Page:United States Statutes at Large Volume 102 Part 4.djvu/551

 PUBLIC LAW 100-647—NOV. 10, 1988

102 STAT. 3521

"(ii) the taxpayer's holding period in such stock shall be treated as beginning on the first day referred to in such subparagraph." (29XA) Clause (ii) of section 904(d)(2)(A) of the 1986 Code is amended by striking out "or section 1293" and inserting in lieu thereof "or, except as provided in subparagraph (E)(iii) or paragraph (3)(1), section 1293". (B) Subparagraph (E) of section 904(d)(2) of the 1986 Code is amended by adding at the end thereof the following new clause: "(iii) TREATMENT OF INCLUSIONS UNDER SECTION 1293.—If any foreign corporation is a non-controlled section 902 corporation with respect to the taxpayer, any inclusion under section 1293 with respect to such corporation shall be treated as a dividend from such corporation." (30) Clause (ii) of section 864(b)(2)(A) of the 1986 Code is amended by striking out "section 542(c)(7)" and inserting in lieu thereof "section 542(c)(7), 542(c)(10),". (31) Paragraph (1) of section 1291(c) of the 1986 Code is amended by adding at the end thereof the following new sentence: "Any increase in the tax imposed by this chapter for the current year under subsection (a) to the extent attributable to the amount referred to in subparagraph (B) shall be treated as interest paid under section 6601 on the due date for the current year." (32) Section 1293 of the 1986 Code is amended by adding at the end thereof the following new subsection: "(g) OTHER SPECIAL RULES.— "(1) EXCEPTION FOR CERTAIN INCOME.—For

purposes of determining the amount included in the gross income of any person under this section, the ordinary earnings and net capital gain of a qualified electing fund shall not include any item of income received by such fund if— "(A) such fund is a controlled foreign corporation (as defined in section 957(a)) and such person is a United States shareholder (as defined in section 951(b)) in such fund, and "(B) such person establishes to the satisfaction of the Secretary that— "(i) such income was subject to an effective rate of income tax imposed by a foreign country greater than 90 percent of the maximum rate of tax specified in section 11, or "(ii) such income is— "(I) from sources within the United States, "(II) effectively connected with the conduct by the qualified electing fund of a trade or business in the United States, and "(III) not exempt from taxation (or subject to a reduced rate of tax) pursuant to a treaty obligation of the United States. "(2) PREVENTION OF DOUBLE INCLUSION.—The Secretary shall prescribe such adjustment to the provisions of this section as may be necessary to prevent the same item of income of a qualified electing fund from being included in the gross income of a United States person more than once." (33) Paragraph (3) of section 12910t)) of the 1986 Code (as amended by paragraph (3)) is amended by striking out "and" at the end of subparagraph (E), by striking out the period at the

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