AMENDMENTS RELATED TO TITLE I OF THE 1988 ACT.

SEC. 7811. AMENDMENTS RELATED TO TITLE I OF THE 1988 ACT. (a) Amendments Related to Section 1002 of the 1988 Act.— (1) The heading for subparagraph (C) of section 42(d)(5) is amended by inserting “SECTION” before “167(k)”. (2) Clause (ii) of section 42(h)(5)(D) is amended by striking “clause (ii)” and inserting “clause (i)”. (b) Amendments Related to Section 1003 of the 1988 Act.— (1) Subparagraph (C) of section 643(a)(6) is amended by striking “(i)” and by striking “, and (ii)” and all that follows and inserting a period. (2) Paragraph (6) of section 643(a) is amended by striking subparagraph (D). (c) Amendments Related to Section 1006 of the 1988 Act.— (1) Subparagraphs (C) and (D) of section 26(b)(2) are amended to read as follows: “(C) subsection (m)(5)(B), (q), (t), or (v) of section 72 (relating to additional taxes on certain distributions). 103 STAT. 2407 “(D) section 143(m) (relating to recapture of proration of Federal subsidy from use of mortgage bonds and mortgage credit certificates),”. (2) Paragraph (2) of section 26(b) is amended by striking subparagraph (K) and all that follows and inserting the following new subparagraphs: “(K) sections 871(a) and 881 (relating to certain income of nonresident aliens and foreign corporations), “(L) section 860E(e) (relating to taxes with respect to certain residual interests), and “(M) section 884 (relating to branch profits tax).” (3) Subparagraph (B) of section 6724(d)(1) is amended by striking clause (viii) and all that follows and inserting the following: “(viii) section 6052(a) (relating to reporting payment of wages in the form of group-term life insurance), “(ix) section 6053(c)(1) (relating to reporting with respect to certain tips), “(x) section 1060(b) (relating to reporting requirements of transferors and transferees in certain asset acquisitions), or “(xi) subparagraph (A) or (C) of subsection (c)(4), or subsection (e), of section 4093 (relating to information reporting with respect to tax on diesel and aviation fuel).” (4) Clause (i) of section 1374(d)(2)(A) is amended by striking “(except as provided in subsection (b)(2))”. (5)(A) Paragraph (6) of section 382(h) is amended— (i) by striking “during the recognition period” in subparagraph (B) and inserting “during the recognition period (determined without regard to any carryover)”, and (ii) by striking “treated as recognized built-in gains or losses under this paragraph” in subparagraph (C) and inserting “which would be treated as recognized built-in gains or losses under this paragraph if such amounts were properly taken into account (or allowable as a deduction) during the recognition period”. (B) Paragraph (5) of section 1374(d) is amended— (i) by striking “during the recognition period” in subparagraph (B) and inserting “during the recognition period (determined without regard to any carryover)”, and (ii) by striking “treated as recognized built-in gains or losses under this paragraph” in subparagraph (C) and inserting “which would be treated as recognized built-in gains or losses under this paragraph if such amounts were properly taken into account (or allowable as a deduction) during the recognition period”. (6) Subparagraph (B) of section 1361(b)(2) is amended to read as follows: “(B) a financial institution to which section 585 applies (or would apply but for subsection (c) thereof) or to which section 593 applies,”. (7) Paragraph (2) of section 1366(f) is amended to read as follows: “(2) Treatment of tax imposed on built-in gains.—If any tax is imposed under section 1374 for any taxable year on an S corporation, for purposes of subsection (a), the amount so imposed shall be treated as a loss sustained by the S corporation 103 STAT. 2408during such taxable year. The character of such loss shall be determined by allocating the loss proportionately among the recognized built-in gains giving rise to such tax.” (8) Subparagraph (B) of section 1374(b)(3) is amended by adding at the end the following new sentence: “A similar rule shall apply in the case of the minimum tax credit under section 53 to the extent attributable to taxable years for which the corporation was a C corporation.” (9) The last sentence of section 860G(a)(3) is amended by striking “this subparagraph” and inserting “subparagraph (A)”. (d) Amendments Related to Section 1007 of the 1988 Act.