An Act to amend the Internal Revenue Code of 1954 to provide equitable tax treatment for foreign investment in the United States
PL 89-809 (H.R.13103), enacted 11/13/1966

80 STAT.] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1539 
Public Law 89-809 
AN ACT 
November 13, 1966 
P H 
T? 
1 H 1 0 S 1 
To provide equitable tax treatment for foreign investment in the United States, 
LJ 
to establish a Presidential Election Campaign Fund to assist in financing the 
costs of presidential election campaigns, and for other purposes. 
Be it enacted hy the Senate and House of Representatives 
of the 
United States of Americc^ in Congress assembled, 
tofs°Til"AcTof' 
SECTION 1. TABLE OF CONTENTS, ETC. 
3^66 and Presi-
dential Election 
(a) TABLE OF CONTENTS.— 
campaign Fund 
Sec. 1. Table of contents, etc. 
Act of 1966, 
(a) Table of contents. 
(b) Amendment of 1954 Code. 
TITLE I—FOREIGN INVESTORS TAX ACT 
Sec. 102. Source of income. 
(a) Interest. 
(b) Dividends. 
(c) Personal services. 
(d) Definitions. 
(e) Effective dates. 
Sec. 103. Nonresident alien individuals. 
(a) Tax on nonresident alien individuals. 
(b) Gross income. 
(c) Deductions. 
(d) Allowance of deductions and credits. 
(e) Beneficiaries of estates and trusts. 
(f) Expatriation to avoid tax. 
(g) Partial exclusion of dividends. 
(h) Withholding of tax on nonresident aliens. 
[i) Liability for withheld tax. 
(j) Declaration of estimated income tax by individuals. 
(k) Collection of income tax at source on wages. 
(1) Definitions of foreign estate or trust, 
(m) Conforming amendment, 
[n) Effective dates. 
Sec. 104. Foreign corporations. 
(a) Tax on income not connected with United States business. 
(b) Tax on income connected with United States business. 
(c) Withholding of tax on foreign corporations. 
(d) Dividends received from certain foreign corporations. 
(e) Dividends received from certain wholly-owned foreign subsidiaries. 
(f) Distributions of certain foreign corjwrations. 
(g) Unrelated business taxable income, 
(h) Corporations subject to personal holding company tax. 
(i) Amendments with respect to foreign corporations carrying on insurance 
business in United States, 
(j) Subpart F income, 
[k) Gain from certain sales or exchanges of stock in certain foreign 
corporations. 
[1) Declaration of estimated income tax by corporations. 
(m) Technical amendments. 
[n) Effective dates. 
Sec. 105. Special tax provisions. 
(a) Income affected by treaty. 
(b) Adjustment of tax because of burdensome or discriminatory foreign 
taxes. 
(c) Clerical amendments. 
(d) Effective date. 
(e) Elections by nonresident United States citizens who are subject to for-
eign community property laws. 
(f) Presumptive date of payment for tax withheld under chapter 3. 
Sec. 106. Foreign tax credit. 
(a) Allowance of credit to certain nonresident aliens and foreign corpora-
tions. 
(b) Alien residents of the United States or Puerto Rico. 
(c) Foreign tax credit in respect of interest received from foreign sub-
sidiaries. 
Sec. 107. Amendments to preserve existing law on deductions imder section 931. 
(a) Deductions. 
[b) Effective date. 
1540 
PUBLIC L
A
W 89-809-NOV. 13, 1966 
[80 STAT. 
TITLE I—FOREIGN INVESTORS TAX ACT—Continued 
Sec. 108. Estates of nonresidents not citizens. 
(a) Rate of tax. 
(b) Credits against tax. 
(c) Property within the United States. 
(d) Property without the United States. 
(e) Definition of taxable estate. 
(f) Special methods of computing tax. 
(g) Estate tax returns, 
(h) Clerical amendment, 
(i) Effective date. 
Sec. 109. Tax on gifts of nonresidents not citizens. 
(a) Imposition of tax. 
(b) Transfers in general. 
(c) Effective date. 
Sec. 110. Treaty obligations. 
TITLE II—OTHER AMENDMENTS TO INTERNAL REVENUE CODE 
Sec. 201. Application of investment credit to property used in possessions of the 
United States. 
(a) Property used by domestic corporations, etc. 
(b) Effective date. 
Sec. 202. Basis of property received on liquidation of subsidiary. 
(a) Definition of purchase. 
(b) Period of acquisition. 
(c) Distribution of installment obligations. 
(d) Effective dates. 
Sec. 203. Transfers of property to investment companies controlled by transferors. 
(a) Transfers to investment comi>anies. 
(b) Investment companies required to file registration statement with S.E.C. 
(c) Effective date. 
Sec. 204. Removal of special limitations with respect to deductibility of con-
tributions to pension plans by self-employed individuals. 
(a) Removal of special limitations. 
(b) Conforming amendments. 
(c) Definition of earned income. 
(d) Effective date. 
Sec. 205. Treatment of certain income of authors, inventors, etc., as earned 
income for retirement plan purposes. 
(a) Income from disposition of property created by taxpayer. 
(b) Effective date. 
Sec. 206. Exclusion of certain rents from personal holding company income. 
(a) Rents from leases of certain tangible personal property. 
(b) Technical amendments. 
(c) Effective date. 
Sec. 20^. Percentage depletion rate for certain clay bearing alumina. 
(a) 23 percent rate. 
(b) Treatment processes. 
(c) Effective date. 
Sec. 208. Percentage depletion rate for clam and oyster shells. 
(a) 15 percent rate. 
(b) Effective date. 
Sec. 209. Percentage depletion rate for certain clay, shale, and slate. 
(a) 7^-percent rate. 
(b) Conforming amendment. 
(c) Effective date. 
Sec. 210. Straddles. 
(a) Treatment as short-term capital gain. 
(b) Effective date. 
Sec. 211. Tax treatment of per-unit retain allocations. 
(a) Tax treatment of cooperatives. 
(b) Tax treatment by patrons. 
(c) Definitions. 
(d) Information reporting. 
(e) Effective dates. 
(f) Transition rule. 
Sec. 212. Excise tax rate on ambulances and hearses. 
(a) Classification as automobiles. 
(b) Effective date. 
80 STAT.] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1541 
TITLE II—OTHER AMENDMENTS TO INTERNAL REVENUE 
CODE^Continued 
See. 213. Applicability of exclusion from interest equalization tax of certain 
loans to assure raw materials sources. 
(a) Exception to exclusion. 
(b) Technical amendments. 
(c) Effective date. 
Sec. 214. Exclusion from interest equalization tax for certain acquisitions by 
insurance companies. 
(a) New companies and companies operating in former less developed 
countries. 
(b) Effective date. 
Sec. 215. Exclusion from interest equalization tax of certain acquisitions by 
foreign branches of domestic banks. 
(a) Authority for modification of executive orders. 
(b) Effective date. 
TITLE III—PRESIDENTIAL ELECTION CAMPAIGN FUND ACT 
Sec. 301. Short title. 
Sec. 302. Authority for designation of $1 of income tax payments to presidential 
election campaign fund. 
Sec. .303. Presidential election campaign fund. 
(a) Establishment. 
(b) Transfers to the fund. 
(c) Payments from fund. 
(d) Transfers to general fund. 
Sec. 304. Establishment of advisory board. 
Sec. 305. Appropriations authorized. 
TITLE IV—MISCELLANEOUS PROVISIONS 
Sec. 401. Treasury notes payable in foreign currency. 
Sec. 402. Reports to clarify the national debt and tax structure. 
(b) AMENDMENT OF 1954 CODE.—Except as otherwise expressly 
provided, wherever in titles I, II, and III, of this Act an amendment 
or repeal is expressed in terms of an amendment to, or repeal of, a 
section or other provision, the reference is to a section or other provi-
sion of the Internal Revenue Code of 1954. 
TITLE I—FOREIGN INVESTORS TAX ACT 
SEC. 101. SHORT TITLE. 
This title may be cited as the "Foreign Investors Tax Act of 1966". 
SEC. 102. SOURCE OF INCOME. 
(a) 
INTEREST.— 
(1)(A) Subparagraph (A) of section 861(a) (1) (relating to 
SSA stat. 275. 
interest from sources within the United States) is amended to 
read as follows: 
"(A) interest on amounts described in subsection (c) re-
ceived by a nonresident alien individual or a foreign corpo-
ration, if such interest is not effectively connected with the 
conduct of a trade or business within the United States,". 
(B) Section 861 is amended by adding at the end thereof the 
following new subsection: 
"(c) INTEREST ON DEPOSITS, ETC.—For purposes of subsection (a) 
(1) (A), the amounts described in this subsection are— 
"(1) deposits with persons carrying on the banking business, 
"(2) deposits or withdrawable accounts with savings institu-
tions chartered and supervised as savings and loan or similar as-
sociations under Federal or State law, but only to the extent that 
amounts paid or credited on such deposits or accounts are deducti-
1542 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
68A Stat. 
78. 
ble under section 591 (determined without regard to section 265) 
in computing the taxable income of such institutions, and 
"(3) amounts held by an insurance company under an agree-
ment to pay interest thereon. Effective with respect to amounts 
paid or credited after December 31, 1972, subsection (a) (1) (A) 
and this subsection shall cease to apply." 
(2) Section 861(a) (1) is amended by striking out subpara-
graphs (B) and (C) and inserting in lieu thereof the following: 
"(B) interest received from a resident alien individual or 
a domestic corporation, when it is shown to the satisfaction 
of the Secretary or his delegate that less than 20 percent of 
the gross income from all sources of such individual or such 
corporation has been derived from sources within the United 
States, as determined under the provisions of this part, for 
the 3-year period ending with the close of the taxable year 
of such individual or such corporation preceding the pay-
ment of such interest, or for such part of such period as may 
be applicable, 
"(C) interest received from a foreign corporation (other 
than interest paid or credited after December 31, 1972, by a 
domestic branch of a foreign corj)oration, if such branch is 
engaged in the commercisd banking business), when it is 
shown to the satisfaction of the Secretary or his delegate 
that less than 50 percent of the gross income from all sources 
of such foreign corporation for the 3-year period ending 
with the close of its taxable year preceding the payment of 
such interest (or for such part of such period as the corpora-
tion has been in existence) was effectively connected with 
the conduct of a trade or business within the United States, 
"(D) in the case of interest received from a foreign corpo-
ration (other than interest paid or credited after December 31, 
1972, by a domestic branch of a foreign corporation, if such 
branch is engaged in the commercial banking business), 50 
percent or more of the gross income of which from all sources 
for the 3-year period ending with the close of its taxable year 
preceding the payment of such interest (or for such part of 
such period as the corporation has been in existence) was 
effectively connected with the conduct of a trade or business 
within the United States, an amount of such interest which 
bears the same ratio to such interest as the gross income of 
such foreign corporation for such period which was not effec-
tively connected with the conduct of a trade or business within 
the United States bears to its gross income from all sources, 
"(E) income derived by a foreign central bank of issue 
from bankers' acceptances, and 
"(F) interest on deposits with a foreign branch of a domes-
tic corporation or a domestic partnership, if such branch is 
engaged in the commercial banking business." 
(3) Section 861 (relating to income from sources within the 
United States) is amended by adding after subsection (c) (as 
added by paragraph (1) (B)) the following new subsection: 
"(d) 
SPECIAL EULES FOR APPLICATION OF PARAGRAPHS 
( 1 ) ( B ) , 
( l ) ( C ) , ( 1 ) ( D ) , A N D ( 2 ) ( B ) OF SUBSECTION 
(a).— 
"(1) NEW ENTITIES,—For purposes of paragraphs (1)(B), 
(1)(C), (1)(D), and (2) (B) of subsection (a), if the resident 
alien individual, domestic corporation, or foreign corporation, as 
the case may be, has no gross income from any source for the 
3-year period (or part thereof) specified, the 20 percent test or 
the 50 percent test, as the case may be, shall be applied witli 
respect to the taxable year of the payor in which payment of the 
interest or dividends, as the case may be, is made. 
80 STAT.] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1543 
"(2) TRANSITION RULE.—For purposes of paragraphs (1) (C), 
(1) (D), and (2) (B) of subsection (a), the gross income of the 
foreign corporation for any period before the first taxable year 
beginning after December 31,1966, which is effectively connected 
with the conduct of a trade or business within the United States is 
an amount equal to the gross income for such period from sources 
within the United States." 
(4) (A) Section 895 (relating to income derived by a f o r e i ^ 
''^ ^'^' ^'^• 
central bank of issue from obligations of the United States) is 
amended to read as follows: 
"SEC. 895. INCOME DERIVED BY A FOREIGN CENTRAL BANK OF ISSUE 
FROM OBLIGATIONS OF THE UNITED STATES OR FROM 
BANK DEPOSITS. 
"Income derived by a foreign central bank of issue from obligations 
of the United States or of any agency or instrumentality thereof 
(including beneficial interests, participations, and other instruments 
issued under section 302 (c) of the Federal National Mortgage Associa-
tion Charter Act (12 U.S.C. 1717)) which are owned by such foreign 
Jf/l^\^4°-
central bank of issue, or derived from interest on deposits with persons 
carrying on the banking business, shall not be included in gross income 
and shall be exempt from taxation under this subtitle unless such 
obligations or deposits are held for, or used in connection with, the 
conduct of commercial banking functions or other commercial activi-
ties. 
For purposes of the preceding sentence the Bank for Inter-
national Settlements shall be treated as a foreign central bank of issue." 
(B) The table of sections for subpart C of part II of sub-
chapter JN" of chapter 1 is amended by striking out the item 
relating to section 895 and inserting in lieu thereof the following: 
"Sec. 895. Income derived by a foreign central bank of issue from 
obligations of the United States or from bank deposits." 
(b) DIVIDENDS.—Section 861(a)(2)(B) 
(relating to dividends 
^^A stat. 275. 
from sources within the United States) is amended to read as follows: 
"(B) from a foreign corporation unless less than 50 per-
cent of the gross income from all sources of such foreign 
corporation for the 3-year period ending with the close of its 
taxable year preceding the declaration of such dividends (or 
for such part of such period as the corporation has been in 
existence) was effectively connected with the conduct of a 
trade or business within the United States; but only in an 
amount which bears the same ratio to such dividends as the 
gross income of the corporation for such period which was 
effectively connected with the conduct of a trade or business 
within the United States bears to its gross income from all 
sources; but dividends (other than dividends for which a 
deduction is allowable under section 245(b)) from a foreign 
corporation shall, for purposes of subpart A of part I I I 
(relating to foreign tax credit), be treated as income from 
^°^^' ^ ^^^^• 
sources without the United States to the extent (and only to 
the extent) exceeding the amount which is 100/85ths of the 
amount of the deduction allowable under section 245 in 
respect of such dividends, or". 
(c) PERSONAL SERVICES.—Section 861(a) (3) (C) (ii) (relating to 
income from personal services) is amended to read as follows: 
"(ii) an individual who is a citizen or resident of the 
United States, a domestic partnership, or a domestic cor-
poration, if such labor or services are performed for an 
office or place of business maintained in a foreign country 
Post, 
p. 1558. 
1544 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
68A Stat. 278. 
or in a possession of the United States by such individ-
ual, partnership, or corporation." 
(d) DEFINITIONS.—Section 
864 (relating 
to definitions) 
is 
amended— 
(1) by striking out "For purposes of this part," and inserting 
in lieu thereof 
"(a) SALE, ETC.—For purposes of this part,"; and 
(2) by adding at the end thereof the following new subsections: 
"(b) TRADE OR BUSINESS W I T H I N THE UNITED STATES.—For pur-
poses of this part, part II, and chapter 3, the term 'trade or business 
within the United States' includes the performance of personal serv-
ices within the United States at any time within the taxable year, but 
does not include— 
"(1) PERFORMANCE OF PERSONAL SERVICES FOR FOREIGN EM-
PLOYER.—The performance of personal services— 
"(A) for a nonresident alien individual, foreign partner-
ship, or foreign corporation, not engaged in trade or business 
within the United States, or 
"(B) for an office or place of business maintained in a 
foreign country or in a possession of the United States by 
an individual who is a citizen or resident of the United States 
or by a domestic partnership or a domestic corporation, 
by a nonresident alien individual temporarily present in the 
United States for a period or periods not exceeding a total of 
90 days during the taxable year and whose compensation for such 
services does not exceed in the aggregate $3,000. 
"(2) TRADING IN SECURITIES OR COMMODITIES.— 
"(A) STOCKS AND SECURITIES.— 
"(i) I N GENERAL.—Trading in stocks or securities 
through a resident broker, commission agent, custodian, 
or other independent agent. 
" (ii) TRADING FOR TAXPAYER'S OWN ACCOUNT.—Trading 
in stocks or securities for the taxpayer's own account, 
whether by the taxpayer or his employees or through 
a resident broker, commission agent, custodian, or other 
agent, and whether or not any such employee or agent 
has discretionary authority to make decisions in effecting 
the transactions. 
This clause shall not apply in the case 
of a dealer in stocks or securities, or in the case of a 
corporation (other than a corporation which is, or but 
^°^'' P ^^^^ 
for section 542(c) (7) or 543(b)^ (1) (C) would be, a per-
sonal holding company) the principal business of which 
is trading in stocks or securities for its own account, 
if its principal office is in the United States. 
"(B) COMMODITIES.— 
"(i) I N GENERAL.—Trading in commodities through a 
resident broker, commission agent, custodian, or other 
independent agent. 
" (li) TRADING FOR TAXPAYER'S OWN ACCOUNT.—Trading 
in commodities for the taxpayer's own account, whether 
by the taxpayer or his employees or through a resident 
broker, commission agent, custodian, or other agent, and 
whether or not any such employee or agent has discre-
tionary authority to make decisions in effecting the trans-
actions. This clause shall not apply in the case of a 
dealer in commodities. 
"(iii) LIMITATION.—Clauses (i) and (ii) shall apply 
only if the commodities are of a kind customarily dealt 
in on an organized commodity exchange and if the 
Post, pp. 1547, 
80 STAT.] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1545 
transaction is of a kind customarily consummated at sucli 
place. 
"(C) LIMITATION.—Subpaxagraplis (A) (i) and 
(B) (i) 
shall apply only if, at no time during the taxable year, the 
taxpayer has an office or other fixed place of business in the 
United States through which or by the direction of which the 
transactions in stocks or securities, or in commodities, as the 
case may be, are effected. 
"(c) 
EFFECTIVELY CONNECTED INCOME, ETC.— 
"(1) GENERAL RULE.—For purposes of this title— 
"(A) In the case of a, nonresident alien individual or a 
foreign corporation engaged in trade or business within the 
United States during the taxable year, the rules set forth in 
paragraphs (2), (3), and (4) shall apply in determining the 
mcome, gain, or loss which shall be treated as effectively con-
nected with the conduct of a trade or business withm the 
United States. 
"(B) Except as provided in section 871(d) or sections 882 
(d) and (e), in the case of a nonresident alien individual or a 
foreign corporation not engaged in trade or business within 
the United States during the taxable year, no income, gain, or 
loss shall be treated as effectively connected with the conduct 
of a trade or business within the United States. 
"(2) 
PERIODICAL, ETC., INCOME FROM SOURCES WITHIN UNITED 
STATES—FACTORS.—in determining whether income from sources 
within the United States of the types described in section 871 
(a) (1) or section 881(a), or whether gain or loss from sources 
within the United States from the sale or exchange of capital 
assets, is effectively connected with the conduct of a trade or busi-
ness within the United States, the factors taken into account shall 
include whether— 
"(A) the income, gain, or loss is derived from assets used 
in or held for use in the conduct of such trade or business, or 
"(B) the activities of such trade or business were a material 
factor in the realization of the income, gain, or loss. 
In determining whether an asset is used in or held for use in the 
conduct of such trade or business or whether the activities of such 
trade or business were a material factor in realizing an item of 
income, gain, or loss, due regard shall be given to whether or not 
such asset or such income, gain, or loss was accounted for through 
such trade or business. 
In applying this paragraph and para-
graph (4), interest referred to in section 861(a) (1) (A) shall be 
considered income from sources within the United States. 
"(3) 
OTHER INCOME FROM SOURCES WITHIN UNITED STATES.— 
All income, gain, or loss from sources within the United States 
(other than income, gain, or loss to which paragraph (2) applies) 
shall be treated as effectively connected with the conduct of a 
trade or business within the United States. 
