I
106TH CONGRESS
1ST SESSION
H. R. 2018
To amend the Internal Revenue Code of 1986 to simplify certain rules
relating to the taxation of United States business operating abroad,
and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JUNE 7, 1999
Mr. HOUGHTON (for himself, Mr. LEVIN, Mr. SAM JOHNSON of Texas, Mr.
HERGER, Mr. MATSUI, Mr. CRANE, and Mr. ENGLISH) 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
business 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
‘‘International Tax Simplification for American Competi-
tiveness Act of 1999’’.
(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. Permanent subpart F exemption for active financing income.
Sec. 102. Study of proper treatment of European Union under same country
exceptions.
Sec. 103. Expansion of de minimis rule under subpart F.
Sec. 104. Subpart F earnings and profits determined under generally accepted
accounting principles.
Sec. 105. Clarification of treatment of pipeline transportation income.
Sec. 106. Subpart F treatment of income from transmission of high voltage
electricity.
Sec. 107. Look-through treatment for sales of partnership interests.
Sec. 108. Effective date.
TITLE II—PROVISIONS RELATING TO FOREIGN TAX CREDIT
Sec. 201. Extension of period to which excess foreign taxes may be carried.
Sec. 202. Recharacterization of overall domestic loss.
Sec. 203. Special rules relating to financial services income.
Sec. 204. Look-thru rules to apply to dividends from noncontrolled section 902
corporations.
Sec. 205. Application of look-thru rules to foreign tax credit.
Sec. 206. Ordering rules for foreign tax credit carryovers.
Sec. 207. Repeal of limitation of foreign tax credit under alternative minimum
tax.
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. Deduction for dividends received from certain foreign corporations.
Sec. 302. Application of uniform capitalization rules to foreign persons.
Sec. 303. Treatment of military property of foreign sales corporations.
Sec. 304. United States property not to include certain assets acquired by deal-
ers in ordinary course of trade or business.
Sec. 305. Treatment of certain dividends of regulated investment companies.
Sec. 306. Regulatory authority to exclude certain preliminary agreements from
definition of intangible property.
Sec. 307. Airline mileage awards to certain foreign persons.
Sec. 308. Repeal of reduction of subpart F income of export trade corporations.
Sec. 309. Study of interest allocation.
Sec. 310. Interest payments deductible where disqualified guarantee has eco-
nomic effect.
Sec. 311. Modifications of reporting requirements for certain foreign owned cor-
porations.
TITLE I—TREATMENT OF CON-
TROLLED 
FOREIGN 
COR-
PORATIONS
SEC. 101. PERMANENT SUBPART F EXEMPTION FOR ACTIVE
FINANCING INCOME.
(a) BANKING, FINANCING, 
OR
SIMILAR
BUSI-
NESSES.—Section 954(h) (relating to special rule for in-
come derived in the active conduct of banking, financing,
or similar businesses) is amended by striking paragraph
(9).
(b) INSURANCE BUSINESSES.—Section 953(e) (defin-
ing exempt insurance income) is amended by striking
paragraph (10) and by redesignating paragraph (11) as
paragraph (10).
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years of a foreign cor-
poration beginning after December 31, 1999, and to tax-
able years of United States shareholders with or within
which such taxable years of such foreign corporation end.
SEC. 102. STUDY OF PROPER TREATMENT OF EUROPEAN
UNION UNDER SAME COUNTRY EXCEPTIONS.
(a) STUDY.—The Secretary of the Treasury or the
Secretary’s delegate shall conduct a study on the feasi-
bility of treating all countries included in the European
Union as 1 country for purposes of applying the same
country exceptions under subpart F of part III of sub-
chapter N of chapter 1 of the Internal Revenue Code of
1986. Such study shall include consideration of methods
of ensuring that taxpayers are subject to a substantial ef-
fective rate of foreign tax in such countries if such treat-
ment is adopted.
(b) REPORT.—Not later than 6 months after the date
of the enactment of this Act, the Secretary of the Treasury
shall report to the Committee on Ways and Means of the
House of Representatives and the Committee on Finance
of the Senate the results of the study conducted under
subsection (a), including recommendations (if any) for leg-
islation.
SEC. 103. EXPANSION OF DE MINIMIS RULE UNDER SUB-
PART F.
