REQUIREMENT THAT FOREIGN TAX CREDIT BE DETER. MINED ON OVERALL BASIS.

SEC. 1031. REQUIREMENT THAT FOREIGN TAX CREDIT BE DETER. MINED ON OVERALL BASIS. (a) Overall Limitation on Foreign Tax Credit.— Section 904 (relating to limitation on foreign tax credit) is amended to read as follows: “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 90 STAT. 1621which 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 Purposes of Computing Limitation.— 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). “(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 fox’ 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 second preceding taxable year, in the first preceding taxable year, and in the first, second, third, fourth, or fifth 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) Application of Section in Case of Certain Interest Income and Dividends From a DISC on Former DISC.— “(1) In general.— The provisions of subsections (a), (b), and (c) shall be applied separately with respect to each of the following items of income: “(A) the interest income described in paragraph (2), “(B) 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, and “(C) income other than the interest income described in paragraph (2) and dividends described in subparagraph (B). “(2) Interest in come to which applicable.— For purposes o f this subsection, the interest income described in this paragraph is in hi rest 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 90 STAT. 1622 “(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. “(e) Transitional Rules for Carr tracks and Carryovers for Taxpayers on the Per-Country Limitation.— “(1) Application of subsection.— This subsection shall apply only to a taxpayer who is on the per-country limitation for his last taxable year beginning before January 1, 1976. “(2) Carryovers to years beginning after December 31, 1975.— In the case of any taxpayer to whom this subsection applies, any carryover from a taxable year beginning before January 1, 1976, may be used in taxable veal’s beginning after December 31, 1975, to the extent provided in subsection (c), but only to the extent such carryover could have been used in such succeeding taxable years if the per-country limitation continued to apply to all taxable years beginning after December 31, 1975. “(3) Carrybacks to years beginning before January 1, 1979.— In the case of any taxpayer to whom this subsection applies, any carryback from a taxable year beginning after December 31, 1975, may be used in taxable years beginning before January 1, 1976, to the extent provided in subsection (c), but only to the extent such carryback could have been used in such preceding taxable year if the per-country limitation continued to apply to all taxable years beginning after December 31, 1975. “(4) Application of limitations.— For purposes of this subsection— “(A) the overall limitation shall be applied before the per-country limitation, and “(B) where the amount of any carryback or carryover is reduced by the overall limitation, the reduction shall be allocated to the amounts carried from each country or possession in proportion to the taxes paid or accrued to such country or possession in the taxable, year from which such amount is being carried. “(f) Cross Reference.— “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).” (b) Conforming Amendments.— (1) Sections 901 (a), 901 (b), and 960(b) are. amended by striking out “applicable limitation” each place it appears and inserting in lieu thereof “limitation”. (2) Subparagraph (B) of section 243(b)(3) is amended to read as follows: “(B) the members of such affiliated group shall be treated as one taxpayer for purposes of making the election under section 901(a) (relating to allowance of foreign tax credit), and”. 90 STAT. 1623 (3) Paragraph (3) of section 1351(d) is amended to read as follows: “(3) Foreign taxes.— For purposes of this subsection, any choice made under subpart A of part III of subchapter N (relating to foreign tax credit) for any taxable year may be changed.”. (4) Section 1503(b)(1) is amended by striking out “, and if for the taxable year an election under section 904(b)(1) (relating to election of overall limitation on foreign tax credit) is in effect”. (5) Sections 383, 6038(b)(1)(A), and 6501 (i) are each amended by striking out “section 904(d)” each place it appears therein and inserting in lien thereof “section 904(c)”. (6) Subsection (e) of section 907 (relating to transitional rules) is amended— (A) by striking out “(d) and (e) of section 904” in paragraphs (1) and (2) and inserting in lieu thereof “(d) and (e) of section 904 (as in effect on the day before the date of the enactment of the Tax Reform Act of 1976)”; (B) by striking out “section 904(a)(1)” in paragraph (2) and inserting in lien thereof “section 904(a)(1)(as so in effect)”; and (C) by striking out “section 904(c)(2)” in paragraph (2)(A) and inserting in lieu thereof “section 904(e)(2)(as so in effect)”. (c) Effective Dates.— (1) In general.— Except as provided in paragraphs (2) and (3), the amendments made by this section shall apply to taxable years beginning after December 31, 1975. (2) Exception for certain mining operations.— In the ease of a domestic corporation or includible corporation in an affiliated group (as defined in section 1504 of the Internal Revenue Code of 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, (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 shall apply to taxable years beginning after December 31, 1978. in the case of losses sustained in taxable years beginning before January 1, 1979, by any corporation to which this paragraph applies, the provisions of section 904(f) of such Code shall be applied with respect to such losses under the principles of section 904 (a)(1) of such Code us in effect before the enactment of this Act. (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 shall apply to taxable years beginning after December 31, 1978. in the case of losses sustained 90 STAT. 1624in a possession of the United States in taxable years beginning before January 1, 1979, the provisions of section 904(f) of such Code shall be applied with respect to such losses under the principles of section 904(a)(1) of such Code as in effect before the enactment of this Act. (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 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.