PUBLIC LAW 105-34—AUG. 5, 1997 111 STAT. 971 (B) Subparagraph (B) of section 902(c)(4) is amended by striking "3rd foreign corporation" and inserting "sixth tier foreign corporation". (C) The heading for paragraph (3) of section 902(c) is amended by striking "WHERE DOMESTICORPORATION ACQUIRES 10 PERCENT OF FOREIGN CORPORATION" and inserting "WHERE FOREIGN CORPORATION FIRST QUALIFIES". (D) Paragraph (3) of section 902(c) is amended by striking "ownership" each place it appears. (b) SECTION 960 CREDIT. —Paragraph (1) of section 960(a) (relating to special rules for foreign tax credits) is amended to read as follows: "(1) DEEMED PAID CREDIT.— For purposes of subpart A of Applicability, this part, if there is included under section 951(a) in the gross income of a domestic corporation any amount attributable to earnings and profits of a foreign corporation which is a member of a qualified group (as defined in section 902(b)) with respect to the domestic corporation, then, except to the extent provided in regulations, section 902 shall be applied as if the amount so included were a dividend paid by such foreign corporation (determined by applying section 902(c) in accordance with section 904(d)(3)(B)).". (c) EFFECTIVE DATE. — 26 USC 902 note. (1) IN GENERAL.— The amendments made by this section shall apply to taxes of foreign corporations for taxable years of such corporations beginning after the date of enactment of this Act. (2) SPECIAL RULE. —In the case of any chain of foreign corporations described in clauses (i) and (ii) of section 902(b)(2)(B) of the Internal Revenue Code of 1986 (as amended by this section), no liquidation, reorganization, or similar transaction in a taxable year beginning after the date of the enactment of this Act shall have the effect of permitting taxes to be taken into account under section 902 of the Internal Revenue Code of 1986 which could not have been taken into account under such section but for such transaction. Subtitle C—Treatment of Passive Foreign Investment Companies SEC. 1121. UNITED STATES SHAREHOLDERS OF CONTROLLED FOREIGN CORPORATIONS NOT SUBJECT TO PFIC INCLUSION. Section 1296 is amended by adding at the end the following new subsection: "(e) EXCEPTION FOR UNITED STATES SHAREHOLDERS OF CON- TROLLED FOREIGN CORPORATIONS. — "(1) IN GENERAL.— For purposes of this part, a corporation shall not be treated with respect to a shareholder as a passive foreign investment company during the qualified portion of such shareholder's holding period with respect to stock in such corporation. "(2) QUALIFIED PORTION.— For purposes of this subsection, the term 'qualified portion' means the portion of the shareholder's holding period— "(A) which is after December 31, 1997, and
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