi-
dend received from such foreign corporation, 
and 
‘‘(B) any deductions properly allocable or 
apportioned to— 
‘‘(i) income (other than subpart F in-
come (as defined in section 952) and for-
eign high return amounts (as defined in 
section 951A(b)) with respect to stock of 
such specified 10-percent owned foreign 
corporation, or 
‘‘(ii) such stock (to the extent income 
with respect to such stock is other than 
subpart F income (as so defined) or for-
eign high return amounts (as so defined)). 
Any term which is used in section 245A and in this 
paragraph shall have the same meaning for purposes 
of this paragraph as when used in such section.’’. 
(e) CONFORMING AMENDMENTS.— 
(1) Section 245(a)(4) is amended by striking 
‘‘section 
902(c)(1)’’ 
and 
inserting 
‘‘section 
245A(c)(2) applied by substituting ‘qualified 10-per-
cent owned foreign corporation’ for ‘specified 10-per-
cent owned foreign corporation’ each place it ap-
pears’’.
339 
(2) Section 951(b) is amended by striking ‘‘sub-
part’’ and inserting ‘‘title’’. 
(3) Section 957(a) is amended by striking ‘‘sub-
part’’ in the matter preceding paragraph (1) and in-
serting ‘‘title’’. 
(4) The table of sections for part VIII of sub-
chapter B of chapter 1 is amended by inserting after 
section 245 the following new item: 
‘‘Sec. 245A. Deduction for foreign-source portion of dividends received by do-
mestic corporations from specified 10-percent owned foreign 
corporations.’’. 
(f) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions made after (and, 
in the case of the amendments made by subsection (d), 
deductions with respect to taxable years ending after) De-
cember 31, 2017. 
SEC. 4002. APPLICATION OF PARTICIPATION EXEMPTION 
TO INVESTMENTS IN UNITED STATES PROP-
ERTY. 
(a) IN GENERAL.—Section 956(a) is amended in the 
matter preceding paragraph (1) by inserting ‘‘(other than 
a corporation)’’ after ‘‘United States shareholder’’. 
(b) 
REGULATORY
AUTHORITY
TO
PREVENT 
ABUSE.—Section 956(e) is amended by striking ‘‘includ-
ing regulations to prevent’’ and inserting ‘‘including regu-
lations—
340 
‘‘(1) to address United States shareholders that 
are partnerships with corporate partners, and 
‘‘(2) to prevent’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years of foreign corpora-
tions beginning after December 31, 2017. 
SEC. 4003. LIMITATION ON LOSSES WITH RESPECT TO 
SPECIFIED 
10-PERCENT 
OWNED 
FOREIGN 
CORPORATIONS. 
(a) BASIS IN SPECIFIED 10-PERCENT OWNED FOR-
EIGN CORPORATION REDUCED BY NONTAXED PORTION 
OF DIVIDEND FOR PURPOSES OF DETERMINING LOSS.— 
(1) IN GENERAL.—Section 961 is amended by 
adding at the end the following new subsection: 
‘‘(d) BASIS IN SPECIFIED 10-PERCENT OWNED FOR-
EIGN CORPORATION REDUCED BY NONTAXED PORTION 
OF DIVIDEND FOR PURPOSES OF DETERMINING LOSS.— 
If a domestic corporation received a dividend from a speci-
fied 10-percent owned foreign corporation (as defined in 
section 245A) in any taxable year, solely for purposes of 
determining loss on any disposition of stock of such for-
eign corporation in such taxable year or any subsequent 
taxable year, the basis of such domestic corporation in 
such stock shall be reduced (but not below zero) by the 
amount of any deduction allowable to such domestic cor-
341 
poration under section 245A with respect to such stock 
except to the extent such basis was reduced under section 
1059 by reason of a dividend for which such a deduction 
was allowable.’’. 
(2) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to distributions made 
after December 31, 2017. 
(b) TREATMENT
OF
FOREIGN
BRANCH
LOSSES 
TRANSFERRED TO SPECIFIED 10-PERCENT OWNED FOR-
EIGN CORPORATIONS.— 
(1) IN GENERAL.—Part II of subchapter B of 
chapter 1 is amended by adding at the end the fol-
lowing new section: 
‘‘SEC. 91. CERTAIN FOREIGN BRANCH LOSSES TRANS-
FERRED TO SPECIFIED 10-PERCENT OWNED 
FOREIGN CORPORATIONS. 
‘‘(a) IN GENERAL.—If a domestic corporation trans-
fers substantially all of the assets of a foreign branch 
(within the meaning of section 367(a)(3)(C)) to a specified 
10-percent owned foreign corporation (as defined in sec-
tion 245A) with respect to which it is a United States 
shareholder after such transfer, such domestic corporation 
shall include in gross income for the taxable year which 
includes such transfer an amount equal to the transferred 
loss amount with respect to such transfer.
342 
‘‘(b) TRANSFERRED LOSS AMOUNT.—For purposes 
of this section, the term ‘transferred loss amount’ means, 
with respect to any transfer of substantially all of the as-
sets of a foreign branch, the excess (if any) of— 
‘‘(1) the sum of losses— 
‘‘(A) which were incurred by the foreign 
branch after December 31, 2017, and before 
the transfer, and 
‘‘(B) with respect to which a deduction was 
allowed to the taxpayer, over 
‘‘(2) the sum of— 
‘‘(A) any taxable income of such branch 
for a taxable year after the taxable year in 
which the loss was incurred and through the 
close of the taxable year of the transfer, and 
‘‘(B) any amount which is recognized 
under section 904(f)(3) on account of the trans-
fer. 
‘‘(c) REDUCTION FOR RECOGNIZED GAINS.— 
‘‘(1) IN GENERAL.—In the case of a transfer 
not described in section 367(a)(3)(C), the trans-
ferred loss amount shall be reduced (but not below 
zero) by the amount of gain recognized by the tax-
payer on account of the transfer (other than
343 
amounts taken into account under subsection 
(c)(2)(B)). 
‘‘(2) 
COORDINATION
WITH
RECOGNITION 
UNDER SECTION 367.—In the case of a transfer de-
scribed in section 367(a)(3)(C), the transferred loss 
amount shall not exceed the excess (if any) of— 
‘‘(A) the excess of the amount described in 
section 367(a)(3)(C)(i) over the amount de-
scribed in section 367(a)(3)(C)(ii) with respect 
to such transfer, over 
‘‘(B) the amount of gain recognized under 
section 367(a)(3)(C) with respect to such trans-
fer. 
‘‘(d) SOURCE
OF INCOME.—Amounts included in 
gross income under this section shall be treated as derived 
from sources within the United States. 
‘‘(e) BASIS ADJUSTMENTS.—Consistent with such 
regulations or other guidance as the Secretary may pre-
scribe, proper adjustments shall be made in the adjusted 
basis of the taxpayer’s stock in the specified 10-percent 
owned foreign corporation to which the transfer is made, 
and in the transferee’s adjusted basis in the property 
transferred, to reflect amounts included in gross income 
under this section.’’.
344 
(2) AMOUNTS RECOGNIZED UNDER SECTION 367 
ON
TRANSFER
OF
FOREIGN
BRANCH
WITH
PRE-
VIOUSLY DEDUCTED LOSSES TREATED AS UNITED 
STATES SOURCE.—Section 367(a)(3)(C) is amended 
by striking ‘‘outside’’ in the last sentence and insert-
ing ‘‘within’’. 
(3) CLERICAL AMENDMENT.—The table of sec-
tions for part II of subchapter B of chapter 1 is 
amended by adding at the end the following new 
item: 
‘‘Sec. 91. Certain foreign branch losses transferred to specified 10-percent 
owned foreign corporations.’’. 
(4) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to transfers after De-
cember 31, 2017. 
SEC. 4004. TREATMENT OF DEFERRED FOREIGN INCOME 
UPON TRANSITION TO PARTICIPATION EX-
EMPTION SYSTEM OF TAXATION. 
(a) IN GENERAL.—Section 965 is amended to read 
as follows: 
‘‘SEC. 965. TREATMENT OF DEFERRED FOREIGN INCOME 
UPON TRANSITION TO PARTICIPATION EX-
EMPTION SYSTEM OF TAXATION. 
‘‘(a) TREATMENT OF DEFERRED FOREIGN INCOME 
AS SUBPART F INCOME.—In the case of the last taxable 
year of a deferred foreign income corporation which begins
345 
before January 1, 2018, the subpart F income of such 
foreign corporation (as otherwise determined for such tax-
able year under section 952) shall be increased by the 
greater of— 
‘‘(1) the accumulated post-1986 deferred for-
eign income of such corporation determined as of 
November 2, 2017, or 
‘‘(2) the accumulated post-1986 deferred for-
eign income of such corporation determined as of 
December 31, 2017. 
‘‘(b) REDUCTION IN AMOUNTS INCLUDED IN GROSS 
INCOME OF UNITED STATES SHAREHOLDERS OF SPECI-
FIED FOREIGN CORPORATIONS WITH DEFICITS IN EARN-
INGS AND PROFITS.— 
‘‘(1) IN GENERAL.—In the case of a taxpayer 
which is a United States shareholder with respect to 
at least one deferred foreign income corporation and 
at least one E&P deficit foreign corporation, the 
amount which would (but for this subsection) be 
taken into account under section 951(a)(1) by rea-
son of subsection (a) as such United States share-
holder’s pro rata share of the subpart F income of 
each deferred foreign income corporation shall be re-
duced (but not below zero) by the amount of such 
United States shareholder’s aggregate foreign E&P
346 
deficit which is allocated under paragraph (2) to 
such deferred foreign income corporation. 
‘‘(2) ALLOCATION OF AGGREGATE FOREIGN E&P 
DEFICIT.—The aggregate foreign E&P deficit of any 
United States shareholder shall be allocated among 
the deferred foreign income corporations of such 
United States shareholder in an amount which bears 
the same proportion to such aggregate as— 
‘‘(A) such United States shareholder’s pro 
rata share of the accumulated post-1986 de-
ferred foreign income of each such deferred for-
eign income corporation, bears to 
‘‘(B) the aggregate of such United States 
shareholder’s pro rata share of the accumulated 
post-1986 deferred foreign income of all de-
ferred foreign income corporations of such 
United States shareholder. 
‘‘(3) DEFINITIONS
RELATED
TO
E&P
DEFI-
CITS.—For purposes of this subsection— 
‘‘(A) AGGREGATE
FOREIGN
E&P
DEF-
ICIT.—The term ‘aggregate foreign E&P deficit’ 
means, with respect to any United States share-
holder, the aggregate of such shareholder’s pro 
rata shares of the specified E&P deficits of the
347 
E&P deficit foreign corporations of such share-
holder. 
‘‘(B) E&P DEFICIT
FOREIGN
CORPORA-
TION.—The term ‘E&P deficit foreign corpora-
tion’ means, with respect to any taxpayer, any 
specified foreign corporation with respect to 
which such taxpayer is a United States share-
holder, if— 
‘‘(i) such specified foreign corporation 
has a deficit in post-1986 earnings and 
profits, and 
‘‘(ii) as of November 2, 2017— 
‘‘(I) such corporation was a spec-
ified foreign corporation, and 
‘‘(II) such taxpayer was a United 
States shareholder of such corpora-
tion. 
