Page:United States Statutes at Large Volume 118.djvu/1684

 118 STAT. 1654 PUBLIC LAW 108–357—OCT. 22, 2004 in the contract shall not include any applicable nontaxable contributions or applicable nontaxable earnings. ‘‘(2) APPLICABLE NONTAXABLE CONTRIBUTION.—For purposes of this subsection, the term ‘applicable nontaxable contribution’ means any employer or employee contribution— ‘‘(A) which was made with respect to compensation— ‘‘(i) for labor or personal services performed by an employee who, at the time the labor or services were performed, was a nonresident alien for purposes of the laws of the United States in effect at such time, and ‘‘(ii) which is treated as from sources without the United States, and ‘‘(B) which was not subject to income tax (and would have been subject to income tax if paid as cash compensa tion when the services were rendered) under the laws of the United States or any foreign country. ‘‘(3) APPLICABLE NONTAXABLE EARNINGS.—For purposes of this subsection, the term ‘applicable nontaxable earnings’ means earnings— ‘‘(A) which are paid or accrued with respect to any employer or employee contribution which was made with respect to compensation for labor or personal services per formed by an employee, ‘‘(B) with respect to which the employee was at the time the earnings were paid or accrued a nonresident alien for purposes of the laws of the United States, and ‘‘(C) which were not subject to income tax under the laws of the United States or any foreign country. ‘‘(4) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this subsection, including regulations treating contributions and earnings as not subject to tax under the laws of any foreign country where appropriate to carry out the purposes of this subsection.’’. (b) BASIS.—Section 83 (relating to property transferred in connection with the performance of services is amended by adding after paragraph (3) of subsection (c) the following new paragraph: ‘‘(4) For purposes of determining an individual’s basis in property transferred in connection with the performance of services, rules similar to the rules of section 72(w) shall apply.’’. (c) EFFECTIVE DATE.—The amendments made by this section shall apply to distributions on or after the date of the enactment of this Act. SEC. 907. LIMITATION OF EMPLOYER DEDUCTION FOR CERTAIN ENTERTAINMENT EXPENSES. (a) IN GENERAL.—Paragraph (2) of section 274(e) (relating to expenses treated as compensation) is amended to read as follows: ‘‘(2) EXPENSES TREATED AS COMPENSATION.— ‘‘(A) IN GENERAL.—Except as provided in subparagraph (B), expenses for goods, services, and facilities, to the extent that the expenses are treated by the taxpayer, with respect to the recipient of the entertainment, amusement, or recre ation, as compensation to an employee on the taxpayer’s return of tax under this chapter and as wages to such 26 USC 72 note.

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