"(4) 
INCOME FROM SOURCES WITHOUT UNITED STATES.— 
"(A) Except as provided in subparagraphs (B) and (C), 
no income, gain, or loss from sources without the United 
States shall be treated as effectively connected wdth the con-
duct of a trade or business wnthin the United States. 
"(B) Income, gain, or loss from sources without the United 
States shall be treated as effectively connected with the con-
duct of a trade or business within the United States by a 
nonresident alien individual or a foreign corporation if such 
person has an office or other fixed place of business within 
the United States to w^hich such income, gain, or loss is 
attributable and such income, gain, or loss— 
Ante, p. 1541. 
1546 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
68A Stat. 277„ 
73 Stat. 112. 
"(i) consists of rents or royalties for the use of or 
for the privilege of using intangible property described 
in section 862(a) (4) (including any gain or loss realized 
on the sale of such property) derived in the active con-
duct of such trade or business; 
"(ii) consists of dividends or interest, or gain or loss 
from the sale or exchange of stock or notes, bonds, or 
other evidences of indebtedness, and either is derived in 
the active conduct of a banking, financing, or similar 
business within the United States or is received by a 
corporation the principal business of which is trading 
in stocks or securities for its own account; or 
"(iii) is derived from the sale (without the United 
States) through such office or other fixed place of busi-
ness of personal property described in section 1221(1), 
except that this clause shall not apply if the property is 
sold for use, consumption, or disposition outside the 
United States and an office or other fixed place of busi-
ness of the taxpayer outside the United States partici-
pated materially in such sale. 
"(C) In the case of a f o r e i ^ corporation taxable under 
26 use 801-820, 
P ^ ^ "
"
- ^^ subchaptcr L, any income from sources without 
the United States which is attributable to its United States 
business shall be treated as effectively connected with the 
conduct of a traHe or business within the United States. 
"(D) No income from sources without the United States 
shall be treated as effectively connected with the conduct of a 
trade or business within the United States if it either— 
"(i) consists of dividends, interest, or royalties paid 
by a foreign corporation in which the taxpayer owns 
(within the meaning of section 958(a)), or is considered 
as owning (by applying the ownership rules of section 
958 (b)), more than 60 percent of the total combined 
voting power of all classes of stock entitled to vote, or 
"(ii) is subpart F income within the meaning of sec-
tion 962(a). 
"(5) RULES F
O
R APPLICATION or PARAGRAPH (4)(B).—For pur-
poses of subparagraph (B) of paragraph (4) — 
"(A) in determining whether a nonresident alien individ-
ual or a foreign corporation has an office or other fixed place 
of business, an office or other fixed place of business of an 
agent shall be disregarded unless such agent (i) has the 
authority to negotiate and conclude contracts in the name of 
the nonresident alien individual or foreign corporation and 
regularly exercises that authority or has a stock of merchan-
dise from which he regularly fills orders on behalf of such 
individual or foreign corporation, and (ii) is not a general 
commission agent, broker, or other agent of independent status 
acting in the ordinary course of his business, 
"(B) income, gain, or loss shall not be considered as attrib-
utable to an office or other fixed place of business within the 
United States unless such office or fixed place of business is a 
material factor in the production of such income, gain, or loss 
and such office or fixed place of business regularly carries on 
activities of the type from which such income, gam, or loss is 
derived, and 
"(C) the income, gain, or loss which shall be attributable 
to an office or other fixed place of business within the United 
States shall be the income, gain, or loss property allocable 
thereto, but, in the case of a sale described in clause (iii) of 
76 Stat. 1018. 
80 STAT.] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1547 
such subparagraph, the income which shall be treated as 
attributable to an office or other fixed place of business within 
the United States shall not exceed the income which would 
be derived from sources within the United States if the sale 
were made in the United States." 
(e) EFFECTIVE DATES.— 
(1) The amendments made by subsections (a), (c), and (d) 
shall apply with respect to taxable years beginning after December 
31,1966; except that in applying section 864(c) (4) (B) (iii) of the 
Internal Kevenue Code of 1954 (as added by subsection (d)) 
with respect to a binding contract entered into on or before Feb-
ruary 24, 1966, activities in the United States on or before such 
date in negotiating or carrying out such contract shall not be taken 
into account. 
(2) The amendments made by subsection (b) shall apply with 
respect to amounts received after December 31, 1966. 
SEC. 103. NONRESIDENT ALIEN INDIVIDUALS. 
(a) TAX ON NoNREsmENT ALIEN INDIVIDUALS.— 
(1) Section 871 (relating to tax on nonresident alien individ- 
^^^ ^
*
®
* ^^* 
uals) is amended to read as follows: 
"SEC. 871. TAX ON NONRESIDENT ALIEN INDIVIDUALS. 
"(a) 
INCOME NOT CONNECTED W I T H UNITED STATES BUSINESS— 
30 PERCENT TAX.— 
"(1) INCOME OTHER THAN CAPITAL GAINS.—There is hereby 
imposed for each taxable year a tax of 30 percent of the amount 
received from sources within the United States by a nonresident 
alien individual as— 
"(A) interest, dividends, rents, salaries, wages, premiums, 
annuities, compensations, remunerations, emoluments, and 
other fixed or determinable annual or periodical gains, profits, 
and income, 
"(B) gains described in section 402(a) (2), 403(a) (2), or 
631 (b) or (c), and gains on transfers described in section 
1235 made on or before October 4,1966, 
"(C) in the case of bonds or other evidences of indebted-
ness issued after September 28, 1965, amounts which under 
section 1232 are considered as ^ains from the sale or exchange 
of property which is not a capital asset, and 
"(D) gains from the sale or exchange after October 4, 
1966, of patents, copyrights, secret processes and formulas, 
good will, trademarks, trade brands, franchises, and other 
like property, or of any interest in any such property, to the 
extent such gains are from payments which are contingent 
on the productivity, use, or disposition of the property or 
interest sold or exchanged, or from payments which are 
treated as being so contingent under subsection (e), 
but only to the extent the amount so received is not effectively 
connected with the conduct of a trade or business within the 
United States. 
" (2) CAPITAL GAINS OF ALIENS PRESENT I N THE UNITED STATES 18 3 
DAYS OR MORE.—In the case of a nonresident alien individual pres-
ent in the United States for a period or periods aggregating 183 
days or more during the taxable year, there is hereby imposed for 
such year a tax of 30 percent of the amount by which his gains, 
derived from sources within the United States, from the sale or 
exchange at any time during such year of capital assets exceed his 
losses, allocable to sources within the United States, from the 
sale or exchange at any time during such year of capital assets. 
For purposes of this paragraph, gains and losses shall be taken 
6 8 A Stat. 320. 
1548 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
into account only if, and to the extent that, they would be recog-
nized and taken into account if such gains and losses were effec-
tively connected with the conduct of a trade or business within the 
United States, except that such gains and losses shall be deter-
mined without regard to section 1202 (relating to deduction for 
capital gains) and such losses shall be determined without the 
benefits of the capital loss carryover provided in section 1212. 
Any gain or loss which is taken into account in determining the 
tax under paragraph (1) or subsection (b) shall not be taken into 
account in determining the tax under this paragraph. For pur-
poses of the 183-day requirement of this paragraph, a nonresident 
alien individual not engaged in trade or business within the 
United States who has not established a taxable year for any 
prior period shall be treated as having a taxable year which is the 
calendar year. 
"(b) 
INCOME CONNECTED W I T H UNITED STATES BUSINESS—GRADTJ-
ATED RATE OF T A X . — 
"(1) IMPOSITION or 
TAX.—A nonresident alien 
individual 
engaged in trade or business within the United States during 
Post, p. 1550. 
^YiQ taxable year shall be taxable as provided in section 1 or 
1201 (b) on his taxable income which is effectively connected with 
the conduct of a trade or business within the United States. 
"(2) DETERMINATION or 
TAXABLE INCOME.—In determining 
taxable income for purposes of paragraph (1), gross income 
includes only gross income which is effectively connected with 
the conduct of a trade or business within the United States. 
"(c) 
PARTICIPANTS IN CERTAIN EXCHANGE OR TRAINING PROGRAMS.— 
For purposes of this section, a nonresident alien individual who (with-
out regard to this subsection) is not engaged in trade or business 
within the United States and who is temporarily present in the United 
States as a nonimmigrant under subparagraph (F) or (J) of section 
101(a) (15) of the Immigration and Nationality Act, as amended 
75l^ll%\^^' 
(8 U.S.C. 1101 (a) (15) (F) or ( J ) ) , shall be treated as a nonresideiU 
alien individual engaged in trade or business within the United 
75 Stat. 536. 
States, aiid any income described in section 1441(b) (1) or (2) which 
is received by such individual shall, to the extent derived from sources 
within the United States, be treated as effectively connected with the 
conduct of a trade or business within the United States. 
"(d) 
ELECTION To TREAT REAL PROPERTY INCOME AS INCOME CON-
NECTED W I T H UNITED STATES BUSINESS.— 
"(1) I N GENERAL.—A nonresident alien individual who during 
the taxable year derives any income— 
" (A) from real property held for the production of income 
and located in the United States, or from any interest in 
such real property, including (i) gains from the sale or 
exchange of such real property or an interest therein, (ii) 
rents or royalties from mines, wells, or other natural deposits, 
and (iii) gains described in section 631 (b) or (c), and 
"(B) which, but for this subsection, would not be treated 
as income which is effectively connected with the conduct 
of a trade or business within the United States, 
may elect for such taxable year to treat all such income as income 
which is effectively connected with the conduct of a trade or 
business within the United States. In such case, such income 
shall be taxable as provided in subsection (b) (1) whether or not 
such individual is engaged in trade or business within the United 
States during the taxable year. 
An election under this para-
graph for any taxable year shall remain in effect for all subse-
quent taxable years, except that it may be revoked with the 
68A Stat. 213. 
68A Stat. 357; 
Post, pp. 1555, 
80 STAT.] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1549 
consent of the Secretary or his delegate with respect to any 
taxable year. 
"(2) ELECTION AFTER REVOCATION.—If an election has been 
made under paragraph (1) and such election has been revoked, 
a new election may not be made under such paragraph for any 
taxable year before the 5th taxable year which begins after the 
first taxable year for which such revocation is effective, unless 
the Secretary or his delegate consents to such new election. 
" (3) FORM AND TIME or ELECTION AND REVOCATION.—An election 
under paragraph (1), and any revocation of such an election, 
may be made only in such manner and at such time as the Secre-
tary or his delegate may by regulations prescribe. 
"(e) 
GAINS FROM SALE OR EXCHANGE OF CERTAIN INTANGIBLE PROP-
ERTY.—For purposes of subsection (a)(1)(D), and for purposes of 
sections881(a) (4), 1441(b),and 1442(a)— 
"(1) PAYMENTS TREATED AS CONTINGENT ON USE, ETC.—If more 1
5
^
5
7 
than 50 percent of the gain for any taxable year from the sale 
or exchange of any patent, copyright, secret process or formula, 
good will, trademark, trade brand, franchise, or other like prop-
erty, or of any interest in any such property, is from payments 
which are contingent on the productivity, use, or disposition of 
such property or interest, all of the gain for the taxable year 
from the sale or exchange of such property or interest shall be 
treated as being from payments which are contingent on the 
productivity, use, or disposition of such property or interest. 
"(2) SOURCE RULE.—In determining whether gains described 
in subsection (a)(1)(D) and section 881(a) (4) are received from 
sources within the United States, such gains shall be treated as 
rentals or royalties for the use of, or privilege of using, property 
or an interest in property. 
"(f) 
CERTAIN ANNUITIES RECEIVED UNDER QUALIFIED PLANS.—For 
purposes of this section, gross income does not include any amount 
received as an annuity under a qualified annuity plan described in 
section 403(a)(1), or from a qualified trust described in section 
72 stat. 1622. 
401(a) which is exempt from tax under section 501(a), if— 
"(1) all of the personal services by reason of which such 
annuity is payable were either (A) personal services performed 
outside the United States by an individual who, at the time of 
performance of such personal services, was a nonresident alien, 
or (B) personal services described in section 864(b) (1) per- 
^'^' P- ^^'^'^ 
formed within the United States by such individual, and 
" (2) at the time the first amount is paid as such annuity under 
such annuity plan, or by such trust, 90 percent or more of the 
employees for whom contributions or benefits are provided under 
such annuity plan, or under the plan or plans of which such 
trust is a part, are citizens or residents of the United States." 
"(g) 
CROSS REFERENCES.— 
"(1) For tax treatment of certain amounts distributed by the United 
States to nonresident alien individuals, see section 402(a)(4). 
"(2) For taxation of nonresident alien individuals who are expatri-
ate United States citizens, see section 877. 
"(3) For doubling of tax on citizens of certain foreign countries, see 
section 891. 
"(4) For adjustment of tax in case of nationals or residents of cer-
tain foreign countries, see section 896. 
"(5) For withholding of tax at source on nonresident alien individ-
uals, see section 1441. 
"(6) For the requirement of making a declaration of estimated tax 
by certain nonresident alien individuals, see section 6015(i)." 
65-300 0-67—100 
1550 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
6
8
A Stat 7. 
^2) Sectioii 1 (relating to tax on individuals) is amended by 
redesignating subsection (d) as subsection (e), and by inserting 
after subsection (c) the following new subsection: 
" (d) NONRESIDENT ALIENS.—In the case of a nonresident alien indi-
vidual, the tax imposed by subsection (a) shall apply only as provided 
Poi"t!p. "issf'*^' 
% section 871 or 877." 
(b) GROSS INCOME.— 
(1) Subsection (a) of section 872 (relating to gross income of 
nonresident alien individuals) is amended to read as follows: 
"(a) GENERAL RULE.—In the case of a nonresident alien individual, 
gross income includes only— 
"(1) gross income which is derived from sources within the 
United States and which is not effectively connected with the con-
duct of a trade or business within the United States, and 
"(2) gross income which is effectively connected with the con-
duct of a trade or business within the United States." 
75 Stat. 536. 
(£) Subparagraph (B) of section 872(b) (3) (relating to com-
pensation of participants in certain exchange or training pro-
grams) is amended by striking out "by a domestic corporation" 
and inserting in lieu thereof "by a domestic corporation, a domes-
tic partnership, or an individual who is a citizen or resident of the 
United States". 
(3) Subsection (b) of section 872 (relating to exclusions from 
gross income) is amended by adding at the end thereof the fol-
lowing new paragraph: 
"(4) 
CERTAIN BOND INCOME OF RESIDENTS or THE RYUKYU 
ISLANDS OR THE TRUST TERRITORY OF THE PACIFIC ISLANDS.— 
Income derived hj a nonresident alien individual from a series E 
or series H United States savings bond, if such individual 
acquired such bond while a resident of the Ryukyu Islands or the 
Trust Territory of the Pacific Islands." 
(c) DEDUCTIONS.— 
(1) Section 873 (relating to deductions allowed to nonresident 
alien individuals) is amended to read as follows: 
"SEC. 873. DEDUCTIONS. 
"(a) GENERAL RULE.—In the case of a nonresident alien individ-
ual, the deductions shall be allowed only for purposes of section 871 (b) 
and (except as provided by subsection (b)) only if and to theextent 
that they are connected with income which is effectively connected 
with the conduct of a trade or business within the United States; and 
the proper apportionment and allocation of the deductions for this 
purpose shall be determined as provided in regulations prescribed by 
the Secretary or his delegate. 
"(b) EXCEPTIONS.—The following deductions shall be allowed 
whether or not they are connected with income which is effectively 
connected with the conduct of a trade or business within the United 
States: 
"(1) Losses.—The deduction, for losses of property not con-
nected with the trade or business if arising from certain casualties 
78 Stat. 43. 
Or theft, allowed by section 165(c) (3), but only if the loss is of 
property located within the United States. 
"(2) CHARITABLE CONTRIBUTIONS.—The deduction for charita-
ble contributions and gifts allowed by section 170. 
"(3) PERSONAL 
EXEMPTION.—The 
deduction 
for 
personal 
exemptions allowed by section 151, except that in the case of a 
nonresident alien individual who is not a resident of a contiguous 
country only one exemption shall be allowed under section 151. 
68A Stat. 58. 
68A Stat. 45. 
79 Stat. 167. 
68A Stat. 281. 
80 STAT.] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1551 
"(c) 
CROSS EEFERENCES.— 
"(1) For disallowance of standard deduction, see section 142(b)(1). 
"(2) For rule that certain foreign taxes are not to be taken into 
account in determining deduction or credit, see section 906(b)(1)." 
(2) Section 154(3) (relating to cross references in respect of 
deductions for personal exemptions) is amended to read as 
follows: 
"(3) For exemptions of nonresident aliens, see section 873(b)(3)." 
(d) 
ALLOWANCE OF DEDUCTIONS AND CREDITS.—Subsection (a) of 
section 874 (relating to filing of returns) is amended to read as fol-
lows: 
"(a) RETURN PREREQUISITE TO ALLOWANCE.—A nonresident alien 
individual shall receive the benefit of the deductions and credits 
allowed to him in this subtitle only by filing or causing to be filed with 
the Secretary or his delegate a true and accurate return, in the man-
ner prescribed in subtitle F (sec. 6001 and following, relating to pro-
cedure and administration), including therein all the information 
which the Secretary or his delegate may deem necessary for the calcu-
lation of such deductions and credits. This subsection shall not be 
construed to deny the credits provided by sections 31 and 32 for tax 
withheld at source or the credit provided by section 39 for certain 
uses of gasoline and lubricating oil." 
(e) BENEFICIARIES OF ESTATES AND TRUSTS.— 
(1) Section 875 (relating to partnerships) is amended to read 
as follows: 
"SEC. 875. PARTNERSHIPS; BENEFICIARIES OF ESTATES AND TRUSTS. 
"For purposes of this subtitle— 
"(1) a nonresident alien individual or foreign corporation shall 
be considered as being engaged in a trade or business within the 
United States if the partnership of which such individual or 
corporation is a member is so engaged, and 
"(2) a nonresident alien individual or foreign corporation 
which is a beneficiary of an estate or trust which is engaged in 
any trade or business within the United States shall be treated 
as being engaged in such trade or business within the United 
States." 
(2) The table of sections for subpart A of part I I of sub-
chapter N of chapter 1 is amended by striking out the item relat-
ing to section 875 and inserting in lieu thereof the following: 
"Sec. 875. Partnerships; beneficiaries of estates and trusts." 
(f) 
EXPATRIATION To AVOID TAX.— 
(1) Subpart A of part I I of subchapter N of chapter 1 (relat-
ing to nonresident alien individuals) is amended by redesignating 
section 877 as section 878, and by inserting after section 876 the 
following new section: 
"SEC. 877. EXPATRIATION TO AVOID TAX. 
"(a) I N GENERAL.—Every nonresident alien individual who at any 
time after March 8, 1965, and within the 10-year period immediately 
preceding the close of the taxable year lost United States citizenship, 
unless such loss did not have for one of its principal purposes the 
avoidance of taxes under this subtitle or subtitle B, shall be taxable 
for such taxable year in the manner provided in subsection (b) if 
the tax imposed pursuant to such subsection exceeds the tax which, 
without regard to this section, is imposed pursuant to section 871. 
"(b) ALTERNATIVE TAX.—A nonresident alien individual described 
in subsection (a) shall be taxable for the taxable year as provided in 
section 1 or section 1201 (b), except that— 
^"'^' P ^^^O. 
26 u s e 1-2524. 
Ante, p. 1547. 
1552 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
Ante, p. 1550. 
Ante, p. 1550 
68A Stat. 49. 
"(1) the gross income shall include only the gross income 
described in section 872(a) (as modified by subsection (c) of 
this section), and 
"(2) the deductions shall be allowed if and to the extent that 
they are connected with the gross income included under this sec-
tion, except that the capital loss carryover provided by section 
^^ s'^'^5 
1212(b) shall not be allowed; and the proper allocation and 
apportionment of the deductions for this purpose shall be deter-
mined as provided under regulations prescribed by the Secretary 
or his delegate. 
For purposes of paragraph (2), the deductions allowed by section 
873(b) shall be allowed; and the deduction (for losses not connected 
with the trade or business if incurred in transactions entered into for 
profit) allowed by section 165(c) (2) shall be allowed, but only if the 
profit, if such transaction had resulted in a profit, would be included 
in gross income under this section. 
