S. Con. Res. 88. Concurrent resolution authorizing a change in the enrollment of S. 2321, the District of Columbia Tissue Bank Act.

The House has agreed to the amendment of the Senate to the bill (H.R. 7782) to authorize the Secretary of the Interior to convey certain lands in the State of Maryland to the Prince Georges County Hospital, and for other purposes.

The House has agreed to the report of the committee of conference on the disagreeing votes of the two Houses on the amendment of the Senate to the bill (H.R. 10062) to extend the application of certain laws to American Samoa.

The House has disagreed to the amendment of the Senate to the bill (H.R. 12391) to improve and protect farm income, to reduce costs of farm programs to the Federal Government, to reduce the federal Government's excessive stocks of agricultural commodities, to maintain reasonable and stable prices of agricultural commodities and products to consumers, to provide adequate supplies of agricultural commodities for domestic and foreign needs, to conserve natural resourcs, and for other purposes; it agrees to the conference asked by the Senate on the disagreeing votes of the two Houses thereon and has appointed Mr. COOLEY, Mr. POAGE, Mr. GATHINGS, Mr. BREEDING, Mr. HOEVEN, Mr. BELCHER, and Mr. QUIE managers on the same on its part.

REVENUE ACT OF 1962

The Senate resumed the consideration of its unfinished business, viz, the bill (H.R. 10650) to amend the Internal Revenue Code of 1954 to provide a credit for investment in certain depreciable property to eliminate certain defects and irregularities, and for other purposes.

The question being on agreeing to the reported amendment striking out section 6 on page 52, line 1,

Pending debate,

The reported amendment was agreed to.

On motion by Mr. KERR to reconsider the vote agreeing to the amendment, On motion by Mr. DIRKSEN, The motion to reconsider was laid on the table.

The remaining reported amendment on page 121, line 9 (being sec. 9 on domestic corporations receiving dividends from foreign corporations), was then agreed to.

On motion by Mr. KERR to reconsider the vote agreeing to the amendment, On motion by Mr. BUSH, The motion to reconsider was laid on the table.

The bill was further amended on the motion of Mr. KUCHEL (for himself, Mr. BENNETT, Mr. MAGNUSON, Mr. JACKSON, Mrs. NEUBERGER, Mr. MORSE, Mr. McCARTHY, Mr. ENGLE, Mr. COOPER, and Mr. BOTTUM).

On motion by Mr. KUCHEL to reconsider the vote agreeing to the amendment,

On motion by Mr. DIRKSEN, The motion to reconsider was laid on the table.

Ordered, That the Secretary notify the House of Representatives thereof.

REVENUE ACT OF 1962

The Senate resumed the consideration of its unfinished business, viz, the bill (H.R. 10650) to amend the Internal Revenue Code of 1954 to provide a credit for investment in certain depreciable property, to eliminate certain defects and irregularities, and for other purposes.

On motion by Mr. MCCARTHY to further amend the bill by striking out all on line 9, page 175, down to and including line 18 on page 245 and inserting in lieu thereof other words (being sec. 12 on controlled foreign corporations), Pending debate,

On motion by Mr. MANSFIELD, and by unanimous consent,

Ordered, That when the Senate adjourns today it be to meet at 10 o'clock a.m. tomorrow; that there be no morning hour; that at 11:30 a.m. the Senate proceed to vote without further debate on the question of agreeing to the amendment proposed by Mr. MCCARTHY, relating to controlled foreign corporations (printed as "8-25-62-B"), to the pending bill; that the time between 10 o'clock a.m. and 11:30 o'clock be equally divided and controlled by Mr. MCCARTHY and Mr. KERR; that immediately following the vote on the foregoing amendment the said bill be temporarily laid aside; that the Senate then proceed to consider H.R. 12711, the independent offices appropriation bill, for a period not exceeding 2 hours, after which the consideration of H.R. 10650 shall be resumed. Pending debate,

ADJOURNMENT

On motion by Mr. McCARTHY, at 9 o'clock and 18 minutes p.m.,

The Senate, under its order of today, adjourned until 10 o'clock a.m. tomorrow.

