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ment under this chapter of the United States
person with respect to such stock, and
‘‘(B) similar adjustments shall be made to
the adjusted basis of the property by reason of
which the United States person is treated as
owning such stock.
‘‘(c) CHARACTER AND SOURCE RULES.—
‘‘(1) ORDINARY TREATMENT.—
‘‘(A) GAIN.—Any amount included in gross
income under subsection (a)(1), and any gain
on the sale or other disposition of marketable
stock in a passive foreign investment company
(with respect to which an election under this
section is in effect), shall be treated as ordinary
income.
‘‘(B) LOSS.—Any—
‘‘(i) amount allowed as a deduction
under subsection (a)(2), and
‘‘(ii) loss on the sale or other disposi-
tion of marketable stock in a passive for-
eign investment company (with respect to
which an election under this section is in
effect) to the extent that the amount of
such loss does not exceed the unreversed
inclusions with respect to such stock,
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shall be treated as an ordinary loss. The
amount so treated shall be treated as a deduc-
tion allowable in computing adjusted gross in-
come.
‘‘(2) SOURCE.—The source of any amount in-
cluded in gross income under subsection (a)(1) (or
allowed as a deduction under subsection (a)(2)) shall
be determined in the same manner as if such
amount were gain or loss (as the case may be) from
the sale of stock in the passive foreign investment
company.
‘‘(d) UNREVERSED INCLUSIONS.—For purposes of
this section, the term ‘unreversed inclusions’ means, with
respect to any stock in a passive foreign investment com-
pany, the excess (if any) of—
‘‘(1) the amount included in gross income of
the taxpayer under subsection (a)(1) with respect to
such stock for prior taxable years, over
‘‘(2) the amount allowed as a deduction under
subsection (a)(2) with respect to such stock for prior
taxable years.
The amount referred to in paragraph (1) shall include any
amount which would have been included in gross income
under subsection (a)(1) with respect to such stock for any
prior taxable year but for section 1291.
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‘‘(e) MARKETABLE STOCK.—For purposes of this
section—
‘‘(1) IN
GENERAL.—The term ‘marketable
stock’ means—
‘‘(A) any stock which is regularly traded
on—
‘‘(i) a national securities exchange
which is registered with the Securities and
Exchange Commission or the national mar-
ket system established pursuant to section
11A of the Securities and Exchange Act of
1934, or
‘‘(ii) any exchange or other market
which the Secretary determines has rules
adequate to carry out the purposes of this
part,
‘‘(B) to the extent provided in regulations,
stock in any foreign corporation which is com-
parable to a regulated investment company and
which offers for sale or has outstanding any
stock of which it is the issuer and which is re-
deemable at its net asset value, and
‘‘(C) to the extent provided in regulations,
any option on stock described in subparagraph
(A) or (B).
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‘‘(2) SPECIAL RULE FOR REGULATED INVEST-
MENT COMPANIES.—In the case of any regulated in-
vestment company which is offering for sale or has
outstanding any stock of which it is the issuer and
which is redeemable at its net asset value, all stock
in a passive foreign investment company which it
owns directly or indirectly shall be treated as mar-
ketable stock for purposes of this section. Except as
provided in regulations, similar treatment as mar-
ketable stock shall apply in the case of any other
regulated investment company which publishes net
asset valuations at least annually.
‘‘(f) TREATMENT OF CONTROLLED FOREIGN COR-
PORATIONS WHICH
ARE SHAREHOLDERS
IN PASSIVE
FOREIGN INVESTMENT COMPANIES.—In the case of a for-
eign corporation which is a controlled foreign corporation
and which owns (or is treated under subsection (g) as own-
ing) stock in a passive foreign investment company—
‘‘(1) this section (other than subsection (c)(2))
shall apply to such foreign corporation in the same
manner as if such corporation were a United States
person, and
‘‘(2) for purposes of subpart F of part III of
subchapter N—
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‘‘(A) any amount included in gross income
under subsection (a)(1) shall be treated as for-
eign personal holding company income de-
scribed in section 954(c)(1)(A), and
‘‘(B) any amount allowed as a deduction
under subsection (a)(2) shall be treated as a de-
duction allocable to foreign personal holding
company income so described.
‘‘(g) STOCK OWNED THROUGH CERTAIN FOREIGN
ENTITIES.—Except as provided in regulations—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, stock owned, directly or indirectly, by or for a
foreign partnership or foreign trust or foreign estate
shall be considered as being owned proportionately
by its partners or beneficiaries. Stock considered to
be owned by a person by reason of the application
of the preceding sentence shall, for purposes of ap-
plying such sentence, be treated as actually owned
by such person.
‘‘(2) TREATMENT OF CERTAIN DISPOSITIONS.—
In any case in which a United States person is
treated as owning stock in a passive foreign invest-
ment company by reason of paragraph (1)—
‘‘(A) any disposition by the United States
person or by any other person which results in
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the United States person being treated as no
longer owning such stock, and
‘‘(B) any disposition by the person owning
such stock,
shall be treated as a disposition by the United
States person of the stock in the passive foreign in-
vestment company.
