REPEAL OF EXCISE TAX ON TRANSFERS TO FOREIGN ENTITIES; RECOGNITION OF GAIN ON CERTAIN TRANSFERS TO FOREIGN TRUSTS AND ESTATES.

SEC. 1131. REPEAL OF EXCISE TAX ON TRANSFERS TO FOREIGN ENTITIES; RECOGNITION OF GAIN ON CERTAIN TRANSFERS TO FOREIGN TRUSTS AND ESTATES. (a) Repeal of Excise Tax.—Chapter 5 (relating to transfers to avoid income tax) is hereby repealed. (b) Recognition of Gain on Certain Transfers to Foreign Trusts and Estates.—Subpart F of part I of subchapter J of chapter 1 is amended by adding at the end the following new section:111 STAT. 979 “SEC. 684. RECOGNITION OF GAIN ON CERTAIN TRANSFERS TO CERTAIN FOREIGN TRUSTS AND ESTATES. “(a) In General.—Except as provided in regulations, in the case of any transfer of property by a United States person to a foreign estate or trust, for purposes of this subtitle, such transfer shall be treated as a sale or exchange for an amount equal to the fair market value of the property transferred, and the transferor shall recognize as gain the excess of— “(1) the fair market value of the property so transferred, over “(2) the adjusted basis (for purposes of determining gain) of such property in the hands of the transferor. “(b) Exception.—Subsection (a) shall not apply to a transfer to a trust by a United States person to the extent that any person is treated as the owner of such trust under section 671. “(c) Treatment of Trusts Which Become Foreign Trusts.—If a trust which is not a foreign trust becomes a foreign trust, such trust shall be treated for purposes of this section as having transferred, immediately before becoming a foreign trust, all of its assets to a foreign trust.”. (b) Other Anti-Avoidance Provisions Replacing Repealed Excise Tax.— (1) Gain recognition on exchanges involving foreign persons.—Section 1035 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: “(c) Exchanges Involving Foreign Persons.—To the extent provided in regulations, subsection (a) shall not apply to any exchange having the effect of transferring property to any person other than a United States person.”. (2) Transfers to foreign corporations.—Section 367 is amended by adding at the end the following new subsection: “(f) Other Transfers.—To the extent provided in regulations, if a United States person transfers property to a foreign corporation as paid-in surplus or as a contribution to capital (in a transaction not otherwise described in this section), such transfer shall be treated as a sale or exchange for an amount equal to the fair market value of the property transferred, and the transferor shall recognize as gain the excess of— “(1) the fair market value of the property so transferred, over “(2) the adjusted basis (for purposes of determining gain) of such property in the hands of the transferor.”. (3) Certain transfers to partnerships.—Section 721 is amended by adding at the end the following new subsection: “(c) Regulations Relating to Certain Transfers to Partnerships.—The Secretary may provide by regulations that subsection (a) shall not apply to gain realized on the transfer of property to a partnership if such gain, when recognized, will be includible in the gross income of a person other than a United States person.”. (4) Repeal of u.s. source treatment of deemed royalties.—Subparagraph (C) of section 367(d)(2) is amended to read as follows: “(C) Amounts received treated as ordinary income.—For purposes of this chapter, any amount included in gross income by reason of this subsection shall be treated as ordinary income.”.111 STAT. 980 (5) Transfers of intangibles to partnerships.— (A) Subsection (d) of section 367 is amended by adding at the end the following new paragraph: “(3) Regulations relating to transfers of intangibles to partnerships.—The Secretary may provide by regulations that the rules of paragraph (2) also apply to the transfer of intangible property by a United States person to a partnership in circumstances consistent with the purposes of this subsection.”. (B) Section 721 is amended by adding at the end the following new subsection: “(d) Transfers of Intangibles.— “For regulatory authority to treat intangibles transferred to a partnership as sold, see section 367(d)(3).”. (c) Technical and Conforming Amendments.— (1) Subsection (h) of section 814 is amended by striking “or 1491”. (2) Section 1057 (relating to election to treat transfer to foreign trust, etc., as taxable exchange) is hereby repealed. (3) Section 6422 is amended by striking paragraph (5) and by redesignating paragraphs (6) through (13) as paragraphs (5) through (12), respectively. (4) The table of chapters for subtitle A is amended by striking the item relating to chapter 5. (5) The table of sections for part IV of subchapter O of chapter 1 is amended by striking the item relating to section 1057. (6) The table of sections for subpart F of part I of subchapter J of chapter 1 is amended by adding at the end the following new item: “Sec. 684. Recognition of gain on certain transfers to certain foreign trusts and estates.”. (d) Effective Date.—The amendments made by this section shall take effect on the date of the enactment of this Act.