FRIDAY, AUGUST 31, 1962

The PRESIDENT pro tempore called the Senate to order at 10 o'clock a.m., and the Chaplain offered prayer.

THE JOURNAL

On motion by Mr. SMATHERS, and by unanimous consent,

The reading of the Journal of the proceedings of Thursday, August 30, 1962, was dispensed with.

COMMITTEES AUTHORIZED TO SIT

The Special Subcommittee on Arts of the Committee on Labor and Public Welfare and the Subcommittee on Investigations of the Committtee on Government Operations were authorized to sit today during the session of the Senate, on the request of Mr. SMATHERS.

REVENUE ACT OF 1962

Under its order of yesterday, the Senate resumed the consideration of its unfinished business, viz, the bill (H.R. 10650) to amend the Internal Revenue Code of 1954 to provide a credit for investment in certain depreciable property, to eliminate certain defects and inequities, and for other purposes.

The question being on agreeing to the amendment yesterday proposed by Mr. MCCARTHY, striking out all on line 9, page 175, down to and including line 18, page 245, as amended, and inserting in lieu thereof other words,

Pending debate,

The hour of 11:30 o'clock a.m. having arrived, the Senate, under its order of yesterday, proceeded to vote on the amendment proposed by Mr. MCCARTHY, viz, on page 175, strike out all on line 9 down to and including line 18, on page 245, as amended, and insert in lieu thereof the following:

Sec. 12. Controlled foreign corporations.

(a) In General.-Part III of subchapter N of chapter 1 (relating to income from sources without the United States) is amended by adding at the end thereof the following new subpart: "Subpart F-Controlled Foreign Corporations

"Sec. 951. Amounts included in gross income as the result of improper accumulations.

"Sec. 952. Earnings improperly accumulated. "Sec. 953. Income from insurance of United States risks included in gross income.

"Sec. 954. Definitions included in gross in

come.

"Sec. 955. Rules for determining stock ownership.

"Sec. 956. Exclusion from gross income of previously taxed earnings and profits.

"Sec. 957. Special rules for foreign tax credit. "Sec. 958. Adjustments to basis of stock in controlled foreign corporations and of other property. "Sec. 959. Miscellaneous provisions. "Sec. 951. Amounts included in gross income as the result of improper accumulations.

"(a) General Rule.-If a foreign corporation is a controlled corporation for an uninterrupted period of 30 days or more during any taxable year beginning after December 31, 1962, every person who is a United States shareholder (as defined in section 952(a)) of such a corporation and who owns (within the meaning of section 955(a)) stock in such corporation on the last day in such year, on which such corporation is a controlled foreign corporation shall include in his gross income, for his taxable year in which or with which such taxable year of the corporation ends, his pro rata

share (determined under section 952(a) (2)) of the corporation's increase in earnings improperly accumulated.

"(b) Limitation on Amount of Pro Rata Share of Earnings Improperly Accumulated Included in Gross Income.For purposes of subsection (a), the pro rata share of any person who is a United States shareholder in the increase of the earnings of a controlled foreign corporation improperly accumulated shall not exceed an amount (A) which bears the same ratio to his pro rata share of such increase (as determined under section 952(a) (2)) for the taxable year, as (B) the part of such year during which the corporation is a controlled foreign corporation bears to the entire year.

"(c) Coordination With Provisions Relating to Foreign Investment Company and Foreign Insurance of United States Risks.-A United States shareholder who, for his taxable year is

"(1) a qualified shareholder (within the meaning of section 1247(c)) of a foreign investment company with respect to which an election under section 1247 is in effect, or

"(2) as the result of the application of section 953 required to take an amount into income,

shall not be required to include in gross income, for such taxable year, any amount under subsection (a) with respect to such foreign investment company or with respect to income taken into account by such shareholder as the result of the application of section 953.

