Page:United States Statutes at Large Volume 100 Part 3.djvu/769

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2577

tions under paragraph (1) for prior taxable years to the extent not previously taken into account under subparagraph (A). "(c) U.S. NET EQUITY.—For purposes of this section— "(1) IN GENERAL.—The term 'U.S. net equity' means— "(A) U.S. assets, reduced (including below zero) by "(B) U.S. liabilities. "(2) U.S. ASSETS AND U.S. LIABILITIES.—For purposes of paragraph (D— "(A) U.S. ASSETS.—The term 'U.S. assets' means the money and aggregate adjusted bases of property of the foreign corporation treated as connected with the conduct of a trade or business in the United States under regulations prescribed by the Secretary. For purposes of the preceding sentence, the adjusted basis of any property shall be its adjusted basis for purposes of computing earnings and profits. "(B) U.S. LIABILITIES.—The term 'U.S. liabilities' means the liabilities of the foreign corporation treated as connected with the conduct of a trade or business in the United States under regulations prescribed by the Secretary. "(C) REGULATIONS TO BE CONSISTENT WITH ALLOCATION OF

DEDUCTIONS.—The regulations prescribed under subparagraphs (A) and (B) shall be consistent with the allocation of deductions under section 882(c)(1). "(d) EFFECTIVELY CONNECTED EARNINGS AND PROFITS.—For purposes of this section— "(1) IN GENERAL.—The term 'effectively connected earnings and profits' means earnings and profits (without diminution by reason of any distributions made during the taxable year) which are attributable to income which is effectively connected (or treated as effectively connected) with the conduct of a trade or business within the United States. "(2) EXCEPTION FOR CERTAIN INCOME.—The term 'effectively connected earnings and profits' shall not include any earnings and profits attributable to— "(A) income not includible in gross income under paragraph (1) or (2) of section 883(a), "(B) income treated as effectively connected with the conduct of a trade or business within the United States under section 921(d) or 926(b), "(C) gain on the disposition of a United States real property interest described in section 897(c)(l)(A)(ii), or ' (D) income treated as effectively connected with the conduct of a trade or business within the United States under section 953(c)(3)(C). Property and liabilities of the foreign corporation treated as connected with such income under regulations prescribed by the Secretary shall not be taken into account in determining the U.S. assets or U.S. liabilities of the foreign corporation. "(e) COORDINATION WITH INCOME TAX TREATIES; ETC.— "(1) LIMITATION ON TREATY EXEMPTION.—No income tax treaty

between the United States and a foreign country shall exempt any foreign corporation from the tax imposed by subsection (a; (or reduce the amount thereof) unless— "(A) such foreign corporation is a quEdified resident of such foreign country, or

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