
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document affected by Public Law 106-519 Section 4(3)]
[CITE: 26USC864]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
  Subchapter N--Tax Based on Income From Sources Within or Without the 
                              United States
 
 PART I--SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN INCOME
 
Sec. 864. Definitions and special rules


(a) Produced

    For purposes of this part, the term ``produced'' includes created, 
fabricated, manufactured, extracted, processed, cured, or aged.

(b) Trade or business within the United States

    For purposes of this part, part II, and chapter 3, the term ``trade 
or business within the United States'' includes the performance of 
personal services within the United States at any time within the 
taxable year, but does not include--

      (1) Performance of personal services for foreign employer

        The performance of personal services--
            (A) for a nonresident alien individual, foreign partnership, 
        or foreign corporation, not engaged in trade or business within 
        the United States, or
            (B) for an office or place of business maintained in a 
        foreign country or in a possession of the United States by an 
        individual who is a citizen or resident of the United States or 
        by a domestic partnership or a domestic corporation,

    by a nonresident alien individual temporarily present in the United 
    States for a period or periods not exceeding a total of 90 days 
    during the taxable year and whose compensation for such services 
    does not exceed in the aggregate $3,000.

              (2) Trading in securities or commodities

        (A) Stocks and securities

            (i) In general

                Trading in stocks or securities through a resident 
            broker, commission agent, custodian, or other independent 
            agent.
            (ii) Trading for taxpayer's own account

                Trading in stocks or securities for the taxpayer's own 
            account, whether by the taxpayer or his employees or through 
            a resident broker, commission agent, custodian, or other 
            agent, and whether or not any such employee or agent has 
            discretionary authority to make decisions in effecting the 
            transactions. This clause shall not apply in the case of a 
            dealer in stocks or securities.

        (B) Commodities

            (i) In general

                Trading in commodities through a resident broker, 
            commission agent, custodian, or other independent agent.
            (ii) Trading for taxpayer's own account

                Trading in commodities for the taxpayer's own account, 
            whether by the taxpayer or his employees or through a 
            resident broker, commission agent, custodian, or other 
            agent, and whether or not any such employee or agent has 
            discretionary authority to make decisions in effecting the 
            transactions. This clause shall not apply in the case of a 
            dealer in commodities.
            (iii) Limitation

                Clauses (i) and (ii) shall apply only if the commodities 
            are of a kind customarily dealt in on an organized commodity 
            exchange and if the transaction is of a kind customarily 
            consummated at such place.

        (C) Limitation

            Subparagraphs (A)(i) and (B)(i) shall apply only if, at no 
        time during the taxable year, the taxpayer has an office or 
        other fixed place of business in the United States through which 
        or by the direction of which the transactions in stocks or 
        securities, or in commodities, as the case may be, are effected.

(c) Effectively connected income, etc.

                          (1) General rule

        For purposes of this title--
            (A) In the case of a nonresident alien individual or a 
        foreign corporation engaged in trade or business within the 
        United States during the taxable year, the rules set forth in 
        paragraphs (2), (3), (4), (6), and (7) shall apply in 
        determining the income, gain, or loss which shall be treated as 
        effectively connected with the conduct of a trade or business 
        within the United States.
            (B) Except as provided in paragraph (6) or (7) or in section 
        871(d) or sections 882(d) and (e), in the case of a nonresident 
        alien individual or a foreign corporation not engaged in trade 
        or business within the United States during the taxable year, no 
        income, gain, or loss shall be treated as effectively connected 
        with the conduct of a trade or business within the United 
        States.

      (2) Periodical, etc., income from sources within United 
                               States--factors

        In determining whether income from sources within the United 
    States of the types described in section 871(a)(1), section 871(h), 
    section 881(a), or section 881(c), or whether gain or loss from 
    sources within the United States from the sale or exchange of 
    capital assets, is effectively connected with the conduct of a trade 
    or business within the United States, the factors taken into account 
    shall include whether--
            (A) the income, gain, or loss is derived from assets used in 
        or held for use in the conduct of such trade or business, or
            (B) the activities of such trade or business were a material 
        factor in the realization of the income, gain, or loss.

    In determining whether an asset is used in or held for use in the 
    conduct of such trade or business or whether the activities of such 
    trade or business were a material factor in realizing an item of 
    income, gain, or loss, due regard shall be given to whether or not 
    such asset or such income, gain, or loss was accounted for through 
    such trade or business.

         (3) Other income from sources within United States

        All income, gain, or loss from sources within the United States 
    (other than income, gain, or loss to which paragraph (2) applies) 
    shall be treated as effectively connected with the conduct of a 
    trade or business within the United States.

            (4) Income from sources without United States

        (A) Except as provided in subparagraphs (B) and (C), no income, 
    gain, or loss from sources without the United States shall be 
    treated as effectively connected with the conduct of a trade or 
    business within the United States.
        (B) Income, gain, or loss from sources without the United States 
    shall be treated as effectively connected with the conduct of a 
    trade or business within the United States by a nonresident alien 
    individual or a foreign corporation if such person has an office or 
    other fixed place of business within the United States to which such 
    income, gain, or loss is attributable and such income, gain, or 
    loss--
            (i) consists of rents or royalties for the use of or for the 
        privilege of using intangible property described in section 
        862(a)(4) derived in the active conduct of such trade or 
        business;
            (ii) consists of dividends or interest, and either is 
        derived in the active conduct of a banking, financing, or 
        similar business within the United States or is received by a 
        corporation the principal business of which is trading in stocks 
        or securities for its own account; or
            (iii) is derived from the sale or exchange (outside the 
        United States) through such office or other fixed place of 
        business of personal property described in section 1221(a)(1), 
        except that this clause shall not apply if the property is sold 
        or exchanged for use, consumption, or disposition outside the 
        United States and an office or other fixed place of business of 
        the taxpayer in a foreign country participated materially in 
        such sale.

        (C) In the case of a foreign corporation taxable under part I or 
    part II of subchapter L, any income from sources without the United 
    States which is attributable to its United States business shall be 
    treated as effectively connected with the conduct of a trade or 
    business within the United States.
        (D) No income from sources without the United States shall be 
    treated as effectively connected with the conduct of a trade or 
    business within the United States if it either--
            (i) consists of dividends, interest, or royalties paid by a 
        foreign corporation in which the taxpayer owns (within the 
        meaning of section 958(a)), or is considered as owning (by 
        applying the ownership rules of section 958(b)), more than 50 
        percent of the total combined voting power of all classes of 
        stock entitled to vote, or
            (ii) is subpart F income within the meaning of section 
        952(a).

