I 
108TH CONGRESS 
1ST SESSION 
H. R. 285
To amend the Internal Revenue Code of 1986 to simplify certain rules 
relating to the taxation of United States businesses operating abroad, 
and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
JANUARY 8, 2003
Mr. HOUGHTON (for himself, Mr. SAM JOHNSON of Texas, Mr. PORTMAN, and 
Mr. RAMSTAD) introduced the following bill; which was referred to the 
Committee on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to simplify 
certain rules relating to the taxation of United States 
businesses operating abroad, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; 
TABLE OF CONTENTS. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Fairness, Simplification and Competitiveness for Amer-
ican Business Act of 2003’’. 
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment 
to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986. 
(c) TABLE OF CONTENTS.—The table of contents for 
this Act is as follows:
Sec. 1. Short title; amendment of 1986 Code; table of contents. 
TITLE I—TREATMENT OF CONTROLLED FOREIGN CORPORATIONS 
Sec. 101. Expansion of de minimis rule under subpart F. 
Sec. 102. Clarification of treatment of pipeline transportation income. 
Sec. 103. Look-through treatment for sales of partnership interests. 
Sec. 104. Repeal of foreign personal holding company rules and foreign invest-
ment company rules. 
Sec. 105. Determination of foreign personal holding company income with re-
spect to transactions in commodities. 
Sec. 106. Repeal of CFC rules on foreign base company sales and services in-
come. 
Sec. 107. Look-thru treatment of payments between related controlled foreign 
corporations under foreign personal holding company income 
rules. 
Sec. 108. Reduction to 3 foreign tax credit baskets. 
Sec. 109. Effective date. 
TITLE II—PROVISIONS RELATING TO FOREIGN TAX CREDIT 
Sec. 201. Recharacterization of overall domestic loss. 
Sec. 202. Special rules relating to financial services income. 
Sec. 203. Look-thru rules to apply to dividends from noncontrolled section 902 
corporations. 
Sec. 204. Application of look-thru rules to foreign tax credit. 
Sec. 205. 10-year foreign tax credit carryforward. 
Sec. 206. Repeal of limitation of foreign tax credit under alternative minimum 
tax. 
Sec. 207. Attribution of stock ownership through partnerships to apply in de-
termining section 902 and 960 credits. 
Sec. 208. Repeal of special rules for applying foreign tax credit in case of for-
eign oil and gas income. 
TITLE III—OTHER PROVISIONS 
Sec. 301. Application of uniform capitalization rules to foreign persons. 
Sec. 302. United States property not to include certain assets acquired by deal-
ers in ordinary course of trade or business. 
Sec. 303. Treatment of certain dividends of regulated investment companies. 
Sec. 304. Airline mileage awards to certain foreign persons. 
Sec. 305. Interest payments deductible where disqualified guarantee has eco-
nomic effect.
Sec. 306. Modifications of reporting requirements for certain foreign-owned cor-
porations. 
Sec. 307. Election not to use average exchange rate for foreign tax paid other 
than in functional currency. 
Sec. 308. Repeal of special capital gains tax on aliens present in the United 
States for 183 days or more. 
Sec. 309. Repeal of withholding tax on dividends from certain foreign corpora-
tions. 
Sec. 310. Interest expense allocation rules. 
Sec. 311. Permanent extension of Subpart F exemption for active financing.
TITLE I—TREATMENT OF CON-
TROLLED 
FOREIGN 
COR-
PORATIONS
SEC. 101. EXPANSION OF DE MINIMIS RULE UNDER SUB-
PART F. 
(a) 
IN
GENERAL.—Clause 
(ii) 
of 
section 
954(b)(3)(A) (relating to de minimis, etc., rules) is 
amended 
by 
striking 
‘‘$1,000,000’’ 
and 
inserting 
‘‘$5,000,000’’. 
(b) TECHNICAL AMENDMENTS.—
(1) Clause (ii) of section 864(d)(5)(A) is 
amended by striking ‘‘$1,000,000’’ and inserting 
‘‘$5,000,000’’. 
(2) Clause (i) of section 881(c)(5)(A) is amend-
ed 
by 
striking 
‘‘$1,000,000’’ 
and 
inserting 
‘‘$5,000,000’’. 
