Sec. 121. Allocation of expenses and taxes on basis of repatriation of foreign income
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Part III of subchapter N of chapter 1 is amended by inserting after subpart G the following new subpart: Sec. 975. Deductions allocated to deferred foreign income may not offset United States source income. Sec. 976. Amount of foreign taxes computed on overall basis. Sec. 977. Application of subpart. For purposes of this chapter, foreign-related deductions for any taxable year— shall be taken into account for such taxable year only to the extent that such deductions are allocable to currently-taxed foreign income, and to the extent not so allowed, shall be taken into account in subsequent taxable years as provided in subsection (b).
Foreign-related deductions shall be allocated to currently taxed foreign income in the same proportion which currently taxed foreign income bears to the sum of currently taxed foreign income and deferred foreign income. If there is repatriated foreign income for a taxable year, the portion of the previously deferred deductions allocated to the repatriated foreign income shall be taken into account for the taxable year as a deduction allocated to income from sources outside the United States.
Any such amount shall not be included in foreign-related deductions for purposes of applying subsection
(a)to such taxable year. For purposes of paragraph (1), the portion of the previously deferred deductions allocated to repatriated foreign income is— the amount which bears the same proportion to such deductions, as the repatriated income bears to the previously deferred foreign income. For purposes of this section— The term foreign-related deductions means the total amount of deductions and expenses which would be allocated or apportioned to gross income from sources without the United States for the taxable year if both the currently-taxed foreign income and deferred foreign income were taken into account. The term currently-taxed foreign income means the amount of gross income from sources without the United States for the taxable year (determined without regard to repatriated foreign income for such year). The term deferred foreign income means the excess of— the amount that would be includible in gross income under subpart F of this part for the taxable year if— all controlled foreign corporations were treated as one controlled foreign corporation, and all earnings and profits of all controlled foreign corporations were subpart F income (as defined in section 952), over the sum of— all dividends received during the taxable year from controlled foreign corporations, plus amounts includible in gross income under section 951(a). The term previously deferred foreign income means the aggregate amount of deferred foreign income for all prior taxable years to which this part applies, determined as of the beginning of the taxable year, reduced by the repatriated foreign income for all such prior taxable years. The term repatriated foreign income means the amount included in gross income on account of distributions out of previously deferred foreign income. The term previously deferred deductions means the aggregate amount of foreign-related deductions not taken into account under subsection
(a)for all prior taxable years (determined as of the beginning of the taxable year), reduced by any amounts taken into account under subsection
(b)for such prior taxable years. Section 78 shall not apply for purposes of determining currently-taxed foreign income and deferred foreign income. For purposes of determining currently-taxed foreign income, gross income from sources without the United States shall be reduced by the aggregate amount of taxes described in the applicable paragraph of section 901(b) which are paid by the taxpayer (without regard to sections 902 and 960) during the taxable year. In determining currently-taxed foreign income and deferred foreign income, the amount of deemed foreign tax credits shall be determined with regard to section 976. For purposes of this chapter, the amount taken into account as foreign income taxes for any taxable year shall be an amount which bears the same ratio to the total foreign income taxes for that taxable year as— the currently-taxed foreign income for such taxable year, bears to the sum of the currently-taxed foreign income and deferred foreign income for such year. The portion of the total foreign income taxes for any taxable year not taken into account under the preceding sentence for a taxable year shall only be taken into account as provided in subsection
(b)(and shall not be taken into account for purposes of applying sections 902 and 960). If there is repatriated foreign income for any taxable year, the portion of the previously deferred foreign income taxes paid or accrued during such taxable year shall be taken into account for the taxable year as foreign taxes paid or accrued. Any such taxes so taken into account shall not be included in foreign income taxes for purposes of applying subsection
(a)to such taxable year. For purposes of paragraph (1), the portion of the previously deferred foreign income taxes allocated to repatriated deferred foreign income is— the amount which bears the same proportion to such taxes, as the repatriated deferred income bears to the previously deferred foreign income. For purposes of this section— The term previously deferred foreign income taxes means the aggregate amount of total foreign income taxes not taken into account under subsection
(a)for all prior taxable years (determined as of the beginning of the taxable year), reduced by any amounts taken into account under subsection
(b)for such prior taxable years. The term total foreign income taxes means the sum of foreign income taxes paid or accrued during the taxable year (determined without regard to section 904(c)) plus the increase in foreign income taxes that would be paid or accrued during the taxable year under sections 902 and 960 if— all controlled foreign corporations were treated as one controlled foreign corporation, and all earnings and profits of all controlled foreign corporations were subpart F income (as defined in section 952). The term foreign income taxes means any income, war profits, or excess profits taxes paid by the taxpayer to any foreign country or possession of the United States. The terms currently-taxed foreign income and deferred foreign income have the meanings given such terms by section 975(c)). This subpart— shall be applied before subpart A, and shall be applied separately with respect to the categories of income specified in section 904(d)(1). . The table of subparts for part III of subpart N of chapter 1 is amended by inserting after the item relating to subpart G the following new item: Subpart H. Special Rules for Allocation of Foreign-Related Deductions and Foreign Tax Credits. . The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.