‘‘(C) SPECIFIED E&P DEFICIT.—The term 
‘specified E&P deficit’ means, with respect to 
any E&P deficit foreign corporation, the 
amount of the deficit referred to in subpara-
graph (B). 
‘‘(4) NETTING AMONG UNITED STATES SHARE-
HOLDERS IN SAME AFFILIATED GROUP.—
348 
‘‘(A) IN GENERAL.—In the case of any af-
filiated group which includes at least one E&P 
net surplus shareholder and one E&P net def-
icit shareholder, the amount which would (but 
for this paragraph) be taken into account under 
section 951(a)(1) by reason of subsection (a) by 
each such E&P net surplus shareholder shall be 
reduced (but not below zero) by such share-
holder’s applicable share of the affiliated 
group’s aggregate unused E&P deficit. 
‘‘(B) 
E&P 
NET
SURPLUS
SHARE-
HOLDER.—For purposes of this paragraph, the 
term ‘E&P net surplus shareholder’ means any 
United States shareholder which would (deter-
mined without regard to this paragraph) take 
into account an amount greater than zero 
under section 951(a)(1) by reason of subsection 
(a). 
‘‘(C) E&P NET DEFICIT SHAREHOLDER.— 
For purposes of this paragraph, the term ‘E&P 
net deficit shareholder’ means any United 
States shareholder if— 
‘‘(i) the aggregate foreign E&P deficit 
with respect to such shareholder (as de-
fined in paragraph (3)(A)), exceeds
349 
‘‘(ii) the amount which would (but for 
this subsection) be taken into account by 
such shareholder under section 951(a)(1) 
by reason of subsection (a). 
‘‘(D) AGGREGATE UNUSED E&P DEFICIT.— 
For purposes of this paragraph— 
‘‘(i) IN GENERAL.—The term ‘aggre-
gate unused E&P deficit’ means, with re-
spect to any affiliated group, the lesser 
of— 
‘‘(I) the sum of the excesses de-
scribed in subparagraph (C), deter-
mined with respect to each E&P net 
deficit shareholder in such group, or 
‘‘(II) the amount determined 
under subparagraph (E)(ii). 
‘‘(ii) REDUCTION WITH RESPECT TO 
E&P NET DEFICIT SHAREHOLDERS WHICH 
ARE NOT WHOLLY OWNED BY THE AFFILI-
ATED GROUP.—If the group ownership per-
centage of any E&P net deficit shareholder 
is less than 100 percent, the amount of the 
excess described in subparagraph (C) 
which is taken into account under clause 
(i)(I) with respect to such E&P net deficit
350 
shareholder shall be such group ownership 
percentage of such amount. 
‘‘(E) APPLICABLE SHARE.—For purposes 
of this paragraph, the term ‘applicable share’ 
means, with respect to any E&P net surplus 
shareholder in any affiliated group, the amount 
which bears the same proportion to such 
group’s aggregate unused E&P deficit as— 
‘‘(i) the product of— 
‘‘(I) such shareholder’s group 
ownership percentage, multiplied by 
‘‘(II) the amount which would 
(but for this paragraph) be taken into 
account under section 951(a)(1) by 
reason of subsection (a) by such 
shareholder, bears to 
‘‘(ii) the aggregate amount deter-
mined under clause (i) with respect to all 
E&P net surplus shareholders in such 
group. 
‘‘(F) GROUP OWNERSHIP PERCENTAGE.— 
For purposes of this paragraph, the term 
‘group ownership percentage’ means, with re-
spect to any United States shareholder in any 
affiliated group, the percentage of the value of
351 
the stock of such United States shareholder 
which is held by other includible corporations in 
such affiliated group. Notwithstanding the pre-
ceding sentence, the group ownership percent-
age of the common parent of the affiliated 
group is 100 percent. Any term used in this 
subparagraph which is also used in section 
1504 shall have the same meaning as when 
used in such section. 
‘‘(c) APPLICATION OF PARTICIPATION EXEMPTION 
TO INCLUDED INCOME.— 
‘‘(1) IN GENERAL.—In the case of a United 
States shareholder of a deferred foreign income cor-
poration, there shall be allowed as a deduction for 
the taxable year in which an amount is included in 
the gross income of such United States shareholder 
under section 951(a)(1) by reason of this section an 
amount equal to the sum of— 
‘‘(A) the United States shareholder’s 7 
percent rate equivalent percentage of the excess 
(if any) of— 
‘‘(i) the amount so included as gross 
income, over
352 
‘‘(ii) the amount of such United 
States shareholder’s aggregate foreign cash 
position, plus 
‘‘(B) the United States shareholder’s 14 
percent rate equivalent percentage of so much 
of the amount described in subparagraph (A)(ii) 
as does not exceed the amount described in sub-
paragraph (A)(i). 
‘‘(2) 7 AND
PERCENT
RATE
EQUIVALENT 
PERCENTAGES.—For purposes of this subsection— 
‘‘(A) 7 PERCENT RATE EQUIVALENT PER-
CENTAGE.—The term ‘7 percent rate equivalent 
percentage’ means, with respect to any United 
States shareholder for any taxable year, the 
percentage which would result in the amount to 
which such percentage applies being subject to 
a 7 percent rate of tax determined by only tak-
ing into account a deduction equal to such per-
centage of such amount and the highest rate of 
tax specified in section 11 for such taxable 
year. In the case of any taxable year of a 
United States shareholder to which section 15 
applies, the highest rate of tax under section 11 
before the effective date of the change in rates 
and the highest rate of tax under section 11
353 
after the effective date of such change shall 
each be taken into account under the preceding 
sentence in the same proportions as the portion 
of such taxable year which is before and after 
such effective date, respectively. 
‘‘(B) 14 PERCENT RATE EQUIVALENT PER-
CENTAGE.—The term ‘14 percent rate equiva-
lent percentage’ means, with respect to any 
United States shareholder for any taxable year, 
the percentage determined under subparagraph 
(A) applied by substituting ‘14 percent rate of 
tax’ for ‘7 percent rate of tax’. 
‘‘(3) AGGREGATE FOREIGN CASH POSITION.— 
For purposes of this subsection— 
‘‘(A) IN GENERAL.—The term ‘aggregate 
foreign cash position’ means, with respect to 
any United States shareholder, one-third of the 
sum of— 
‘‘(i) the aggregate of such United 
States shareholder’s pro rata share of the 
cash position of each specified foreign cor-
poration of such United States shareholder 
determined as of November 2, 2017, 
‘‘(ii) the aggregate described in clause 
(i) determined as of the close of the last
354 
taxable year of each such specified foreign 
corporation which ends before November 2, 
2017, and 
‘‘(iii) the aggregate described in 
clause (i) determined as of the close of the 
taxable year of each such specified foreign 
corporation which precedes the taxable 
year referred to in clause (ii). 
In the case of any foreign corporation which did 
not exist as of the determination date described 
in clause (ii) or (iii), this subparagraph shall be 
applied separately to such foreign corporation 
by not taking into account such clause and by 
substituting ‘one-half (100 percent in the case 
that both clauses (ii) and (iii) are disregarded)’ 
for ‘one-third’. 
‘‘(B) CASH
POSITION.—For purposes of 
this paragraph, the cash position of any speci-
fied foreign corporation is the sum of— 
‘‘(i) cash held by such foreign cor-
poration, 
‘‘(ii) the net accounts receivable of 
such foreign corporation, plus 
‘‘(iii) the fair market value of the fol-
lowing assets held by such corporation:
355 
‘‘(I) Actively traded personal 
property for which there is an estab-
lished financial market. 
‘‘(II) Commercial paper, certifi-
cates of deposit, the securities of the 
Federal government and of any State 
or foreign government. 
‘‘(III) Any foreign currency. 
‘‘(IV) Any obligation with a term 
of less than one year. 
‘‘(V) Any asset which the Sec-
retary identifies as being economically 
equivalent to any asset described in 
this subparagraph. 
‘‘(C) NET
ACCOUNTS
RECEIVABLE.—For 
purposes of this paragraph, the term ‘net ac-
counts receivable’ means, with respect to any 
specified foreign corporation, the excess (if any) 
of— 
‘‘(i) such corporation’s accounts re-
ceivable, over 
‘‘(ii) such corporation’s accounts pay-
able (determined consistent with the rules 
of section 461).
356 
‘‘(D) PREVENTION
OF
DOUBLE
COUNT-
ING.— 
‘‘(i) IN
GENERAL.—The applicable 
percentage of each specified cash position 
of a specified foreign corporation shall not 
be taken into account by— 
‘‘(I) the United States share-
holder referred to in clause (ii) with 
respect to such position, or 
‘‘(II) any United States share-
holder which is an includible corpora-
tion in the same affiliated group as 
such United States shareholder re-
ferred to in clause (ii). 
‘‘(ii) SPECIFIED CASH POSITION.—For 
purposes of this subparagraph, the term 
‘specified cash position’ means— 
‘‘(I) amounts described in sub-
paragraph (B)(ii) to the extent such 
amounts are receivable from another 
specified foreign corporation with re-
spect to any United States share-
holder, 
‘‘(II) amounts described in sub-
paragraph (B)(iii)(I) to the extent
357 
such amounts consist of an equity in-
terest in another specified foreign cor-
poration with respect to any United 
States shareholder, and 
‘‘(III) amounts described in sub-
paragraph (B)(iii)(IV) to the extent 
that another specified foreign corpora-
tion with respect to any United States 
shareholder is obligated to repay such 
amount. 
‘‘(iii) APPLICABLE
PERCENTAGE.— 
For purposes of this subparagraph, the 
term ‘applicable percentage’ means— 
‘‘(I) with respect to each speci-
fied cash position described in sub-
clause (I) or (III) of clause (ii), the 
pro rata share of the United States 
shareholder referred to in clause (ii) 
with respect to the specified foreign 
corporation referred to in such clause, 
and 
‘‘(II) with respect to each speci-
fied cash position described in clause 
(ii)(II), the ratio (expressed as a per-
centage and not in excess of 100 per-
358 
cent) of the United States share-
holder’s pro rata share of the cash po-
sition of the specified foreign corpora-
tion referred to in such clause divided 
by the amount of such specified cash 
position. 
For purposes of this subparagraph, a sepa-
rate applicable percentage shall be deter-
mined under each of subclauses (I) and 
(II) with respect to each specified foreign 
corporation referred to in clause (ii) with 
respect to which a specified cash position 
is determined for the specified foreign cor-
poration referred to in clause (i). 
‘‘(iv) REDUCTION WITH RESPECT TO 
AFFILIATED GROUP MEMBERS NOT WHOL-
LY OWNED BY THE AFFILIATED GROUP.— 
For purposes of clause (i)(II), in the case 
of an includible corporation the group own-
ership percentage of which is less than 100 
percent (as determined under subsection 
(b)(4)(F)), the amount not take into ac-
count by reason of such clause shall be the 
group 
ownership 
percentage 
of 
such
359 
amount (determined without regard to this 
clause). 
