uals whose mailing addresses on record with the person
providing the right to air transportation are outside the
United States’’ before the period at the end thereof.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to amounts paid, and benefits pro-
vided, after December 31, 2002.
SEC. 306. INTEREST PAYMENTS DEDUCTIBLE WHERE DIS-
QUALIFIED GUARANTEE HAS ECONOMIC EF-
FECT.
(a) IN GENERAL.—Section 163(j)(6)(D)(ii) (relating
to exceptions to disqualified guarantee) is amended—
(1) by striking ‘‘or’’ at the end of subclause (I),
(2) by striking the period at the end of sub-
clause (II) and inserting ‘‘, or’’,
(3) by inserting after subclause (II) the fol-
lowing new subclause:
‘‘(III) if, in the case of a guar-
antee by a foreign person, the tax-
payer establishes to the satisfaction of
the Secretary that the taxpayer could
have borrowed substantially the same
principal amount from an unrelated
person without the guarantee.’’, and
(4) by adding at the end the following new sen-
tence: ‘‘For purposes of subclause (III), to the ex-
tent provided in regulations, the Secretary may re-
ject a showing that a taxpayer could have borrowed
substantially the same principal amount if such bor-
rowing is on terms substantially dissimilar to those
of the actual loan.’’
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to guarantees issued on and after
the date of the enactment of this Act.
SEC. 307. MODIFICATIONS OF REPORTING REQUIREMENTS
FOR CERTAIN FOREIGN-OWNED CORPORA-
TIONS.
(a) DE MINIMIS EXCEPTION.—Section 6038A(b) (re-
lating to required information) is amended by adding at
the end the following new flush sentence:
‘‘The Secretary shall not require the reporting corporation
to report any information with respect to any foreign per-
son which is a related person if the aggregate value of
the transactions between the corporation and the related
person (and any person related to such person) during the
taxable year does not exceed $5,000,000.’’
(b) TIME FOR PROVIDING TRANSLATIONS OF SPE-
CIFIC DOCUMENTS.—Notwithstanding Internal Revenue
Service Regulation § 1.6038A–3(f)(2), a taxpayer shall
have at least 60 days to provide translations of specific
documents it is requested to translate. Nothing in this
subsection shall limit the right of a taxpayer to file a writ-
ten request for an extension of time to comply with the
request.
(c) EFFECTIVE DATES.—
(1) EXCEPTION.—The amendment made by
subsection (a) shall apply to taxable years beginning
after December 31, 2002.
(2) TRANSLATIONS.—Subsection (b) shall apply
to requests made by the Internal Revenue Service
after December 31, 2002.
SEC. 308. ELECTION NOT TO USE AVERAGE EXCHANGE
RATE FOR FOREIGN TAX PAID OTHER THAN
IN FUNCTIONAL CURRENCY.
(a) IN GENERAL.—Paragraph (1) of section 986(a)
(relating to determination of foreign taxes and foreign cor-
poration’s earnings and profits) is amended by redesig-
nating subparagraph (D) as subparagraph (E) and by in-
serting after subparagraph (C) the following new subpara-
graph:
‘‘(D) ELECTIVE
EXCEPTION
FOR
TAXES
PAID
OTHER
THAN
IN
FUNCTIONAL
CUR-
RENCY.—
‘‘(i) IN GENERAL.—At the election of
the taxpayer, subparagraph (A) shall not
apply to any foreign income taxes the li-
ability for which is denominated in any
currency other than in the taxpayer’s func-
tional currency.
‘‘(ii) APPLICATION
TO
QUALIFIED
BUSINESS UNITS.—An election under this
subparagraph may apply to foreign income
taxes attributable to a qualified business
unit in accordance with regulations pre-
scribed by the Secretary.
‘‘(iii) ELECTION.—Any such election
shall apply to the taxable year for which
made and all subsequent taxable years un-
less revoked with the consent of the Sec-
retary.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2002.
SEC. 309. REPEAL OF SPECIAL CAPITAL GAINS TAX ON
ALIENS PRESENT IN THE UNITED STATES
FOR 183 DAYS OR MORE.
(a) IN GENERAL.—Subsection (a) of section 871 is
amended by striking paragraph (2) and by redesignating
paragraph (3) as paragraph (2).
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2002.
SEC. 310. REPEAL OF WITHHOLDING TAX ON DIVIDENDS
FROM CERTAIN FOREIGN CORPORATIONS.
