100 STAT. 2558
PUBLIC LAW 99-514—OCT. 22, 1986
. fc < no part of the gross income for the taxable year shall be t r e a t e d as foreign base company income or insurance lo income. "(B)
FOREIGN
BASE COMPANY
INCOME
A N D INSURANCE
noi*
INCOME IN EXCESS OF 70 PERCENT OF GROSS INCOME.—If the s u m of the foreign base company income (determined with.1. out regard to paragraph (5)) and the gross insurance income for the taxable year exceeds 70 percent of gross income, the / *t- * e n t i r e gross income for the tax a b l e year shall, subject to the •.T.t. ^ provisions of paragraph s (4) and (5), be t r e a t e d a s foreign base company income o r insurance income (whichever is s r ' >r appropriate). "(C) GROSS INSURANCE INCOME.—For purposes of s u b p a r a -
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g r a p h s (A) and (B), the term 'gross insurance income' means any item of gross income t a k e n into account in determining insurance income under section 953."
(b) TECHNICAL AMENDMENTS. —
(1) Clause (ii) of section 864(d)(5)(A) is amended by striking out "less than 10 p e r c e n t " and inserting in lieu thereof "less than 5 percent or $1,000,000". (2) Clause (i) of section 881(c)(4)(A) is amended by striking out " "less than 10 p e r c e n t " and inserting in lieu thereof "less than 5 percent or $1,000,000". (c) EFFECTIVE D A T E. — The amendments m a d e by this section shall apply to taxable years beginning after December 31, 1986. SEC. 1224. REPEAL OF SPECIAL TREATMENT OF POSSESSIONS CORPORATIONS. (a) GENERAL RULE.—Section 957 (defining controlled foreign corporations; United States persons) is amended by striking o u t subsection (c) and by redesignating subsection (d) as subsection (c). (b) EFFECTIVE D A T E S. —
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(1) IN GENERAL.—The amendment m a d e by subsection (a) shall apply to tax a b l e year s of foreign corporations beginning after December 31, 1986; except that for purposes of applying sections 951(a)(1)(B) and 956 of the I n t e r n a l Revenue Code of 1986. such amendments shall t a k e effect on August 16, 1986. (2) TRANSITIONAL RULE.—In the case of any corporation t r e a t e d a s a controlled foreign corporation by reason of the amendment m a d e by subsection (a), property acquired before August 16, 1986, shall not be t a k e n into account under section 9560?) of the I n t e r n a l Revenue Code of 1986.
SEC. 1225. ONLY EFFECTIVELY CONNECTED CAPITAL GAINS AND LOSSES OF FOREIGN CORPORATIONS TAKEN INTO ACCOUNT FOR PURPOSES OF ACCUMULATED EARNINGS TAX AND PER54, SONAL HOLDING COMPANY PROVISIONS. (a) ACCUMULATED E A R N I N G S TAX.—Subsection (b) of section 535
(relating to adjustments to taxable income) is amended by adding a t the end thereof the following new paragraph: "(9) SPECIAL RULE FOR CAPITAL GAINS A N D LOSSES O F FOREIGN
CORPORATIONS.—In the case of a foreign corporation, paragraph ^' (6) shall be applied by taking into account only g a i n s and losses which a r e effectively connected with the conduct of a trade or business within the United States and a r e not e x e m p t from tax under treaty."
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