SEC. 102. CLARIFICATION OF TREATMENT OF PIPELINE 
TRANSPORTATION INCOME. 
Section 954(g)(1) (defining foreign base company oil 
related income) is amended by striking ‘‘or’’ at the end
of subparagraph (A), by striking the period at the end 
of subparagraph (B) and inserting ‘‘, or’’, and by inserting 
after subparagraph (B) the following new subparagraph: 
‘‘(C) the pipeline transportation of oil or 
gas within such foreign country.’’
SEC. 103. LOOK-THROUGH TREATMENT FOR SALES OF 
PARTNERSHIP INTERESTS. 
(a) IN GENERAL.—Section 954(c) (defining foreign 
personal holding company income) is amended by adding 
at the end the following new paragraph: 
‘‘(4) LOOK-THROUGH
RULE
FOR
CERTAIN 
PARTNERSHIP SALES.—
‘‘(A) IN
GENERAL.—In the case of any 
sale by a controlled foreign corporation of an 
interest in a partnership with respect to which 
such corporation is a 25-percent owner, such 
corporation shall be treated for purposes of this 
subsection as selling the proportionate share of
the assets of the partnership attributable to 
such interest. 
‘‘(B) 25-PERCENT OWNER.—For purposes 
of this paragraph, the term ‘25-percent owner’ 
means a controlled foreign corporation which 
owns 25 percent or more of the capital or prof-
its interest in the partnership. The constructive
ownership rules of section 958(b) shall apply 
for purposes of the preceding sentence.’’
(b) 
CONFORMING
AMENDMENT.—Section 
954(c)(1)(B)(ii) is amended by inserting ‘‘except as pro-
vided in paragraph (4),’’ before ‘‘which’’. 
SEC. 104. REPEAL OF FOREIGN PERSONAL HOLDING COM-
PANY RULES AND FOREIGN INVESTMENT 
COMPANY RULES. 
(a) GENERAL RULE.—The following provisions are 
hereby repealed: 
(1) Part III of subchapter G of chapter 1 (re-
lating to foreign personal holding companies). 
(2) Section 1246 (relating to gain on foreign in-
vestment company stock). 
(3) Section 1247 (relating to election by foreign 
investment companies to distribute income cur-
rently). 
(b) EXEMPTION OF FOREIGN CORPORATIONS FROM 
PERSONAL HOLDING COMPANY RULES.—
(1) IN
GENERAL.—Subsection (c) of section 
542 (relating to exceptions) is amended—
(A) by striking paragraph (5) and insert-
ing the following: 
‘‘(5) a foreign corporation,’’,
(B) by striking paragraphs (7) and (10) 
and by redesignating paragraphs (8) and (9) as 
paragraphs (7) and (8), respectively, 
(C) by inserting ‘‘and’’ at the end of para-
graph (7) (as so redesignated), and 
(D) by striking ‘‘; and’’ at the end of para-
graph (8) (as so redesignated) and inserting a 
period. 
(2) TREATMENT OF INCOME FROM PERSONAL 
SERVICE
CONTRACTS.—Paragraph (1) of section 
954(c) is amended by adding at the end the fol-
lowing new subparagraph: 
‘‘(H) PERSONAL SERVICE CONTRACTS.—
‘‘(i) Amounts received under a con-
tract under which the corporation is to fur-
nish personal services; if some person other 
than the corporation has the right to des-
ignate (by name or by description) the in-
dividual who is to perform the services, or 
if the individual who is to perform the 
services is designated (by name or by de-
scription) in the contract; and 
‘‘(ii) amounts received from the sale 
or other disposition of such a contract.
This subparagraph shall apply with respect to 
amounts received for services under a particular 
contract only if at some time during the taxable 
year 25 percent or more in value of the out-
standing stock of the corporation is owned, di-
rectly or indirectly, by or for the individual who 
has performed, is to perform, or may be des-
ignated (by name or by description) as the one 
to perform, such services.’’
(c) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 171(c) is amend-
ed—
(A) by striking ‘‘, or by a foreign personal 
holding company, as defined in section 552’’, 
and 
(B) by striking ‘‘, or a foreign personal 
holding company’’. 
(2) Paragraph (2) of section 245(a) is amended 
by striking ‘‘foreign personal holding company or’’
(3) Section 312 is amended by striking sub-
section (j). 
