II 116TH CONGRESS 1ST SESSION S. 2589 To amend the Internal Revenue Code of 1986 to restore the limitation on downward attribution of stock ownership in applying the constructive ownership rules to controlled foreign corporations, and for other pur- poses. IN THE SENATE OF THE UNITED STATES SEPTEMBER 26, 2019 Mr. ISAKSON introduced the following bill; which was read twice and referred to the Committee on Finance A BILL To amend the Internal Revenue Code of 1986 to restore the limitation on downward attribution of stock owner- ship in applying the constructive ownership rules to con- trolled foreign corporations, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. RESTORATION OF LIMITATION ON DOWNWARD 3 ATTRIBUTION OF STOCK OWNERSHIP IN AP- 4 PLYING CONSTRUCTIVE OWNERSHIP RULES. 5 (a) IN GENERAL.—Section 958(b) of the Internal 6 Revenue Code of 1986 is amended— 7 VerDate Sep 11 2014 02:22 Oct 05, 2019 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S2589.IS S2589 kjohnson on DSK79L0C42 with BILLS 2 •S 2589 IS (1) by inserting after paragraph (3) the fol- 1 lowing: 2 ‘‘(4) Subparagraphs (A), (B), and (C) of sec- 3 tion 318(a)(3) shall not be applied so as to consider 4 a United States person as owning stock which is 5 owned by a person who is not a United States per- 6 son.’’, and 7 (2) by striking ‘‘Paragraph (1)’’ in the last sen- 8 tence and inserting ‘‘Paragraphs (1) and (4)’’. 9 (b) FOREIGN CONTROLLED UNITED STATES SHARE- 10 HOLDERS.—Subpart F of part III of subchapter N of 11 chapter 1 of such Code is amended by inserting after sec- 12 tion 951A the following new section: 13 ‘‘SEC. 951B. AMOUNTS INCLUDED IN GROSS INCOME OF 14 FOREIGN CONTROLLED UNITED STATES 15 SHAREHOLDERS. 16 ‘‘(a) IN GENERAL.—In the case of any foreign con- 17 trolled United States shareholder of a foreign controlled 18 foreign corporation— 19 ‘‘(1) this subpart (other than sections 951A, 20 951(b), 957, and 965) shall be applied with respect 21 to such shareholder (separately from, and in addi- 22 tion to, the application of this subpart without re- 23 gard to this section)— 24 VerDate Sep 11 2014 02:22 Oct 05, 2019 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S2589.IS S2589 kjohnson on DSK79L0C42 with BILLS 3 •S 2589 IS ‘‘(A) by substituting ‘foreign controlled 1 United States shareholder’ for ‘United States 2 shareholder’ each place it appears therein, and 3 ‘‘(B) by substituting ‘foreign controlled 4 foreign corporation’ for ‘controlled foreign cor- 5 poration’ each place it appears therein, and 6 ‘‘(2) sections 951A and 965 shall be applied 7 with respect to such shareholder — 8 ‘‘(A) by treating each reference to ‘United 9 States shareholder’ in such sections as includ- 10 ing a reference to such shareholder, and 11 ‘‘(B) by treating each reference to ‘con- 12 trolled foreign corporation’ in such sections as 13 including a reference to such foreign controlled 14 foreign corporation. 15 ‘‘(b) FOREIGN CONTROLLED UNITED STATES 16 SHAREHOLDER.—For purposes of this section, the term 17 ‘foreign controlled United States shareholder’ means, with 18 respect to any foreign corporation, any United States per- 19 son which would be a United States shareholder with re- 20 spect to such foreign corporation if— 21 ‘‘(1) section 951(b) were applied by substituting 22 ‘more than 50 percent’ for ‘10 percent or more’, and 23 ‘‘(2) section 958(b) were applied without regard 24 to paragraph (4) thereof. 25 VerDate Sep 11 2014 02:22 Oct 05, 2019 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S2589.IS S2589 kjohnson on DSK79L0C42 with BILLS 4 •S 2589 IS ‘‘(c) FOREIGN CONTROLLED FOREIGN CORPORA- 1 TION.—For purposes of this section, the term ‘foreign con- 2 trolled foreign corporation’ means a foreign corporation, 3 other than a controlled foreign corporation, which would 4 be a controlled foreign corporation if section 957(a) were 5 applied— 6 ‘‘(1) by substituting ‘foreign controlled United 7 States shareholders’ for ‘United States share- 8 holders’, and 9 ‘‘(2) by substituting ‘section 958(b) (other than 10 paragraph (4) thereof)’ for ‘section 958(b)’. 11 ‘‘(d) REGULATIONS.—The Secretary shall prescribe 12 such regulations or other guidance as may be necessary 13 or appropriate to carry out the purposes of this section, 14 including regulations or other guidance— 15 ‘‘(1) to treat a foreign controlled United States 16 shareholder or a foreign controlled foreign corpora- 17 tion as a United States shareholder or as a con- 18 trolled foreign corporation, respectively, for purposes 19 of provisions of this title other than this subpart, 20 and 21 ‘‘(2) to prevent the avoidance of the purposes of 22 this section.’’. 23 (c) CLERICAL AMENDMENT.—The table of sections 24 for subpart F of part III of subchapter N of chapter 1 25 VerDate Sep 11 2014 02:22 Oct 05, 2019 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S2589.IS S2589 kjohnson on DSK79L0C42 with BILLS 5 •S 2589 IS of such Code is amended by inserting after the item relat- 1 ing to section 951A the following new item: 2 ‘‘Sec. 951B. Amounts included in gross income of foreign controlled United States shareholders.’’. (d) EFFECTIVE DATE.—The amendments made by 3 this section shall apply to— 4 (1) the last taxable year of foreign corporations 5 beginning before January 1, 2018, and each subse- 6 quent taxable year of such foreign corporations, and 7 (2) taxable years of United States persons in 8 which or with which such taxable years of foreign 9 corporations end. 10 Æ VerDate Sep 11 2014 02:22 Oct 05, 2019 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6301 E:\BILLS\S2589.IS S2589 kjohnson on DSK79L0C42 with BILLS