‘‘(E) CERTAIN
BLOCKED
ASSETS
NOT 
TAKEN INTO ACCOUNT.—A cash position of a 
specified foreign corporation shall not be taken 
into account under subparagraph (A) if such 
position could not (as of the date that it would 
otherwise have been taken into account under 
clause (i), (ii), or (iii) of subparagraph (A)) 
have been distributed by such specified foreign 
corporation to United States shareholders of 
such specified foreign corporation because of 
currency or other restrictions or limitations im-
posed under the laws of any foreign country 
(within the meaning of section 964(b)). 
‘‘(F) CASH POSITIONS OF CERTAIN NON- 
CORPORATE ENTITIES TAKEN INTO ACCOUNT.— 
An entity (other than a domestic corporation) 
shall be treated as a specified foreign corpora-
tion of a United States shareholder for pur-
poses of determining such United States share-
holder’s aggregate foreign cash position if any 
interest in such entity is held by a specified for-
eign corporation of such United States share-
holder (determined after application of this sub-
360 
paragraph) and such entity would be a specified 
foreign corporation of such United States 
shareholder if such entity were a foreign cor-
poration. 
‘‘(G) TIME
OF
CERTAIN
DETERMINA-
TIONS.—For purposes of this paragraph, the 
determination of whether a person is a United 
States shareholder, whether a person is a speci-
fied foreign corporation, and the pro rata share 
of a United States shareholder with respect to 
a specified foreign corporation, shall be deter-
mined as of the end of the taxable year de-
scribed in subsection (a). 
‘‘(H) ANTI-ABUSE.—If the Secretary de-
termines that the principal purpose of any 
transaction was to reduce the aggregate foreign 
cash position taken into account under this sub-
section, such transaction shall be disregarded 
for purposes of this subsection. 
‘‘(d) DEFERRED FOREIGN INCOME CORPORATION; 
ACCUMULATED
POST-1986 DEFERRED
FOREIGN
IN-
COME.—For purposes of this section— 
‘‘(1) DEFERRED
FOREIGN
INCOME
CORPORA-
TION.—The term ‘deferred foreign income corpora-
tion’ means, with respect to any United States
361 
shareholder, any specified foreign corporation of 
such United States shareholder which has accumu-
lated post-1986 deferred foreign income (as of the 
date referred to in paragraph (1) or (2) of sub-
section (a), whichever is applicable with respect to 
such foreign corporation) greater than zero. 
‘‘(2) ACCUMULATED POST-1986 DEFERRED FOR-
EIGN
INCOME.—The term ‘accumulated post-1986 
deferred foreign income’ means the post-1986 earn-
ings and profits except to the extent such earnings— 
‘‘(A) are attributable to income of the 
specified foreign corporation which is effectively 
connected with the conduct of a trade or busi-
ness within the United States and subject to 
tax under this chapter, or 
‘‘(B) if distributed, would be excluded from 
the gross income of a United States shareholder 
under section 959. 
To the extent provided in regulations or other guid-
ance prescribed by the Secretary, in the case of any 
controlled foreign corporation which has share-
holders which are not United States shareholders, 
accumulated post-1986 deferred foreign income shall 
be appropriately reduced by amounts which would be
362 
described in subparagraph (B) if such shareholders 
were United States shareholders. 
‘‘(3) POST-1986 EARNINGS AND PROFITS.—The 
term ‘post-1986 earnings and profits’ means the 
earnings and profits of the foreign corporation (com-
puted in accordance with sections 964(a) and 986) 
accumulated in taxable years beginning after Decem-
ber 31, 1986, and determined— 
‘‘(A) as of the date referred to in para-
graph (1) or (2) of subsection (a), whichever is 
applicable with respect to such foreign corpora-
tion, 
‘‘(B) without diminution by reason of divi-
dends distributed during the taxable year end-
ing with or including such date, and 
‘‘(C) increased by the amount of any quali-
fied deficit (within the meaning of section 
952(c)(1)(B)(ii)) arising before January 1, 
2018, which is treated as a qualified deficit 
(within the meaning of such section as amended 
by the Tax Cuts and Jobs Act) for purposes of 
such foreign corporation’s first taxable year be-
ginning after December 31, 2017. 
‘‘(e) SPECIFIED FOREIGN CORPORATION.—
363 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, 
the 
term 
‘specified 
foreign 
corporation’ 
means— 
‘‘(A) any controlled foreign corporation, 
and 
‘‘(B) any foreign corporation with respect 
to which one or more domestic corporations is 
a United States shareholder (determined with-
out regard to section 958(b)(4)). 
‘‘(2) APPLICATION TO CERTAIN FOREIGN COR-
PORATIONS.—For purposes of sections 951 and 961, 
a foreign corporation described in paragraph (1)(B) 
shall be treated as a controlled foreign corporation 
solely for purposes of taking into account the sub-
part F income of such corporation under subsection 
(a) (and for purposes of applying subsection (f)). 
‘‘(3) EXCEPTION
FOR
PASSIVE
FOREIGN
IN-
VESTMENT COMPANIES.—The term ‘specified foreign 
corporation’ shall not include any passive foreign in-
vestment company (within the meaning of subpart D 
of part VI of subchapter P) that is not a controlled 
foreign corporation. 
‘‘(f) DETERMINATIONS OF PRO RATA SHARE.—For 
purposes of this section, the determination of any United 
States shareholder’s pro rata share of any amount with
364 
respect to any specified foreign corporation shall be deter-
mined under rules similar to the rules of section 951(a)(2) 
by treating such amount in the same manner as subpart 
F income (and by treating such specified foreign corpora-
tion as a controlled foreign corporation). 
‘‘(g) DISALLOWANCE
OF FOREIGN TAX CREDIT, 
ETC.— 
‘‘(1) IN GENERAL.—No credit shall be allowed 
under section 901 for the applicable percentage of 
any taxes paid or accrued (or treated as paid or ac-
crued) with respect to any amount for which a de-
duction is allowed under this section. 
‘‘(2) APPLICABLE PERCENTAGE.—For purposes 
of this subsection, the term ‘applicable percentage’ 
means the amount (expressed as a percentage) equal 
to the sum of— 
‘‘(A) 80 percent of the ratio of— 
‘‘(i) the excess to which subsection 
(c)(1)(A) applies, divided by 
‘‘(ii) the sum of such excess plus the 
amount to which subsection (c)(1)(B) ap-
plies, plus 
‘‘(B) 60 percent of the ratio of— 
‘‘(i) the amount to which subsection 
(c)(1)(B) applies, divided by
365 
‘‘(ii) the sum described in subpara-
graph (A)(ii). 
‘‘(3) DENIAL
OF
DEDUCTION.—No deduction 
shall be allowed under this chapter for any tax for 
which credit is not allowable under section 901 by 
reason of paragraph (1) (determined by treating the 
taxpayer as having elected the benefits of subpart A 
of part III of subchapter N). 
‘‘(4) COORDINATION WITH SECTION 78.—With 
respect to the taxes treated as paid or accrued by a 
domestic corporation with respect to amounts which 
are includible in gross income of such domestic cor-
poration by reason of this section, section 78 shall 
apply only to so much of such taxes as bears the 
same proportion to the amount of such taxes as— 
‘‘(A) the excess of— 
‘‘(i) the amounts which are includible 
in gross income of such domestic corpora-
tion by reason of this section, over 
‘‘(ii) the deduction allowable under 
subsection 
(c) 
with 
respect 
to 
such 
amounts, bears to 
‘‘(B) such amounts. 
‘‘(5) EXTENSION OF FOREIGN TAX CREDIT CAR-
RYOVER PERIOD.—With respect to any taxes paid or
366 
accrued (or treated as paid or accrued) with respect 
to any amount for which a deduction is allowed 
under this section, section 904(c) shall be applied by 
substituting ‘first 20 succeeding taxable years’ for 
‘first 10 succeeding taxable years’. 
‘‘(h) ELECTION
TO PAY LIABILITY
IN INSTALL-
MENTS.— 
‘‘(1) IN GENERAL.—In the case of a United 
States shareholder of a deferred foreign income cor-
poration, such United States shareholder may elect 
to pay the net tax liability under this section in 8 
equal installments. 
‘‘(2) DATE FOR PAYMENT OF INSTALLMENTS.— 
If an election is made under paragraph (1), the first 
installment shall be paid on the due date (deter-
mined without regard to any extension of time for 
filing the return) for the return of tax for the tax-
able year described in subsection (a) and each suc-
ceeding installment shall be paid on the due date (as 
so determined) for the return of tax for the taxable 
year following the taxable year with respect to which 
the preceding installment was made. 
‘‘(3) ACCELERATION OF PAYMENT.—If there is 
an addition to tax for failure to timely pay any in-
stallment required under this subsection, a liquida-
367 
tion or sale of substantially all the assets of the tax-
payer (including in a title 11 or similar case), a ces-
sation of business by the taxpayer, or any similar 
circumstance, then the unpaid portion of all remain-
ing installments shall be due on the date of such 
event (or in the case of a title 11 or similar case, 
the day before the petition is filed). The preceding 
sentence shall not apply to the sale of substantially 
all the assets of a taxpayer to a buyer if such buyer 
enters into an agreement with the Secretary under 
which such buyer is liable for the remaining install-
ments due under this subsection in the same manner 
as if such buyer were the taxpayer. 
‘‘(4) PRORATION OF DEFICIENCY TO INSTALL-
MENTS.—If an election is made under paragraph (1) 
to pay the net tax liability under this section in in-
stallments and a deficiency has been assessed with 
respect to such net tax liability, the deficiency shall 
be prorated to the installments payable under para-
graph (1). The part of the deficiency so prorated to 
any installment the date for payment of which has 
not arrived shall be collected at the same time as, 
and as a part of, such installment. The part of the 
deficiency so prorated to any installment the date 
for payment of which has arrived shall be paid upon
368 
notice and demand from the Secretary. This sub-
section shall not apply if the deficiency is due to 
negligence, to intentional disregard of rules and reg-
ulations, or to fraud with intent to evade tax. 
‘‘(5) ELECTION.—Any election under paragraph 
(1) shall be made not later than the due date for the 
return of tax for the taxable year described in sub-
section (a) and shall be made in such manner as the 
Secretary may provide. 
‘‘(6) NET
TAX
LIABILITY
UNDER
THIS
SEC-
TION.—For purposes of this subsection— 
‘‘(A) IN GENERAL.—The net tax liability 
under this section with respect to any United 
States shareholder is the excess (if any) of— 
‘‘(i) such taxpayer’s net income tax 
for the taxable year in which an amount is 
included in the gross income of such 
United States shareholder under section 
951(a)(1) by reason of this section, over 
‘‘(ii) such taxpayer’s net income tax 
for such taxable year determined— 
‘‘(I) without regard to this sec-
tion, and 
‘‘(II) without regard to any in-
come, deduction, or credit, properly
369 
attributable to a dividend received by 
such United States shareholder from 
any deferred foreign income corpora-
tion. 
‘‘(B) NET INCOME TAX.—The term ‘net 
income tax’ means the regular tax liability re-
duced by the credits allowed under subparts A, 
B, and D of part IV of subchapter A. 
