DETERMINATION OF FOREIGN PERSONAL HOLDING COMPANY INCOME WITH RESPECT TO TRANSACTIONS IN COMMODITIES.

SEC. 414. DETERMINATION OF FOREIGN PERSONAL HOLDING COMPANY INCOME WITH RESPECT TO TRANSACTIONS IN COMMODITIES.(a) In General.—Clauses (i) and (ii) of section 954(c)(1)(C) (relating to commodity transactions) are amended to read as follows:“(i) arise out of commodity hedging transactions (as defined in paragraph (4)(A)),“(ii) are active business gains or losses from the sale of commodities, but only if substantially all of the controlled foreign corporation’s commodities are property described in paragraph (1), (2), or (8) of section 1221(a), or”.(b) Definition and Special Rules.—Subsection (c) of section 954, as amended by this Act, is amended by adding after paragraph (4) the following new paragraph:“(5) Definition and special rules relating to commodity transactions.—“(A) Commodity hedging transactions.—For purposes of paragraph (1)(C)(i), the term ‘commodity hedging transaction’ means any transaction with respect to a commodity if such transaction—“(i) is a hedging transaction as defined in section 1221(b)(2), determined—“(I) without regard to subparagraph (A)(ii) thereof,“(II) by applying subparagraph (A)(i) thereof by substituting ‘ordinary property or property described in section 1231(b)’ for ‘ordinary property’, and“(III) by substituting ‘controlled foreign corporation’ for ‘taxpayer’ each place it appears, and“(ii) is clearly identified as such in accordance with section 1221(a)(7).“(B) Treatment of dealer activities under paragraph (1)(C).—Commodities with respect to which gains and losses are not taken into account under paragraph (2)(C) in computing a controlled foreign corporation’s foreign personal holding company income shall not be taken into account in applying the substantially all test under paragraph (1)(C)(ii) to such corporation.118 STAT. 1511“(C) Regulations.—The Secretary shall prescribe such regulations as are appropriate to carry out the purposes of paragraph (1)(C) in the case of transactions involving related parties.”.(c) Modification of Exception for Dealers.—Clause (i) of section 954(c)(2)(C) is amended by inserting “and transactions involving physical settlement” after “(including hedging transactions”.(d) Effective Date.—The amendments made by this section shall apply to transactions entered into after December 31, 2004.