(a) IN GENERAL.—Paragraph (2) of section 871(i)
(relating to tax not to apply to certain interest and divi-
dends) is amended by adding at the end the following new
subparagraph:
‘‘(D) Dividends paid by a foreign corpora-
tion.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to payments made after December
31, 2002.
SEC. 311. INTEREST ALLOCATION RULES.
(a) ELECTION
TO
ALLOCATE
INTEREST
ON
A
WORLDWIDE BASIS.—Subsection (e) of section 864 (relat-
ing to rules for allocating interest, etc.) is amended by
redesignating paragraphs (6) and (7) as paragraphs (7)
and (8), respectively, and by inserting after paragraph (5)
the following new paragraph:
‘‘(6) ELECTION TO ALLOCATE INTEREST ON A
WORLDWIDE BASIS.—
‘‘(A) IN GENERAL.—Except as provided in
this paragraph, this subsection shall be applied
by treating a worldwide affiliated group for
which an election under this paragraph is in ef-
fect as an affiliated group solely for purposes of
allocating and apportioning interest expense of
each domestic corporation which is a member of
such group.
‘‘(B) WORLDWIDE AFFILIATED GROUP.—
For purposes of this paragraph, the term
‘worldwide affiliated group’ means the group of
corporations which consists of—
‘‘(i) all corporations in an affiliated
group (as defined in section 1504 without
regard to paragraphs (2) and (4) of section
1504(b)), and
‘‘(ii) all foreign corporations (other
than a FSC, as defined in section 922(a)
as in effect on the day before the date of
the enactment of the FSC Repeal and
Extraterritorial Income Exclusion Act of
2000) with respect to which corporations
described in clause (i) own stock meeting
the ownership requirements of section
957(a).
For purposes of clause (ii), ownership shall be
determined under section 958; except that para-
graphs (3) and (4) of section 318(a) shall not
apply for purposes of section 958(b).
‘‘(C) TREATMENT OF WORLDWIDE AFFILI-
ATED GROUP.—For purposes of applying para-
graph (1), the taxable income of the domestic
members of a worldwide affiliated group from
sources outside the United States shall be de-
termined by allocating and apportioning the in-
terest expense of such domestic members to
such income in an amount equal to the excess
(if any) of—
‘‘(i) the total interest expense of the
worldwide affiliated group multiplied by
the ratio which the foreign assets of the
worldwide affiliated group bears to all the
assets of the worldwide affiliated group,
over
‘‘(ii) the interest expense of all foreign
corporations which are members of the
worldwide affiliated group to the extent
such interest expense of such foreign cor-
porations would have been allocated and
apportioned to foreign source income if
this subsection were applied to a group
consisting of all the foreign corporations in
such worldwide affiliated group.
‘‘(D) ASSETS AND INTEREST EXPENSE OF
FOREIGN CORPORATIONS.—
‘‘(i) IN
GENERAL.—For purposes of
subparagraph (C), only the applicable per-
centage of the interest expense and assets
of a foreign corporation described in sub-
paragraph (B)(ii) shall be taken into ac-
count.
‘‘(ii) APPLICABLE PERCENTAGE.—For
purposes of this paragraph, the term ‘ap-
plicable percentage’ means, with respect to
any foreign corporation, the percentage
equal to the ratio which the value of the
stock in such corporation taken into ac-
count under subparagraph (B)(ii) (without
regard to stock considered as owned under
section 958(b)) bears to the aggregate
value of all stock in such corporation.
‘‘(E) ELECTION.—An election under this
paragraph with respect to any worldwide affili-
ated group may be made only by the common
parent of the affiliated group referred to in sub-
paragraph (B)(i) and may be made only for the
first taxable year beginning after December 31,
2001, in which a worldwide affiliated group ex-
ists which includes such affiliated group and at
least one corporation described in subparagraph
(B)(ii). Such an election, once made, shall apply
to such common parent and all other corpora-
tions which are members of such worldwide af-
filiated group for such taxable year and all sub-
sequent years unless revoked with the consent
of the Secretary.’’.