            (5) Rules for application of paragraph (4)(B)

        For purposes of subparagraph (B) of paragraph (4)--
            (A) in determining whether a nonresident alien individual or 
        a foreign corporation has an office or other fixed place of 
        business, an office or other fixed place of business of an agent 
        shall be disregarded unless such agent (i) has the authority to 
        negotiate and conclude contracts in the name of the nonresident 
        alien individual or foreign corporation and regularly exercises 
        that authority or has a stock of merchandise from which he 
        regularly fills orders on behalf of such individual or foreign 
        corporation, and (ii) is not a general commission agent, broker, 
        or other agent of independent status acting in the ordinary 
        course of his business,
            (B) income, gain, or loss shall not be considered as 
        attributable to an office or other fixed place of business 
        within the United States unless such office or fixed place of 
        business is a material factor in the production of such income, 
        gain, or loss and such office or fixed place of business 
        regularly carries on activities of the type from which such 
        income, gain, or loss is derived, and
            (C) the income, gain, or loss which shall be attributable to 
        an office or other fixed place of business within the United 
        States shall be the income, gain, or loss property allocable 
        thereto, but, in the case of a sale or exchange described in 
        clause (iii) of such subparagraph, the income which shall be 
        treated as attributable to an office or other fixed place of 
        business within the United States shall not exceed the income 
        which would be derived from sources within the United States if 
        the sale or exchange were made in the United States.

          (6) Treatment of certain deferred payments, etc.

        For purposes of this title, in the case of any income or gain of 
    a nonresident alien individual or a foreign corporation which--
            (A) is taken into account for any taxable year, but
            (B) is attributable to a sale or exchange of property or the 
        performance of services (or any other transaction) in any other 
        taxable year,

    the determination of whether such income or gain is taxable under 
    section 871(b) or 882 (as the case may be) shall be made as if such 
    income or gain were taken into account in such other taxable year 
    and without regard to the requirement that the taxpayer be engaged 
    in a trade or business within the United States during the taxable 
    year referred to in subparagraph (A).

           (7) Treatment of certain property transactions

        For purposes of this title, if--
            (A) any property ceases to be used or held for use in 
        connection with the conduct of a trade or business within the 
        United States, and
            (B) such property is disposed of within 10 years after such 
        cessation,

    the determination of whether any income or gain attributable to such 
    disposition is taxable under section 871(b) or 882 (as the case may 
    be) shall be made as if such sale or exchange occurred immediately 
    before such cessation and without regard to the requirement that the 
    taxpayer be engaged in a trade or business within the United States 
    during the taxable year for which such income or gain is taken into 
    account.

(d) Treatment of related person factoring income

                           (1) In general

        For purposes of the provisions set forth in paragraph (2), if 
    any person acquires (directly or indirectly) a trade or service 
    receivable from a related person, any income of such person from the 
    trade or service receivable so acquired shall be treated as if it 
    were interest on a loan to the obligor under the receivable.

            (2) Provisions to which paragraph (1) applies

        The provisions set forth in this paragraph are as follows:
            (A) Part III of subchapter G of this chapter (relating to 
        foreign personal holding companies).
            (B) Section 904 (relating to limitation on foreign tax 
        credit).
            (C) Subpart F of part III of this subchapter (relating to 
        controlled foreign corporations).

                   (3) Trade or service receivable

        For purposes of this subsection, the term ``trade or service 
    receivable'' means any account receivable or evidence of 
    indebtedness arising out of--
            (A) the disposition by a related person of property 
        described in section 1221(a)(1), or
            (B) the performance of services by a related person.

                         (4) Related person

        For purposes of this subsection, the term ``related person'' 
    means--
            (A) any person who is a related person (within the meaning 
        of section 267(b)), and
            (B) any United States shareholder (as defined in section 
        951(b)) and any person who is a related person (within the 
        meaning of section 267(b)) to such a shareholder.

                 (5) Certain provisions not to apply

        (A) Certain exceptions

            The following provisions shall not apply to any amount 
        treated as interest under paragraph (1) or (6):
                (i) Subparagraphs (A)(iii)(II), (B)(ii), and 
            (C)(iii)(III) of section 904(d)(2) (relating to exceptions 
            for export financing interest).
                (ii) Subparagraph (A) of section 954(b)(3) (relating to 
            exception where foreign base company income is less than 5 
            percent or $1,000,000).
                (iii) Subparagraph (B) of section 954(c)(2) (relating to 
            certain export financing).
                (iv) Clause (i) of section 954(c)(3)(A) (relating to 
            certain income received from related persons).

        (B) Special rules for possessions

            An amount treated as interest under paragraph (1) shall not 
        be treated as income described in subparagraph (A) or (B) of 
        section 936(a)(1) unless such amount is from sources within a 
        possession of the United States (determined after the 
        application of paragraph (1)).

        (6) Special rule for certain income from loans of a 
                       controlled foreign corporation

        Any income of a controlled foreign corporation (within the 
    meaning of section 957(a)) from a loan to a person for the purpose 
    of financing--
            (A) the purchase of property described in section 1221(a)(1) 
        of a related person, or
            (B) the payment for the performance of services by a related 
        person,

    shall be treated as interest described in paragraph (1).

    (7) Exception for certain related persons doing business in 
                            same foreign country

        Paragraph (1) shall not apply to any trade or service receivable 
    acquired by any person from a related person if--
            (A) the person acquiring such receivable and such related 
        person are created or organized under the laws of the same 
        foreign country and such related person has a substantial part 
        of its assets used in its trade or business located in such same 
        foreign country, and
            (B) such related person would not have derived any foreign 
        base company income (as defined in section 954(a), determined 
        without regard to section 954(b)(3)(A)), or any income 
        effectively connected with the conduct of a trade or business 
        within the United States, from such receivable if it had been 
        collected by such related person.

                           (8) Regulations

        The Secretary shall prescribe such regulations as may be 
    necessary to prevent the avoidance of the provisions of this 
    subsection or section 956(b)(3).\1\
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    \1\ See References in Text note below.
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(e) Rules for allocating interest, etc.

    For purposes of this subchapter--

                 (1) Treatment of affiliated groups

        The taxable income of each member of an affiliated group shall 
    be determined by allocating and apportioning interest expense of 
    each member as if all members of such group were a single 
    corporation.

        (2) Gross income method may not be used for interest

        All allocations and apportionments of interest expense shall be 
    made on the basis of assets rather than gross income.

            (3) Tax-exempt assets not taken into account

        (A) In general

            For purposes of allocating and apportioning any deductible 
        expense, any tax-exempt asset (and any income from such an 
        asset) shall not be taken into account. A similar rule shall 
        apply in the case of the portion of any dividend (other than a 
        qualifying dividend as defined in section 243(b)) equal to the 
        deduction allowable under section 243 or 245(a) with respect to 
        such dividend and in the case of a like portion of any stock the 
        dividends on which would be so deductible and would not be 
        qualifying dividends (as so defined).

        (B) Assets producing exempt extraterritorial income

            For purposes of allocating and apportioning any interest 
        expense, there shall not be taken into account any qualifying 
        foreign trade property (as defined in section 943(a)) which is 
        held by the taxpayer for lease or rental in the ordinary course 
        of trade or business for use by the lessee outside the United 
        States (as defined in section 943(b)(2)).

        (4) Basis of stock in nonaffiliated 10-percent owned 
               corporations adjusted for earnings and profits 
                                   changes

        (A) In general

            For purposes of allocating and apportioning expenses on the 
        basis of assets, the adjusted basis of any stock in a 
        nonaffiliated 10-percent owned corporation shall be--
                (i) increased by the amount of the earnings and profits 
            of such corporation attributable to such stock and 
            accumulated during the period the taxpayer held such stock, 
            or
                (ii) reduced (but not below zero) by any deficit in 
            earnings and profits of such corporation attributable to 
            such stock for such period.

