Page:United States Statutes at Large Volume 98 Part 1.djvu/702

 98 STAT. 654 Ante, p. 533.

PUBLIC LAW 98-369—JULY 18, 1984 amount of the original issue disfcount which accrues during any period shall be made under the rules of section 1272 (or the corresponding provisions of prior law) without regard to any exception for short-term obligations. "(3) SOURCE OF ORIGINAL ISSUE DISCOUNT.—Except to the

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Ante, p. 551.

extent provided in regulations prescribed by the Secretary, the determination of whether any amount described in subsection (a)(1)(C) is from sources within the United States shall be made at the time of the payment (or sale or exchange) as if such payment (or sale or exchange) involved the payment of interest. "(4) STRIPPED BONDS.—The provisions of section 1286 (relating to the treatment of stripped bonds and stripped coupons as obligations with original issue discount) shall apply for purposes of this section." (b) FOREIGN CORPORATIONS.—

26 USC 881.

(1) IN GENERAL.—Paragraph (3) of section 881(a) (relating to tax on income of foreign corporations not connected with United States business) is amended to read as follows: "(3) in the case of— "(A) a sale or exchange of an original issue discount obligation, the amount of any gain not in excess of the original issue discount accruing while such obligation was held by the foreign corporation (to the extent such discount was not therefore taken into account under subparagraph (B)), and "(B) the payment of interest on an original issue discount obligation, an amount equal to the original issue discount accrued on such obligation since the last payment of interest thereon (except that such original issue discount shall be taken into account under this subparagraph only to the extent that the tax thereon does not exceed the interest payment less the tax imposed by paragraph (1) thereon), and". (2) CROSS REFERENCE.—Subsection (c) of section 881 (relating

to doubling of tax) is amended to read as follows: "(c) CROSS REFERENCE.—

Ante, p. 653.

"For doubling of tax on corporations of certain foreign countries, see section 891. "For special rules for original issue discount, see section 871(g)." (c) DEDUCTION FOR ORIGINAL ISSUE DISCOUNT HELD BY RELATED

Ante, p. 556. a<,c

FOREIGN PERSON.—Subsection (e) of section 163 (relating to original issue discount), as amended by this Act, is amended by redesignating paragraph (3) as paragraph (4), and by inserting after paragraph (2) the following new paragraph: "(3) SPECIAL RULE FOR ORIGINAL ISSUE DISCOUNT ON OBLIGATION HELD BY RELATED FOREIGN PERSON.—

"(A) IN GENERAL.—If any debt instrument having original issue discount is held by a related foreign person, any portion of such original issue discount shall not be allowable as a deduction to the issuer until paid. "(B) RELATED FOREIGN PERSON.—For purposes of subpara-

graph (A), the term 'related foreign person' means any person— "(i) who is not a United States person, and "(ii) who is related (within the meaning of section Oiii w im.. 267(b)) to the issuer."

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