Internal Revenue Code:Sec. 904. Limitation on credit

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Contents


Location in Internal Revenue Code


     TITLE 26 - INTERNAL REVENUE CODE
      Subtitle A - Income Taxes
       CHAPTER 1 - NORMAL TAXES AND SURTAXES
        Subchapter N - Tax Based on Income From Sources Within or Without
              the United States
          PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
           Subpart A - Foreign Tax Credit
         

Statute

    Sec. 904. Limitation on credit
 
    (a) Limitation
      The total amount of the credit taken under section 901(a) shall
    not exceed the same proportion of the tax against which such credit
    is taken which the taxpayer's taxable income from sources without
    the United States (but not in excess of the taxpayer's entire
    taxable income) bears to his entire taxable income for the same
    taxable year.
    (b) Taxable income for purpose of computing limitation
      (1) Personal exemptions
        For purposes of subsection (a), the taxable income in the case
      of an individual, estate, or trust shall be computed without any
      deduction for personal exemptions under section 151 or 642(b).
      (2) Capital gains
        For purposes of this section -
        (A) In general
          Taxable income from sources outside the United States shall
        include gain from the sale or exchange of capital assets only
        to the extent of foreign source capital gain net income.
        (B) Special rules where capital gain rate differential
          In the case of any taxable year for which there is a capital
        gain rate differential -
            (i) in lieu of applying subparagraph (A), the taxable
          income from sources outside the United States shall include
          gain from the sale or exchange of capital assets only in an
          amount equal to foreign source capital gain net income
          reduced by the rate differential portion of foreign source
          net capital gain,
            (ii) the entire taxable income shall include gain from the
          sale or exchange of capital assets only in an amount equal to
          capital gain net income reduced by the rate differential
          portion of net capital gain, and
            (iii) for purposes of determining taxable income from
          sources outside the United States, any net capital loss (and
          any amount which is a short-term capital loss under section
          1212(a)) from sources outside the United States to the extent
          taken into account in determining capital gain net income for
          the taxable year shall be reduced by an amount equal to the
          rate differential portion of the excess of net capital gain
          from sources within the United States over net capital gain.
        (C) Coordination with capital gains rates
          The Secretary may by regulations modify the application of
        this paragraph and paragraph (3) to the extent necessary to
        properly reflect any capital gain rate differential under
        section 1(h) or 1201(a) and the computation of net capital
        gain.
      (3) Definitions
        For purposes of this subsection -
        (A) Foreign source capital gain net income
          The term ''foreign source capital gain net income'' means the
        lesser of -
            (i) capital gain net income from sources without the United
          States, or
            (ii) capital gain net income.
        (B) Foreign source net capital gain
          The term ''foreign source net capital gain'' means the lesser
        of -
            (i) net capital gain from sources without the United
          States, or
            (ii) net capital gain.
        (C) Section 1231 gains
          The term ''gain from the sale or exchange of capital assets''
        includes any gain so treated under section 1231.
        (D) Capital gain rate differential
          There is a capital gain rate differential for any taxable
        year if -
            (i) in the case of a taxpayer other than a corporation,
          subsection (h) of section 1 applies to such taxable year, or
            (ii) in the case of a corporation, any rate of tax imposed
          by section 11, 511, or 831(a) or (b) (whichever applies)
          exceeds the alternative rate of tax under section 1201(a)
          (determined without regard to the last sentence of section
          11(b)(1)).
        (E) Rate differential portion
          (i) In general
            The rate differential portion of foreign source net capital
          gain, net capital gain, or the excess of net capital gain
          from sources within the United States over net capital gain,
          as the case may be, is the same proportion of such amount as
          -
              (I) the excess of the highest applicable tax rate over
            the alternative tax rate, bears to
              (II) the highest applicable tax rate.
          (ii) Highest applicable tax rate
            For purposes of clause (i), the term ''highest applicable
          tax rate'' means -
              (I) in the case of a taxpayer other than a corporation,
            the highest rate of tax set forth in subsection (a), (b),
            (c), (d), or (e) of section 1 (whichever applies), or
              (II) in the case of a corporation, the highest rate of
            tax specified in section 11(b).
          (iii) Alternative tax rate
            For purposes of clause (i), the term ''alternative tax
          rate'' means -
              (I) in the case of a taxpayer other than a corporation,
            the alternative rate of tax determined under section 1(h),
            or
              (II) in the case of a corporation, the alternative rate
            of tax under section 1201(a).
      (4) Coordination with section 936
        For purposes of subsection (a), in the case of a corporation,
      the taxable income shall not include any portion thereof taken
      into account for purposes of the credit (if any) allowed by
      section 936 (without regard to subsections (a)(4) and (i)
      thereof).
    (c) Carryback and carryover of excess tax paid
      Any amount by which all taxes paid or accrued to foreign
    countries or possessions of the United States for any taxable year
    for which the taxpayer chooses to have the benefits of this subpart
    exceed the limitation under subsection (a) shall be deemed taxes
    paid or accrued to foreign countries or possessions of the United
    States in the first preceding taxable year and in any of the first
    10 succeeding taxable years, in that order and to the extent not
    deemed taxes paid or accrued in a prior taxable year, in the amount
    by which the limitation under subsection (a) for such preceding or
    succeeding taxable year exceeds the sum of the taxes paid or
    accrued to foreign countries or possessions of the United States
    for such preceding or succeeding taxable year and the amount of the
    taxes for any taxable year earlier than the current taxable year
    which shall be deemed to have been paid or accrued in such
    preceding or subsequent taxable year (whether or not the taxpayer
    chooses to have the benefits of this subpart with respect to such
    earlier taxable year).  Such amount deemed paid or accrued in any
    year may be availed of only as a tax credit and not as a deduction
    and only if the taxpayer for such year chooses to have the benefits
    of this subpart as to taxes paid or accrued for that year to
    foreign countries or possessions of the United States.
    (d) Separate application of section with respect to certain
        categories of income
      (1) In general.--The provisions of subsections (a), (b), 
        and (c) and sections 902, 907, and 960 shall be applied 
        separately with respect to--
                    (A) passive category income, and
                    (B) general category income.

      (2) Definitions and special rules
        For purposes of this subsection -
        (A) Categories.--
                     (i) Passive category income.--The term 
                  "passive category income" means passive income and 
                  specified passive category income.
                     (ii) General category income.--The term 
                  "general category income" means income other than 
                  passive category income.

        (B) Passive income
          (i) In general
            Except as otherwise provided in this subparagraph, the term
          ''passive income'' means any income received or accrued by
          any person which is of a kind which would be foreign personal
          holding company income (as defined in section 954(c)).
          (ii) Certain amounts included
            Except as provided in clause (iii), the term ''passive
          income'' includes any amount includible in gross income under
          section 551 or, except as provided in subparagraph (E)(iii)
          or paragraph (3)(I), section 1293 (relating to certain
          passive foreign investment companies).
          (iii) Exceptions
            The term ''passive income'' shall not include -
              (I) any export financing interest, and
              (II) any high-taxed income.
          (iv) Clarification of application of section 864(d)(6)
            In determining whether any income is of a kind which would
          be foreign personal holding company income, the rules of
          section 864(d)(6) shall apply only in the case of income of a
          controlled foreign corporation.
           (v) Specified passive category income.--The 
          term `specified passive category income' means--
              (I) dividends from a DISC or 
             former DISC (as defined in section 
             992(a)) to the extent such dividends are 
             treated as income from sources without 
             the United States,
              (II) taxable income attributable 
             to foreign trade income (within the 
             meaning of section 923(b)), and
              (III) distributions from a FSC (or 
             a former FSC) out of earnings and 
             profits attributable to foreign trade 
             income (within the meaning of section 
             923(b)) or interest or carrying charges 
             (as defined in section 927(d)(1)) 
             derived from a transaction which results 
             in foreign trade income (as defined in 
             section 923(b)).
        (C) Treatment of financial services income and 
             companies.--
           (i) In general.--Financial services income 
              shall be treated as general category income in the 
              case of--
               (I) a member of a financial 
              services group, and
              (II) any other person if such 
              person is predominantly engaged in the 
              active conduct of a banking, insurance, 
              financing, or similar business.
           (ii) Financial services group.--The term 
              `financial services group' means any affiliated 
               group (as defined in section 1504(a) without 
               regard to paragraphs (2) and (3) of section 
               1504(b)) which is predominantly engaged in the 
               active conduct of a banking, insurance, financing, 
               or similar business. In determining whether such a 
               group is so engaged, there shall be taken into 
               account only the income of members of the group 
               that are--
                 (I) United States corporations, or
                (II) controlled foreign 
                 corporations in which such United States 
                 corporations own, directly or 
                 indirectly, at least 80 percent of the 
                 total voting power and value of the 
                 stock.
           (iii) Pass-thru entities.--
                The <<NOTE: Regulations.>> Secretary shall by 
                regulation specify for purposes of this 
                subparagraph the treatment of financial services 
                income received or accrued by partnerships and by 
                other pass-thru entities which are not members of 
                a financial services group.
        (D) Financial services income
          (i) In general
            Except as otherwise provided in this subparagraph, the term
          ''financial services income'' means any income which is
          received or accrued by any person predominantly engaged in
          the active conduct of a banking, insurance, financing, or
          similar business, and which is -
              (I) described in clause (ii), or
              (II) passive income (determined without regard to
                subparagraph (B)(iii)(II)
          (ii) General description of financial services income
            Income is described in this clause if such income is -
              (I) derived in the active conduct of a banking,
            financing, or similar business,
              (II) derived from the investment by an insurance company
            of its unearned premiums or reserves ordinary and necessary
            for the proper conduct of its insurance business, or
              (III) of a kind which would be insurance income as
            defined in section 953(a) determined without regard to
            those provisions of paragraph (1)(A) of such section which
            limit insurance income to income from countries other than
            the country in which the corporation was created or
            organized.
         (E) Noncontrolled section 902 corporation
          (i) In general
            The term ''noncontrolled section 902 corporation'' means
          any foreign corporation with respect to which the taxpayer
          meets the stock ownership requirements of section 902(a) (or,
          for purposes of applying paragraph (3) or (4), the requirements of
          section 902(b)). A controlled foreign corporation shall not
          be treated as a noncontrolled section 902 corporation with
          respect to any distribution out of its earnings and profits
          for periods during which it was a controlled foreign
          corporation.
          (ii) Treatment of inclusions under section 1293
            If any foreign corporation is a non-controlled section 902
          corporation with respect to the taxpayer, any inclusion under
          section 1293 with respect to such corporation shall be
          treated as a dividend from such corporation.
        (F) High-taxed income
          The term ''high-taxed income'' means any income which (but
        for this subparagraph) would be passive income if the sum of -
            (i) the foreign income taxes paid or accrued by the
          taxpayer with respect to such income, and
            (ii) the foreign income taxes deemed paid by the taxpayer
          with respect to such income under section 902 or 960,
        exceeds the highest rate of tax specified in section 1 or 11
        (whichever applies) multiplied by the amount of such income
        (determined with regard to section 78). For purposes of the
        preceding sentence, the term ''foreign income taxes'' means any
        income, war profits, or excess profits tax imposed by any
        foreign country or possession of the United States.
        (G) Export financing interest
          For purposes of this paragraph, the term ''export financing
        interest'' means any interest derived from financing the sale
        (or other disposition) for use or consumption outside the
        United States of any property -
            (i) which is manufactured, produced, grown, or extracted in
          the United States by the taxpayer or a related person, and
            (ii) not more than 50 percent of the fair market value of
          which is attributable to products imported into the United
          States.
        For purposes of clause (ii), the fair market value of any
        property imported into the United States shall be its appraised
        value, as determined by the Secretary under section 402 of the
        Tariff Act of 1930 (19 U.S.C. 1401a) in connection with its
        importation.
        (H) Treatment of income tax base differences.--
            (i) In general.--In the case of taxable 
            years beginning after December 31, 2006, tax 
            imposed under the law of a foreign country or 
            possession of the United States on an amount which 
            does not constitute income under United States tax 
            principles shall be treated as imposed on income 
            described in paragraph (1)(B).
            (ii) Special rule for years before 2007.--
                  (I) In general.--In the case of 
                 taxes paid or accrued in taxable years 
                 beginning after December 31, 2004, and 
                 before January 1, 2007, a taxpayer may 
                 elect to treat tax imposed under the law 
                 of a foreign country or possession of 
                 the United States on an amount which 
                 does not constitute income under United 
                 States tax principles as tax imposed on 
                 income described in subparagraph (C) or 
                 (I) of paragraph (1).
                 (II) Election irrevocable.--
                        Any <<NOTE: Applicability.>> such 
                        election shall apply to the taxable year 
                        for which made and all subsequent 
                        taxable years described in subclause (I) 
                        unless revoked with the consent of 
                        the Secretary.
        (I) Related person
          For purposes of this paragraph, the term ''related person''
        has the meaning given such term by section 954(d)(3), except
        that such section shall be applied by substituting ''the person
        with respect to whom the determination is being made'' for
        ''controlled foreign corporation'' each place it appears.
        (J) Transitional rule
          For purposes of paragraph (1) -
            (i) taxes paid or accrued in a taxable year beginning
          before January 1, 1987, with respect to income which was
          described in subparagraph (A) of paragraph (1) (as in effect
          on the day before the date of the enactment of the Tax Reform
          Act of 1986) shall be treated as taxes paid or accrued with
          respect to income described in subparagraph (A) of paragraph
          (1) (as in effect after such date),
            (ii) taxes paid or accrued in a taxable year beginning
          before January 1, 1987, with respect to income which was
          described in subparagraph (E) of paragraph (1) (as in effect
          on the day before the date of the enactment of the Tax Reform
          Act of 1986) shall be treated as taxes paid or accrued with
          respect to income described in subparagraph (I) of paragraph
          (1) (as in effect after such date) except that -
              (I) such taxes shall be treated as paid or accrued with
            respect to shipping income to the extent the taxpayer
            establishes to the satisfaction of the Secretary that such
            taxes were paid or accrued with respect to such income,
              (II) in the case of a person described in subparagraph
            (C)(i), such taxes shall be treated as paid or accrued with
            respect to financial services income to the extent the
            taxpayer establishes to the satisfaction of the Secretary
            that such taxes were paid or accrued with respect to such
            income, and
              (III) such taxes shall be treated as paid or accrued with
            respect to high withholding tax interest to the extent the
            taxpayer establishes to the satisfaction of the Secretary
            that such taxes were paid or accrued with respect to such
            income, and
            (iii) taxes paid or accrued in a taxable year beginning
          before January 1, 1987, with respect to income described in
          any other subparagraph of paragraph (1) (as so in effect
          before such date) shall be treated as taxes paid or accrued
          with respect to income described in the corresponding
          subparagraph of paragraph (1) (as so in effect after such
          date).
         (K) Transitional rules for 2007 changes.--For 
                purposes of paragraph (1)--
             (i) taxes carried from any taxable year 
              beginning before January 1, 2007, to any taxable 
              year beginning on or after such date, with respect 
              to any item of income, shall be treated as 
              described in the subparagraph of paragraph (1) in 
              which such income would be described were such 
              taxes paid or accrued in a taxable year beginning 
              on or after such date, and
             (ii) the Secretary may by regulations 
              provide for the allocation of any carryback of 
              taxes with respect to income from a taxable year 
              beginning on or after January 1, 2007, to a 
              taxable year beginning before such date for 
              purposes of allocating such income among the 
              separate categories in effect for the taxable year 
              to which carried.
      (3)Look-thru in case of controlled foreign 
        corporations.--
         (A) In general.--Except as otherwise provided in 
          this paragraph, dividends, interest, rents, and 
          royalties received or accrued by the taxpayer from a 
          controlled foreign corporation in which the taxpayer is 
          a United States shareholder shall not be treated as 
          passive category income.
         (B) Subpart f inclusions.--Any amount included in 
          gross income under section 951(a)(1)(A) shall be treated 
          as passive category income to the extent the amount so 
          included is attributable to passive category income.
         (C) Interest, <<NOTE: Regulations.>> rents, and 
          royalties.--Any interest, rent, or royalty which is 
          received or accrued from a controlled foreign 
          corporation in which the taxpayer is a United States 
          shareholder shall be treated as passive category income 
          to the extent it is properly allocable (under 
          regulations prescribed by the Secretary) to passive 
          category income of the controlled foreign corporation.
         (D) Dividends.--Any dividend paid out of the 
          earnings and profits of any controlled foreign 
          corporation in which the taxpayer is a United States 
          shareholder shall be treated as passive category income 
          in proportion to the ratio of--
            (i) the portion of the earnings and profits 
             attributable to passive category income, to
            (ii) the total amount of earnings and 
             profits.
         (E) Look-thru applies only where subpart f 
             applies.--If a controlled foreign corporation meets the 
             requirements of section 954(b)(3)(A) (relating to de 
             minimis rule) for any taxable year, for purposes of this 
             paragraph, none of its foreign base company income (as 
             defined in section 954(a) without regard to section 
             954(b)(5)) and none of its gross insurance income (as 
             defined in section 954(b)(3)(C)) for such taxable year 
             shall be treated as passive category income, except that 
             this sentence shall not apply to any income which 
             (without regard to this sentence) would be treated as 
             financial services income. Solely for purposes of 
             applying subparagraph (D), passive income of a 
             controlled foreign corporation shall not be treated as 
             passive category income if the requirements of section 
             954(b)(4) are met with respect to such income.
         (F) Coordination with high-taxed income 
             provisions.--
              (i) In determining whether any income of a 
                controlled foreign corporation is passive category 
                income, subclause (II) of paragraph (2)(B)(iii) 
                shall not apply.
             (ii) Any income of the taxpayer which is 
                treated as passive category income under this 
                paragraph shall be so treated notwithstanding any 
                provision of paragraph (2); except that the 
                determination of whether any amount is high-taxed 
                income shall be made after the application of this 
                paragraph.
         (G) Dividend.--For purposes of this paragraph, the 
                term `dividend' includes any amount included in gross 
                income in section 951(a)(1)(B). Any amount included in 
                gross income under section 78 to the extent attributable 
                to amounts included in gross income in section 
                951(a)(1)(A) shall not be treated as a dividend but 
                shall be treated as included in gross income under 
                section 951(a)(1)(A).
         (H) Look-thru applies to passive foreign 
                investment company inclusion.--If--
              (i) a passive foreign investment company is 
                a controlled foreign corporation, and
             (ii) the taxpayer is a United States 
                shareholder in such controlled foreign 
                corporation, 
             any amount included in gross income under section 1293
             shall be treated as income in a separate category to the 
             extent such amount is attributable to income in such 
             category.
      (4)  Look-thru applies to dividends from noncontrolled 
        section 902 corporations.--
         (A) In general.--For purposes of this subsection, 
             any dividend from a noncontrolled section 902 
             corporation with respect to the taxpayer shall be 
             treated as income described in a subparagraph of 
             paragraph (1) in proportion to the ratio of--
            (i) the portion of earnings and profits 
                attributable to income described in such 
                subparagraph, to
            (ii) the total amount of earnings and profits.
         (B) Earnings and profits of controlled foreign 
             corporations.--In the case of any distribution from a 
             controlled foreign corporation to a United States 
             shareholder, rules similar to the rules of subparagraph 
             (A) shall apply in determining the extent to which 
             earnings and profits of the controlled foreign 
             corporation which are attributable to dividends received 
             from a noncontrolled section 902 corporation may be 
             treated as income in a separate category.
         (C) Special rules.--For purposes of this paragraph--
            (i) Earnings and profits.--
               (I) In general.--The rules of section 316 shall apply.
               (II) Regulations.--The Secretary may prescribe
                    regulations regarding the treatment of distributions
                    out of earnings and profits for periods before the
                    taxpayer's acquisition of the stock to which the
                    distributions relate.
            (ii) Inadequate substantiation.--If the 
                Secretary determines that the proper subparagraph 
                of paragraph (1) in which a dividend is described 
                has not been substantiated, such dividend shall be 
                treated as income described in paragraph (1)(A).
            (iii) Coordination with high-taxed income 
                provisions.--Rules similar to the rules of
                paragraph (3)(F) shall apply for purposes of this 
                paragraph.
            (iv) Look-thru with respect to carryover of 
                credit.--Rules similar to subparagraph (A) also 
                shall apply to any carryforward under subsection 
                (c) from a taxable year beginning before January 
                1, 2003, of tax allocable to a dividend from a 
                noncontrolled section 902 corporation with respect 
                to the taxpayer. The Secretary may by regulations 
                provide for the allocation of any carryback of tax 
                allocable to a dividend from a noncontrolled 
                section 902 corporation from a taxable year 
                beginning on or after January 1, 2003, to a 
                taxable year beginning before such date for 
                purposes of allocating such dividend among the 
                separate categories in effect for the taxable year 
                to which carried.