— (1)(A) Subsection (g) of section 59 is amended by striking “for any taxable year” and inserting “for the taxable year for which the item is taken into account or for any other taxable year”. (B) The repeal of section 58(h) of the Internal Revenue Code of 1954 by the Tax Reform Act of 1986 shall be effective only with respect to items of tax preference arising in taxable years beginning after December 31, 1986. (2) Subclause (II) of section 53(d)(1)(B)(i) is amended by inserting before the period at the end the following: “and if section 59(a)(2) did not apply”. (3) Paragraph (3) of section 56(b) is amended— (A) by inserting after the first sentence the following new sentence: “Section 422A(c)(2) shall apply in any case where the disposition and the inclusion for purposes of this part are within the same taxable year and such section shall not apply in any other case.”, and (B) by striking “the preceding sentence” and inserting “this paragraph”. (e) Amendments Related to Section 1008 of the 1988 Act.— (1) Paragraph (2) of section 460(a) is amended by inserting “(or, with respect to any amount properly taken into account after completion of the contract, when such amount is so properly taken into account)” after “any long-term contract”. (2) Subparagraph (B) of section 460(b)(2) is amended— (A) by striking “any amount received or accrued” and inserting “any amount properly taken into account”, and (B) by striking “is so received or accrued” and inserting “is so properly taken into account”. (3) Paragraph (3) of section 460(b) is amended— (A) by striking “any amount received or accrued” in the second sentence and inserting “any amount properly taken into account”, and (B) by striking “such amount was received or accrued” in the second sentence and inserting “such amount was properly taken into account”. (4) Paragraph (2) of section 460(b) is amended by adding at the end the following new sentence: “In the case of any long-term contract with respect to which the percentage of completion method is used, except for purposes of applying the look-back method of paragraph (3), any income under the contract (to the extent not previously includible in gross income) shall be included in gross income for the taxable year following the taxable year in which the contract was completed.” (5) Paragraph (2) of section 460(e) is amended by striking “and” at the end of subparagraph (A), by inserting “and” at the 103 STAT. 2409end of subparagraph (B), and by inserting after subparagraph (B) the following new subparagraph: “(C) any predecessor of the taxpayer or a person described in subparagraph (A) or (B),”. (6) Paragraph (2) of section 460(b) is amended by adding at the end the following new sentence: “For purposes of subtitle F (other than sections 6654 and 6655), any interest required to be paid by the taxpayer under subparagraph (B) shall be treated as an increase in the tax imposed by this chapter for the taxable year in which the contract is completed (or, in the case of interest payable with respect to any amount properly taken into account after completion of the contract, for the taxable year in which the amount is so properly taken into account).” (f) Amendments Related to Section 1009 of the 1988 Act.— (1) Subparagraph (A) of section 643(a)(6) is amended by striking “section 265(1)” and inserting “section 265(a)(1)”. (2) Subparagraph (B) of section 1009(b)(3) of the 1988 Act is amended by striking “section 265(b)(3)(B)(iii)” and inserting “section 265(b)(3)(B)(i)(III)”. (g) Amendment Related to Section 1011 of the 1988 Act.— (1) Subsection (a) of section 401 is amended by moving paragraph (30) from the end and inserting it after paragraph (29). (2) The last sentence of section 402(g)(3) is amended by inserting “involving a one-time irrevocable election” after “similar arrangement”. (3) The heading of sections 406(c) and 407(c) are each amended by striking “Purposes Limitation” and inserting “Purposes of Limitation”. (4) Clause (iii) of section 457(d)(1)(A) is amended by striking the period at the end and inserting “, and”. (5) Subclause (I) of section 457(d)(2)(B)(i) is amended by adding “and” at the end. (h) Amendments Related to Section 1011B of the 1988 Act.