CHANGES IN RULING REQUIREMENTS UNDER SECTION 367; CERTAIN CHANGES IN SECTION 1248.

SEC. 1042. CHANGES IN RULING REQUIREMENTS UNDER SECTION 367; CERTAIN CHANGES IN SECTION 1248. (a) Amendment of Section 367.— Section 367 (relating to foreign corporations) is amended to read as follows: “SEC. 367. FOREIGN CORPORATIONS. “(a) Transfers of Property From the United States.— “(1) General rule.— If, in connection with any exchange described in section 332, 351,354,355, 356, or 361, there is a transfer of property (other than stock Or securities of a foreign corporation which is a party to the exchange or a party to the reorganization) by a United States person to a foreign corporation, for purposes of determining the extent to which gain shall be recognized on such transfer, a foreign corporation shall not be considered to be a corporation unless, pursuant to a request filed not later than the close of the 183d day after the beginning of such 90 STAT. 1635transfer (and filed in such form and manner as may be prescribed by regulations by the Secretary), it is established to the satisfaction of the Secretary that such exchange is not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes. “(2) Exception for transactions designated by the secretary.— Paragraph (1) shall not apply to any exchange (otherwise within paragraph (1)), or to any type of property, which the Secretary by regulations designates as not requiring the filing of a request. “(b) Other Transfers.— “(1) Effect of section to be determined under regulations.— in the case of any exchange described in section 332, 351, 354, 355, 356, or 361 in connection with which there is no transfer of property described in subsection (a)(1), a foreign corporation shall be considered to be a corporation except to the extent provided in regulations prescribed by the Secretary which are necessary or appropriate to prevent the avoidance of Federal income taxes. “(2) Regulations relating to sale or exchange of stock in foreign corporations.— The regulations prescribed pursuant to paragraph (1) shall include (but shall not be limited to) regulations dealing with the sale or exchange of stock or securities in a foreign corporation by a United States person, including regulations providing— “(A) the circumstances under which— “(i) gain shall be recognized currently, or amounts included in gross income currently as a dividend, or both, or “(ii) gain or other amounts may be deferred for inclusion in the gross income of a shareholder (or his successor in interest) at a later date, and “(B) the extent to which adjustments shall be made to earnings and profits, basis of stock or securities, and basis of assets, “(c) Transactions To Be Treated as Exchanges.— “(1) Section 355 distribution.— For purposes of this section, any distribution described in section 355 (or so much of section 356 as relates to section 355) shall be treated as an exchange whether or not it is an exchange. “(2) Contribution of capital to controlled corporations.— For purposes of this chapter, any transfer of property to a foreign corporation as a contribution to the capital of such corporation by one or more persons who, immediately after the transfer, own (within the meaning of section 318) stock possessing at least 80 percent of the total combined voting power of all classes of stock of such corporation entitled to vote shall be treated as an exchange of such property for stock of the foreign corporation equal in value to the fair market value of the property transferred. “(d) Transitional Rule.— In the case of any exchange beginning before January 1, 1978— “(1) subsection (a) shall be applied without regard to whether or not there is a transfer of property described in subsection (a)(1). and “(2) subsection (b) shall not apply.”. 90 STAT. 1636 (b) Earnings and Profits of Subsidiaries of Foreign Corporations for Purposes or Section 1248.— Subparagraph (C) of section 1248 (c)(2) is amended by striking out “; and” at the end thereof and inserting in lieu thereof the following: “(or on the date of any sale or exchange of the stock of such other foreign corporation occurring during the 5-year period ending on the date of the sale or exchange of the stock of such foreign corporation, to the extent not otherwise taken into account under this section but not in excess of the fair market value of the stock of such other foreign corporation sold or exchanged over the basis of such stock (for determining gain) in the hands of the transferor); and”. (c) Certain Section 311,336, or 337 Transactions.— (1) General rule.— Section 1248 (relating to gain from certain sales or exchanges of stock in certain foreign corporations) is amended by redesignating subsections (f) and (g) as subsections (g) and (h), respectively, and by inserting after subsection (e) the following new subsection: “(f) Certain Section 311,336, or 337 Transactions.— “(1) In general.