        (B) Nonaffiliated 10-percent owned corporation

            For purposes of this paragraph, the term ``nonaffiliated 10-
        percent owned corporation'' means any corporation if--
                (i) such corporation is not included in the taxpayer's 
            affiliated group, and
                (ii) members of such affiliated group own 10 percent or 
            more of the total combined voting power of all classes of 
            stock of such corporation entitled to vote.

        (C) Earnings and profits of lower tier corporations taken into 
                account

            (i) In general

                If, by reason of holding stock in a nonaffiliated 10-
            percent owned corporation, the taxpayer is treated under 
            clause (iii) as owning stock in another corporation with 
            respect to which the stock ownership requirements of clause 
            (ii) are met, the adjustment under subparagraph (A) shall 
            include an adjustment for the amount of the earnings and 
            profits (or deficit therein) of such other corporation which 
            are attributable to the stock the taxpayer is so treated as 
            owning and to the period during which the taxpayer is 
            treated as owning such stock.
            (ii) Stock ownership requirements

                The stock ownership requirements of this clause are met 
            with respect to any corporation if members of the taxpayer's 
            affiliated group own (directly or through the application of 
            clause (iii)) 10 percent or more of the total combined 
            voting power of all classes of stock of such corporation 
            entitled to vote.
            (iii) Stock owned through entities

                For purposes of this subparagraph, stock owned (directly 
            or indirectly) by a corporation, partnership, or trust shall 
            be treated 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.

        (D) Coordination with subpart F, etc.

            For purposes of this paragraph, proper adjustment shall be 
        made to the earnings and profits of any corporation to take into 
        account any earnings and profits included in gross income under 
        section 951 or under any other provision of this title and 
        reflected in the adjusted basis of the stock.

                        (5) Affiliated group

        For purposes of this subsection--

        (A) In general

            Except as provided in subparagraph (B), the term `affiliated 
        group' has the meaning given such term by section 1504 
        (determined without regard to paragraph (4) of section 1504(b)).

        (B) Treatment of certain financial institutions

            For purposes of subparagraph (A), any corporation described 
        in subparagraph (C) shall be treated as an includible 
        corporation for purposes of section 1504 only for purposes of 
        applying such section separately to corporations so described. 
        This subparagraph shall not apply for purposes of paragraph (6).

        (C) Description

            A corporation is described in this subparagraph if--
                (i) such corporation is a financial institution 
            described in section 581 or 591,
                (ii) the business of such financial institution is 
            predominantly with persons other than related persons 
            (within the meaning of subsection (d)(4)) or their 
            customers, and
                (iii) such financial institution is required by State or 
            Federal law to be operated separately from any other entity 
            which is not such an institution.

        (D) Treatment of bank holding companies

            To the extent provided in regulations--
                (i) a bank holding company (within the meaning of 
            section 2(a) of the Bank Holding Company Act of 1956), and
                (ii) any subsidiary of a financial institution described 
            in section 581 or 591 or of any bank holding company if such 
            subsidiary is predominantly engaged (directly or indirectly) 
            in the active conduct of a banking, financing, or similar 
            business,

        shall be treated as a corporation described in subparagraph (C).

         (6) Allocation and apportionment of other expenses

        Expenses other than interest which are not directly allocable or 
    apportioned to any specific income producing activity shall be 
    allocated and apportioned as if all members of the affiliated group 
    were a single corporation.

                           (7) Regulations

        The Secretary shall prescribe such regulations as may be 
    necessary or appropriate to carry out the purposes of this section, 
    including regulations providing--
            (A) for the resourcing of income of any member of an 
        affiliated group or modifications to the consolidated return 
        regulations to the extent such resourcing or modification is 
        necessary to carry out the purposes of this section,
            (B) for direct allocation of interest expense incurred to 
        carry out an integrated financial transaction to any interest 
        (or interest-type income) derived from such transaction,
            (C) for the apportionment of expenses allocated to foreign 
        source income among the members of the affiliated group and 
        various categories of income described in section 904(d)(1),
            (D) for direct allocation of interest expense in the case of 
        indebtedness resulting in a disallowance under section 246A,
            (E) for appropriate adjustments in the application of 
        paragraph (3) in the case of an insurance company, and
            (F) that this subsection shall not apply for purposes of any 
        provision of this subchapter to the extent the Secretary 
        determines that the application of this subsection for such 
        purposes would not be appropriate.

(f) Allocation of research and experimental expenditures

                           (1) In general

        For purposes of sections 861(b), 862(b), and 863(b), qualified 
    research and experimental expenditures shall be allocated and 
    apportioned as follows:
            (A) Any qualified research and experimental expenditures 
        expended solely to meet legal requirements imposed by a 
        political entity with respect to the improvement or marketing of 
        specific products or processes for purposes not reasonably 
        expected to generate gross income (beyond de minimis amounts) 
        outside the jurisdiction of the political entity shall be 
        allocated only to gross income from sources within such 
        jurisdiction.
            (B) In the case of any qualified research and experimental 
        expenditures (not allocated under subparagraph (A)) to the 
        extent--
                (i) that such expenditures are attributable to 
            activities conducted in the United States, 50 percent of 
            such expenditures shall be allocated and apportioned to 
            income from sources within the United States and deducted 
            from such income in determining the amount of taxable income 
            from sources within the United States, and
                (ii) that such expenditures are attributable to 
            activities conducted outside the United States, 50 percent 
            of such expenditures shall be allocated and apportioned to 
            income from sources outside the United States and deducted 
            from such income in determining the amount of taxable income 
            from sources outside the United States.

            (C) The remaining portion of qualified research and 
        experimental expenditures (not allocated under subparagraphs (A) 
        and (B)) shall be apportioned, at the annual election of the 
        taxpayer, on the basis of gross sales or gross income, except 
        that, if the taxpayer elects to apportion on the basis of gross 
        income, the amount apportioned to income from sources outside 
        the United States shall at least be 30 percent of the amount 
        which would be so apportioned on the basis of gross sales.

        (2) Qualified research and experimental expenditures

        For purposes of this section, the term ``qualified research and 
    experimental expenditures'' means amounts which are research and 
    experimental expenditures within the meaning of section 174. For 
    purposes of this paragraph, rules similar to the rules of subsection 
    (c) of section 174 shall apply. Any qualified research and 
    experimental expenditures treated as deferred expenses under 
    subsection (b) of section 174 shall be taken into account under this 
    subsection for the taxable year for which such expenditures are 
    allowed as a deduction under such subsection.

         (3) Special rules for expenditures attributable to 
                     activities conducted in space, etc.

        (A) In general

            Any qualified research and experimental expenditures 
        described in subparagraph (B)--
                (i) if incurred by a United States person, shall be 
            allocated and apportioned under this section in the same 
            manner as if they were attributable to activities conducted 
            in the United States, and
                (ii) if incurred by a person other than a United States 
            person, shall be allocated and apportioned under this 
            section in the same manner as if they were attributable to 
            activities conducted outside the United States.