— (1) Paragraph (5) of section 409(1) is amended by striking “the last sentence” and inserting “the second sentence”. (2) Subsection (a) of section 129 is amended by striking the sentence following paragraph (2)(C) and preceding subsection (b). (3) Paragraph (1) of section 1011B(j) of the 1988 Act is amended by striking “401(a)(28)(B)” and inserting “401(a)(28)(B)(ii)”. (i) Amendments Related to Section 1012 of the 1988 Act.— (1) Subparagraph (H) of section 904(d)(1) is amended by striking “qualified interest and carrying charges (as defined in section 245(c))” and inserting “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))”. (2) Sections 861(a)(6), 862(a)(6), 863(b)(2), and 863(b)(3) are each amended by striking “865(h)(1)” and inserting “865(i)(1)”. (3) Subparagraph (A) of section 954(c)(3) is amended— (A) by striking “is created” in clause (i) and inserting “is a corporation created”, (B) by striking “from a related person” in clause (ii) and inserting “from a corporation which is a related person”, and (C) by adding at the end the following: 103 STAT. 2410 “To the extent provided in regulations, payments made by a partnership with 1 or more corporate partners shall be treated as made by such corporate partners in proportion to their respective interests in the partnership.” (4) Paragraph (5) of section 1297(b) is amended— (A) by inserting “stock” after “where” in the paragraph heading, (B) by striking “any disposition of” in subparagraph (A)(ii) and inserting “any distribution of”, and (C) by striking “treated as a disposition to” in subparagraph (A) and inserting “treated as a disposition by, or distribution to”. (5) Subparagraph (B) of section 1012(q)(1) of the 1988 Act is amended— (A) by striking “1021(e)(2)(C)” and inserting “1021(c)(2)(C)”. and (B) by striking “823(b)(4)(C)” and inserting “832(b)(4)(C)”. (6)(A) Subparagraph (B) of section 1446(b)(2) is amended by striking “section 11(b)” and inserting “section 11(b)(1)”. (B) Paragraph (2) of section 1446(d) is amended to read as follows: “(2) Credit treated as distributed to partner.— Except as provided in regulations, a foreign partner’s share of any withholding tax paid by the partnership under this section shall be treated as distributed to such partner by such partnership on the earlier of— “(A) the day on which such tax was paid by the partnership, or “(B) the last day of the partnership’s taxable year for which such tax was paid.” (C) Subsection (f) of section 1446 is amended to read as follows: “(f) Regulations.—The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section, including— “(1) regulations providing for the application of this section in the case of publicly traded partnerships, and “(2) regulations providing— “(A) that, for purposes of section 6655, the withholding tax imposed under this section shall be treated as a tax imposed by section 11 and any partnership required to pay such tax shall be treated as a corporation, and “(B) appropriate adjustments in applying section 6655 with respect to such withholding tax.” (7) Subsection (a) of section 988 is amended by inserting after the subsection heading the following: “Notwithstanding any other provision of this chapter—”. (8)(A) Subsection (b) of section 887 is amended by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph: “(3) Exception for certain income taxable in possessions.— The term ‘United States source gross transportation income’ does not include any income taxable in a possession of the United States under the provisions of this title as made applicable in such possession.” (B) Paragraph (1) of section 887(b) is amended by striking “paragraph (2)” and inserting “paragraphs (2) and (3)”. 103 STAT. 2411 (C) Subsection (b) of section 872 is amended by adding at the end the following new paragraph: “(7) Treatment or possessions.— To the extent provided in regulations, a possession of the United States shall be treated as a foreign country for purposes of this subsection.” (D) Paragraph (4) of section 883(a) is amended by striking “(5) and (6)” and inserting “(5), (6), and (7)”. (9) Paragraph (4) of section 887(b) (as redesignated by paragraph (8) is amended by striking “transportation income” the first two places it appears and inserting “United States source gross transportation income”. (10) Subsection (a) of section 883 is amended by adding at the end the following new paragraph: “(5) Special rule for countries which tax on residence basis.