Page:United States Statutes at Large Volume 103 Part 3.djvu/271

 PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2339 "(ii) The tax imposed by section 1375(a). "(iii) Any tax for which the S corporation is liable by reason of section 1371(d)(2). "(B) Paragraph (2) of subsection (d) shall not apply. "(C) Clause (ii) of subsection (d)(l)(B) shall be applied as if it read as follows: "'(ii) the sum of— "'(I) the amount determined under clause (i) by only taking into account the taxes referred to in clauses (i) and (iii) of subsection (g)(4)(A), and "'(II) 100 percent of the tax imposed by section 1375(a) which was shown on the return of the corporation for the preceding taxable year.' "(D) The requirement in the last sentence of subsection (d)(l)(B) that the return for the preceding taxable year show a liability for tax shall not apply. "(E) Any reference in subsection (e) to taxable income shall be treated as including a reference to the net recog- nized built-in gain or the excess passive income (as the case may be)." (b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 USC 6655 shall apply to taxable years beginning after December 31, 1989. "°*®- SEC. 7210. LIMITATION ON DEDUCTION FOR CERTAIN INTEREST PAID TO RELATED PERSON. (a) GENERAL RULE.— Section 163 (as amended by section 7202) is amended by redesignating subsection (j) as subsection (k) and by inserting after subsection (i) the following new subsection: "(j) LIMITATION ON DEDUCTION FOR CERTAIN INTEREST PAID BY CORPORATION TO RELATED PERSON.— "(1) LIMITATION.— "(A) IN GENERAL.— If this subsection applies to any cor- poration for any taxable year, no deduction shall be allowed under this chapter for disqualified interest paid or accrued by such corporation during such taxable year. The amount disallowed under the preceding sentence shall not exceed the corporation's excess interest expense for the taxable year. "(B) DISALLOWED AMOUNT CARRIED TO SUCCEEDING TAX- ABLE YEAR.— Any amount disallowed under subparagraph (A) for any taxable year shall be treated as disqualified interest paid or accrued in the succeeding taxable year. "(2) CORPORATIONS TO WHICH SUBSECTION APPLIES.— "(A) IN GENERAL.— Th is subsection shall apply to any corporation for any taxable year if— "(i) such corporation has excess interest expense for such taxable year, and "(ii) the ratio of debt to equity of such corporation as of the close of such taxable year (and on such other days during the taxable year as the Secretary may by regulations prescribe) exceeds 1.5 to 1. "(B) EXCESS INTEREST EXPENSE.— "(i) IN GENERAL. —For purposes of this subsection, the term 'excess interest expense' means the excess (if any) of— "(I) the corporation's net interest expense, over

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