‘‘(i) SPECIAL RULES FOR S CORPORATION SHARE-
HOLDERS.— 
‘‘(1) IN GENERAL.—In the case of any S cor-
poration which is a United States shareholder of a 
deferred foreign income corporation, each share-
holder of such S corporation may elect to defer pay-
ment of such shareholder’s net tax liability under 
this section with respect to such S corporation until 
the shareholder’s taxable year which includes the 
triggering event with respect to such liability. Any 
net tax liability payment of which is deferred under 
the preceding sentence shall be assessed on the re-
turn as an addition to tax in the shareholder’s tax-
able year which includes such triggering event. 
‘‘(2) TRIGGERING EVENT.— 
‘‘(A) IN
GENERAL.—In the case of any 
shareholder’s net tax liability under this section
370 
with respect to any S corporation, the trig-
gering event with respect to such liability is 
whichever of the following occurs first: 
‘‘(i) Such corporation ceases to be an 
S corporation (determined as of the first 
day of the first taxable year that such cor-
poration is not an S corporation). 
‘‘(ii) A liquidation or sale of substan-
tially all the assets of such S corporation 
(including in a title 11 or similar case), a 
cessation of business by such S corpora-
tion, such S corporation ceases to exist, or 
any similar circumstance. 
‘‘(iii) A transfer of any share of stock 
in such S corporation by the taxpayer (in-
cluding by reason of death, or otherwise). 
‘‘(B) PARTIAL TRANSFERS OF STOCK.—In 
the case of a transfer of less than all of the tax-
payer’s shares of stock in the S corporation, 
such transfer shall only be a triggering event 
with respect to so much of the taxpayer’s net 
tax liability under this section with respect to 
such S corporation as is properly allocable to 
such stock.
371 
‘‘(C) TRANSFER OF LIABILITY.—A trans-
fer described in clause (iii) shall not be treated 
as a triggering event if the transferee enters 
into an agreement with the Secretary under 
which such transferee is liable for net tax liabil-
ity with respect to such stock in the same man-
ner as if such transferee were the taxpayer. 
‘‘(3) NET TAX LIABILITY.—A shareholder’s net 
tax liability under this section with respect to any S 
corporation is the net tax liability under this section 
which would be determined under subsection (h)(6) 
if the only subpart F income taken into account by 
such shareholder by reason of this section were allo-
cations from such S corporation. 
‘‘(4) ELECTION TO PAY DEFERRED LIABILITY 
IN INSTALLMENTS.—In the case of a taxpayer which 
elects to defer payment under paragraph (1)— 
‘‘(A) subsection (h) shall be applied sepa-
rately with respect to the liability to which such 
election applies, 
‘‘(B) an election under subsection (h) with 
respect to such liability shall be treated as time-
ly made if made not later than the due date for 
the return of tax for the taxable year in which
372 
the triggering event with respect to such liabil-
ity occurs, 
‘‘(C) the first installment under subsection 
(h) with respect to such liability shall be paid 
not later than such due date (but determined 
without regard to any extension of time for fil-
ing the return), and 
‘‘(D) if the triggering event with respect to 
any net tax liability is described in paragraph 
(2)(A)(ii), an election under subsection (h) with 
respect to such liability may be made only with 
the consent of the Secretary. 
‘‘(5) JOINT AND SEVERAL LIABILITY OF S COR-
PORATION.—If any shareholder of an S corporation 
elects to defer payment under paragraph (1), such 
S corporation shall be jointly and severally liable for 
such payment and any penalty, addition to tax, or 
additional amount attributable thereto. 
‘‘(6) EXTENSION OF LIMITATION ON COLLEC-
TION.—Notwithstanding any other provision of law, 
any limitation on the time period for the collection 
of a liability deferred under this subsection shall not 
be treated as beginning before the date of the trig-
gering event with respect to such liability.
373 
‘‘(7) ANNUAL REPORTING OF NET TAX LIABIL-
ITY.— 
‘‘(A) IN GENERAL.—Any shareholder of an 
S corporation which makes an election under 
paragraph (1) shall report the amount of such 
shareholder’s deferred net tax liability on such 
shareholder’s return of tax for the taxable year 
for which such election is made and on the re-
turn of tax for each taxable year thereafter 
until such amount has been fully assessed on 
such returns. 
‘‘(B) DEFERRED
NET
TAX
LIABILITY.— 
For purposes of this paragraph, the term ‘de-
ferred net tax liability’ means, with respect to 
any taxable year, the amount of net tax liability 
payment of which has been deferred under 
paragraph (1) and which has not been assessed 
on a return of tax for any prior taxable year. 
‘‘(C) FAILURE TO REPORT.—In the case of 
any failure to report any amount required to be 
reported under subparagraph (A) with respect 
to any taxable year before the due date for the 
return of tax for such taxable year, there shall 
be assessed on such return as an addition to 
tax 5 percent of such amount.
374 
‘‘(8) ELECTION.—Any election under paragraph 
(1)— 
‘‘(A) shall be made by the shareholder of 
the S corporation not later than the due date 
for such shareholder’s return of tax for the tax-
able year which includes the close of the taxable 
year of such S corporation in which the amount 
described in subsection (a) is taken into ac-
count, and 
‘‘(B) shall be made in such manner as the 
Secretary may provide. 
‘‘(j) REPORTING BY S CORPORATION.—Each S cor-
poration which is a United States shareholder of a de-
ferred foreign income corporation shall report in its return 
of tax under section 6037(a) the amount includible in its 
gross income for such taxable year by reason of this sec-
tion and the amount of the deduction allowable by sub-
section (c). Any copy provided to a shareholder under sec-
tion 6037(b) shall include a statement of such share-
holder’s pro rata share of such amounts. 
‘‘(k) INCLUSION OF DEFERRED FOREIGN INCOME 
UNDER THIS SECTION NOT TO TRIGGER RECAPTURE OF 
OVERALL FOREIGN LOSS, ETC.—For purposes of sections 
904(f)(1) and 907(c)(4), in the case of a United States 
shareholder of a deferred foreign income corporation, such
375 
United States shareholder’s taxable income from sources 
without the United States and combined foreign oil and 
gas income shall be determined without regard to this sec-
tion. 
‘‘(l) REGULATIONS.—The Secretary may prescribe 
such regulations or other guidance as may be necessary 
or appropriate to carry out the provisions of this section.’’. 
(b) 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 965 
and inserting the following: 
‘‘Sec. 965. Treatment of deferred foreign income upon transition to participa-
tion exemption system of taxation.’’. 
Subtitle B—Modifications Related 
to Foreign Tax Credit System 
SEC. 4101. REPEAL OF SECTION 902 INDIRECT FOREIGN 
TAX CREDITS; DETERMINATION OF SECTION 
960 CREDIT ON CURRENT YEAR BASIS. 
(a) REPEAL OF SECTION 902 INDIRECT FOREIGN 
TAX CREDITS.—Subpart A of part III of subchapter N 
of chapter 1 is amended by striking section 902. 
(b) DETERMINATION OF SECTION 960 CREDIT ON 
CURRENT YEAR BASIS.—Section 960 is amended— 
(1) by striking subsection (c), by redesignating 
subsection (b) as subsection (c), by striking all that
376 
precedes subsection (c) (as so redesignated) and in-
serting the following: 
‘‘SEC. 960. DEEMED PAID CREDIT FOR SUBPART F INCLU-
SIONS. 
‘‘(a) IN GENERAL.—For purposes of this subpart, if 
there is included in the gross income of a domestic cor-
poration any item of income under section 951(a)(1) with 
respect to any controlled foreign corporation with respect 
to which such domestic corporation is a United States 
shareholder, such domestic corporation shall be deemed to 
have paid so much of such foreign corporation’s foreign 
income taxes as are properly attributable to such item of 
income. 
‘‘(b) SPECIAL RULES
FOR DISTRIBUTIONS FROM 
PREVIOUSLY TAXED EARNINGS AND PROFITS.—For pur-
poses of this subpart— 
‘‘(1) IN GENERAL.—If any portion of a dis-
tribution from a controlled foreign corporation to a 
domestic corporation which is a United States share-
holder with respect to such controlled foreign cor-
poration is excluded from gross income under section 
959(a), such domestic corporation shall be deemed 
to have paid so much of such foreign corporation’s 
foreign income taxes as—
377 
‘‘(A) are properly attributable to such por-
tion, and 
‘‘(B) have not been deemed to have to been 
paid by such domestic corporation under this 
section for the taxable year or any prior taxable 
year. 
‘‘(2) TIERED CONTROLLED FOREIGN CORPORA-
TIONS.—If section 959(b) applies to any portion of 
a distribution from a controlled foreign corporation 
to another controlled foreign corporation, such con-
trolled foreign corporation shall be deemed to have 
paid so much of such other controlled foreign cor-
poration’s foreign income taxes as— 
‘‘(A) are properly attributable to such por-
tion, and 
‘‘(B) have not been deemed to have been 
paid by a domestic corporation under this sec-
tion for the taxable year or any prior taxable 
year.’’, 
(2) and by adding after subsection (c) (as so re-
designated) the following new subsections: 
‘‘(d) FOREIGN INCOME TAXES.—The term ‘foreign 
income taxes’ means any income, war profits, or excess 
profits taxes paid or accrued to any foreign country or 
possession of the United States.
378 
‘‘(e) REGULATIONS.—The Secretary may prescribe 
such regulations or other guidance as may be necessary 
or appropriate to carry out the provisions of this section.’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Section 78 is amended to read as follows: 
‘‘SEC. 78. GROSS UP FOR DEEMED PAID FOREIGN TAX 
CREDIT. 
‘‘If a domestic corporation chooses to have the bene-
fits of subpart A of part III of subchapter N (relating 
to foreign tax credit) for any taxable year, an amount 
equal to the taxes deemed to be paid by such corporation 
under subsections (a) and (b) of section 960 for such tax-
able year shall be treated for purposes of this title (other 
than sections 959, 960, and 961) as an item of income 
required to be included in the gross income of such domes-
tic corporation under section 951(a) for such taxable 
year.’’. 
(2) Section 245(a)(10)(C) is amended by strik-
ing ‘‘sections 902, 907, and 960’’ and inserting 
‘‘sections 907 and 960’’. 
(3) Sections 535(b)(1) and 545(b)(1) are each 
amended by striking ‘‘section 902(a) or 960(a)(1)’’ 
and inserting ‘‘section 960’’. 
(4) Section 814(f)(1) is amended— 
(A) by striking subparagraph (B), and
379 
(B) by striking all that precedes ‘‘No in-
come’’ and inserting the following: 
‘‘(1) TREATMENT OF FOREIGN TAXES.—’’. 
(5) Section 865(h)(1)(B) is amended by strik-
ing ‘‘sections 902, 907, and 960’’ and inserting 
‘‘sections 907 and 960’’. 
(6) Section 901(a) is amended by striking ‘‘sec-
tions 902 and 960’’ and inserting ‘‘section 960’’. 
(7) Section 901(e)(2) is amended by striking 
‘‘but is not limited to—’’ and all that follows 
through ‘‘that portion’’ and inserting ‘‘but is not 
limited to, that portion’’. 
(8) Section 901(f) is amended by striking ‘‘sec-
tions 902 and 960’’ and inserting ‘‘section 960’’. 
(9) Section 901(j)(1)(A) is amended by striking 
‘‘902 or’’. 