"(c) SPECIAL RULES OF SOURCE.—For purposes of subsection (b), 
the following items of gross income shall be treated as income from 
sources within the United States: 
"(1) SALE OF PROPERTY.—Gains on the sale or exchange of 
property (other than stock or debt obligations) located in the 
United States. 
" (2) STOCK OR DEBT OBLIGATIONS.—Gains on the sale or exchange 
of stock issued by a domestic corporation or debt obligations of 
United States persons or of the United States, a State or political 
subdivision thereof, or the District of Columbia. 
"(d) EXCEPTION FOR Loss OF CITIZENSHIP FOR CERTAIN CAUSES.— 
Subsection (a) shall not apply to a nonresident alien individual whose 
loss of United States citizenship resulted from the application of sec-
tion 801(b), 350, or 355 of the Immigration and Nationality Act, as 
amended (8 U.S.C. 1401 (b), 1482, or 1487). 
" (e) BURDEN OF PROOF.—If the Secretary or his delegate establishes 
that it is reasonable to believe that an individual's loss of United 
States citizenship would, but for this section, result in a substantial 
reduction for the taxable year in the taxes on his probable income for 
such year, the burden of proving for such taxable year that such loss 
of citizenship did not have for one of its principal purposes the avoid-
26 use 1-2524. fijxQ^ of taxes under this subtitle or subtitle B shall be on such 
individual." 
(2) The table of sections for subpart A of part I I of subchapter 
N of chapter 1 is amended by striking out the item relating to 
section 877 and inserting in lieu thereof the following: 
"Sec. 877. Expatriation to avoid tax. 
"Sec. 878. Foreign educational, charitable, and certain. other exempt 
organizations." 
(g) PARTIAL EXCIATSION OF DIVIDENDS.—Subsection (d) of section 
116 (relating to certain nonresident aliens ineligible for exclusion) is 
amended to read as follows: 
"(d) 
CERTAIN NONRESIDENT ALIENS INELIGIBLE FOR EXCLUSION.—In 
the case of a nonresident alien individual, subsection (a) shall apply 
only— 
"(1) in determining the tax imposed for the taxable year pursu-
ant to section 871(b) (1) and only in respect of dividends which 
are effectively connected with the conduct of a trade or business 
within the United States, or 
"(2) in determining the tax imposed for the taxable year pursu-
ant to section 877(b)." 
66 Stat. 236. 
Ante, p. 1547. 
Ante, p. 1551. 
80 STAT.] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1553 
eSAStat. 357. 
(h) WITHHOLDING OF TAX ON NONRESIDENT ALIENS.—Section 
1441 
(relating to withholding of tax on nonresident aliens) is amended— 
(1) by striking out ", or of any partnership not engaged in 
trade or business within the United States and composed in whole 
or in part of nonresident aliens," in subsection (a) and inserting 
in lieu thereof "or of any foreign partnership"; 
(2) by striking out "(except interest on deposits with persons 
carrying on the banking business paid to persons not engaged in 
business in the United States)" in subsection (b) ; 
(3) by striking out "and amounts described in section 402(a) 
(2)" and all that follows in the first sentence of subsection (b) 
and inserting in lieu thereof "gains described in section 402 (a) (2), 
403(a) (2), or 631 (b) or (c), amounts subject to tax under sec-
tion 871(a)(1)(C), gains subject to tax under section 871(a) 
Ante, p. i547. 
(1)(D), and gains on transfers described in section 1235 made 
on or before October 4,1966."; 
(4) by adding at the end of subsection (b) the following new 
sentence: 
"In the case of a nonresident alien individual who is a member of a 
domestic partnership, the items of income referred to in subsection 
(a) shall be treated as referring to items specified in this subsection 
included in his distributive share of the income of such partnership."; 
(5) by striking out paragraph (1) of subsection (c) and insert-
ing in lieu thereof the following new paragraph: 
(1) 
INCOME CONNECTED WITH UNITED STATES BUSINESS.—No 
deduction or withholding under subsection (a) shall be required 
in the case of any item of income (other than compensation for 
personal services) which is effectively connected with the conduct 
of a trade or business within the United States and which is 
included in the gross income of the recipient under section 871 
(b) (2) for the taxable year."; 
(6) by amending paragraph (4) of subsection (c) to read as 
^^ ^
*
^
* ^^^ 
follows: 
"(4) COMPENSATION OF CERTAIN ALIENS.—Under regulations 
prescribed by the Secretary or his delegate, compensation for per-
sonal services may be exempted from deduction and withholding 
under subsection (a)."; 
(7) by striking out "amounts described in section 402(a) (2), 
section 403(a)(2), section 631 (b) and (c), and section 1235, 
which are considered to be gains from the sale or exchange of 
capital assets," in paragraph (5) of subsection (c) and inserting 
in lieu thereof "gains described in section 402(a) (2), 403(a) (2), 
or 631 (b) or (c), gains subject to tax under section 871(a) (1) 
(D), and gains on transfers described in section 1235 made on or 
before October 4, 1966,", and by striking out "proceeds from such 
sale or exchange," in such paragraph and inserting in lieu thereof 
"amount payable,"; 
(8) by adding at the end of subsection (c) the following new 
paragraph: 
" (7) 
CERTAIN ANNUITIES RECEIVED UNDER QUALIFIED PLANS.—No 
deduction or withholding under subsection (a) shall be required 
in the case of any amount received as an annuity if such amount 
is, under section 871(f), exempt from the tax imposed by section 
871 (a)."; and 
(9) by redesignating subsection (d) as (e), and by inserting after 
subsection (c) the following new subsection : 
"(d) 
EXEMPTION OF CERTAIN FOREIGN PARTNERSHIPS.—Subject to 
such terms and conditions as may be provided by regulations pre-
scribed by the Secretary or his delegate, subsection (a) shall not apply 
70 Stat. 563. 
Ante, p. 1547. 
26 u s e 1441-
1465. 
74 Stat. 1000. 
1554 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
in the case of a foreign partnership engaged in trade or business 
within the United States if the Secretary or his delegate determines 
that the requirements of subsection (a) impose an undue administra-
tive burden and that the collection of the tax imposed by section 
871(a) on the members of such partnership who are nonresident alien 
individuals will not be jeopardized by the exemption." 
6
8
A Stat. 360. 
^j^ LIABILITY F
O
R WITHHELD TAX.—Sectiou 1461 (relating to 
return and payment of withheld tax) is amended to read as follows: 
"SEC. 1461. LIABILITY FOR WITHHELD TAX. 
"Every person required to deduct and withhold any tax under this 
chapter is hereby made liable for such tax and is hereby indemnified 
against the claims and demands of any person for the amount of 
any payments made in accordance with the provisions of this chapter." 
(j) 
DECLARATION OF ESTIMATED INCOME TAX BY INDIVIDUALS.— 
Section 6015 (relating to declaration of estimated income tax by 
individuals) is amended— 
(1) by striking out that portion of subsection (a) which pre-
cedes paragraph (1) and inserting in lieu thereof the following: 
" (a) REQUIREMENT or DECLARATION.^—Except as otherwise provided 
in subsection (i), every individual shall make a declaration of his 
estimated tax for the taxable year if—'Jj 
(2) by redesignating subsection (i) as subsection (j); and 
(3) by inserting after subsection (h) the following new sub-
section : 
"(i) NONRESIDENT ALIEN INDIVIDUALS.—No declaration shall be 
required to be made under this section by a nonresident alien indi-
vidual unless— 
"(1) withholding under chapter 24 is made applicable to the 
wages, as defined in section 3401 (a), of such individual, 
"(2) such individual has income (other than compensation for 
personal services subject to deduction and withholding under 
section 1441) which is effectively connected with the conduct of 
a trade or business within the United States, or 
"(3) such individual is a resident of Puerto Rico during the 
entire taxable year." 
(k) 
COLLECTION or INCOME TAX AT SOURCE ON WAGES.—Subsection 
(a) of section 3401 (relating to definition of wages for purposes of 
collection of income tax at source) is amended by striking out para-
graphs (6) and (Y) and inserting in lieu thereof the following: 
"(6) for such services, performed by a nonresident alien indi-
vidual, as may be designated by regulations prescribed by the 
Secretary or his delegate; or". 
(1) DEFINITIONS OF FOREIGN ESTATE OR TRUST.— 
76 Stat. 988, 
(1) Sectlou 7701(a) (31) (defining foreign estate or trust) is 
amended by striking out "from sources without the United States" 
and inserting in lieu thereof ", from sources without the United 
States which is not effectively connected with the conduct of a 
trade or business within the United States,". 
68^A^^at. 365, 
(2) Sectioii 1493 (defining foreign trust for purposes of chap-
ter 5) is repealed, 
(m) CONFORMING 
AMENDMENT.—The first sentence of section 
932(a) (relating to citizens of possessions of the United States) is 
amended to read as follows: "Any individual who is a citizen of any 
possession of the United States (but not otherwise a citizen of the 
Ignited States) and who is not a resident of the United States shall be 
26 use 1-1563. 
subject to taxation under this subtitle in the same manner and subject 
to the same conditions as in the case of a nonresident alien individual." 
26 u s e 3401-
3404. 
68A Stat. 282. 
80 STAT.] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1555 
(n) EFFECTIVE DATES.— 
(1) The amendments made by this section (other than the 
amendments made by subsections (h), (i), and (k)) shall apply 
with respect to taxable years beginning after December 31, 1966. 
(2) The amendments made by subsection (h) shall apply with 
respect to payments made in taxable years.of recipients begmning 
after December 31, 1966. 
(3) The amendments made by subsection (i) shall apply with 
respect to payments occurring after December 31,1966. 
(4) The amendments made by subsection (k) shall apply with 
respect to remuneration paid after December 31,1966. 
SEC. 104. FOREIGN CORPORATIONS. 
(a) TAX ON INCOME NOT CONNECTED W I T H UNITED STATES BUSI-
NESS.—Section 881 (relating to tax on foreign corporations not engaged 
in business in the United States) is amended to read as follows: 
"SEC. 881, TAX ON INCOME OF FOREIGN CORPORATIONS NOT CON-
NECTED WITH UNITED STATES BUSINESS. 
"(a) IMPOSITION OF TAX.—There is hereby imposed for each tax-
able year a tax of 30 percent of the amount received from sources 
within the United States by a foreign corporation as— 
"(1) interest, dividends, rents, salaries, wages, premiums, 
annuities, compensations, remunerations, emoluments, and other 
fixed or determinable annual or periodical gains, profits, and 
income, 
"(2) gains described in section 631 (b) or (c), 
"(3) in the case of bonds or other evidences of indebtedness 
issued after September 28, 1965, amounts which under section 
1232 are considered as gains from the sale or exchange of prop-
erty which is not a capital asset, and 
"(4) gains from the sale or exchange after October 4, 1966, 
of patents, copyrights, secret processes and formulas, good will, 
trademarks, trade brands, franchises, and other like property, or 
of any interest in any such property, to the extent such gains are 
from payments which are contingent on the productivity, use, or 
disposition of the property or interest sold or exchanged, or from 
payments which are treated as being so contingent under section 
871(e), 
but only to the extent the amount so received is not effectively con-
nected with the conduct of a trade or business within the United 
States. 
"(b) DOUBLING OF TAX.— 
"For doubling of tax on corporations of certain foreign countries, 
see section 891." 
(b) TAX ON INCOME CONNECTED W I T H UNITED STATES BUSINESS.— 
(1) Section 882 (relating to tax on resident foreign corpo-
rations) is amended to read as follows: 
"SEC. 882. TAX ON INCOME OF FOREIGN CORPORATIONS CONNECTED 
WITH UNITED STATES BUSINESS. 
" (a) NORMAL TAX AND SURTAX.— 
"(1) IMPOSITION OF TAX.—A foreign corporation engaged in 
trade or business within the United States during the taxable 
year shall be taxable as provided in section 11 or 1201(a) on its 
taxable income which is effectively connected with the conduct 
of a trade or business within the United States. 
"(2) DETERMINATION OF TAXABLE INCOME.—In determining 
taxable income for purposes of paragraph (1), gross income 
includes only gross income which is effectively connected with the 
conduct of a trade or business within the United States. 
"(b) GROSS INCOME.—In the case of a foreign corporation, gross 
income includes only— 
Ante, p. 1547. 
Post, p. 1557. 
68A Stat. 58. 
26 u s e 6001-
7852. 
1556 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
"(1) gross income which is derived from sources within the 
United States and which is not effectively connected with the 
conduct of a trade or business within the United States, and 
"(2) gross income which is effectively connected with the con-
duct of a trade or business within the United States. 
" (c) 
ALLOWANCE or DEDUCTIONS AND CREDITS.— 
"(1) 
ALLOCATION OF DEDUCTIONS.— 
" (A) GENERAL RULE.—In the case of a foreign corporation, 
the deductions shall be allowed only for purposes of subsec-
tion (a) and (except as provided by subparagraph (B)) 
only if and to the extent that they are connected with income 
which is effectively connected with the conduct of a trade or 
business within the United States; and the proper apportion-
ment and allocation of the deductions for this purpose shall 
be determined as provided in regulations prescribed by the 
Secretary or his delegate. 
"(B) 
CHARITABLE 
CONTRIBUTIONS.—The 
deduction 
for 
charitable contributions and gifts provided by section 170 
shall be allowed whether or not connected with income which 
is effectively connected with the conduct of a trade or business 
within the United States. 
" (2) 
DEDUCTIONS AND CREDITS ALLOWED ONLY IF RETURN FILED.— 
A foreign corporation shall receive the benefit of the deductions 
and credits allowed to it in this subtitle only by filing or causing 
to be filed with the Secretary or his delegate a true and accurate 
return, in the manner prescribed in subtitle F, including therein 
all the information which the Secretary or his delegate may deem 
necessary for the calculation of such deductions and credits. The 
preceding sentence shall not apply for purposes of the tax 
imposed by section 541 (relating to personal holding company 
tax), and shall not be construed to deny the credit provided by 
section 32 for tax withheld at source or the credit provided b}^ 
79 Stat, 167. 
sectiou 39 for certain uses of gasoline and lubricating oil. 
Post, p. 1568. 
u^3^ FOREIGN TAX CREDIT.—Except as provided by section 906, 
foreign corporations shall not be allowed the credit against the 
tax for taxes of foreign countries and possessions of the United 
States allowed by section 901. 
"(4) 
CROSS REFERENCE.— 
'Tor rule that certain foreign taxes are not to be taken into account 
in determining deduction or credit, see section 906(b)(1). 
"(d) 
ELECTION To TREAT REAL PROPERTY INCOME AS INCOME CON-
NECTED W I T H UNITED STATES BUSINESS.— 
"(1) I N GENERAL.—A foreign corporation which during the 
taxable year derives any income— 
"(A) from real property located in the United States, or 
from any interest in such real property, including (i) gains 
from the sale or exchange of real property or an interest 
therein, (ii) rents or royalties from mines, wells, or other 
natural deposits, and (iii) gains described in section 631 
(b) or (c),and 
"(B) which, but for this subsection, would not be treated 
as income effectively connected with the conduct of a trade 
or business within the United States, 
may elect for such taxable year to treat all such income as income 
which is effectively connected with the conduct of a trade or 
business within the United States. 
In such case, such income 
shall be taxable as provided in subsection (a) (1) whether or 
not such corporation is engaged in trade or business within the 
Post, p. 1569. 
80 STAT.] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1557 
United States during the taxable year. An election under this 
paragraph for any taxable year shall remain in effect for all 
subsequent taxable years, except that it may be revoked with the 
consent of the Secretary or his delegate with respect to any tax-
able year. 
"(2) 
ELECTION AFTER REVOCATION, ETC.—Paragraphs (2) 
and 
(3) of section 871 (d) shall apply in respect of elections under this 
^"^e, p. 1547. 
subsection in the same manner and to the same extent as they 
apply in respect of elections under section 871(d). 
"(e) INTEREST ON UNITED STATES OBLIGATIONS RECEIVED BY BANKS 
ORGANIZED IN POSSESSIONS.—In the case of a corporation created or 
organized in, or under the law of, a possession of the United States 
which is carrying on the banking business in a possession of the United 
States, interest on obligations of the United States shall— 
" (1) for purposes of this subpart, be treated as income which is 
effectively connected with the conduct of a trade or business within 
the United States, and 
"(2) shall be taxable as provided in subsection (a) (1) whether 
or not such corporation is engaged in trade or business within the 
United States during the taxable year. 
"(f) 
RETURNS OF TAX BY AGENT.—If any foreign corporation has 
no office or place of business in the United States but has an agent in 
the LTnited States, the return required under section 6012 shall be 
^^^ ^'^* ''^2. 
made by the agent." 
(2) (A) Subsection (e) of section 11 (relating to exceptions 
^^ ^*^* ^^• 
from tax on corporations) is amended by inserting "or" at the 
end of paragraph (2), by striking out ", or" at the end of para-
graph (3) and inserting a period in lieu thereof, and by striking 
out paragraph (4). 
(B) Section 11 (relating to tax on corporations) is amended 
by adding at the end thereof the following new subsection: 
"(f) FOREIGN CORPORATIONS.—In the case of a foreign corporation, 
the tax imposed by subsection (a) shall apply only as provided by 
section 882." 
^'«' P- isss. 
(3) The table of sections for subpart B of part I I of sub-
chapter N of chapter 1 is amended by striking out the items relat-
ing to sections 881 and 882 and inserting in lieu thereof the 
following: 
"Sec. 881. Tax on income of foreign corporations not connected with 
United States business. 
"Sec. 882. Tax on income of foreign corporations connected with 
United States business." 
(c) WITHHOLDING OF TAX ON FOREIGN CORPORATIONS.—Section 
1442 (relating to withholding of tax on foreign corporations) is 
^^^ ^*^' ^^^ 
amended to read as follows: 
"SEC. 1442. WITHHOLDING OF TAX ON FOREIGN CORPORATIONS. 
"(a) GENERAL RULE.—In the case of foreign corporations subject 
to taxation under this subtitle, there shall be deducted and withheld 
^^ "^*-^ i-isea. 
at the source in the same manner and on the same items of income as 
is provided in section 1441 or section 1451 a tax equal to 30 percent 
^"'^' ^ ^^^^ 
thereof; except that, in the case of interest described in section 1451 
(relating to tax-free covenant bonds), the deduction and withholding 
shall be at the rate specified therein. 
For purposes of the preceding 
sentence, the references in section 1441(b) to sections 871(a) (1) (C) 
and (D) shall be treated as referring to sections 881(a) (3) and (4), 
^"'®' P- ^^^^• 
the reference in section 1441(c)(1) to section 871(b)(2) shall be 
treated as referring to section 842 or section 882(a) (2), as the case 
^°^^' ^ ^^^^ 
1558 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
may be, and the reference in section 1441(c)(5) to section 871(a) 
isly'^isss ^"^' 
'-'^"^ ^^) ^^^^^^ ^® treated as referring to section 881(a)_(4). 
"(b) EXEMPTION.—Subject to such terms and conditions as may 
be provided by regulations prescribed by the Secretary or his dele-
gate, subsection (a) shall not apply in the case of a foreign corporation 
engaged in trade or business within the United States if the Secretary 
or his delegate determines that the requirements of subsection (a) 
impose an undue administrative burden and that the collection of the 
tax imposed by section 881 on such corporation will not be jeopardized 
by the exemption." 
(d) DIVIDENDS RECEIVED FROM CERTAIN FOREIGN CORPORATIONS.— 
7^stat^f77^^' 
Subsection (a) of section 245 (relating to the allowance of a deduction 
in respect of dividends received from a foreign corporation) is 
amended— 
(1) by striking out "and has derived 50 percent or more of its 
gross income from sources within the United States," in that por-
tion of subsection (a) which precedes paragraph (1) and by 
inserting in lieu thereof "and if 50 percent or more of the gross 
income of such corporation from all sources for such period is 
effectively connected with the conduct of a trade or business with-
in the United States,"; 
(2) by striking out "from sources within the United States" 
in paragraph (1) and inserting in lieu thereof "which is effec-
tively connected with the conduct of a trade or business within 
the United States"; 
(3) by striking out "from sources within the United States" in 
paragraph (2) and inserting in lieu thereof ", which is effectively 
connected with the conduct of a trade or business within the 
United States,"; and 
(4) by adding after paragraph (2) the following new sentence: 
"For purposes of this subsection, the gross income of the foreign cor-
poration for any period before the first taxable year beginning after 
December 31, 1966, which is effectively connected with the conduct of 
a trade or business within the United States is an amount equal to the 
gross income for such period from sources within the United States." 