(b) ELECTION TO ALLOCATE INTEREST WITHIN FI-
NANCIAL
INSTITUTION
GROUPS
AND
SUBSIDIARY
GROUPS.—Section 864 is amended by redesignating sub-
section (f ) as subsection (g) and by inserting after sub-
section (e) the following new subsection:
‘‘(f ) ELECTION TO APPLY SUBSECTION (e) ON BASIS
OF FINANCIAL INSTITUTION GROUP
AND SUBSIDIARY
GROUPS.—
‘‘(1) IN GENERAL.—In the case of a worldwide
affiliated group for which an election under sub-
section (e)(6) is in effect, subsection (e) shall be
applied—
‘‘(A) by treating an electing financial insti-
tution group as if it were a separate worldwide
affiliated group, and
‘‘(B) by treating each electing subsidiary
group as if it were a separate worldwide affili-
ated group for purposes of allocating interest
expense with respect to qualified indebtedness
of members of an electing subsidiary group.
Subsection (e) shall apply to any such electing group
in the same manner as subsection (e) applies to the
pre-election worldwide affiliated group of which such
electing group is a part.
‘‘(2) 
ELECTING
FINANCIAL
INSTITUTION
GROUP.—For purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘electing fi-
nancial institution group’ means any group of
corporations if—
‘‘(i) such group consists only of all of
the financial corporations in the pre-elec-
tion worldwide affiliated group, and
‘‘(ii) an election under this paragraph
is in effect for such group of corporations.
‘‘(B) FINANCIAL CORPORATION.—
‘‘(i) IN GENERAL.—The term ‘finan-
cial corporation’ means any corporation if
at least 80 percent of its gross income is
income 
described 
in 
section
904(d)(2)(C)(ii) and the regulations there-
under which is derived from transactions
with unrelated persons.
‘‘(ii) INCOME FROM RELATED FINAN-
CIAL
CORPORATIONS.—Dividend income,
and 
income 
described 
in 
section
904(d)(2)(C)(ii) and the regulations there-
under, which is derived directly or indi-
rectly from a financial corporation (as de-
fined in clause (i) without regard to this
clause) which is not an unrelated person
shall be treated as income described in
clause (i).
‘‘(iii) BANK HOLDING COMPANIES.—
To the extent provided in regulations pre-
scribed by the Secretary, a bank holding
company (within the meaning of section
2(a) of the Bank Holding Company Act of
1956) shall be treated as a corporation
meeting the requirements of clause (i).
‘‘(iv) ANTIABUSE
RULE.—For pur-
poses of this subparagraph, there shall be
disregarded any item of income or gain
from a transaction or series of transactions
a principal purpose of which is the quali-
fication of any corporation as a financial
corporation.
‘‘(C) 
EFFECT
OF
CERTAIN
TRANS-
ACTIONS.—Rules similar to the rules of para-
graph (3)(D) shall apply to transactions be-
tween any member of the electing financial in-
stitution group and any member of the pre-elec-
tion worldwide affiliated group (other than a
member of the electing financial institution
group).
‘‘(D) ELECTION.—An election under this
paragraph with respect to any financial institu-
tion group may be made only by the common
parent of the pre-election worldwide affiliated
group and may be made only for the first tax-
able year beginning after December 31, 2001,
in which such affiliated group includes one or
more financial corporations described in sub-
paragraph (B). Such an election, once made,
shall apply to such taxable year and all subse-
quent years unless revoked with the consent of
the Secretary.
‘‘(3) ELECTING SUBSIDIARY GROUPS.—
‘‘(A) IN
GENERAL.—The term ‘electing
subsidiary group’ means any group of corpora-
tions if—
‘‘(i) such group consists only of cor-
porations in the pre-election worldwide af-
filiated group,
‘‘(ii) such group includes—
‘‘(I) 
a 
domestic 
corporation
(which is not the common parent of
the pre-election worldwide affiliated
group or a member of an electing fi-
nancial institution group) which in-
curs interest expense with respect to
qualified indebtedness, and
‘‘(II) every other corporation
(other than a member of an electing
financial institution group) which is in
the pre-election worldwide affiliated
group and which would be a member
of an affiliated group having such do-
mestic corporation as the common
parent, and
‘‘(iii) an election under this paragraph
is in effect for such group.
‘‘(B) EQUALIZATION
RULE.—All interest
expense of a domestic corporation which is a
member of a pre-election worldwide affiliated
group (other than subsidiary group interest ex-
pense) shall be treated as allocated to foreign
source income to the extent such expense does
not exceed the excess (if any) of—
‘‘(i) the interest expense of the pre-
election worldwide affiliated group (includ-
ing subsidiary group interest expense)
which would (but for any election under
this paragraph) be allocated to foreign
source income, over
‘‘(ii) the subsidiary group interest ex-
pense allocated to foreign source income.