      (5) Controlled foreign corporation; United States shareholder
        For purposes of this subsection--
         (A) Controlled foreign corporation
          The term ``controlled foreign corporation'' has the meaning 
          given such term by section 957 (taking into account section 953(c)).
        (B) United States shareholder
          The term ``United States shareholder'' has the meaning given 
          such term by section 951(b) (taking into account section 953(c)).

      (6) Regulations
        The Secretary shall prescribe such regulations as may be
      necessary or appropriate for the purposes of this subsection,
      including regulations -
          (A) for the application of paragraph (3) and subsection
        (f)(5) in the case of income paid (or loans made) through 1 or
        more entities or between 2 or more chains of entities,
          (B) preventing the manipulation of the character of income
        the effect of which is to avoid the purposes of this
        subsection, and
          (C) providing that rules similar to the rules of paragraph
        (3)(C) shall apply to interest, rents, and royalties received
        or accrued from entities which would be controlled foreign
        corporations if they were foreign corporations.

    ((e) Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(31), Nov.
        5, 1990, 104 Stat. 1388-521)

    (f) Recapture of overall foreign loss
      (1) General rule
        For purposes of this subpart and section 936, in the case of
      any taxpayer who sustains an overall foreign loss for any taxable
      year, that portion of the taxpayer's taxable income from sources
      without the United States for each succeeding taxable year which
      is equal to the lesser of -
          (A) the amount of such loss (to the extent not used under
        this paragraph in prior taxable years), or
          (B) 50 percent (or such larger percent as the taxpayer may
        choose) of the taxpayer's taxable income from sources without
        the United States for such succeeding taxable year,
      shall be treated as income from sources within the United States
      (and not as income from sources without the United States).
      (2) Overall foreign loss defined
        For purposes of this subsection, the term ''overall foreign
      loss'' means the amount by which the gross income for the taxable
      year from sources without the United States (whether or not the
      taxpayer chooses the benefits of this subpart for such taxable
      year) for such year is exceeded by the sum of the deductions
      properly apportioned or allocated thereto, except that there
      shall not be taken into account -
          (A) any net operating loss deduction allowable for such year
        under section 172(a), and
          (B) any -
            (i) foreign expropriation loss for such year, as defined in
          section 172(h) (as in effect on the day before the date of
          the enactment of the Revenue Reconciliation Act of 1990), or
            (ii) loss for such year which arises from fire, storm,
          shipwreck, or other casualty, or from theft,
      to the extent such loss is not compensated for by insurance or
      otherwise.
      (3) Dispositions
        (A) In general
          For purposes of this chapter, if property which has been used
        predominantly without the United States in a trade or business
        is disposed of during any taxable year -
            (i) the taxpayer, notwithstanding any other provision of
          this chapter (other than paragraph (1)), shall be deemed to
          have received and recognized taxable income from sources
          without the United States in the taxable year of the
          disposition, by reason of such disposition, in an amount
          equal to the lesser of the excess of the fair market value of
          such property over the taxpayer's adjusted basis in such
          property or the remaining amount of the overall foreign
          losses which were not used under paragraph (1) for such
          taxable year or any prior taxable year, and
            (ii) paragraph (1) shall be applied with respect to such
          income by substituting ''100 percent'' for ''50 percent''.
        In determining for purposes of this subparagraph whether the
        predominant use of any property has been without the United
        States, there shall be taken into account use during the 3-year
        period ending on the date of the disposition (or, if shorter,
        the period during which the property has been used in the trade
        or business).
        (B) Disposition defined and special rules
          (i) For purposes of this subsection, the term ''disposition''
        includes a sale, exchange, distribution, or gift of property
        whether or not gain or loss is recognized on the transfer.
          (ii) Any taxable income recognized solely by reason of
        subparagraph (A) shall have the same characterization it would
        have had if the taxpayer had sold or exchanged the property.
          (iii) The Secretary shall prescribe such regulations as he
        may deem necessary to provide for adjustments to the basis of
        property to reflect taxable income recognized solely by reason
        of subparagraph (A).
        (C) Exceptions
          Notwithstanding subparagraph (B), the term ''disposition''
        does not include -
            (i) a disposition of property which is not a material
          factor in the realization of income by the taxpayer, or
            (ii) a disposition of property to a domestic corporation in
          a distribution or transfer described in section 381(a).
        (D) Application to certain dispositions of stock 
          in controlled foreign corporation.--
            (i) In general.--This paragraph shall apply 
          to an applicable disposition in the same manner as 
          if it were a disposition of property described in 
          subparagraph (A), except that the exception 
          contained in subparagraph (C)(i) shall not apply.
            (ii) Applicable disposition.--For purposes 
          of clause (i), the term `applicable disposition' 
          means any disposition of any share of stock in a 
          controlled foreign corporation in a transaction or 
          series of transactions if, immediately before such 
          transaction or series of transactions, the 
          taxpayer owned more than 50 percent (by vote or 
          value) of the stock of the controlled foreign 
          corporation. Such term shall not include a 
          disposition described in clause (iii) or (iv), 
          except that clause (i)
          shall apply to any gain recognized on any such 
          disposition.
           (iii) Exception for certain exchanges where 
          ownership percentage retained.--A disposition 
          shall not be treated as an applicable disposition 
          under clause (ii) if it is part of a transaction 
          or series of transactions--
            (I) to which section 351 or 721 
            applies, or under which the transferor 
            receives stock in a foreign corporation 
            in exchange for the stock in the 
            controlled foreign corporation and the 
            stock received is exchanged basis 
            property (as defined in section 
            7701(a)(44)), and
            (II) immediately after which, the 
            transferor owns (by vote or value) at 
            least the same percentage of stock in 
            the controlled foreign corporation (or, 
            if the controlled foreign corporation is 
            not in existence after such transaction 
            or series of transactions, in another 
            foreign corporation stock in which was 
            received by the transferor in exchange 
            for stock in the controlled foreign 
            corporation) as the percentage of stock 
            in the controlled foreign corporation 
            which the taxpayer owned immediately 
            before such transaction or series of 
            transactions.
           (iv) Exception for certain asset 
            acquisitions.--A disposition shall not be treated 
            as an applicable disposition under clause (ii) if 
            it is part of a transaction or series of 
            transactions in which the taxpayer (or any member 
            of a controlled group of corporations filing a 
            consolidated return under section 1501 which 
            includes the taxpayer) acquires the assets of a 
            controlled foreign corporation in exchange for the 
            shares of the controlled foreign corporation in a 
            liquidation described in section 332 or a 
            reorganization described in section 368(a)(1).
            (v) Controlled foreign corporation.--For 
            purposes of this subparagraph, the term 
            `controlled foreign corporation' has the meaning 
            given such term by section 957.
           (vi) Stock ownership.--For purposes of this 
            subparagraph, ownership of stock shall be 
            determined under the rules of subsections (a) and 
            (b) of section 958.
      (4) Accumulation distributions of foreign trust
        For purposes of this chapter, in the case of amounts of income
      from sources without the United States which are treated under
      section 666 (without regard to subsections (b) and (c) thereof if
      the taxpayer chose to take a deduction with respect to the
      amounts described in such subsections under section 667(d)(1)(B))
      as having been distributed by a foreign trust in a preceding
      taxable year, that portion of such amounts equal to the amount of
      any overall foreign loss sustained by the beneficiary in a year
      prior to the taxable year of the beneficiary in which such
      distribution is received from the trust shall be treated as
      income from sources within the United States (and not income from
      sources without the United States) to the extent that such loss
      was not used under this subsection in prior taxable years, or in
      the current taxable year, against other income of the
      beneficiary.
      (5) Treatment of separate limitation losses
        (A) In general
          The amount of the separate limitation losses for any taxable
        year shall reduce income from sources within the United States
        for such taxable year only to the extent the aggregate amount
        of such losses exceeds the aggregate amount of the separate
        limitation incomes for such taxable year.
        (B) Allocation of losses
          The separate limitation losses for any taxable year (to the
        extent such losses do not exceed the separate limitation
        incomes for such year) shall be allocated among (and operate to
        reduce) such incomes on a proportionate basis.
        (C) Recharacterization of subsequent income
          If -
            (i) a separate limitation loss from any income category
          (hereinafter in this subparagraph referred to as ''the loss
          category'') was allocated to income from any other category
          under subparagraph (B), and
            (ii) the loss category has income for a subsequent taxable
          year,
        such income (to the extent it does not exceed the aggregate
        separate limitation losses from the loss category not
        previously recharacterized under this subparagraph) shall be
        recharacterized as income from such other category in
        proportion to the prior reductions under subparagraph (B) in
        such other category not previously taken into account under
        this subparagraph.  Nothing in the preceding sentence shall be
        construed as recharacterizing any tax.
        (D) Special rules for losses from sources in the United States
          Any loss from sources in the United States for any taxable
        year (to the extent such loss does not exceed the separate
        limitation incomes from such year) shall be allocated among
        (and operate to reduce) such incomes on a proportionate basis.
        This subparagraph shall be applied after subparagraph (B).
        (E) Definitions
          For purposes of this paragraph -
          (i) Income category
            The term ''income category'' means each separate category
          of income described in subsection (d)(1).
          (ii) Separate limitation income
            The term ''separate limitation income'' means, with respect
          to any income category, the taxable income from sources
          outside the United States, separately computed for such
          category.
          (iii) Separate limitation loss
            The term ''separate limitation loss'' means, with respect
          to any income category, the loss from such category
          determined under the principles of section 907(c)(4)(B).
        (F) Dispositions
          If any separate limitation loss for any taxable year is
        allocated against any separate limitation income for such
        taxable year, except to the extent provided in regulations,
        rules similar to the rules of paragraph (3) shall apply to any
        disposition of property if gain from such disposition would be
        in the income category with respect to which there was such
        separate limitation loss.

    (g) Recharacterization of Overall Domestic Loss.--
       (1) General rule.--For purposes of this subpart and 
        section 936, in the case of any taxpayer who sustains an overall 
        domestic loss for any taxable year beginning after December 31, 
        2006, that portion of the taxpayer's taxable income from
        sources within the United States for each succeeding taxable 
        year which is equal to the lesser of--
          (A) the amount of such loss (to the extent not 
                used under this paragraph in prior taxable years), or
          (B) 50 percent of the taxpayer's taxable income 
                from sources within the United States for such 
                succeeding taxable year,
        shall be treated as income from sources without the United 
        States (and not as income from sources within the United 
        States).
       (2) Overall domestic loss.--For purposes of this 
        subsection--
            (A) In general.--The term `overall domestic loss' 
                means--
                  (i) with respect to any qualified taxable 
                      year, the domestic loss for such taxable year to 
                      the extent such loss offsets taxable income from 
                      sources without the United States for the taxable 
                      year or for any preceding qualified taxable year 
                      by reason of a carryback, and
                 (ii) with respect to any other taxable year, 
                      the domestic loss for such taxable year to the 
                      extent such loss offsets taxable income from 
                      sources without the United States for any 
                      preceding qualified taxable year by reason of a 
                      carryback.
            (B) Domestic loss.--For purposes of subparagraph 
                (A), the term `domestic loss' means the amount by which 
                the gross income for the taxable year from sources 
                within the United States is exceeded by the sum of the 
                deductions properly apportioned or allocated thereto 
                (determined without regard to any carryback from a 
                subsequent taxable year).
            (C) Qualified taxable year.--For purposes of 
                subparagraph (A), the term `qualified taxable year' 
                means any taxable year for which the taxpayer chose the 
                benefits of this subpart.
       (3) Characterization of subsequent income.--
          (A) In general.--Any income from sources within 
                the United States that is treated as income from sources 
                without the United States under paragraph (1) shall be 
                allocated among and increase the income categories in 
                proportion to the loss from sources within the United 
                States previously allocated to those income categories.
          (B) Income category.--For purposes of this 
                paragraph, the term `income category' has the meaning 
                given such term by subsection (f)(5)(E)(i).
       (4) Coordination <<NOTE: Regulations.>> with subsection (f).--
        The Secretary shall prescribe such regulations as may be 
        necessary to coordinate the provisions of this subsection with 
        the provisions of subsection (f).

