REPEAL OF INCLUSION OF CERTAIN EARNINGS INVESTED IN EXCESS PASSIVE ASSETS.

SEC. 1501. REPEAL OF INCLUSION OF CERTAIN EARNINGS INVESTED IN EXCESS PASSIVE ASSETS. (a) In General.— (1) Repeal of inclusion.— Paragraph (1) of section 951(a) (relating to amounts included in gross income of United States shareholders) is amended by striking subparagraph (C), by striking “; and” at the end of subparagraph (B) and inserting a period, and by adding “and” at the end of subparagraph (A). (2) Repeal of inclusion amount.— Section 956A (relating to earnings invested in excess passive assets) is repealed. (b) Conforming Amendments.— (1) Subparagraph (G) of section 904(d)(3), as amended by section 1703(i)(1), is amended by striking “subparagraph (B) or (C) of section 951(a)(1)” and inserting “section 951(a)(1)(B)”. (2) Paragraph (1) of section 956(b) is amended to read as follows: “(1) Applicable earnings.— For purposes of this section, the term ‘applicable earnings’ means, with respect to any controlled foreign corporation, the sum of— “(A) the amount (not including a deficit) referred to in section 316(a)(1), and “(B) the amount referred to in section 316(a)(2), but reduced by distributions made during the taxable year and by earnings and profits described in section 959(c)(1).”. (3) Paragraph (3) of section 956(b) is amended to read as follows: “(3) Special rule where corporation ceases to be controlled foreign corporation.— if any foreign corporation ceases to be a controlled foreign corporation during any taxable year— “(A) the determination of any United States shareholder’s pro rata share shall be made on the basis of stock owned (within the meaning of section 958(a)) by such shareholder110 STAT. 1826 on the last day during the taxable year on which the foreign corporation is a controlled foreign corporation, “(B) the average referred to in subsection (a)(1)(A) for such taxable year shall be determined by only talting into account quarters ending on or before such last day, and “(C) in determining applicable earnings, the amount taken into account by reason of being described in paragraph (2) of section 316(a) shall be the portion of the amount so described which is allocable (on a pro rata basis) to the part of such year during which the corporation is a controlled foreign corporation.”. (4) Subsection (a) of section 959 (relating to exclusion from gross income of previously taxed earnings and profits) is amended by adding “or” at the end of paragraph (1), by striking “or” at the end of paragraph (2), and by striking paragraph (3). (5) Subsection (a) of section 959 is amended by striking “paragraphs (2) and (3)” in the last sentence and inserting “paragraph (2)”. (6) Subsection (c) of section 959 is amended by adding at the end the following flush sentence: “References in this subsection to section 951(a)(1)(C) and subsection (a)(3) shall be treated as references to such provisions as in effect on the day before the date of the enactment of the Small Business Job Protection Act of 1996.”. (7) Paragraph (1) of section 959(1) is amended to read as follows: “(1) In general.— For purposes of this section, amounts that would be included under subparagraph (B) of section 951(a)(1) (determined without regard to this section) shall be treated as attributable first to earnings described in subsection (c)(2), and then to earnings described in subsection (c)(3).”. (8) Paragraph (2) of section 959(1) is amended by striking “subparagraphs (B) and (C) of section 951(a)(1)” and inserting “section 951(a)(1)(B)”. (9) Subsection (b) of section 989 is amended by striking “subparagraph (B) or (C) of section 951(a)(1)” and inserting “section 951(a)(1)(B)”. (10) Paragraph (9) of section 1297(b) is amended by striking “subparagraph (B) or (C) of section 951(a)(1)” and inserting “section 951(a)(1)(B)”. (11) Subsections (d)(3)(B) and (e)(2)(B)(ii) of section 1297 are each amended by striking “orsection 956A”. (12) Subparagraph (G) of section 904(d)(3) is amended by striking “subparagraph (B) or (C) of section 951(a)(1)” and inserting “section 951(a)(1)(B)”. (c) Clerical Amendment.— The table of sections for subpart F of part III of subchapter N of chapter 1 is amended by striking the item relating to section 956A. (d) Effective Date.— The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 1996, and to taxable years of United States shareholders within which or with which such taxable years of foreign corporations end.