(a) IN GENERAL.—Subparagraph (A) of section
954(b)(3) (relating to de minimis, etc., rules) is
amended—
(1) by striking ‘‘5 percent’’ in clause (i) and in-
serting ‘‘10 percent’’, and
(2) by striking ‘‘$1,000,000’’ in clause (ii) and
inserting ‘‘$2,000,000’’.
(b) TECHNICAL AMENDMENTS.—
(1) Clause (ii) of section 864(d)(5)(A) is
amended by striking ‘‘5 percent or $1,000,000’’ and
inserting ‘‘10 percent or $2,000,000’’.
(2) Clause (i) of section 881(c)(5)(A) is amend-
ed by striking ‘‘5 percent or $1,000,000’’ and insert-
ing ‘‘10 percent or $2,000,000’’.
SEC. 104. SUBPART F EARNINGS AND PROFITS DETER-
MINED UNDER GENERALLY ACCEPTED AC-
COUNTING PRINCIPLES.
(a) IN GENERAL.—Section 964(a) (relating to earn-
ings and profits) is amended by striking ‘‘rules substan-
tially similar to those applicable to domestic corporations,
under regulations prescribed by the Secretary’’ and insert-
ing ‘‘generally accepted accounting principles in the
United States’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to distributions during, and the
determination of the inclusion under section 951 of the
Internal Revenue Code of 1986 with respect to, taxable
years of foreign corporations beginning after December
31, 1999.
SEC. 105. 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. 106. SUBPART F TREATMENT OF INCOME FROM
TRANSMISSION OF HIGH VOLTAGE ELEC-
TRICITY.
Section 954(e) (relating to foreign base company
services income) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(3) EXCEPTION
FOR
INCOME
FROM
TRANS-
MISSION
OF
HIGH
VOLTAGE
ELECTRICITY.—The
term ‘foreign base company services income’ does
not include income derived in connection with the
performance of services which are related to the
transmission of high voltage electricity.’’
SEC. 107. 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 10-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) 10-PERCENT OWNER.—For purposes
of this paragraph, the term ‘10-percent owner’
means a controlled foreign corporation which
owns 10 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. 108. EFFECTIVE DATE.
Except as otherwise provided in this title, the amend-
ments made by this title shall apply to taxable years of
controlled foreign corporations beginning after December
31, 1999, and taxable years of United States shareholders
with or within which such taxable years of controlled for-
eign corporations end.
TITLE 
II—PROVISIONS 
RELAT-
ING TO FOREIGN TAX CREDIT
SEC. 201. EXTENSION OF PERIOD TO WHICH EXCESS FOR-
EIGN TAXES MAY BE CARRIED.
(a) GENERAL RULE.—Section 904(c) (relating to
carryback and carryover of excess tax paid) is amended
by striking ‘‘in the first, second, third, fourth, or fifth’’
and inserting ‘‘in any of the first 10’’.
(b) EXCESS EXTRACTION TAXES.—Paragraph (1) of
section 907(f) is amended by striking ‘‘in the first, second,
third, fourth, or fifth’’ and inserting ‘‘in any of the first
10’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to excess foreign taxes arising in
taxable years beginning after December 31, 1999.
SEC. 202. 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, 1999, 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
taxpayer chose the benefits of this subpart for
such taxable year.
‘‘(3) CHARACTERIZATION OF SUBSEQUENT IN-
COME.—
‘‘(A) IN
GENERAL.—Any income from
sources within the United States that is treated
as income from sources without the United
States under paragraph (1) shall be allocated
among and increase the income categories in
proportion to the loss from sources within the
United States previously allocated to those in-
come categories.
‘‘(B) INCOME CATEGORY.—For purposes of
this paragraph, the term ‘income category’ has
the meaning given such term by subsection
(f)(5)(E)(i).
‘‘(4) COORDINATION WITH SUBSECTION (f).—
The Secretary shall prescribe such regulations as
may be necessary to coordinate the provisions of this
subsection with the provisions of subsection (f).’’
(b) CONFORMING AMENDMENTS.—
(1) Section 535(d)(2) is amended by striking
‘‘section 
904(g)(6)’’ 
and 
inserting 
‘‘section
904(h)(6)’’.