(e) DIVIDENDS RECEIVED FROM CERTAIN WHOLLY-OWNED FOREIGN 
SUBSIDIARIES.— 
(1) Section 245 (relating to dividends received from certain 
foreign corporations) is amended by redesignating subsection (b) 
as(c), and by inserting after subsection (a) the following new 
subsection: 
"(b) CERTAIN DIVIDENDS RECEIVED FROM WHOLLY OWNED FOREIGN 
SUBSIDIARIES.— 
" (1) I N GENERAL,—In the case of dividends described in para-
graph (2) received from a foreign corporation by a domestic cor-
poration which, for its taxable year in which such dividends are 
received, owns (directly or indirectly) all of the outstanding 
stock of such foreign corporation, there shall be allowed as a 
deduction (in lieu of the deduction provided by subsection (a)) 
an amount equal to 100 percent of such dividends. 
"(2) ELIGIBLE DIVIDENDS.—Paragraph (1) shall apply only to 
dividends which are paid out of the earnings and profits of a 
foreign corporation for a taxable year during which— 
"(A) all of its outstanding stock is owned (directly or 
indirectly) by the domestic corporation to which such divi-
dends are paid; and 
"(B) all of its gross income from all sources is effectively 
connected with the conduct of a trade or business within the 
United States. 
Ante, p. 1558. 
76 Stat. 977. 
80 STAT.] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1559 
"(3) EXCEPTION.—Paragraph (1) shall not apply to any divi-
dends if an election under section 1562 is effective for either— 
^s stat. u?. 
"(A) the taxable year of the domestic corporation in 
which such dividends are received, or 
"(B) the taxable year of the foreign corporation out of 
the earnings and profits of which such dividends are paid.'' 
(2) Subsection (a) of such section 245 is amended by adding at 
the end thereof (after the sentence added by subsection (d) (4)) 
the following new sentence: "For purposes of paragraph (2), 
there shall not be taken into account any taxable year within such 
uninterrupted period if, with respect to dividends paid out of the 
earnings and profits of such year, the deduction provided by sub-
section (b) would be allowable." 
(3) Subsection (c) of such section 245 (as redesignated by 
paragraph (1)) is amended by striking out "subsection (a)" and 
inserting in lieu thereof "subsections (a) and (b)". 
(f) 
DISTRIBUTIONS or 
CERTAIN FOREIGN CORPORATIONS.—Section 
301(b) (1) (C) (relating to certain corporate distributees of foreign 
corporations) is amended— 
(1) by striking out "gross income from sources within the 
United States" in clause (i) and inserting in lieu thereof "gross 
income which is effectively connected with the conduct of a trade 
or business within the United States"; 
(2) by striking out "gross income from sources without the 
United States" in clause (ii) and inserting in lieu thereof "gross 
income which is not effectively connected with the conduct of 
a trade or business within the United States"; and 
(3) by adding at the end thereof the following new sentences: 
"For purposes of clause (i), the gross income of a foreign cor-
poration for any period before its first taxable year l)eginning 
after December 31, 1966, which is effectively connected with the 
conduct of a trade or business within the United States is an 
amount equal to the gross income for such period from sources 
within the United States. For purposes of clause (ii), the gross 
income of a foreign corporation for any period before its first 
taxable year beginning after December 31, 1966, which is not 
effectively connected with the conduct of a trade or business 
within the United States is an amount equal to the gross income 
for such period from sources without the United States." 
(g) UNRELATED BUSINESS TAXABLE INCOME.—The last sentence of 
section 512(a) (relating to definition) is amended to read as follows: 
^^^ s*^* 1^° 
"In the case of an organization described in section 511 which is a 
foreign organization, the unrelated business taxable income shall be 
its unrelated business taxable income which is effectively connected 
with the conduct of a trade or business within the United States." 
(h) CORPORATIONS SUBJECT TO PERSONAL HOLMNG COMPANY TAX.— 
(1) Paragraph (7) of section 542(c) (relating to corporations yg^^f t^*f ^^^' 
not subject to personal holding company tax) is amended to read 
as follows: 
"(7) a foreign corporation (other than a corporation which 
has income to which section 543(a)(7) applies for the taxable 
^s stat. si. 
year), if all of its stock outstanding during the last half of the 
taxable year is owned by nonresident alien individuals, whether 
directly or indirectly through foreign estates, foreign trusts, 
foreign partnerships, or other foreign corporations;". 
(2) Section 543(b) (1) (relating to definition of ordinary gross 
income) is amended— 
(A) by striking out "and" at the end of subparagraph (A), 
1560 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
(B) by striking out the period at the end of subparagraph 
(B) and inserting in lieu thereof ", and"', and 
(C) by inserting after subparagraph (B) the following 
new subparagraph: 
"(C) in the case of a foreign corporation all of the out-
standing stock of which during the last half of the taxable 
year is owned by nonresident alien individuals (whether 
directly or indirectly through foreign estates, foreign trusts, 
foreign partnerships, or other foreign corporations), all items 
of income w^hich would, but for this subparagraph, constitute 
personal holding company income under any paragraph of 
subsection (a) other than paragraph (7) thereof:" 
6
8
A Stat. 189. 
^3^ Sectiou 645 (relating to definition of undistributed per-
sonal holding company income) is amended— 
(A) by striking out subsection (a) and inserting in lieu 
thereof the following: 
"(a) DEFINITION.—For purposes of this part, the term 'undistrib-
uted personal holding company income' means the taxable income of 
a personal holding company adjusted in the manner provided in sub-
sections (b), (c), and (d), minus the dividends paid deduction as 
defined in section 561. In the case of a personal holding company 
which is a foreign corporation, not more than 10 percent in value of 
the outstanding stock of which is owned (within the meaning of sec-
76 Stat. 1018. 
(-Ion 958(a)) during the last half of the taxable year by United States 
persons, the term 'undistributed personal holding company income' 
means the amount determined by multiplying the undistributed per-
sonal holding company income (determined without regard to this 
sentence) by the percentage in value of its outstanding stock which is 
the greatest percentage in value of its outstanding stock so owned by 
United States persons on any one day during such period."; and 
(B) by adding at the end thereof the following new sub-
section : 
"(d) CERTAIN FOREIGN CORPORATIONS.—In the case of a foreign cor-
poration all of the outstanding stock of which during the last half 
of the taxable year is owned by nonresident alien individuals (whether 
directly or indirectly through foreign estates, foreign trusts, foreign 
partnerships, or other foreign corporations), the taxable income for 
purposes of subsection (a) shall be the income which constitutes 
personal holding company income under section 543(a) (7), reduced 
by the deductions attributable to such income, and adjusted, with 
respect to such income, in the manner provided in subsection (b)." 
(4) (A) Subchapter B of chapter 68 (relating to assessable 
penalties) is amended by adding at the end thereof the following 
new section: 
"SEC. 6683. FAILURE OF FOREIGN CORPORATION TO FILE RETURN OF 
PERSONAL HOLDING COMPANY TAX. 
"Any foreign corporation which— 
"(1) is a personal holding company for any taxable year, and 
" (2) fails to file or to cause to be filed with the Secretary or his 
delegate a true and accurate return of the tax imposed by section 
541, 
shall, in addition to other penalties provided by law, pay a penalty 
26 use 1-1388. 
equal to 10 percent of the taxes imposed by chapter 1 (including the 
tax imposed by section 541) on such foreign corporation for such tax-
able year." 
(B) The table of sections for such subchapter B is amended 
by adding at the end thereof the following new item: 
"Sec. 6683. Failure of foreign corporation to file return of personal 
holding company tax." 
78 Stat. 81. 
26 u s e 6671. 
68A Stat. 267. 
26 u s e 801-832. 
80 STAT.] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1561 
(i) 
AMENDMENTS ^YITH KESPECT TO FOREIGN CORPORATIONS CARRY-
ING O
N INSURANCE BUSINESS IN UNITED STATES.— 
(1) Section 842 (relating to computation of gross income) is 
amended to read as follows: 
"SEC. 842. FOREIGN 
CORPORATIONS 
CARRYING 
ON 
INSURANCE 
BUSINESS. 
"If a foreign corporation carrying on an insurance business within 
the United States would qualify under part I, II, or I I I of this sub-
chapter for the taxable year if (without regard to income not effec-
tively connected with the conduct of any trade or business within the 
L'nited States) it were a domestic corporation, such corporation shall 
be taxable under such part on its income effectively connected with its 
conduct of any trade or business within the United States. 
With 
respect to the remainder of its income, which is from sources within 
the United States, such a foreign corporation shall be taxable as pro-
vided in section 881." 
^
"
f
^
- P isss. 
(2) The table of sections for part IV of subchapter L of chapter 
1 is amended by striking out the item relating to section 842 and 
inserting in lieu thereof the following: 
"Sec. 842. Foreign corporations carrying on insurance business." 
(3) Section 819 (relating to foreign life insurance companies) 
^^ ^'^' ^^^ 
is amended— 
(A) by striking out subsections (a) and (d) and by redes-
ignating subsections (b) and (c) as subsections (a) and (b), 
(B) by striking out "In the case of any company described 
in subsection (a)," in subsection (a) (1) (as redesignated by 
subparagraph (A)) and inserting in lieu thereof "In the 
case of any foreign corporation taxable under this part,", 
(C) by striking out "subsection (c)" in the last sentence 
of subsection (a)(2) (as redesignated by subparagraph (A)) 
and inserting in lieu thereof "subsection (b)", 
(D) by adding at the end of subsection (a) (as redesig-
nated by subparagraph (A)) the following new paragraph: 
"(3) REDUCTION OF SECTION 881 TAX.—In the case of any for-
eign corporation taxable under this part, there shall be deter-
mined— 
"(A) the amount which would be subject to tax under 
section 881 if the amount taxable under such section were 
determined without regard to sections 103 and 894, and 
Po'^f^p^^isea 
"(B) the amount of the reduction provided by para-
graph (1). 
, 
The tax under section 881 (determined without regard to this 
paragraph) shall be reduced (but not below zero) by an amount 
which is the same proportion of such tax as the amount referred 
to in subparagraph (B) is of the amount referred to in sub-
paragraph ( A ) ; but such reduction in tax shall not exceed the 
increase in tax under this part by reason of the reduction pro-
vided by paragraph (1).", 
(E) by striking out "for purposes of subsection (a)" each 
place it appears in subsection (b) (as redesignated by sub-
paragraph (A)) and inserting in lieu thereof "with respect 
to a foreign corporation", 
(F) by striking out "foreign life insurance company" each 
place it appears in such subsection (b) and inserting in lieu 
thereof "foreign corporation", 
(G) by striking out "subsection (b)(2)(A)" each place 
it appears in such subsection (b) and inserting in lieu thereof 
"subsection (a)(2)(A)", 
1562 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
(H) by striking out "subsection ( b ) ( 2 ) ( B ) " in para-
graph (2)(B)(ii) of such subsection (b) and inserting in 
lieu thereof "subsection (a) (2) (B)", and 
(I) by adding at the end thereof the following new sub-
section : 
"(c) CROSS REFERENCE.— 
"For taxation of foreign corporations carrying on life insurance 
business within the United States, see section 842." 
76 Stat. 989. 
^^^ Section 821 (relating to tax on mutual insurance compa-
nies to which part I I applies) is amended— 
(A) by striking,out subsection (e) and by redesignating 
subsections (f) and (g) as subsections (e) and (f), and 
(B) by adding at the end of subsection (f) (as redesig-
nated by subparagraph (A)) the fallowing: 
"(3) For taxation of foreign corporations carrying on an insurance 
business within the United States, see section 842." 
76^sfat^*992^^^' 
(^) Section822 (relating to determination of taxable invest-
ment income) is amended by striking out subsection (e) and by 
redesignating subsection (f) as subsection (e). 
(6) Section 831 (relating to tax on certain other insurance 
companies) is amended— 
(A) by striking out subsection (b) and by redesignating 
subsection (c) as subsection (b),and 
(B) by amending subsection (d) to read as follows: 
"(c) 
CROSS REFERENCES.— 
"(1) For alternative tax in case of capital gains, see section 1201 (a). 
"(2) For taxation of foreign corporations carrying on an insurance 
business within the United States, see section 842." 
(7) Section 832 (relating to insurance company 
taxable 
income) is amended by striking out subsection (d) and by redesig-
nating subsection (e) as subsection (d). 
(8) The second sentence of section 841 (relating to credit for 
foreign taxes) is amended by striking out "sentence," and insert-
ing in lieu thereof "sentence (and for purposes of applying sec-
Post, p. 1568. 
^JQJ^ QQQ yfYiY^ respect to a foreign corporation subject to tax under 
this subchapter),". 
76 Stat. 1008. 
^j^ SiTBPART F INCOME.—Scctiou 952(b) (relating to exclusion of 
United States income) is amended to read as follows: 
"(b) EXCLUSION OF UNITED STATES INCOME.—In the case of a con-
trolled foreign corporation, subpart F income does not include any 
item of income from sources within the United States which is effec-
tively connected with the conduct by such corporation of a trade or 
})usiness within the United States unless such item is exempt from 
taxation (or is subject to a reduced rate of tax) pursuant to a treaty 
obligation of the United States." 
(k) GAIN FROM CERTAIN SALES OR EXCHANGES OF STOCK IN CERTAIN 
FOREIGN CORPORATIONS.—Paragraph (4) of section 1248(d) (relating 
to exclusions from earnings and profits) is amended to read as follows: 
"(4) UNITED STATES INCOME.—Any item includible in gross 
income of the foreign corporation under this chapter— 
"(A) for any taxable year beginning before January 1, 
1967, as income derived from sources within the United States 
of a foreign corporation engaged in trade or business within 
the United States, or 
"(B) for any taxable year beginning after December 31, 
1966, as income effectively connected with the conduct by 
such corporation of a trade or business within the United 
States. 
76 Stat. 1041. 
80 STAT.] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1563 
This paragraph shall not apply with respect to any item which 
is exempt from taxation (or is subject to a reduced rate of tax) 
pursuant to a treaty obligation of the United States." 
(1) DECLARATION OF ESTIMATED INCOME TAX BY CORPORATIONS.— 
Section 6016 (relating to declarations of estimated income tax by 
corporations) is amended by redesignating subsection (f) as subsec-
tion (g) and by inserting after subsection (e) the following new 
subsection: 
"(f) 
CERTAIN FOREIGN CORPORATIONS.—For purposes of this section 
and section 6655, in the case of a foreign corporation subject to taxa-
tion under section 11 or 1201(a), or under subchapter L of chapter 1, 
the tax imposed by section 881 shall be treated as a tax imposed by 
section 11." 
(m) 
TECHNICAL AMENDMENTS.— 
(1) Section 884 is amended to read as follows: 
"SEC. 884. CROSS REFERENCES. 
"(1) For special provisions relating to unrelated business income 
of foreign educational, charitable, and certain other exempt orga-
nizations, see section 512(a). 
"(2) For special provisions relating to foreign corporations carry-
ing on an insurance business within the United States, see section 842. 
"(3) For rules applicable in determining whether any foreign cor-
poration is engaged in trade or business within the United States, 
see section 864(b). 
"(4) For adjustment of tax in case of corporations of certain for-
eign countries, see section 896. 
"(5) For allowance of credit against the tax in case of a foreign 
corporation having income effectively connected with the conduct 
of a trade or business within the United States, see section 906. 
"(6) For withholding at source of tax on income of foreign cor-
porations, see section 1442." 
(2) Section 
953(b)(3)(F) 
is amended by striking out 
"832(b) (5)" and inserting in lieu thereof "832(c) (5)". 
(3) Section 1249 (a) is amended by striking out "Except as pro-
vided in subsection (c), gain" and inserting in lieu thereof "Gain". 
(n) EFFECTIVE DATES.—The amendments made by this section 
(other than subsection (k)) shall apply with respect to taxable years 
beginning after December 31, 1966. The amendment made by sub-
section (k) shall apply with respect to sales or exchanges occurring 
after December 31,1966. 
SEC. 105. SPECIAL TAX PROVISIONS. 
(a) INCOME AFFECTED BY TREATY.—Section 894 (relating to income 
exempt under treaties) is amended to read as follows: 
"SEC. 894. INCOME AFFECTED BY TREATY. 
"(a) INCOME EXEMPT UNDER TREATY.—Income of any kind, to 
the extent required by any treaty obligation of the United States, 
shall not be included in gross income and shall be exempt from taxa-
tion under this subtitle. 
"(b) PERMANENT ESTABLISHMENT IN UNITED STATES.—For pur-
poses of applying any exemption from, or reduction of, any tax pro-
vided by any treaty to which the United States is a party with respect 
to income which is not effectively connected with the conduct of a 
trade or business within the United States, a nonresident alien indi-
vidual or a foreign corporation shall be deemed not to have a per-
manent establishment in the United States at any time during the 
taxable year. This subsection shall not apply in respect of the tax 
computed under section 877(b)." 
(b) ADJUSTMENT OF TAX BECAUSE OF BURDENSOME OR DISCRIMINA-
TORY FOREIGN TAXES.—Subpart C of part I I of subchapter N of chap-
ter 1 (relating to miscellaneous provisions applicable to nonresident 
68A Stat. 738; 
78 Stat. 29. 
Ante, p. 1557. 
26 u s e 801-843. 
Ante, p. 155 5. 
76 Stat. 1009. 
76 Stat. 1045. 
68A Stat. 284. 
Ante, p. 1551. 
26 u s e 891-895. 
1564 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
aliens and foreign corporations) is amended by adding at the end 
thereof the following new section: 
"SEC. 896. ADJUSTMENT OF TAX ON NATIONALS, RESIDENTS, AND 
CORPORATIONS OF CERTAIN FOREIGN COUNTRIES. 
"(a) 
IMPOSITION OF MORE BURDENSOME TAXES BY FOREIGN COUN-
TRY.—^Whenever the President finds that— 
" (1) under the laws of any foreign country, considering the tax 
system of such foreign country, citizens of the United States not 
residents of such foreign country or domestic corporations are 
being subjected to more burdensome taxes, on any item of income 
received by such citizens or corporations from sources within such 
foreign country, than taxes imposed by the provisions of this 
ofi^ii'^^^ t=*;^ 
subtitle on similar income derived from sources within the United 
zO U b C 
1 - 1 5 0 3 . 
o 
1 
• 1 
•
(
•
!
/
•
• 
states by residents or corporations oi such foreign country, 
" (2) such foreign country, when requested by the United States 
to do so, has not acted to revise or reduce such taxes so that they 
are no more burdensome than taxes imposed by the provisions of 
this subtitle on similar income derived from sources within the 
United States by residents or corporations of such foreign coun-
try, and 
" (3) it is in the public interest to apply pre-1967 tax provisions 
in accordance with the provisions of this subsection to residents or 
corporations of such foreign country, 
the President shall proclaim that the tax on such similar income 
derived from sources within the United States by residents or corpora-
tions of such foreign country shall, for taxable years beginning after 
such proclamation, be determined under this subtitle without regard 
5 use 861-97 2, iQ amendments made to this subchapter and chapter 3 on or after the 
date of enactment of this section. 
" (b) 
IMPOSITION or DISCRIMINATORY TAXES BY FOREIGN COUNTRY.— 
Whenever the President finds that— 
"(1) under the laws of any foreign country, citizens of the 
United States or domestic corporations (or any class of such 
citizens or corporations) are, with respect to any item of income, 
being subjected to a higher effective rate of tax than are nationals, 
residents, or corporations of such foreign country (or a similar 
class of such nationals, residents, or corporations) under similar 
circumstances; 
" (2) such foreign country, when requested by the United States 
to do so, has not acted to eliminate such higher effective rate of 
tax; and 
"(3) it is in the public interest to adjust, in accordance with 
the provisions of this subsection, the effective rate of tax imposed 
by this subtitle on similar income of nationals, residents, or corpo-
rations of such foreign country (or such similar class of such 
nationals, residents, or corporations), 
the President shall proclaim that the tax on similar income of 
nationals, residents, or corporations of such foreign country (or such 
similar class of such nationals, residents, or corporations) shall, for 
taxable years beginning after such proclamation, be adjusted so as 
to cause the effective rate of tax imposed by this subtitle on such 
similar income to be substantially equal to the effective rate of tax 
imposed by such foreign country on such item of income of citizens 
of the United States or domestic corporations (or such class of citizens 
or corporations). In implementing a proclamation made under this 
subsection, the effective rate of tax imposed by this subtitle on an 
item of income may be adjusted by the disallowance, in whole or in 
part, of any deduction, credit, or exemption which would otherwise 
26 
144 
4. 