(10) Section 901(j)(1)(B) is amended by strik-
ing ‘‘sections 902 and 960’’ and inserting ‘‘section 
960’’. 
(11) Section 901(k)(2) is amended by striking 
‘‘section 853, 902, or 960’’ and inserting ‘‘section 
853 or 960’’. 
(12) Section 901(k)(6) is amended by striking 
‘‘902 or’’.
380 
(13) Section 901(m)(1) is amended by striking 
‘‘relevant foreign assets—’’ and all that follows and 
inserting ‘‘relevant foreign assets shall not be taken 
into account in determining the credit allowed under 
subsection (a).’’. 
(14) Section 904(d)(1) is amended by striking 
‘‘sections 902, 907, and 960’’ and inserting ‘‘sec-
tions 907 and 960’’. 
(15) Section 904(d)(6)(A) is amended by strik-
ing ‘‘sections 902, 907, and 960’’ and inserting 
‘‘sections 907 and 960’’. 
(16) Section 904(h)(10)(A) is amended by 
striking ‘‘sections 902, 907, and 960’’ and inserting 
‘‘sections 907 and 960’’. 
(17) Section 904 is amended by striking sub-
section (k). 
(18) Section 905(c)(1) is amended by striking 
the last sentence. 
(19) Section 905(c)(2)(B)(i) is amended to read 
as follows: 
‘‘(i) shall be taken into account for 
the taxable year to which such taxes relate, 
and’’.
381 
(20) Section 906(a) is amended by striking ‘‘(or 
deemed, under section 902, paid or accrued during 
the taxable year)’’. 
(21) Section 906(b) is amended by striking 
paragraphs (4) and (5). 
(22) Section 907(b)(2)(B) is amended by strik-
ing ‘‘902 or’’. 
(23) Section 907(c)(3) is amended— 
(A) by striking subparagraph (A) and re-
designating subparagraphs (B) and (C) as sub-
paragraphs (A) and (B), respectively, and 
(B) by striking ‘‘section 960(a)’’ in sub-
paragraph (A) (as so redesignated) and insert-
ing ‘‘section 960’’. 
(24) Section 907(c)(5) is amended by striking 
‘‘902 or’’. 
(25) Section 907(f)(2)(B)(i) is amended by 
striking ‘‘902 or’’. 
(26) Section 908(a) is amended by striking 
‘‘902 or’’. 
(27) Section 909(b) is amended— 
(A) by striking ‘‘section 902 corporation’’ 
in the matter preceding paragraph (1) and in-
serting ‘‘10/50 corporation’’, 
(B) by striking ‘‘902 or’’ in paragraph (1),
382 
(C) by striking ‘‘by such section 902 cor-
poration’’ and all that follows in the matter fol-
lowing paragraph (2) and inserting ‘‘by such 
10/50 corporation or a domestic corporation 
which is a United States shareholder with re-
spect to such 10/50 corporation.’’, and 
(D) by striking ‘‘SECTION 902 CORPORA-
TIONS’’ in the heading thereof and inserting 
‘‘10/50 CORPORATIONS’’. 
(28) Section 909(d)(5) is amended to read as 
follows: 
‘‘(5) 10/50 CORPORATION.—The term ‘10/50 
corporation’ means any foreign corporation with re-
spect to which one or more domestic corporations is 
a United States shareholder.’’. 
(29) Section 958(a)(1) is amended by striking 
‘‘960(a)(1)’’ and inserting ‘‘960’’. 
(30) Section 959(d) is amended by striking 
‘‘Except as provided in section 960(a)(3), any’’ and 
inserting ‘‘Any’’. 
(31) Section 959(e) is amended by striking 
‘‘section 960(b)’’ and inserting ‘‘section 960(c)’’. 
(32) Section 1291(g)(2)(A) is amended by 
striking ‘‘any distribution—’’ and all that follows 
through ‘‘but only if’’ and inserting ‘‘any distribu-
383 
tion, any withholding tax imposed with respect to 
such distribution, but only if’’. 
(33) Section 6038(c)(1)(B) is amended by 
striking ‘‘sections 902 (relating to foreign tax credit 
for corporate stockholder in foreign corporation) and 
960 (relating to special rules for foreign tax credit)’’ 
and inserting ‘‘section 960’’. 
(34) Section 6038(c)(4) is amended by striking 
subparagraph (C). 
(35) The table of sections for subpart A of part 
III of subchapter N of chapter 1 is amended by 
striking the item relating to section 902. 
(36) 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 960 and insert-
ing the following: 
‘‘Sec. 960. Deemed paid credit for subpart F inclusions.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2017. 
SEC. 4102. SOURCE OF INCOME FROM SALES OF INVEN-
TORY DETERMINED SOLELY ON BASIS OF 
PRODUCTION ACTIVITIES. 
(a) IN GENERAL.—Section 863(b) is amended by 
adding at the end the following: ‘‘Gains, profits, and in-
come from the sale or exchange of inventory property de-
384 
scribed in paragraph (2) shall be allocated and appor-
tioned between sources within and without the United 
States solely on the basis of the production activities with 
respect to the property.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2017. 
Subtitle C—Modification of 
Subpart F Provisions 
SEC. 4201. REPEAL OF INCLUSION BASED ON WITHDRAWAL 
OF PREVIOUSLY EXCLUDED SUBPART F IN-
COME FROM QUALIFIED INVESTMENT. 
(a) IN GENERAL.—Subpart F of part III of sub-
chapter N of chapter 1 is amended by striking section 955. 
(b) CONFORMING AMENDMENTS.— 
(1)(A) Section 951(a)(1)(A) is amended to read 
as follows: 
‘‘(A) his pro rata share (determined under 
paragraph (2)) of the corporation’s subpart F 
income for such year, and’’. 
(B) Section 851(b)(3) is amended by striking 
‘‘section 951(a)(1)(A)(i)’’ in the flush language at 
the end and inserting ‘‘section 951(a)(1)(A)’’.
385 
(C) Section 952(c)(1)(B)(i) is amended by 
striking ‘‘section 951(a)(1)(A)(i)’’ and inserting 
‘‘section 951(a)(1)(A)’’. 
(D) Section 953(c)(1)(C) is amended by strik-
ing ‘‘section 951(a)(1)(A)(i)’’ and inserting ‘‘section 
951(a)(1)(A)’’. 
(2) Section 951(a) is amended by striking para-
graph (3). 
(3) Section 953(d)(4)(B)(iv)(II) is amended by 
striking ‘‘or amounts referred to in clause (ii) or (iii) 
of section 951(a)(1)(A)’’. 
(4) Section 964(b) is amended by striking ‘‘, 
955,’’. 
(5) Section 970 is amended by striking sub-
section (b). 
(6) 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 955. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years of foreign corpora-
tions beginning after December 31, 2017, and to taxable 
years of United States shareholders in which or with which 
such taxable years of foreign corporations end.
389 
years of United States shareholders in which or with which 
such taxable years of foreign corporations end. 
SEC. 4206. ELIMINATION OF REQUIREMENT THAT COR-
PORATION MUST BE CONTROLLED FOR 30 
DAYS 
BEFORE 
SUBPART 
F 
INCLUSIONS 
APPLY. 
(a) IN GENERAL.—Section 951(a)(1) is amended by 
striking ‘‘for an uninterrupted period of 30 days or more’’ 
and inserting ‘‘at any time’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years of foreign corpora-
tions beginning after December 31, 2017, and to taxable 
years of United States shareholders with or within which 
such taxable years of foreign corporations end. 
Subtitle D—Prevention of Base 
Erosion 
SEC. 4301. CURRENT YEAR INCLUSION BY UNITED STATES 
SHAREHOLDERS WITH FOREIGN HIGH RE-
TURNS. 
(a) IN GENERAL.—Subpart F of part III of sub-
chapter N of chapter 1 is amended by inserting after sec-
tion 951 the following new section:
390 
‘‘SEC. 951A. FOREIGN HIGH RETURN AMOUNT INCLUDED IN 
GROSS INCOME OF UNITED STATES SHARE-
HOLDERS. 
‘‘(a) IN GENERAL.—Each person who is a United 
States shareholder of any controlled foreign corporation 
for any taxable year of such United States shareholder 
shall include in gross income for such taxable year 50 per-
cent of such shareholder’s foreign high return amount for 
such taxable year. 
‘‘(b) FOREIGN HIGH RETURN AMOUNT.—For pur-
poses of this section— 
‘‘(1) IN GENERAL.—The term ‘foreign high re-
turn amount’ means, with respect to any United 
States shareholder for any taxable year of such 
United States shareholder, the excess (if any) of— 
‘‘(A) such shareholder’s net CFC tested in-
come for such taxable year, over 
‘‘(B) the excess (if any) of— 
‘‘(i) the applicable percentage of the 
aggregate of such shareholder’s pro rata 
share of the qualified business asset invest-
ment of each controlled foreign corporation 
with respect to which such shareholder is 
a United States shareholder for such tax-
able year (determined for each taxable year 
of each such controlled foreign corporation
391 
which ends in or with such taxable year of 
such United States shareholder), over 
‘‘(ii) the amount of interest expense 
taken 
into 
account 
under 
subsection 
(c)(2)(A)(ii) in determining the share-
holder’s net CFC tested income for the 
taxable year. 
‘‘(2) APPLICABLE
PERCENTAGE.—The term 
‘applicable percentage’ means, with respect to any 
taxable year, the Federal short-term rate (deter-
mined under section 1274(d) for the month in which 
or with which such taxable year ends) plus 7 per-
centage points. 
‘‘(c) NET CFC TESTED INCOME.—For purposes of 
this section— 
‘‘(1) IN GENERAL.—The term ‘net CFC tested 
income’ means, with respect to any United States 
shareholder for any taxable year of such United 
States shareholder, the excess (if any) of— 
‘‘(A) the aggregate of such shareholder’s 
pro rata share of the tested income of each con-
trolled foreign corporation with respect to which 
such shareholder is a United States shareholder 
for such taxable year of such United States 
shareholder (determined for each taxable year
392 
of such controlled foreign corporation which 
ends in or with such taxable year of such 
United States shareholder), over 
‘‘(B) the aggregate of such shareholder’s 
pro rata share of the tested loss of each con-
trolled foreign corporation with respect to which 
such shareholder is a United States shareholder 
for such taxable year of such United States 
shareholder (determined for each taxable year 
of such controlled foreign corporation which 
ends in or with such taxable year of such 
United States shareholder). 