    (h) Source rules in case of United States-owned foreign
        corporations
      (1) In general
        The following amounts which are derived from a United
      States-owned foreign corporation and which would be treated as
      derived from sources outside the United States without regard to
      this subsection shall, for purposes of this section, be treated
      as derived from sources within the United States to the extent
      provided in this subsection:
          (A) Any amount included in gross income under -
            (i) section 951(a) (relating to amounts included in gross
          income of United States shareholders), or
            (ii) section 1293 (relating to current taxation of income
          from qualified funds).
          (B) Interest.
          (C) Dividends.
      (2) Subpart F and passive foreign investment company inclusions
        Any amount described in subparagraph (A) of paragraph (1) shall
      be treated as derived from sources within the United States to
      the extent such amount is attributable to income of the United
      States-owned foreign corporation from sources within the United
      States.
      (3) Certain interest allocable to United States source income
        Any interest which -
          (A) is paid or accrued by a United States-owned foreign
        corporation during any taxable year,
          (B) is paid or accrued to a United States shareholder (as
        defined in section 951(b)) or a related person (within the
        meaning of section 267(b)) to such a shareholder, and
          (C) is properly allocable (under regulations prescribed by
        the Secretary) to income of such foreign corporation for the
        taxable year from sources within the United States,
      shall be treated as derived from sources within the United
      States.
      (4) Dividends
        (A) In general
          The United States source ratio of any dividend paid or
        accrued by a United States-owned foreign corporation shall be
        treated as derived from sources within the United States.
        (B) United States source ratio
          For purposes of subparagraph (A), the term ''United States
        source ratio'' means, with respect to any dividend paid out of
        the earnings and profits for any taxable year, a fraction -
            (i) the numerator of which is the portion of the earnings
          and profits for such taxable year from sources within the
          United States, and
            (ii) the denominator of which is the total amount of
          earnings and profits for such taxable year.
      (5) Exception where United States-owned foreign corporation has
          small amount of United States source income
        Paragraph (3) shall not apply to interest paid or accrued
      during any taxable year (and paragraph (4) shall not apply to any
      dividends paid out of the earnings and profits for such taxable
      year) if -
          (A) the United States-owned foreign corporation has earnings
        and profits for such taxable year, and
          (B) less than 10 percent of such earnings and profits is
        attributable to sources within the United States.
      For purposes of the preceding sentence, earnings and profits
      shall be determined without any reduction for interest described
      in paragraph (3) (determined without regard to subparagraph (C)
      thereof).
      (6) United States-owned foreign corporation
        For purposes of this subsection, the term ''United States-owned
      foreign corporation'' means any foreign corporation if 50 percent
      or more of -
          (A) the total combined voting power of all classes of stock
        of such corporation entitled to vote, or
          (B) the total value of the stock of such corporation,
      is held directly (or indirectly through applying paragraphs (2)
      and (3) of section 958(a) and paragraph (4) of section 318(a)) by
      United States persons (as defined in section 7701(a)(30)).
      (7) Dividend
        For purposes of this subsection, the term ''dividend'' includes
      any gain treated as ordinary income under section 1246 or as a
      dividend under section 1248.
      (8) Coordination with subsection (f)
        This subsection shall be applied before subsection (f).
      (9) Treatment of certain domestic corporations
        For purposes of this subsection -
          (A) in the case of interest treated as not from sources
        within the United States under section 861(a)(1)(A), the
        corporation paying such interest shall be treated as a United
        States-owned foreign corporation, and
          (B) in the case of any dividend treated as not from sources
        within the United States under section 861(a)(2)(A), the
        corporation paying such dividend shall be treated as a United
        States-owned foreign corporation.
      (10) Coordination with treaties
        (A) In general
          If -
            (i) any amount derived from a United States-owned foreign
          corporation would be treated as derived from sources within
          the United States under this subsection by reason of an item
          of income of such United States-owned foreign corporation,
            (ii) under a treaty obligation of the United States
          (applied without regard to this subsection and by treating
          any amount included in gross income under section 951(a)(1)
          as a dividend), such amount would be treated as arising from
          sources outside the United States, and
            (iii) the taxpayer chooses the benefits of this paragraph,
        this subsection shall not apply to such amount to the extent
        attributable to such item of income (but subsections (a), (b),
        and (c) of this section and sections 902, 907, and 960 shall be
        applied separately with respect to such amount to the extent so
        attributable).
        (B) Special rule
          Amounts included in gross income under section 951(a)(1)
        shall be treated as a dividend under subparagraph (A)(ii) only
        if dividends paid by each corporation (the stock in which is
        taken into account in determining whether the shareholder is a
        United States shareholder in the United States-owned foreign
        corporation), if paid to the United States shareholder, would
        be treated under a treaty obligation of the United States as
        arising from sources outside the United States (applied without
        regard to this subsection).
      (11) Regulations
        The Secretary shall prescribe such regulations as may be
      necessary or appropriate for purposes of this subsection,
      including -
          (A) regulations for the application of this subsection in the
        case of interest or dividend payments through 1 or more
        entities, and
          (B) regulations providing that this subsection shall apply to
        interest paid or accrued to any person (whether or not a United
        States shareholder).
    (i) Coordination With Nonrefundable Personal Credits.--In the case 
        of any taxable year of an individual to which section 26(a)(2) does not 
        apply, for purposes of subsection (a), the tax against which the credit 
        is taken is such tax reduced by the sum of the credits allowable under 
        subpart A of part IV of subchapter A of this chapter (other than 
        sections 23, 24, and 25B).
    (j) Limitation on use of deconsolidation to avoid foreign tax
        credit limitations
      If 2 or more domestic corporations would be members of the same
    affiliated group if -
        (1) section 1504(b) were applied without regard to the
      exceptions contained therein, and
        (2) the constructive ownership rules of section 1563(e) applied
      for purposes of section 1504(a),
    the Secretary may by regulations provide for resourcing the income
    of any of such corporations or for modifications to the
    consolidated return regulations to the extent that such resourcing
    or modifications are necessary to prevent the avoidance of the
    provisions of this subpart.
    (k) Certain individuals exempt
      (1) In general
        In the case of an individual to whom this subsection applies
      for any taxable year -
          (A) the limitation of subsection (a) shall not apply,
          (B) no taxes paid or accrued by the individual during such
        taxable year may be deemed paid or accrued under subsection (c)
        in any other taxable year, and
          (C) no taxes paid or accrued by the individual during any
        other taxable year may be deemed paid or accrued under
        subsection (c) in such taxable year.
      (2) Individuals to whom subsection applies
        This subsection shall apply to an individual for any taxable
      year if -
          (A) the entire amount of such individual's gross income for
        the taxable year from sources without the United States
        consists of qualified passive income,
          (B) the amount of the creditable foreign taxes paid or
        accrued by the individual during the taxable year does not
        exceed $300 ($600 in the case of a joint return), and
          (C) such individual elects to have this subsection apply for
        the taxable year.
      (3) Definitions
        For purposes of this subsection -
        (A) Qualified passive income
          The term ''qualified passive income'' means any item of gross
        income if -
            (i) such item of income is passive income (as defined in
          subsection (d)(2)(B) without regard to clause (iii) thereof),
          and
            (ii) such item of income is shown on a payee statement
          furnished to the individual.
        (B) Creditable foreign taxes
          The term ''creditable foreign taxes'' means any taxes for
        which a credit is allowable under section 901; except that such
        term shall not include any tax unless such tax is shown on a
        payee statement furnished to such individual.
        (C) Payee statement
          The term ''payee statement'' has the meaning given to such
        term by section 6724(d)(2).
        (D) Estates and trusts not eligible
          This subsection shall not apply to any estate or trust.
    (l) Cross reference
          (1) For increase of limitation under subsection (a) for taxes
        paid with respect to amounts received which were included in
        the gross income of the taxpayer for a prior taxable year as a
        United States shareholder with respect to a controlled foreign
        corporation, see section 960(b).
          (2) For modification of limitation under subsection (a) for
        purposes of determining the amount of credit which can be taken
        against the alternative minimum tax, see section 59(a).
 

Sources

    (Aug. 16, 1954, ch. 736, 68A Stat. 287; Pub. L. 85-866, title I,
    Sec. 42(a), Sept. 2, 1958, 72 Stat. 1639; Pub. L. 86-780, Sec. 1,
    Sept. 14, 1960, 74 Stat. 1010; Pub. L. 87-834, Sec. 10(a),
    12(b)(2), Oct. 16, 1962, 76 Stat. 1002, 1031; Pub. L. 88-272, title
    II, Sec. 234(b)(6), Feb. 26, 1964, 78 Stat. 116; Pub. L. 89-809,
    title I, Sec. 106(c)(1), Nov. 13, 1966, 80 Stat. 1570; Pub. L.
    91-172, title V, Sec. 506(b), Dec. 30, 1969, 83 Stat. 635; Pub. L.
    92-178, title V, Sec. 502(b)(2)-(4), Dec. 10, 1971, 85 Stat. 549;
    Pub. L. 94-455, title V, Sec. 503(b)(1), title X, Sec. 1031(a),
    1032(a), 1034(a), 1051(e), title XIX, Sec. 1901(b)(10)(B), Oct. 4,
    1976, 90 Stat. 1562, 1620, 1624, 1629, 1646, 1795; Pub. L. 95-30,
    title I, Sec. 102(b)(11), May 23, 1977, 91 Stat. 138; Pub. L.
    95-600, title IV, Sec. 403(c)(4), 421(e)(6), title VII, Sec.
    701(q)(2), (u)(2)(A)-(C), (3)(A), (4)(A), (B), (8)(C), Nov. 6,
    1978, 92 Stat. 2868, 2876, 2910, 2913, 2916; Pub. L. 96-222, title
    I, Sec. 104(a)(3)(D), Apr. 1, 1980, 94 Stat. 215; Pub. L. 97-248,
    title II, Sec. 211(c)(2), Sept. 3, 1982, 96 Stat. 449; Pub. L.
    98-21, title I, Sec. 122(c)(1), Apr. 20, 1983, 97 Stat. 87; Pub. L.
    98-369, div.  A, title I, Sec. 121(a), 122(a), title IV, Sec.
    474(r)(21), title VIII, Sec. 801(d)(2), July 18, 1984, 98 Stat.
    638, 643, 843, 995; Pub. L. 99-514, title I, Sec. 104(b)(13), title
    VII, Sec. 701(e)(4)(H), title XII, Sec. 1201(a), (b), (d)(1)-(3),
    1203(a), 1211(b)(3), 1235(f)(4), title XVIII, Sec. 1810(a)(1)(A),
    (b)(1)-(4)(A), 1876(d)(2), 1899A(24), Oct. 22, 1986, 100 Stat.
    2105, 2343, 2520, 2525, 2531, 2536, 2575, 2821, 2823, 2899, 2959;
    Pub. L. 100-647, title I, Sec. 1003(b)(2), 1012(a)(1)(A), (2)-(4),
    (6)-(11), (c), (p)(11), (29), (q)(12), (bb)(4)(A), title II, Sec.
    2004(l), Nov. 10, 1988, 102 Stat. 3383, 3493-3497, 3517, 3521,
    3525, 3534, 3606; Pub. L. 101-239, title VII, Sec. 7402(a),
    7811(i)(1), Dec. 19, 1989, 103 Stat. 2357, 2409; Pub. L. 101-508,
    title XI, Sec. 11101(d)(5), 11801(a)(31), Nov. 5, 1990, 104 Stat.
    1388-405, 1388-521; Pub. L. 103-66, title XIII, Sec. 13227(d),
    13235(a)(2), Aug. 10, 1993, 107 Stat. 494, 504; Pub. L. 104-188,
    title I, Sec. 1501(b)(1), (12), 1703(i)(1), 1704(t)(36), Aug. 20,
    1996, 110 Stat. 1825, 1826, 1876, 1889; Pub. L. 105-34, title III,
    Sec. 311(c)(3), title XI, Sec. 1101(a), 1105(a), (b), 1111(b),
    1163(b), Aug. 5, 1997, 111 Stat. 835, 963, 967, 969, 987; Pub. L.
    106-170, title V, Sec. 501(b)(2), Dec. 17, 1999, 113 Stat. 1919;
    Pub. L. 107-16, title II, Sec. 201(b)(2)(G), 202(f)(2)(C), title
    VI, Sec. 618(b)(2)(D), June 7, 2001, 115 Stat. 46, 49, 108.)
 

Amendment of Section

                            AMENDMENT OF SECTION

   
    2005 - P.L. 109-135, Section 403
        (k) Amendment Related to Section 402 of the Act.--Paragraph (2) of 
        section 904(g) is amended to read as follows:
            ``(2) Overall domestic loss.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `overall domestic loss' 
                means--
                          ``(i) with respect to any qualified taxable 
                      year, the domestic loss for such taxable year to 
                      the extent such loss offsets taxable income from 
                      sources without the United States for the taxable 
                      year or for any preceding qualified taxable year 
                      by reason of a carryback, and
                          ``(ii) with respect to any other taxable year, 
                      the domestic loss for such taxable year to the 
                      extent such loss offsets taxable income from 
                      sources without the United States for any 
                      preceding qualified taxable year by reason of a 
                      carryback.
                    ``(B) Domestic loss.--For purposes of subparagraph 
                (A), the term `domestic loss' means the amount by which 
                the gross income for the taxable year from sources 
                within the United States is exceeded by the sum of the 
                deductions properly apportioned or allocated thereto 
                (determined without regard to any carryback from a 
                subsequent taxable year).
                    ``(C) Qualified taxable year.--For purposes of 
                subparagraph (A), the term `qualified taxable year' 
                means any taxable year for which the taxpayer chose the 
                benefits of this subpart.''.


    2005 - P.L. 109-135
(G) Subsection (i) of section 904 is amended to read as 
        follows:

    ``(i) Coordination With Nonrefundable Personal Credits.--In the case 
of any taxable year of an individual to which section 26(a)(2) does not 
apply, for purposes of subsection (a), the tax against which the credit 
is taken is such tax reduced by the sum of the credits allowable under 
subpart A of part IV of subchapter A of this chapter (other than 
sections 23, 24, and 25B).''.

   2004 - Pub. L. 108-357 Sec. 413(c)(15). Subpara. (A) of section 904(h)(1),
   as redesignated by this Act, is amended by adding ``or'' at the end 
   of clause (i), by striking clause (ii), and by redesignating clause (iii)
   as clause (ii).  The paragraph heading of paragraph (2) of section 904(h),
   as so redesignated, is amended by striking ``foreign personal 
holding or''.

       2004 - Subsec.404,Pub.L.108-357;  Effective Date:
    (1) In general.--The amendments made by this section (Sec.404)
        shall apply to taxable years beginning after December 31, 2006.
    (2) Transitional rule relating to income tax base 
        difference.--Section 904(d)(2)(H)(ii) of the Internal Revenue 
        Code of 1986, as added by subsection (e), shall apply to
        taxable years beginning after December 31, 2004.