‘‘(h) COORDINATION WITH SECTION 851(b).—For
purposes of paragraphs (2) and (3) of section 851(b), any
amount included in gross income under subsection (a)
shall be treated as a dividend.
‘‘(i) STOCK ACQUIRED FROM A DECEDENT.—In the
case of stock of a passive foreign investment company
which is acquired by bequest, devise, or inheritance (or
by the decedent’s estate) and with respect to which an
election under this section was in effect as of the date of
the decedent’s death, notwithstanding section 1014, the
basis of such stock in the hands of the person so acquiring
it shall be the adjusted basis of such stock in the hands
of the decedent immediately before his death (or, if lesser,
the basis which would have been determined under section
1014 without regard to this subsection).
‘‘(j) COORDINATION WITH SECTION 1291 FOR FIRST
YEAR OF ELECTION.—
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‘‘(1) TAXPAYERS OTHER THAN REGULATED IN-
VESTMENT COMPANIES.—
‘‘(A) IN GENERAL.—If the taxpayer elects
the application of this section with respect to
any marketable stock in a corporation after the
beginning of the taxpayer’s holding period in
such stock, and if the requirements of subpara-
graph (B) are not satisfied, section 1291 shall
apply to—
‘‘(i) any distributions with respect to,
or disposition of, such stock in the first
taxable year of the taxpayer for which such
election is made, and
‘‘(ii) any amount which, but for sec-
tion 1291, would have been included in
gross income under subsection (a) with re-
spect to such stock for such taxable year in
the same manner as if such amount were
gain on the disposition of such stock.
‘‘(B) REQUIREMENTS.—The requirements
of this subparagraph are met if, with respect to
each of such corporation’s taxable years for
which such corporation was a passive foreign
investment company and which begin after De-
cember 31, 1986, and included any portion of
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the taxpayer’s holding period in such stock,
such corporation was treated as a qualified
electing fund under this part with respect to the
taxpayer.
‘‘(2) SPECIAL RULES FOR REGULATED INVEST-
MENT COMPANIES.—
‘‘(A) IN GENERAL.—If a regulated invest-
ment company elects the application of this sec-
tion with respect to any marketable stock in a
corporation after the beginning of the tax-
payer’s holding period in such stock, then, with
respect to such company’s first taxable year for
which such company elects the application of
this section with respect to such stock—
‘‘(i) section 1291 shall not apply to
such stock with respect to any distribution
or disposition during, or amount included
in gross income under this section for,
such first taxable year, but
‘‘(ii) such regulated investment com-
pany’s tax under this chapter for such first
taxable year shall be increased by the ag-
gregate amount of interest which would
have 
been 
determined 
under 
section
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1291(c)(3) if section 1291 were applied
without regard to this subparagraph.
Clause (ii) shall not apply if for the preceding
taxable year the company elected to mark to
market the stock held by such company as of
the last day of such preceding taxable year.
‘‘(B) DISALLOWANCE OF DEDUCTION.—No
deduction shall be allowed to any regulated in-
vestment company for the increase in tax under
subparagraph (A)(ii).
‘‘(k) ELECTION.—This section shall apply to market-
able stock in a passive foreign investment company which
is held by a United States person only if such person elects
to apply this section with respect to such stock. Such an
election shall apply to the taxable year for which made
and all subsequent taxable years unless—
‘‘(1) such stock ceases to be marketable stock,
or
‘‘(2) the Secretary consents to the revocation of
such election.
‘‘(l) TRANSITION RULE FOR INDIVIDUALS BECOMING
SUBJECT TO UNITED STATES TAX.—If any individual be-
comes a United States person in a taxable year beginning
after December 31, 1997, solely for purposes of this sec-
tion, the adjusted basis (before adjustments under sub-
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section (b)) of any marketable stock in a passive foreign
investment company owned by such individual on the first
day of such taxable year shall be treated as being the
greater of its fair market value on such first day or its
adjusted basis on such first day.’’.
(b) COORDINATION
WITH
INTEREST
CHARGE,
ETC.—
(1) Paragraph (1) of section 1291(d) is amend-
ed by adding at the end the following new flush sen-
tence:
‘‘Except as provided in section 1296(j), this section
also shall not apply if an election under section
1296(k) is in effect for the taxpayer’s taxable year.’’.
(2) The subsection heading for subsection (d) of
section 1291 is amended by striking ‘‘SUBPART B’’
and inserting ‘‘SUBPARTS B AND C’’.
(3) Subparagraph (A) of section 1291(a)(3) is
amended to read as follows:
‘‘(A) HOLDING
PERIOD.—The taxpayer’s
holding period shall be determined under sec-
tion 1223; except that—
‘‘(i) for purposes of applying this sec-
tion to an excess distribution, such holding
period shall be treated as ending on the
date of such distribution, and
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‘‘(ii) if section 1296 applied to such
stock with respect to the taxpayer for any
prior taxable year, such holding period
shall be treated as beginning on the first
day of the first taxable year beginning
after the last taxable year for which sec-
tion 1296 so applied.’’.