"Sec. 952. Earnings improperly accumulated.

"(a) General Rules.-For purposes of this subpart—

"(1) Amount of investment.-The amount of earnings of a controlled foreign corporation improperly accumulated at the close of any taxable year in the case of a corporation formed or availed of for the purpose of avoiding United States income tax is the aggregate amount of the investment in extraneous property at the close of the taxable year, to the extent such amount does not exceed the sum of (A) the earnings and profits for the taxable year, and (B) the earnings and profits accumulated for prior taxable years beginning after December 31, 1962.

"(2) Pro rata share of increase for year. In the case of any person who is a United States shareholder the pro rata share of the increase for any taxable year in the earnings of a controlled foreign corporation improperly accumulated is the amount determined by subtracting

"(A) his pro rata share of the amount determined under paragraph (1) for the close of the preceding taxable year, reduced by amounts paid during the taxable year or treated as paid during that or prior years as a result of the application of section 951 or 953, from

"(B) his pro rata share of the amount determined under paragraph (1) for the close of the taxable year. "(3) Amount attributable to property. The amount taken into account

under paragraph (1) or (2) with respect to any property shall be its adjusted basis, reduced by any liability to which the property is subject.

"(b) Definition of Investment in Extraneous Property.—For purposes of this subpart

“(1) General rule.—The term 'investment in extraneous property' means any money or other property tangible or intangible) acquired after December 31, 1962, which is beyond the reasonable needs of the business.

"(2) Property not requiring preponderance of evidence by taxpayer-Any property other than the following shall be considered property beyond the reasonable needs of the business unless the United States shareholder by the preponderance of the evidence shall prove to the contrary:

"(A) Any money or other property which is located outside the United States and is ordinary and necessary for the active conduct of a trade or business carried on almost wholly without the United States by the controlled foreign corporation.

"(B) Property which would qualify under subparagraph (A) except for the fact that it is located in the United States, but only if such property is—

"(i) obligations of the United States, money, or deposits with persons carrying on the banking business;

"(H) property purchased in the United States for export to, or for use in, foreign countries;

"(ii) any loan arising in connection with the sale of property if the amount of such loan outstanding at no time during the taxable year exceeds the amount which would be ordinary and necessary to carry on the trade or business of both the lending corporation and the borrowing United States person had the sale been made between unrelated persons;

“(iv) any aircraft, railroad rolling stock, vessel, motor vehicle, or container used in the transportation of persons or property in foreign commerce and used predominantly outside of the United States; or

"(v) the amount of assets of an insurance company equivalent to the unearned premiums or a reasonable allowance for policy and similar reserves, on outstanding business with respect to contracts which are not contracts described in section 953 (c).

"(C) Stock and obligations owned by the controlled foreign corporation in another foreign corporation in which it owns at least 10 percent of the voting stock and 10 percent of the value of all classes of stock; but this subparagraph shall apply only if substantially all of the property of such other foreign corporation is ordinary and necessary for the active conduct of a trade or business engaged in by such corporation almost wholly with out the United States.

"(D) Any investment which is required because of restrictions imposed

com

by a foreign country, and any investment which, when made, was so required and which would result in substantial losses if withdrawn. "(3) Holding or investment pany-The fact that any corporation is a mere holding or investment company shall be prima facie evidence that property held by it is 'investment in extraneous property'.

"(4) Situs of certain property.—Property which is an obligation of, or pledges and guarantees made with respect to obligations of. United States persons shall be considered as property located in the United States.

"(5) Reasonable needs of the business.--For purposes of this part, the term 'reasonable needs of the business' includes the reasonably anticipated needs of the business.

"Sec. 953. Amounts included in gross income which is income from insurance of United States risks.