     
       2004 - Subsec.404(f)(4),Pub.L.108-357, amended Sec.904(d)(3)
     by amending the entire paragraph (3).
      2004 - Subsec.404(f)(1),Pub.L.108-357, amended Sec.904(d)(2)
     (B)by striking subclause (I) and redesignating (II) and (III)
     as (I) and (II).
      2004 - Subsec.404(e),Pub.L.108-357, amended Sec.904(d)(2)
     is amended by redesignating subparagraphs (H) and (I) as 
     subparagraphs (I) and (J), respectively, and by inserting after 
     subparagraph (G) the following new subparagraph:
     ``(H) Treatment of income tax base differences.--
          ``(i) In general.--In the case of taxable 
             years beginning after December 31, 2006, tax 
             imposed under the law of a foreign country or 
             possession of the United States on an amount which 
             does not constitute income under United States tax 
             principles shall be treated as imposed on income 
             described in paragraph (1)(B).
         ``(ii) Special rule for years before 2007.--
            ``(I) In general.--In the case of 
                 taxes paid or accrued in taxable years 
                 beginning after December 31, 2004, and 
                 before January 1, 2007, a taxpayer may 
                 elect to treat tax imposed under the law 
                 of a foreign country or possession of 
                 the United States on an amount which 
                 does not constitute income under United 
                 States tax principles as tax imposed on 
                 income described in subparagraph (C) or 
                 (I) of paragraph (1).
            ``(II) Election irrevocable.--
                 Any <<NOTE: Applicability.>> such 
                 election shall apply to the taxable year 
                 for which made and all subsequent 
                 taxable years described in subclause (I) 
                 unless revoked with the consent of the 
                 Secretary.''.

      2004 - Subsec.404(d),Pub.L.108-357, amended Sec.904(d)(2)
     , as amended by section 403(b)(3), is amended by striking 
     subparagraph (D), by redesignating subparagraph (C) as
     subparagraph (D), and by inserting before subparagraph (D) 
    (as so redesignated) the following new subparagraph:
       ``(C) Treatment of financial services income and 
              companies.--
          ``(i) In general.--Financial services income 
              shall be treated as general category income in the 
              case of--
               ``(I) a member of a financial 
                   services group, and
               ``(II) any other person if such 
                   person is predominantly engaged in the 
                   active conduct of a banking, insurance, 
                   financing, or similar business.
          ``(ii) Financial services group.--The term 
               `financial services group' means any affiliated 
               group (as defined in section 1504(a) without 
               regard to paragraphs (2) and (3) of section 
               1504(b)) which is predominantly engaged in the 
               active conduct of a banking, insurance, financing, 
               or similar business. In determining whether such a 
               group is so engaged, there shall be taken into 
               account only the income of members of the group 
               that are--
              ``(I) United States corporations, or
             ``(II) controlled foreign 
               corporations in which such United States 
               corporations own, directly or 
               indirectly, at least 80 percent of the 
               total voting power and value of the 
               stock.
          ``(iii) Pass-thru entities.--
               The <<NOTE: Regulations.>> Secretary shall by 
               regulation specify for purposes of this 
               subparagraph the treatment of financial services 
               income received or accrued by partnerships and by 
               other pass-thru entities which are not members of 
               a financial services group.''.
      2004 - Subsec.404(c),Pub.L.108-357, amended Sec.904(d)(2)(B)
      by adding at the end the following new clause:
              ``(v) Specified passive category income.--The 
                term `specified passive category income' means--
                  ``(I) dividends from a DISC or 
                      former DISC (as defined in section 
                      992(a)) to the extent such dividends are 
                      treated as income from sources without 
                      the United States,
                 ``(II) taxable income attributable 
                      to foreign trade income (within the 
                      meaning of section 923(b)), and
                 ``(III) distributions from a FSC (or 
                      a former FSC) out of earnings and 
                      profits attributable to foreign trade 
                      income (within the meaning of section 
                      923(b)) or interest or carrying charges 
                      (as defined in section 927(d)(1)) 
                      derived from a transaction which results 
                      in foreign trade income (as defined in 
                      section 923(b)).''.


      2004 - Subsec.404(b),Pub.L.108-357, amended Sec.(d)(2)
      is amended by striking subparagraph (B), by 
      redesignating subparagraph (A) as subparagraph (B), 
      and by inserting before subparagraph (B) (as so 
      redesignated) the following new subparagraph:
                    ``(A) Categories.--
                          ``(i) Passive category income.--The term 
                      `passive category income' means passive income and 
                      specified passive category income.
                          ``(ii) General category income.--The term 
                      `general category income' means income other than 
                      passive category income.''.

      2004 - Subsec.404(a),Pub.L.108-357, amended Sec.904(d)(1)
      as follows: ``(1) In general.--The  provisions 
      of subsections (a), (b), and (c) and sections 902,
      907, and 960 shall be applied separately with 
      respect to--
                    ``(A) passive category income, and
                    ``(B) general category income.''.

          2004 - Subsec.404(f)(5),Pub.L.108-357, amended Sec.904(d)(2)
     by adding a new subparagraph "(K)- Transitional Rules for
     2007 changes.--For purposes of paragraph (1)".
     2004 - Pub. L. 108-357, Sec. 404(f)(3), amended Sec.904(d)
     (2)(D)is amended by striking clause (iii).        
     2004 - Pub. L. 108-357, Sec. 404(f)(2), amended Sec.904(d)
     (2)(D)(i)is amended by adding ``or'' at the end of 
        subclause (I) and by striking subclauses 
        (II) and (III) and inserting the following new subclause:
         ``(II) passive income (determined without regard 
             to subparagraph (B)(iii)(II)).''.                                
     2004 - Pub. L. 108-357, Sec. 402(a).  Section 904 is amended by 
     redesignating subsections (g), (h), (i), (j), and (k) as subsections (h),
     (i), (j), (k), and (l) respectively, and by inserting after subsection (f)
     the following new subsection (g).

      2002 - Pub. L. 107-147, Sec. 601(b)(1), amended Sec 904(h)by
      substituting 2000, 2001, 2002, and 2003 for 2000 and 2001.
        For termination of amendment by section 901 of Pub. L. 107-16,
      see Effective and Termination Dates of 2001 Amendment note below.
        Pub. L. 105-34, title XI, Sec. 1105, Aug. 5, 1997, 111 Stat.
      967, provided that, applicable to taxable years beginning after
      Dec. 31, 2002, subsection (d) of this section is amended -
        (1) by amending paragraph (1)(E) to read as follows:
      ''(E) in the case of a corporation, dividends from noncontrolled
    section 902 corporations out of earnings and profits accumulated in
    taxable years beginning before January 1, 2003,'';
        (2) in paragraph (2)(C)(iii)(II) and (D) by inserting ''out of
      earnings and profits accumulated in taxable years beginning
      before January 1, 2003'' after ''corporation'';
        (3) in paragraph (2)(E) by adding at the end the following new
      clause:
    ''(iv) All non-PFICs treated as one
      ''All noncontrolled section 902 corporations which are not
    passive foreign investment companies (as defined in section 1297)
    shall be treated as one noncontrolled section 902 corporation for
    purposes of paragraph (1).''; and
        (4) by redesignating paragraphs (4) and (5) as paragraphs (5)
      and (6), respectively, and by adding after paragraph (3) the
      following new paragraph:
    (4) Look-thru applies to dividends from noncontrolled section 902
        corporations
      (A) In general
        For purposes of this subsection, any applicable dividend shall
      be treated as income in a separate category in proportion to the
      ratio of -
          (i) the portion of the earnings and profits described in
        subparagraph (B)(ii) attributable to income in such category,
        to
          (ii) the total amount of such earnings and profits.
      (B) Applicable dividend
        For purposes of subparagraph (A), the term ''applicable
      dividend'' means any dividend -
          (i) from a noncontrolled section 902 corporation with respect
        to the taxpayer, and
          (ii) paid out of earnings and profits accumulated in taxable
        years beginning after December 31, 2002.
      (C) Special rules
        (i) In general
          Rules similar to the rules of paragraph (3)(F) shall apply
        for purposes of this paragraph.
        (ii) Earnings and profits
          For purposes of this paragraph and paragraph (1)(E) -
          (I) In general
            The rules of section 316 shall apply.
          (II) Regulations
            The Secretary may prescribe regulations regarding the
          treatment of distributions out of earnings and profits for
          periods prior to the taxpayer's acquisition of such stock.
 

References in Text

                             REFERENCES IN TEXT
      Sections 923 and 927, referred to in subsec. (d)(1)(G), (H), were
    repealed by Pub. L. 106-519, Sec. 2, Nov. 15, 2000, 114 Stat. 2423.
      The date of the enactment of the Tax Reform Act of 1986, referred
    to in subsec. (d)(2)(I), is the date of the enactment of Pub. L.
    99-514, which was approved Oct. 22, 1986.
      Section 172(h), referred to in subsec. (f)(2)(B)(i), was repealed
    by Pub. L. 101-508, title XI, Sec. 11811(b)(1), Nov. 5, 1990, 104
    Stat. 1388-532.
      The date of the enactment of the Revenue Reconciliation Act of
    1990, referred to in subsec. (f)(2)(B)(i), is the date of enactment
    of Pub. L. 101-508, title XI, which was approved Nov. 5, 1990.
 

Miscellaneous

                                 AMENDMENTS
 
    2004 - Subsec.895(a),Pub.L.108-357, Sec.904(f)(3), was amended
    to add a new subparagraph (D)"Application to certain dispositions
       of stock in controlled foreign corporation.--".
    2004 - Pub. L. 108-357 Sec. 417(a).  Section 904(c) (relating
    to carryback and carryover of excess tax paid) is amended--
    by striking ``in the second preceding taxable year,'',  and
    by striking ``, and in the first, second, third, fourth, 
    or fifth'' and inserting ``and in any of the first 10''
     Effective <<NOTE: 26 USC 904 note.>> Date.--
     (1) Carryback.--The amendments made by subsections (a)(1) 
     and (b)(1) shall apply to excess foreign taxes arising in 
     Taxable years beginning after the date of the enactment of this Act.
     (2) Carryover.--The amendments made by subsections (a)(2) 
     and (b)(2) shall apply to excess foreign taxes which (without 
     regard to the amendments made by this section) may be carried to 
     any taxable year ending after the date of the enactment of this Act.

       Effective <<NOTE: 26 USC 904 note.>> Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 2006.
            (2) Transitional rule relating to income tax base 
        difference.--Section 904(d)(2)(H)(ii) of the Internal Revenue 
        Code of 1986, as added by subsection (e), shall apply to taxable 
        years beginning after December 31, 2004.

            2004 - Pub. L. 108-357, Sec. 402 & 403. Section 904 is amended by
      redesignating subsections (g), (h), (i), (j), and (k) as
      subsections (h), (i), (j), (k), and (l) respectively, and by inserting
      after subsection (f) the following new subsection:
      "(g) Recharacterization of Overall Domestic Loss";
      Section 904(d)(4) (relating to look-thru rules apply to dividends
      from noncontrolled section 902 corporations) is amended with new
      paragraph (4);
      Conforming Amendments.--
       (1) Subparagraph (E) of section 904(d)(1) is hereby repealed.
       (2) Section 904(d)(2)(C)(iii) is amended by adding ``and'' 
        at the end of subclause (I), by striking subclause (II), and by 
        redesignating subclause (III) as subclause (II).
       (3) The last sentence of section 904(d)(2)(D) is amended to 
        read as follows: ``Such term does not include any financial 
        services income.''.
       (4) Section 904(d)(2)(E) is amended by inserting ``or (4)'' after
        ``paragraph (3)'' in clause (i), and by striking clauses (ii) and
        (iv) and by redesignating clause (iii) as clause (ii).
       (5) Section 904(d)(3)(F) is amended by striking ``(D), or (E)'' and
        inserting ``or (D)''.