(c) TREATMENT OF MARK-TO-MARKET GAIN UNDER
SECTION 4982.—
(1) Subsection (e) of section 4982 is amended
by adding at the end thereof the following new para-
graph:
‘‘(6) TREATMENT OF GAIN RECOGNIZED UNDER
SECTION 1296.—For purposes of determining a regu-
lated investment company’s ordinary income—
‘‘(A) notwithstanding paragraph (1)(C),
section 1296 shall be applied as if such compa-
ny’s taxable year ended on October 31, and
‘‘(B) any ordinary gain or loss from an ac-
tual disposition of stock in a passive foreign in-
vestment company during the portion of the
calendar year after October 31 shall be taken
into account in determining such regulated in-
vestment company’s ordinary income for the
following calendar year.
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In the case of a company making an election under
paragraph (4), the preceding sentence shall be ap-
plied by substituting the last day of the company’s
taxable year for October 31.’’.
(2) Subsection (b) of section 852 is amended by
adding at the end thereof the following new para-
graph:
‘‘(10) SPECIAL RULE FOR CERTAIN LOSSES ON
STOCK
IN
PASSIVE
FOREIGN
INVESTMENT
COM-
PANY.—To the extent provided in regulations, the
taxable income of a regulated investment company
(other than a company to which an election under
section 4982(e)(4) applies) shall be computed with-
out regard to any net reduction in the value of any
stock of a passive foreign investment company with
respect to which an election under section 1296(k)
is in effect occurring after October 31 of the taxable
year, and any such reduction shall be treated as oc-
curring on the first day of the following taxable
year.’’.
(3) Subsection (c) of section 852 is amended by
inserting after ‘‘October 31 of such year’’ the follow-
ing: ‘‘, without regard to any net reduction in the
value of any stock of a passive foreign investment
company with respect to which an election under
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(4) REPEAL OF U.S. SOURCE TREATMENT OF
DEEMED ROYALTIES.—Subparagraph (C) of section
367(d)(2) is amended to read as follows:
‘‘(C) AMOUNTS RECEIVED TREATED AS OR-
DINARY INCOME.—For purposes of this chapter,
any amount included in gross income by reason
of this subsection shall be treated as ordinary
income.’’.
(5) TRANSFERS OF INTANGIBLES TO PARTNER-
SHIPS.—
(A) Subsection (d) of section 367 is
amended by adding at the end the following
new paragraph:
‘‘(3) REGULATIONS RELATING TO TRANSFERS
OF
INTANGIBLES
TO
PARTNERSHIPS.—The Sec-
retary may provide by regulations that the rules of
paragraph (2) also apply to the transfer of intangi-
ble property by a United States person to a partner-
ship in circumstances consistent with the purposes
of this subsection.’’.
(B) Section 721 is amended by adding at
the end the following new subsection:
‘‘(d) TRANSFERS OF INTANGIBLES.—
‘‘For regulatory authority to treat intangibles
transferred to a partnership as sold, see section
367(d)(3).’’.
(c) TECHNICAL AND CONFORMING AMENDMENTS.—
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(1) Subsection (h) of section 814 is amended by
striking ‘‘or 1491’’.
(2) Section 1057 (relating to election to treat
transfer to foreign trust, etc., as taxable exchange)
is hereby repealed.
(3) Section 6422 is amended by striking para-
graph (5) and by redesignating paragraphs (6)
through (13) as paragraphs (5) through (12), re-
spectively.
(4) The table of chapters for subtitle A is
amended by striking the item relating to chapter 5.
(5) The table of sections for part IV of sub-
chapter O of chapter 1 is amended by striking the
item relating to section 1057.
(6) The table of sections for subpart F of part
I of subchapter J of chapter 1 is amended by adding
at the end the following new item:
‘‘Sec. 684. Recognition of gain on certain transfers to certain for-
eign trusts and estates.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the date of the enactment
of this Act.
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Subtitle E—Information Reporting
SEC. 1141. CLARIFICATION OF APPLICATION OF RETURN
REQUIREMENT TO FOREIGN PARTNERSHIPS.
(a) IN GENERAL.—Section 6031 (relating to return
of partnership income) is amended by adding at the end
the following new subsection:
‘‘(e) FOREIGN PARTNERSHIPS.—
‘‘(1) EXCEPTION
FOR
FOREIGN
PARTNER-
SHIP.—Except as provided in paragraph (2), the
preceding provisions of this section shall not apply
to a foreign partnership.
‘‘(2) CERTAIN
FOREIGN
PARTNERSHIPS
RE-
QUIRED TO FILE RETURN.—Except as provided in
regulations prescribed by the Secretary, this section
shall apply to a foreign partnership for any taxable
year if for such year, such partnership has—
‘‘(A) gross income derived from sources
within the United States, or
‘‘(B) gross income which is effectively con-
nected with the conduct of a trade or business
within the United States.
The Secretary may provide simplified filing proce-
dures for foreign partnerships to which this section
applies.’’.