(2) Subparagraph (A) of section 936(a)(2) is
amended by striking ‘‘section 904(f)’’ and inserting
‘‘subsections (f) and (g) of section 904’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to losses for taxable years begin-
ning after December 31, 1999.
SEC. 203. SPECIAL RULES RELATING TO FINANCIAL SERV-
ICES INCOME.
(a) EXCEPTION FOR INTEREST ON CERTAIN SECURI-
TIES.—Section 904(d)(2)(B) (relating to high withholding
tax interest) is amended by redesignating clause (iii) as
clause (iv) and by inserting after clause (ii) the following
new clause:
‘‘(iii) EXCEPTION FOR INTEREST ON
DEALER PROPERTY.—The term ‘high with-
holding tax interest’ shall not include any
interest on a security (within the meaning
of section 475(c)(2)) which is received or
accrued by a person that holds the security
in connection with the holder’s activities as
a dealer in securities (within the meaning
of section 475(c)(1)).’’
(b) FINANCIAL SERVICES INCOME IN EXCESS OF 80
PERCENT OF GROSS INCOME.—Section 904(d)(2)(C) (re-
lating to financial services income) is amended by adding
at the end the following new clause:
‘‘(iv) INCOME EXCEEDING 80 PERCENT
OF GROSS INCOME.—If the financial serv-
ices income (as defined in clause (i)) of
any person exceeds 80 percent of gross in-
come, the entire gross income for the tax-
able year shall be treated as financial serv-
ices income.’’
(c) EXCEPTION
FOR INCOME
ON DEALER PROP-
ERTY.—Subsection 904(g) (relating to source rules in case
of United States-owned foreign corporations) is amended
by redesignating paragraph (11) as paragraph (12) and
by adding after paragraph (10) the following new para-
graph:
‘‘(11) EXCEPTION
FOR
INCOME
ON
DEALER
PROPERTY.—Paragraph (1) shall not apply to any
amount derived from a United States-owned foreign
corporation that is derived from income on a secu-
rity (within the meaning of section 475(c)(2)) which
is received or accrued by a person that holds the se-
curity in connection with the holder’s activities as a
dealer in securities (within the meaning of section
475(c)(1)).’’
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section shall apply to taxable years beginning
after December 31, 1999.
(2) DEEMED PAID CREDITS.—In the case of
any credit under section 901 of the Internal Revenue
Code of 1986 by reason of section 902 or 960 of
such Code, the amendments made by this section
shall apply to taxable years of foreign corporations
beginning after December 31, 1999, and to taxable
years of United States shareholders in such corpora-
tions with or within which such taxable years of for-
eign corporations end.
SEC. 204. LOOK-THRU RULES TO APPLY TO DIVIDENDS
FROM NONCONTROLLED SECTION 902 COR-
PORATIONS.
(a) IN GENERAL.—Section 904(d)(4) (relating to
look-thru rules apply to dividends from noncontrolled sec-
tion 902 corporations) is amended to read as follows:
‘‘(4) LOOK-THRU APPLIES TO DIVIDENDS FROM
NONCONTROLLED SECTION 902 CORPORATIONS.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, any dividend from a noncontrolled
section 902 corporation with respect to the tax-
payer shall be treated as income in a separate
category in proportion to the ratio of—
‘‘(i) the portion of earnings and prof-
its attributable to income in such category,
to
‘‘(ii) the total amount of earnings and
profits.
‘‘(B) SPECIAL
RULES.—For purposes of
this paragraph—
‘‘(i) IN
GENERAL.—Rules similar to
the rules of paragraph (3)(F) shall apply.
‘‘(ii) EARNINGS AND PROFITS.—
‘‘(I) IN GENERAL.—The rules of
section 316 shall apply.
‘‘(II) REGULATIONS.—The Sec-
retary may prescribe regulations re-
garding the treatment of distributions
out of earnings and profits for periods
before the taxpayer’s acquisition of
the stock to which the distributions
relate.’’
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (E) of section 904(d)(1), as
in effect both before and after the amendments
made by section 1105 of the Taxpayer Relief Act of
1997, is hereby repealed.
(2) Section 904(d)(2)(C)(iii), as so in effect, is
amended by striking subclause (II) and by redesig-
nating subclause (III) as subclause (II).
