Page:United States Statutes at Large Volume 102 Part 4.djvu/528

 102 STAT. 3498

PUBLIC LAW 100-647—NOV. 10, 1988 or other fixed place of business of the taxpayer in a foreign country materially participated in the sale." (6)(A) Subsection (g) of section 865 of the 1986 Code is amended by adding at the end thereof the following new paragraph: "(3) SPECIAL RULE FOR CERTAIN STOCK SALES BY RESIDENTS OF

PUERTO RICO.—Paragraph (2) shall not apply to the sale by an individual who was a bona fide resident of Puerto Rico during the entire taxable year of stock in a corporation if— "(A) such corporation is engaged in the active conduct of a trade or business in Puerto Rico, and "(B) more than 50 percent of its gross income for the 3-year period ending with the close of such corporation's taxable year immediately preceding the year in which such sale occurred was derived from the active conduct of a trade or business in Puerto Rico. For purposes of the preceding sentence, the taxpayer may elect to treat a corporation and all other corporations which are wholly owned (directly or indirectly) by such corporation as one corporation." (B) Subsection (i) of section 865 of the 1986 Code is amended by striking out "and" at the end of paragraph (1), by striking out the period at the end of paragraph (2) and inserting in lieu thereof ", and", and by adding at the end thereof the following new paragraph: "(3) providing that, subject to such conditions (which may include provisions comparable to section 877) as may be provided in such r^^ations, subsections (e)(l)(B) and (g)(2) shall not apply for purposes of sections 931,933, and 936." (7) Subparagraph (B) of section 864(c)(4) of the 1986 Code is amended by striking out "or" at the end of clause (i), by striking out the period at the end of clause (ii) and inserting in lieu thereof; or", and by adding at the end thereof the following new clause: "(iii) is derived from the sale or exchange (outside the United States) through such office or other fixed place of business of personal property described in section 1221(1), except that this clause shall not apply if the property is sold or exchanged for use, consumption, or disposition outside the United States and an office or other fixed place of business of the taxpayer in a foreign country participated materially in such sale." (8) Section 865 of the 1986 Code is amended by redesignating subsections (h), (i), and (j) as subsections (i), (j), and (k), respectively, and by inserting after subsection (g) the following new subsection: "(h) TREATMENT OF GAINS FROM SALE OF CERTAIN STOCK OR INTANGIBLES AND FROM CERTAIN LIQUIDATIONS.—

"(1) IN GENERAL.—In the case of gain to which this subsection applies— "(A) such gain shall be sourced outside the United States, but "(B) subsections (a), (b), and (c) of section 904 and sections 902, 907, and 960 shall be applied separately with respect to such gain. "(2) GAIN TO WHICH SUBSECTION APPLIES.—This subsection

shall apply to—

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