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(b) SANCTION FOR FAILURE BY FOREIGN PARTNER-
SHIP TO COMPLY WITH SECTION 6031 TO INCLUDE DE-
NIAL OF DEDUCTIONS.—Subsection (f) of section 6231 is
amended—
(1) by striking ‘‘LOSSES AND’’ in the heading
and inserting ‘‘DEDUCTIONS, LOSSES, AND’’, and
(2) by striking ‘‘loss or’’ each place it appears
and inserting ‘‘deduction, loss, or’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 1142. CONTROLLED FOREIGN PARTNERSHIPS SUB-
JECT TO INFORMATION REPORTING COM-
PARABLE TO INFORMATION REPORTING FOR
CONTROLLED FOREIGN CORPORATIONS.
(a) IN GENERAL.—So much of section 6038 (relating
to information with respect to certain foreign corpora-
tions) as precedes paragraph (2) of subsection (a) is
amended to read as follows:
‘‘SEC. 6038. INFORMATION REPORTING WITH RESPECT TO
CERTAIN 
FOREIGN 
CORPORATIONS 
AND
PARTNERSHIPS.
‘‘(a) REQUIREMENT.—
‘‘(1) IN GENERAL.—Every United States person
shall furnish, with respect to any foreign business
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entity which such person controls, such information
as the Secretary may prescribe relating to—
‘‘(A) the name, the principal place of busi-
ness, and the nature of business of such entity,
and the country under whose laws such entity
is incorporated (or organized in the case of a
partnership);
‘‘(B) in the case of a foreign corporation,
its post-1986 undistributed earnings (as defined
in section 902(c));
‘‘(C) a balance sheet for such entity listing
assets, liabilities, and capital;
‘‘(D) transactions between such entity
and—
‘‘(i) such person,
‘‘(ii) any corporation or partnership
which such person controls, and
‘‘(iii) any United States person own-
ing, at the time the transaction takes
place—
‘‘(I) in the case of a foreign cor-
poration, 10 percent or more of the
value of any class of stock outstand-
ing of such corporation, and
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‘‘(II) in the case of a foreign
partnership, at least a 10-percent in-
terest in such partnership; and
‘‘(E)(i) in the case of a foreign corpora-
tion, a description of the various classes of
stock outstanding, and a list showing the name
and address of, and number of shares held by,
each United States person who is a shareholder
of record owning at any time during the annual
accounting period 5 percent or more in value of
any class of stock outstanding of such foreign
corporation, and
‘‘(ii) information comparable to the infor-
mation described in clause (i) in the case of a
foreign partnership.
The Secretary may also require the furnishing of
any other information which is similar or related in
nature to that specified in the preceding sentence or
which the Secretary determines to be appropriate to
carry out the provisions of this title.’’.
(b) DEFINITIONS.—
(1) IN
GENERAL.—Subsection (e) of section
6038 (relating to definitions) is amended—
(A) by redesignating paragraphs (1) and
(2) as paragraphs (2) and (4), respectively,
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(B) by inserting before paragraph (2) (as
so redesignated) the following new paragraph:
‘‘(1) FOREIGN
BUSINESS
ENTITY.—The term
‘foreign business entity’ means a foreign corporation
and a foreign partnership.’’, and
(C) by inserting after paragraph (2) (as so
redesignated) the following new paragraph:
‘‘(3) PARTNERSHIP-RELATED DEFINITIONS.—
‘‘(A) CONTROL.—A person is in control of
a partnership if such person owns directly or in-
directly more than a 50 percent interest in such
partnership.
‘‘(B) 50-PERCENT
INTEREST.—For pur-
poses of subparagraph (A), a 50-percent inter-
est in a partnership is—
‘‘(i) an interest equal to 50 percent of
the capital interest, or 50 percent of the
profits interest, in such partnership, or
‘‘(ii) to the extent provided in regula-
tions, an interest to which 50 percent of
the deductions or losses of such partner-
ship are allocated.
For purposes of the preceding sentence, rules
similar to the rules of section 267(c) (other
than paragraph (3)) shall apply, except so as to
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consider a United States person as owning such
an interest which is owned by a person which
is not a United States person.
‘‘(C) 10-PERCENT
INTEREST.—A 10-per-
cent interest in a partnership is an interest
which would be described in subparagraph (B)
if ‘10 percent’ were substituted for ‘50 percent’
each place it appears.’’.
(2) CLERICAL
AMENDMENT.—The paragraph
heading for paragraph (2) of section 6038(e) (as so
redesignated) is amended by inserting ‘‘OF
COR-
PORATION’’ after ‘‘CONTROL’’.
(c) MODIFICATION OF SANCTIONS ON PARTNERSHIPS
AND CORPORATIONS FOR FAILURE TO FURNISH INFOR-
MATION.—
(1) IN
GENERAL.—Subsection (b) of section
6038 is amended—
(A) by striking ‘‘$1,000’’ each place it ap-
pears and inserting ‘‘$10,000’’, and
(B) by striking ‘‘$24,000’’ in paragraph
(2) and inserting ‘‘$50,000’’.