      2004 - Subsec.312(b)(1),Pub.L.108-311, amended Sec.904(h)
    by adding 2004 and 2005.
      2001 - Subsec. (h). Pub. L. 107-16, Sec. 618(b)(2)(D), 901,
    temporarily substituted '', 24, and 25B'' for ''and 24''. See
    Effective and Termination Dates of 2001 Amendment note below.
      Pub. L. 107-16, Sec. 202(f)(2)(C), 901, temporarily substituted
    ''sections 23 and 24'' for ''section 24''. See Effective and
    Termination Dates of 2001 Amendment note below.
      Pub. L. 107-16, Sec. 201(b)(2)(G), 901, inserted ''(other than
    section 24)'' after ''chapter''. See Effective and Termination
    Dates of 2001 Amendment note below.
      1999 - Subsec. (h). Pub. L. 106-170 inserted at end ''This
    subsection shall not apply to taxable years beginning during 2000
    or 2001.''
      1997 - Subsec. (b)(2)(C). Pub. L. 105-34, Sec. 311(c)(3), added
    subpar. (C).
      Subsec. (d)(2)(C)(i)(II). Pub. L. 105-34, Sec. 1163(b),
    substituted ''subclauses (I) and (III)'' for ''subclause (I)''.
      Subsec. (d)(2)(E)(i). Pub. L. 105-34, Sec. 1111(b), struck out
    ''and except as provided in regulations, the taxpayer was a United
    States shareholder in such corporation'' after ''was a controlled
    foreign corporation''.
      Subsecs. (j), (k). Pub. L. 105-34, Sec. 1101(a), added subsec.
    (j) and redesignated former subsec. (j) as (k).
      1996 - Subsec. (d)(3)(G). Pub. L. 104-188, Sec. 1501(b)(1), (12),
    amended subpar. (G) identically, substituting ''section
    951(a)(1)(B)'' for ''subparagraph (B) or (C) of section
    951(a)(1)''.
      Pub. L. 104-188, Sec. 1703(i)(1), substituted ''subparagraph (B)
    or (C) of section 951(a)(1)'' for ''section 951(a)(1)(B)''.
      Subsec. (f)(2)(B)(i). Pub. L. 104-188, Sec. 1704(t)(36), inserted
    ''(as in effect on the day before the date of the enactment of the
    Revenue Reconciliation Act of 1990)'' after ''section 172(h)''.
      1993 - Subsec. (b)(4). Pub. L. 103-66, Sec. 13227(d), inserted
    before period at end ''(without regard to subsections (a)(4) and
    (i) thereof)''.
      Subsec. (d)(2)(A)(iii)(II) to (IV). Pub. L. 103-66, Sec.
    13235(a)(2), inserted ''and'' at end of subcl.  II, substituted
    ''income.'' for ''income, and'' in subcl.  III, and struck out
    subcl. (IV) which read as follows: ''any foreign oil and gas
    extraction income (as defined in section 907(c)).''
      1990 - Subsec. (b)(3)(D)(i). Pub. L. 101-508, Sec.
    11101(d)(5)(A), substituted ''subsection (h)'' for ''subsection
    (j)''.
      Subsec. (b)(3)(E)(iii)(I). Pub. L. 101-508, Sec. 11101(d)(5)(B),
    substituted ''section 1(h)'' for ''section 1(j)''.
      Subsec. (e). Pub. L. 101-508, Sec. 11801(a)(31), struck out
    subsec. (e) which related to transitional rules for carrybacks and
    carryovers for taxpayers on the per-country limitation.
      1989 - Subsec. (d)(1)(H). Pub. L. 101-239, Sec. 7811(i)(1),
    substituted ''interest or carrying charges (as defined in section
    927(d)(1)) derived from a transaction which results in foreign
    trade income (as defined in section 923(b))'' for ''qualified
    interest and carrying charges (as defined in section 245(c))''.
      Subsecs. (i), (j). Pub. L. 101-239, Sec. 7402(a), added subsec.
    (i) and redesignated former subsec. (i) as (j).
      1988 - Subsec. (b)(2). Pub. L. 100-647, Sec. 1003(b)(2)(A),
    amended par. (2) generally, substituting general provisions and
    provisions setting special rules where there is a capital gain rate
    differential for provisions for corporations and for other
    taxpayers.
      Subsec. (b)(3)(D). Pub. L. 100-647, Sec. 1003(b)(2)(B), added
    subpar. (D) and struck out former subpar. (D), Rate differential
    portion, which read as follows: ''The 'rate differential portion'
    of foreign source net capital gain, net capital gain, or the excess
    of net capital gain from sources within the United States over net
    capital gain, as the case may be, is the same proportion of such
    amount as the excess of the highest rate of tax specified in
    section 11(b) over the alternative rate of tax under section
    1201(a) bears to the highest rate of tax specified in section
    11(b).''
      Subsec. (b)(3)(D)(ii). Pub. L. 100-647, Sec. 2004(l), substituted
    ''section 11(b)(1)'' for ''section 11(b)''.
      Subsec. (b)(3)(E). Pub. L. 100-647, Sec. 1003(b)(2)(B), added
    subpar. (E).
      Subsec. (d)(1)(E). Pub. L. 100-647, Sec. 1012(a)(11), inserted
    ''in the case of a corporation,'' before ''dividends''.
      Subsec. (d)(2)(A)(ii). Pub. L. 100-647, Sec. 1012(a)(6)(A),
    (p)(29)(A), substituted ''Except as provided in clause (iii), the
    term'' for ''The term'' and ''or, except as provided in
    subparagraph (E)(iii) or paragraph (3)(I), section 1293'' for ''or
    section 1293''.
      Subsec. (d)(2)(A)(iv). Pub. L. 100-647, Sec. 1012(a)(6)(B), added
    cl. (iv).
      Subsec. (d)(2)(B)(iii). Pub. L. 100-647, Sec. 1012(a)(8), amended
    cl. (iii) generally.  Prior to amendment, cl. (iii) read as
    follows: ''The Secretary may by regulations provide that amounts
    (not otherwise high withholding tax interest) shall be treated as
    high withholding tax interest where necessary to prevent avoidance
    of the purposes of this subparagraph.''
      Subsec. (d)(2(C). Pub. L. 100-647, Sec. 1012(a)(1)(A), amended
    subpar. (C) generally, revising and restating as cls. (i) to (iii)
    provisions of former cls. (i) to (iv).
      Subsec. (d)(2)(D). Pub. L. 100-647, Sec. 1012(a)(2), provided for
    exclusion from term ''shipping income'' any dividend from a
    noncontrolled section 902 corporation and any financial services
    income.
      Subsec. (d)(2)(E)(i). Pub. L. 100-647, Sec. 1012(a)(10), inserted
    ''and except as provided in regulations, the taxpayer was a United
    States shareholder in such corporation'' before period at end.
      Subsec. (d)(2)(E)(iii). Pub. L. 100-647, Sec. 1012(p)(29)(B),
    added cl. (iii).
      Subsec. (d)(2)(I)(ii). Pub. L. 100-647, Sec. 1012(a)(9),
    substituted ''except that - '' for ''except to the extent that -
    '', added subcls. (I) to (III), and struck out former subcls. (I)
    and (II) which read as follows:
      ''(I) the taxpayer establishes to the satisfaction of the
    Secretary that such taxes were paid or accrued with respect to
    shipping income, or
      ''(II) in the case of an entity meeting the requirements of
    subparagraph (C)(ii), the taxpayer establishes to the satisfaction
    of the Secretary that such taxes were paid or accrued with respect
    to financial services income, and''.
      Subsec. (d)(3)(E). Pub. L. 100-647, Sec. 1012(a)(4), inserted
    first sentence, struck out former first sentence which read ''If a
    controlled foreign corporation meets the requirements of section
    954(b)(3)(A) (relating to de minimis rule) for any taxable year,
    for purposes of this paragraph, none of its income for such taxable
    year shall be treated as income in a separate category.'', and in
    second sentence substituted ''passive income'' for ''income (other
    than high withholding tax interest and dividends from a
    noncontrolled section 902 corporation)''.
      Subsec. (d)(3)(F). Pub. L. 100-647, Sec. 1012(a)(7), amended
    subpar. (F) generally.  Prior to amendment, subpar. (F) read as
    follows: ''For purposes of this paragraph, the term 'separate
    category' means any category of income described in subparagraph
    (A), (B), (C), (D), or (E) of paragraph (1).''
      Subsec. (d)(3)(H). Pub. L. 100-647, Sec. 1012(a)(3), added
    subpar. (H).
      Subsec. (d)(3)(I). Pub. L. 100-647, Sec. 1012(p)(11), added
    subpar. (I).
      Subsec. (f)(5)(F). Pub. L. 100-647, Sec. 1012(c), added subpar.
    (F).
      Subsec. (g)(9)(A). Pub. L. 100-647, Sec. 1012(q)(12), substituted
    ''861(a)(1)(A)'' for ''861(a)(1)(B)''.
      Subsec. (g)(10), (11). Pub. L. 100-647, Sec. 1012(bb)(4)(A),
    added par. (10) and redesignated former par. (10) as (11).
      1986 - Subsec. (a). Pub. L. 99-514, Sec. 104(b)(13), struck out
    last sentence ''For purposes of the preceding sentence, in the case
    of an individual the entire taxable income shall be reduced by an
    amount equal to the zero bracket amount.''
      Subsec. (b)(3)(C). Pub. L. 99-514, Sec. 1211(b)(3), redesignated
    subpar. (E) as (C) and struck out former subpar. (C), exception for
    gain from the sale of certain personal property, which read as
    follows: ''There shall be included as gain from sources within the
    United States any gain from sources without the United States from
    the sale or exchange of a capital asset which is personal property
    which -
        ''(i) in the case of an individual, is sold or exchanged
      outside of the country (or possession) of the individual's
      residence,
        ''(ii) in the case of a corporation, is stock in a second
      corporation sold or exchanged other than in a country (or
      possession) in which such second corporation derived more than 50
      percent of its gross income for the 3-year period ending with the
      close of such second corporation's taxable year immediately
      preceding the year during which the sale or exchange occurred, or
        ''(iii) in the case of any taxpayer, is personal property
      (other than stock in a corporation) sold or exchanged other than
      in a country (or possession) in which such property is used in a
      trade or business of the taxpayer or in which such taxpayer
      derived more than 50 percent of its gross income for the 3-year
      period ending with the close of its taxable year immediately
      preceding the year during which the sale or exchange occurred,
    unless such gain is subject to an income, war profits, or excess
    profits tax of a foreign country or possession of the United
    States, and the rate of tax applicable to such gain is 10 percent
    or more of the gain from the sale or exchange (computed under this
    chapter).''
      Subsec. (b)(3)(D). Pub. L. 99-514, Sec. 1211(b)(3), redesignated
    subpar. (F) as (D) and struck out former subpar. (D), gain from
    liquidation of certain foreign corporations, which read as follows:
    ''Subparagraph (C) shall not apply with respect to a distribution
    in liquidation of a foreign corporation to which part II of
    subchapter C applies if such corporation derived less than 50
    percent of its gross income from sources within the United States
    for the 3-year period ending with the close of such corporation's
    taxable year immediately preceding the year during which the
    distribution occurred.''
      Subsec. (b)(3)(E), (F). Pub. L. 99-514, Sec. 1211(b)(3),
    redesignated former subpars. (E) and (F) as (C) and (D),
    respectively.
      Subsec. (d). Pub. L. 99-514, Sec. 1201(d)(1), substituted
    ''certain categories of income'' for ''certain interest income and
    income from DISC, former DISC, FSC, or former FSC'' in heading.
      Subsec. (d)(1). Pub. L. 99-514, Sec. 1201(a), (d)(2), (3),
    inserted ''and sections 902, 907, and 960'' in introductory
    provisions, added subpars. (A) to (E), struck out former subpar.
    (A) which read ''the interest income described in paragraph (2)'',
    redesignated former subpars. (B), (C), (D), and (E) as (F), (G),
    (H), and (I), respectively, and in subpar. (I), substituted ''in
    any of the preceding subparagraphs'' for ''in subparagraph (A),
    (B), (C), or (D)''.
      Pub. L. 99-514, Sec. 1899A(24), made technical correction
    clarifying heading.  See 1984 Amendment note below.
      Subsec. (d)(1)(D). Pub. L. 99-514, Sec. 1876(d)(2), amended
    subpar. (D) generally.  Prior to amendment, subpar. (D) read as
    follows: ''distributions from a FSC (or former FSC) out of earnings
    and profits attributable to foreign trade income (within the
    meaning of section 923(b)), and''.
      Subsec. (d)(2). Pub. L. 99-514, Sec. 1201(b), added par. (2) and
    struck out former par. (2), interest income to which applicable,
    which read as follows: ''For purposes of this subsection, the
    interest income described in this paragraph is interest other than
    interest -
        ''(A) derived from any transaction which is directly related to
      the active conduct by the taxpayer of a trade or business in a
      foreign country or a possession of the United States,
        ''(B) derived in the conduct by the taxpayer of a banking,
      financing, or similar business,
        ''(C) received from a corporation in which the taxpayer (or one
      or more includible corporations in an affiliated group, as
      defined in section 1504, of which the taxpayer is a member) owns,
      directly or indirectly, at least 10 percent of the voting stock,
      or
        ''(D) received on obligations acquired as a result of the
      disposition of a trade or business actively conducted by the
      taxpayer in a foreign country or possession of the United States
      or as a result of the disposition of stock or obligations of a
      corporation in which the taxpayer owned at least 10 percent of
      the voting stock.
    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.  For purposes of
    this subsection, interest (after the operation of section
    904(d)(3)) received from a designated payor corporation described
    in section 904(d)(3)(E)(iii) by a taxpayer which owns directly or
    indirectly less than 10 percent of the voting stock of such
    designated payor corporation shall be treated as interest described
    in subparagraph (A) to the extent such interest would have been so
    treated had such taxpayer received it from other than a designated
    payor corporation.''
      Pub. L. 99-514, Sec. 1810(b)(3), inserted at end ''For purposes
    of this subsection, interest (after the operation of section
    904(d)(3)) received from a designated payor corporation described
    in section 904(d)(3)(E)(iii) by a taxpayer which owns directly or
    indirectly less than 10 percent of the voting stock of such
    designated payor corporation shall be treated as interest described
    in subparagraph (A) to the extent such interest would have been so
    treated had such taxpayer received it from other than a designated
    payor corporation.''
      Subsec. (d)(3). Pub. L. 99-514, Sec. 1201(b), added par. (3) and
    struck out former par. (3) treating as interest certain amounts
    attributable to United States-owned foreign corporations, etc.,
    subpars. thereof relating to following subject matter: (A) general
    provisions, (B) separate limitation interest, (C) exception where
    designated corporation has small amount of separate limitation
    interest, (D) treatment of certain interest, (E) designated payor
    corporation, (F) determination of year to which amount is
    attributable, (G) ordering rules, (H) dividend, (I) interest and
    dividends from members of same affiliated group, and (J)
    distributions through other entities.
      Subsec. (d)(3)(C). Pub. L. 99-514, Sec. 1810(b)(1), inserted at
    end ''The preceding sentence shall not apply to any amount
    includible in gross income under section 551 or 951.''
      Subsec. (d)(3)(E). Pub. L. 99-514, Sec. 1810(b)(4)(A), inserted
    at end:
        ''(iv) any other corporation formed or availed of for purposes
      of avoiding the provisions of this paragraph.
    For purposes of this paragraph, the rules of paragraph (9) of
    subsection (g) shall apply.''
      Subsec. (d)(3)(I). Pub. L. 99-514, Sec. 1810(b)(2), redesignated
    subpar. (I) as (J) and added a new subpar. (I), interest and
    dividends from members of same affiliated group, which read as
    follows: ''For purposes of this paragraph, dividends and interest
    received or accrued by the designated payor corporation from
    another member of the same affiliated group (determined under
    section 1504 without regard to subsection (b)(3) thereof) shall be
    treated as separate limitation interest if (and only if) such
    amounts are attributable (directly or indirectly) to separate
    limitation interest of any other member of such group.''
      Subsec. (d)(3)(J). Pub. L. 99-514, Sec. 1810(b)(2), redesignated
    subpar. (I) as (J) and struck out former subpar. (J), interest from
    members of same affiliated group, which read as follows: ''For
    purposes of this paragraph, interest received or accrued by the
    designated payor corporation from another member of the same
    affiliated group (determined under section 1504 without regard to
    subsection (b)(3) thereof) shall not be treated as separate
    limitation interest, unless such interest is attributable directly
    or indirectly to separate limitation interest of such other
    member.''
      Subsec. (d)(4), (5). Pub. L. 99-514, Sec. 1201(b), added pars.
    (4) and (5).
      Subsec. (f)(5). Pub. L. 99-514, Sec. 1203(a), added par. (5).
      Subsec. (g)(1)(A)(iii). Pub. L. 99-514, Sec. 1235(f)(4)(A), added
    cl. (iii).
      Subsec. (g)(2). Pub. L. 99-514, Sec. 1235(f)(4)(B), substituted
    ''holding or passive foreign investment company'' for ''holding
    company'' in heading.
      Subsec. (g)(9), (10). Pub. L. 99-514, Sec. 1810(a)(1)(A), added
    par. (9) and redesignated former par. (9) as (10).
      Subsec. (i)(2). Pub. L. 99-514, Sec. 701(e)(4)(H), struck out
    ''by an individual'' after ''can be taken'' and substituted
    ''section 59(a)'' for ''section 55(c)''.
      1984 - Subsec. (d). Pub. L. 98-369, Sec. 801(d)(2)(C), which
    directed amendment of par. (1) heading by substituting ''Separate
    application of section with respect to certain interest income and
    income from DISC, former DISC, FSC, or former FSC'' for
    ''Application of section in case of certain interest income and
    dividends from a DISC or former DISC'' was executed to subsec. (d)
    heading to reflect the probable intent of Congress.
      Subsec. (d)(1)(B) to (E). Pub. L. 98-369, Sec. 801(d)(2)(A), (B),
    struck out ''and'' after ''United States,'' at end of subpar. (B),
    substituted ''taxable income attributable to foreign trade income
    (within the meaning of section 923(b)),'' for ''income other than
    the interest income described in paragraph (2) and dividends
    described in subparagraph (B),'' in subpar. (C), and added subpars.
    (D) and (E).
      Subsec. (d)(3). Pub. L. 98-369, Sec. 122(a), added par. (3).
      Subsec. (g). Pub. L. 98-369, Sec. 121(a), added subsec. (g).
    Former subsec. (g) redesignated (h).
      Pub. L. 98-369, Sec. 474(r)(21), amended subsec. (g) generally,
    substituting ''Coordination with nonrefundable personal credits''
    for ''Coordination with credit for the elderly'' in heading and in
    text substituting ''reduced by the sum of the credits allowable
    under subpart A of part IV of subchapter A of this chapter'' for
    ''reduced by the amount of the credit (if any) for the taxable year
    allowable under section 37 (relating to credit for the elderly and
    the permanently and totally disabled)''.
      Subsecs. (h), (i). Pub. L. 98-369, Sec. 121(a), redesignated
    former subsecs. (g) and (h) as (h) and (i), respectively.
      1983 - Subsec. (g). Pub. L. 98-21 substituted ''relating to
    credit for the elderly and the permanently and totally disabled''
    for ''relating to credit for the elderly''.
      1982 - Subsec. (f)(4) to (6). Pub. L. 97-248 struck out par. (4)
    which provided for the determination of foreign oil related loss
    where section 907 was applicable, redesignated par. (5) as (4), and
    purported to redesignate par. (6) as (5). However, subsec. (f) did
    not contain a par. (6).
      1980 - Subsec. (b)(3)(F). Pub. L. 96-222, Sec. 104(a)(3)(D)(i),
    redesignated subpar. (E) ''Rate differential portion'', added by
    Pub. L. 95-600, as (F).
      1978 - Subsec. (b)(2). Pub. L. 95-600, Sec. 403(c)(4)(A),
    701(u)(2)(A), (3)(A), in subpar. (A) substituted ''this section''
    for ''subsection (a)'', ''the rate differential portion'' for
    ''three eighths'' wherever appearing, and ''for purposes of
    determining taxable income from sources without the United States,
    any net capital loss (and any amount which is a short term capital
    loss under section 1212(a))'' for ''any net capital loss''.
      Subsec. (b)(3). Pub. L. 95-600, Sec. 403(c)(4)(B), 701(u)(2)(B),
    (C), as amended by Pub. L. 96-222, Sec. 104(a)(3)(D)(ii),
    substituted ''There'' for ''For purposes of this paragraph,
    there'', added subpar. (D), redesignated former subpar. (D),
    relating to section 1231 gains, as subpar. (E), and added another
    subpar. (E), relating to rate differential portion.  See 1980
    Amendment note above.
      Subsec. (f)(2)(A). Pub. L. 95-600, Sec. 701(u)(4)(A), struck out
    provision relating to capital loss carrybacks and carryovers.
      Subsec. (f)(4). Pub. L. 95-600, Sec. 701(u)(4)(B), (8)(C),
    substituted in introductory provisions ''In making the separate
    computation under this subsection with respect to foreign oil
    related income which is required by section 907(b)'' for ''In the
    case of a corporation to which section 907(b)(1) applies'' and in
    subpar. (A) struck out provision relating to capital loss
    carrybacks and carryovers.
      Subsec. (f)(5). Pub. L. 95-600, Sec. 701(q)(2), added par. (5).
      Subsec. (h). Pub. L. 95-600, Sec. 421(e)(6), designated existing
    provisions as par. (1) and added par. (2).
      1977 - Subsec. (a). Pub. L. 95-30 provided that, for purposes of
    determining the maximum total amount of the credit taken under
    section 901(a), in the case of an individual, the entire taxable
    income shall be reduced by an amount equal to the zero bracket
    amount.
      1976 - Subsec. (a). Pub. L. 94-455, Sec. 1031(a), struck out
    provisions allowing the per-country limitation, made the overall
    limitation applicable to all taxpayers to determine their foreign
    tax credit limitation, and inserted reference to section 901(a).
      Subsec. (b). Pub. L. 94-455, Sec. 1031(a), 1034(a), 1051(e),
    redesignated subsec. (c) as (b)(1), inserted provisions that the
    net United States capital losses would offset net foreign capital
    gains and, in the case of corporations, that only 30/48 of the net
    foreign source gain would be included in the foreign tax credit
    limitation, and that the gain from the sale or exchange of personal
    property outside the United States would be considered United
    States source income unless one of three exceptions applied, and
    added par. (4).
      Subsec. (c). Pub. L. 94-455, Sec. 1031(a), redesignated subsec.
    (d) as (c), and amended the redesignated subsec. (c) generally to
    conform to the elimination of the per-country limitation in subsec.
    (a). Former subsec. (c) redesignated (b)(1).
      Subsec. (d). Pub. L. 94-455, Sec. 1031(a), redesignated subsec.
    (f)(1), (2), as (d). Former subsec. (d) redesignated (c).
      Subsec. (e). Pub. L. 94-455, Sec. 1031(a), added subsec. (e).
    Former subsec. (e) was eliminated in view of the amendment of
    subsec. (a).
      Subsec. (f). Pub. L. 94-455, Sec. 1031(a), 1032(a),
    1901(b)(10)(B), added subsec. (f), and substituted ''section
    172(h)'' for ''section 172(k)(1)'' in pars. (2)(B)(i) and
    (4)(B)(i). Former subsec. (f)(1), (2), was redesignated (d). Former
    subsecs. (f)(3), (4), (5) were omitted.
      Subsec. (g). Pub. L. 94-455, Sec. 1032(a), 503(b)(1), added
    subsec. (g). Former subsec. (f) redesignated (g), and further
    redesignated (h).
      Subsec. (h). Pub. L. 94-455, Sec. 503(b)(1), redesignated former
    subsec. (g) as (h).
      1971 - Subsec. (f). Pub. L. 92-178, Sec. 502(b)(2), inserted
    ''and dividends from a DISC or former DISC'' after ''interest
    income'' in the heading.
      Subsec. (f)(1). Pub. L. 92-178, Sec. 502(b)(2), inserted ''each
    of the following items of income'' in introductory text, added
    subpar. (B), and redesignated former subpar. (B) as (C), inserting
    therein provisions respecting dividends described in subparagraph
    (B).
      Subsec. (f)(3). Pub. L. 92-178, Sec. 502(b)(3), provided that the
    limitation provided by subsec. (a)(2) shall not apply to dividends
    described in paragraph (1)(B) and substituted ''limitation provided
    by subsection (a)(2) applies with respect to income described in
    paragraph (1)(B) and (C)'' for ''limitation provided by subsection
    (a)(2) applies with respect to income other than the interest
    income described in paragraph (2)''.
      Subsec. (f)(5). Pub. L. 92-178, Sec. 502(b)(4), added par. (5).
      1969 - Subsec. (b)(1). Pub. L. 91-172, Sec. 506(b)(1),
    substituted ''(A) with the consent of the Secretary or his delegate
    with respect to any taxable year or (B) for the taxpayer's first
    taxable year beginning after December 31, 1969'' for ''with the
    consent of the Secretary or his delegate with respect to any
    taxable year''.
      Subsec. (b)(2). Pub. L. 91-172, Sec. 506(b)(2), substituted
    ''Except in a case to which paragraph (1)(B) applies, if the
    taxpayer'' for ''If a taxpayer''.
      1966 - Subsec. (f)(2). Pub. L. 89-809 inserted reference to
    includible corporations in an affiliated group, as defined in
    section 1504, of which the taxpayer is a member and inserted
    reference to both direct and indirect ownership in subpar. (C) and
    inserted provision that, for purposes of subpar. (C), stock owned
    directly or indirectly by or for a foreign corporation shall be
    considered as being proportionately owned by its shareholders.
      1964 - Subsec. (g)(2). Pub. L. 88-272 substituted ''section
    1503(b)'' for ''section 1503(d)''.
      1962 - Subsec. (f). Pub. L. 87-834, Sec. 10(a), added subsec.
    (f). Former subsec. (f) redesignated (g).
      Subsec. (g). Pub. L. 87-834, Sec. 10(a), 12(b)(2), redesignated
    former subsec. (f) as (g), designated existing provisions as par.
    (2), and added par. (1).
      1960 - Subsec. (a). Pub. L. 86-780, Sec. 1(a), designated
    existing provisions as par. (1), inserted introductory clause ''In
    the case of any taxpayer who elects the limitation provided by this
    paragraph'' and inserted ''foreign'', ''or possession of the United
    States'' and ''or possession'' therein and added par. (2).
      Subsec. (b). Pub. L. 86-780, Sec. 1(a), added subsec. (b). Former
    subsec. (b) redesignated (c).
      Subsec. (c). Pub. L. 86-780, Sec. 1(b), redesignated former
    subsec. (b) as (c) and inserted ''applicable'' before
    ''limitation'' therein.  Former subsec. (c) redesignated (d).
      Subsec. (d). Pub. L. 86-780, Sec. 1(c), redesignated former
    subsec. (c) as (d) and inserted ''applicable'' before
    ''limitation'' in two places.
      Subsecs. (e), (f). Pub. L. 86-780, Sec. 1(d), added subsecs. (e)
    and (f).
      1958 - Subsec. (c). Pub. L. 85-866 added subsec. (c).