"(a) General Rule.—If a foreign corporation is a controlled corporation on any day of a taxable year beginning after December 31, 1962, every person who is a United States shareholder (as defined in section 954(b)) of such a corporation who owns (within the meaning of section 955(a)) stock in such corporation on the last day, in such year, in which such a corporation is a controlled foreign corporation shall include in his gross income as a dividend, for his taxable year in which or with which such taxable year of the corporation ends his pro rata share (determined under subsection (b)) of the corporation's income derived from insurance of United States risks (as determined under subsection (c)).

"(b) Pro Rata Share of Income Derived From Insurance of United States Risks.

"(1) In general.—The pro rata share referred to in subsection (a) in the case of any United States person is the

amount

"(A) which would have been distributed with respect to the stock which such person owns (within the meaning of section 955 (a)) in such corporation if on the last day, of its taxable year, on which the corporation is-a controlled foreign corporation it had distributed pro rata to its shareholders an amount (i) which bears the same ratio to its income derived from insurance of United States risks for the taxable year, as (i) the part of such year during which the corporation is a controlled foreign corporation bears to the entire year, reduced by

"(B) the amount of any distribution received by any other United States person during such year as a dividend with respect to such stock. "(2) Limitation on amount of pro rata share of income derived from insurance of United States risks included in gross income-For purposes of subsection (a), the pro rata share of any person who is a United States shareholder in a controlled foreign corporation's income derived from insurance of United States risks shall not exceed an amount (A)

"(1) General rule.-For purposes of this section, the term income derived from the insurance of United States risks' means that income which is attributable to the reinsurance or the issuing of any insurance or annuity contract

"(A) in connection with property or liability arising out of activity in, or in connection with the lives or health of residents of, the United States, or

"(B) in connection with risks not included in subparagraph (A) as the result of any arrangement whereby another corporation receives a substantially equal amount of premiums or other consideration in respect of any reinsurance or the issuing of any insurance or annuity contract in connection with property or liability arising out of activity in, or in connection with the lives or health of residents of, the United States,

and which (subject to the modifications provided by subparagraphs (A), (B), and (C) of paragraph (2)) would be taxed under subchapter L of this chapter if such income were the income of a domestic insurance corporation. This section shall apply only in the case of a controlled foreign corporation which receives during any taxable year premiums or other consideration in respect of any reinsurance or the issuing of any insurance or annuity contract described in this paragraph in excess of 5 percent of the total premiums and other consideration received by it during such taxable year in respect of all reinsurance and issuing of insurance and annuity contracts. "(2) Special rules.-For purposes of paragraph (1) —

"A) In the application of part I of subchapter L, life insurance company taxable income is the gain from operations as defined in section 809(b).

"(B) A corporation which would, if it were a domestic corporation, be taxable under part II of subchapter L shall apply paragraph (1) as if it were taxable under part III of subchapter L.

"(C) The following provisions of subchapter L shall not apply:

"(i) Section 809 (d) (4) (operation loss deduction).

"(ii) Section 809(d) (5) (certain nonparticipating contracts).

"(iii) Section 809 (d) (6) (group life, accident, and health insurance).

"(iv) Section 809(d) (10) (small business deduction).

"(v) Section 817(b) (gain on property held on December 31, 1958, and certain substituted property acquired after 1958).

"(vi) Section 832(b) (5) (certain capital losses).

"(D) The items referred to in—

"(i) Section 809 (v) (1) (relating to gross amount of premiums and other consideration),

"(ii) Section 809 (c) (2) (relating to net decrease in reserves),

"(iii) Section 809 (d) (2) (relating to net increase in reserves), and

"(iv) Section 832(b)(4) (relating to premiums earned on insurance contracts),

shall be taken into account only to the extent they are in respect of any reinsurance or the issuing of any insurance or annuity contract described in paragraph (1).

"(E) All items of income, expenses, losses, and deductions (other than those taken into account under subparagraph (D)) shall be properly allocated or apportioned under regulations prescribed by the Secretary or his delegate.