(d) REPORTING BY 10-PERCENT PARTNERS.—Sub-
section (a) of section 6038 is amended by adding at the
end the following new paragraph:
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‘‘(5) INFORMATION
REQUIRED
FROM
10-PER-
CENT
PARTNER
OF
CONTROLLED
FOREIGN
PART-
NERSHIP.—In the case of a foreign partnership
which is controlled by United States persons holding
at least 10-percent interests (but not by any one
United States person), the Secretary may require
each United States person who holds a 10-percent
interest in such partnership to furnish information
relating to such partnership, including information
relating to such partner’s ownership interests in the
partnership and allocations to such partner of part-
nership items.’’.
(e) TECHNICAL AMENDMENTS.—
(1) The following provisions of section 6038 are
each amended by striking ‘‘foreign corporation’’ each
place it appears and inserting ‘‘foreign business en-
tity’’:
(A) Paragraphs (2) and (3) of subsection
(a).
(B) Subsection (b).
(C) Subsection (c) other than paragraph
(1)(B) thereof.
(D) Subsection (d).
(E) Subsection (e)(4) (as redesignated by
subsection (b)).
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(2) Subparagraph (B) of section 6038(c)(1) is
amended by inserting ‘‘in the case of a foreign busi-
ness entity which is a foreign corporation,’’ after
‘‘(B)’’.
(3) Paragraph (8) of section 318(b) is amended
by 
striking 
‘‘6038(d)(1)’’ 
and 
inserting
‘‘6038(d)(2)’’.
(4) Paragraph (4) of section 901(k) is amended
by striking ‘‘foreign corporation’’ and inserting ‘‘for-
eign corporation or partnership’’.
(5) The table of sections for subpart A of part
III of subchapter A of chapter 61 is amended by
striking the item relating to section 6038 and insert-
ing the following new item:
‘‘Sec. 6038. Information reporting with respect to certain foreign
corporations and partnerships.’’.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to annual accounting periods of
foreign partnerships beginning after the date of the enact-
ment of this Act.
SEC. 1143. MODIFICATIONS RELATING TO RETURNS RE-
QUIRED 
TO 
BE 
FILED 
BY 
REASON 
OF
CHANGES IN OWNERSHIP INTERESTS IN FOR-
EIGN PARTNERSHIP.
(a) NO RETURN REQUIRED UNLESS CHANGES IN-
VOLVE 10-PERCENT INTEREST IN PARTNERSHIP.—
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‘‘(1) IN GENERAL.—In addition to any criminal
penalty provided by law, any person required to file
a return under section 6035, 6046, or 6046A who
fails to file such return at the time provided in such
section, or who files a return which does not show
the information required pursuant to such section,
shall pay a penalty of $10,000, unless it is shown
that such failure is due to reasonable cause.
‘‘(2) INCREASE IN PENALTY WHERE FAILURE
CONTINUES
AFTER
NOTIFICATION.—If any failure
described in paragraph (1) continues for more than
90 days after the day on which the Secretary mails
notice of such failure to the United States person,
such person shall pay a penalty (in addition to the
amount required under paragraph (1)) of $10,000
for each 30-day period (or fraction thereof) during
which such failure continues after the expiration of
such 90-day period. The increase in any penalty
under this paragraph shall not exceed $50,000.
‘‘(3) REDUCED PENALTY FOR RETURNS RELAT-
ING TO FOREIGN PERSONAL HOLDING COMPANIES.—
In the case of a return required under section 6035,
paragraph (1) shall be applied by substituting
‘$1,000’ for ‘$10,000’, and paragraph (2) shall not
apply.’’.
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(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to transfers and changes after the
date of the enactment of this Act.
SEC. 1144. TRANSFERS OF PROPERTY TO FOREIGN PART-
NERSHIPS SUBJECT TO INFORMATION RE-
PORTING COMPARABLE TO INFORMATION
REPORTING FOR SUCH TRANSFERS TO FOR-
EIGN CORPORATIONS.
(a) 
IN
GENERAL.—Paragraph 
(1) 
of 
section
6038B(a) (relating to notice of certain transfers to foreign
corporations) is amended to read as follows:
‘‘(1) transfers property to—
‘‘(A) a foreign corporation in an exchange
described in section 332, 351, 354, 355, 356, or
361, or
‘‘(B) a foreign partnership in a contribu-
tion described in section 721 or in any other
contribution described in regulations prescribed
by the Secretary,’’.
(b) EXCEPTIONS.—Section 6038B is amended by re-
designating subsection (b) as subsection (c) and by insert-
ing after subsection (a) the following new subsection:
‘‘(b) EXCEPTIONS
FOR CERTAIN TRANSFERS
TO
FOREIGN PARTNERSHIPS; SPECIAL RULE.—
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‘‘(1) EXCEPTIONS.—Subsection (a)(1)(B) shall
apply to a transfer by a United States person to a
foreign partnership only if—
‘‘(A) the United States person holds (im-
mediately after the transfer) directly or indi-
rectly at least a 10-percent interest (as defined
in section 6046A(d)) in the partnership, or
‘‘(B) the value of the property transferred
(when added to the value of the property trans-
ferred by such person or any related person to
such partnership or a related partnership dur-
ing the 12-month period ending on the date of
the transfer) exceeds $100,000.
For purposes of the preceding sentence, the value of
any transferred property is its fair market value at
the time of its transfer.
