Sec. 4003. Treatment of deferred foreign income upon transition to participation exemption system of taxation
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Section 965 is amended to read as follows: In the case of the last taxable year of a deferred foreign income corporation which begins before January 1, 2015, the subpart F income of such foreign corporation (as otherwise determined for such taxable year under section 952) shall be increased by the accumulated post-1986 deferred foreign income of such corporation determined as of the close of such taxable year. In the case of a taxpayer which is a United States shareholder with respect to at least one deferred foreign income corporation and at least one E&P deficit foreign corporation, the amount which would (but for this subsection) be taken into account under section 951(a)(1) by reason of subsection
(a)as such United States shareholder’s pro rata share of the subpart F income of each deferred foreign income corporation shall be reduced (but not below zero) by the amount of such United States shareholder’s aggregate foreign E&P deficit which is allocated under paragraph
(2)to such deferred foreign income corporation. The aggregate foreign E&P deficit of any United States shareholder shall be allocated among the deferred foreign income corporations of such United States shareholder in an amount which bears the same proportion to such aggregate as— such United States shareholder’s pro rata share of the accumulated post-1986 deferred foreign income of each such deferred foreign income corporation, bears to the aggregate of such United States shareholder’s pro rata share of the accumulated post-1986 deferred foreign income of all deferred foreign income corporations of such United States shareholder. For purposes of this subsection— The term aggregate foreign E&P deficit means, with respect to any United States shareholder, the aggregate of such shareholder’s pro rata shares of the specified E&P deficits of the E&P deficit foreign corporations of such shareholder. The term E&P deficit foreign corporation means, with respect to any taxpayer, any specified foreign corporation with respect to which such taxpayer is a United States shareholder, if— such specified foreign corporation has a deficit in post-1986 earnings and profits, and as of February 26, 2014— such corporation was a specified foreign corporation, and such taxpayer was a United States shareholder of such corporation. The term specified E&P deficit means, with respect to any E&P deficit foreign corporation, the amount of the deficit referred to in subparagraph (B). In the case of a United States shareholder of a deferred foreign income corporation, there shall be allowed as a deduction for the taxable year in which an amount is included in the gross income of such United States shareholder under section 951(a)(1) by reason of this section an amount equal to the sum of— 90 percent of the excess (if any) of— the amount so included as gross income, over the amount of such United States shareholder’s aggregate foreign cash position, plus 75 percent of so much of the amount described in subparagraph (A)(ii) as does not exceed the amount described in subparagraph (A)(i). For purposes of this subsection— The term aggregate foreign cash position means, with respect to any United States shareholder, the greater of— the aggregate of such United States shareholder’s pro rata share of the cash position of each specified foreign corporation of such United States shareholder determined as of the close of the last taxable year of such specified foreign corporation which begins before January 1, 2015, or one half of the sum of— the aggregate described in clause
(i)determined as of the close of the last taxable year of each such specified foreign corporation which ends before February 26, 2014, plus the aggregate described in clause
(i)determined as of the close of the taxable year of each such specified foreign corporation which precedes the taxable year referred to in subclause (I). For purposes of this paragraph, the cash position of any specified foreign corporation is the sum of— cash and foreign currency held by such foreign corporation, the net accounts receivable of such foreign corporation, plus the fair market value of the following assets held by such corporation: Actively traded personal property for which there is an established financial market. Commercial paper, certificates of deposit, the securities of the Federal government and of any State or foreign government Any obligation with a term of less than one year. Any asset which the Secretary identifies as being economically equivalent to any asset described in this subparagraph. For purposes of this paragraph, the term net accounts receivable means, with respect to any specified foreign corporation, the excess (if any) of— such corporation’s accounts receivable, over such corporation’s accounts payable (determined consistent with the rules of section 461). Cash positions of a specified foreign corporation described in clause
(ii)or (iii)(III) of subparagraph
(B)shall not be taken into account by a United States shareholder under subparagraph
