RECAPTURE OF FOREIGN LOSSES.

SEC. 1032. RECAPTURE OF FOREIGN LOSSES. (a) In General.— Section 904 (as amended by section 1031 of this Act) is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection: “(f) Eecapture of Overall Foreign Lose.— “(1) General rule.— For purposes of this subpart and section 936, in the case of any taxpayer who sustains an overall foreign loss for any taxable year, that portion of the taxpayer’s taxable income from sources without the United States for each succeeding taxable year which is equal to the lesser of— “(A) the amount of such loss (to the extent not used under this paragraph in prior taxable years), or “(B) 50 percent (or such larger percent as the taxpayer may choose) of the taxpayer’s taxable income from sources without the United States for such succeeding taxable year, shall be treated as income from sources within the United States (and not as income from sources without the United States). “(2) Overall foreign loss defined.— For purposes of this subsection, the term ‘overall foreign loss’ means the amount by which the gross income for the taxable year from sources without the United States (whether or not the taxpayer chooses the benefits of this subpart for such taxable year) for such year is exceeded by the sum of the deductions properly apportioned or allocated thereto, except that there shall not be taken into account— “(A) any net operating loss deduction allowable for such year under section 172(a) or any capital loss carrybacks and carryovers to such year under section 1212, and “(B) any— “(i) foreign expropriation loss for such year, as defined in section 172(k)(1), or “(ii) loss for such year which arises from fire, storm, shipwreck, or other casualty, or from theft, to the extent such loss is not compensated for by insurance or otherwise. “(3) Dispositions.— “(A) In general.— For purposes of this chapter, if property which has been used predominantly without the United States in a trade or business is disposed of during any taxable year— “(i) the taxpayer, notwithstanding any other provision of this chapter (other than paragraph (1)),shall be deemed to have received and recognized taxable income 90 STAT. 1625from sources without the United States in the taxable year of the disposition, by reason of such disposition, in an amount equal to the lesser of the excess of the fair market value of such property over the taxpayer’s adjusted basis in such property or the remaining amount of the overall foreign losses which were not used under paragraph (1) for such taxable year or any prior taxable year, and “(ii) paragraph (1) shall be applied with respect to such income by substituting ‘100 percent’ for ‘50 percent’. In determining for purposes of this subparagraph whether the predominant use of any property has been without the United States, there shall be taken into account use during the 3-y ear period ending on the date of the disposition (or, if shorter, the period during which the property has been used in the trade or business). “(B) Disposition defined and special rules.— “(i) For purposes of this subsection, the term ‘disposition’ includes a sale, exchange, distribution, or gift, of property whether or not gain or loss is recognized on the transfer. “(ii) Any taxable income recognized solely by reason of subparagraph (A) shall have the same characterization it would have had if the taxpayer had sold or exchanged the property. “(iii) The Secretary shall prescribe such regulations as he may deem necessary to provide for adjustments to the basis of property to reflect taxable income recognized solely by reason of subparagraph (A). “(C) Exceptions.— Notwithstanding subparagraph (B), the term ‘disposition’ does not include— “(i) a disposition of property which is not a material factor in the realization of income by the taxpayer, or “(ii) a disposition of property to a domestic corporation in a distribution or transfer described in section 381(a), “(4) Determination of foreign on related loss where section 907 applies.— In the case of a corporation to which section 907 (b)(1) applies, (he foreign oil related loss shall be the amount by which the gross income for the taxable year from sources without the United States and its possessions (whether or not the taxpayer chooses the benefits of tins subpart for such taxable year) taken into account in determining the foreign oil related income for such year is exceeded by the sum of the deductions properly apportioned or allocated thereto, except that there shall not be taken into account— “(A) any net operating loss deduction allowable for such year under section 172(a) or any capital loss carrybacks and carryovers to such year under section 1212, and “(B) any— “(i) foreign expropriation loss for such year, as defined in section 172 (k)(1) , or “(ii) loss for such year which arises from fire, storm, shipwreck, or other casually, or from theft, to the extent such loss is not compensated for by insurance or otherwise,”. 90 STAT. 1626 (b) Coordination With Section 907.— Section 907 is amended— (1) by striking out the last sentence of subsection (b)(as amended by section 1035(b)) , and (2) by striking out subsection (f), and by redesignating subsection (g) as subsection (f). (c) Effective Dates.— (1) In general.— Except as provided in paragraphs (2) and (3), the amendments made by subsections (a) and (b)(2) shall apply to losses sustained in taxable years beginning after December 31, 1975, and the amendment made by subsection (b)(1) shall apply to taxable years beginning after December 31, 1975. (2) Obligations of foreign governments.— The amendments made by subsection (a) shall not apply to losses on the sale, exchange, or other disposition of bonds, notes, or other evidences of indebtedness issued before May 14, 1976, by a foreign government or instrumentality thereof for the acquisition of property located in that, country or stock of a corporation (created or organized in or under the laws of that foreign country) or indebtedness of such corporation. (3) Substantial worthlessness before enactment.— The amendments made by subsection (a) shall not apply to losses incurred on the loss from stock or indebtedness of a corporation in which the taxpayer owned at least 10 percent of the voting stock and which has sustained losses in 3 out of the last 5 taxable years beginning before January 1, 1976, which has sustained an overall loss for those 5 years, and with respect to which the taxpayer has terminated or will terminate all operations by reason of sale, liquidation, or other disposition before. January 1, 1977, of such corporation or its assets. (4) Limitation based on deficit in earnings and profits.— If paragraph (3) would apply to a taxpayer but for the fact that the loss is sustained after December 31, 1976, and if the loss is sustained in a taxable year beginning lief ore January 1, 1979, the amendments made by subsection (a) shall not apply to such loss to the extent that there was on December 31, 1975, a deficit in earnings and profits in the corporation from which the loss arose.