REPEAL OF FOREIGN PERSONAL HOLDING COMPANY RULES AND FOREIGN INVESTMENT COMPANY RULES.

SEC. 413. REPEAL OF FOREIGN PERSONAL HOLDING COMPANY RULES AND FOREIGN INVESTMENT COMPANY RULES.(a) General Rule.—The following provisions are hereby repealed:(1) Part III of subchapter G of chapter 1 (relating to foreign personal holding companies).(2) Section 1246 (relating to gain on foreign investment company stock).(3) Section 1247 (relating to election by foreign investment companies to distribute income currently).(b) Exemption of Foreign Corporations From Personal Holding Company Rules.—(1) In general.—Subsection (c) of section 542 (relating to exceptions) is amended—(A) by striking paragraph (5) and inserting the following:“(5) a foreign corporation,”,(B) by striking paragraphs (7) and (10) and by redesignating paragraphs (8) and (9) as paragraphs (7) and (8), respectively,(C) by inserting “and” at the end of paragraph (7) (as so redesignated), and(D) by striking “; and” at the end of paragraph (8) (as so redesignated) and inserting a period.(2) Treatment of income from personal service contracts.—Paragraph (1) of section 954(c) is amended by adding at the end the following new subparagraph:“(I) Personal service contracts.—“(i) Amounts received under a contract under which the corporation is to furnish personal services if—“(I) some person other than the corporation has the right to designate (by name or by description) the individual who is to perform the services, or“(II) the individual who is to perform the services is designated (by name or by description) in the contract, and“(ii) amounts received from the sale or other disposition of such a contract.This subparagraph shall apply with respect to amounts received for services under a particular contract only if at some time during the taxable year 25 percent or more in value of the outstanding stock of the corporation is owned, directly or indirectly, by or for the individual who has performed, is to perform, or may be designated (by name or by description) as the one to perform, such services.”.(c) Conforming Amendments.—(1) Section 1(h) is amended—118 STAT. 1507(A) in paragraph (10), by inserting “and” at the end of subparagraph (F), by striking subparagraph (G), and by redesignating subparagraph (H) as subparagraph (G), and(B) by striking “a foreign personal holding company (as defined in section 552), a foreign investment company (as defined in section 1246(b)), or” in paragraph (11)(C)(iii).(2) Paragraph (2) of section 171(c) is amended—(A) by striking “, or by a foreign personal holding company, as defined in section 552”, and(B) by striking “, or foreign personal holding company”.(3) Paragraph (2) of section 245(a) is amended by striking “foreign personal holding company or”.(4) Section 312 is amended by striking subsection (j).(5) Subsection (m) of section 312 is amended by striking “, a foreign investment company (within the meaning of section 1246(b)), or a foreign personal holding company (within the meaning of section 552)”.(6) Subsection (e) of section 443 is amended by striking paragraph (3) and by redesignating paragraphs (4) and (5) as paragraphs (3) and (4), respectively.(7) Subparagraph (B) of section 465(c)(7) is amended by adding “or” at the end of clause (i), by striking clause (ii), and by redesignating clause (iii) as clause (ii).(8) Paragraph (1) of section 543(b) is amended by inserting “and” at the end of subparagraph (A), by striking “, and” at the end of subparagraph (B) and inserting a period, and by striking subparagraph (C).(9) Paragraph (1) of section 562(b) is amended by striking “or a foreign personal holding company described in section 552”.(10) Section 563 is amended—(A) by striking subsection (c),(B) by redesignating subsection (d) as subsection (c), and(C) by striking “subsection (a), (b), or (c)” in subsection (c) (as so redesignated) and inserting “subsection (a) or (b)”.(11) Subsection (d) of section 751 is amended by adding “and” at the end of paragraph (2), by striking paragraph (3), by redesignating paragraph (4) as paragraph (3), and by striking “paragraph (1), (2), or (3)” in paragraph (3) (as so redesignated) and inserting “paragraph (1) or (2)”.(12) Paragraph (2) of section 864(d) is amended by striking subparagraph (A) and by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively.(13)(A) Subparagraph (A) of section 898(b)(1) is amended to read as follows:“(A) which is treated as a controlled foreign corporation for any purpose under subpart F of part III of this subchapter, and”.(B) Subparagraph (B) of section 898(b)(2) is amended by striking “and sections 551(f) and 554, whichever are applicable,”.(C) Paragraph (3) of section 898(b) is amended to read as follows:118 STAT. 1508 “(3) United states shareholder.—The term ‘United States shareholder’ has the meaning given to such term by section 951(b), except that, in the case of a foreign corporation having related person insurance income (as defined in section 953(c)(2)), the Secretary may treat any person as a United States shareholder for purposes of this section if such person is treated as a United States shareholder under section 953(c)(1).”.(D) Subsection (c) of section 898 is amended to read as follows:“(c) Determination of Required Year.—“(1) In general.—The required year is—“(A) the majority U.S. shareholder year, or“(B) if there is no majority U.S. shareholder year, the taxable year prescribed under regulations.