"(F) The income derived from insurance of United States risks of any controlled foreign corporation for any taxable year shall not exceed the earnings and profits of such corporation for such year.

"Sec. 954. Definitions.

"(a) Controlled Foreign Corporation. "(1) General rule.-For purposes of this subpart, the term 'controlled foreign corporation' means any foreign corporation of which more than 50 percent of the total combined voting power of all classes of stock entitled to vote is owned (within the meaning of section 955(a)), or is considered as owned by applying the rules of ownership of section 955(b), by United States shareholders on any day during the taxable year of such foreign corporation.

"(2) Special rule for insurance.-For purposes only of taking into account income described in section 953 (c) (relating to income derived from insurance of United States risks), the term 'controlled foreign corporation' includes not only a foreign corporation as defined by paragraph (1) but also one of which more than 25 percent of the total combined voting power of all classes of stock is owned (within the meaning of section 955(a)), or is considered as owned by applying the rules of ownership of section 955(b), by United States shareholders on any day during the taxable year of such corporation, if the gross amount of premiums or other consideration in respect of reinsurance or the issuing of insurance or annuity contracts described in section 953 (c), exceeds 75 percent of the gross amount of all premiums or other consideration in respect to all risks.

"(b) United States Shareholders Defined.-For purposes of this subpart, the term 'United States shareholder' means, with respect to any foreign corporation, a United States person (as defined in section 7701(a) (30)) who owns (within the meaning of section 955(a)), or is considered as owning by applying the rules of ownership of section 955(b), 10 percent or more of the total combined voting power of all classes of stock entitled to vote of such foreign corporation.

"Sec. 955 Rules for determining stock ownership.

"(a) Direct and Direct and Indirect Ownership.

"(1) General rule.-For purposes of this subpart, stock owned means

"(A) stock owned directly, and "(B) Stock owned with the application of paragraph (2).

"(2) Stock ownership through foreign entities.-For purposes of subparagraph (B) of paragraph (1), stock owned, directly or indirectly, by or for a foreign corporation, foreign partnership, or foreign trust or foreign estate (within the meaning of section 7701(a) (31)) shall be considered as being owned proportionately by its shareholders, partners, or beneficiaries. Stock considered to be owned by a person by reason of the application of the preceding sentence shall, for purposes of applying such sentence, be treated as actually owned by such person.

"(3) Special rule for mutual insurance companies. For purposes of applying paragraph (1) in the case of a foreign mutual insurance company, the term 'stock' shall include any certificate entitling the holder to voting power in the corporation.

"(b) Constructive Ownership.-For purposes of sections 951, 953, and 954, section 318 (a) (relating to constructive ownership of stock) shall apply to the extent that the effect is to treat any United States person as a United States shareholder within the meaning of section 954(b) or to treat a foreign corporation as a controlled foreign corporation under section 954(a), except

“(1) In applying paragraph (1)(A) of section 318 (a), stock owned by a nonresident alien individual (other than a foreign trust of foreign estate) shall not be considered as owned by a citizen or by a resident alien individual.

"(2) In applying the first sentence of subparagraphs (A) and (B), and in applying clause (i) of subparagraph (C), of section 318 (a) (2) if a partnership, estate, trust, or corporation owns, directly or indirectly, more than 50 percent of the total combined voting power of all classes of stock entitled to vote of a corporation, it shall be considered as owning all the stock entitled to vote.

"(3) Stock owned by a partnership, estate, trust, or corporation, by reason of the application of the second sentence of subparagraphs (A) and (B), and the application of clause (ii) of subparagraph (C), of section 318(a) (2), shall not be considered as owned by such partnership, estate, trust, or corporation, for the purposes of applying the first sentence of subparagraphs (A) and (B), and in applying clause (i) of subparagraph (C), of section 318(a) (2).

“(4) In applying clause (i) of subparagraph (C) of section 318(a) (2), the 50percent limitation contained in subparagraph (C) shall not apply.

