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PUBLIC LAW 86-779-SEPT. 14, 1960

[74 S T A T.

Public Law 86-779 September 14, 1960

[H. R. 10960]

Taxes. Clgarti. 26 Use 5701.

Corporations. Dividends. 26 USC 243.

26 USC 245.

26 USC 861.

26 USC 931.

AN AHT

To amend section 5701 of the Internal Revenue Code of 1954 with respect to the excise tax upon cigars, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the next to the last sentence of section 5701(b) of the Internal Revenue Code of 1954 (relating to tax on cigars) is amended by striking out "exclusive of any State or local taxes imposed on the retail sale of cigars" and inserting in lieu thereof "exclusive of any State or local taxes imposed on cigars as a commodity". SEC. 2. The amendment made by the first section of this Act shall apply With respect to cigars removed on or after the ninth day of the first month which begins after the date of the enactment of this Act. SEC. 3. (a) Section 243 of the Internal Revenue Code of 1954 (relating to deduction for dividends received by corporations) is amended by adding at the end thereof the following new subsection: " (d) CERTAIN DIVIDENDS FROM FOREIGN CORPORATIONS.—For purposes of subsections (a) and (b) of this section and for purposes of section 245, any dividend from a foreign corporation from earnings and profits accumulated by a domestic corporation during a period with respect to which such domestic corporation was subject to taxation under this chapter (or corresponding provisions of prior law) shall be treated as a dividend from a domestic corporation which is subject to taxation under this chapter." (b) Section 861(a)(2) of the Internal Revenue Code of 1954 (relating to treatment of dividends as income from sources within the United States) is amended by striking out the period at the end of subparagraph (B) and inserting in lieu thereof ", or", and by adding after subparagraph (B) the following new subparagraph: " (C) from a foreign corporation to the extent that such amount is required by section 243(d) (relating to certain dividends from for e i ^ corporations) to be treated as dividends from a domestic corporation which is subject to taxation under this chapter, and to such extent subparagraph (B) shall not apply to such amount." (c) The amendments made by subsections (a) and (b) shall apply to dividends received after December 31, 1959, in taxable years ending after such date. SEC. 4. (a)(1) Subpart D of part III of subchapter N of chapter 1 of the Internal Revenue Code of 1954 (relating to possessions of the United States) is amended by adding at the end thereof the following new section: "SEC. 934. LIMITATION ON REDUCTION IN INCOME TAX LIABILITY INCURRED TO THE VIRGIN ISLANDS.

42 Stat. 123. 68 Stat. 508.

" (a) GENERAL RULE.—Tax liability incurred to the Virgin Islands pursuant to this subtitle, as made applicable in the Virgin Islands by the Act entitled 'An Act making appropriations for the naval service for the fiscal year ending June 30. 1922, and for other purposes', approved July 12, 1921 (48 U.S.C. 1397), or pursuant to section 28(a) of the Revised Organic Act of the Virgin Islands, approved July 22, 1954 (48 U.S.C. 1642), shall not be reduced or remitted in any way, directly or indirectly, whether by grant, subsidy, or other similar payment, by any law enacted in the Virgin Islands, except to the extent provided in subsection (b) or (c). " (b) EXCEPTION FOR CERTAIN DOMESTIC AND VIRGIN ISLANDS COR-

PORATION^.—In the case of a domestic corporation or a Virgin Islands

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