‘‘(2) SPECIAL RULE.—If by reason of an ad-
justment under section 482 or otherwise, a contribu-
tion described in subsection (a)(1) is deemed to have
been made, such contribution shall be treated for
purposes of this section as having been made not
earlier than the date specified by the Secretary.’’.
(c) MODIFICATION
OF PENALTY APPLICABLE
TO
FOREIGN CORPORATIONS
AND PARTNERSHIPS.—Para-
graph (1) of section 6038B(b) is amended by striking
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‘‘equal to’’ and all that follows and inserting ‘‘equal to
10 percent of the fair market value of the property at the
time of the exchange (and, in the case of a contribution
described in subsection (a)(1)(B), such person shall recog-
nize gain as if the contributed property had been sold for
such value at the time of such contribution).’’.
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to transfers made after the
date of the enactment of this Act.
(2) ELECTION OF RETROACTIVE EFFECT.—Sec-
tion 1494(c) of the Internal Revenue Code of 1986
shall not apply to any transfer after August 20,
1996, if the person otherwise required to file a re-
turn with respect to such transfer elects to apply the
amendments made by this section to transfers after
August 20, 1996. The Secretary of the Treasury or
his delegate may prescribe simplified reporting
under the preceding sentence.
SEC. 1145. EXTENSION OF STATUTE OF LIMITATION FOR
FOREIGN TRANSFERS.
(a) IN GENERAL.—Paragraph (8) of section 6501(c)
(relating to failure to notify Secretary under section
6038B) is amended to read as follows:
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‘‘(8) FAILURE TO NOTIFY SECRETARY OF CER-
TAIN FOREIGN TRANSFERS.—In the case of any in-
formation which is required to be reported to the
Secretary under section 6038, 6038A, 6038B, 6046,
6046A, or 6048, the time for assessment of any tax
imposed by this title with respect to any event or pe-
riod to which such information relates shall not ex-
pire before the date which is 3 years after the date
on which the Secretary is furnished the information
required to be reported under such section.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to information the due date for
the reporting of which is after the date of the enactment
of this Act.
SEC. 1146. INCREASE IN FILING THRESHOLDS FOR RE-
TURNS AS TO ORGANIZATION OF FOREIGN
CORPORATIONS 
AND 
ACQUISITIONS 
OF
STOCK IN SUCH CORPORATIONS.
(a) IN GENERAL.—Subsection (a) of section 6046
(relating to returns as to organization or reorganization
of foreign corporations and as to acquisitions of their
stock) is amended to read as follows:
‘‘(a) REQUIREMENT OF RETURN.—
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‘‘(1) IN GENERAL.—A return complying with
the requirements of subsection (b) shall be made
by—
‘‘(A) each United States citizen or resident
who becomes an officer or director of a foreign
corporation if a United States person (as de-
fined in section 7701(a)(30)) meets the stock
ownership requirements of paragraph (2) with
respect to such corporation,
‘‘(B) each United States person—
‘‘(i) who acquires stock which, when
added to any stock owned on the date of
such acquisition, meets the stock owner-
ship requirements of paragraph (2) with
respect to a foreign corporation, or
‘‘(ii) who acquires stock which, with-
out regard to stock owned on the date of
such acquisition, meets the stock owner-
ship requirements of paragraph (2) with
respect to a foreign corporation,
‘‘(C) each person (not described in sub-
paragraph (B)) who is treated as a United
States shareholder under section 953(c) with
respect to a foreign corporation, and
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‘‘(D) each person who becomes a United
States person while meeting the stock owner-
ship requirements of paragraph (2) with respect
to stock of a foreign corporation.
In the case of a foreign corporation with respect to
which any person is treated as a United States
shareholder under section 953(c), subparagraph (A)
shall be treated as including a reference to each
United States person who is an officer or director of
such corporation.
‘‘(2) STOCK
OWNERSHIP
REQUIREMENTS.—A
person meets the stock ownership requirements of
this paragraph with respect to any corporation if
such person owns 10 percent or more of—
‘‘(A) the total combined voting power of all
classes of stock of such corporation entitled to
vote, or
‘‘(B) the total value of the stock of such
corporation.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall take effect on January 1, 1998.
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Subtitle F—Determination of For-
eign or Domestic Status of Part-
nerships
SEC. 1151. DETERMINATION OF FOREIGN OR DOMESTIC
STATUS OF PARTNERSHIPS.
(a) IN GENERAL.—Paragraph (4) of section 7701(a)
is amended by inserting before the period ‘‘unless, in the
case of a partnership, the partnership is more properly
treated as a foreign partnership under regulations pre-
scribed by the Secretary’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
the date of the enactment of this Act.
Subtitle G—Other Simplification
Provisions
SEC. 1161. TRANSITION RULE FOR CERTAIN TRUSTS.