26 u s e 1-1563. 
80 STAT.] 
PUBLIC LAW 8 9 - 8 0 9 - N O V . 13, 1966 
1565 
be allowed with respect to that item of income or by increasing the 
rate of tax otherwise applicable to that item of income. 
"(c) ALLEVIATION 
or 
MORE 
BURDENSOME OR DISCRIMINATORY 
TAXES.—Whenever the President finds that— 
"(1) the laws of any foreign country with respect to which 
the President has made a proclamation under subsection (a) have 
been modified so that citizens of the United States not residents 
of such foreign country or domestic corporations are no longer 
subject to more burdensome taxes on the item of income derived 
by such citizens or corporations from sources within such for-
eign country, or 
"(2) the laws of any foreign country with respect to which 
the President has made a proclamation under subsection (b) have 
been modified so that citizens of the LTnited States or domestic 
corporations (or any class of such citizens or corporations) are 
no longer subject to a higher effective rate of tax on the item of 
income, 
he shall proclaim that the tax imposed hj this subtitle on the similar 
^26^^50* 
income of nationals, residents, or corporations of such foreign country 
shall, for any taxable year beginning after such proclamation, be 
determined under this subtitle without regard to such subsection. 
"(d) NOTIFICATION or CONGRESS REQUIRED.—No proclamation shall 
be issued by the President pursuant to this section unless, at least 
30 days prior to such proclamation, he has notified the Senate and 
the House of Representatives of his intention to issue such proclama-
tion. 
"(e) 
IMPLEMENTATION BY REGULATIONS.—The Secretary or his 
delegate shall prescribe such regulations as he deems necessary or 
appropriate to implement this section." 
(c) CLERICAL AMENDMENTS.—The table of sections for subpart C 
of part I I of subchapter N of chapter 1 is amended— 
(1) by striking out the item relating to section 894 and insert-
ing in lieu thereof 
"Sec. 894. Income affected by treaty." ; 
(2) by adding at the end of such table the following: 
"Sec. 896. Adjustment of tax on nationals, residents, and corporations 
of certain foreign countries." 
(d) EFFECTIVE DATE.—The amendments made by this section 
(other than subsections (e) and (f)) shall apply with respect to tax-
able years beginning after December 31, 1966. 
(e) ELECTIONS BY NONRESIDENT UNITED STATES CITIZENS W H O ARE 
SUBJECT TO FOREIGN COMMUNITY PROPERTY LAWS.— 
(1) Part I I I of subchapter N of chapter 1 (relating to income 76^|t^t^*ioo6^^' 
from sources without the United States) is amended by adding 
26 use 901-972. 
at the end thereof the following new subpart: 
"Subpart H—Income of Certain Nonresident United 
States 
Citizens Subject to Foreign Community Property Laws 
"Sec. 981. Election as to treatment of income subject to foreign 
community property laws. 
"SEC. 981. ELECTION AS TO TREATMENT OF INCOME SUBJECT TO 
FOREIGN COMMUNITY PROPERTY LAWS. 
"(a) GENERAL RULE.—In the case of any taxable year beginning 
after December 31,1966, if— 
"(1) an individual is (A) a citizen of the United States, (B) 
a bona fide resident of a foreign country or countries during the 
entire taxable year, and (C) married at the close of the taxable 
65-300 0-67—101 
1566 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
year to a spouse who is a nonresident alien during the entire 
taxable year, and 
"(2) such individual and his spouse elect to have subsection 
(b) apply to their community income under foreign community 
propertT^ laws, 
then subsection (b) shall apply to such income of such individual 
and such spouse for the taxable year and for all subsequent taxable 
years for which the requirements of paragraph (1) are met, unless the 
Secretary or his delegate consents to a termmation of the election. 
"(b) TREATMENT OF COMMUNITY INCOME.—For any taxable year 
to which an election made under subsection (a) applies, the com-
munity income under foreign community property laws of the husband 
and wife making the election shall be treated as follows: 
"(1) Earned income (within the meaning of the first sentence 
76 Stat. 1004. 
^f sectiou 911 (b)), other than trade or business income and a part-
ner's distributive share of partnership income, shall be treated as 
the income of the spouse who rendered the personal services. 
"(2) Trade or business income, and a partner's distributive 
share of Dartnership income, shall be treated as provided in 
JlttTosj'"'' 
section 1402(a) (5). 
"(3) Community income not described in paragraph (1) or 
(2) which is derived from the separate property (as determined 
under the applicable foreign community property law) of one 
spouse shall be treated as the income of such spouse. 
"(4) All other such community income shall be treated as pro-
vided in the applicable foreign community property law. 
"(c) 
ELECTION F
O
R PRE-1967 YEARS.— 
"(1) ELECTION.—If an individual meets the requirements of 
subsections (a)(1) (A) and (C) for any taxable year beginning 
before January 1, 1967, and if such individual and the spouse 
referred to in subsection (a) (1) (C) elect under this subsection, 
then paragraph (2) of this subsection shall apply to their com-
munity income under foreign community property laws for all 
open taxable years beginning before January 1, 1967 (whether 
under this chapter, the corresponding provisions of the Internal 
K«venu« Code of 1939, or the corresponding provisions of prior 
revenue laws), for which the requirements of subsection (a) (1) 
(A) and (C) are met. 
"(2) EFFECT OF ELECTION.—For any taxable year to which an 
election made under this subsection applies, the community income 
under foreign community property laws of the husband and wife 
making the election shall be treated as provided by subsection (b), 
except that the other community income described in paragraph 
(4) of subsection (b) shall be treated as the income of the spouse 
who, for such taxable year, had gross income under paragraphs 
(1), (2), and (3) of subsection (b), plus separate gross income, 
greater than that of the other spouse. 
"(d) 
TIME FOR MAKING ELECTIONS; PERIOD OF LIMITATIONS; ETC.— 
"(1) TIME.—^An election under subsection (a) 
or (c) for a 
taxable year may be made at any time while such year is still open, 
and shall be made in such manner as the Secretary or his delegate 
shall by regulations prescribe. 
"(2) 
EXTENSION OF PERIOD FOR ASSESSING DEFICIENCIES AND 
MAKING REFUNDS.—If any taxable year to which an election under 
subsection (a) or (c) applies is open at the time such election is 
made, the period for assessing a deficiency against, and the period 
for filing claim for credit or refund of any overpayment by, the 
husband and wife for such taxable year, to the extent such defi-
53 Stat. 1. 
80 STAT. ] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1567 
ciency or overpayment is attributable to such an election, shall not 
expire before 1 year after the date of such election. 
(3) ALIEN SPOUSE NEED NOT JOIN IN SUBSECTION (C) ELECTION 
IN CERTAIN CASES.—If the Secretary or his delegate determines— 
"(A) that an election under subsection (c) would not 
affect the liability for Federal income tax of the spouse 
referred to in subsection (a)(1)(C) for any taxable year, or 
"(B) that the effect on such liability for tax cannot be 
ascertained and that to deny the election to the citizen of the 
United States would be inequitable and cause undue hard-
ship, 
such spouse shall not be required to join in such election, and 
paragraph (2) of this subsection shall not apply with respect 
to such spouse. 
"(4) INTEREST.—To the extent that any overpayment or defi-
ciency for a taxable year is attributable to an election made under 
this section, no interest shall be allowed or paid for any period 
before the day which is 1 year after the date of such election. 
"(e) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— 
"(1) DEDUCTIONS.—Deductions shall be treated in a manner 
consistent with the manner provided by this section for the 
income to which they relate. 
"(2) OPEN YEARS.—^A taxable year of a citizen of the United 
States and his spouse shall be treated as 'open' if the period for 
assessing a deficiency against such citizen for such year has not 
expired before the date of the election under subsection (a) or (c), 
as the case may be. 
" (3) ELECTIONS IN CASE OF DECEDENTS.—If a husband or wife is 
deceased his election under this section may be made by his execu-
tor, administrator, or other person charged with his property. 
" (4) DEATH or SPOUSE DURING TAXABLE YEAR.—In applying sub-
section (a)(1)(C), and in determining under subsection (c) (2) 
which spouse has the greater income for a taxable year, if a hus-
band or wife dies the taxable year of the surviving spouse shall 
be treated as ending on the date of such death." 
(2) The table of subparts for such part I I I is amended by 
adding at the end thereof the following: 
"Subpart H. Income of certain nonresident United States citizens 
subject to foreign community property laws." 
76 Stat. 1005. 
(3) Section 911(d) (relating to earned income from sources 
without the United States) is amended— 
(A) by striking out "For administrative" and inserting 
in lieu thereof the following: "(1) For administrative"; and 
(B) by adding at the end thereof the following: 
"(2) For elections as to treatment of income subject to foreign 
community property laws, see section 981." 
(f) PRESUMPTIVE DATE OF PAYMENT FOR TAX WITHHELD UNDER 
CHAPTER 3.— 
(1) Section 6513(b) (relating to time tax is considered paid in 
the case of prepaid income tax) is amended to read as follows: 
"(b) PREPAID INCOME TAX.—For purposes of section 65,11 or 6512— 
"(1) Any tax actually deducted and withheld at the source 
during any calendar year under chapter 24 shall, in respect of the 3^^^ "^^ ^'*°^" 
recipient of the income, be deemed to have been paid by him on the 
15th day of the fourth month following the close of his taxable 
year with respect to which such tax is allowable as a credit under 
section 31. 
68A Stat. 812. 
26 use 1441 
1465. 
1568 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
"(2) Any amount paid as estimated income tax for any taxable 
year shall be deemed to have been paid on the last day prescribed 
6
8
A Stat. 732. 
JQJ. flijng the retum under section 6012 for such taxable year 
(determined without regard to any extension of time for filing 
such retum). 
"(3) Any tax withheld at the source under chapter 3 shall, in 
respect of the recipient of the income, be deemed to have been paid 
by such recipient on the last day prescribed for filing the retum 
under section 6012 for the taxable year (determined without 
regard to any extension of time for filing) with respect to which 
such tax is allowable as a credit under section 1462. For this pur-
pose, any exemption granted under section 6012 from the 
requirement of filmg a return shall be disregarded." 
(2) Section 6513(c) (relating to retum and payment of Social 
Security taxes and income tax withholding) is amended— 
(A) by striking out "chapter 21 or 24" and inserting in lieu 
thereof "chapter 3, 21, or 24"; and 
(B) by striking out "remuneration" in paragraph (2) and 
inserting in lieu thereof "remuneration or other amount". 
(3) Section 6501(b) (relating to time returns deemed filed) is 
amended— 
(A) by striking out "chapter 21 or 24" in paragraphs (1) 
and (2) and inserting in lieu thereof "chapter 3, 21, or 24"; 
and 
(B) by inserting after "taxes" in the heading of para-
graph (2) "and tax imposed by chapter 3". 
(4) The amendments made by this subsection shall take effect 
on the date of the enactment of this Act. 
SEC. 106. FOREIGN TAX CREDIT. 
(a) 
ALLOWANCE OF CREDIT TO CERTAIN NONRESIDENT A L I E N S AND 
FOREIGN CORPORATIONS.— 
26 use 901-905. 
(1) Subpart A of part I I I of subchapter N of chapter 1 (relat-
ing to foreign tax credit) is amended by adding at the end thereof 
the following new section: 
"SEC. 906. NONRESIDENT ALIEN INDIVIDUALS AND FOREIGN COR-
PORATIONS. 
"(a) 
ALLOWANCE OF CREDIT.—A nonresident alien individual or a 
foreign corporation engaged in trade or business within the United 
States during the taxable year shall be allowed a credit under sec-
tion 901 for the amount of any income, war profits, and excess profits 
taxes paid or accrued during the taxable year (or deemed, under sec-
76 Stat. 999. 
^^^^-^ QQ^^ p&,id OY accrued during the taxable year) to any foreign coun-
try or possession of the United States with respect to income effec-
tively connected with the conduct of a trade or business within the 
United States, 
"(b) 
SPECIAL RULES.— 
" (1) For purposes of subsection (a) and for purposes of deter-
^^Ante, pp. 1550, 
mining the deductions allowable under sections 873(a) and 
882(c), in determining the amount of any tax paid or accrued to 
any foreign country or possession there shall not be taken into 
account any amount of tax to the extent the tax so paid or accrued 
is imposed with respect to income from sources within the United 
States which would not be taxed by such foreign country or 
possession but for the fact that— 
"(A) in the case of a nonresident alien individual, such 
individual is a citizen or resident of such foreign country or 
possession, or 
68A Stat. 287. 
Ante, p. 1547. 
Ante, p. 1555. 
80 STAT.] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1569 
"(B) in the case of a foreign corporation, such corporation 
was created or organized under the law of such foreign coun-
try or possession or is domiciled for tax purposes in such 
country or possession. 
"(2) For purposes of subsection (a), in applying section 904 
the taxpayer's taxable income shall be treated as consisting only of 
the taxable income effectively connected with the taxpayer's con-
duct of a trade or business within the United States. 
"(3) The credit allowed pursuant to subsection (a) shall not 
be allowed against any tax imposed by section 871 (a) (relating to 
income of nonresident alien individual not connected with United 
States business) or 881 (relating to income of foreign corporations 
not connected with United States business). 
" (4) For purposes of sections 902 (a) and 78, a foreign corpora- 
^JQ\ S*^* ^^^' 
tion choosing the benefits of this subpart which receives dividends 
shall, with respect to such dividends, be treated as a domestic 
corporation." 
(2) The table of sections for such subpart A is amended by 
adding at the end thereof the following: 
"Sec. 906. Nonresident alien individuals and foreign corporations." 
(3) Section 874(c) is amended by strikingxjut 
68A stat. 28i 
"(c) FOREIGN TAX CREDIT NOT ALLOWED.—A nonresident" and 
inserting in lieu thereof the following: 
"(c) FOREIGN TAX CREDIT.—Except as provided in section 906, a 
Ante, p. i568 
nonresident". 
(4) Subsection (b) of section 901 (relating to amount allowed) 
is amended by redesignating paragraph (4) as paragraph (5), 
and by inserting after paragraph 
(3) the following new 
paragraph: 
"(4) 
NONRESIDENT ALIEN INDIVIDUALS AND FOREIGN CORPORA-
TIONS.—In the case of any nonresident alien individual not 
described in section 876 and in the case of any foreign corporation, 
the amount determined pursuant to section 906; and". 
(5) Paragraph (5) (as redesignated) of section 901(b) is 
amended by striking out "or (3)," and inserting in lieu thereof 
"(3), or (4),". 
(6) The amendments made by this subsection shall apply with 
respect to taxable years beginning after December 31, 1966. In 
applying section 904 of the Internal Revenue Code of 1954 with 
respect to section 906 of such Code, no amount may be carried 
from or to any taxable year beginning before January 1, 1967, 
and no such year shall be taken into account. 
(b) 
ALIEN RESIDENTS or THE UNITED STATES OR PUERTO RICO.— 
(1) Paragraph (3) of section 901(b) (relating to amount of 
foreign tax credit allowed in case of alien resident of the United 
States or Puerto Rico) is amended by striking out", if the foreign 
country of which such alien resident is a citizen or subject, in 
imposing such taxes, allows a similar credit to citizens of the 
United States residing in such country". 
(2) Section 901 is amended by redesignating subsections (c) 
and (d) as subsections (d) and (e), and by inserting after sub-
section (b) the following new subsection: 
"(c) 
SIMILAR CREDIT REQUIRED FOR CERTAIN ALIEN RESIDENTS.— 
Whenever the President finds that— 
"(1) a foreign country, in imposing income, war profits, and 
excess profits taxes, does not allow to citizens of the United States 
residing in such foreign country a credit for any such taxes paid 
1570 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
or accrued to the United States or any foreign country, as the case 
may be, similar to the credit allowed under subsection (b) (3), 
"(2) such foreign country, when requested by the United States 
to do so, has not acted to provide such a similar credit to citizens 
of the United States residing in such foreign country, and 
"(3) it is in the public interest to allow the credit under sub-
section (b) (3) to citizens or subjects of such foreign country only 
if it allows such a similar credit to citizens of the United States 
residing in such foreign country, 
the President shall proclaim that, for taxable years beginning while 
the proclamation remains in effect, the credit under subsection (b) (3) 
shall be allowed to citizens or subjects of such foreign country only if 
such foreign country, in imposing income, war profits, and excess 
profits taxes, allows to citizens of the United States residing in such 
foreign country such a similar credit." 
68A Stat. 378. 
(3) Sectlou 2014 (relating to credit for foreign death taxes) 
is amended by striking out the second sentence of subsection (a), 
and by adding at the end of such section the following new 
subsection: 
"(h) 
SIMILAR CREDIT REQUIRED FOR CERTAIN ALIEN RESIDENTS.— 
Whenever the President finds that— 
"(1) a foreign country, in imposing estate, inheritance, legacy, 
or succession taxes, does not allow to citizens of the United States 
resident in such foreign country at the time of death a credit 
similar to the credit allowed under subsection (a), 
" (2) such foreign country, when requested by the United States 
to do so has not acted to provide such a similar credit in the case 
of citizens of the United States resident in such foreign country 
at the time of death, and 
"(3) it is in the public interest to allow the credit under sub-
section (a) in the case of citizens or subjects of such foreign 
country only if it allows such a similar credit in the case of 
citizens of the United States resident in such foreign country at 
the time of death, 
the President shall proclaim that, in the case of citizens or subjects 
of such foreign country dying while the proclamation remains in 
effect, the credit under subsection (a) shall be allowed only if such 
foreign country allows such a similar credit in the case of citizens of 
the United States resident in such foreign country at the time of 
death." 
(4) The amendments made by this subsection (other than para-
graph (3)) shall apply with respect to taxable years beginning 
after December 31, 1966. The amendment made by paragraph 
(3) shall apply with respect to estates of decedents dying after 
the date of the enactment of this Act. 
(c) 
FOREIGN TAX CREDIT IN RESPECT OF INTEREST RECEIVED FROM 
FOREIGN SUBSIDIARIES.— 
76 Stat. 1002. 
^]^^ Sectlou 904(f) (2) (relating to application of limitations on 
foreign tax credit in case of certain interest income) is amended— 
(A) by striking out subparagraph (C) and inserting in 
lieu thereof the following: 
"(C) received from a corporation in which the taxpayer 
(or one or more includible corporations in an affiliated group, 
6
8
A Stat. 369. 
^g defined in section 1504, of which the taxpayer is a member) 
owns, directly or indirectly, at least 10 percent of the voting 
stock,". 
80 STAT.] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1571 
(B) by adding at the end thereof the following new sen-
tence: 
"For purposes of subparagraph (C), stock owned, directly or 
indirectly, by or for a foreign corporation shall be considered as 
being proportionately owned by its shareholders." 
(2) The amendments made by paragraph (1) shall apply to 
interest received after December 31,1965, in taxable years ending 
after such date. 
SEC. 107. AMENDMENT TO PRESERVE EXISTING LAW ON DEDUCTIONS 
UNDER SECTION 931. 
(a) DEDUCTIONS.—Subsection (d) of section 931 (relating to deduce 
^^^ ^*°* 291. 
tions) is amended to read as follows: 
"(d) DEDUCTIONS.— 
"(1) GENERAL RULE.—Except as otherwise provided in this sub-
section and subsection (e), in the case of persons entitled to the 
benefits of this section the deductions shall be allowed only if and 
to the extent that they are connected with income from sources 
within the United States; and the proper apportionment and al-
location of the deductions with respect to sources of income within 
and without the United States shall be determined as provided in 
part I, under regulations prescribed by the Secretary or his 
26 use 861-864. 
delegate. 
"(2) EXCEPTIONS.—The following deductions shall be allowed 
whether or not they are connected with income from sources with-
in the United States: 
" (A) The deduction, for losses not connected with the trade 
or business if incurred in transactions entered into for profit, 
allowed by section 165(c) (2), but only if the profit, if suclji 
transaction had resulted in a profit, would be taxable under 
this subtitle. 