(4) Subsection (m) of section 312 is amended 
by striking ‘‘, a foreign investment company (within 
the meaning of section 1246(b)), or a foreign per-
sonal holding company (within the meaning of sec-
tion 552)’’. 
(5) Subsection (e) of section 443 is amended by 
striking paragraph (3) and by redesignating para-
graphs (4) and (5) as paragraphs (3) and (4), re-
spectively. 
(6) Subparagraph (B) of section 465(c)(7) is 
amended to by adding ‘‘or’’ at the end of clause (i), 
by striking clause (ii), and by redesignating clause 
(iii) as clause (ii). 
(7) Paragraph (1) of section 543(b) is amended 
by inserting ‘‘and’’ at the end of subparagraph (A), 
by striking ‘‘, and’’ at the end of subparagraph (B) 
and inserting a period, and by striking subparagraph 
(C). 
(8) Paragraph (1) of section 562(b) is amended 
by striking ‘‘or a foreign personal holding company 
described in section 552’’. 
(9) Section 563 is amended—
(A) by striking subsection (c), 
(B) by redesignating subsection (d) as sub-
section (c), and 
(C) by striking ‘‘subsection (a), (b), or (c)’’ 
in subsection (c) (as so redesignated) and in-
serting ‘‘subsection (a) or (b)’’.
(10) Subsection (d) of section 751 is amended 
by adding ‘‘and’’ at the end of paragraph (2), by 
striking paragraph (3), by redesignating paragraph 
(4) as paragraph (3), and by striking ‘‘paragraph 
(1), (2), or (3)’’ in paragraph (3) (as so redesig-
nated) and inserting paragraph (1) or (2)’’. 
(11) Paragraph (2) of section 864(d) is amend-
ed by striking subparagraph (A) and by redesig-
nating subparagraphs (B) and (C) as subparagraphs 
(A) and (B), respectively. 
(12)(A) Subparagraph (A) of section 898(b)(1) 
is amended to read as follows: 
‘‘(A) which is treated as a controlled for-
eign corporation for any purpose under subpart 
F of part III of this subchapter, and’’. 
(B) Subparagraph (B) of section 898(b)(2) is 
amended by striking ‘‘and sections 551(f) and 554, 
whichever are applicable,’’. 
(C) Paragraph (3) of section 898(b) is amended 
to read as follows:
‘‘(3) UNITED
STATES
SHAREHOLDER.—The 
term ‘United States shareholder’ has the meaning 
given to such term by section 951(b), except that, in 
the case of a foreign corporation having related per-
son insurance income (as defined in section
953(c)(2)), the Secretary may treat any person as a 
United States shareholder for purposes of this sec-
tion if such person is treated as a United States 
shareholder under section 953(c)(1).’’
(D) Subsection (c) of section 898 is amended to 
read as follows: 
‘‘(c) DETERMINATION OF REQUIRED YEAR.—
‘‘(1) IN GENERAL.—The required year is—
‘‘(A) the majority U.S. shareholder year, 
or 
‘‘(B) if there is no majority U.S. share-
holder year, the taxable year prescribed under 
regulations. 
‘‘(2) 1-MONTH DEFERRAL ALLOWED.—A speci-
fied foreign corporation may elect, in lieu of the tax-
able year under paragraph (1)(A), a taxable year be-
ginning 1 month earlier than the majority U.S. 
shareholder year. 
‘‘(3) MAJORITY U.S. SHAREHOLDER YEAR.—
‘‘(A) IN GENERAL.—For purposes of this 
subsection, the term ‘majority U.S. shareholder 
year’ means the taxable year (if any) which, on 
each testing day, constituted the taxable year 
of—
‘‘(i) each United States shareholder 
described in subsection (b)(2)(A), and 
‘‘(ii) each United States shareholder 
not described in clause (i) whose stock was 
treated 
as 
owned 
under 
subsection 
(b)(2)(B) by any shareholder described in 
such clause. 
‘‘(B) TESTING
DAY.—The testing days 
shall be—
‘‘(i) the first day of the corporation’s 
taxable year (determined without regard to 
this section), or 
‘‘(ii) the days during such representa-
tive period as the Secretary may pre-
scribe.’’
