Page:United States Statutes at Large Volume 103 Part 3.djvu/273

 PUBLIC LAW 101-239—DEC. 19, 1989 103 STAT. 2341 "(B) SPECIAL RULE FOR CERTAIN PARTNERSHIPS. — "(i) IN GENERAL.— Any interest paid or accrued to a partnership which (without regard to this subpara- graph) is a related person shall not be treated as paid or accrued to a related person if less than 10 percent of the profits and capital interests in such partnership are held by persons with respect to whom no tax is imposed by this subtitle on such interest. The preceding sen- tence shall not apply to any interest allocable to any partner in such partnership who is a related person to the taxpayer. "(ii) SPECIAL RULE WHERE TREATY REDUCTION.— If any treaty between the United States and any foreign coun- try reduces the rate of tax imposed by this subtitle on a partner's share of any interest paid or accrued to a partnership, such partner's interests in such partner- ship shall, for purposes of clause (i), be treated as held in part by a tax-exempt person and in part by a taxable person under rules similar to the rules of paragraph (5)(B). " (5) SPECIAL RULES FOR DETERMINING WHETHER INTEREST IS SUBJECT TO TAX.— "(A) TREATMENT OF PASS-THRU ENTITIES. — In the case of any interest paid or accrued to a partnership, the deter- mination of whether any tax is imposed by this subtitle on such interest shall be made at the partner level. Rules similar to the rules of the preceding sentence shall apply in the case of any pass-thru entity other than a partnership and in the case of tiered partnerships and other entities. " (B) INTEREST TREATED AS TAX-EXEMPT TO EXTENT OF TREATY REDUCTION.—If any treaty between the United States and any foreign country reduces the rate of tax imposed by this subtitle on any interest paid or accrued by the taxpayer to a related person, such interest shall be treated as interest on which no tax is imposed by this subtitle to the extent of the same proportion of such in- terest as— "(i) the rate of tax imposed without regard to such treaty, reduced by the rate of tax imposed under the treaty, bears to "(ii) the rate of tax imposed without regard to the treaty. " (6) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of this subsection— "(A) ADJUSTED TAXABLE INCOME.— The term 'adjusted tax- able income' means the taxable income of the taxpayer— "(i) computed without regard to— "(I) any deduction allowable under this chapter for the net interest expense, "(II) the amount of any net operating loss deduc- tion under section 172, and "(III) any deduction allowable for depreciation, amortization, or depletion, and "(ii) computed with such other adjustments as the " Secretary may by regulations prescribe. "(B) NET INTEREST EXPENSE.—The term 'net interest expense'means the excess (if any) of—

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