“(2) 1-month deferral allowed.—A specified foreign corporation may elect, in lieu of the taxable year under paragraph (1)(A), a taxable year beginning 1 month earlier than the majority U.S. shareholder year.“(3) Majority u.s. shareholder year.—“(A) In general.—For purposes of this subsection, the term ‘majority U.S. shareholder year’ means the taxable year (if any) which, on each testing day, constituted the taxable year of—“(i) each United States shareholder described in subsection (b)(2)(A), and“(ii) each United States shareholder not described in clause (i) whose stock was treated as owned under subsection (b)(2)(B) by any shareholder described in such clause.“(B) Testing day.—The testing days shall be—“(i) the first day of the corporation’s taxable year (determined without regard to this section), or“(ii) the days during such representative period as the Secretary may prescribe.”. (14) Clause (ii) of section 904(d)(2)(A) is amended to read as follows:“(ii) Certain amounts included.—Except as provided in clause (iii), the term ‘passive income’ includes, except as provided in subparagraph (E)(iii) or paragraph (3)(I), any amount includible in gross income under section 1293 (relating to certain passive foreign investment companies).”.(15)(A) Subparagraph (A) of section 904(h)(1), as redesignated by this Act, is amended by adding “or” at the end of clause (i), by striking clause (ii), and by redesignating clause (iii) as clause (ii).(B) The paragraph heading of paragraph (2) of section 904(h), as so redesignated, is amended by striking “foreign personal holding or”.(16) Section 951 is amended by striking subsections (c) and (d) and by redesignating subsections (e) and (f) as subsections (c) and (d), respectively.(17) Paragraph (3) of section 989(b) is amended by striking “, 551(a),”.(18) Paragraph (5) of section 1014(b) is amended by inserting “and before January 1, 2005,” after “August 26, 1937,”.118 STAT. 1509(19) Subsection (a) of section 1016 is amended by striking paragraph (13).(20)(A) Paragraph (3) of section 1212(a) is amended to read as follows:“(3) Special rules on carrybacks.—A net capital loss of a corporation shall not be carried back under paragraph (1)(A) to a taxable year—“(A) for which it is a regulated investment company (as defined in section 851), or“(B) for which it is a real estate investment trust (as defined in section 856).”.(B) The amendment made by subparagraph (A) shall apply to taxable years beginning after December 31, 2004.(21) Section 1223 is amended by striking paragraph (10) and by redesignating the following paragraphs accordingly.(22) Subsection (d) of section 1248 is amended by striking paragraph (5) and by redesignating paragraphs (6) and (7) as paragraphs (5) and (6), respectively.(23) Paragraph (2) of section 1260(c) is amended by striking subparagraphs (H) and (I) and by redesignating subparagraph (J) as subparagraph (H).(24)(A) Subparagraph (F) of section 1291(b)(3) is amended by striking “551(d), 959(a),” and inserting “959(a)”.(B) Subsection (e) of section 1291 is amended by inserting “(as in effect on the day before the date of the enactment of the American Jobs Creation Act of 2004)” after “section 1246”.(25) Paragraph (2) of section 1294(a) is amended to read as follows:“(2) Election not permitted where amounts otherwise includible under section 951.—The taxpayer may not make an election under paragraph (1) with respect to the undistributed PFIC earnings tax liability attributable to a qualified electing fund for the taxable year if any amount is includible in the gross income of the taxpayer under section 951 with respect to such fund for such taxable year.”.(26) Section 6035 is hereby repealed.(27) Subparagraph (D) of section 6103(e)(1) is amended by striking clause (iv) and redesignating clauses (v) and (vi) as clauses (iv) and (v), respectively.(28) Subparagraph (B) of section 6501(e)(1) is amended to read as follows:“(B) Constructive dividends.—If the taxpayer omits from gross income an amount properly includible therein under section 951(a), the tax may be assessed, or a proceeding in court for the collection of such tax may be done without assessing, at any time within 6 years after the return was filed.”.(29) Subsection (a) of section 6679 is amended—(A) by striking “6035, 6046, and 6046A” in paragraph (1) and inserting “6046 and 6046A”, and(B) by striking paragraph (3).(30) Sections 170(f)(10)(A), 508(d), 4947, and 4948(c)(4) are each amended by striking “556(b)(2),” each place it appears.(31) The table of parts for subchapter G of chapter 1 is amended by striking the item relating to part III.118 STAT. 1510(32) The table of sections for part IV of subchapter P of chapter 1 is amended by striking the items relating to sections 1246 and 1247.(33) The table of sections for subpart A of part III of subchapter A of chapter 61 is amended by striking the item relating to section 6035.(d) Effective Dates.—(1) In general.—Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2004, and to taxable years of United States shareholders with or within which such taxable years of foreign corporations end.(2) Subsection (c)(27).—The amendments made by subsection (c)(27) shall apply to disclosures of return or return information with respect to taxable years beginning after December 31, 2004.