        (B) Description of expenditures

            For purposes of subparagraph (A), qualified research and 
        experimental expenditures are described in this subparagraph if 
        such expenditures are attributable to activities conducted--
                (i) in space,
                (ii) on or under water not within the jurisdiction (as 
            recognized by the United States) of a foreign country, 
            possession of the United States, or the United States, or
                (iii) in Antarctica.

                        (4) Affiliated group

            (A) Except as provided in subparagraph (B), the allocation 
        and apportionment required by paragraph (1) shall be determined 
        as if all members of the affiliated group (as defined in 
        subsection (e)(5)) were a single corporation.
            (B) For purposes of the allocation and apportionment 
        required by paragraph (1)--
                (i) sales and gross income from products produced in 
            whole or in part in a possession by an electing corporation 
            (within the meaning of section 936(h)(5)(E)), and
                (ii) dividends from an electing corporation,

        shall not be taken into account, except that this subparagraph 
        shall not apply to sales of (and gross income and dividends 
        attributable to sales of) products with respect to which an 
        election under section 936(h)(5)(F) is not in effect.
            (C) The qualified research and experimental expenditures 
        taken into account for purposes of paragraph (1) shall be 
        adjusted to reflect the amount of such expenditures included in 
        computing the cost-sharing amount (determined under section 
        936(h)(5)(C)(i)(I)).
            (D) The Secretary may prescribe such regulations as may be 
        necessary to carry out the purposes of this paragraph, including 
        regulations providing for the source of gross income and the 
        allocation and apportionment of deductions to take into account 
        the adjustments required by subparagraph (B) or (C).
            (E) Paragraph (6) of subsection (e) shall not apply to 
        qualified research and experimental expenditures.

                           (5) Regulations

        The Secretary shall prescribe such regulations as may be 
    appropriate to carry out the purposes of this subsection, including 
    regulations relating to the determination of whether any expenses 
    are attributable to activities conducted in the United States or 
    outside the United States and regulations providing such adjustments 
    to the provisions of this subsection as may be appropriate in the 
    case of cost-sharing arrangements and contract research.

                          (6) Applicability

        This subsection shall apply to the taxpayer's first taxable year 
    (beginning on or before August 1, 1994) following the taxpayer's 
    last taxable year to which Revenue Procedure 92-56 applies or would 
    apply if the taxpayer elected the benefits of such Revenue 
    Procedure.

(Aug. 16, 1954, ch. 736, 68A Stat. 278; Pub. L. 89-809, title I, 
Sec. 102(d), Nov. 13, 1966, 80 Stat. 1544; Pub. L. 94-455, title XIX, 
Sec. 1901(a)(113), Oct. 4, 1976, 90 Stat. 1783; Pub. L. 98-369, div. A, 
title I, Secs. 123(a), 127(c), July 18, 1984, 98 Stat. 644, 651; Pub. L. 
99-514, title XII, Secs. 1201(d)(4), 1211(b)(2), 1215(a), (b)(1), 
1221(a)(2), 1223(b)(1), 1242(a), (b), 1275(c)(7), title XVIII, 
Secs. 1810(c)(2), (3), 1899A(21), Oct. 22, 1986, 100 Stat. 2525, 2536, 
2544, 2545, 2550, 2558, 2580, 2599, 2824, 2959; Pub. L. 100-203, title 
X, Sec. 10242(b), Dec. 22, 1987, 101 Stat. 1330-423; Pub. L. 100-647, 
title I, Sec. 1012(a)(1)(B), (d)(7), (10), (g)(5), (h)(1), (2)(A), (3)-
(6), (p)(30), (r), Nov. 10, 1988, 102 Stat. 3494, 3498, 3499, 3501-3503, 
3521, 3525; Pub. L. 101-239, title VII, Sec. 7111, Dec. 19, 1989, 103 
Stat. 2326; Pub. L. 101-508, title XI, Sec. 11401(a), Nov. 5, 1990, 104 
Stat. 1388-472; Pub. L. 102-227, title I, Sec. 101(a), Dec. 11, 1991, 
105 Stat. 1686; Pub. L. 103-66, title XIII, Sec. 13234, Aug. 10, 1993, 
107 Stat. 504; Pub. L. 105-34, title XI, Sec. 1162(a), Aug. 5, 1997, 111 
Stat. 987; Pub. L. 106-170, title V, Sec. 532(c)(2)(N)-(P), Dec. 17, 
1999, 113 Stat. 1931; Pub. L. 106-519, Sec. 4(3), Nov. 15, 2000, 114 
Stat. 2432.)

                       References in Text

    Section 956(b)(3), referred to in subsec. (d)(8), was redesignated 
section 956(c)(3) by Pub. L. 103-66, title XIII, Sec. 13232(a)(1), Aug. 
10, 1993, 107 Stat. 501.
    Section 2(a) of the Bank Holding Company Act of 1956, referred to in 
subsec. (e)(5)(D)(i), is classified to section 1841(a) of Title 12, 
Banks and Banking.