(3) The last sentence of section 904(d)(2)(D),
as so in effect, is amended to read as follows: ‘‘Such
term does not include any financial services income.’’
(4) Section 904(d)(2)(E) is amended by strik-
ing clauses (ii) and (iv) and by redesignating clause
(iii) as clause (ii).
(5) Section 904(d)(3)(F) is amended by strik-
ing ‘‘(D), or (E)’’ and inserting ‘‘or (D)’’.
(6) Section 864(d)(5)(A)(i) is amended by
striking ‘‘(C)(iii)(III)’’ and inserting ‘‘(C)(iii)(II)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1999.
SEC. 205. APPLICATION OF LOOK-THRU RULES TO FOREIGN
TAX CREDIT.
(a) INTEREST, RENTS, AND ROYALTIES.—
(1) NONCONTROLLED
SECTION
902
CORPORA-
TION.—Section 904(d)(4)(A), as amended by section
204, is amended to read as follows:
‘‘(A) IN GENERAL.—For purposes of this
subsection—
‘‘(i) any applicable dividend shall be
treated as income in a separate category in
proportion to the ratio of—
‘‘(I) the portion of the earnings
and profits attributable to income in
such category, to
‘‘(II) the total amount of earn-
ings and profits, and
‘‘(ii) any interest, rent, or royalty
which is received or accrued from a non-
controlled section 902 corporation with re-
spect to the taxpayer shall be treated as
income in a separate category to the extent
it is properly allocable (under regulations
prescribed by the Secretary) to income of
such corporation in such category.’’
(2) PARTNERSHIPS.—Section 904(d)(6)(C) (re-
lating to regulations) is amended—
(A) by inserting ‘‘or (4)(A)(ii)’’ after
‘‘paragraph (3)(C)’’, and
(B) by inserting ‘‘or noncontrolled section
902 corporations, whichever is applicable’’ after
‘‘controlled foreign corporations’’.
(3) CONFORMING AMENDMENT.—The heading
for section 904(d)(4), as amended by section 204, is
amended by inserting ‘‘, INTEREST, RENTS, OR ROY-
ALTIES’’ after ‘‘DIVIDENDS’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1999.
SEC. 206. ORDERING RULES FOR FOREIGN TAX CREDIT
CARRYOVERS.
(a) IN
GENERAL.—Section 904(c) (relating to
carryback and carryover of excess tax paid), as amended
by section 201, is amended to read as follows:
‘‘(c) CARRYBACK AND CARRYOVER OF EXCESS TAX
PAID.—
‘‘(1) IN GENERAL.—If the sum of—
‘‘(A) the foreign tax credit carryovers
under this subsection to a taxable year, plus
‘‘(B) the amount of all taxes paid to for-
eign countries or possessions of the United
States for the taxable year and for which the
taxpayer elects to have the benefits of this sub-
part apply,
exceeds the limitation under subsection (a), such ex-
cess (to the extent attributable to the taxes de-
scribed in subparagraph (B)) shall be a foreign tax
credit carryback to each of the 2 preceding taxable
years and a foreign tax credit carryforward to each
of the 10 following taxable years.
‘‘(2) ORDERING RULES.—For purposes of any
provision of the title where it is necessary to ascer-
tain the extent to which the credits to which this
subpart applies are used in a taxable year or as a
carryback or carryforward, such taxes shall be treat-
ed as used—
‘‘(A) first from carryovers to such taxable
year,
‘‘(B) then from credits arising in such tax-
able year, and
‘‘(C) finally from carrybacks to such tax-
able year.
‘‘(3) LIMITATIONS ON CARRYOVERS.—
‘‘(A) CREDIT ONLY.—A credit may be car-
ried to a taxable year under this subsection only
if the taxpayer chooses for such taxable year to
have the benefits of this subpart apply to taxes
paid or accrued to foreign countries or any pos-
sessions of the United States. Any amount so
carried may be availed of only as a credit and
not a deduction.
‘‘(B) LIMITATION TO APPLY.—The amount
of the credit carryforward or carryback to a
taxable year (the ‘carryover year’) from a tax-
able year under this subsection shall not exceed
the excess (if any) of—
‘‘(i) the limitation under subsection
(a) for the carryover year, over
‘‘(ii) the sum of—
‘‘(I) the credits arising in the
carryover year, plus
‘‘(II) 
carryforwards 
and
carrybacks to the carryover year from
taxable years earlier than the taxable
year from which the credit is being
carried (whether or not the taxpayer
chooses to have the benefits of this
subpart apply with respect to such
earlier taxable year).’’