"(5) The second sentence of subparagraphs (A) and (B), and clause (ii) of subparagraph (C), of section 318 (a) (2) shall not be applied so as to consider a

United States person as owning stock which is owned by a person who is not a United States person. "Sec. 956. Exclusion from gross income of previously taxed earnings and profits.

"(a) Exclusion From Gross Income of United States Persons.-For purposes of this chapter, the earnings and profits for a taxable year of a foreign corporation attributable to amounts which are, or have been, included in the gross income of a United States person under section 951 or 953 shall not, when such amounts are distributed to (or would but for this subsection be included in the gross income of) such shareholder (or any other United States person who acquires from any person any portion of the interest of such United States shareholder in such foreign corporation, but only to the extent of such portion, and subject to such proof of the identity of such interest as the Secretary or his delegate may by regulations prescribe) directly, or indirectly through a chain of ownership described under section 955(a), be again included in the gross income of such United States person (or of such other United States person).

"(b) Exclusion From Gross Income of Certain Foreign Subsidiaries.—For purposes of sections 951 and 953, the earnings and profits for a taxable year of a controlled foreign corporation attributable to amounts which are, or have been, included in the gross income of a United States shareholder under section 951 or 953, shall not, when distributed through a chain of ownership described under section 955(a), be also included in the gross income of another controlled foreign corporation in such chain for purposes of the application of section 951 and 953 to such other controlled foreign corporation with respect to such United States shareholder (or to any other United States shareholder who acquires from any person any portion of the interest of such United States shareholder in the controlled foreign corporation, but only to the extent of such portion, and subject to such proof of identity of such interest as the Secretary or his delegate may prescribe by regulations).

"(c) Allocation of Distributions.-For purposes of subsections (a) and (b), section 316(a) shall be applied by applying paragraph (2) thereof, and then paragraph (1) thereof

"(1) first to earnings and profits attributable to amounts included in gross income under section 951 or 953, and

"(2) then to other earnings and profits.

"(d) Distributions Excluded From Gross Income Not To Be Treated as Dividends.-Except as provided in section 957 (a) (3), any distribution excluded from gross income under subsection (a) shall be treated, for purposes of this chapter, as a distribution which is not a dividend.

"Sec. 957. Special rules for foreign tax credit.

"(a) Taxes Paid by a Foreign Corporation.

"(1) General rule-For purposes of subpart A of this part, if there is included, under section 951 or 953, in the gross income of a domestic corporation any amount attributable to earnings and profits

**(A) of a foreign corporation at least 10 percent of the voting stock of which is directly owned by such domestic corporation, or

"(B) of a foreign corporation at least 50 percent of the voting stock of which is directly owned by a foreign corporation at least 10 percent of the voting stock of which is in turn directly owned by such domestic corporation, then, under regulations prescribed by the Secretary or his delegate, such domestic corporation shall be deemed to have paid the same proportion of the total income, war profits, and excess profits taxes, paid (or deemed paid if pargarph (4) applies) by such foreign corporation to a foreign country or possession of the United States for the taxable year on or with respect to earnings and profits of such foreign corporation which the amount of earnings and profits of such foreign corporation so included in gross income of the domestic corporation bears to the entire amount of the earnings and profits of such foreign corporation for such taxable year.

"(2) Taxes previously deemed paid by domestic corporation.-If a domestic corporation receives a disrtibution from a foreign corporation, any portion of which is excluded from gross income under section 956, the income, war profits, and excess profits taxes or deemed paid by such foreign corporation to any foreign country or to any possession of the United States in connection with the earnings and profits of such foreign corporation from which such distribution is made shall not be taken into account for purposes of section 902, to the extent such tares were deemed paid by such domestic corporation under paragraph (1) for any prior taxable year.