                               Amendments

    2000--Subsec. (e)(3). Pub. L. 106-519 designated existing provisions 
as subpar. (A), inserted heading, and added subpar. (B).
    1999--Subsecs. (c)(4)(B)(iii), (d)(3)(A), (6)(A). Pub. L. 106-170 
substituted ``section 1221(a)(1)'' for ``section 1221(1)''.
    1997--Subsec. (b)(2)(A)(ii). Pub. L. 105-34 struck out ``, or in the 
case of a corporation (other than a corporation which is, or but for 
section 542(c)(7), 542(c)(10), or 543(b)(1)(C) would be, a personal 
holding company) the principal business of which is trading in stocks or 
securities for its own account, if its principal office is in the United 
States'' after ``dealer in stocks or securities''.
    1993--Subsec. (f)(1)(B). Pub. L. 103-66, Sec. 13234(a), substituted 
``50 percent'' for ``64 percent'' in cls. (i) and (ii).
    Subsec. (f)(4)(D). Pub. L. 103-66, Sec. 13234(b)(2), substituted 
``subparagraph (B) or (C)'' for ``subparagraph (C)''.
    Subsec. (f)(5), (6). Pub. L. 103-66, Sec. 13234(b)(1), added pars. 
(5) and (6) and struck out heading and text of former par. (5). Text 
read as follows:
    ``(A) In general.--This subsection shall apply to the taxpayer's 
first 3 taxable years beginning after August 1, 1989, and on or before 
August 1, 1992.
    ``(B) Reduction.--Notwithstanding subparagraph (A), in the case of 
the taxpayer's first taxable year beginning after August 1, 1991, this 
subsection shall only apply to qualified research and experimental 
expenditures incurred during the first 6 months of such taxable year.''
    1991--Subsec. (f)(5). Pub. L. 102-227 amended par. (5) generally. 
Prior to amendment, par. (5) read as follows: ``This subsection shall 
apply to the taxpayer's first 2 taxable years beginning after August 1, 
1989, and on or before August 1, 1991.''
    1990--Subsec. (f)(5). Pub. L. 101-508 substituted ``Years'' for 
``Year'' in heading and amended text generally. Prior to amendment, text 
read as follows:
    ``(A) In general.--Except as provided in this paragraph, this 
subsection shall apply to the taxpayer's first taxable year beginning 
after August 1, 1989, and before August 2, 1990.
    ``(B) Reduction.--Notwithstanding subparagraph (A), this subsection 
shall only apply to that portion of the qualified research and 
experimental expenditures for the taxable year referred to in 
subparagraph (A) which bears the same ratio to the total amount of such 
expenditures as--
        ``(i) the lesser of 9 months or the number of months in the 
    taxable year, bears to
        ``(ii) the number of months in the taxable year.''
    1989--Subsec. (f). Pub. L. 101-239 added subsec. (f).
    1988--Subsec. (b)(2)(A)(ii). Pub. L. 100-647, Sec. 1012(p)(30), 
substituted ``section 542(c)(7), 542(c)(10),'' for ``section 
542(c)(7)''.
    Subsec. (c)(2). Pub. L. 100-647, Sec. 1012(g)(5), struck out at end 
``In applying this paragraph and paragraph (4), interest referred to in 
section 861(a)(1)(A) shall be considered income from sources within the 
United States.''
    Subsec. (c)(4)(B)(i), (ii). Pub. L. 100-647, Sec. 1012(d)(10), 
struck out ``(including any gain or loss realized on the sale or 
exchange of such property)'' after ``section 862(a)(4)'' in cl. (i) and 
``, or gain or loss from the sale or exchange of stock or notes, bonds, 
or other evidences of indebtedness'' after ``dividends or interest'' in 
cl. (ii).
    Subsec. (c)(4)(B)(iii). Pub. L. 100-647, Sec. 1012(d)(7), added cl. 
(iii).
    Subsec. (c)(6). Pub. L. 100-647, Sec. 1012(r)(2), amended par. (6) 
generally. Prior to amendment, par. (6) read as follows: ``For purposes 
of this title, any income or gain of a nonresident alien individual or a 
foreign corporation for any taxable year which is attributable to a sale 
or exchange of property or the performance of services (or any other 
transaction) in any other taxable year shall be treated as effectively 
connected with the conduct of a trade or business within the United 
States if it would have been so treated if such income or gain were 
taken into account in such other taxable year.''
    Subsec. (c)(7). Pub. L. 100-647, Sec. 1012(r)(1), amended par. (7) 
generally. Prior to amendment, par. (7) read as follows: ``For purposes 
of this title, if any property ceases to be used or held for use in 
connection with the conduct of a trade or business within the United 
States, the determination of whether any income or gain attributable to 
a sale or exchange of such property occurring within 10 years after such 
cessation is effectively connected with the conduct of a trade or 
business within the United States shall be made as if such sale or 
exchange occurred immediately before such cessation.''
    Subsec. (d)(5)(A)(i). Pub. L. 100-647, Sec. 1012(a)(1)(B), 
substituted ``(C)(iii)(III)'' for ``(C)(iii)''.
    Subsec. (e). Pub. L. 100-647, Sec. 1012(h)(6)(B), struck out 
``(except as provided in regulations)'' after ``subchapter''.
    Subsec. (e)(1). Pub. L. 100-647, Sec. 1012(h)(2)(A), struck out 
``from sources outside the United States'' after ``affiliated group''.
    Subsec. (e)(3). Pub. L. 100-647, Sec. 1012(h)(3), inserted sentence 
at end and struck out former last sentence which read as follows: ``A 
similar rule shall apply in the case of any dividend (other than a 
qualifying dividend as defined in section 243(b)) for which a deduction 
is allowable under section 243 or 245(a) and any stock the dividends on 
which would be so deductible and would not be qualifying dividends (as 
so defined).''
    Subsec. (e)(4). Pub. L. 100-647, Sec. 1012(h)(1), substituted 
``nonaffiliated 10-percent owned corporations'' for ``certain 
corporations'' in heading and amended text generally. Prior to 
amendment, text read as follows: ``For purposes of allocating and 
apportioning expenses on the basis of assets, the adjusted basis of any 
asset which is stock in a corporation which is not included in the 
affiliated group and in which members of the affiliated group own 10 
percent or more of the total combined voting power of all classes of 
stock entitled to vote in such corporation shall be--
        ``(A) increased by the amount of the earnings and profits of 
    such corporation attributable to such stock and accumulated during 
    the period the taxpayer held such stock, or
        ``(B) reduced (but not below zero) by any deficit in earnings 
    and profits of such corporation attributable to such stock for such 
    period.''
    Subsec. (e)(5)(B). Pub. L. 100-647, Sec. 1012(h)(4)(B), inserted at 
end ``This subparagraph shall not apply for purposes of paragraph (6).''
    Subsec. (e)(5)(D). Pub. L. 100-647, Sec. 1012(h)(4)(A), added 
subpar. (D).
    Subsec. (e)(6). Pub. L. 100-647, Sec. 1012(h)(5), substituted 
``directly allocable or apportioned'' for ``directly allocable and 
apportioned''.
    Subsec. (e)(7)(D) to (F). Pub. L. 100-647, Sec. 1012(h)(6)(A), added 
subpars. (D) to (F).
    1987--Subsec. (c)(4)(C). Pub. L. 100-203 inserted ``or part II'' 
after ``part I''.
    1986--Pub. L. 99-514, Sec. 1215(b)(1), inserted ``and special 
rules'' in section catchline.
    Subsec. (c)(1)(A). Pub. L. 99-514, Sec. 1242(b)(1), inserted 
reference to pars. (6) and (7).
    Subsec. (c)(1)(B). Pub. L. 99-514, Sec. 1242(b)(2), inserted 
``paragraph (6) or (7) or in''.
    Subsec. (c)(2). Pub. L. 99-514, Sec. 1899A(21), inserted a comma 
between ``section 871(h)'' and ``section 881(a)''.
    Subsec. (c)(4)(B)(iii). Pub. L. 99-514, Sec. 1211(b)(2), struck out 
cl. (iii), which read as follows: ``is derived from the sale or exchange 
(without the United States) through such office or other fixed place of 
business of personal property described in section 1221(1), except that 
this clause shall not apply if the property is sold or exchanged for 
use, consumption, or disposition outside the United States and an office 
or other fixed place of business of the taxpayer outside the United 
States participated materially in such sale or exchange.''
    Subsec. (c)(6), (7). Pub. L. 99-514, Sec. 1242(a), added pars. (6) 
and (7).
    Subsec. (d)(5)(A)(i). Pub. L. 99-514, Sec. 1201(d)(4), amended cl. 
(i) generally. Prior to amendment, cl. (i) read as follows: 
``Subparagraphs (A), (B), (C), and (D) of section 904(d)(2) (relating to 
interest income to which separate limitation applies) and subparagraph 
(J) of section 904(d)(3) (relating to interest from members of same 
affiliated group).''
    Pub. L. 99-514, Sec. 1810(c)(3), inserted ``and subparagraph (J) of 
section 904(d)(3) (relating to interest from members of same affiliated 
group)''.
    Subsec. (d)(5)(A)(ii). Pub. L. 99-514, Sec. 1223(b)(1), substituted 
``less than 5 percent or $1,000,000'' for ``less than 10 percent''.
    Subsec. (d)(5)(A)(iii). Pub. L. 99-514, Sec. 1221(a)(2), amended cl. 
(iii) generally, substituting ``section 954(c)(2) (relating to certain 
export financing)'' for ``section 954(c)(3) (relating to certain income 
derived in active conduct of trade or business)''.
    Subsec. (d)(5)(A)(iv). Pub. L. 99-514, Sec. 1221(a)(2), amended cl. 
(iv) generally, substituting ``Clause (i) of section 954(c)(3)(A) 
(relating to'' for ``Subparagraphs (A) and (B) of section 954(c)(4) 
(relating to exception for''.
    Subsec. (d)(5)(B). Pub. L. 99-514, Sec. 1275(c)(7), amended subpar. 
(B) generally, striking out cl. (i) heading, substituting ``An amount'' 
for ``Any amount'', and striking out cl. (ii), Virgin Islands 
corporations, which read as follows: ``Subsection (b) of section 934 
shall not apply to any amount treated as interest under paragraph (1) 
unless such amount is from sources within the Virgin Islands (determined 
after the application of paragraph (1)).''
    Subsec. (d)(7), (8). Pub. L. 99-514, Sec. 1810(c)(2), added par. (7) 
and redesignated former par. (7) as (8).
    Subsec. (e). Pub. L. 99-514, Sec. 1215(a), added subsec. (e).
    1984--Subsec. (c)(2). Pub. L. 98-369, Sec. 127(c), substituted 
``section 871(a)(1), section 871(h) section 881(a), or section 881(c)'' 
for ``section 871(a)(1) or section 881(a)''.
    Subsec. (d). Pub. L. 98-369, Sec. 123(a), added subsec. (d).
    1976--Subsec. (a). Pub. L. 94-455, Sec. 1901(a)(113)(A), substituted 
in heading ``Produced'' for ``Sale, etc.'' and struck out in text 
provisions relating to the definition of sale and sold.
    Subsec. (c)(4)(B)(i). Pub. L. 94-455, Sec. 1901(a)(113)(B), 
substituted ``sale or exchange'' for ``sale''.
    Subsec. (c)(4)(B)(iii). Pub. L. 94-455, Sec. 1901(a)(113)(B), (C), 
substituted ``sold or exchanged'' for ``sold'' and ``sale or exchange'' 
for ``sale'' wherever appearing.
    Subsec. (c)(5)(C). Pub. L. 94-455, Sec. 1901(a)(113)(B), substituted 
``sale or exchange'' for ``sale'' wherever appearing.
    1966--Pub. L. 89-809 designated existing provisions as subsec. (a) 
and added subsecs. (b) and (c).


