DEFINITION OF FOREIGN PERSONAL HOLDING COMPANY INCOME.

SEC. 1051. DEFINITION OF FOREIGN PERSONAL HOLDING COMPANY INCOME. (a) Income From Notional Principal Contracts and Payments in Lieu of Dividends.— (1) In general.—Paragraph (1) of section 954(c) (defining foreign personal holding company income) is amended by adding at the end the following new subparagraphs: “(F) Income from notional principal contracts.—Net income from notional principal contracts. Any item of income, gain, deduction, or loss from a notional principal contract entered into for purposes of hedging any item described in any preceding subparagraph shall not be taken into account for purposes of this subparagraph but shall be taken into account under such other subparagraph. “(G) Payments in lieu of dividends.—Payments in lieu of dividends which are made pursuant to an agreement to which section 1058 applies.”. (2) Conforming amendment.—Subparagraph (B) of section 954(c)(1) is amended— (A) by striking the second sentence, and (B) by striking “also” in the last sentence. (b) Exception for Dealers.—Paragraph (2) of section 954(c) is amended by adding at the end the following new subparagraph: “(C) Exception for dealers.—Except as provided in subparagraph (A), (E), or (G) of paragraph (1) or by regulations, in the case of a regular dealer in property (within the meaning of paragraph (1)(B)), forward contracts, option contracts, or similar financial instruments (including notional principal contracts and all instruments referenced to commodities), there shall not be taken into account in computing foreign personal holding income any item of income, gain, deduction, or loss from any transaction (including hedging transactions) entered into in the ordinary course of such dealer’s trade or business as such a dealer.”. (c) Effective Date.—The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.