Page:United States Statutes at Large Volume 100 Part 3.djvu/751

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2559

OJ) PERSONAL HOLDING COMPANY PROVISIONS.—Subsection (b) of

section 545 (relating to adjustments to taxable income) is amended by adding at the end thereof the following new paragraph: "(7) SPECIAL RULE FOR CAPITAL GAINS AND LOSSES OF FOREIGN

CORPORATIONS.—In the case of a foreign corporation, paragraph (5) shall be applied by taking into account only gains and losses which are effectively connected with the conduct of a trade or business within the United States and are not exempt from tax under treaty." (c) EFFECTIVE DATE.—The amendments made by this section shall apply to gains and losses realized on or after March 1, 1986. SEC. 1226. DEDUCTIONS FOR DIVIDENDS RECEIVED FROM CERTAIN FOREIGN CORPORATIONS. (a) GENERAL RULE.—Subsection (a) of section 245 is amended to read as follows: "(a) DIVIDENDS FROM TIONS.—

10-PERCENT OWNED FOREIGN

CORPORA-

"(1) IN GENERAL.—In the case of dividends received by a corporation from a qualified 10-percent owned foreign corporation, there shall be allowed as a deduction an amount equal to the percent (specified in section 243 for the taxable year) of the U.S.-source portion of such dividends. "(2) QUALIFIED IO-PERCENT OWNED FOREIGN CORPORATION.—

For purposes of this subsection, the term 'qualified 10-percent owned foreign corporation' means any foreign corporation (other than a foreign personal holding company or passive foreign investment company) if at least 10 percent of the stock of such corporation (by vote and value) is owned by the taxpayer. (3) U.S.-SOURCE PORTION.—For purposes of this subsection, the U.S.-source portion of any dividend is an amount which bears the same ratio to such dividend as— "(A) the post-1986 undistributed U.S. earnings, bears to "(B) the total post-1986 undistributed earnings. "(4) PosT-1986 UNDISTRIBUTED EARNINGS.—For purposes of this subsection, the term 'post-1986 undistributed earnings' has the meaning given to such term by section 902(c)(1). "(5) PoST-1986 UNDISTRIBUTED U.S. EARNINGS.—For purpoSeS of

this subsection, the term 'post-1986 undistributed U.S. earnings' means the portion of the post-1986 undistributed earnings which is attributable to— "(A) income of the qualified 10-percent owned 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, or, _, "(B) any dividend received (directly or through a wholly Zip owned foreign corporation) from a domestic corporation at least 80 percent of the stock of which Osy vote and value) is owned (directly or through such wholly owned foreign corporation) by the qualified 10-percent owned foreign corporation. "(6) SPECIAL RULE.—If the 1st day on which the requirements of paragraph (2) are met with respect to any foreign corporation is in a taxable year of such corporation beginning after December 31, 1986, the post-1986 undistributed earnings and the post1986 undistributed U.S. earnings of such corporation shall be

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