‘‘(2) TESTED INCOME; TESTED LOSS.—For pur-
poses of this section— 
‘‘(A) TESTED INCOME.—The term ‘tested 
income’ means, with respect to any controlled 
foreign corporation for any taxable year of such 
controlled foreign corporation, the excess (if 
any) of— 
‘‘(i) the gross income of such corpora-
tion determined without regard to— 
‘‘(I) any item of income which is 
effectively connected with the conduct 
by such corporation of a trade or
393 
business within the United States if 
subject to tax under this chapter, 
‘‘(II) any gross income taken into 
account in determining the subpart F 
income of such corporation, 
‘‘(III) except as otherwise pro-
vided by the Secretary, any amount 
excluded from the foreign personal 
holding company income (as defined 
in section 954) of such corporation by 
reason of section 954(c)(6) but only 
to the extent that any deduction al-
lowable for the payment or accrual of 
such amount does not result in a re-
duction in the foreign high return 
amount of any United States share-
holder (determined without regard to 
this subclause), 
‘‘(IV) any gross income excluded 
from the foreign personal holding 
company income (as defined in section 
954) of such corporation by reason of 
subsection (c)(2)(C), (h), or (i) of sec-
tion 954,
394 
‘‘(V) any gross income excluded 
from the insurance income (as defined 
in section 953) of such corporation by 
reason of section 953(a)(2), 
‘‘(VI) any gross income excluded 
from foreign base company income (as 
defined in section 954) or insurance 
income (as defined in section 953) of 
such corporation by reason of section 
954(b)(4), 
‘‘(VII) 
any 
dividend 
received 
from a related person (as defined in 
section 954(d)(3)), and 
‘‘(VIII) any commodities gross 
income of such corporation, over 
‘‘(ii) the deductions (including taxes) 
properly allocable to such gross income 
under rules similar to the rules of section 
954(b)(5) (or which would be so properly 
allocable if such corporation had such 
gross income). 
‘‘(B) TESTED
LOSS.—The term ‘tested 
loss’ means, with respect to any controlled for-
eign corporation for any taxable year of such 
controlled foreign corporation, the excess (if
395 
any) of the amount described in subparagraph 
(A)(ii) over the amount described in subpara-
graph (A)(i). 
‘‘(d) QUALIFIED BUSINESS ASSET INVESTMENT.— 
For purposes of this section— 
‘‘(1) IN GENERAL.—The term ‘qualified busi-
ness asset investment’ means, with respect to any 
controlled foreign corporation for any taxable year of 
such controlled foreign corporation, the aggregate of 
the corporation’s adjusted bases (determined as of 
the close of such taxable year and after any adjust-
ments with respect to such taxable year) in specified 
tangible property— 
‘‘(A) used in a trade or business of the 
corporation, and 
‘‘(B) of a type with respect to which a de-
duction is allowable under section 168. 
‘‘(2) SPECIFIED
TANGIBLE
PROPERTY.—The 
term ‘specified tangible property’ means any tangible 
property to the extent such property is used in the 
production of tested income or tested loss. 
‘‘(3) PARTNERSHIP PROPERTY.—For purposes 
of this subsection, if a controlled foreign corporation 
holds an interest in a partnership at the close of 
such taxable year of the controlled foreign corpora-
396 
tion, such controlled foreign corporation shall take 
into account under paragraph (1) the controlled for-
eign corporation’s distributive share of the aggregate 
of the partnership’s adjusted bases (determined as 
of such date in the hands of the partnership) in tan-
gible property held by such partnership to the extent 
such property— 
‘‘(A) is used in the trade or business of the 
partnership, 
‘‘(B) is of a type with respect to which a 
deduction is allowable under section 168, and 
‘‘(C) is used in the production of tested in-
come or tested loss (determined with respect to 
such controlled foreign corporation’s distribu-
tive share of income or loss with respect to such 
property). 
For purposes of this paragraph, the controlled for-
eign corporation’s distributive share of the adjusted 
basis of any property shall be the controlled foreign 
corporation’s distributive share of income and loss 
with respect to such property. 
‘‘(4) DETERMINATION OF ADJUSTED BASIS.— 
For purposes of this subsection, the adjusted basis 
in any property shall be determined without regard 
to any provision of this title (or any other provision
397 
of law) which is enacted after the date of the enact-
ment of this section. 
‘‘(5) REGULATIONS.—The Secretary shall issue 
such regulations or other guidance as the Secretary 
determines appropriate to prevent the avoidance of 
the purposes of this subsection, including regulations 
or other guidance which provide for the treatment of 
property if— 
‘‘(A) such property is transferred, or held, 
temporarily, or 
‘‘(B) the avoidance of the purposes of this 
paragraph is a factor in the transfer or holding 
of such property. 
‘‘(e) COMMODITIES GROSS INCOME.—For purposes 
of this section— 
‘‘(1) COMMODITIES GROSS INCOME.—The term 
‘commodities gross income’ means, with respect to 
any corporation— 
‘‘(A) gross income of such corporation 
from the disposition of commodities which are 
produced or extracted by such corporation (or a 
partnership in which such corporation is a part-
ner), and
398 
‘‘(B) gross income of such corporation 
from the disposition of property which gives rise 
to income described in subparagraph (A). 
‘‘(2) 
COMMODITY.—The 
term 
‘commodity’ 
means 
any 
commodity 
described 
in 
section 
475(e)(2)(A) or section 475(e)(2)(D) (determined 
without regard to clause (i) thereof and by sub-
stituting ‘a commodity described in subparagraph 
(A)’ for ‘such a commodity’ in clause (ii) thereof). 
‘‘(f) TAXABLE YEARS FOR WHICH PERSONS ARE 
TREATED AS UNITED STATES SHAREHOLDERS OF CON-
TROLLED FOREIGN CORPORATIONS.—For purposes of 
this section— 
‘‘(1) IN
GENERAL.—A United States share-
holder of a controlled foreign corporation shall be 
treated as a United States shareholder of such con-
trolled foreign corporation for any taxable year of 
such United States shareholder if— 
‘‘(A) a taxable year of such controlled for-
eign corporation ends in or with such taxable 
year of such person, and 
‘‘(B) such person owns (within the mean-
ing of section 958(a)) stock in such controlled 
foreign corporation on the last day, in such tax-
able year of such foreign corporation, on which
399 
the foreign corporation is a controlled foreign 
corporation. 
‘‘(2) TREATMENT AS A CONTROLLED FOREIGN 
CORPORATION.—Except for purposes of paragraph 
(1)(B) and the application of section 951(a)(2) to 
this section pursuant to subsection (g), a foreign 
corporation shall be treated as a controlled foreign 
corporation for any taxable year of such foreign cor-
poration if such foreign corporation is a controlled 
foreign corporation at any time during such taxable 
year. 
‘‘(g) DETERMINATION OF PRO RATA SHARE.—For 
purposes of this section, pro rata shares shall be deter-
mined under the rules of section 951(a)(2) in the same 
manner as such section applies to subpart F income. 
‘‘(h) COORDINATION WITH SUBPART F.— 
‘‘(1) TREATMENT AS SUBPART F INCOME FOR 
CERTAIN PURPOSES.—Except as otherwise provided 
by the Secretary any foreign high return amount in-
cluded in gross income under subsection (a) shall be 
treated in the same manner as an amount included 
under section 951(a)(1)(A) for purposes of applying 
sections 
168(h)(2)(B), 
535(b)(10), 
851(b), 
904(h)(1), 959, 961, 962, 993(a)(1)(E), 996(f)(1),
400 
1248(b)(1), 
1248(d)(1), 
6501(e)(1)(C), 
6654(d)(2)(D), and 6655(e)(4). 
‘‘(2) ENTIRE FOREIGN HIGH RETURN AMOUNT 
TAKEN INTO ACCOUNT FOR PURPOSES OF CERTAIN 
SECTIONS.—For purposes of applying paragraph (1) 
with respect to sections 168(h)(2)(B), 851(b), 959, 
961, 962, 1248(b)(1), and 1248(d)(1), the foreign 
high return amount included in gross income under 
subsection (a) shall be determined by substituting 
‘100 percent’ for ‘50 percent’ in such subsection. 
‘‘(3) ALLOCATION OF FOREIGN HIGH RETURN 
AMOUNT
TO
CONTROLLED
FOREIGN
CORPORA-
TIONS.—For purposes of the sections referred to in 
paragraph (1), with respect to any controlled foreign 
corporation any pro rata amount from which is 
taken into account in determining the foreign high 
return amount included in gross income of a United 
States shareholder under subsection (a), the portion 
of such foreign high return amount which is treated 
as being with respect to such controlled foreign cor-
poration is— 
‘‘(A) in the case of a controlled foreign 
corporation with tested loss, zero, and 
‘‘(B) in the case of a controlled foreign 
corporation with tested income, the portion of
401 
such foreign high return amount which bears 
the same ratio to such foreign high return 
amount as— 
‘‘(i) such United States shareholder’s 
pro rata amount of the tested income of 
such controlled foreign corporation, bears 
to 
‘‘(ii) the aggregate amount deter-
mined under subsection (c)(1)(A) with re-
spect to such United States shareholder. 
‘‘(4) COORDINATION WITH SUBPART F TO DENY 
DOUBLE BENEFIT OF LOSSES.—In the case of any 
United States shareholder of any controlled foreign 
corporation, the amount included in gross income 
under section 951(a)(1)(A) shall be determined by 
increasing the earnings and profits of such con-
trolled foreign corporation (solely for purposes of de-
termining such amount) by an amount that bears 
the same ratio (not greater than 1) to such share-
holder’s pro rata share of the tested loss of such 
controlled foreign corporation as— 
‘‘(A) the aggregate amount determined 
under subsection (c)(1)(A) with respect to such 
shareholder, bears to
402 
‘‘(B) the aggregate amount determined 
under subsection (c)(1)(B) with respect to such 
shareholder.’’. 
(b) FOREIGN TAX CREDIT.— 
(1) APPLICATION OF DEEMED PAID FOREIGN 
TAX CREDIT.—Section 960, as amended by the pre-
ceding provisions of this Act, is amended by redesig-
nating subsections (d) and (e) as subsections (e) and 
(f), respectively, and by inserting after subsection (c) 
the following new subsection: 
‘‘(d) DEEMED PAID CREDIT FOR TAXES PROPERLY 
ATTRIBUTABLE TO TESTED INCOME.— 
‘‘(1) IN GENERAL.—For purposes of this sub-
part, if any amount is includible in the gross income 
of a domestic corporation under section 951A, such 
domestic corporation shall be deemed to have paid 
foreign income taxes equal to 80 percent of— 
‘‘(A) such domestic corporation’s foreign 
high return percentage, multiplied by 
‘‘(B) the aggregate tested foreign income 
taxes paid or accrued by controlled foreign cor-
porations with respect to which such domestic 
corporation is a United States shareholder. 
‘‘(2) FOREIGN HIGH RETURN PERCENTAGE.— 
For purposes of paragraph (1), the term ‘foreign
403 
high return percentage’ means, with respect to any 
domestic corporation, the ratio (expressed as a per-
centage) of— 
‘‘(A) such corporation’s foreign high return 
amount (as defined in section 951A(b)), divided 
by 
‘‘(B) the aggregate amount determined 
under section 951A(c)(1)(A) with respect to 
such corporation. 
‘‘(3) TESTED
FOREIGN
INCOME
TAXES.—For 
purposes of paragraph (1), the term ‘tested foreign 
income taxes’ means, with respect to any domestic 
corporation which is a United States shareholder of 
a controlled foreign corporation, the foreign income 
taxes paid or accrued by such foreign corporation 
which are properly attributable to gross income de-
scribed in section 951A(c)(2)(A)(i).’’. 