"(3) Tares paid by foreign corporation and not previously deemed paid by domestic corporation.-Any portion of a distribution from a foreign corporation received by a domestic corporation which is excluded from gross income under section 956(a) shall be treated by the domestic corporation as a dividend, solely for purposes of taking into account under section 902 any income, war profits, or excess profits taxes paid to any foreign country or to any possession of the United States, on or with respect to the accumulated profits of such foreign corporation from which such distribution is made, which were not deemed paid by the domestic corporation under paragraph (1) for any prior taxable year.

"(b) Special Rules for Foreign Tar Credit in Year of Receipt of Previously Tazed Earning and Profits.—

"(1) Increase in section 904 limitation. In the case of any taxpayer who—

“(A) either (i) chose to have the benefits of subpart A of this part for a taxable year in which he was required under section 951 or 953 to include in his gross income an amount in respect of a controlled foreign corporation, or (Hi) did not pay or accrue for such taxable year any income, war profits, or excess profits tazes to any foreign country or to any possession of the United States, and

"(B) chooses to have the benefits of subpart A of this part for the taxable year in which he receives a distribution or amount which is excluded from gross income under section 956(a) and which is attributable to earnings and profits of the controlled foreign corporation which was included in his gross income for the taxable year referred to in subparagraph (A), and

"(C) for the taxable year in which such distribution or amount is received, pays, or is deemed to have paid, or accrues income, war profits, or ezcess profits tazes to a foreign country or to any possessions of the United States with respect to such distribution or amount,

the applicable limitation under section 904 for the taxable year in which such distribution or amount is received shall be increased as provided in paragraph (2), but such increase shall not exceed the amount of such taxes paid, or deemed paid, or accrued with respect to such distribution or amount.

"(2) Amount of increase.-The amount of increase of the applicable limitation under section 904(a) for the taxable year in which the distribution or amount referred to in paragraph (1)(B) is received shall be an amount equal to

"(A) the amount by which the applicable limitation under section 904 (a) for the taxable year referred to in paragraph (1)(A) was increased by reason of the inclusion in gross income under section 951 or 953 of the amount in respect of the controlled foreign corporation, reduced by

"(B) the amount of any income, war profits, and excess profits tazes paid, or deemed paid, or accrued to any foreign country or possession of the United States which were allowable as a credit under section 901 for the taxable year referred to in paragraph (1)(A) and which would not have been allowable but for the inclusion in gross income of the amount described in subparagraph (A).

"(3) Cases in which tazes not to be allowed as a deduction.—In the case of any taxpayer who

"(A) chose to have the benefits of subpart A of this part for a taxable year in which he was required under section 951 or 953 to include in his gross income an amount in respect of a controlled foreign corporation, and

"(B) does not choose to have the benefits of subpart A of this part for

the taxable year in which he receives a distribution or amount which is excluded from gross income under section 956(a) and which is attributable to earnings and profits of the controlled foreign corporation which was included in his gross income for the taxable year referred to in subparagraph (A),

no deduction shall be allowed under section 164 for the taxable year in which such distribution or amount is received for any income, war profits, or excess profits taxes paid or accrued to any foreign country or to any possession of the United States on or with respect to such distribution or amount.

"(4) Insufficient taxable income.—If an increase in the limitation under this subsection exceeds the tax imposed by this chapter for such year, the amount of such excess shall be deemed an overpayment of tax for such year.

"Sec. 958. Adjustments to basis of stock in controlled foreign corporation and of other property.

"(a) Increase in basis.-Under regulations prescribed by the Secretary or his delegate, the basis of a United States shareholder's stock in a controlled foreign corporation, and the basis of property of a United States shareholder by reason of which he is considered under section 955(a) (2) as owning stock of a controlled foreign corporation, shall be increased by the amount required to be included in his gross income under section 951 or 953 with respect to such stock or with respect to such property, as the case may be, but only to the extent to which such amount was included in the gross income of such shareholder.

"(1) In general.-Under regulations prescribed by the Secretary or his delegate, the adjusted basis of stock or other property with respect to which a United States shareholder receives an amount which is excluded from gross income under section 956(a) shall be reduced by the amount so excluded.