—For purposes of this subsection, there shall not be taken into account any failure of a foreign country to grant an exemption to a corporation organized in the United States if such corporation is subject to tax by such foreign country on a residence basis pursuant to provisions of foreign law which meets such standards (if any) as the Secretary may prescribe.” (11) Paragraph (2) of section 4371 is amended by striking “, unless the insurer is subject to tax under section 842(b)”. (12) Subsection (g) of section 995 is amended by striking “section 511” and inserting “section 511 (or any other person otherwise subject to tax under section 511)”. (13) Effective with respect to taxable years ending after the date of the enactment of this Act (or, at the election of the taxpayer, beginning after December 31, 1986), subsection (e) of section 402 is amended by adding at the end the following new paragraph: “(7) Coordination with foreign tax credit limitations.—Subsections (a), (b), and (c) of section 904 shall be applied separately with respect to any lump sum distribution on which tax is imposed under paragraph (1), and the amount of such distribution shall be treated as the taxable income for purposes of such separate application.” (14) Paragraph (2)(A) of section 1012(1) of the 1988 Act is amended by striking “section 245” and inserting “section 245(a)”. (j) Amendments Related to Section 1014 of the 1988 Act.— (1) The subparagraph (C) of section l(i)(3) added by section 1014(e)(7) of the 1988 Act is redesignated as subparagraph (D). (2) Paragraph (1) of section 2654(a) is amended by adding at the end the following new sentence: “The preceding shall be applied after any basis adjustment under section 1015 with respect to the transfer.” (3) Subsection (g) of section 642 is amended by inserting after the first sentence the following new sentence: “Rules similar to the rules of the preceding sentence shall apply to amounts which may be taken into account under 2621(a)(2) or 2622(b).” (4) Paragraphs (1) and (3) of section 2642(b) are each amended by striking “a timely filed gift tax return required by section 6019” and inserting “a gift tax return filed on or before the date prescribed by section 6075(b)”. (5) Paragraph (1) of section 6654(l) is amended by striking “this subsection shall” and inserting “this section shall”. 103 STAT. 2412 (6) Clause (ii) of section 66540)(2)(B) is amended by inserting before the period at the end the following: “(or, if no will is admitted to probate, which is the trust primarily responsible for paying debts, taxes, and expenses of administration)”. (7) The heading for subparagraph (D) of section 59(j)(2) is amended by striking “Others” and inserting “Other”. (k) Amendments Related to Section 1015 or the 1988 Act.— (1) Paragraph (3) of section 1015(r) of the 1988 Act is amended by striking “section 6211” and inserting “section 6213”. (2) The last sentence of section 6502(a) is amended by striking “enforceable” and inserting “unenforceable”. (l) Amendment Related to Section 1016 or the 1988 Act.—The subparagraph (E) of section 514(c)(9) added by section 1016 of the 1988 Act is redesignated as subparagraph (F). (m) Amendments Related to Section 1018 of the 1988 Act.— (1) The subsection (f) of section 2503 added by section 1018 of the 1988 Act is redesignated as subsection (g). (2) Paragraph (4) of section 1018(d) of the 1988 Act is amended by inserting “the first place it appears” before “and inserting”. (3) Paragraph (20) of section 1018(u) of the 1988 Act is amended by striking “section 9507(b)” and inserting “section 9509(b)”. (4) Subparagraph (B) of section 72(q)(2) is amended by striking “subsection (s)(6)(B))” and inserting “subsection (s)(6)(B)))”. (5) Paragraph (10) of section 414(p) is amended by inserting “section” before “403(b)”. (6) Paragraph (2) of section 1018(1) of the 1988 Act is amended by striking “paragraph (2) and (3)” and inserting “paragraphs (2) and (3)” (7) Subsections (a)(6) and (b)(3) of section 408 are each amended by striking “(without regard to subparagraph (C)(ii) thereof)”.