— If— “(A) a domestic corporation satisfies the stock ownership requirements of subsection (a)(2) with respect to a foreign corporation, and “(B) such domestic corporation distributes, sells, or exchanges stock of such foreign corporation in a transaction to which section 311,336, or 337 applies, then, notwithstanding any other provision of this subtitle, an amount equal to the excess of the fair market value of such stock over its adjusted basis in the hands of the domestic corporation shall be in chided in the gross income of the domestic corporation as a dividend to the extent of the earnings and profits of the foreign corporation attributable (under regulations prescribed by the Secretary) to such stock which were accumulated in taxable years of such foreign corporation beginning after December 31, 1962, and during the period or periods the stock was held by such domestic corporation while such foreign corporation was a controlled foreign corporation. For purposes of subsections (c)(2), (d), and (h), a distribution, sale, or exchange of stock to which this subsection applies shall be treated as a sale of stock to which subsection (a) applies. “(2) Exception for certain distributions.— To the case of any distribution of stock of a foreign corporation, paragraph (1) shall not apply if such distribution is to a domestic corporation— “(A) which is treated under this section as holding such stock for the period for which the stock was held by the distributing corporation, and “(B) which, immediately after the distribution, satisfies the stock ownership requirements of subsection (a)(2) with respect to such foreign corporation. “(3) Non application of paragraph (i) in certain cases.— Paragraph (1) shall not apply to a sale or exchange to which section 337 applies if— “(A) throughout the period or periods the stock of the foreign corporation was held by the domestic corporation (or predecessor referred to in paragraph (2)) all the stock of such domestic corporation was owned by United States persons who satisfied the 10-percent stock ownership require-90 STAT. 1637ments of subsection (a)(2) with respect to such domestic corporation, and “(B) subsection (a) applies to the proceeds of the sale or exchange and also applied to all transactions described in subsection (e)(1) which took place during the period or periods referred to in subparagraph (A). “(4) Application to cases described in subsection (e).— To the extent that earnings and profits are taken into account under this subsection, they shall be excluded and not taken into account for purposes of subsection (e).”. (2) Interest in partnership holding stock in certain foreign corporations.— The last sentence of section 751(c) (relating to unrealized receivables) is amended— (A) by striking out “(as defined in section 1245(a)(3)),” and inserting in lieu thereof “as defined in section 1245(a)(3)), stock in certain foreign corporations (as described in section 1248),” and (B) by striking out “1245(a),” and inserting in lieu thereof “1245(a), 1248(a),”. (3) Conforming amendments.— (A) Subparagraph (A) of paragraph (2) of subsection (c) of section 1248 is amended by striking out “subsection (a) applies to a sale or exchange” and inserting in lieu thereof “subsection (a) or (f) applies to a sale, exchange, or distribution”. (B) Subparagraph (A) of paragraph (3) of subsection (g)(as redesignated by paragraph (1) of this subsection) of section 1248 is amended to read as follows: “(A) a dividend (other than an amount, treated as a dividend under subsection (f)),”. (C) Subsection (h)(as redesignated by paragraph (1) of this subsection) of section 1248 is amended by striking out “subsection (a)” each place it appears and inserting in lieu thereof “subsection (a) or (f)”. (d) Declaratory Judgment’ Procedure for Review by the Tax Court of Section 367 Determinations.— (1) In general.— Part IV of subchapter C of chapter 76 (relating to declaratory judgments) is amended by adding at the end thereof the following new section: “SEC. 7477. DECLARATORY JUDGMENTS RELATING TO TRANSFERS OF PROPERTY FROM THE UNITED STATES. “(a) Creation or Remedy.— “(1) In general.— In a case of actual controversy involving.— “(A) a determination by the Secretary— “(i) that an exchange described in section 367(a)(1) is in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes, or “(ii) of the terms and conditions pursuant to which an exchange described in section 367(a)(1) will be determined not to be in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes, or “(B) failure by the Secretary to make a determination as to whether an exchange described in section 367(a)(1) is in pursuance of a plan Laving as one of its principal purposes the avoidance of Federal income taxes, 90 STAT. 1638 upon the filing of an appropriate pleading, the Tax Court may make the appropriate declaration referred to in paragraph (2). Such declaration shall have the force and effect of a decision of the Tax Court and shall be reviewable as such. “(2) Scope of declaration.— The declaration referred to in paragraph (1) shall be— “(A) in the case of a determination referred to in subparagraph (A) of paragraph (1), whether or not such determination is reasonable, and, if it is not reasonable, a determination of the issue set forth in subparagraph (A)(ii) of paragraph (1), and “(B) in the case of a failure described in subparagraph (B) of paragraph (1), the determination of the issues set forth in subparagraph (A) of paragraph (1). “(b) Limitations.