                    Effective Date of 2000 Amendment

    Amendment by Pub. L. 106-519 applicable to transactions after Sept. 
30, 2000, with special rules relating to existing foreign sales 
corporations, see section 5 of Pub. L. 106-519, set out as an Effective 
Date note under section 941 of this title.


                    Effective Date of 1999 Amendment

    Amendment by Pub. L. 106-170 applicable to any instrument held, 
acquired, or entered into, any transaction entered into, and supplies 
held or acquired on or after Dec. 17, 1999, see section 532(d) of Pub. 
L. 106-170, set out as a note under section 170 of this title.


                    Effective Date of 1997 Amendment

    Section 1162(b) of Pub. L. 105-34 provided that: ``The amendment 
made by subsection (a) [amending this section] shall apply to taxable 
years beginning after December 31, 1997.''


                    Effective Date of 1991 Amendment

    Section 101(b) of Pub. L. 102-227 provided that: ``The amendment 
made by subsection (a) [amending this section] shall apply to taxable 
years beginning after August 1, 1989.''


                    Effective Date of 1990 Amendment

    Section 11401(b) of Pub. L. 101-508 provided that: ``The amendment 
made by subsection (a) [amending this section] shall apply to taxable 
years beginning after August 1, 1989.''


                    Effective Date of 1988 Amendment

    Amendment by Pub. L. 100-647 effective, except as otherwise 
provided, as if included in the provision of the Tax Reform Act of 1986, 
Pub. L. 99-514, to which such amendment relates, see section 1019(a) of 
Pub. L. 100-647, set out as a note under section 1 of this title.


                    Effective Date of 1987 Amendment

    Amendment by Pub. L. 100-203 applicable to taxable years beginning 
after Dec. 31, 1987, see section 10242(d) of Pub. L. 100-203, set out as 
a note under section 816 of this title.


                    Effective Date of 1986 Amendment

    Amendment by section 1201(d)(4) of Pub. L. 99-514 applicable to 
taxable years beginning after Dec. 31, 1986, except as otherwise 
provided, see section 1201(e) of Pub. L. 99-514, set out as a note under 
section 904 of this title.
    Amendment by section 1211(b)(2) of Pub. L. 99-514 applicable to 
taxable years beginning after Dec. 31, 1986, except as otherwise 
provided, see section 1211(c) of Pub. L. 99-514, set out as an Effective 
Date note under section 865 of this title.
    Section 1215(c) of Pub. L. 99-514, as amended by Pub. L. 100-647, 
title I, Sec. 1012(h)(7), Nov. 10, 1988, 102 Stat. 3504; Pub. L. 104-
191, title V, Sec. 521(a), Aug. 21, 1996, 110 Stat. 2103, provided that:
    ``(1) In general.--Except as otherwise provided in this subsection, 
the amendments made by this section [amending this section] shall apply 
to taxable years beginning after December 31, 1986.
    ``(2) Transitional rules.--
        ``(A) General phase-in.--
            ``(i) In general.--In the case of the 1st 3 taxable years of 
        the taxpayer beginning after December 31, 1986, the amendments 
        made by this section shall not apply to interest expenses paid 
        or accrued by the taxpayer during the taxable year with respect 
        to an aggregate amount of indebtedness which does not exceed the 
        general phase-in amount.
            ``(ii) General phase-in amount.--Except as provided in 
        clause (iii), the general phase-in amount for purposes of clause 
        (i) is the applicable percentage (determined under the following 
        table) of the aggregate amount of indebtedness of the taxpayer 
        outstanding on November 16, 1985:




                                          The applicable
  ``In the case of the:                   percentage is:
    1st taxable year....................    75
    2nd taxable year....................    50
    3rd taxable year....................    25.