For purposes of the preceding sentence, the
subsidiary group interest expense is the interest
expense to which subsection (e) applies sepa-
rately by reason of paragraph (1)(B).
‘‘(C) 
QUALIFIED
INDEBTEDNESS.—For
purposes of this subsection, the term ‘qualified
indebtedness’ means any indebtedness of a do-
mestic corporation—
‘‘(i) which is held by an unrelated per-
son, and
‘‘(ii) which is not guaranteed (or oth-
erwise supported) by any corporation
which is a member of the pre-election
worldwide affiliated group other than a
corporation which is a member of the elect-
ing subsidiary group.
‘‘(D) EFFECT OF CERTAIN TRANSACTIONS
ON QUALIFIED INDEBTEDNESS.—In the case of
a corporation which is a member of an electing
subsidiary group, to the extent that such
corporation—
‘‘(i) distributes dividends or makes
other distributions with respect to its stock
after the date of the enactment of this
paragraph to any member of the pre-elec-
tion worldwide affiliated group (other than
to a member of the electing subsidiary
group) in excess of the greater of—
‘‘(I) its average annual dividend
(expressed as a percentage of current
earnings and profits) during the 5-
taxable-year period ending with the
taxable year preceding the taxable
year, or
‘‘(II) 25 percent of its average
annual earnings and profits for such 5
taxable year period, or
‘‘(ii) deals with any person in any
manner not clearly reflecting the income of
the corporation (as determined under prin-
ciples similar to the principles of section
482),
except as provided by the Secretary, an amount
of qualified indebtedness equal to the excess
distribution or the understatement or overstate-
ment of income, as the case may be, shall be re-
characterized (for the taxable year and subse-
quent taxable years) for purposes of this sub-
section as indebtedness which is not qualified
indebtedness. If a corporation has not been in
existence for 5 taxable years, this subparagraph
shall be applied with respect to the period it
was in existence.
‘‘(E) ELECTION.—An election under this
paragraph with respect to any electing sub-
sidiary group may be made only by the common
parent of the pre-election worldwide affiliated
group. Such an election, once made, shall apply
to the taxable year for which made and the 4
such allocation would be appropriate to carry
out the purposes of this subsection,
‘‘(B) preventing assets or interest expense
from being taken into account more than once,
and
‘‘(C) dealing with changes in members of
any group (through acquisitions or otherwise)
treated under this subsection as an affiliated
group for purposes of subsection (e).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2002.
SEC. 312. PERMANENT EXTENSION OF SUBPART F EXEMP-
TION FOR ACTIVE FINANCING.
(a) IN GENERAL.—
(1) Section 953(e)(10) is amended—
(A) by striking ‘‘, and before January 1,
2007,’’, and
(B) by striking the second sentence.
(2) Section 954(h)(9) is amended by striking ‘‘,
and before January 1, 2007,’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to taxable years beginning after
December 31, 2002.
SEC. 313. REPEAL OF TREATMENT OF EXTRATERRITORIAL
INCOME.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 (relating to items specifically excluded from gross
income) is amended by striking section 114 (relating to
treatment of extraterritorial income).
(b) TECHNICAL AMENDMENTS.—
(1) Part III of subchapter N of chapter 1 is
amended by striking subpart E.
(2) 
The 
second 
sentence 
of 
section
56(g)(4)(B)(i) is amended by striking ‘‘or under sec-
tion 114’’.
(3) Section 275(a) is amended by adding ‘‘or’’
at the end of paragraph (4)(A), by striking ‘‘, or’’
at the end of paragraph (4)(B) and inserting a pe-
riod, by striking subparagraph (4)(C), and by strik-
ing the last sentence.
(4) Paragraph (3) of section 864(e) is amended
by striking ‘‘(A) IN GENERAL.—For purposes of’’
and inserting ‘‘For purposes of’’ and by striking
subparagraph (B).
(5) Section 903 is amended by striking ‘‘114,’’.
(6) Section 999(c)(1) is amended by striking
‘‘941(a)(5),’’.
(7) The table of sections for part III of sub-
chapter B of chapter 1 is amended by striking the
item relating to section 114.
(8) The table of subparts for part III of sub-
chapter N of chapter 1 is amended by striking the
item relating to subpart E.
(c) EFFECTIVE DATE.—The amendments made by
this Act shall apply to transactions after December 31,
2002.
Æ