"(B) The deduction, for losses of property not connected 
with the trade or business if arising from certain casualties 
or theft, allowed by section 165 (c) (3), but only if the loss is 
of property within the United States. 
"(C) The deduction for charitable contributions and gifts 
allowed by section 170. 
"(3) DEDUCTION DISALLOWED.— 
"For disallowance of standard deduction, see section 142(b)(2)." 
(b) EEFECTIVE DAI"E.—The amendment made by this section shall 
apply with respect to taxable years beginning after December 31, 
1966. 
SEC. 108. ESTATES OF NONRESIDENTS NOT CITIZENS. 
(a) RATE OF TAX.—Subsection (a) of section 2101 (relating to tax 
imposed in case of estates of nonresidents not citizens) is amended to 
read as follows: 
"(a) RATE or TAX.—Except as provided in section 2107, a tax 
^o*'- P 1573. 
computed in accordance with the following table is hereby imposed 
on the transfer of the taxable estate, determmed as provided' in section 
2106, of every decedent nonresident not a citizen of the United States: 
"If the taxable estate is: 
The tax shall be: 
Not over $100,000 
5% of the taxable estate. 
Over $100,000 but not over 
$500,000 
$5,000, plus 10% of excess over $100,000. 
Over $500,000 but not over 
$1,000,000 
$45,000, plus 15% of excess over $500,000. 
Over $1,000,000 but not over 
$2,000,000 
$120,000, plus 20% of excess over $1,000,000. 
Over $2,000,000 
$320,000, plus 25% of excess over $2,000,000." 
78 Stat. 43. 
1572 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
68A Stat. 397. 
^^^ 
CREDITS AGAINST TAX.—Sectlon 2102 (relating to credits 
allowed against estate tax) is amended to read as follows: 
"SEC. 2102. CREDITS AGAINST TAX. 
Ante, p. 1571. 
u ^^^^ j ^ 
GENERAL.—The t a x imposed by section 2101 shall be 
credited with the amounts determined in accordance with sections 
2011 to 2013, inclusive (relating to State death taxes, gift tax, and 
tax on prior transfers), subject to the special limitation provided in 
subsection ( b ) . 
" ( b ) 
SPECIAL LIMITATION.—The maximum credit allowed under 
section 2011 against the tax imposed by section 2101 for State death 
taxes paid shall be an amount which bears the same ratio to the credit 
computed as provided in section 2011(b) as the value of the property, 
as determined for purposes of this chapter, upon which State death 
taxes were paid and which is included in the gross estate under section 
2103 bears to the value of the total gross estate under section 2103. 
F o r purposes of this subsection, the term 'State death taxes' means 
the taxes described in section 2011(a)." 
(c) 
PROPERTY W I T H I N T H E U N I T E D STATES.—Section 2104 (relat-
ing to property within the United States) is amended by additig at 
the end thereof the following new subsection: 
Post, p. 1573. 
u^Q^ D E B T OBLIGATIONS.—For purposes of this subchapter, debt 
obligations of— 
"(1) a United States person, or 
"(2) the United States, a State or any political subdivision 
thereof, or the District of Columbia, 
owned and held by a nonresident not a citizen of the United States 
shall be deemed property within the United States. 
W i t h respect to 
estates of decedents dying after December 31, 1972, deposits with a 
domestic branch of a foreign corporation, if such branch is engaged in 
the commercial banking business, shall, for purposes of this subchapter, 
be deemed property within the United States. 
This subsection shall 
not apply to a debt obligation to which section 2105(b) applies or to 
a debt obligation of a domestic corporation if any interest on such 
obligation, were such interest received by the decedent at the time of 
his death, would be treated by reason of section 8 6 1 ( a ) ( 1 ) ( B ) as 
income from sources without the United States." 
(d) 
PROPERTY W I T H O U T T H E U N I T E D STATES.—Subsection (b) of 
section 2105 (relating to bank deposits) is amended to read as follows: 
" ( b ) 
CERTAIN B A N K DEPOSITS, E T C . — F o r purposes of this sub-
chapter— 
"(1) amounts described in section 861(c) 
if any interest 
thereon, were such interest received by the decedent at the time 
of his death, would be treated by reason of section 861(a) (1) ( A ) 
as income from sources without the United States, and 
"(2) deposits with a foreign branch of a domestic corporation 
or domestic partnership, if such branch is engaged in the commer-
cial banking business, 
shall not be deemed property within the United States." 
(e) 
D E F I N I T I O N or TAXABLE E S T A T E . — P a r a g r a p h (3) of section 
2106(a) 
(relating to deduction of exemption from gross estate) is 
amended to read as follows: 
" ( 3 ) 
E X E M P T I O N . — 
" ( A ) 
GENERAL RULE.—An exemption of $30,000. 
" ( B ) 
RESIDENTS OF POSSESSIONS OF T H E UNITED STATES.—• 
I n the case of a decedent who is considered to be a 'non-
resident not a citizen of the United States' under the pro-
visions of section 2209, the exemption shall be the greater of 
(i) 
$30,000, or (ii) 
that 
proportion of the exemption 
68A Stat. 389. 
authoHzed by section 2052 which the value of that part of 
Ante, p . 1542. 
Ante, p . 1541. 
74 Stat. 1000. 
74 Stat. 999. 
76 Stat. 1018. 
80 STAT.] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1573 
the decedent's gross estate which at the time of his death is 
situated in the United States bears to the value of his entire 
gross estate wherever situated." 
(f) SPECIAL METHODS OF COMPUTING TAX.—Subchapter B of chap-
ter 11 (relating to estates of nonresidents not citizens) is amended by 
26'\js*c*2fo/-
adding at the end thereof the following new sections: 
2loe. 
"SEC. 2107. EXPATRIATION TO AVOID TAX. 
"(a) RATE OF TAX.—A tax computed in accordance with the table 
contained in section 2001 is hereby imposed on the transfer of the tax-
able estate, determined as provided in section 2106, of every decedent 
nonresident not a citizen of the United States dying after the date of 
enactment of this section, if after March 8, 1965, and within the 
10-year period ending with the date of death such decedent lost United 
States citizenship, unless such loss did not have for one of its principal 
purposes the avoidance of taxes under this subtitle or subtitle A. 
"(b) GROSS ESTATE.—For purposes of the tax imposed by subsection 
(a), the value of the gross estate of every decedent to whom subsec-
tion (a) applies shall be determined as provided in section 2103, except 
that— 
"(1) if such decedent owned (within the meaning of section 
958(a)) at the time of his death 10 percent or more of the total 
combined voting power of all classes of stock entitled to vote of a 
foreign corporation, and 
"(2) if such decedent owned (within the meaning of section 
958(a)), or is considered to have owned (by applying the owner-
ship rules of section 958(b)), at the time of his death, more than 
50 percent of the total combined voting power of all classes of 
stock entitled to vote of such foreign corporation, 
then that proportion of the fair market value of the stock of such 
foreign corporation owned (within the meaning of section 958(a)) by 
such decedent at the time of his death, which the fair market value of 
any assets owned by such foreign corporation and situated in the 
United States, at the time of his death, bears to the total fair market 
value of all assets owned by such foreign corporation at the time of his 
death, shall be included in the gross estate of such decedent. For pur-
poses of the preceding sentence, a decedent shall be treated as owning 
stock of a foreign corporation at the time of his death if, at the time 
of a transfer, by trust or otherwise, within the meaning of sections 
2035 to 2038, inclusive, he owned such stock. 
"(c) CREDITS.—The tax imposed by subsection (a) shall be credited 
with the amounts determined in accordance with section 2102. 
Ante, p. 1572. 
"(d) EXCEPTTON FOR Loss OF CITIZENSHIP FOR CERTAIN CAUSES.— 
Subsection (a) shall not apply to the transfer of the estate of a dece-
dent whose loss of United States citizenship resulted from the appli-
cation of section 301(b), 350, or 355 of the Immigration and Nation-
ality Act, as amended (8 U.S.C. 1401 (b), 1482, or 1487). 
"(e) BURDEN or PROOF.—If the Secretary or his delegate estab-
lishes that it is reasonable to believe that an individual's loss of United 
States citizenship would, but for this section, result in a substantial 
reduction in the estate, inheritance, legacy, and succession taxes in 
respect of the transfer of his estate, the burden of proving that such 
loss of citizenship did not have for one of its principal purposes the 
avoidance of taxes under this subtitle or subtitle A shall be on the 
executor of such individual's estate. 
"SEC. 2108. APPLICATION OF PRE-1967 ESTATE TAX PROVISIONS. 
"(a) 
IMPOSITION OF MORE BURDENSOME TAX BY FOREIGN COUN-
TRY.—Whenever the President finds that— 
"(1) under the laws of any foreign country, considering the 
tax system of such foreign country, a more burdensome tax is 
66 Stat, 236. 
1574 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
imposed by such foreign country on the transfer of estates of 
decedents who were citizens of the United States and not resi-
dents of such foreign country than the tax imposed by this sub-
chapter on the transfer of estates of decedents who were residents 
of such foreign country, 
" (2) such foreign country, when requested by the United States 
to do so, has not acted to revise or reduce such tax so that it is no 
more burdensome than the tax imposed by this subchapter on the 
transfer of estates of decedents who were residents of such foreign 
country, and 
" (3) it is in the public interest to apply pre-1967 tax provisions 
in accordance with this section to the transfer of estates of 
decedents who were residents of such foreign country, 
the President shall proclaim that the tax on the transfer of the estate 
of every decedent who was a resident of such foreign country at the 
time of his death shall, in the case of decedents dying after the date of 
such proclamation, be determined under this subchapter without 
regard to amendments made to sections 2101 (relating to tax imposed), 
xsri^' ^^ ^^^^' ^^^^ (relating to credits against tax), 2106 (relating to taxable estate), 
and 6018 (relating to estate tax returns) on or after the date of 
enactment of this section. 
"(b) ALLEVIATION OF MORE BURDENSOME TAX.—Whenever the 
President finds that the laws of any foreign country with respect to 
which the President has made a proclamation under subsection (a) 
have been modified so that the tax on the transfer of estates of dece-
dents who were citizens of the United States and not residents of such 
foreign country is no longer more burdensome than the tax imposed by 
this subchapter on the transfer of estates of decedents who were resi-
dents of such foreign country, he shall proclaim that the tax on the 
transfer of the estate of every decedent who was a resident of such 
foreign country at the time of his death shall, in the case of decedents 
dying after the date of such proclamation, be determined under this 
subchapter without regard to subsection (a). 
"(c) NOTIFICATION OF CONGRESS REQUIRED.—No proclamation shall 
be issued by the President pursuant to this section unless, at least 30 
days prior to such proclamation, he has notified the Senate and the 
House of Representatives of his intention to issue such proclamation. 
"(d) IMPLEMENTATION BY REGULATIONS.—^The Secretary or his dele-
gate shall prescribe such regulations as may be necessary or appro-
])riate to implement this section." 
68A Stat. 739. 
^„) EsTATE TAX RETURNS.—Paragraph (2) of section 6018(a) 
(relating to estates of nonresidents not citizens) is amended by strik-
ing out "$2,000" and inserting in lieu thereof "$30,000". 
(h) CLERICAL AMENDMENT.—The table of sections for subchapter 
B of chapter 11 (relating to estates of nonresidents not citizens) is 
amended by adding at the end thereof the following: 
"Sec. 2107. Expatriation to avoid tax. 
"Sec. 2108. Application of pre-1967 estate tax provisions." 
(i) EFFECTIVE DATE.—The amendments made bv this section shall 
apply with respect to estates of decedents dying alter the date of the 
enactment of this Act. 
SEC. 109. TAX ON GIFTS OF NONRESIDENTS NOT CITIZENS. 
(a) IMPOSITION OF TAX.—Subsection (a) of section 2501 (relating 
to general rule for imposition of tax) is amended to read as follows: 
"(a) TAXABLE TRANSFERS.— 
"(1) GENERAL RULE.—For the calendar year 1955 and each 
calendar year thereafter a tax, computed as provided in section 
2502, is hereby imposed on the transfer of property by gift during 
such calendar year by any individual, resident or nonresident. 
66 Stat. 236. 
68A Stat. 4. 
26 u s e 1-2524. 
Ante, p. 1574. 
80 STAT.] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1575 
" (2) TRANSFERS or INTANGIBLE PROPERTY.—Except as provided 
in paragraph (3), paragraph (1) shall not appl^ to the transfer of 
intangible property by a nonresident not a citizen of the United 
States. 
"(3) EXCEPTIONS.—Paragraph (2) shall not apply in the case 
of a donor who at any time after March 8, 1965, and within the 
10-year period ending with the date of transfer lost United States 
citizenship unless— 
" (A) such donor's loss of United States citizenship resulted 
from the application of section 301 (b), 350, or 355 of the Im-
migration and Nationality Act, as amended 
(8 U.S.C. 
1401(b), 1482, or 1487), or 
"(B) such loss did not have for one of its principal pur-
poses the avoidance of taxes under this subtitle or subtitle A. 
" (4) BURDEN OF PROOF.—If the Secretary or his delegate estab-
lishes that it is reasonable to believe that an individual's loss of 
United States citizenship would, but for paragraph (3), result in 
a substantial reduction for the calendar year in the taxes on the 
transfer of property by gift, the burden of proving that such loss 
of citizenship did not have for one of its principal purposes the 
avoidance of taxes under this subtitle or subtitle A shall be on 
such individual." 
(b) TRANSFERS IN GENERAL.—Subsection (b) of section 251,1 (relat-
ing to situs rule for stock in a corporation) is amended to read as 
follows: 
"(b) INTANGIBLE PROPERTY.—For purposes of this chapter, in the 
case of a nonresident not a citizen of the United States who is excepted 
from the application of section 2501 (a) (2)— 
"(1) shares of stock issued by a domestic corporation, and 
" (2) debt obligations of— 
" (A) a United States person, or 
"(B) the United States, a State or any political subdivision 
thereof, or the District of Columbia, 
which are owned and held by such nonresident shall be deemed to be 
property situated within the United States." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to the calender year 1967 and all calendar years 
thereafter. 
SEC. 110. TREATY OBLIGATIONS. 
No amendment made by this title shall apply in any case where its 
application would be contrary to any treaty obligation of the United 
States. For purposes of the preceding sentence, the extension of a 
benefit provided by any amendment made by this title shall not be 
deemed to be contrary to a treaty obligation of the United States. 
TITLE II—OTHER AMENDMENTS TO 
INTERNAL REVENUE CODE 
SEC. 201. APPLICATION OF INVESTMENT CREDIT TO PROPERTY USED 
IN POSSESSIONS OF THE UNITED STATES. 
(a) PROPERTY USED BY DOMESTIC CORPORATIONS, ETC.—Section 
48(a) (2) (B) (relating to property used outside the United States) 
is amended— 
(1) by striking out "and" at the end of clause (v); 
(2) by striking out the period at the end of clause (vi) and 
inserting in lieu thereof "; and"; and 
(3) by adding at the end thereof the following new clause: 
"(vii) any property which is owned by a domestic 
corporation (other than a corporation entitled to the 
76 Stat. 967. 
68A Stat. 291; 
74 Stat. 998. 
76 Stat. 963. 
1576 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
benefits of section 931 or 934(b)) or by a United States 
citizen (other than a citizen entitled to the benefits of 
section 931, 932, 933, or 934(c)) and which is used pre-
dominantly in a possession of the United States by such 
a corporation or such a citizen, or by a corporation 
created or organized in, or under the law of, a possession 
of the United States." 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply to taxable years ending after December 31, 1965, but only 
with respect to property placed in service after such date. In apply-
ing section 46(b) of the Internal Revenue Code of 1954 (relating to 
carryback and carryover of unused credits), the amount of any invest-
ment credit carryback to any taxable year ending on or before Decem-
ber 31, 1965, shall be determined without regard to the amendments 
made by this section. 
SEC. 202. BASIS OF PROPERTY RECEIVED ON LIQUIDATION OF SUB-
SIDIARY. 
(a) DEFINITION OF PURCHASE.—Section 334(b)(3) 
(relating to 
definition of purchase) is amended by adding at the end thereof the 
following new sentence: 
"Notwithstanding subparagraph (C) of this paragraph, for pur-
poses of paragraph (2) (B), the term 'purchase' also means an 
acquisition of stock from a corporation when ownership of such 
stock would be attributed under section 318(a) to the person 
acquiring such stock, if the stock of such corporation by reason 
of which such ownership would be attributed was acquired by 
purchase (within the meaning of the preceding sentence)." 
(b) PERIOD OF ACQUISITION.—Section 334(b)(2)(B) (relating to 
exception) is amended by striking out "during a period of not more 
than 12 months," and inserting in lieu thereof "during a 12-month 
period beginning with the earlier of— 
"(i) the date of the first acquisition by purchase of 
such stock, or 
"(ii) if any of such stock was acquired in an acquisi-
tion which is a purchase within the meaning of the sec-
ond sentence of paragraph (3), the date on which the 
distributee is first considered under section 318(a) as 
owning stock owned by the corporation from which such 
acquisition was made,". 
(c) DISTRIBUTION OF INSTALLMENT OBLIGATIONS.—Section 453(d) 
(4) (A) (relating to distribution of installment obligations in certain 
liquidations) is amended to read as follows: 
" ( A ) 
LIQUIDATIONS TO W H I C H SECTION 332 APPLIES.—If— 
" (i) an installment obligation is distributed in a liqui-
dation to which section 332 (relating to complete liquida-
tions of subsidiaries) applies, and 
"(ii) the basis of such obligation in the hands of the 
distributee is determined under section 334(b) (1), 
then no gain or loss with respect to the distribution of such 
obligation shall be recognized by the distributing corpora-
tion." 
(d) EFFECTIVE DATES.—The amendment made by subsection (a) 
shall apply only with respect to acquisitions of stock after December 
31, 1965. The amendments made by subsections (b) and (c) shall 
apply only with respect to distributions made after the date of the 
enactment of this Act. 
68A Stat. 111. 
80 STAT.] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1577 
SEC. 203. TRANSFERS OF PROPERTY TO INVESTMENT 
COMPANIES 
CONTROLLED BY TRANSFERORS. 
(a) TRANSFERS TO INVESTMENT COMPANIES.—The first sentence of 
section 351(a) (relating to transfer to corporation controlled by the 
transferor) is amended by striking out "to a corporation" and insert-
ing in lieu thereof "to a corporation (including, in the case of trans-
fers made on or before June 30, 196Y, an investment company)". 
(b) INVESTMENT 
COMPANIES 
REQUIRED TO FILE 
REGISTRATION 
STATEMENT W I T H THE S.E.C.—Section 351 is amended by redesig-
nating subsection (d) as subsection (e) and by inserting after sub-
section (c) the following new subsection: 
"(d) APPLICATION or JUNE 30, 1967, DATE.—For purposes of this 
section, if, in connection with the transaction, a registration state-
ment is required to be filed with the Securities and Exchange Com-
mission, a transfer of property to an investment company shall be 
treated as made on or before June 30, 1967, only if— 
" (1) such transfer is made on or before such date, 
"(2) the registration statement was filed with the Securities 
and Exchange Commission before January 1, 1967, and the aggre-
gate issue price of the stock and securities of the investment com-
pany which are issued in the transaction does not exceed the 
aggregate amount therefor specified in the registration statement 
as of the close of December 31,1966, and 
"(3) the transfer of property to the investment company in 
the transaction includes only property deposited before May 1, 
1967." 
(c) EFFECTIVE DATE.—The amendments made by subsections (a) 
and (b) shall apply with respect to transfers of property to invest-
ment companies whether made before, on, or after the date of the en-
actment of this Act. 
SEC. 204. REMOVAL OF SPECIAL LIMITATIONS WITH RESPECT TO DE-
DUCTIBILITY OF CONTRIBUTIONS TO PENSION PLANS BY 
SELF-EMPLOYED INDIVIDUALS. 
(a) REMOVAL OF SPECIAL LIMITATIONS.—Paragraph (10) of section 
^^p^^i 
404(a) (relating to special limitation on amount allowed as deduction 
for self-employed individuals for contributions to certain pension, 
etc., plans) is repealed. 