(2) APPLICATION
OF
FOREIGN
TAX
CREDIT 
LIMITATION.— 
(A) SEPARATE
BASKET
FOR
FOREIGN 
HIGH RETURN AMOUNT.—Section 904(d)(1) is 
amended by redesignating subparagraphs (A) 
and (B) as subparagraphs (B) and (C), respec-
tively, and by inserting before subparagraph
405 
(c) CONFORMING AMENDMENTS.— 
(1) Section 170(b)(2)(D) is amended by strik-
ing ‘‘computed without regard to’’ and all that fol-
lows and inserting ‘‘computed— 
‘‘(i) without regard to— 
‘‘(I) this section, 
‘‘(II) part VIII (except section 
248), 
‘‘(III) any net operating loss 
carryback to the taxable year under 
section 172, 
‘‘(IV) any capital loss carryback 
to the taxable year under section 
1212(a)(1), and 
‘‘(ii) by substituting ‘100 percent’ for 
‘50 percent’ in section 951A(a).’’. 
(2) Section 246(b)(1) is amended by— 
(A) striking ‘‘and without regard to’’ and 
inserting ‘‘without regard to’’, and 
(B) by striking the period at the end and 
inserting ‘‘, and by substituting ‘100 percent’ 
for ‘50 percent’ in section 951A(a).’’. 
(3) Section 469(i)(3)(F) is amended by striking 
‘‘determined without regard to’’ and all that follows 
and inserting ‘‘determined—
406 
‘‘(i) without regard to— 
‘‘(I) any amount includible in 
gross income under section 86, 
‘‘(II) the amounts allowable as a 
deduction under section 219, and 
‘‘(III) any passive activity loss or 
any loss allowable by reason of sub-
section (c)(7), and 
‘‘(ii) by substituting ‘100 percent’ for 
‘50 percent’ in section 951A(a).’’. 
(4) Section 856(c)(2) is amended by striking 
‘‘and’’ at the end of subparagraph (H), by adding 
‘‘and’’ at the end of subparagraph (I), and by insert-
ing after subparagraph (I) the following new sub-
paragraph: 
‘‘(J) amounts includible in gross income 
under section 951A(a);’’. 
(5) Section 856(c)(3)(D) is amended by strik-
ing ‘‘dividends or other distributions on, and gain’’ 
and inserting ‘‘dividends, other distributions on, 
amounts includible in gross income under section 
951A(a) with respect to, and gain’’. 
(6) The table of sections for subpart F of part 
III of subchapter N of chapter 1 is amended by in-
407 
serting after the item relating to section 951 the fol-
lowing new item: 
‘‘Sec. 951A. Foreign high return amount included in gross income of United 
States shareholders.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years of foreign corpora-
tions beginning after December 31, 2017, and to taxable 
years of United States shareholders in which or with which 
such taxable years of foreign corporations end. 
SEC. 4302. LIMITATION ON DEDUCTION OF INTEREST BY 
DOMESTIC CORPORATIONS WHICH ARE MEM-
BERS OF AN INTERNATIONAL FINANCIAL RE-
PORTING GROUP. 
(a) IN GENERAL.—Section 163 is amended by redes-
ignating subsection (n) as subsection (p) and by inserting 
after subsection (m) the following new subsection: 
‘‘(n) LIMITATION ON DEDUCTION OF INTEREST BY 
DOMESTIC CORPORATIONS
IN INTERNATIONAL FINAN-
CIAL REPORTING GROUPS.— 
‘‘(1) IN GENERAL.—In the case of any domestic 
corporation which is a member of any international 
financial reporting group, the deduction under this 
chapter for interest paid or accrued during the tax-
able year shall not exceed the sum of— 
‘‘(A) the allowable percentage of 110 per-
cent of the excess (if any) of —
408 
‘‘(i) the amount of such interest so 
paid or accrued, over 
‘‘(ii) the amount described in subpara-
graph (B), plus 
‘‘(B) the amount of interest includible in 
gross income of such corporation for such tax-
able year. 
‘‘(2) INTERNATIONAL
FINANCIAL
REPORTING 
GROUP.— 
‘‘(A) For purposes of this subsection, the 
term ‘international financial reporting group’ 
means, with respect to any reporting year, any 
group of entities which— 
‘‘(i) includes— 
‘‘(I) at least one foreign corpora-
tion engaged in a trade or business 
within the United States, or 
‘‘(II) at least one domestic cor-
poration and one foreign corporation, 
‘‘(ii) prepares consolidated financial 
statements with respect to such year, and 
‘‘(iii) reports in such statements aver-
age annual gross receipts (determined in 
the aggregate with respect to all entities 
which are part of such group) for the 3-re-
409 
porting-year period ending with such re-
porting year in excess of $100,000,000. 
‘‘(B) RULES
RELATING
TO
DETERMINA-
TION OF AVERAGE GROSS RECEIPTS.—For pur-
poses of subparagraph (A)(iii), rules similar to 
the rules of section 448(c)(3) shall apply. 
‘‘(3) ALLOWABLE PERCENTAGE.—For purposes 
of this subsection— 
‘‘(A) IN
GENERAL.—The term ‘allowable 
percentage’ means, with respect to any domestic 
corporation for any taxable year, the ratio (ex-
pressed as a percentage and not greater than 
100 percent) of— 
‘‘(i) such corporation’s allocable share 
of the international financial reporting 
group’s reported net interest expense for 
the reporting year of such group which 
ends in or with such taxable year of such 
corporation, over 
‘‘(ii) such corporation’s reported net 
interest expense for such reporting year of 
such group. 
‘‘(B) 
REPORTED
NET
INTEREST
EX-
PENSE.—The term ‘reported net interest ex-
pense’ means—
410 
‘‘(i) with respect to any international 
financial reporting group for any reporting 
year, the excess of— 
‘‘(I) the aggregate amount of in-
terest 
expense 
reported 
in 
such 
group’s consolidated financial state-
ments for such taxable year, over 
‘‘(II) the aggregate amount of in-
terest income reported in such group’s 
consolidated financial statements for 
such taxable year, and 
‘‘(ii) with respect to any domestic cor-
poration for any reporting year, the excess 
of— 
‘‘(I) the amount of interest ex-
pense of such corporation reported in 
the books and records of the inter-
national financial reporting group 
which are used in preparing such 
group’s consolidated financial state-
ments for such taxable year, over 
‘‘(II) the amount of interest in-
come of such corporation reported in 
such books and records.
411 
‘‘(C) ALLOCABLE
SHARE
OF
REPORTED 
NET INTEREST EXPENSE.—With respect to any 
domestic corporation which is a member of any 
international financial reporting group, such 
corporation’s allocable share of such group’s re-
ported net interest expense for any reporting 
year is the portion of such expense which bears 
the same ratio to such expense as— 
‘‘(i) the EBITDA of such corporation 
for such reporting year, bears to 
‘‘(ii) the EBITDA of such group for 
such reporting year. 
‘‘(D) EBITDA.— 
‘‘(i) 
IN
GENERAL.—The 
term 
‘EBITDA’ means, with respect to any re-
porting year, earnings before interest, 
taxes, depreciation, and amortization— 
‘‘(I) as determined in the inter-
national financial reporting group’s 
consolidated financial statements for 
such year, or 
‘‘(II) for purposes of subpara-
graph (A)(i), as determined in the 
books and records of the international 
financial reporting group which are
412 
used in preparing such statements if 
not determined in such statements. 
‘‘(ii) TREATMENT
OF
DISREGARDED 
ENTITIES.—The EBITDA of any domestic 
corporation shall not fail to include the 
EBITDA of any entity which is dis-
regarded for purposes of this chapter. 
‘‘(iii) TREATMENT
OF
INTRA-GROUP 
DISTRIBUTIONS.—The EBITDA of any do-
mestic corporation shall be determined 
without regard to any distribution received 
by such corporation from any other mem-
ber of the international financial reporting 
group. 
‘‘(E) SPECIAL RULES FOR NON-POSITIVE 
EBITDA.— 
‘‘(i) NON-POSITIVE GROUP EBITDA.— 
In the case of any international financial 
reporting group the EBITDA of which is 
zero or less, paragraph (1) shall not apply 
to any member of such group the EBITDA 
of which is above zero. 
‘‘(ii) 
NON-POSITIVE
ENTITY 
EBITDA.—In the case of any group mem-
ber the EBITDA of which is zero or less,
413 
paragraph (1) shall be applied without re-
gard to subparagraph (A) thereof. 
‘‘(4) CONSOLIDATED FINANCIAL STATEMENT.— 
For purposes of this subsection, the term ‘consoli-
dated financial statement’ means any consolidated 
financial statement described in paragraph (2)(A)(ii) 
if such statement is— 
‘‘(A) a financial statement which is cer-
tified as being prepared in accordance with gen-
erally accepted accounting principles, inter-
national financial reporting standards, or any 
other comparable method of accounting identi-
fied by the Secretary, and which is— 
‘‘(i) a 10-K (or successor form), or 
annual statement to shareholders, required 
to be filed with the United States Securi-
ties and Exchange Commission, 
‘‘(ii) an audited financial statement 
which is used for— 
‘‘(I) credit purposes, 
‘‘(II) reporting to shareholders, 
partners, or other proprietors, or to 
beneficiaries, or 
‘‘(III) 
any 
other 
substantial 
nontax purpose,
414 
but only if there is no statement described 
in clause (i), or 
‘‘(iii) filed with any other Federal or 
State agency for nontax purposes, but only 
if there is no statement described in clause 
(i) or (ii), or 
‘‘(B) a financial statement which— 
‘‘(i) is used for a purpose described in 
subclause (I), (II), or (III) of subpara-
graph (A)(ii), or 
‘‘(ii) filed with any regulatory or gov-
ernmental body (whether domestic or for-
eign) specified by the Secretary, 
but only if there is no statement described in 
subparagraph (A). 
‘‘(5) REPORTING YEAR.—For purposes of this 
subsection, the term ‘reporting year’ means, with re-
spect to any international financial reporting group, 
the year with respect to which the consolidated fi-
nancial statements are prepared. 
‘‘(6) APPLICATION TO CERTAIN ENTITIES.— 
‘‘(A) PARTNERSHIPS.—Except as other-
wise provided by the Secretary in paragraph 
(7), this subsection shall apply to any partner-
ship which is a member of any international fi-
415 
nancial reporting group under rules similar to 
the rules of section 163(j)(3). 
‘‘(B) FOREIGN
CORPORATIONS
ENGAGED 
IN TRADE OR BUSINESS WITHIN THE UNITED 
STATES.—Except as otherwise provided by the 
Secretary in paragraph (8), any deduction for 
interest paid or accrued by a foreign corpora-
tion engaged in a trade or business within the 
United States shall be limited in a manner con-
sistent with the principles of this subsection. 
‘‘(C) CONSOLIDATED
GROUPS.—For pur-
poses of this subsection, the members of any 
group that file (or are required to file) a con-
solidated return with respect to the tax imposed 
by chapter 1 for a taxable year shall be treated 
as a single corporation. 
‘‘(7) REGULATIONS.—The Secretary may issue 
such regulations or other guidance as are necessary 
or appropriate to carry out the purposes of this sub-
section.’’. 