(A)to the extent that such United States shareholder demonstrates to the satisfaction of the Secretary that such amount is so taken into account by such United States shareholder with respect to another specified foreign corporation. Any foreign entity which would be a specified foreign corporation of a United States shareholder if such entity were a corporation shall be treated as a specified foreign corporation of such United States shareholder for purposes of determining such United States shareholder’s aggregate foreign cash position. If the Secretary determines that the principal purpose of any transaction was to reduce the aggregate foreign cash position taken into account under this subsection, such transaction shall be disregarded for purposes of this subsection. For purposes of this section— The term deferred foreign income corporation means, with respect to any United States shareholder, any specified foreign corporation of such United States shareholder which has accumulated post-1986 deferred foreign income (as of the close of the taxable year referred to in subsection (a)) greater than zero. The term accumulated post-1986 deferred foreign income means the post-1986 earnings and profits except to the extent such earnings— are attributable to income of the specified foreign corporation which is effectively connected with the conduct of a trade or business within the United States and subject to tax under this chapter, if distributed, would— in the case of a controlled foreign corporation, be excluded from the gross income of a United States shareholder under section 959, or in the case of any passive foreign investment company (as defined in section 1297) other than a controlled foreign corporation, be treated as a distribution which is not a dividend, or in the case of any passive foreign investment company (as so defined), is properly attributable to an unreversed inclusion of a United States person under section 1296. To the extent provided in regulations or other guidance prescribed by the Secretary, in the case of any controlled foreign corporation which has shareholders which are not United States shareholders, accumulated post-1986 deferred foreign income shall be appropriately reduced by amounts which would be described in subparagraph (B)(i) is such shareholders were United States shareholders. Such regulations or other guidance may provide a similar rule for purposes of subparagraph (B)(ii) and (C). The term post-1986 earnings and profits means the earnings and profits of the foreign corporation (computed in accordance with sections 964(a) and 986) accumulated in taxable years beginning after December 31, 1986, and determined— as of the close the taxable year referred to in subsection (a), and without diminution by reason of dividends distributed during such taxable year. For purposes of this section, the term specified foreign corporation means— any controlled foreign corporation, and any section 902 corporation (as defined in section 909(d)(5) as in effect before the date of the enactment of the Tax Reform Act of 2014 ). For purposes of section 951, a section 902 corporation (as so defined) shall be treated as a controlled foreign corporation solely for purposes of taking into account the subpart F income of such corporation under subsection
(a)(and for purposes of applying subsection (f)). For purposes of this section, the determination of any United States shareholder’s pro rata share of any amount with respect to any specified foreign corporation shall be determined under rules similar to the rules of section 951(a)(2) by treating such amount in the same manner as subpart F income (and by treating such specified foreign corporation as a controlled foreign corporation). No credit shall be allowed under section 901 for the applicable percentage of any taxes paid or accrued (or treated as paid or accrued) with respect to any amount for which a deduction is allowed under this section. For purposes of this subsection, the term applicable percentage means the amount (expressed as a percentage) equal to the sum of— 0.9 multiplied by the ratio of— the excess to which subsection (c)(1)(A) applies, divided by the sum of such excess plus the amount to which subsection (c)(1)(B) applies, plus 0.75 multiplied by the ratio of— the amount to which subsection (c)(1)(B) applies, divided by the sum described in subparagraph (A)(ii). No deduction shall be allowed under this chapter for any tax for which credit is not allowable under section 901 by reason of paragraph
(1)(determined by treating the taxpayer as having elected the benefits of subpart A of part III of subchapter N). Section 78 shall not apply to any tax for which credit is not allowable under section 901 by reason of paragraph (1). In the case of a United States shareholder of a deferred foreign income corporation, such United States shareholder may elect to pay the net tax liability under this section in 8 installments of the following amounts: 8 percent of the net tax liability in the case of each of the first 5 of such installments, 15 percent of the net tax liability in the case of the 6th such installment, 20 percent of the net tax liability in the case of the 7th such installment, and 25 percent of the net tax liability in the case of the 8th such installment. If an election is made under paragraph (1), the first installment shall be paid on the due date (determined without regard to any extension of time for filing the return) for the return of tax for the taxable year described in subsection
(b)and each succeeding installment shall be paid on the due date (as so determined) for the return of tax for the taxable year following the taxable year with respect to which the preceding installment was made. If there is an addition to tax for failure to pay timely assessed with respect to any installment required under this subsection, a liquidation or sale of substantially all the assets of the taxpayer (including in a title 11 or similar case), a cessation of business by the taxpayer, or any similar circumstance, then the unpaid portion of all remaining installments shall be due on the date of such event (or in the case of a title 11 or similar case, the day before the petition is filed). The preceding sentence shall not apply to the sale of substantially all the assets of a taxpayer to a buyer if such buyer enters into an agreement with the Secretary under which such buyer is liable for the remaining installments due under this subsection in the same manner as if such buyer were the taxpayer. If an election is made under paragraph
