AMENDMENT TO PRESERVE EXISTING LAW ON DEDUCTIONS UNDER SECTION 931.

SEC. 107. AMENDMENT TO PRESERVE EXISTING LAW ON DEDUCTIONS UNDER SECTION 931. (a) Deductions.— Subsection (d) of section 931 (relating to deductions) is amended to read as follows: “(d) Deductions.— “(1) General rule.—Except as otherwise provided in this subsection and subsection (e), in the case of persons entitled to the benefits of this section the deductions shall be allowed only if and to the extent that they are connected with income from sources within the United States; and the proper apportionment and allocation of the deductions with respect to sources of income within and without the United States shall be determined as provided in part I, under regulations prescribed by the Secretary or his delegate. “(2) Exceptions.— The following deductions shall be allowed whether or not they are connected with income from sources within the United States: “(A) The deduction, for losses not connected with the trade or business if incurred in transactions entered into for profit, allowed by section 165(c)(2), but only if the profit, if such transaction had resulted in a profit, would be taxable under this subtitle. “(B) The deduction, for losses of property not connected with the trade or business if arising from certain casualties or theft, allowed by section 165(c)(3), but only if the loss is of property within the United States. “(C) The deduction for charitable contributions and gifts allowed by section 170. “(3) Deduction disallowed.— “For disallowance of standard deduction, see section 142(b)(2).” (b) Effective Date.— The amendment made by this section shall apply with respect to taxable years beginning after December 31, 1966.