(13) Clause (ii) of section 904(d)(2) is amended 
to read as follows: 
‘‘(ii) CERTAIN AMOUNTS INCLUDED.—
Except as provided in clause (iii), the term 
‘passive income’ includes, except as pro-
vided in subparagraph (E)(iii) or para-
graph (3)(I), any amount includible in 
gross income under section 1293 (relating 
to certain passive foreign investment com-
panies).’’
(14)(A) Subparagraph (A) of section 904(g)(1) 
is amended by adding ‘‘or’’ at the end of clause (i), 
by striking clause (ii), and by redesignating clause 
(iii) as clause (ii). 
(B) The paragraph heading of paragraph (2) of 
section 904(g) is amended by striking ‘‘FOREIGN 
PERSONAL HOLDING OR’’. 
(15) Section 951 is amended by striking sub-
sections (c) and (d) and by redesignating subsections 
(e) and (f) as subsections (c) and (d), respectively. 
(16) Paragraph (3) of section 989(b) is amend-
ed by striking ‘‘, 551(a),’’. 
(17) Paragraph (5) of section 1014(b) is hereby 
repealed. 
(18) Subsection (a) of section 1016 is amended 
by striking paragraph (13) and by redesignating the 
following paragraphs accordingly. 
(19)(A) Paragraph (3) of section 1212(a) is 
amended to read as follows: 
‘‘(3) SPECIAL RULES ON CARRYBACKS.—A net 
capital loss of a corporation shall not be carried 
back under paragraph (1)(A) to a taxable year—
‘‘(A) for which it is a regulated investment 
company (as defined in section 851), or
‘‘(B) for which it is a real estate invest-
ment trust (as defined in section 856).’’
(B) The amendment made by subparagraph (A) 
shall apply to taxable years beginning after Decem-
ber 31, 2004. 
(20) Section 1223 is amended by striking para-
graph (10) and by redesignating the following para-
graphs accordingly. 
(21) Subsection (d) of section 1248 is amended 
by striking paragraph (5) and by redesignating 
paragraphs (6) and (7) as paragraphs (5) and (6), 
respectively. 
(22) Paragraph (2) of section 1260(c) is 
amended by striking subparagraphs (H) and (I) and 
by redesignating subparagraph (J) as subparagraph 
(H). 
(23) Subparagraph (F) of section 1291(b)(3) is 
amended by striking ‘‘551(d), 959(a),’’ and inserting 
‘‘959(a)’’. 
(24) Paragraph (2) of section 1294(a) is 
amended to read as follows: 
‘‘(2) 
ELECTION
NOT
PERMITTED
WHERE 
AMOUNTS OTHERWISE INCLUDIBLE UNDER SECTION 
951.—The taxpayer may not make an election under 
paragraph (1) with respect to the undistributed
PFIC earnings tax liability attributable to a quali-
fied electing fund for the taxable year if any amount 
is includible in the gross income of the taxpayer 
under section 951 with respect to such fund for such 
taxable year.’’
(25) Section 6035 is hereby repealed. 
(26) Subparagraph (D) of section 6103(e)(1) is 
amended by striking clause (iv) and redesignating 
clauses (v) and (vi) as clauses (iv) and (v), respec-
tively. 
(27) Subparagraph (B) of section 6501(e)(1) is 
amended to read as follows: 
‘‘(B) CONSTRUCTIVE
DIVIDENDS.—If the 
taxpayer omits from gross income an amount 
properly 
includible 
therein 
under 
section 
951(a), the tax may be assessed, or a pro-
ceeding in court for the collection of such tax 
may be done without assessing, at any time 
within 6 years after the return was filed.’’
(28) Subsection (a) of section 6679 is amend-
ed—
(A) by striking ‘‘6035, 6046, and 6046A’’ 
in paragraph (1) and inserting ‘‘6046 and 
6046A’’, and 
(B) by striking paragraph (3).
(29) Sections 170(f)(10)(A), 508(d), 4947 and 
section 4948(c)(4) are each amended by striking 
‘‘556(b)(2),’’ each place it appears. 
(30) The table of parts for subchapter G of 
chapter 1 is amended by striking the item relating 
to part III. 