(1)to pay the net tax liability under this section in installments and a deficiency has been assessed with respect to such net tax liability, the deficiency shall be prorated to the installments payable under paragraph (1). The part of the deficiency so prorated to any installment the date for payment of which has not arrived shall be collected at the same time as, and as a part of, such installment. The part of the deficiency so prorated to any installment the date for payment of which has arrived shall be paid upon notice and demand from the Secretary. This subsection shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax. Any election under paragraph
(1)shall be made not later than the due date for the return of tax for the taxable year described in subsection
(a)and shall be made in such manner as the Secretary may provide. For purposes of this subsection— The net tax liability under this section with respect to any United States shareholder is the excess (if any) of— such taxpayer’s net income tax for the taxable year described in subsection (a), over such taxpayer’s net income tax for such taxable year determined without regard to this section. The term net income tax means the regular tax liability reduced by the credits allowed under subparts A, B, and D of part IV of subchapter A. In the case of any S corporation which is a United States shareholder of a deferred foreign income corporation, each shareholder of such S corporation may elect to defer payment of such shareholder’s net tax liability under this section with respect to such S corporation until the shareholder’s taxable year which includes the triggering event with respect to such liability. In the case of any shareholder’s net tax liability under this section with respect to any S corporation, the triggering event with respect to such liability is whichever of the following occurs first: Such corporation ceases to be an S corporation (determined as of the first day of the first taxable year that such corporation is not an S corporation). A liquidation or sale of substantially all the assets of such S corporation (including in a title 11 or similar case), a cessation of business by such S corporation, such S corporation ceases to exist, or any similar circumstance. A transfer of any share of stock in such S corporation by the taxpayer (including by reason of death, or otherwise). In the case of a transfer of less than all of the taxpayer’s shares of stock in the S corporation, such transfer shall only be a triggering event with respect to so much of the taxpayer’s net tax liability under this section with respect to such S corporation as is properly allocable to such stock. A transfer described in clause
(iii)shall not be treated as a triggering event if the transferee enters into an agreement with the Secretary under which such transferee is liable for net tax liability with respect to such stock in the same manner as if such transferee were the taxpayer. A shareholder’s net tax liability under this section with respect to any S corporation is the net tax liability under this section which would be determined under subsection (h)(6) if the only subpart F income taken into account by such shareholder by reason of this section were allocations from such S corporation. In the case of a taxpayer which elects to defer payment under paragraph (1), subsection
(h)shall be applied— separately with respect to the liability to which such election applies, an election under subsection
(h)with respect to such liability shall be treated as timely made if made not later than the due date for the return of tax for the taxable year in which the triggering event with respect to such liability occurs, the first installment under subsection
(h)with respect to such liability shall be paid not later than such due date (but determined without regard to any extension of time for filing the return), and if the triggering event with respect to any net tax liability is described in paragraph (2)(A)(ii), an election under subsection
(h)with respect to such liability may be made only with the consent of the Secretary. If any shareholder of an S corporation elects to defer payment under paragraph (1), such S corporation shall be jointly and severally liable for such payment and any penalty, addition to tax, or additional amount attributable thereto. Notwithstanding any other provision of law, any limitation on the time period for the collection of a liability deferred under this subsection shall not be treated as beginning before the date of the triggering event with respect to such liability. Any election under paragraph
(1)shall be made not later than the due date for the return of tax for the taxable year described in subsection
(a)and shall be made in such manner as the Secretary may provide. For purposes of section 904(f)(1), in the case of a United States shareholder of a deferred foreign income corporation, such United States shareholder’s taxable income from sources without the United States shall be determined without regard to this section. The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section. . Section 9503(f) is amended by redesignating paragraph
(5)as paragraph
(6)and by inserting after paragraph
(4)the following new paragraph: Out of money in the Treasury not otherwise appropriated, there are hereby appropriated to the Highway Trust Fund amounts equivalent to the aggregate net tax liabilities under section 965 (as defined in such section) received in the Treasury. For rule providing for the monthly transfer of amounts appropriated under subparagraph
(A)based on estimates of the Secretary, see section 9601. . Section 9503(e)(2) is amended by striking the mass transit portion and inserting , 20 percent of the amounts appropriated to the Highway Trust Fund under subsection (f)(5), and the mass transit portion . The table of section for subpart F of part III of subchapter N of chapter 1 is amended by striking the item relating to section 965 and inserting the following: Sec. 965. Treatment of deferred foreign income upon transition to participation exemption system of taxation. .