(a) IN GENERAL.—Paragraph (3) of section 1907(a)
of the Small Business Job Protection Act of 1996 is
amended by adding at the end the following flush sen-
tence:
‘‘To the extent prescribed in regulations by the Sec-
retary of the Treasury or his delegate, a trust which
was in existence on August 20, 1996 (other than a
trust treated as owned by the grantor under subpart
E of part I of subchapter J of chapter 1 of the In-
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ternal Revenue Code of 1986), and which was treat-
ed as a United States person on the day before the
date of the enactment of this Act may elect to con-
tinue to be treated as a United States person not-
withstanding section 7701(a)(30)(E) of such Code.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect as if included in the
amendments made by section 1907(a) of the Small Busi-
ness Job Protection Act of 1996.
SEC. 1162. REPEAL OF STOCK AND SECURITIES SAFE HAR-
BOR REQUIREMENT THAT PRINCIPAL OFFICE
BE OUTSIDE THE UNITED STATES.
(a) IN GENERAL.—The last sentence of clause (ii) of
section 864(b)(2)(A) (relating to stock or securities) is
amended by striking ‘‘, or in the case of a corporation’’
and all that follows and inserting a period.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1997.
Subtitle H—Other Provisions
SEC. 1171. DEFINITION OF FOREIGN PERSONAL HOLDING
COMPANY INCOME.
(a) INCOME
FROM
NOTIONAL
PRINCIPAL
CON-
TRACTS AND PAYMENTS IN LIEU OF DIVIDENDS.—
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(1) IN
GENERAL.—Paragraph (1) of section
954(c) (defining foreign personal holding company
income) is amended by adding at the end the follow-
ing new subparagraphs:
‘‘(F) INCOME FROM NOTIONAL PRINCIPAL
CONTRACTS.—Net income from notional prin-
cipal contracts. Any item of income, gain, de-
duction, or loss from a notional principal con-
tract entered into for purposes of hedging any
item described in any preceding subparagraph
shall not be taken into account for purposes of
this subparagraph but shall be taken into ac-
count under such other subparagraph.
‘‘(G) PAYMENTS IN LIEU OF DIVIDENDS.—
Payments in lieu of dividends which are made
pursuant to an agreement to which section
1058 applies.’’.
(2) CONFORMING AMENDMENT.—Subparagraph
(B) of section 954(c)(1) is amended—
(A) by striking the second sentence, and
(B) by striking ‘‘also’’ in the last sentence.
(b) EXCEPTION FOR DEALERS.—Paragraph (2) of
section 954(c) is amended by adding at the end the follow-
ing new subparagraph:
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‘‘(C) EXCEPTION FOR DEALERS.—Except
as provided in subparagraph (A), (E), or (G) of
paragraph (1) or by regulations, in the case of
a regular dealer in property (within the mean-
ing of paragraph (1)(B)), forward contracts,
option contracts, or similar financial instru-
ments (including notional principal contracts
and all instruments referenced to commodities),
there shall not be taken into account in comput-
ing foreign personal holding income any item of
income, gain, deduction, or loss from any trans-
action (including hedging transactions) entered
into in the ordinary course of such dealer’s
trade or business as such a dealer.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 1172. PERSONAL PROPERTY USED PREDOMINANTLY
IN THE UNITED STATES TREATED AS NOT
PROPERTY OF A LIKE KIND WITH RESPECT
TO PROPERTY USED PREDOMINANTLY OUT-
SIDE THE UNITED STATES.
(a) IN GENERAL.—Subsection (h) of section 1031
(relating to exchange of property held for productive use
or investment) is amended to read as follows:
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‘‘(h) SPECIAL RULES FOR FOREIGN REAL AND PER-
SONAL PROPERTY.—For purposes of this section—
‘‘(1) REAL PROPERTY.—Real property located
in the United States and real property located out-
side the United States are not property of a like
kind.
‘‘(2) PERSONAL PROPERTY.—
‘‘(A) IN
GENERAL.—Personal property
used predominantly within the United States
and personal property used predominantly out-
side the United States are not property of a like
kind.
‘‘(B) PREDOMINANT USE.—Except as pro-
vided in subparagraph (C) and (D), the pre-
dominant use of any property shall be deter-
mined based on—
‘‘(i) in the case of the property relin-
quished in the exchange, the 2-year period
ending on the date of such relinquishment,
and
‘‘(ii) in the case of the property ac-
quired in the exchange, the 2-year period
beginning on the date of such acquisition.
‘‘(C) PROPERTY HELD FOR LESS THAN 2
YEARS.—Except in the case of an exchange
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which is part of a transaction (or series of
transactions) structured to avoid the purposes
of this subsection—
‘‘(i) only the periods the property was
held by the person relinquishing the prop-
erty (or any related person) shall be taken
into account under subparagraph (B)(i),
and
‘‘(ii) only the periods the property was
held by the person acquiring the property
(or any related person) shall be taken into
account under subparagraph (B)(ii).
‘‘(D) SPECIAL RULE FOR CERTAIN PROP-
ERTY.—Property described in any subpara-
graph of section 168(g)(4) shall be treated as
used predominantly in the United States.’’.
(b) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendment made by
this section shall apply to transfers after June 8,
1997, in taxable years ending after such date.