(31) The table of sections for part IV of sub-
chapter P of chapter 1 is amended by striking the 
items relating to sections 1246 and 1247. 
(32) The table of sections for subpart A of part 
III of subchapter A of chapter 61 of such Code is 
amended by striking the item relating to section 
6035.
SEC. 105. DETERMINATION OF FOREIGN PERSONAL HOLD-
ING COMPANY INCOME WITH RESPECT TO 
TRANSACTIONS IN COMMODITIES. 
(a) IN GENERAL.—Clauses (i) and (ii) of section 
954(c)(1)(C) (relating to commodity transactions) are 
amended to read as follows:
‘‘(i) arise out of commodity hedging 
transactions (as defined in paragraph 
(5)(A)), 
‘‘(ii) are active business gains or 
losses from the sale of commodities, but 
only if substantially all of the controlled
foreign corporations beginning after December 31, 2003, 
and taxable years of United States persons owning stock 
in such corporations with or within which such corpora-
tions’ taxable years end. 
TITLE 
II—PROVISIONS 
RELAT-
ING TO FOREIGN TAX CREDIT 
SEC. 201. RECHARACTERIZATION OF OVERALL DOMESTIC 
LOSS. 
(a) GENERAL RULE.—Section 904 is amended by re-
designating subsections (g), (h), (i), (j), and (k) as sub-
sections (h), (i), (j), (k), and (l) respectively, and by in-
serting after subsection (f) the following new subsection:
‘‘(g) RECHARACTERIZATION OF OVERALL DOMESTIC 
LOSS.—
‘‘(1) GENERAL
RULE.—For purposes of this 
subpart, in the case of any taxpayer who sustains an 
overall domestic loss for any taxable year beginning 
after December 31, 2003, that portion of the tax-
payer’s taxable income from sources within the 
United States for each succeeding taxable year 
which is equal to the lesser of—
‘‘(A) the amount of such loss (to the extent 
not used under this paragraph in prior taxable 
years), or
‘‘(B) 50 percent of the taxpayer’s taxable 
income from sources within the United States 
for such succeeding taxable year, 
shall be treated as income from sources without the 
United States (and not as income from sources with-
in the United States). 
‘‘(2) OVERALL DOMESTIC LOSS DEFINED.—For 
purposes of this subsection and section 936—
‘‘(A) IN GENERAL.—The term ‘overall do-
mestic loss’ means any domestic loss to the ex-
tent such loss offsets taxable income from 
sources without the United States for the tax-
able year or for any preceding taxable year by 
reason of a carryback. For purposes of the pre-
ceding sentence, the term ‘domestic loss’ means 
the amount by which the gross income for the 
taxable year from sources within the United 
States is exceeded by the sum of the deductions 
properly apportioned or allocated thereto (deter-
mined without regard to any carryback from a 
subsequent taxable year). 
‘‘(B) TAXPAYER
MUST
HAVE
ELECTED 
FOREIGN TAX CREDIT FOR YEAR OF LOSS.—
The term ‘overall domestic loss’ shall not in-
clude any loss for any taxable year unless the
securities held primarily for sale to customers 
in the ordinary course of business, and (ii) the 
dealer disposes of the securities (or such securi-
ties mature while held by the dealer) within a 
period consistent with the holding of securities 
for sale to customers in the ordinary course of 
business.’’
(b) CONFORMING AMENDMENT.—Section 956(c)(2) 
is amended by striking ‘‘and (K)’’ in the last sentence and 
inserting ‘‘, (K), and (L)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years of foreign corpora-
tions beginning after December 31, 2003, and to taxable 
years of United States shareholders with or within which 
such taxable years of foreign corporations end. 
SEC. 303. TREATMENT OF CERTAIN DIVIDENDS OF REGU-
LATED INVESTMENT COMPANIES. 
(a) TREATMENT OF CERTAIN DIVIDENDS.—
(1) NONRESIDENT ALIEN INDIVIDUALS.—Sec-
tion 871 (relating to tax on nonresident alien indi-
viduals) is amended by redesignating subsection (k) 
as subsection (l) and by inserting after subsection (j) 
the following new subsection:
‘‘(k) EXEMPTION FOR CERTAIN DIVIDENDS OF REG-
ULATED INVESTMENT COMPANIES.—