                  EFFECTIVE DATES OF 2005 AMENDMENT
P.L. 109-135, Section 403(l)
(l) Amendment Related to <<NOTE: 26 USC 864 note.>> Section 403 of 
the Act.--Section 403 of the American Jobs Creation Act of 2004 is 
amended by adding at the end the following new subsection:
    (d) Transition Rule.--If the <<NOTE: Applicability.>> taxpayer 
elects (at such time and in such form and manner as the Secretary of the 
Treasury may prescribe) to have the rules of this subsection apply--
    (1) the amendments made by this section shall not apply to 
        taxable years beginning after December 31, 2002, and before 
        January 1, 2005, and
    (2) in the case of taxable years beginning after December 
        31, 2004, clause (iv) of section 904(d)(4)(C) of the Internal 
        Revenue Code of 1986 (as amended by this section) shall be 
        applied by substituting `January 1, 2005' for `January 1, 2003' 
        both places it appears.

                  EFFECTIVE DATES OF 2004 AMENDMENT
      Amendment by Pub.L.108-357,Sec.895(a), shall apply to   
      dispositions after the date of the enactment of this Act.
      Amendment by Sec.404,Pub.L.108-357 is effective as follows:
     Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 2006.
            (2) Transitional rule relating to income tax base 
        difference.--Section 904(d)(2)(H)(ii) of the Internal Revenue 
        Code of 1986, as added by subsection (e),Sec. 404, shall apply
        to taxable years beginning after December 31, 2004.
        

             EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
      Amendment by section 201(b)(2)(G) of Pub. L. 107-16 applicable to
    taxable years beginning after Dec. 31, 2001, see section 201(e)(2)
    of Pub. L. 107-16, set out as a note under section 24 of this
    title.
      Amendment by section 202(f)(2)(C) of Pub. L. 107-16 applicable to
    taxable years beginning after Dec. 31, 2001, see section 202(g)(1)
    of Pub. L. 107-16, set out as a note under section 23 of this
    title.
      Amendment by section 618(b)(2)(D) of Pub. L. 107-16 applicable to
    taxable years beginning after Dec. 31, 2001, see section 618(d) of
    Pub. L. 107-16, set out as a note under section 24 of this title.
      Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
    limitation years beginning after Dec. 31, 2010, and the Internal
    Revenue Code of 1986 to be applied and administered to such years
    as if such amendment had never been enacted, see section 901 of
    Pub. L. 107-16, set out as a note under section 1 of this title.
                      EFFECTIVE DATE OF 1999 AMENDMENT
      Amendment by Pub. L. 106-170 applicable to taxable years
    beginning after Dec. 31, 1998, see section 501(c) of Pub. L.
    106-170, set out as a note under section 24 of this title.
                      EFFECTIVE DATE OF 1997 AMENDMENT
      Amendment by section 311(c)(3) of Pub. L. 105-34 applicable to
    taxable years ending after May 6, 1997, see section 311(d) of Pub.
    L. 105-34, set out as a note under section 1 of this title.
      Section 1101(b) of Pub. L. 105-34 provided that: ''The amendment
    made by subsection (a) (amending this section) shall apply to
    taxable years beginning after December 31, 1997.''
      Section 1105(c) of Pub. L. 105-34 provided that: ''The amendments
    made by this section (amending this section) shall apply to taxable
    years beginning after December 31, 2002.''
      Section 1111(c)(2) of Pub. L. 105-34 provided that: ''The
    amendment made by subsection (b) (amending this section) shall
    apply to distributions after the date of the enactment of this Act
    (Aug. 5, 1997).''
      Amendment by section 1163(b) of Pub. L. 105-34 effective Aug. 5,
    1997, see section 1163(c) of Pub. L. 105-34, set out as a note
    under section 902 of this title.
                      EFFECTIVE DATE OF 1996 AMENDMENT
      Section 1501(d) of Pub. L. 104-188 provided that: ''The
    amendments made by this section (amending this section and sections
    951, 956, 959, 989, and 1297 of this title and repealing section
    956A of this title) shall apply to taxable years of foreign
    corporations beginning after December 31, 1996, and to taxable
    years of United States shareholders within which or with which such
    taxable years of foreign corporations end.''
      Amendment by section 1703(i)(1) of Pub. L. 104-188 effective as
    if included in the provision of the Revenue Reconciliation Act of
    1993, Pub. L. 103-66, Sec. 13001-13444, to which such amendment
    relates, see section 1703(o) of Pub. L. 104-188, set out as a note
    under section 39 of this title.
                      EFFECTIVE DATE OF 1993 AMENDMENT
      Amendment by section 13227(d) of Pub. L. 103-66 applicable to
    taxable years beginning after Dec. 31, 1993, see section 13227(f)
    of Pub. L. 103-66 set out as a note under section 56 of this title.
      Section 13235(c) of Pub. L. 103-66 provided that: ''The
    amendments made by this section (amending this section and sections
    907 and 954 of this title) shall apply to taxable years beginning
    after December 31, 1992.''
                      EFFECTIVE DATE OF 1990 AMENDMENT
      Amendment by section 11101(d)(5) of Pub. L. 101-508 applicable to
    taxable years beginning after Dec. 31, 1990, see section 11101(e)
    of Pub. L. 101-508, set out as a note under section 1 of this
    title.
                      EFFECTIVE DATE OF 1989 AMENDMENT
      Section 7402(b) of Pub. L. 101-239 provided that: ''The amendment
    made by subsection (a) (amending this section) shall apply to
    taxable years beginning after July 10, 1989.''
      Amendment by section 7811(i)(1) of Pub. L. 101-239 effective,
    except as otherwise provided, as if included in the provision of
    the Technical and Miscellaneous Revenue Act of 1988, Pub. L.
    100-647, to which such amendment relates, see section 7817 of Pub.
    L. 101-239, set out as a note under section 1 of this title.
                      EFFECTIVE DATE OF 1988 AMENDMENT
      Section 1012(bb)(4)(B) of Pub. L. 100-647 provided that: ''The
    amendment made by subparagraph (A) (amending this section) shall
    take effect as if included in the amendment made by section 121 of
    the Tax Reform Act of 1984 (Pub. L. 98-369).''
      Amendment by sections 1003(b)(2) and 1012(a)(1)(A), (2)-(4),
    (6)-(11), (c), (p)(11), (29), (q)(12) of Pub. L. 100-647 effective,
    except as otherwise provided, as if included in the provision of
    the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
    relates, see section 1019(a) of Pub. L. 100-647, set out as a note
    under section 1 of this title.
      Amendment by section 2004(l) of Pub. L. 100-647 effective, except
    as otherwise provided, as if included in the provisions of the
    Revenue Act of 1987, Pub. L. 100-203, title X, to which such
    amendment relates, see section 2004(u) of Pub. L. 100-647, set out
    as a note under section 56 of this title.
                      EFFECTIVE DATE OF 1986 AMENDMENT
      Amendment by section 104(b)(13) of Pub. L. 99-514 applicable to
    taxable years beginning after Dec. 31, 1986, see section 151(a) of
    Pub. L. 99-514, set out as a note under section 1 of this title.
      Amendment by section 701(e)(4)(H) of Pub. L. 99-514 applicable to
    taxable years beginning after Dec. 31, 1986, with certain
    exceptions and qualifications, see section 701(f) of Pub. L.
    99-514, set out as an Effective Date note under section 55 of this
    title.
      Section 1201(e) of Pub. L. 99-514, as amended by Pub. L. 100-647,
    title I, Sec. 1012(a)(5), Nov. 10, 1988, 102 Stat. 3495; Pub. L.
    101-239, title VII, Sec. 7404(a), Dec. 19, 1989, 103 Stat. 2361,
    provided that:
      ''(1) In general. - Except as provided in this subsection, the
    amendments made by this section (amending this section and sections
    864 and 954 of this title) shall apply to taxable years beginning
    after December 31, 1986.
      ''((2) Repealed. Pub. L. 101-239, title VII, Sec. 7404(a), Dec.
    19, 1989, 103 Stat. 2361.)
      ''(3) Special rule for taxpayer with overall foreign loss. -
        ''(A) In general. - If a taxpayer incorporated on June 20,
      1928, the principal headquarters of which is in Minneapolis,
      Minnesota, sustained an overall foreign loss (as defined in
      section 904(f)(2) of the Internal Revenue Code of 1954 (now
      1986)) in taxable years beginning before January 1, 1986, in
      connection with 2 separate trades or businesses which the
      taxpayer had, during 1985, substantially disposed of in tax-free
      transactions pursuant to section 355 of such Code, then an
      amount, not to exceed $40,000,000 of foreign source income,
      which, but for this paragraph, would not be treated as overall
      limitation income, shall be so treated.
        ''(B) Substantial disposition. - For purposes of this
      paragraph, a taxpayer shall be treated as having substantially
      disposed of a trade or business if the retained portion of such
      business had sales of less than 10 percent of the annual sales of
      such business for taxable years ending in 1985.''
      (Section 7404(b), (c) of Pub. L. 101-239 provided that:
      (''(b) Effective Date. - The repeal made by subsection (a)
    (amending section 1201(e) of Pub. L. 99-514, set out above) shall
    apply to taxable years beginning after December 31, 1989.
      (''(c) Exception for Certain Taxpayers With Substantial Loan Loss
    Reserves. -
        (''(1) In general. - The repeal made by subsection (a) shall
      not apply to any taxpayer if, on any financial statement filed by
      such taxpayer for regulatory purposes with respect to any quarter
      ending during the period beginning on March 31, 1989, and ending
      on December 31, 1989, such taxpayer showed loss reserves against
      its qualified loans equal to at least 25 percent of the amount of
      such loans.
        (''(2) Definitions and special rules. - For purposes of this
      subsection -
          (''(A) Qualified loan. - The term 'qualified loan' has the
        meaning given such term by section 1201(e)(2)(H) of the Tax
        Reform Act of 1986 (Pub. L. 99-514, formerly set out above) (as
        in effect before its repeal by subsection (a)).
          (''(B) Parent-subsidiary controlled groups. - In the case of
        any taxpayer which is a member of a parent-subsidiary
        controlled group (as defined in section 585(c)(5)(A) (26 U.S.C.
        585(c)(5)(A))), this subsection shall be applied by treating
        all members of such group as 1 taxpayer.'')
      Section 1203(b) of Pub. L. 99-514 provided that: ''The amendment
    made by subsection (a) (amending this section) shall apply to
    losses incurred in taxable years beginning after December 31,
    1986.''
      Amendment by section 1211(b)(3) of Pub. L. 99-514 applicable to
    taxable years beginning after Dec. 31, 1986, except as otherwise
    provided, see section 1211(c) of Pub. L. 99-514, set out as an
    Effective Date note under section 865 of this title.
      Amendment by section 1235(f)(4) of Pub. L. 99-514 applicable to
    taxable years of foreign corporations beginning after Dec. 31,
    1986, see section 1235(h) of Pub. L. 99-514, set out as an
    Effective Date note under section 1291 of this title.
      Section 1810(a)(1)(B) of Pub. L. 99-514 provided that: ''The
    amendment made by subparagraph (A) (amending this section) shall
    take effect on March 28, 1985. In the case of any taxable year
    ending after such date of any corporation treated as a United
    States-owned foreign corporation by reason of the amendment made by
    subparagraph (A) -
        ''(i) only income received or accrued by such corporation after
      such date shall be taken into account under section 904(g) of the
      Internal Revenue Code of 1954 (now 1986); except that
        ''(ii) paragraph (5) of such section 904(g) shall be applied by
      taking into account all income received or accrued by such
      corporation during such taxable year.''
      Section 1810(b)(4)(B) of Pub. L. 99-514 provided that:
      ''(i) The amendment made by subparagraph (A) (amending this
    section) insofar as it adds the last sentence to subparagraph (E)
    of section 905(d)(3) (904(d)(3)) shall take effect on March 28,
    1985. In the case of any taxable year ending after such date of any
    corporation treated as a designated payor corporation by reason of
    the amendment made by subparagraph (A) -
        ''(I) only income received or accrued by such corporation after
      such date shall be taken into account under section 904(d)(3) of
      the Internal Revenue Code of 1954 (now 1986); except that
        ''(II) subparagraph (C) of such section 904(d)(3) shall be
      applied by taking into account all income received or accrued by
      such corporation during such taxable year.
      ''(ii) The amendment made by subparagraph (A) insofar as it adds
    clause (iv) to subparagraph (E) of section 904(d)(3) shall take
    effect on December 31, 1985. For purposes of such amendment, the
    rule of the second sentence of clause (i) shall be applied by
    taking into account December 31, 1985, in lieu of March 28, 1985.''
      Amendment by sections 1810(b)(1)-(3) and 1876(d)(2) of Pub. L.
    99-514 effective, except as otherwise provided, as if included in
    the provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div.
    A, to which such amendment relates, see section 1881 of Pub. L.
    99-514, set out as a note under section 48 of this title.
                      EFFECTIVE DATE OF 1984 AMENDMENT
      Section 121(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,
    Sec. 2, title XVIII, Sec. 1810(a)(2), (3), Oct. 22, 1986, 100 Stat.
    2095, 2822, provided that:
      ''(1) In general. - Except as otherwise provided in this
    subsection, the amendment made by subsection (a) (amending this
    section) shall take effect on the date of the enactment of this Act
    (July 18, 1984). In the case of any taxable year of any United
    States-owned foreign corporation ending after the date of the
    enactment of this Act -
        ''(A) only income received or accrued by such foreign
      corporation after such date of enactment shall be taken into
      account under section 904(g) of the Internal Revenue Code of 1986
      (formerly I.R.C. 1954) (as added by subsection (a)); except that
        ''(B) paragraph (5) of such section 904(g) (relating to
      exception where small amount of United States source income)
      shall be applied by taking into account all income received or
      accrued by such foreign corporation during such taxable year.
      ''(2) Special rule for applicable cfc. -
        ''(A) In general. - In the case of qualified interest received
      or accrued by an applicable CFC before January 1, 1992 -
          ''(i) such interest shall not be taken into account under
        section 904(g) of the Internal Revenue Code of 1986 (as added
        by subsection (a)), except that
          ''(ii) such interest shall be taken into account for purposes
        of applying paragraph (5) of such section 904(g) (relating to
        exception where small amount of United States source income).
        ''(B) Qualified interest. - For purposes of subparagraph (A),
      the term 'qualified interest' means -
          ''(i) the aggregate amount of interest received or accrued
        during any taxable year by an applicable CFC on United States
        affiliate obligations held by such applicable CFC, multiplied
        by,
          ''(ii) a fraction (not in excess of 1) -
            ''(I) the numerator of which is the sum of the aggregate
          principal amount of United States affiliate obligations held
          by the applicable CFC on March 31, 1984, but not in excess of
          the applicable limit, and
            ''(II) the denominator of which is the average daily
          principal amount of United States affiliate obligations held
          by such applicable CFC during the taxable year.
      Proper adjustments shall be made to the numerator described in
      clause (ii)(I) for original issue discount accruing after March
      31, 1984, on CFC obligations and United States affiliate
      obligations.
        ''(C) Adjustment for retirement of cfc obligations. - The
      amount described in subparagraph (B)(ii)(I) for any taxable year
      shall be reduced by the sum of -
          ''(i) the excess of (I) the aggregate principal amount of CFC
        obligations which are outstanding on March 31, 1984, but only
        with respect to obligations issued before March 8, 1984, or
        issued after March 7, 1984, by the applicable CFC pursuant to a
        binding commitment in effect on March 7, 1984, over (II) the
        average daily outstanding principal amount during the taxable
        year of the CFC obligations described in subclause (I), and
          ''(ii) the portion of the equity of such applicable CFC
        allocable to the excess described in clause (i) (determined on
        the basis of the debt-equity ratio of such applicable CFC on
        March 31, 1984).
        ''(D) Applicable cfc. - For purposes of this paragraph, the
      term 'applicable CFC' means any controlled foreign corporation
      (within the meaning of section 957) -
          ''(i) which was in existence on March 31, 1984, and
          ''(ii) the principal purpose of which on such date consisted
        of the issuing of CFC obligations (or short-term borrowing from
        nonaffiliated persons) and lending the proceeds of such
        obligations (or such borrowing) to affiliates.
        ''(E) Affiliates; united states affiliates. - For purposes of
      this paragraph -
          ''(i) Affiliate. - The term 'affiliate' means any person who
        is a related person (within the meaning of section 482 of the
        Internal Revenue Code of 1986) to the applicable CFC.
          ''(ii) United states affiliate. - The term 'United States
        affiliate' means any United States person which is an affiliate
        of the applicable CFC.
          ''(iii) Treatment of certain foreign corporations engaged in
        business in united states. - For purposes of clause (ii), a
        foreign corporation shall be treated as a United States person
        with respect to any interest payment made by such corporation
        if -
            ''(I) at least 50 percent of the gross income from all
          sources of such corporation for the 3-year period ending with
          the close of its last taxable year ending on or before March
          31, 1984, was effectively connected with the conduct of a
          trade or business within the United States, and
            ''(II) at least 50 percent of the gross income from all
          sources of such corporation for the 3-year period ending with
          the close of its taxable year preceding the payment of such
          interest was effectively connected with the conduct of a
          trade or business within the United States.
        ''(F) United states affiliate obligations. - For purposes of
      this paragraph, the term 'United States affiliate obligations'
      means any obligation of (and payable by) a United States
      affiliate.
        ''(G) CFC obligation. - For purposes of this paragraph, the
      term 'CFC obligation' means any obligation of (and issued by) a
      CFC if -
          ''(i) the requirements of clause (i) of section 163(f)(2)(B)
        of the Internal Revenue Code of 1986 are met with respect to
        such obligation, and
          ''(ii) in the case of an obligation issued after December 31,
        1982, the requirements of clause (ii) of such section
        163(f)(2)(B) are met with respect to such obligation.
        ''(H) Treatment of obligations with original issue discount. -
      For purposes of this paragraph, in the case of any obligation
      with original issue discount, the principal amount of such
      obligation as of any day shall be treated as equal to the revised
      issue price as of such day (as defined in section 1278(a)(4) of
      the Internal Revenue Code of 1986).
        ''(I) Applicable limit. - For purposes of subparagraph
      (B)(ii)(I), the term 'applicable limit' means the sum of -
          ''(i) the equity of the applicable CFC on March 31, 1984, and
          ''(ii) the aggregate principal amount of CFC obligations
        outstanding on March 31, 1984, which were issued by an
        applicable CFC -
            ''(I) before March 8, 1984, or
            ''(II) after March 7, 1984, pursuant to a binding
          commitment in effect on March 7, 1984.
      ''(3) Exception for certain term obligations. - The amendments
    made by subsection (a) shall not apply to interest on any term
    obligations held by a foreign corporation on March 7, 1984. The
    preceding sentence shall not apply to any United States affiliate
    obligation (as defined in paragraph (2)(F)) held by an applicable
    CFC (as defined in paragraph (2)(D)).
      ''(4) Definitions. - Any term used in this subsection which is
    also used in section 904(g) of the Internal Revenue Code of 1986
    (as added by subsection (a)) shall have the meaning given such term
    by such section 904(g).
      ''(5) Separate application of section 904 in case of income
    covered by transitional rules. - Subsections (a), (b), and (c) of
    section 904 of the Internal Revenue Code of 1986 shall be applied
    separately to any amount not treated as income derived from sources
    within the United States but which (but for the provisions of
    paragraph (2) or (3) of this subsection) would be so treated under
    the amendments made by subsection (a). Any such separate
    application shall be made before any separate application required
    under section 904(d) of such Code.
      ''(6) Application of paragraph (5) delayed in certain cases. - In
    the case of a foreign corporation -
        ''(A) which is a subsidiary of a domestic corporation which has
      been engaged in manufacturing for more than 50 years, and
        ''(B) which issued certificates with respect to obligations on
      -
          ''(i) September 24, 1979, denominated in French francs,
          ''(ii) September 10, 1981, denominated in Swiss francs,
          ''(iii) July 14, 1982, denominated in Swiss francs, and
          ''(iv) December 1, 1982, denominated in United States
        dollars,
      with a total principal amount of less than 200,000,000 United
      States dollars.(,)
    then paragraph (5) shall not apply to the proceeds from relending
    such obligations or related capital before January 1, 1986.''
      Section 122(b) of Pub. L. 98-369 provided that:
      ''(1) In general. - The amendment made by subsection (a)
    (amending this section) shall take effect on the date of the
    enactment of this Act (July 18, 1984).
      ''(2) Special rules for interest income. -
        ''(A) In general. - Interest income received or accrued by a
      designated payor corporation shall be taken into account for
      purposes of the amendment made by subsection (a) only in taxable
      years beginning after the date of the enactment of this Act.
        ''(B) Exception for investment after june 22, 1984. -
      Notwithstanding subparagraph (A), the amendment made by
      subsection (a) shall apply to interest income received or accrued
      by a designated payor corporation after the date of enactment of
      this Act if it is attributable to investment in the designated
      payor corporation after June 22, 1984.
      ''(3) Term obligations of designated payor corporation which is
    not applicable cfc. - In the case of any designated payor
    corporation which is not an applicable CFC (as defined in section
    121(b)(2)(D) (section 121(b)(2)(D) of Pub. L. 98-369, set out
    above)), any interest received or accrued by such corporation on a
    term obligation held by such corporation on March 7, 1984, shall
    not be taken into account.''
      Amendment by section 474(r)(21) of Pub. L. 98-369 applicable to
    taxable years beginning after Dec. 31, 1983, and to carrybacks from
    such years, see section 475(a) of Pub. L. 98-369, set out as a note
    under section 21 of this title.
      Amendment by section 801(d)(2) of Pub. L. 98-369 applicable to
