REPEAL OF CERTAIN FOREIGN EXCEPTIONS TO REGISTERED BOND REQUIREMENTS.

SEC. 502. REPEAL OF CERTAIN FOREIGN EXCEPTIONS TO REGISTERED BOND REQUIREMENTS.(a) Repeal of Exception to Denial of Deduction for Interest on Non-Registered Bonds.—(1) In general.—Paragraph (2) of section 163(f) is amended by striking subparagraph (B) and by redesignating subparagraph (C) as subparagraph (B).(2) Conforming amendments.—(A) Paragraph (2) of section 149(a) is amended by inserting “or” at the end of subparagraph (A), by striking “, or” at the end of subparagraph (B) and inserting a period, and by striking subparagraph (C).(B) Subparagraph (A) of section 163(f)(2) is amended by inserting “or” at the end of clause (ii), by striking “, or” at the end of clause (iii) and inserting a period, and by striking clause (iv).(C) Subparagraph (B) of section 163(f)(2), as redesignated by paragraph (1), is amended—(i) by striking “, and subparagraph (B),” in the matter preceding clause (i), and(ii) by amending clause (i) to read as follows:“(i) such obligation is of a type which the Secretary has determined by regulations to be used frequently in avoiding Federal taxes, and”.(D) Sections 165(j)(2)(A) and 1287(b)(1) are each amended by striking “except that clause (iv) of subparagraph (A), and subparagraph (B), of such section shall not apply”.(b) Repeal of Treatment as Portfolio Debt.—(1) In general.—Paragraph (2) of section 871(h) is amended to read as follows:“(2) Portfolio interest.—For purposes of this subsection, the term ‘portfolio interest’ means any interest (including original issue discount) which—“(A) would be subject to tax under subsection (a) but for this subsection, and“(B) is paid on an obligation—“(i) which is in registered form, and“(ii) with respect to which—“(I) the United States person who would otherwise be required to deduct and withhold tax from such interest under section 1441(a) receives a statement (which meets the requirements of paragraph (5)) that the beneficial owner of the obligation is not a United States person, or“(II) the Secretary has determined that such a statement is not required in order to carry out the purposes of this subsection.”.(2) Conforming amendments.—(A) Section 871(h)(3)(A) is amended by striking “subparagraph (A) or (B) of”.(B) Paragraph (2) of section 881(c) is amended to read as follows:“(2) Portfolio interest.—For purposes of this subsection, the term ‘portfolio interest’ means any interest (including original issue discount) which—124 STAT. 108“(A) would be subject to tax under subsection (a) but for this subsection, and“(B) is paid on an obligation—“(i) which is in registered form, and“(ii) with respect to which—“(I) the person who would otherwise be required to deduct and withhold tax from such interest under section 1442(a) receives a statement which meets the requirements of section 871(h)(5) that the beneficial owner of the obligation is not a United States person, or“(II) the Secretary has determined that such a statement is not required in order to carry out the purposes of this subsection.”.(c) Dematerialized Book Entry Systems Treated as Registered Form.—Paragraph (3) of section 163(f) is amended by inserting “, except that a dematerialized book entry system or other book entry system specified by the Secretary shall be treated as a book entry system described in such section” before the period at the end.(d) Repeal of Exception to Requirement That Treasury Obligations Be in Registered Form.—(1) In general.—Subsection (g) of section 3121 of title 31, United States Code, is amended by striking paragraph (2) and by redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively.(2) Conforming amendments.—Paragraph (1) of section 3121(g) of such title is amended—(A) by adding “or” at the end of subparagraph (A),(B) by striking “; or” at the end of subparagraph (B) and inserting a period, and(C) by striking subparagraph (C).(e) Preservation of Exception for Excise Tax Purposes.—Paragraph (1) of section 4701(b) is amended to read as follows:“(1) Registration-required obligation.—“(A) In general.—The term ‘registration-required obligation’ has the same meaning as when used in section 163(f), except that such term shall not include any obligation which—“(i) is required to be registered under section 149(a), or“(ii) is described in subparagraph (B).“(B) Certain obligations not included.—An obligation is described in this subparagraph if—“(i) there are arrangements reasonably designed to ensure that such obligation will be sold (or resold in connection with the original issue) only to a person who is not a United States person,“(ii) interest on such obligation is payable only outside the United States and its possessions, and“(iii) on the face of such obligation there is a statement that any United States person who holds such obligation will be subject to limitations under the United States income tax laws.”.(f) Effective Date.—The amendments made by this section shall apply to obligations issued after the date which is 2 years after the date of the enactment of this Act.124 STAT. 109