"(2) Amount in excess of bases.-To the extent that an amount excluded from gross income under section 956 (a) exceeds the adjusted basis of the stock or other property with respect to which it is received, the amount shall be treated as gain from the sale or exchange of property.

"Sec. 959. Miscellaneous provisions.

"(a) Earnings and profits.-For purposes of this subpart, the earnings and profits of any foreign corporation, and the deficit in earnings and profits of any foreign corporation, for any taxable year shall be determined according to rules substantially similar to those applicable to domestic corporations, under regulations prescribed by the Secretary or his delegate.

"(b) Blocked Foreign Income.-Under regulations prescribed by the Secretary or his delegate, no part of the earnings and profits of a controlled foreign corporation for any taxable year shall be included in earnings and profits for pur

72100-S J-87-2-34

poses of this subpart, if it is established to the satisfaction of the Secretary or his delegate that such part could not have been distributed by the controlled foreign corporation to U.S. shareholders who own (within the meaning of section 955(a)) stock of such controlled foreign corporation because of currency or other restrictions or limitations imposed under the laws of any foreign country.

"(c) Records and Accounts of United States Shareholders.-The Secretary or his delegate may by regulations require each person who is, or has been, a United States shareholder of a controlled foreign corporation to maintain such records and accounts as may be prescribed by such regulations as necessary to carry out the provisions of this subpart."

(b) Technical and clerical amendments.

(1) Section 551 (b) (relating to foreign personal holding company income included in gross income of United States shareholders) is amended by adding at the end thereof the following new sentence: "The amount included in the gross income of any United States shareholder for any taxable year under the preceding sentence shall be reduced by such shareholder's proportionate share of the undistributed personal holding company income which is included in his gross income under section 951 or 953 (relating to certain amounts included in gross income of United States shareholders) for such taxable year as his pro rata share of the company's earnings improperly accumulated in income derived from insurance of United States risks, as the case may be.

(2) Section 901 (relating to foreign tax credit) is amended by striking out "section 902" and inserting in lieu thereof "sections 902 and 957".

(3) Section 902(e) is amended to read as follows:

"(e) Cross References.

"(1) For application of subsections (a) and (b) with respect to taxes deemed paid in a prior taxable year by a United States shareholder with respect to a controlled foreign corporation, see section 957.

"(2) For reduction of credit with respect to dividends paid out of accumulated profits for years for which certain information is not furnished, see section 6038."

(4) Section 904(f) is amended to read as follows:

"(f) Cross References.

"(1) For increase of applicable limitation under subsection (a) for taxes paid with respect to amounts received which were included in the gross income of the taxpayer for a prior taxable year as a United States shareholder with respect to a controlled foreign corporation, see section 957(b).

"(2) For special rule relating to the application of the credit provided by section 901 in the case of affiliated groups which include Western Hemisphere trade corporations for years in which the limitation provided by subsection (a) (2) applies, see section 1503 (d)."

(5) The table of subparts for part III of subchapter N of chapter 1 is amended by adding at the end thereof the following:

"Subpart F. Controlled foreign corporations."

(6) Section 1016(a) (relating to adjustments to basis) is amended—

(A) by striking out the period at the end of paragraph (18) and inserting in lieu thereof a semicolon; and

(B) by adding after paragraph (18) the following new paragraph:

"(1) to the extent provided in section 958 in the case of stock in controlled foreign corporations (or foreign corporations which were controlled foreign corporations) and of property by reason of which a person is considered as owning such stock."

(c) Effective Date.-The amendments made by this section shall apply with respect to taxable years of foreign corporations beginning after December 31, 1962, and to taxable years of United States shareholders within which or with which such taxable years of such foreign corporations end.

It was determined in Yeas____. 21 the negative_-_Nays____ 65

On motion by Mr. KERR, The yeas and nays being desired by one-fifth of the Senators present.

Senators who voted in the affirmative