    transactions after Dec. 31, 1984, in taxable years ending after
    such date, see section 805(a)(1) of Pub. L. 98-369, as amended, set
    out as a note under section 245 of this title.
                      EFFECTIVE DATE OF 1983 AMENDMENT
      Amendment by Pub. L. 98-21 applicable to taxable years beginning
    after Dec. 31, 1983, except that if an individual's annuity
    starting date was deferred under section 105(d)(6) of this title as
    in effect on the day before Apr. 20, 1983, such deferral shall end
    on the first day of such individual's first taxable year beginning
    after Dec. 31, 1983, see section 122(d) of Pub. L. 98-21, set out
    as a note under section 22 of this title.
                      EFFECTIVE DATE OF 1982 AMENDMENT
      Amendment by Pub. L. 97-248 applicable to taxable years beginning
    after Dec. 31, 1982, except that former subsec. (f)(4), which had
    provided for the determination of foreign oil related loss where
    section 907 of this title was applicable, shall continue to apply
    in certain instances where the taxpayer has had a foreign loss from
    an activity not related to oil and gas, see section 211(e) of Pub.
    L. 97-248, set out as a note under section 907 of this title.
                      EFFECTIVE DATE OF 1980 AMENDMENT
      Amendment by Pub. L. 96-222 effective, except as otherwise
    provided, as if it had been included in the provisions of the
    Revenue Act of 1978, Pub. L. 95-600, to which such amendment
    relates, see section 201 of Pub. L. 96-222, set out as a note under
    section 32 of this title.
                      EFFECTIVE DATE OF 1978 AMENDMENT
      Amendment by section 403(c)(4) of Pub. L. 95-600 effective on
    Nov. 6, 1978, see section 403(d)(3) of Pub. L. 95-600, set out as a
    note under section 528 of this title.
      Amendment by section 421(e)(6) of Pub. L. 95-600 applicable to
    taxable years beginning after Dec. 31, 1978, see section 421(g) of
    Pub. L. 95-600, set out as note under section 5 of this title.
      Amendment by section 701(a)(8)(C) of Pub. L. 95-600 applicable,
    in the case of individuals, to taxable years ending after Dec. 31,
    1974, and, in the case of corporations, to taxable years ending
    after Dec. 31, 1976, see section 701(u)(8)(D) of Pub. L. 95-600,
    set out as a note under section 907 of this title.
      Section 701(q)(3)(B) of Pub. L. 95-600, as amended by Pub. L.
    99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ''The
    amendments made by paragraph (2) (amending this section) shall take
    effect as if included in section 904(f) of the Internal Revenue
    Code of 1986 (formerly I.R.C. 1954), as such provision was added to
    such Code by section 1032(a) of the Tax Reform Act of 1976 (section
    1032(a) of Pub. L. 94-455).''
      Section 701(u)(2)(D) of Pub. L. 95-600 provided that: ''The
    amendments made by this paragraph (amending this section) shall
    apply to taxable years beginning after December 31, 1975.''
      Section 701(u)(3)(B) of Pub. L. 95-600 provided that: ''The
    amendment made by subparagraph (A) (amending this section) shall
    apply to taxable years beginning after December 31, 1975.''
      Section 701(u)(4)(C) of Pub. L. 95-600 provided that: ''The
    amendments made by this paragraph (amending this section) shall
    apply -
        ''(i) to overall foreign losses sustained in taxable years
      beginning after December 31, 1975, and
        ''(ii) to foreign oil related losses sustained in taxable years
      ending after December 31, 1975.''
                      EFFECTIVE DATE OF 1977 AMENDMENT
      Amendment by Pub. L. 95-30 applicable to taxable years beginning
    after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
    as a note under section 1 of this title.
                      EFFECTIVE DATE OF 1976 AMENDMENT
      Amendment by section 503(b)(1) of Pub. L. 94-455 applicable to
    taxable years beginning after Dec. 31, 1975, see section 508 of
    Pub. L. 94-455, set out as a note under section 3 of this title.
      Section 1031(c) of Pub. L. 94-455, as amended by Pub. L. 95-600,
    title VII, Sec. 701(u)(6), (7)(B)(ii), Nov. 6, 1978, 92 Stat. 2914,
    2916; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095,
    provided that:
      ''(1) In general. - Except as provided in paragraphs (2) and (3),
    the amendments made by this section (amending this section and
    sections 243, 383, 901, 907, 960, 1351, 1503, 6038, and 6501 of
    this title) shall apply to taxable years beginning after December
    31, 1975.
      ''(2) Exception for certain mining operations. - In the case of a
    domestic corporation or includible corporation in an affiliated
    group (as defined in section 1504 of the Internal Revenue Code of
    1986 (formerly I.R.C. 1954)) which has as of October 1, 1975 -
        ''(A) been engaged in the active conduct of the trade or
      business of the extraction of minerals (of a character with
      respect to which a deduction for depletion is allowable under
      section 613 of such Code) outside the United States or its
      possessions for less than 5 years preceding the date of enactment
      of this Act (Oct. 4, 1976),
        ''(B) had deductions properly apportioned or allocated to its
      gross income from such trade or business in excess of such gross
      income in at least 2 taxable years,
        ''(C) 80 percent of its gross receipts are from the sale of
      such minerals, and
        ''(D) made commitments for substantial expansion of such
      mineral extraction activities,
    the amendments made by this section (amending this section and
    sections 243, 383, 901, 907, 960, 1351, 1503, 6038, and 6501 of
    this title) shall apply to taxable years beginning after December
    31, 1978. In the case of a loss sustained in a taxable year
    beginning before January 1, 1979, by any corporation to which this
    paragraph applies, if section 904(a)(1) of such Code (as in effect
    before the enactment of this Act (Oct. 4, 1976)) applies with
    respect to such taxable year, the provisions of section 904(f) of
    such Code shall be applied with respect to such loss under the
    principles of such section 904(a)(1).
      ''(3) Exception for income from possessions. - In the case of
    gross income from sources within a possession of the United States
    (and the deductions properly apportioned or allocated thereto), the
    amendments made by this section (amending this section and sections
    243, 383, 901, 907, 960, 1351, 1503, 6038, and 6501 of this title)
    shall apply to taxable years beginning after December 31, 1978.
      ''(4) Carrybacks and carryovers in the case of mining operations
    and income from a possession. - In the case of a taxpayer to whom
    paragraph (2) or (3) of this subsection applies, section 904(e) of
    such Code (section 904(e) of this title) shall apply except that
    'January 1, 1979' shall be substituted for 'January 1, 1976' each
    place it appears therein.  If such a taxpayer elects the overall
    limitation for a taxable year beginning before January 1, 1979,
    such section 904(e) shall be applied by substituting 'the January
    1, of the last year for which such taxpayer is on the per-country
    limitation' for 'January 1, 1976' each place it appears therein.''
      Section 1032(c) of Pub. L. 94-455, as amended by Pub. L. 95-600,
    title VII, Sec. 701(u)(5), (7)(A), (B)(i), Nov. 6, 1978, 92 Stat.
    2914; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095,
    provided that:
      ''(1) In general. - Except as provided in paragraphs (2), (3),
    and (5), the amendment made by subsection (a) (amending this
    section) shall apply to losses sustained in taxable years beginning
    after December 31, 1975. The amendment made by subsection (b)(1)
    (amending section 907 of this title) shall apply to taxable years
    beginning after December 31, 1975. The amendment made by subsection
    (b)(2) (amending section 907 of this title) shall apply to losses
    sustained in taxable years ending after December 31, 1975.
      ''(2) Obligations of foreign governments. - The amendments made
    by subsection (a) (amending this section) shall not apply to losses
    on the sale, exchange, or other disposition of bonds, notes, or
    other evidences of indebtedness issued before May 14, 1976, by a
    foreign government or instrumentality thereof for the acquisition
    of property located in that country or stock of a corporation
    (created or organized in or under the laws of that foreign country)
    or indebtedness of such corporation.
      ''(3) Substantial worthlessness before enactment. - The
    amendments made by subsection (a) (amending this section) shall not
    apply to losses incurred on the loss from stock or indebtedness of
    a corporation in which the taxpayer owned at least 10 percent of
    the voting stock and which has sustained losses in 3 out of the
    last 5 taxable years beginning before January 1, 1976, which has
    sustained an overall loss for those 5 years, and with respect to
    which the taxpayer has terminated or will terminate all operations
    by reason of sale, liquidation, or other disposition before January
    1, 1977, of such corporation or its assets.
      ''(4) Limitation based on deficit in earnings and profits. - If
    paragraph (3) would apply to a taxpayer but for the fact that the
    loss is sustained after December 31, 1976, and if the loss is
    sustained in a taxable year beginning before January 1, 1979, the
    amendments made by subsection (a) (amending this section) shall not
    apply to such loss to the extent that there was on December 31,
    1975, a deficit in earnings and profits in the corporation from
    which the loss arose.  For purposes of the preceding sentence,
    there shall be taken into account only earnings and profits of the
    corporation which (A) were accumulated in taxable years of the
    corporation beginning after December 31, 1962, and during the
    period in which the stock of such corporation from which the loss
    arose was held by the taxpayer and (B) are attributable to such
    stock.
      ''(5) Foreign oil related losses. - The amendment made by
    subsection (a) (amending this section) shall apply to foreign oil
    related losses sustained in taxable years ending after December 31,
    1975.
      ''(6) Recapture of possession losses during transitional period
    where taxpayer is on a per-country basis. -
        ''(A) Application of paragraph. - This paragraph shall apply if
      -
          ''(i) the taxpayer sustained a loss in a possession of the
        United States in a taxable year beginning after December 31,
        1975, and before January 1, 1979,
          ''(ii) such loss is attributable to a trade or business
        engaged in by the taxpayer in such possession on January 1,
        1976, and
          ''(iii) the taxpayer chooses to have the benefits of subpart
        A of part III of subchapter N apply for such taxable year and
        section 904(a)(1) of the Internal Revenue Code of 1986
        (formerly I.R.C. 1954) (as in effect before the enactment of
        this Act (Oct. 4, 1976)) applies with respect to such taxable
        year.
        ''(B) No recapture during transition period. - In any case to
      which this paragraph applies, for purposes of determining the
      liability for tax of the taxpayer for taxable years beginning
      before January 1, 1979, section 904(f) of the Internal Revenue
      Code of 1986 shall not apply with respect to the loss described
      in subparagraph (A)(i).
        ''(C) Recapture of loss after the transition period. - In any
      case to which this paragraph applies -
          ''(i) for purposes of determining the liability for tax of
        the taxpayer for taxable years beginning after December 31,
        1978, section 904(f) of the Internal Revenue Code of 1986
        (subsec. (f) of this section) shall be applied with respect to
        the loss described in subparagraph (A)(i) under the principles
        of section 904(a)(1) of such Code (as in effect before the
        enactment of this Act (Oct. 4, 1976)); but
          ''(ii) in the case of any taxpayer and any possession, the
        aggregate amount to which such section 904(f) applies by reason
        of clause (i) shall not exceed the sum of the net incomes of
        all affiliated corporations from such possession for taxable
        years of such affiliated corporations beginning after December
        31, 1975, and before January 1, 1979.
        ''(D) Taxpayers not engaged in trade or business on january 1,
      1976. - In any case to which this paragraph applies but for the
      fact that the taxpayer was not engaged in a trade or business in
      such possession on January 1, 1976, for purposes of determining
      the liability for tax of the taxpayer for taxable years beginning
      before January 1, 1979; if section 904(a)(1) of such Code (as in
      effect before the enactment of this Act (Oct. 4, 1976)) applies
      with respect to such taxable year, the provisions of section
      904(f) of such Code shall be applied with respect to the loss
      described in subparagraph (A)(i) under the principles of such
      section 904(a)(1).
        ''(E) Affiliated corporation defined. - For purposes of
      subparagraph (C)(ii), the term 'affiliated corporation' means a
      corporation which, for the taxable year for which the net income
      is being determined, was not a member of the same affiliated
      group (within the meaning of section 1504 of the Internal Revenue
      Code of 1986) as the taxpayer but would have been a member of
      such group but for the application of subsection (b) of such
      section 1504.''
      Section 1034(b) of Pub. L. 94-455 provided that: ''The amendment
    made by this section (amending this section) shall apply to taxable
    years beginning after December 31, 1975, except that the provisions
    of section 904(b)(3)(C) shall only apply to sales or exchanges made
    after November 12, 1975.''
      Amendment by section 1051(e) of Pub. L. 94-455 applicable to
    taxable years beginning after Dec. 31, 1975, with certain
    exceptions, see section 1051(i) of Pub. L. 94-455, set out as a
    note under section 27 of this title.
      Amendment by section 1901(b)(10) of Pub. L. 94-455 applicable
    with respect to taxable years ending after Oct. 4, 1976, see
    section 1901(d) of Pub. L. 94-455, set out as a note under section
    2 of this title.
                      EFFECTIVE DATE OF 1971 AMENDMENT
      Amendment by Pub. L. 92-178 applicable with respect to taxable
    years ending after Dec. 31, 1971, except that a corporation may not
    be a DISC for any taxable year beginning before Jan. 1, 1972, see
    section 507 of Pub. L. 92-178, set out as a note under section 991
    of this title.
                      EFFECTIVE DATE OF 1969 AMENDMENT
      Amendment by Pub. L. 91-172 applicable with respect to taxable
    years beginning after Dec. 31, 1969, see section 506(c) of Pub. L.
    91-172, set out as a note under section 901 of this title.
                      EFFECTIVE DATE OF 1966 AMENDMENT
      Section 106(c)(2) of Pub. L. 89-809 provided that: ''The
    amendments made by paragraph (1) (amending this section) shall
    apply to interest received after December 31, 1965, in taxable
    years ending after such date.''
                      EFFECTIVE DATE OF 1964 AMENDMENT
      Amendment by Pub. L. 88-272 applicable to taxable years beginning
    after Dec. 31, 1963, see section 234(c) of Pub. L. 88-272, set out
    as a note under section 1503 of this title.
                      EFFECTIVE DATE OF 1962 AMENDMENT
      Section 10(b) of Pub. L. 87-834 provided that: ''The amendments
    made by subsection (a) (amending this section) shall apply with
    respect to taxable years beginning after the date of the enactment
    of this Act (Oct. 16, 1962), but only with respect to interest
    resulting from transactions consummated after April 2, 1962.''
                      EFFECTIVE DATE OF 1960 AMENDMENT
      Section 4 of Pub. L. 86-780 provided that: ''The amendments made
    by the first section (amending this section), section 2 (amending
    section 1503 of this title), and subsection (a) of section 3 of
    this Act (amending section 901 of this title) shall apply with
    respect to taxable years beginning after December 31, 1960. The
    amendment made by subsection (b) of section 3 of this Act (amending
    section 901 of this title) shall apply with respect to taxable
    years beginning after December 31, 1953, and ending after August
    16, 1954. The amendments made by subsection (c) of section 3 of
    this Act (enacting section 6501 of this title) shall apply with
    respect to taxable years beginning after December 31, 1957.''
                      EFFECTIVE DATE OF 1958 AMENDMENT
      Section 42(c) of Pub. L. 85-866 provided that: ''The amendments
    made by subsections (a) and (b) (amending this section and section
    6611 of this title) shall apply only with respect to taxable years
    beginning after December 31, 1957.''
                             SAVINGS PROVISION
      For provisions that nothing in amendment by section 11801(a)(31)
    of Pub. L. 101-508 be construed to affect treatment of certain
    transactions occurring, property acquired, or items of income,
    loss, deduction, or credit taken into account prior to Nov. 5,
    1990, for purposes of determining liability for tax for periods
    ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,
    set out as a note under section 29 of this title.
     APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
                   TO TREATY OBLIGATIONS OF UNITED STATES
      For applicability of amendments by sections 701(e)(4)(H) and
    1201(a), (b), (d)(1)-(3) of Pub. L. 99-514 notwithstanding any
    treaty obligation of the United States in effect on Oct. 22, 1986,
    and for nonapplication of amendment by section 1211(b)(3) of Pub.
    L. 99-514 to the extent application of such amendment would be
    contrary to any treaty obligation of the United States in effect on
    Oct. 22, 1986, with provision that for such purposes any amendment
    by title I of Pub. L. 100-647 be treated as if it had been included
    in the provision of Pub. L. 99-514 to which such amendment relates,
    see section 1012(aa)(2)-(4) of Pub. L. 100-647, set out as a note
    under section 861 of this title.
             PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
      For provisions directing that if any amendments made by subtitle
    A or subtitle C of title XI (Sec. 1101-1147 and 1171-1177) or title
    XVIII (Sec. 1800-1899A) of Pub. L. 99-514 require an amendment to
    any plan, such plan amendment shall not be required to be made
    before the first plan year beginning on or after Jan. 1, 1989, see
    section 1140 of Pub. L. 99-514, as amended, set out as a note under
    section 401 of this title.
      LIMITATION ON CARRYBACK OF FOREIGN TAX CREDITS TO TAXABLE YEARS
                           BEGINNING BEFORE 1987
      Section 1205 of Pub. L. 99-514 provided that:
      ''(a) Determination of Excess Credits. -
        ''(1) In general. - Any taxes paid or accrued in a taxable year
      beginning after 1986 may be treated under section 904(c) of the
      Internal Revenue Code of 1954 as paid or accrued in a taxable
      year beginning before 1987 only to the extent such taxes would be
      so treated if the tax imposed by chapter 1 of such Code for the
      taxable year beginning after 1986 were determined by applying
      section 1 or 11 of such Code (as the case may be) as in effect on
      the day before the date of the enactment of this Act (Oct. 22,
      1986).
        ''(2) Adjustments. - Under regulations prescribed by the
      Secretary of the Treasury or his delegate proper adjustments
      shall be made in the application of paragraph (1) to take into
      account -
          ''(A) the repeal of the zero bracket amount, and
          ''(B) the changes in the treatment of capital gains.
      ''(b) Coordination With Separate Baskets. - Any taxes paid or
    accrued in a taxable year beginning after 1986 which (after the
    application of subsection (a)) are treated as paid or accrued in a
    taxable year beginning before 1987 shall be treated as imposed on
    income described in section 904(d)(1)(E) of the Internal Revenue
    Code of 1954 (as in effect on the day before the date of the
    enactment of this Act (Oct. 22, 1986)). No taxes paid or accrued in
    a taxable year beginning after 1986 with respect to high
    withholding tax interest (as defined in section 904(d)(2)(B) of the
    Internal Revenue Code of 1986 as amended by this Act) may be
    treated as paid or accrued in a taxable year beginning before
    1987.''
                    COORDINATION WITH TREATY OBLIGATIONS
      Section 1810(a)(4) of Pub. L. 99-514 provided that: ''Section
    904(g) of the Internal Revenue Code of 1954 shall apply
    notwithstanding any treaty obligation of the United States to the
    contrary (whether entered into on, before, or after the date of the
    enactment of this Act (Oct. 22, 1986)) unless (in the case of a
    treaty entered into after the date of the enactment of this Act)
    such treaty by specific reference to such section 904(g) clearly
    expresses the intent to override the provisions of such section.''
      SEPARATE APPLICATION OF SECTION 904 IN CASE OF INCOME COVERED BY
                             TRANSITIONAL RULES
      Section 1810(a)(5) of Pub. L. 99-514, as amended by Pub. L.
    100-647, title I, Sec. 1018(g)(1), Nov. 10, 1988, 102 Stat. 3582,
    provided that: ''For purposes of section 121(b)(5) of the Tax
    Reform Act of 1984 (Pub. L. 98-369, set out above) (relating to
    separate application of section 904 (of the Internal Revenue Code
    of 1954 (now 1986)) in case of income covered by transitional
    rules), any carryover under section 904(c) of the Internal Revenue
    Code of 1954 (now 1986) allowed to a taxpayer which was
    incorporated on August 31, 1962, attributable to taxes paid or
    accrued in taxable years beginning in 1981, 1982, 1983, or 1984,
    with respect to amounts included in gross income under section 951
    of such Code in respect of a controlled foreign corporation which
    was incorporated on May 27, 1977, shall be treated as taxes paid or
    accrued on income separately treated under such section
    121(b)(5).''
 

References

                   SECTION REFERRED TO IN OTHER SECTIONS
      This section is referred to in sections 30A, 56, 59, 245, 367,
    383, 535, 552, 593, 667, 841, 864, 865, 901, 902, 906, 907, 936,
    952, 954, 960, 988, 1291, 1373, 6038, 6501 of this title.
 

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