Page:United States Statutes at Large Volume 111 Part 1.djvu/993

 PUBLIC LAW 105-34—AUG. 5, 1997 111 STAT. 969 " (3) CLARIFICATION OF DEEMED SALES.— For purposes of this subsection, a controlled foreign corporation shall be treated as having sold or exchanged any stock if, under any provision of this subtitle, such controlled foreign corporation is treated as having gain from the sale or exchange of such stock.". (b) AMENDMENT OF SECTION 904(d). —Clause (i) of section 904(d)(2)(E) is amended by striking "and except as provided in regulations, the taxpayer was a United States shareholder in such corporation". (c) EFFECTIVE DATES.— (1) The amendment made by subsection (a) shall apply 26 USC 964 note, to gain recognized on transactions occurring after the date of the enactment of this Act. (2) The amendment made by subsection (b) shall apply 26 USC 904 note. to distributions after the date of the enactment of this Act. SEC. 1112. MISCELLANEOUS MODIFICATIONS TO SUBPART F. (a) SECTION 1248 GAIN TAKEN INTO ACCOUNT IN DETERMINING PRO RATA SHARE. — (1) IN GENERAL.— Paragraph (2) of section 951(a) (defining pro rata share of subpart F income) is amended by adding at the end thereof the following new sentence: "For purposes of subparagraph (B), any gain included in the gross income of any person as a dividend under section 1248 shall be treated as a distribution received by such person with respect to the stock involved.". (2) EFFECTIVE DATE.— The amendment made by paragraph 26 USC 951 note. (1) shall apply to dispositions after the date of the enactment of this Act. (b) BASIS ADJUSTMENTS IN STOCK HELD BY FOREIGN CORPORA- TION.— (1) IN GENERAL.— Section 961 (relating to adjustments to basis of stock in controlled foreign corporations and of other property) is amended by adding at the end thereof the following new subsection: "(c) BASIS ADJUSTMENTS IN STOCK HELD BY FOREIGN CORPORA- Regulations. TION. —Under regulations prescribed by the Secretary, if a United States shareholder is treated under section 958(a)(2) as owning any stock in a controlled foreign corporation which is actually owned by another controlled foreign corporation, adjustments similar to the adjustments provided by subsections (a) and (b) shall be made to the basis of such stock in the hands of such other controlled foreign corporation, but only for the purposes of determining the amount included under section 951 in the gross income of such United States shareholder (or any other United States shareholder who acquires from any person any portion of the interest of such United States shareholder by reason of which such shareholder was treated as owning such stock, but only to the extent of such portion, and subject to such proof of identity of such interest as the Secretary may prescribe by regulations).". (2) EFFECTIVE DATE. — The amendment made by paragraph 26 USC 961 note. (1) shall apply for purposes of determining inclusions for taxable years of United States shareholders beginning after December 31, 1997. (c) CLARIFICATION OF TREATMENT OF BRANCH TAX EXEMPTIONS OR REDUCTIONS.— 39-194O-97-32:QL3Part1

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