(b) EFFECTIVE DATE.—The amendment made by
this section applies to taxable years beginning after De-
cember 31, 1999.
SEC. 207. REPEAL OF LIMITATION OF FOREIGN TAX CREDIT
UNDER ALTERNATIVE MINIMUM TAX.
(a) IN GENERAL.—Section 59(a) (relating to alter-
native minimum tax foreign tax credit) is amended by
striking paragraph (2) and by redesignating paragraphs
(3) and (4) as paragraphs (2) and (3), respectively.
(b) 
CONFORMING
AMENDMENT.—Section
53(d)(1)(B)(i)(II) is amended by striking ‘‘and if section
59(a)(2) did not apply’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1999.
SEC. 208. REPEAL OF SPECIAL RULES FOR APPLYING FOR-
EIGN TAX CREDIT IN CASE OF FOREIGN OIL
AND GAS INCOME.
(a) IN GENERAL.—Section 907 (relating to special
rules in case of foreign oil and gas income) is repealed.
(b) CONFORMING AMENDMENTS.—
(1) Each of the following provisions are amend-
ed by striking ‘‘907,’’:
(A) Section 245(a)(10).
(B) Section 865(h)(1)(B).
(C) Section 904(d)(1).
(D) Section 904(g)(10)(A).
(2) Section 904(f)(5)(E)(iii) is amended by in-
serting ‘‘, as in effect before its repeal by the Inter-
national Tax Simplification for American Competi-
tiveness Act of 1999’’ after ‘‘section 907(c)(4)(B)’’.
(3) Section 954(g)(1) is amended by inserting
‘‘, as in effect before its repeal by the International
Tax Simplification for American Competitiveness
Act of 1999’’ after ‘‘907(c)’’.
(4) Section 6501(i) is amended—
(A) by striking ‘‘, or under section 907(f)
(relating to carryback and carryover of dis-
allowed oil and gas extraction taxes)’’, and
(B) by striking ‘‘or 907(f)’’.
(5) 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 907.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1999.
TITLE III—OTHER PROVISIONS
SEC. 301. DEDUCTION FOR DIVIDENDS RECEIVED FROM
CERTAIN FOREIGN CORPORATIONS.
(a) CONSTRUCTIVE OWNERSHIP RULES TO APPLY IN
DETERMINING 80-PERCENT OWNERSHIP.—Section 245
(a)(5) (relating to post-1986 undistributed U.S. earnings)
is amended by adding at the end the following flush sen-
tence:
‘‘Section 318(a) shall apply for purposes of subpara-
graph (B).’’
(b) DIVIDENDS TO INCLUDE SUBPART F DISTRIBU-
TIONS.—Section 245(a) (relating to dividends from 10-
percent owned foreign corporations) is amended by adding
at the end the following new paragraph:
‘‘(12) SUBPART
F
INCLUSIONS
TREATED
AS
DIVIDENDS.—For purposes of this subsection, the
term ‘dividend’ shall include any amount the tax-
payer is required to include in gross income for the
taxable year under section 951(a).’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1999.
SEC. 302. APPLICATION OF UNIFORM CAPITALIZATION
RULES TO FOREIGN PERSONS.
(a) IN GENERAL.—Section 263A(c) (relating to ex-
ceptions) is amended by adding at the end the following
new paragraph:
‘‘(7) FOREIGN
PERSONS.—This section shall
apply to any taxpayer who is not a United States
person only for purposes of applying sections
871(b)(1) and 882(a)(1).’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1999. Section 481 of the Internal Revenue
Code of 1986 shall not apply to any change in a method
of accounting by reason of such amendment.
SEC. 303. TREATMENT OF MILITARY PROPERTY OF FOR-
EIGN SALES CORPORATIONS.
(a) IN GENERAL.—Section 923(a) (defining exempt
foreign trade income) is amended by striking paragraph
(5) and by redesignating paragraph (6) as paragraph (5).
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1999.
