EFFECT ON EARNINGS AND PROFITS.

SEC. 442. EFFECT ON EARNINGS AND PROFITS. (a) In General.—Section 312 (relating to earnings and profits) is amended by adding at the end thereof the following new subsection: “(m) Effect of Depreciation on Earnings and Profits.— “(1) General Rule.—For purposes of computing the earnings and profits of a corporation for any taxable year beginning after June 30, 1972, the allowance for depreciation (and amortization, if any) shall be deemed to be the amount which would be allowable for such year if the straight line method of depreciation had been used for each taxable year beginning after June 30, 1972. “(2) Exception.—If for any taxable year, beginning after June 30, 1972, a method of depreciation was used by the taxpayer which the Secretary or his delegate has determined results in a reasonable allowance under section 167(a), and which is not— “(A) a declining balance method, “(B) the sum of the years-digits method, or “(C) any other method allowable solely by reason of the application of subsection (b)(4) or (j)(1)(C) of section 167, then the adjustment to earnings and profits for depreciation for such year shall be determined under the method so used (in lieu of under the straight line method). “(3) Certain foreign corporations.—The provisions of paragraph (1) shall not apply in computing the earnings and profits of a foreign corporation for any taxable year for which less than 20 percent of the gross income from all sources of such corporation is derived from sources within the United States.” (b) Conforming Amendments.— (1) Section 964(a) (relating to earnings and profits of a foreign corporation) is amended by striking out “For purposes of this subpart,” and inserting in lieu thereof “Except as provided in section 312(m)(3), for purposes of this subpart”. (2) Section 1248(c)(1) (relating to general rule for determination of the earnings and profits of a foreign corporation) is amended by striking out “For purposes of this section,” and inserting in lieu thereof “Except as provided in section 312(m)(3), for purposes of this section”.