(b) CONFORMING AMENDMENTS.— 
(1) Each of the following provisions of section 401 is amended by 
striking out "(determined without regard to section 404(a) (10))" 
each place it appears: 
(A) Subsection (a) (10) (A) (ii). 
(B) Subparagraphs (A) and (B) of subsection (d)(5). 
(C) Subparagraph (A) of subsection (d)(6). 
(D) Subparagraphs (A) and (B) (i) of subsection (e)(1). 
(E) Subparagraphs (B) and (C) and the last sentence of sub-
section (e)(3). 
(2) Subparagraph (A) of section 404(e)(2) is amended by 
striking out "(determined without regard to subsection (a) (10))". 
(3) Paragraph (1) and subparagraph (B) of paragraph (2) of 
section 404(e) are each amended by striking out "(determined without 
regard toi^aragraph (10) thereof)". 
(c) DEFINITION OF EARNED INCOME.—Section 401(c) (2) (relating 
to definition of earned income for certain pension and profit-sharing 
plans) is amended by striking out subparagraphs (A) and (B) and 
inserting in lieu thereof the following: 
76 Stat. 820. 
76 Stat. 811. 
68A Stat. 353. 
79 Stat. 381. 
74 Stat. 945. 
1578 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
"(A) I N GENERAL.—The term 'earned income' means the 
net earnings from self-employment (as defined in section 
1402(a)), but such net earnings shall be determined— 
"(i) only with respect to a trade or business in which 
personal services of the taxpayer are a material income-
producing factor, 
"(ii) without regard to paragraphs (4) and (5) of 
section 1402(c), 
"(iii) in the case of any individual who is treated as 
an employee under sections 3121(d)(3) (A), (C), or 
(D), without regard to paragraph (2) of section 1402 (c), 
and 
"(iv) without regard to items which are not included 
in gross income for purposes of this chapter, and the 
deductions properly allocable to or chargeable against 
such items. 
For purposes of this subparagraph, section 1402, as in effect 
for a taxable year ending on December 31, 1962, shall be 
treated as having been in effect for all taxable years ending 
before such date." 
(d) EFFECTIVE DATE.—The amendments made by subsections (a) 
and (b) shall apply with respect to taxable years beginning after 
December 31,1967. 
SEC. 205. TREATMENT OF CERTAIN INCOME OF AUTHORS, INVENTORS, 
ETC., 
AS EARNED 
INCOME FOR RETIREMENT 
PLAN 
PURPOSES. 
(a) INCOME FROM DISPOSITION OF PROPERTY CREATED BY TAX-
Ante, p. 1577. 
p^yER.—Scctlou 401(c) (2) (relating to definition of earned income) 
is amended by adding at the end thereof the following new subpara-
graph : 
"(C) INCOME FROM DISPOSITION OF CERTAIN PROPERTY.—For 
purposes of this section, the term 'earned income' includes 
gains (other than any gain which is treated under any provi-
sion of this chapter as gain from the sale or exchange of a 
capital asset) and net earnings derived from the sale or other 
disposition of, the transfer of any interest in, or the licensing 
of the use of property (other than good will) by an individual 
whose personal efforts created such property. 
(b) EFFECTIVE DATE.—^The amendment made by subsection (a) 
shall apply to taxable years ending after the date of the enactment of 
this Act. 
SEC. 
2
0
6
. 
EXCLUSION 
OF 
CERTAIN 
RENTS 
FROM 
PERSONAL 
HOLDING 
COMPANY 
INCOME. 
(a) RENTS FROM LEASES OF CERTAIN TANGIBLE PERSONAL PROP-
ERTY.—Section 543(b)(3) (relating to adjusted income from rents) 
is amended by striking out "but does not include amounts constituting 
personal holding company income under subsection (a) (6), nor copy-
right royalties (as defined in subsection (a) (4) nor produced film 
rents (as defined in subsection (a)(5)(B))." and inserting in lieu 
thereof the following: "but such term does not include— 
"(A) amounts constituting personal holding company 
income under subsection (a) (6), 
"(B) copyright 
royalties 
(as defined 
in 
subsection 
(a)(4)), 
"(C) produced film rents (as defined in subsection (a) 
(5)(B)), or 
' ( D ) compensation, however designated, for the use of, 
or the right to use, any tangible personal property manu-
78 Stat. 84. 
80 STAT.] 
PUBLIC LAW 8 9 - 8 0 9 - N O V . 13, 1966 
1579 
factured or produced by the taxpayer, if during the taxable 
year the taxpayer is engaged in substantial manufacturing 
or production of tangible personal property of the same 
type." 
(b) TECHNICAL AMENDMENTS.— 
(1) Section 543(a) (2) (relating to adjusted income from rents 
^^ ^*^' ^^• 
included in personal holding company income) is amended by 
striking out the last sentence thereof. 
(2) Section 543(b) (2) (relating to definition of adjusted ordi-
nary gross income) is amended by adding at the end thereof the 
following new subparagraph: 
"(D) CERTAIN EXCLUDED RENTS.—From the gross income 
consisting of compensation described in subparagraph (D) of 
paragraph (3) subtract the amount allowable as deductions 
for the items described in clauses (i), (ii), (iii), and (iv) of 
subparagraph (A) to the extent allocable, under regulations 
prescribed by the Secretary or his delegate, to such gross 
income. 
The amount subtracted under this subparagraph 
shall not exceed such gross income." 
(c) EFFECTIVE DATE.—The amendments made by subsections (a) and 
(b) shall apply to taxable years beginning after the date of the enact-
ment of this Act. Such amendments shall also apply, at the election 
of the taxpayer (made at such time and in such manner as the Secre-
tary or his delegate may prescribe), to taxable years beginning on or 
before such date and ending after December 31, 1965. 
SEC. 
2
0
7
. 
PERCENTAGE 
DEPLETION 
RATE 
FOR 
CERTAIN 
CLAY 
BEAR-
ING 
ALUMINA. 
(a) 23 PERCENT EATE.—Section 613(b) (relating to percentage 
j^lf'J^fgi^^^' 
depletion rates) is amended— 
(1) by inserting "clay, laterite, and nephelite syenite" after 
"anorthosite" in paragraph (2) (B); and 
(2) by striking out "if paragraph (5) (B) does not apply" in 
paragraph (3) (B) and inserting in lieu thereof "if neither para-
graph (2) (B) nor (5) (B) applies". 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply to taxable years beginning after the date of the enactment 
of this Act. 
SEC. 
2
0
8
. 
PERCENTAGE 
DEPLETION 
RATE 
FOR CLAM AND 
OYSTER 
SHELLS. 
(a) 15 PERCENT RATE.—Section 613(b) (relating to percentage 
depletion rates) is amended— 
(1) by striking out "moUusk shells (including clam shells and 
oyster shells)," in paragraph (5) (A), and 
(2) by inserting "mollusk shells (including clam shells and 
oyster shells)," after "marble," in paragraph (6). 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply to taxable years beginning after the date of the enactment 
of this Act. 
SEC. 209. PERCENTAGE DEPLETION RATE FOR CERTAIN CLAY, SHALE, 
AND SLATE. 
(a) 71/^ PERCENT RATE.—Section 613(b) (relating to percentage 
depletion rates) is amended— 
(1) by renumbering paragraphs (5) and (6) as (6) and (7), 
respectively, and by inserting after paragraph (4) the following 
new paragraph; 
"(5) 714 percent—clay and shale used or sold for use in 
the manufacture of sewer pipe or brick, and clay, shale, and 
slate used or sold for use as sintered or burned lightweight 
aggregates."; 
72 Stat. 1644. 
1580 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
(2) by striking out in paragraph (3) (B) (as amended by sec-
tion 207(a)(2)) "if neither paragraph (2) (B) nor (5) (B) 
applies" and inserting in lieu thereof "if neither paragraph (2) 
(B), (5),or (6)(B) applies"; 
(3) by striking out m paragraph (6) (as renumbered by para-
graph (1)) "shale, and stone, except stone described in para-
graph (6)" and inserting in lieu thereof "shale (except shale de-
scribed in paragraph (5)), and stone (except stone described in 
paragraph (7))"; 
(4) by striking out, in subparagraph (B) of paragraph (6) (as 
so renumbered), "building or paving brick," and by striking out 
"sewer pipe,"; and 
(5) by inserting after "any such other mineral" in paragraph 
(7) (as so renuinbered) "(other than slate to which paragraph 
(5) applies)". 
74 Stat. 293. 
^]jj CONFORMING AMENDMENT.—Sectiou 613(c) (4) (G) (relating 
to treatment processes) is amended by striking out "paragraph (5) 
(B)" and inserting in lieu thereof "paragraph (5) or (6) (B)". 
(c) EFFECTIVE DATE.—The amendments made by subsections (a) 
and (b) shall apply to taxable years beginning after the date of the 
enactment of this Act. 
SEC. 210. STRADDLES. 
(a) TREATMENT AS SHORT-TERM 
CAPITAL GAIN.—Section 
1234 
(relating to options) is amended by redesignating subsection (c) as 
subsection (d) and by inserting alter subsection (b) the following 
new subsection: 
"(c) 
SPECIAL RULE FOR GRANTORS OF STRADDLES.— 
" (1) GAIN ON LAPSE.—In the case of gain on lapse of an option 
granted by the taxpayer as part of a straddle, the gain shall be 
deemed to be gain from the sale or exchange of a capital asset 
held for not more than 6 months on the day that the option 
expired. 
(2) EXCEPTION.—This subsection shall not apply to any per-
son who holds securities for sale to customers in the ordinary 
course of his trade or business. 
"(3) DEFINITIONS.—For purposes of this subsection— 
"(A) The term 'straddle' means a simultaneously granted 
combination of an option to buy, and an option to sell, the 
same quantity of a security at the same price during the same 
period of time. 
"(B) The term 'security' has the meaning assigned to 
such term by section 1236(c)." 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply to straddle transactions entered into after January 25, 
1965, in taxable years ending after such date. 
SEC. 211. TAX TREATMENT OF PER-UNIT RETAIN ALLOCATIONS. 
(a) TAX TREATMENT OF COOPERATIVES.— 
(1) Section 1382(a) (relating to gross income of cooperatives) 
is amended by striking out the period at the end thereof and insert-
ing "or by reason of any amount paid to a patron as a per-unit 
retain allocation (as defined in section 1388(f))." 
(2) Section 1382(b) is amended— 
(A) by striking out "(b) PATRONAGE DIVIDENDS.—" and 
inserting in lieu thereof "(b) PATRONAGE DIVIDENDS AND 
PER-UNIT RETAIN ALLOCATIONS.—", 
(B) by striking out "or" at the end of paragraph (1), 
68A Stat. 330. 
76 Stat. 1046. 
80 STAT.] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1581 
(C) by striking out the period at the end of paragraph 
(2) and inserting a semicolon in lieu thereof, 
(D) by striking out the sentence following paragraph (2) 
and inserting in lieu thereof the following: 
" (3*) as per-unit retain allocations, to the extent paid in qualified 
per-unit retain certificates (as defined in section 1388(h)) with 
^°®'' P- ^^^^• 
respect to marketing occurring during such taxable year; or 
"(4) in money or other property (except per-unit retain cer-
tificates) in redemption of a nonqualified per-unit retain certificate 
which was paid as a per-unit retain allocation during the payment 
period for the taxable year during which the marketing occurred. 
For purposes of this title, any amount not taken into account under 
the preceding sentence shall, in the case of an amount described in 
paragraph (1) or (2), be treated in the same manner as an item of 
gross income and as a deduction therefrom, and in the case of an 
amount described in paragraph (3) or (4), be treated as a deduction 
in arriving at gross income." 
(3) Section 1382 (e) is amended to read as follows: 
^^ stat. io47. 
"(e) 
PRODUCTS MARKETED UNDER POOLING ARRANGEMENTS.—For 
purposes of subsection (b), in the case of a pooling arrangement for the 
marketing of products— 
" (1) the patronage shall (to the extent provided in regulations 
prescribed by the Secretary or his delegate) be treated as patron-
age occurring during the taxable year in which the pool closes, and 
"(2) the marketing of products shall be treated as occurring 
during any of the taxable years in which the pool is open." 
(4) Section 1382(f) is amended by strikmg out "subsection 
(b)" and inserting in lieu thereof "paragraphs (1) and (2) of 
subsection (b)". 
(5) The heading for section 1383 is amended by striking out 
the period at the end thereof and inserting "OR NONQUALIFIED 
PER-UNIT RETAIN CERTIFICATES." 
(6) Section 1383(a) is amended— 
(A) by striking out "section 1382(b)(2)" and inserting 
in lieu thereof "section 1382(b)(2) or (4),", 
(B) by striking out "nonqualified written notices of alloca-
tion" each place it appears and inserting in lieu thereof "non-
qualified written notices of allocation or nonqualified per-
unit retain certificates", and 
(C) by striking out "qualified written notices of alloca-
tion" and inserting in lieu thereof "qualified written notices 
of allocation or qualified per-unit retain certificates (as the 
case may be)". 
(7) Section 1383 (b) (2) is amended— 
(A) by striking out "nonqualified written notice of alloca-
tion" and inserting in lieu thereof "nonqualified written notice 
of allocation or nonqualified per-unit retain certificate", 
(B) by striking out "qualified written notice of alloca-
tion" and inserting in lieu thereof "qualified written notice of 
allocation or qualified per-unit retain certificate (as the case 
may be)", 
(C) by striking out "such written notice of allocation" 
and inserting in lieu thereof "such written notice of alloca-
tion or per-unit retain certificate", and 
(D) by striking out "section 1382(b) (2)" and inserting in 
lieu thereof "section 1382(b) (2) or (4),". 
65-300 0-67—102 
76 Stat. 1048. 
1582 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
(8) The table of sections for part I of subchapter T of chapter 
1 is amended by striking out— 
"Sec. 1383. Computation of tax where cooperative redeems non-
qualified written notices of allocation." 
and inserting in lieu thereof— 
"Sec. 1383. Computation of tax where cooperative redeems non-
qualified written notices of allocation or nonqualified 
per-unit retain certificates." 
(b) T A X TREATMENT BY PATRONS.— 
(1) Section 1385(a) is amended by striking out "and" at the 
end of paragraph (1), by striking out the period at the end of 
paragraph (2) and inserting in lieu thereof ", and", and by add-
ing at the end thereof the following new paragraph: 
" (3) the amount of any per-unit retain allocation which is paid 
in qualified per-unit retain certificates and which is received by 
him during the taxable year from an organization described in 
section 1381(a)." 
(2) The heading for section 1385(c) is amended by striking 
out "ALLOCATION" and inserting in lieu thereof "ALLOCATION AND 
CERTAIN NONQUALIFIED PER-UNIT RETAIN CERTIFICATES". 
(3) Section 1385(c) (1) is amended to read as follows: 
"(1) APPLICATION OF SUBSECTION.—This subsection shall apply 
to— 
"(A) any nonqualified 
written 
notice of 
allocation 
which— 
" (i) was paid as a patronage dividend, or 
"(ii) was paid by an organization described in section 
1381 (a) (1) on a patronage basis with respect to earnings 
derived from business or sources described in section 
1382(c) (2) (A),and 
"(B) any nonqualified per-unit retain certificate which 
was paid as a per-unit retain allocation." 
(4) Section 1385(c) (2) is amended— 
(A) by striking out "nonqualified written notice of allo-
cation" and inserting in lieu thereof "nonqualified written 
notice of allocation or nonqualified per-unit retain certifi-
cate", and 
(B) by striking out "such written notice of allocation" 
each place it appears and inserting in lieu thereof "such 
written notice of allocation or per-unit retain certificate". 
(5) The table of parts for subchapter T of chapter 1 is amended 
by striking out— 
"Part II. Tax treatment by patrons of patronage dividends." 
and inserting in lieu thereof— 
"Part II. Tax treatment by patrons of patronage dividends and per-
unit retain allocations." 
(c) 
D E F I N I T I O N S . — 
(1) (A) Section 1388(e) (1) is amended by striking out "allo-
cation)" and inserting in lieu thereof "allocation or a per-unit 
retain certificate)". 
(B) Section 1388(e)(2) is amended by striking out "alloca-
tion" and inserting in lieu thereof "allocation or qualified per-unit 
retain certificate". 
(2) Section 1388 is amended by adding at the end thereof the 
following new subsections: 
"(f) 
PER-UNIT RETAIN ALLOCATION.—^For purposes of this sub-
chapter, the term 'per-unit retain allocation' means any allocation, by 
an organization to which part I of this subchapter applies, other than 
80 STAT.] 
PUBLIC LAW 8 9 - 8 0 9 - N O V . 13, 1966 
1583 
by payment in money or other property (except per-unit retain cer-
tificates) to a patron with respect to products marketed for him, the 
amount of which is fixed without reference to the net earnings of the 
organization pursuant to an agreement between the organization and 
the patron, 
"(g) PER-UNIT RETAIN CERTIFICATE.—For purposes of this sub-
chapter, the term 'per-unit retain certificate' means any written notice 
which discloses to the recipient the stated dollar amount of a per-unit 
retain allocation to him by the organization. 
"(h) QUALIFIED PER-UNIT RETAIN CERTIFICATE.— 
"(1) DEFINED.—For purposes of this subchapter, the term 
'qualified per-unit retain certificate' means any per-unit retain 
certificate which the distributee has agreed, in the manner pro-
vided in paragraph (2), to take into account at its stated dollar 
amount as provided in section 1385 (a). 
^^ ^*^* ^°^^ 
"(2) MANNER OF OBTAINING AGREEMENT.—^A distributee shall 
agree to take a per-unit retain certificate into account as provided 
in paragraph (1) only by— 
''(A) making such agreement in writing, or 
"(B) obtaining or retaining membership in the organiza-
tion after— 
"(i) such organization has adopted (after the date 
of the enactment of this subsection) a bylaw providing 
that membership in the organization constitutes such 
agreement, and 
"(ii) he has received a written notification and copy 
of such bylaw. 
"(3) PERIOD FOR WHICH AGREEMENT IS EFFECTIVE.— 
"(A) GENERAL RULE.—Except as provided in subpara-
graph (B)— 
"(i) an agreement described in paragraph (2) (A) 
shall be an agreement with respect to all products deliv-
ered by the distributee to the organization during the 
taxable year of the organization during which such 
agreement is made and all subsequent taxable years of 
the organization; and 
"(ii) an agreement described in paragraph (2)(B) 
shall be an agreement with respect to all products deliv-
ered by the distributee to the organization after he 
received the notification and copy described in para-
graph(2)(B)(ii). 
"(B) REVOCATION, ETC.— 
"(i) Any agreement described in paragraph (2) (A) 
may be revoked (in writing) by the distributee at any 
time. Any such revocation shall be effective with respect 
to products delivered by the distributee on or after the 
first day of the first taxable year of the organization 
beginning after the revocation is filed with the orga-
nization ; except that in the case of a pooling arrangement 
described in section 1382(e) a revocation made by a dis- 
'^^ s
*
^
*
^
- ^°'*^-
tributee shall not be effective as to any products which 
were delivered to the organization by the distributee 
before such revocation. 
"(^ii) Anv agreement described in paragraph (2) (B) 
shall not be effective with respect to any products 
delivered after the distributee ceases to be a member of 
the organization or after the bylaws of the organization 
cease to contain the provision described in paragraph 
(2)(B)(i). 
Ante, p. 1581. 
76 Stat. 1045. 
1584 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
"(i) NONQUALIFIED PER-UNIT RETAIN CERTIFICATE.—For purposes 
of this subchapter, the term 'nonqualified per-unit retain certificate' 
means a per-unit retain certificate which is not described in sub-
section (h)." 
(d) INFORMATION REPORTING.— 
76 Stat. 1054. 
^-[^^ A M O U N T S SUBJECT TO REPORTING. 
SectioU 6 0 4 4 ( b ) (1) is 
amended by striking out "and" at the end of subparagraph (B), 
by striking out the period at the end of subparagraph (C) and 
inserting in lieu thereof ", and", and by adding after subpara-
graph (C) the following new subparagraphs: 
"(D) the amount of any per-unit retain allocation (as 
Ante, p. 1582. 
defined in section 1388(f)) which is paid in qualified per-unit 
retain certificates (as defined in section 1388(h)), and 
"(E) any amount described in section 1382 (b) (4) (relat-
ing to redemption of nonqualified per-unit retain certifi-
cates) ." 
