TAXABLE YEAR OF CERTAIN FOREIGN CORPORATIONS.

SEC. 7401. TAXABLE YEAR OF CERTAIN FOREIGN CORPORATIONS. (a) General Rule.—Subpart D of part II of subchapter N of chapter 1 (relating to miscellaneous provisions) is amended by adding at the end thereof the following new section: “SEC. 898. TAXABLE YEAR OF CERTAIN FOREIGN CORPORATIONS. “(a) General Rule.—For purposes of this title, the taxable year of any specified foreign corporation shall be the required year determined under subsection (c). “(b) Specified Foreign Corporation.—For purposes of this section— “(1) In general.—The term ‘specified foreign corporation’ means any foreign corporation— “(A) which is— “(i) treated as a controlled foreign corporation for any purpose under subpart F of part III of this subchapter, or “(ii) a foreign personal holding company (as defined in section 552), and “(B) with respect to which the ownership requirements of paragraph (2) are met “(2) Ownership requirements.— “(A) In general.—The ownership requirements of this paragraph are met with respect to any foreign corporation if a United States shareholder owns, on each testing day, more than 50 percent of— “(i) the total voting power of all classes of stock of such corporation entitled to vote, or “(ii) the total value of all classes of stock of such corporation. “(B) Ownership.—For purposes of subparagraph (A), the rules of subsections (a) and (b) of section 958 and sections 551(f) and 554, whichever are applicable, shall apply in determining ownership. “(3) United states shareholder.— “(A) In general.—The term ‘United States shareholder’ has the meaning given to such term by section 951(b), except that, in the case of a foreign corporation having related person insurance income (as defined in section 953(c)(2)), the Secretary may treat any person as a United States shareholder for purposes of this section if such person is treated as a United States shareholder under section 953(c)(1). “(B) Foreign personal holding companies.—In the case of any foreign personal holding company (as defined in section 552) which is not a specified foreign corporation by reason of paragraph (I)(A)(i), the term ‘United States share-103 STAT. 2356holder’ means any person who is treated as a United States shareholder under section 551. “(c) Determination of Required Year.— “(1) Controlled foreign corporations.— “(A) In general.—In the case of a specified foreign corporation described in subsection (b)(I)(A)(i), the required year is— “(i) the majority U.S. shareholder year, or “(ii) if there is no majority U.S. shareholder year, the taxable year prescribed under regulations. “(B) 1-month deferral allowed.—A specified foreign corporation may elect, in lieu of the taxable year under subparagraph (A)(i), a taxable year beginning 1 month earlier than the majority U.S. shareholder year. “(C) Majority u.s. shareholder year.— “(i) In general.—For purposes of this subsection, the term ‘majority U.S. shareholder year’ means the taxable year (if any) which, on each testing day, constituted the taxable year of— “(I) each United States shareholder described in subsection (b)(2)(A), and “(II) each United States shareholder not described in subclause (I) whose stock was treated as owned under subsection (b)(2)(B) by any shareholder described in such subclause. “(ii) Testing day.—The testing days shall be— “(I) the first day of the corporation’s taxable year (determined without regard to this section), or “(II) the days during such representative period as the Secretary may prescribe. “(2) Foreign personal holding companies.—In the case of a foreign personal holding company described in subsection (b)(3)(B), the required year shall be determined under paragraph (1), except that subparagraph (B) of paragraph (1) shall not apply”. (b) Treatment of Dividends Paid After Close of Taxable Year.— (1) In general.—Section 563 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: “(c) Foreign Personal Holding Company Tax.— “(1) In general.—In the determination of the dividends paid deduction for purposes of part III, a dividend paid after the close of any taxable year and on or before the 15th day of the 3rd month following the close of such taxable year shall, to the extent the company designates such dividend as being taken into account under this subsection, be considered as paid during such taxable year. The amount allowed as a deduction by reason of the application of this subsection with respect to any taxable year shall not exceed the undistributed foreign personal holding company income of the corporation for the taxable year computed without regard to this subsection. “(2) Special rules.—In the case of any distribution referred to in paragraph (1)— “(A) paragraph (1) shall apply only if such distribution is to the person who was the shareholder of record (as of the last day of the taxable year of the foreign personal holding 103 STAT. 2357company) with respect to the stock, for which such distribution is made, “(B) the determination of the person required to include such distribution in gross income shall be made under the principles of section 551(f), and “(C) any person required to include such distribution in gross or distributable net income shall include such distribution in income for such person’s taxable year in which the taxable year of the foreign personal holding company ends.” (2) Conforming amendment.—Subsection (d) of section 563 (as redesignated by paragraph (1)) is amended by striking “subsection (a) or (b)” and inserting “subsection (a), (b), or (c)”. (c) Clerical Amendment.—The table of sections for subpart D of part II of subchapter N of chapter 1 is amended by adding at the end thereof the following new item: “Sec. 898. Taxable year of certain foreign corporations.” (d) Effective Date.— (1) In general.—The amendments made by this section shall apply to taxable years of foreign corporations beginning after July 10, 1989. (2) Special rules.—If any foreign corporation is required by the amendments made by this section to change its taxable year for its first taxable year beginning after July 10, 1989— (A) such change shall be treated as initiated by the taxpayer, (B) such change shall be treated as having been made with the consent of the Secretary of the Treasury or his delegate, and (C) if, by reason of such change, any United States person is required to include in gross income for 1 taxable year amounts attributable to 2 taxable years of such foreign corporation, the amount which would otherwise be required to be included in gross income for such 1 taxable year by reason of the short taxable year of the foreign corporation resulting from such change shall be included in gross income ratably over the f taxable-year period beginning with such 1 taxable year.