SEC. 304. UNITED STATES PROPERTY NOT TO INCLUDE
CERTAIN ASSETS ACQUIRED BY DEALERS IN
ORDINARY COURSE OF TRADE OR BUSINESS.
(a) IN GENERAL.—Section 956(c)(2) (relating to ex-
ceptions from property treated as United States property)
is amended by striking ‘‘and’’ at the end of subparagraph
(J), by striking the period at the end of subparagraph (K)
and inserting ‘‘; and’’, and by adding at the end the fol-
lowing new subparagraph:
‘‘(L) securities acquired and held by a con-
trolled foreign corporation in the ordinary
course of its business as a dealer in securities
if (i) the dealer accounts for the securities as
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, 1999, and to taxable
years of United States shareholders or with or within
which such taxable years of foreign corporations end.
SEC. 305. 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.—
‘‘(1) INTEREST-RELATED DIVIDENDS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), no tax shall be imposed
under paragraph (1)(A) of subsection (a) on
any interest-related dividend received from a
regulated investment company.
‘‘(B) 
EXCEPTIONS.—Subparagraph 
(A)
shall not apply—
‘‘(i) to any interest-related dividend
received from a regulated investment com-
pany by a person to the extent such divi-
dend is attributable to interest (other than
interest described in subparagraph (E) (i)
or (iii)) received by such company on in-
debtedness issued by such person or by any
corporation or partnership with respect to
which such person is a 10-percent share-
holder,
‘‘(ii) to any interest-related dividend
with respect to stock of a regulated invest-
ment company unless the person who
would otherwise be required to deduct and
withhold tax from such dividend under
chapter 3 receives a statement (which
meets requirements similar to the require-
ments of subsection (h)(5)) that the bene-
ficial owner of such stock is not a United
States person, and
‘‘(iii) to any interest-related dividend
paid to any person within a foreign coun-
try (or any interest-related dividend pay-
ment addressed to, or for the account of,
persons within such foreign country) dur-
ing any period described in subsection
(h)(6) with respect to such country.
Clause (iii) shall not apply to any dividend with
respect to any stock which was acquired on or
before the date of the publication of the Sec-
retary’s determination under subsection (h)(6).
‘‘(C) INTEREST-RELATED DIVIDEND.—For
purposes of this paragraph, an interest-related
dividend is any dividend (or part thereof) which
is designated by the regulated investment com-
pany as an interest-related dividend in a writ-
ten notice mailed to its shareholders not later
than 60 days after the close of its taxable year.
If the aggregate amount so designated with re-
spect to a taxable year of the company (includ-
ing amounts so designated with respect to divi-
dends paid after the close of the taxable year
described in section 855) is greater than the
‘‘(ii) Any interest includible in gross
income (including amounts recognized as
ordinary income in respect of original issue
discount or market discount or acquisition
discount under part V of subchapter P and
such other amounts as regulations may
provide) on an obligation which is in reg-
istered form; except that this clause shall
not apply to—
‘‘(I) any interest on an obligation
issued by a corporation or partnership
if the regulated investment company
is a 10-percent shareholder in such
corporation or partnership, and
‘‘(II) any interest which is treat-
ed as not being portfolio interest
under the rules of subsection (h)(4).
‘‘(iii) Any interest referred to in sub-
section (i)(2)(A) (without regard to the
trade or business of the regulated invest-
ment company).
‘‘(iv) Any interest-related dividend in-
cludable in gross income with respect to
stock of another regulated investment com-
pany.
‘‘(F) 10-PERCENT
SHAREHOLDER.—For
purposes of this paragraph, the term ‘10-per-
cent shareholder’ has the meaning given such
term by subsection (h)(3)(B).
‘‘(2) SHORT-TERM CAPITAL GAIN DIVIDENDS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), no tax shall be imposed
under paragraph (1)(A) of subsection (a) on
any short-term capital gain dividend received
from a regulated investment company.
‘‘(B) EXCEPTION
FOR
ALIENS
TAXABLE
UNDER SUBSECTION (a)(2).—Subparagraph (A)
shall not apply in the case of any nonresident
alien individual subject to tax under subsection
(a)(2).