— “(1) Petitioner.— A pleading may be filed under this section only by a petitioner who is a transferor or transferee of stock, securities, or property transferred in an exchange described in section 367 (a)(1). “(2) Exhaustion of administrative remedies.— The Tax Court shall not issue a declaratory judgment or decree under this section in any proceeding unless it determines that the petitioner has exhausted administrative remedies available to him within the Internal Revenue Service. A petitioner shall not be deemed to have exhausted his administrative remedies with respect to a failure by the Secretary to make a determination with respect to whether or not an exchange described in section 367(a)(1) is in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes before the expiration of 270 days after the request for such determination was made. “(3) Exchange shall have begun.— No proceeding may be maintained under this section unless the exchange is described in section 367(a)(1) with respect to which a decision of the Tax Court is sought has begun before the filing of the pleading. “(4) Time for bringing action.— If the Secretary sends by certified or registered mail to the petitioners referred to in paragraph. (1) notice of his determination with respect to whether or not an exchange described in section 367(a)(1) is in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes or with respect to the terms and conditions pursuant to which such an exchange will be determined not to be made in pursuance of such a plan, no proceeding may be initiated under this section by any petitioner unless the pleading is filed before the 91st day after the day after such notice is mailed to such petitioner. “(c) Commissioners.— The chief judge of the Tax Court, may assign proceedings under this section to be heard by the commissioners of the court, and the court may authorize a commissioner to make the decision of the court with respect, to such proceeding, subject to such conditions and review as the court may by rule provide.”. (2) Technical and conforming amendments.— (A) Section 7482(b)(1) (relating to venue for review of Tax Court decisions) is amended by striking out “or” at the end of subparagraph (B), by striking out the period at the end of subparagraph (C) and inserting in lieu thereof “, or ”, and by inserting after subparagraph (C) the following new subparagraph: 90 STAT. 1639 “(D) in the case of a person seeking a declaratory judgment under section 7477, the legal residence of such person if such person is not a corporation, or the principal place of business or principal office or agency of such person if such person is a corporation.”. (B) Section 7482(b)(1) is further amended— (i) by striking out “subparagraph (A), (B),and (C) do not apply” in the second sentence and inserting in lieu thereof “no subparagraph of the preceding sentence, applies”; and (ii) by striking out “section 7176” in the last sentence and inserting in lieu thereof “section 7476 or 7477”. (C) The heading for section 7476 is amended to read as follows: “SEC. 7476. DECLARATORY JUDGMENTS RELATING TO QUALIFICATION OF CERTAIN RETIREMENT PLANS.” (D) The table of sections for part IV of subchapter C of chapter 76 is amended to read as follows: “Sec. 7476. Declaratory judgments relating to qualification of certain retirement plans. “Sec. 7477. Declaratory judgments relating to transfers of property from United States.” (E) The heading of part IV of subchapter C of chapter 76 is amended to read as follows: “PART IV— DECLARATORY JUDGMENTS”. (F) The table of parts for subchapter C of chapter 76 is amended by striking out the item relating to part IV and inserting in lieu thereof the following: “Part IV. Declaratory judgments.” (e) Effective Dates.— (1) The amendments made by this section (other than by subsection (d)) shall apply to transfers beginning after October 9, 1975, and to sales, exchanges, and distributions taking place after such date. The amendments made by subsection (d) shall apply with respect to pleadings filed with the Tux Court after the date of the enactment of this Act but only with respect to transfers beginning after October 9, 1975. (2) in the case of any exchange described in section 367 of the Internal Revenue Code of 1954 (as in effect on December 31, 1974) in any taxable year beginning after December 31, 1962, and before the date of the enactment of this Act, which does not involve the transfer of property to or from a United States person, a taxpayer shall have for purposes of such section until 183 days after the date of the enactment of this Act to file a request with the Secretary of the Treasury or his delegate seeking to establish to the satisfaction of the Secretary of the Treasury or his delegate that such exchange was not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes and that for purposes of such section a foreign corporation is to be treated as a foreign corporation.