            ``(iii) Lower limit where taxpayer reduces indebtedness.--
        For purposes of applying this subparagraph to interest expenses 
        attributable to any month, the general phase-in amount shall in 
        no event exceed the lowest amount of indebtedness of the 
        taxpayer outstanding as of the close of any preceding month 
        beginning after November 16, 1985. To the extent provided in 
        regulations, the average amount of indebtedness outstanding 
        during any month shall be used (in lieu of the amount 
        outstanding as of the close of such month) for purposes of the 
        preceding sentence.
        ``(B) Consolidation rule not to apply to certain interest.--
            ``(i) In general.--In the case of the 1st 5 taxable years of 
        the taxpayer beginning after December 31, 1986--
                ``(I) subparagraph (A) shall not apply for purposes of 
            paragraph (1) of section 864(e) of the Internal Revenue Code 
            of 1986 (as added by this section), but
                ``(II) such paragraph (1) shall not apply to interest 
            expenses paid or accrued by the taxpayer during the taxable 
            year with respect to an aggregate amount of indebtedness 
            which does not exceed the special phase-in amount.
            ``(ii) Special phase-in amount.--The special phase-in amount 
        for purposes of clause (i) is the sum of--
                ``(I) the general phase-in amount as determined for 
            purposes of subparagraph (A),
                ``(II) the 5-year phase-in amount, and
                ``(III) the 4-year phase-in amount.
    For purposes of applying this subparagraph to interest expense 
        attributable to any month, the special phase-in amount shall in 
        no event exceed the limitation determined under subparagraph 
        (A)(iii).
            ``(iii) 5-year phase-in amount.--The 5-year phase-in amount 
        is the lesser of--
                ``(I) the applicable percentage (determined under the 
            following table for purposes of this subclause) of the 5-
            year debt amount, or
                ``(II) the applicable percentage (determined under the 
            following table for purposes of this subclause) of the 5-
            year debt amount reduced by paydowns:


                                 The applicable        The applicable
                                 percentage for        percentage for
    ``In the case of the:          purposes of           purposes of
                                subclause (I) is:    subclause (II) is:

1st taxable year............  8\1/3\..............           10
2nd taxable year............  16\2/3\.............           25
3rd taxable year............  25..................           50
4th taxable year............  33\1/3\.............          100
5th taxable year............  16\2/3\.............          100.


            ``(iv) 4-year phase-in amount.--The 4-year phase-in amount 
        is the lesser of--
                ``(I) the applicable percentage (determined under the 
            following table for purposes of this subclause) of the 4-
            year debt amount, or
                ``(II) the applicable percentage (determined under the 
            following table for purposes of this subclause) of the 4-
            year debt amount reduced by paydowns to the extent such 
            paydowns exceed the 5-year debt amount:


                                 The applicable        The applicable
                                 percentage for        percentage for
    ``In the case of the:          purposes of           purposes of
                                subclause (I) is:    subclause (II) is:

1st taxable year............  5...................         6\1/4\
2nd taxable year............  10..................         16\2/3\
3rd taxable year............  15..................         37\1/2\
4th taxable year............  20..................           100
5th taxable year............  0...................           0.


            ``(v) 5-year debt amount.--The term `5-year debt amount' 
        means the excess (if any) of--
                ``(I) the amount of the outstanding indebtedness of the 
            taxpayer on May 29, 1985, over
                ``(II) the amount of the outstanding indebtedness of the 
            taxpayer as of the close of December 31, 1983.
    The 5-year debt amount shall not exceed the aggregate amount of 
        indebtedness of the taxpayer outstanding on November 16, 1985.
            ``(vi) 4-year debt amount.--The term `4-year debt amount' 
        means the excess (if any) of--
                ``(I) the amount referred to in clause (v)(II), over
                ``(II) the amount of the outstanding indebtedness of the 
            taxpayer as of the close of December 31, 1982.
    The 4-year debt amount shall not exceed the aggregate amount of 
        indebtedness of the taxpayer outstanding on November 16, 1985, 
        reduced by the 5-year debt amount.
            ``(vii) Paydowns.--For purposes of applying this 
        subparagraph to interest expenses attributable to any month, the 
        term `paydowns' means the excess (if any) of--
                ``(I) the aggregate amount of indebtedness of the 
            taxpayer outstanding on November 16, 1985, over
                ``(II) the lowest amount of indebtedness of the taxpayer 
            outstanding as of the close of any preceding month beginning 
            after November 16, 1985 (or, to the extent provided in 
            regulations under subparagraph (A)(iii), the average amount 
            of indebtedness outstanding during any such month).
        ``(C) Coordination of subparagraphs (a) and (b).--In applying 
    subparagraph (B), there shall first be taken into account 
    indebtedness to which subparagraph (A) applies.
        ``(D) Special rules.--
            ``(i) In the case of the 1st 9 taxable years of the taxpayer 
        beginning after December 31, 1986, the amendments made by this 
        section shall not apply to interest expenses paid or accrued by 
        the taxpayer during the taxable year with respect to an 
        aggregate amount of indebtedness which does not exceed the 
        applicable percentage (determined under the following table) of 
        the indebtedness described in clause (iii) or (iv):

                                                          The applicable
    ``In the case of the:                                 percentage is:
            1st taxable year....................                  90    
            2nd taxable year....................                  80    
            3rd taxable year....................                  70    
            4th taxable year....................                  60    
            5th taxable year....................                  50    
            6th taxable year....................                  40    
            7th taxable year....................                  30    
            8th taxable year....................                  20    
            9th taxable year....................                  10.   

            ``(ii) The provisions of this subparagraph shall apply in 
        lieu of the provisions of subparagraphs (A) and (B).
            ``(iii) Indebtedness outstanding on may 29, 1985.--
        Indebtedness is described in this clause if it is indebtedness 
        (which was outstanding on May 29, 1985) of a corporation 
        incorporated on June 13, 1917, which has its principal place of 
        business in Bartlesville, Oklahoma.
            ``(iv) Indebtedness outstanding on may 29, 1985.--
        Indebtedness is described in this clause if it is indebtedness 
        (which was outstanding on May 29, 1985) of a member of an 
        affiliated group (as defined in section 1504(a) [of the Internal 
        Revenue Code of 1986]), the common parent of which was 
        incorporated on August 26, 1926, and has its principal place of 
        business in Harrison, New York.
        ``(E) Treatment of affiliated group.--For purposes of this 
    paragraph, all members of the same affiliated group of corporations 
    (as defined in section 864(e)(5)(A) of the Internal Revenue Code of 
    1986, as added by this section) shall be treated as 1 taxpayer 
    whether or not such members filed a consolidated return.
        ``(F) Election to have paragraph not apply.--A taxpayer may 
    elect (at such time and in such manner as the Secretary of the 
    Treasury or his delegate may prescribe) to have this paragraph not 
    apply. In the case of members of the same affiliated group (as so 
    defined), such an election may be made only if each member consents 
    to such election.
    ``(3) Special rule.--
        ``(A) In general.--In the case of a qualified corporation, in 
    lieu of applying paragraph (2), the amendments made by this section 
    shall not apply to interest expenses allocable to any indebtedness 
    to the extent such indebtedness does not exceed $500,000,000 if--
            ``(i) the indebtedness was incurred to develop or improve 
        existing property that is owned by the taxpayer on November 16, 
        1985, and was acquired with the intent to develop or improve the 
        property,
            ``(ii) the loan agreement with respect to the indebtedness 
        provides that the funds are to be utilized for purposes of 
        developing or improving the above property, and
            ``(iii) the debt to equity ratio of the companies that join 
        in the filing of the consolidated return is less than 15 
        percent.
        ``(B) Qualified corporation.--For purposes of subparagraph (A), 
    the term `qualified corporation' means a corporation--
            ``(i) which was incorporated in Delaware on June 29, 1964,
            ``(ii) the principal subsidiary of which is a resident of 
        Arkansas, and
            ``(iii) which is a member of an affiliated group the average 
        daily United States production of oil of which is less than 
        50,000 barrels and the average daily United States refining of 
        which is less than 150,000 barrels.
    ``(4) Special rules for subsidiary.--The amendments made by this 
section shall not apply to interest on up to the applicable dollar 
amount of indebtedness of a subsidiary incorporated on February 11, 
1975, the indebtedness of which on May 6, 1986, included--
        ``(A) $100,000,000 face amount of 11\3/4\ percent notes due in 
    1990,
        ``(B) $100,000,000 of 8\3/4\ percent notes due in 1989,
        ``(C) 6\3/4\ percent Japanese yen notes due in 1991, and
        ``(D) 5\3/8\ percent Swiss franc bonds due in 1994.
For purposes of this paragraph, the term `applicable dollar amount' 
means $600,000,000 in the case of taxable years beginning in 1987 
through 1991, $500,000,000 in the case of the taxable year beginning in 
1992, $400,000,000 in the case of the taxable year beginning in 1993, 
$300,000,000 in the case of the taxable year beginning in 1994, 
$200,000,000 in the case of the taxable year beginning in 1995, 
$100,000,000 in the case of the taxable year beginning in 1996, and zero 
in the case of taxable years beginning after 1996.
    ``[(5) Repealed. Pub. L. 104-191, title V, Sec. 521(a), Aug. 21, 
1996, 110 Stat. 2103.]
    ``(6) Special rules for allocating general and administrative 
expenses.--
        ``(A) In general.--In the case of an affiliated group of 
    domestic corporations the common parent of which has its principal 
    office in New Brunswick, New Jersey, and has a certificate of 
    organization which was filed with the Secretary of the State of New 
    Jersey on November 10, 1887, the amendments made by this section 
    shall not apply to the phase-in percentage of general and 
    administrative expenses paid or incurred in its 1st 3 taxable years 
    beginning after December 31, 1986.
        ``(B) Phase-in percentage.--For purposes of subparagraph (A):