‘‘(C) SHORT-TERM
CAPITAL
GAIN
DIVI-
DEND.—For purposes of this paragraph, a
short-term capital gain dividend is any dividend
(or part thereof) which is designated by the reg-
ulated investment company as a short-term cap-
ital gain dividend in a written notice mailed to
its shareholders not later than 60 days after the
close of its taxable year. If the aggregate
amount so designated with respect to a taxable
year of the company (including amounts so des-
ignated with respect to dividends paid after the
close of the taxable year described in section
855) is greater than the qualified short-term
gain of the company for such taxable year, the
portion of each distribution which shall be a
short-term capital gain dividend shall be only
that portion of the amounts so designated
which such qualified short-term gain bears to
the aggregate amount so designated.
‘‘(D) QUALIFIED SHORT-TERM GAIN.—For
purposes of subparagraph (C), the term ‘quali-
fied short-term gain’ means the excess of the
net short-term capital gain of the regulated in-
vestment company for the taxable year over the
net long-term capital loss (if any) of such com-
pany for such taxable year. For purposes of this
subparagraph—
‘‘(i) the net short-term capital gain of
the regulated investment company shall be
computed by treating any short-term cap-
ital gain dividend includible in gross in-
come with respect to stock of another regu-
lated investment company as a short-term
capital gain, and
‘‘(ii) the excess of the net short-term
capital gain for a taxable year over the net
long-term capital loss for a taxable year (to
which an election under section 4982(e)(4)
does not apply) shall be determined with-
out regard to any net capital loss or net
short-term capital loss attributable to
transactions after October 31 of such year,
and any such net capital loss or net short-
term capital loss shall be treated as arising
on the 1st day of the next taxable year.
To the extent provided in regulations, clause
(ii) shall apply also for purposes of computing
the taxable income of the regulated investment
company.’’
(2) FOREIGN CORPORATIONS.—Section 881 (re-
lating to tax on income of foreign corporations not
connected with United States business) is amended
by redesignating subsection (e) as subsection (f) and
by inserting after subsection (d) the following new
subsection:
‘‘(e) TAX NOT TO APPLY TO CERTAIN DIVIDENDS
OF REGULATED INVESTMENT COMPANIES.—
‘‘(1) INTEREST-RELATED DIVIDENDS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), no tax shall be imposed
under paragraph (1) of subsection (a) on any
interest-related dividend (as defined in section
871(k)(1)) received from a regulated investment
company.
‘‘(B) 
EXCEPTION.—Subparagraph 
(A)
shall not apply—
‘‘(i) to any dividend referred to in sec-
tion 871(k)(1)(B), and
‘‘(ii) to any interest-related dividend
received by a controlled foreign corporation
(within the meaning of section 957(a)) to
the extent such dividend is attributable to
interest received by the regulated invest-
ment company from a person who is a re-
lated person (within the meaning of section
864(d)(4)) with respect to such controlled
foreign corporation.
‘‘(C) TREATMENT
OF
DIVIDENDS
RE-
CEIVED
BY
CONTROLLED
FOREIGN
CORPORA-
TIONS.—The rules of subsection (c)(5)(A) shall
apply to any interest-related dividend received
by a controlled foreign corporation (within the
meaning of section 957(a)) to the extent such
dividend is attributable to interest received by
the regulated investment company which is de-
scribed in clause (ii) of section 871(k)(1)(E)
(and not described in clause (i) or (iii) of such
section).
‘‘(2) SHORT-TERM CAPITAL GAIN DIVIDENDS.—
No tax shall be imposed under paragraph (1) of sub-
section (a) on any short-term capital gain dividend
(as defined in section 871(k)(2)) received from a
regulated investment company.’’
(3) WITHHOLDING TAXES.—
(A) Section 1441(c) (relating to excep-
tions) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(12) CERTAIN
DIVIDENDS
RECEIVED
FROM
REGULATED INVESTMENT COMPANIES.—
‘‘(A) IN GENERAL.—No tax shall be re-
quired to be deducted and withheld under sub-
section (a) from any amount exempt from the
tax imposed by section 871(a)(1)(A) by reason
of section 871(k).
‘‘(B) SPECIAL
RULE.—For purposes of
subparagraph 
(A), 
clause 
(i) 
of 
section
871(k)(1)(B) shall not apply to any dividend
unless the regulated investment company knows
that such dividend is a dividend referred to in
such clause. A similar rule shall apply with re-
spect to the exception contained in section
871(k)(2)(B).’’