(2) 
DETERMINATION OF AMOUNT PAID.— 
(A) Section 6044(d) (1) is amended by striking out "allo-
cation)" and inserting in lieu thereof "allocation or a quali-
fied per-unit retain certificate)". 
(B) Section 6044(d) (2) is amended by striking out "allo-
cation" and inserting in lieu thereof "allocation or a qualified 
per-unit retain certificate". 
(e) 
EFFECTIVE DATES.— 
(1) The amendments made by subsections (a), (b), and (c) 
shall apply to per-unit retain allocations made during taxable 
years of an organization described in section 1381(a) (relating 
to organizations to which part I of subchapter T of chapter 1 
applies) beginning after April 30,1966, with respect to products 
delivered during such years. 
(2) The amendments made by subsection (d) shall apply with 
respect to calendar years after 1966. 
(f) TRANSITION RULE.— 
(1) Except as provided in paragraph (2), a written agreement 
between a patron and a cooperative association— 
(A) which clearly provides that the patron agrees to treat 
the stated dollar amounts of all per-unit retain certificates 
issued to him by the association as representing cash distribu-
tions which he has, of his own choice, reinvested in the coop-
erative association, 
(B) which is revocable by the patron at any time after the 
close of the taxable year in which it was made, 
(C) which was entered into after October 14, 1965, and 
before the date of the enactment of this Act, and 
(D) which is in effect on the date of the enactment of this 
Act, and with respect to which a written notice of revocation 
has not been furnished to the cooperative association, 
shall be effective (for the period prescribed in the agreement) for 
purposes of section 1388(h) of the Internal Revenue Code of 1954 
as if entered into, pursuant to such section, after the date of the 
enactment of this Act. 
(2) An agreement described in paragraphs (1) (A) and (C) 
which was included in a by-law of the cooperative association and 
which is in effect on the date of the enactment of this Act shall be 
effective for purposes of section 1388(h) of such Code only for 
taxable years of the association beginning before May 1, 1967. 
79 Stat. 136. 
78 Stat. 813. 
80 STAT.] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1585 
SEC. 212. EXCISE TAX RATE ON AMBULANCES AND HEARSES. 
(a) CLASSIFICATION AS AUTOMOBILES.—Section 4062 (relating to yg^st'lt^'iose^^' 
definitions applicable to the tax on motor vehicles) is amended by 
adding at the end thereof the following new subsection: 
"(b) AMBULANCES, HEARSES, ETC.—For purposes of section 4061 
(a), a sale of an ambulance, hearse, or combination ambulance-hearse 
shall be considered to be a sale of an automobile chassis and an auto-
mobile body enumerated in subparagraph (B) of section 4061 (a) (2)." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply with respect to articles sold after the date of the enact-
ment of this Act. 
SEC. 213. APPLICABILITY OF EXCLUSION FROM INTEREST EQUALIZA-
TION TAX OF CERTAIN LOANS TO ASSURE RAW MATERI-
ALS SOURCES. 
(a) EXCEPTION T
O EXCLUSION.—Section 4914(d) (relating to loans 
to assure raw materials sources) is amended by adding at the end 
thereof the following new paragraph: 
"(3) EXCEPTION.—The exclusion from tax provided by para-
graph (1) shall not apply in any case where the acquisition of 
the debt obligation of the foreign corporation is made with an 
intent to sell, or to offer to sell, any part of such debt obligation 
to United States persons." 
(b) TECHNICAL AMENDMENTS.—(1) Section 4914(j) (1) (relating 
to loss of entitlement to exclusion in case of certain subsequent trans-
fers) is amended— 
(A) by striking out in subparagraph (A) ", or the exclu-
sion provided by subsection (d),", and 
(B) by striking out "subsection (d) or (f)" in subpara-
graph (D) and inserting in lieu thereof "subsection (r)". 
(2) Section 4918 (relating to exemption for prior American 
ownership) is amended by adding at the end thereof the follow-
ing new subsection: 
" (g) 
CERTAIN DEBT OBLIGATIONS ARISING OUT OF LOANS TO ASSURE 
EAW MATERIAL SOURCES.—Under regulations prescribed by the Secre-
tary or his delegate, subsection (a) shall not apply to the acquisition 
by a United States person of any debt obligation to which section 
4914(d) applied where the acquisition of the debt obligation by such 
person is made with an intent to sell, or to offer to sell, any part of 
such debt obligation to United States persons. The preceding sen-
tence shall not apply if the tax imposed by section 4911 has applied 
to any prior acquisition of such debt obligation." 
(c) EFFECTIVE DATE.—The amendments made by subsections (a) 
and (b) shall apply with respect to acquisitions of debt obligations 
made after the date of the enactment of this Act. 
SEC. 214. EXCLUSION FROM INTEREST EQUALIZATION TAX FOR CER-
TAIN ACQUISITIONS BY INSURANCE COMPANIES. 
(a) 
NEW COMPANIES AND COMPANIES OPERATING IN FORMER LESS 
DEVELOPED COUNTRIES.-—Section 4914(e) (relating to acquisitions by 
insurance companies doing business in foreign countries) is amended— 
(1) by striking out "at the time of the initial designation" in 
the last sentence of paragraph (2) ; 
(2) by striking out "An" in the first sentence of paragraph 
(3) (A) (i) and inserting in lieu thereof "Except as provided in 
clause (iii),an"; 
(3) by striking out "under this subparagraph" in paragraph 
(3)(A)(ii) and inserting in lieu thereof "under clause (i)"; 
(4) by adding after clause (ii) of paragraph (3) (A) the fol-
lowing new clauses: 
78 Stat. 831. 
78 Stat. 809. 
1586 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
" ( i i i ) I N I T I A L DESIGNATION A F T E R OCTOBER 2 , 1 9 6 4 . — A n 
insurance company which was not in existence on October 
2,1964, or was otherwise ineligible to establish a fund (or 
funds) of assets described in paragraph (2) by making 
an initial designation under clause (i) on or before such 
date, may est^lish (and thereafter currently maintain) 
such fund (or funds) of assets at any time after the 
enactment or this clause by designating stock of a foreign 
issuer or a debt obligation of a foreign obligor as a part 
of such fund in accordance with the provisions of clause 
(iv) (if applicable) and subparagraph (B) (i). 
"(iv) FUNDS INVOLVING CURRENCIES OF FORMER LESS 
D
E
V
E
L
O
P
E
D COUNTRIES.—An insurance company desiring 
to establish a fund under clause (iii) with respect to 
insurance contracts payable in the currency of a country 
designated as a less developed country on October 2, 
1964, which thereafter has such designation terminated 
78 Stat. 827. 
^^ ^^ Executive order issued under section 4916(b), 
shall designate as assets of such fund, to the extent per-
mitted by subparagraph (E), the stock of foreign issuers 
or debt obligations of foreign obligors as follows: First, 
stock and debt obligations having a period remaining 
to maturity of at least 1 year (other than stock or a 
debt obligation described in section 4916(a)) acquired 
before July 19, 1963, and owned by the company on the 
date which the President, in accordance with section 
4916(b), communicates to Congress his intention to ter-
minate the status of such country as a less developed 
country; second, stock and debt obligations having a 
period remaining to maturity of at least 1 year described 
m section 4916(a) (and owned by the company on the 
date of such termination) which, at the time of acquisi-
tion, qualified for the exclusion provided in such section 
because of the status of such country as a less developed 
country; and third, such stock or debt obligations as the 
company may elect to desi^ate under subparagraph 
(B) (i). The period remaining to maturity referred to 
in the preceding sentence shall be determined as of the 
date of the President's communication to Congress."; 
(5) by striking out "TO MAINTAIN FUND" in the heading of para-
graph (3) ( B ) ; 
(6) by striking out "as provided in subparagraph (A) (ii)" in 
paragraph (3) (B) (i) and inserting in lieu thereof "under sub-
paragraphs (A) (i) and (ii)"; 
(7) by inserting before the period at the end of the first sentence 
78 Stat. 819. 
of paragraph (3) (C) the following:"; except that, with respect to 
a fund established under subparagraph (A) (iii), stock or debt 
obligations acquired before the establishment of such fund may 
not be designated as part of such fund under this subparagraph"; 
(8) by striking out "subparagraph 
(B)," in paragraph 
(3) (E) (i) and inserting in lieu thereof "subparagraph (A) (iv), 
(B),"; 
(9) by striking out "subparagraph 
( A ) " in paragraph 
(4) (B) (i) and inserting in lieu thereof "subparagraph (A) (i)"; 
(10) by striking out "paragraph 
(3) (A)" in paragraph 
(4) (B) (ii) and inserting in lieu thereof "paragraph (3) (A) 
(i)";and 
79 Stat. 959. 
78 Stat. 827. 
80 STAT.] 
PUBLIC LAW 8 9 - 8 0 9 - N O V . 13, 1966 
1587 
(11) by adding at the end of paragraph (4) the following new 
^* ^
*
^
*
- *^° 
paragraph: 
"(C) SPECIAL RULE.—For purposes of subparagraph (A), 
if a country designated as a less developed country on Septem-
ber 2,1964, thereafter has such designation terminated by an 
Executive order issued under section 4916(b), all insurance 
contracts payable in the currency of such country which 
were entered into before such designation was terminated 
shall be treated as insurance contracts payable in the cur-
rency of a country other than a less developed country." 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall take effect on the day after the date of the enactment of this Act. 
SEC. 215. EXCLUSION FROM INTEREST EQUALIZATION TAX OF CER-
TAIN ACQUISITIONS BY FOREIGN BRANCHES OF DO-
MESTIC BANKS. 
(a) AUTHORITY FOR MODIFICATION OF EXECUTIVE ORDERS.—Section 
4931 (a) (relating to commercial bank loans) is amended by adding at 
^^ stat. 839. 
the end thereof the following new sentence: "Clause (A) of the preced-
ing sentence shall not prevent a modification of such Executive order 
(or any modification thereof) to exclude from the application of sub-
section (b) acquisitions by commercial banks, through branches 
located outside the United States, of debt obligations of foreign obli-
gors payable in currency of the LTnited States." 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply with respect to acquisitions of debt obligations made after 
the date of the enactment of this Act. 
TITLE III—PRESIDENTIAL ELECTION 
CAMPAIGN FUND ACT 
SEC. 301. SHORT TITLE. 
This title may be cited as the "Presidential Election Campaign Fund 
Act of 1966". 
SEC. 302. AUTHORITY FOR DESIGNATION OF $1 OF INCOME TAX PAY-
MENTS TO PRESIDENTIAL ELECTION CAMPAIGN FUND. 
(a) Subchapter A of chapter 61 of the Internal Kevenue Code of 
26'^sc^*6oo^i-' 
1954 (relating to returns and records) is amended by adding at the 6091. 
end thereof the following new part: 
"PART VIII—DESIGNATION OF INCOME TAX PAYMENTS 
TO PRESIDENTIAL ELECTION CAMPAIGN FUND 
"Sec. 6096. Designation by individuals. 
"SEC. 6096. DESIGNATION BY INDIVIDUALS. 
"(a) I N GENERAL.—Every individual (other than a nonresident 
alien) whose income tax liability for any taxable year is $1 or more 
may designate that $1 shall be paid into the Presidential Election 
Campaign Fund established by section 303 of the Presidential Election 
Campaign Fund Act of 1966. 
"(b) INCOME TAX LIABILITY.—For purposes of subsection (a), the 
income tax liability of an individual for any taxable year is the 
amount of the tax imposed by chapter 1 on such individual for such 
taxable year (as shown on his return), reduced by the sum of the 
credits (as shown in his return) allowable under sections 32(2), 33,35, 
37, and 38. 
"(c) MANNER AND TIME OF DESIGNATION.—A designation under 
subsection (a) may be made with respect to any taxable year, in such 
manner as the Secretary or his delegate may prescribe by regulations— 
26 u s e 1-1388. 
76 Stat. 962. 
68A Stat. 4. 
26 u s e 1-1388 
1588 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
"(1) at tlie time of filing the return of the tax imposed by 
chapter 1 for such taxable year, or 
"(2) at any other time (after the time of filing the return of 
the tax imposed by chapter 1 for such taxable year) specified in 
regulations prescribed by the Secretary or his delegate." 
(b) The table of parts for subchapter A of chapter 61 of such Code 
is amended by adding at the end thereof the following new item: 
"Part VIII. Designation of income tax payments to Presidential 
Election Campaign Fund." 
(c) The amendments made by this section shall apply with respect 
to income tax liability for taxable years beginning after December 
31,1966. 
SEC. 303. PRESIDENTIAL ELECTION CAMPAIGN FUND. 
(a) ESTABLISHMENT.—There is hereby established on the books of 
the Treasury of the United States a special fund to be known as the 
"Presidential Election Campaign Fund" (hereafter in this section 
referred to as the "Fund"). 
The Fund shall consist of amounts trans-
ferred to it as provided in this section. 
(b) TRANSFERS TO THE FUND.—The Secretary of the Treasury shall, 
from time to time, transfer to the Fund an amount equal to the sum 
of the amounts designated by individuals under section 6096 of the 
Ante, p. 1587. 
Internal Revenue Code of 1954 for payment into the Fund. 
(c) PAYMENTS FROM FUND.— 
(1) I N GENERAL.—The Secretary of the Treasury shall, with 
respect to each presidential campaign, pay out of the Fund, as 
authorized by appropriation Acts, into the treasury of each politi-
cal party which has complied with the provisions of paragraph 
(3) an amount (subject to the limitation in paragraph (3) (B)) 
determined under paragraph (2). 
(2) DETERMINATION OF AMOUNTS.— 
(A) Each political party whose candidate for President 
at the preceding presidential election received 15,000,000 or 
more popular votes as the candidate of such political party 
shall be entitled to payments under paragraph (1) with 
respect to a presidential campaign equal to the excess over 
$5,000,000 of— 
(i) $1 multiplied by the total number of popular 
votes cast in the preceding presidential election for can-
didates of political parties whose candidates received 
15,000,000 or more popular votes as the candidates of 
such political parties, divided by 
(ii) the number of political parties whose candidates 
in the preceding presidential election received 15,000,000 
or more popular votes as the candidates of such political 
parties. 
(B) Each political party whose candidate for President 
at the preceding presidential election received more than 
5,000,000, but less than 15,000,000, popular votes as the can-
didate of such political party shall be entitled to payments 
under paragraph (1) with respect to a presidential cam-
paign equal to $1 multiplied by the number of popular votes 
in excess of 5,000,000 received by such candidate as the 
candidate of such political party in the preceding presiden-
tial election. 
(C) Payments under paragraph (1) shall be made with 
respect to each presidential campaign at such times as the 
Secretary of the Treasury may prescribe by regulations, 
80 STAT.] 
PUBLIC LAW 89-809-NOV. 13, 1966 
1589 
except that no payment with respect to any presidential cam-
paign sliall be made before September 1 of the year of the 
presidential election with respect to which such campaign is 
conducted. 
If at the time so prescribed for any such pay-
ments, the moneys in the Fund are insufficient for the Secre-
tary to pay into the treasury of each political party which 
is entitled to a payment under paragraph (1) the amount to 
which such party is entitled, the payment to all such parties 
at such time shall be reduced pro rata, and the amounts not 
paid at such time shall be paid when there are sufficient 
moneys in the Fund. 
(3) 
LIMITATIONS.— 
(A) No payment shall be made under paragraph (1) into 
the treasury of a political party with respect to any presiden-
tial campaign unless the treasurer of such party has certified 
to the Comptroller General the total amount spent or incurred 
(prior to the date of the certification) by such party in carry-
ing on such presidential campaign, and has furnished such 
records and other information as may be requested by the 
Comptroller General. 
(B) No payment shall be made under paragraph (1) into 
the treasury of a political party with respect to any presiden-
tial campaign in an amount which, when added to previous 
payments made to such party, exceeds the amount spent or 
incurred by such party in carrying on such presidential 
campaign. 
(4)The Comptroller General shall certify to the Secretary of 
the Treasury the amounts payable to any political party under 
paragraph (1). The Comptroller General's determination as to 
the popular vote received by any candidate of any political party 
shall be final and not subject to review. The Comptroller Gen-
eral is authorized to prescribe such rules and regulations, and to 
conduct such examinations and investigations, as he determines 
necessary to carry out his duties and functions under this sub-
section. 
(5) DEFINITIONS.—For purposes of this subsection— 
(A) The term "political party" means any political party 
which presents a candidate for election to the office of Presi-
dent of the United States. 
(B) The term "presidential campaign" means the political 
campaign held every fourth year for the election of presiden-
tial and vice presidential electors. 
(C) The term "presidential election" means the election of 
presidential electors. 
(d) TRANSFERS TO GENERAL FUND.—If, after any presidential cam-
paign and after all political parties which are entitled to payments 
under subsection (c) with respect to such presidential campaign have 
been paid the amounts to which they are entitled under subsection 
(c), there are moneys remaining in the Fund, the Secretary of the 
Treasury shall transfer the moneys so remaining to the general fund 
of the Treasury. 
SEC. 304. ESTABLISHMENT OF ADVISORY BOARD. 
(a) There is hereby established an advisory board to be known as 
the Presidential Election Campaign Fund Advisory Board (here-
after in this section referred to as the "Board"), It shall be the duty 
and function of the Board to counsel and assist the Comptroller Gen-
eral in the performance of the duties imposed on him under section 
303 of this Act. 
Term of office. 
1590 
PUBLIC LAW 89-809-NOV. 13, 1966 
[80 STAT. 
Membership. 
||^^ rpj^^ Board shall be composed of two members representing 
each political party whose candidate for President at the last presi-
dential election received 15,000,000 or more popular votes as the candi-
date of such political party, which members shall be appointed by the 
Comptroller General from recommendations submitted by each such 
political party, and of three additional members selected by the mem-
bers so appointed by the Comptroller General. The term of the first 
members of the Board shall expire on the 60th day after the date of 
the first presidential election following the date of the enactment of 
this Act and the term of subsequent members of the Board shall begin 
on the 61st day after the date of a presidential election and expire on 
the 60th day following the date of the subsequent presidential election. 
The Board shall select a Chairman from among its members. 
Compensation. 
^^^ Members of the Board shall receive compensation at the rate 
of $75 a day for each day they are engaged in performing duties and 
functions as such members, including travel time, and, while away 
from their homes or regular places of business, shall be allowed travel 
expenses, including per diem in lieu of subsistence, as authorized by 
law for persons in the Government service employed intermittently. 
(d) Service by an individual as a member of the Board shall not, 
for purposes of any other law of the United States, be considered as 
service as an officer or employee of the United States. 
SEC. 305. APPROPRIATIONS AUTHORIZED. 
There are authorized to be appropriated, out of the Presidential 
Elections Campaign Fund, such sums as may be necessary to enable 
the Secretary of the Treasury to make payments under section 303 of 
this Act. 
TITLE IV—MISCELLANEOUS PROVISIONS 
SEC. 401. TREASURY NOTES PAYABLE IN FOREIGN CURRENCY. 
Section 16 of the Second Liberty Bond Act, as amended (31 U.S.C. 
766), is amended by striking out "bonds" wherever it appears therein 
and inserting in lieu thereof "bonds, notes,". 
SEC. 402. REPORTS TO CLARIFY THE NATIONAL DEBT AND TAX STRUC-
TURE. 
The Secretary of the Treasury shall, on the first day of each regular 
session of the Congress, submit to the Senate and the House of Repre-
sentatives a report setting forth, as of the close of the preceding June 
30 (beginning with the report as of June 30,1967), the aggregate and 
individual amounts of the contingent liabilities and the unfunded lia-
bilities of the Government, and of each department, agency, and instru-
mentality thereof, including, so far as practicable, trust fund liabilities, 
Government corporations' liabilities, indirect liabilities not included 
as a part of the public debt, and liabilities of insurance and annuity 
programs, including their actuarial status. The report shall also set 
forth the collateral pledged, or the assets available (or to be realized), 
as security for such liabilities (Government securities to be separately 
noted), and shall also set forth all other assets specifically available to 
liquidate such liabilities of the Government. The report shall set 
forth the required data in a concise form, with such explanatory mate-
rial (includmg such analysis of the significance of the liabilities in 
terms of past experience and probable risk) as the Secretary may 
determine to be necessary or desirable, and shall include total amounte 
of each category accordmg to the department, agency, or instrumen-
tality involved. 
Approved November 13, 1966. 
40 Stat; 505.