(10) Paragraph (4) of section 642(c) of such
Code is amended to read as follows:
‘‘(4) ADJUSTMENTS.—To the extent that the
amount otherwise allowable as a deduction under
this subsection consists of gain from the sale or ex-
change of capital assets held for more than 1 year,
proper adjustment shall be made for any deduction
allowable to the estate or trust under section 1201
(relating to capital gains deduction). In the case of
a trust, the deduction allowed by this subsection
shall be subject to section 681 (relating to unrelated
business income).’’
(11) The last sentence of section 643(a)(3) of
such Code is amended to read as follows: ‘‘The de-
duction under section 1201 (relating to capital gains
deduction) shall not be taken into account.’’
(12) Subparagraph (C) of section 643(a)(6) of
such Code is amended by inserting ‘‘(i)’’ before
‘‘there shall’’ and by inserting before the period ‘‘,
and (ii) the deduction under section 1201 (relating
to capital gains deduction) shall not be taken into
account’’.
(13) Paragraph (4) of section 691(c) of such
Code is amended by striking ‘‘1(h), 1201, 1202’’
and inserting ‘‘1201’’.
(14) Paragraph (2) of section 801(a) of such
Code is hereby repealed.
(15) Subsection (c) of section 831 of such Code
is amended by striking paragraph (1) and redesig-
nating the following paragraphs accordingly.
(16)(A) Paragraph (3) of section 852(b) of
such Code is amended by striking subparagraph (A).
(B) Subparagraph (D) of section 852(b)(3) of
such Code is amended—
(i) in clause (i) by striking ‘‘shall not ex-
ceed’’ and all that follows and inserting ‘‘shall
not exceed that part of the excess (if any) of
the net capital gain over the deduction for divi-
dends paid (as defined in section 561 and de-
termined with reference to capital gain divi-
dends only) which he would have received if all
of such amount had been distributed as capital
gain dividends by the company to the holders of
such shares at the close of its taxable year.’’,
and
(ii) by striking clauses (ii), (iii), and (iv)
and redesignating clause (v) as clause (ii).
(17)(A) Paragraph (2) of section 857(b) of
such Code is amended by adding at the end the fol-
lowing new subparagraph:
‘‘(G) There shall be excluded the amount
of the net capital gain, if any.’’
(B) Paragraph (3) of section 857(b) of such
Code is amended by striking subparagraph (A).
(C) Subparagraph (C) of section 857(b)(3) of
such Code is amended by striking ‘‘the excess de-
scribed in subparagraph (A)(ii) of this paragraph’’
and inserting ‘‘the excess (if any) of the net capital
gain over the deduction for dividends paid (as de-
fined in section 561 and determined with reference
to capital gain dividends only)’’.
(18) The second sentence of section 871(a)(2)
of such Code is amended by striking ‘‘1202’’ and in-
serting ‘‘1201’’.
(19) Paragraph (1) of section 882(a) of such
Code is amended by striking ‘‘section 11, 55, 59A,
or 1201(a)’’ and inserting ‘‘section 11, 55, or 59A’’.
(20)(A) Paragraph (2) of section 904(b) of
such Code is amended to read as follows:
‘‘(2) CAPITAL
GAINS.—Taxable income from
sources outside the United States shall include gain
from the sale or exchange of capital assets only to
the extent of foreign source capital gain net in-
come.’’
(B) Paragraph (3) of section 904(b) of such
Code is amended by striking subparagraphs (B),
(D), and (E) and by redesignating subparagraph (C)
as subparagraph (B).
(21) Section 1202 of such Code is hereby re-
pealed.
(22) Subsection (b) of section 1374 of such
Code is amended by striking paragraph (4).
(23) Subsection (b) of section 1381 of such
Code is amended by striking ‘‘or 1201’’.
(24) Paragraph (1) of section 1402(i) of such
Code is amended by inserting ‘‘, and the deduction
provided by section 1201 shall not apply’’ before the
period at the end thereof.
(25) Subsection (e) of section 1445 of such
Code is amended—
(A) in paragraph (1) by striking ‘‘35 per-
cent (or, to the extent provided in regulations,
28 percent)’’ and inserting ‘‘the rate specified
by the Secretary’’, and
(B) in paragraph (2) by striking ‘‘35 per-
cent’’ and inserting ‘‘the rate specified by the
Secretary’’.
(26) Clause (i) of section 6425(c)(1)(A) of such
Code is amended by striking ‘‘or 1201(a)’’.