(2) BINDING
CONTRACTS.—The amendment
made by this section shall not apply to any transfer
pursuant to a written binding contract in effect on
June 8, 1997, and at all times thereafter before the
disposition of property. A contract shall not fail to
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meet the requirements of the preceding sentence
solely because—
(A) it provides for a sale in lieu of an ex-
change, or
(B) the property to be acquired as replace-
ment property was not identified under such
contract before June 9, 1997.
SEC. 1173. HOLDING PERIOD REQUIREMENT FOR CERTAIN
FOREIGN TAXES.
(a) IN GENERAL.—Section 901 is amended by redes-
ignating subsection (k) as subsection (l) and by inserting
after subsection (j) the following new subsection:
‘‘(k) MINIMUM HOLDING PERIOD
FOR CERTAIN
TAXES.—
‘‘(1) WITHHOLDING TAXES.—
‘‘(A) IN GENERAL.—In no event shall a
credit be allowed under subsection (a) for any
withholding tax on a dividend with respect to
stock in a corporation if—
‘‘(i) such stock is held by the recipient
of the dividend for 15 days or less during
the 30-day period beginning on the date
which is 15 days before the date on which
such share becomes ex-dividend with re-
spect to such dividend, or
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‘‘(ii) to the extent that the recipient of
the dividend is under an obligation (wheth-
er pursuant to a short sale or otherwise) to
make related payments with respect to po-
sitions in substantially similar or related
property.
‘‘(B) WITHHOLDING
TAX.—For purposes
of this paragraph, the term ‘withholding tax’ in-
cludes any tax determined on a gross basis; but
does not include any tax which is in the nature
of a prepayment of a tax imposed on a net
basis.
‘‘(2) DEEMED PAID TAXES.—In the case of in-
come, war profits, or excess profits taxes deemed
paid under section 853, 902, or 960 through a chain
of ownership of stock in 1 or more corporations, no
credit shall be allowed under subsection (a) for such
taxes if—
‘‘(A) any stock of any corporation in such
chain (the ownership of which is required to ob-
tain credit under subsection (a) for such taxes)
is held for less than the period described in
paragraph (1)(A)(i), or
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‘‘(B) the corporation holding the stock is
under an obligation referred to in paragraph
(1)(A)(ii).
‘‘(3) 45-DAY RULE IN THE CASE OF CERTAIN
PREFERENCE DIVIDENDS.—In the case of stock hav-
ing preference in dividends and dividends with re-
spect to such stock which are attributable to a pe-
riod or periods aggregating in excess of 366 days,
paragraph (1)(A)(i) shall be applied—
‘‘(A) by substituting ‘45 days’ for ‘15
days’ each place it appears, and
‘‘(B) by substituting ‘90-day period’ for
‘30-day period’.
‘‘(4) EXCEPTION FOR CERTAIN TAXES PAID BY
SECURITIES DEALERS.—
‘‘(A) IN
GENERAL.—Paragraphs (1) and
(2) shall not apply to any qualified tax with re-
spect to any security held in the active conduct
in a foreign country of a securities business of
any person—
‘‘(i) who is registered as a securities
broker or dealer under section 15(a) of the
Securities Exchange Act of 1934,
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‘‘(ii) who is registered as a Govern-
ment securities broker or dealer under sec-
tion 15C(a) of such Act, or
‘‘(iii) who is licensed or authorized in
such foreign country to conduct securities
activities in such country and is subject to
bona fide regulation by a securities regu-
lating authority of such country.
‘‘(B) QUALIFIED
TAX.—For purposes of
subparagraph (A), the term ‘qualified tax’
means a tax paid to a foreign country (other
than the foreign country referred to in subpara-
graph (A)) if—
‘‘(i) the dividend to which such tax is
attributable is subject to taxation on a net
basis by the country referred to in sub-
paragraph (A), and
‘‘(ii) such country allows a credit
against its net basis tax for the full
amount of the tax paid to such other for-
eign country.
‘‘(C) REGULATIONS.—The Secretary may
prescribe such regulations as may be appro-
priate to prevent the abuse of the exception
provided by this paragraph.
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‘‘(5) CERTAIN RULES TO APPLY.—For purposes
of this subsection, the rules of paragraphs (3) and
(4) of section 246(c) shall apply.
‘‘(6) TREATMENT OF BONA FIDE SALES.—If a
person’s holding period is reduced by reason of the
application of the rules of section 246(c)(4) to any
contract for the bona fide sale of stock, the deter-
mination of whether such person’s holding period
meets the requirements of paragraph (2) shall be
made as of the date such contract is entered into.
‘‘(7) TAXES ALLOWED AS DEDUCTION, ETC.—
Sections 275 and 78 shall not apply to any tax
which is not allowable as a credit under subsection
(a) by reason of this subsection.’’.
(b) NOTICE OF WITHHOLDING TAXES PAID BY REG-
ULATED INVESTMENT COMPANY.—Subsection (c) of sec-
tion 853 (relating to foreign tax credit allowed to share-
holders) is amended by adding at the end the following
new sentence: ‘‘Such notice shall also include the amount
of such taxes which (without regard to the election under
this section) would not be allowable as a credit under sec-
tion 901(a) to the regulated investment company by rea-
son of section 901(k).’’.