FOREIGN TAX CREDIT TREATMENT OF DIVIDENDS FROM NONCONTROLLED SECTION 902 CORPORATIONS.

SEC. 1105. FOREIGN TAX CREDIT TREATMENT OF DIVIDENDS FROM NONCONTROLLED SECTION 902 CORPORATIONS. (a) Separate Basket Only To Apply to Pre-2003 Earnings.— (1) In general.—Subparagraph (E) of section 904(d)(1) is amended to read as follows: “(E) in the case of a corporation, dividends from noncontrolled section 902 corporations out of earnings and profits accumulated in taxable years beginning before January 1, 2003,”. (2) Aggregation of non-pfics.—Subparagraph (E) of section 904(d)(2) (relating to noncontrolled section 902 corporations) is amended by adding at the end the following new clause: “(iv) All non-pfics treated as one.—All noncontrolled section 902 corporations which are not passive foreign investment companies (as defined in section 1297) shall be treated as one noncontrolled section 902 corporation for purposes of paragraph (1).”. (3) Conforming amendments.—Subparagraphs (C)(iii)(II) and (D) of section 904(d)(2) are each amended by inserting “out of earnings and profits accumulated in taxable years beginning before January 1, 2003” after “corporation”. (b) Application of Look-Thru Rules to Dividends of Noncontrolled Section 902 Corporations Attributable to Post-2002 Earnings.—Section 904(d) is amended by redesignating paragraphs (4) and (5) as paragraphs (5) and (6), respectively, and by inserting after paragraph (3) the following new paragraph:111 STAT. 968 “(4) Look-thru applies to dividends from noncontrolled section 902 corporations.— “(A) In general.—For purposes of this subsection, any applicable dividend shall be treated as income in a separate category in proportion to the ratio of— “(i) the portion of the earnings and profits described in subparagraph (B)(ii) attributable to income in such category, to “(ii) the total amount of such earnings and profits. “(B) Applicable dividend.—For purposes of subparagraph (A), the term ‘applicable dividend’ means any dividend— “(i) from a noncontrolled section 902 corporation with respect to the taxpayer, and “(ii) paid out of earnings and profits accumulated in taxable years beginning after December 31, 2002. “(C) Special rules.— “(i) In general.—Rules similar to the rules of paragraph (3)(F) shall apply for purposes of this paragraph. “(ii) Earnings and profits.—For purposes of this paragraph and paragraph (1)(E)— “(I) In general.—The rules of section 316 shall apply. “(II) Regulations.—The Secretary may prescribe regulations regarding the treatment of distributions out of earnings and profits for periods prior to the taxpayer’s acquisition of such stock.”. (c) Effective Date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2002.