(b) CARRYFORWARD OF DISALLOWED INTEREST.— 
(1) IN GENERAL.—Section 163(o) is amended 
to read as follows: 
‘‘(o) CARRYFORWARD OF CERTAIN DISALLOWED IN-
TEREST.—The amount of any interest not allowed as a
416 
deduction for any taxable year by reason of subsection 
(j)(1) or (n)(1) (whichever imposes the lower limitation 
with respect to such taxable year) shall be treated as inter-
est (and as business interest for purposes of subsection 
(j)(1)) paid or accrued in the succeeding taxable year. In-
terest paid or accrued in any taxable year (determined 
without regard to the preceding sentence) shall not be car-
ried past the 5th taxable year following such taxable year, 
determined by treating interest as allowed as a deduction 
on a first-in, first-out basis.’’. 
(2) TREATMENT OF CARRYFORWARD OF DIS-
ALLOWED INTEREST IN CERTAIN CORPORATE ACQUI-
SITIONS.—For rules related to the carryforward of 
disallowed interest in certain corporate acquisitions, 
see the amendments made by section 3301(c). 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2017. 
SEC. 4303. EXCISE TAX ON CERTAIN PAYMENTS FROM DO-
MESTIC CORPORATIONS TO RELATED FOR-
EIGN CORPORATIONS; ELECTION TO TREAT 
SUCH 
PAYMENTS 
AS 
EFFECTIVELY 
CON-
NECTED INCOME. 
(a) EXCISE TAX ON CERTAIN AMOUNTS FROM DO-
MESTIC CORPORATIONS TO FOREIGN AFFILIATES.—
417 
(1) IN GENERAL.—Chapter 36 is amended by 
adding at the end the following new subchapter: 
‘‘Subchapter E—Tax on Certain Amounts to 
Foreign Affiliates 
‘‘Sec. 4491. Imposition of tax on certain amounts from domestic corporations 
to foreign affiliates. 
‘‘SEC. 4491. IMPOSITION OF TAX ON CERTAIN AMOUNTS 
FROM DOMESTIC CORPORATIONS TO FOR-
EIGN AFFILIATES. 
‘‘(a) IN GENERAL.—There is hereby imposed on each 
specified amount paid or incurred by a domestic corpora-
tion to a foreign corporation which is a member of the 
same international financial reporting group as such do-
mestic corporation a tax equal to the highest rate of tax 
in effect under section 11 multiplied by such amount. 
‘‘(b) BY WHOM PAID.—The tax imposed by sub-
section (a) shall be paid by the domestic corporation de-
scribed in such subsection. 
‘‘(c) EXCEPTION FOR EFFECTIVELY CONNECTED IN-
COME.—Subsection (a) shall not apply to so much of any 
specified amount as is effectively connected with the con-
duct of a trade or business within the United States if 
such amount is subject to tax under chapter 1. In the case 
of any amount which is treated as effectively connected 
with the conduct of a trade or business within the United 
States by reason of section 882(g), the preceding sentence
418 
shall apply to such amount only if the domestic corpora-
tion provides to the Secretary (at such time and in such 
form and manner as the Secretary may provide) a copy 
of the election made under section 882(g) by the foreign 
corporation referred to in subsection (a). 
‘‘(d) DEFINITIONS
AND SPECIAL RULES.—Terms 
used in this section that are also used in section 882(g) 
shall have the same meaning as when used in such section 
and rules similar to the rules of paragraphs (5) and (6) 
of such section shall apply for purposes of this section.’’. 
(2) DENIAL
OF
DEDUCTION
FOR
TAX
IM-
POSED.—Section 275(a) is amended by inserting 
after paragraph (6) the following new paragraph: 
‘‘(7) Taxes imposed by section 4491.’’. 
(3) CLERICAL AMENDMENT.—The table of sub-
chapters for chapter 36 is amended by adding at the 
end the following new item: 
‘‘SUBCHAPTER E. TAX ON CERTAIN AMOUNTS TO FOREIGN AFFILIATES.’’. 
(b) ELECTION TO TREAT CERTAIN PAYMENTS FROM 
DOMESTIC CORPORATIONS TO RELATED FOREIGN COR-
PORATIONS AS EFFECTIVELY CONNECTED INCOME.—Sec-
tion 882 is amended by adding at the end the following 
new subsection: 
‘‘(g) ELECTION
TO TREAT CERTAIN PAYMENTS 
FROM DOMESTIC CORPORATIONS TO RELATED FOREIGN 
CORPORATIONS AS EFFECTIVELY CONNECTED INCOME.—
419 
‘‘(1) IN GENERAL.—In the case of any specified 
amount paid or incurred by a domestic corporation 
to a foreign corporation which is a member of the 
same international financial reporting group as such 
domestic corporation and which has elected to be 
subject to the provisions of this subsection— 
‘‘(A) such amount shall be taken into ac-
count (other than for purposes of sections 245, 
245A, and 881) in the taxable year of such for-
eign corporation during which such amount is 
paid or incurred as if— 
‘‘(i) such foreign corporation were en-
gaged in a trade or business within the 
United States, 
‘‘(ii) such foreign corporation had a 
permanent establishment in the United 
States during the taxable year, and 
‘‘(iii) such payment were effectively 
connected with the conduct of a trade or 
business within the United States and were 
attributable to such permanent establish-
ment, 
‘‘(B) for purposes of subsection (c)(1)(A), 
no deduction shall be allowed with respect to
420 
such amount and such subsection shall be ap-
plied without regard to such amount, and 
‘‘(C) the foreign corporation shall be al-
lowed a deduction (for the taxable year referred 
to in subparagraph (A)) equal to the deemed 
expenses with respect to such amount. 
‘‘(2) SPECIFIED
AMOUNT.—For purposes of 
this subsection— 
‘‘(A) IN
GENERAL.—The term ‘specified 
amount’ means any amount which is, with re-
spect to the payor, allowable as a deduction or 
includible in costs of goods sold, inventory, or 
the basis of a depreciable or amortizable asset. 
‘‘(B) EXCEPTIONS.—The term ‘specified 
amount’ shall not include— 
‘‘(i) interest, 
‘‘(ii) any amount paid or incurred for 
the acquisition of any security described in 
section 475(c)(2) (determined without re-
gard to the last sentence thereof) or any 
commodity described in section 475(e)(2), 
‘‘(iii) except as provided in subpara-
graph (C), any amount with respect to 
which tax is imposed under section 881(a), 
and
421 
‘‘(iv) in the case of a payor which has 
elected to use a services cost method for 
purposes of section 482, any amount paid 
or incurred for services if such amount is 
the total services cost with no markup. 
‘‘(C) AMOUNTS NOT TREATED AS EFFEC-
TIVELY
CONNECTED
TO
EXTENT
OF
GROSS- 
BASIS TAX.—Subparagraph (B)(iii) shall only 
apply to so much of any specified amount as 
bears the proportion to such amount as— 
‘‘(i) the rate of tax imposed under 
section 881(a) with respect to such 
amount, bears to 
‘‘(ii) 30 percent. 
‘‘(3) DEEMED EXPENSES.— 
‘‘(A) IN GENERAL.—The deemed expenses 
with respect to any specified amount received 
by a foreign corporation during any reporting 
year is the amount of expenses such that the 
net income ratio of such foreign corporation 
with respect to such amount (taking into ac-
count only such specified amount and such 
deemed expenses) is equal to the net income 
ratio of the international financial reporting 
group determined for such reporting year with
422 
respect to the product line to which the speci-
fied amount relates. 
‘‘(B) NET INCOME RATIO.—For purposes 
of this paragraph, the term ‘net income ratio’ 
means the ratio of— 
‘‘(i) net income determined without 
regard to interest income, interest expense, 
and income taxes, divided by 
‘‘(ii) revenues. 
‘‘(C) 
METHOD
OF
DETERMINATION.— 
Amounts described in subparagraph (B) shall 
be determined with respect to the international 
financial reporting group on the basis of the 
consolidated financial statements referred to in 
paragraph (4)(A)(i) and the books and records 
of the members of the international financial 
reporting group which are used in preparing 
such statements, taking into account only reve-
nues and expenses of the members of such 
group (other than the members of such group 
which are (or are treated as) a domestic cor-
poration for purposes of this subsection) derived 
from, or incurred with respect to— 
‘‘(i) persons who are not members of 
such group, and
423 
‘‘(ii) members of such group which 
are (or are treated as) a domestic corpora-
tion for purposes of this subsection. 
‘‘(4) INTERNATIONAL
FINANCIAL
REPORTING 
GROUP.—For purposes of this subsection— 
‘‘(A) IN
GENERAL.—The term ‘inter-
national financial reporting group’ means any 
group of entities, with respect to any specified 
amount, if such amount is paid or incurred dur-
ing a reporting year of such group with respect 
to which— 
‘‘(i) such group prepares consolidated 
financial statements (within the meaning 
of section 163(n)(4)) with respect to such 
year, and 
‘‘(ii) the average annual aggregate 
payment amount of such group for the 3- 
reporting-year period ending with such re-
porting year exceeds $100,000,000. 
‘‘(B) 
ANNUAL
AGGREGATE
PAYMENT 
AMOUNT.—The term ‘annual aggregate pay-
ment amount’ means, with respect to any re-
porting year of the group referred to in sub-
paragraph 
(A)(i), 
the 
aggregate 
specified 
amounts to which paragraph (1) applies (or
424 
would apply if such group were an international 
financial reporting group). 
‘‘(C) APPLICATION OF CERTAIN RULES.— 
Rules similar to the rules of subparagraphs (A), 
(B), and (D) of section 448(c)(3) shall apply 
for purposes of this paragraph. 
‘‘(5) TREATMENT
OF
PARTNERSHIPS.—Any 
specified amount paid, incurred, or received by a 
partnership which is a member of any international 
financial reporting group (and any amount treated 
as paid, incurred, or received by a partnership under 
this paragraph) shall be treated for purposes of this 
subsection as amounts paid, incurred, or received, 
respectively, by each partner of such partnership in 
an amount equal to such partner’s distributive share 
of the items of income, gain, deduction, or loss to 
which such amounts relate. 
‘‘(6) TREATMENT OF AMOUNTS IN CONNECTION 
WITH UNITED STATES TRADE OR BUSINESS.—Any 
specified amount paid, incurred, or received by a for-
eign corporation in connection with the conduct of a 
trade or business within the United States (other 
than a trade or business it is deemed to conduct 
pursuant to this subsection) shall be treated for pur-
poses of this subsection as an amount paid, in-
425 
curred, or received, respectively, by a domestic cor-
poration. For purposes of the preceding sentence, a 
foreign corporation shall be deemed to pay, incur, 
and receive amounts with respect to a trade or busi-
ness it conducts within the United States (other 
than a trade or business it is deemed to conduct 
pursuant to this subsection) to the extent such for-
eign corporation would be treated as paying, incur-
ring, or receiving such amounts from such trade or 
business if such trade or business were a domestic 
corporation. 
‘‘(7) JOINT AND SEVERAL LIABILITY OF MEM-
BERS
OF
INTERNAL
FINANCIAL
REPORTING 
GROUP.—In the case of any underpayment with re-
spect to any taxable year of a foreign corporation 
which is a member of an international financial ac-
counting group, each domestic corporation which is 
a member of such group at any time during such 
taxable year shall be jointly and severally liable 
for— 
‘‘(A) so much of such underpayment as 
does not exceed the excess (if any) of such un-
derpayment over the amount of such under-
payment determined without regard to this sub-
section, and