(B) Section 1442(a) (relating to with-
holding of tax on foreign corporations) is
amended—
(i) by striking ‘‘and the reference in
section 1441(c)(10)’’ and inserting ‘‘the
reference in section 1441(c)(10)’’, and
(ii) by inserting before the period at
the end the following: ‘‘, and the references
in section 1441(c)(12) to sections 871(a)
and 871(k) shall be treated as referring to
sections 881(a) and 881(e) (except that for
purposes of applying subparagraph (A) of
section 1441(c)(12), as so modified, clause
(ii) of section 881(e)(1)(B) shall not apply
to any dividend unless the regulated invest-
ment company knows that such dividend is
a dividend referred to in such clause)’’.
(b) ESTATE TAX TREATMENT OF INTEREST IN CER-
TAIN
REGULATED
INVESTMENT
COMPANIES.—Section
2105 (relating to property without the United States for
estate tax purposes) is amended by adding at the end the
following new subsection:
‘‘(d) STOCK IN A RIC.—
‘‘(1) IN GENERAL.—For purposes of this sub-
chapter, stock in a regulated investment company
(as defined in section 851) owned by a nonresident
not a citizen of the United States shall not be
deemed property within the United States in the
proportion that, at the end of the quarter of such in-
vestment company’s taxable year immediately pre-
ceding a decedent’s date of death (or at such other
time as the Secretary may designate in regulations),
the assets of the investment company that were
qualifying assets with respect to the decedent bore
to the total assets of the investment company.
‘‘(2) QUALIFYING
ASSETS.—For purposes of
this subsection, qualifying assets with respect to a
decedent are assets that, if owned directly by the de-
cedent, would have been—
‘‘(A) amounts, deposits, or debt obligations
described in subsection (b) of this section,
‘‘(B) debt obligations described in the last
sentence of section 2104(c), or
‘‘(C) other property not within the United
States.’’
(c) TREATMENT OF REGULATED INVESTMENT COM-
PANIES UNDER SECTION 897.—
(1) Paragraph (1) of section 897(h) is amended
by striking ‘‘REIT’’ each place it appears and in-
serting ‘‘qualified investment entity’’.
(2) Paragraphs (2) and (3) of section 897(h)
are amended to read as follows:
‘‘(2) SALE OF STOCK IN DOMESTICALLY CON-
TROLLED ENTITY NOT TAXED.—The term ‘United
States real property interest’ does not include any
interest in a domestically controlled qualified invest-
ment entity.
‘‘(3) DISTRIBUTIONS BY DOMESTICALLY CON-
TROLLED
QUALIFIED
INVESTMENT
ENTITIES.—In
the case of a domestically controlled qualified invest-
ment entity, rules similar to the rules of subsection
(d) shall apply to the foreign ownership percentage
of any gain.’’
(3) Subparagraphs (A) and (B) of section
897(h)(4) are amended to read as follows:
‘‘(A) QUALIFIED INVESTMENT ENTITY.—
The term ‘qualified investment entity’ means
any real estate investment trust and any regu-
lated investment company.
‘‘(B) DOMESTICALLY
CONTROLLED.—The
term ‘domestically controlled qualified invest-
ment entity’ means any qualified investment en-
tity in which at all times during the testing pe-
riod less than 50 percent in value of the stock
was held directly or indirectly by foreign per-
sons.’’
(4) Subparagraphs (C) and (D) of section
897(h)(4) are each amended by striking ‘‘REIT’’
and inserting ‘‘qualified investment entity’’.
(5) The subsection heading for subsection (h) of
section 897 is amended by striking ‘‘REITS’’ and
inserting ‘‘CERTAIN INVESTMENT ENTITIES’’.
(d) EFFECTIVE DATE.—
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by
this section shall apply to dividends with respect to
taxable years of regulated investment companies be-
ginning after the date of the enactment of this Act.
(2) ESTATE
TAX
TREATMENT.—The amend-
ment made by subsection (b) shall apply to estates
of decedents dying after the date of the enactment
of this Act.
(3) CERTAIN OTHER PROVISIONS.—The amend-
ments made by subsection (c) (other than paragraph