  ``In the case of taxable                The phase-in
    years beginning in:                   percentage is:
    1987................................    75
    1988................................    50
    1989................................    25.''


    [Section 521(b) of Pub. L. 104-191 provided that:
    [``(1) In general.--The amendment made by this section [amending 
section 1215(c) of Pub. L. 99-514, set out above] shall apply to taxable 
years beginning after December 31, 1995.
    [``(2) Special rule.--In the case of the first taxable year 
beginning after December 31, 1995, the pre-effective date portion of the 
interest expense of the corporation referred to in such paragraph (5) of 
such section 1215(c) [of Pub. L. 99-514] for such taxable year shall be 
allocated and apportioned without regard to such amendment. For purposes 
of the preceding sentence, the pre-effective date portion is the amount 
which bears the same ratio to the interest expense for such taxable year 
as the number of days during such taxable year before the date of the 
enactment of this Act [Aug. 21, 1996] bears to 366.'']
    Amendment by section 1221(a)(2) of Pub. L. 99-514 applicable to 
taxable years of foreign corporations beginning after Dec. 31, 1986, 
except as otherwise provided, see section 1221(g) of Pub. L. 99-514, set 
out as a note under section 954 of this title.
    Section 1223(c) of Pub. L. 99-514 provided that: ``The amendments 
made by this section [amending this section and sections 881 and 954 of 
this title] shall apply to taxable years beginning after December 31, 
1986.''
    Section 1242(c) of Pub. L. 99-514 provided that: ``The amendments 
made by this section [amending this section] shall apply to taxable 
years beginning after December 31, 1986.''
    Amendment by section 1275(c)(7) of Pub. L. 99-514 applicable to 
taxable years beginning after Dec. 31, 1986, with certain exceptions and 
qualifications, see section 1277 of Pub. L. 99-514, set out as a note 
under section 931 of this title.
    Amendment by section 1810(c)(2), (3) of Pub. L. 99-514 effective, 
except as otherwise provided, as if included in the provisions of the 
Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment 
relates, see section 1881 of Pub. L. 99-514, set out as a note under 
section 48 of this title.


                    Effective Date of 1984 Amendment

    Section 123(c) of Pub. L. 98-369, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
    ``(1) In general.--Except as provided in paragraph (2), the 
amendments made by this section [amending this section and section 956 
of this title] shall apply to accounts receivable and evidences of 
indebtedness transferred after March 1, 1984, in taxable years ending 
after such date.
    ``(2) Transitional rule.--The amendments made by this section shall 
not apply to accounts receivable and evidences of indebtedness acquired 
after March 1, 1984, and before March 1, 1994, by a Belgian corporation 
in existence on March 1, 1984, in any taxable year ending after such 
date, but only to the extent that the amount includible in gross income 
by reason of section 956 of the Internal Revenue Code of 1986 [formerly 
I.R.C. 1954] with respect to such corporation for all such taxable years 
is not reduced by reason of this paragraph by more than the lesser of--
        ``(A) $15,000,000 or
        ``(B) the amount of the Belgian corporation's adjusted basis on 
    March 1, 1984, in stock of a foreign corporation formed to issue 
    bonds outside the United States to the public.''
    Amendment by section 127(c) of Pub. L. 98-369 applicable to interest 
received after July 18, 1984, with respect to obligations issued after 
such date, in taxable years ending after such date, see section 
127(g)(1) of Pub. L. 98-369, set out as a note under section 871 of this 
title.


                    Effective Date of 1976 Amendment

    Amendment by Pub. L. 94-455 effective for taxable years beginning 
after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out as a 
note under section 2 of this title.


                    Effective Date of 1966 Amendment

    Amendment by Pub. L. 89-809 applicable with respect to taxable years 
beginning after Dec. 31, 1966, except that in applying section 
864(c)(4)(B)(iii) of this title with respect to a binding contract 
entered into on or before Feb. 24, 1966, activities in the United States 
on or before such date in negotiating or carrying out such contract 
shall not be taken into account, see section 102(e)(1) of Pub. L. 89-
809, set out as a note under section 861 of this title.


  Applicability of Certain Amendments by Pub. L. 99-514 in Relation to 
                   Treaty Obligations of United States

    For applicability of amendment by section 1201(d)(4) of Pub. L. 99-
514 notwithstanding any treaty obligation of the United States in effect 
on Oct. 22, 1986, and for nonapplication of amendments by sections 
1211(b)(2) and 1242(a) of Pub. L. 99-514 to the extent application of 
such amendments would be contrary to any treaty obligation of the United 
States in effect on Oct. 22, 1986, with provision that for such purposes 
any amendment by title I of Pub. L. 100-647 be treated as if it had been 
included in the provision of Pub. L. 99-514 to which such amendment 
relates, see section 1012(aa)(2) to (4) of Pub. L. 100-647, set out as a 
note under section 861 of this title.


           Plan Amendments Not Required Until January 1, 1989

    For provisions directing that if any amendments made by subtitle A 
or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or title XVIII 
[Secs. 1800-1899A] of Pub. L. 99-514 require an amendment to any plan, 
such plan amendment shall not be required to be made before the first 
plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. 
L. 99-514, as amended, set out as a note under section 401 of this 
title.

                  Section Referred to in Other Sections

    This section is referred to in sections 865, 871, 881, 885, 904, 
936, 956 of this title.
