Foreign Tax Credit Improvement Act of 2002

Foreign Tax Credit Improvement Act of 2002 - Amends the Internal Revenue Code to allow for a ten-year foreign tax credit carryforward.

Revises the application of look-thru rules to dividends from noncontrolled section 902 corporations.

[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 2676 Introduced in Senate (IS)]







107th CONGRESS
  2d Session
                                S. 2676

 To amend the Internal Revenue Code of 1986 to allow a 10-year foreign 
 tax credit carryforward and to apply the look-thru rules for purposes 
    of the foreign tax credit limitation to dividends from foreign 
         corporations not controlled by a domestic corporation.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             June 25, 2002

  Mr. Torricelli (for himself and Mr. Hatch) 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 allow a 10-year foreign 
 tax credit carryforward and to apply the look-thru rules for purposes 
    of the foreign tax credit limitation to dividends from foreign 
         corporations not controlled by a domestic corporation.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Foreign Tax Credit Improvement Act 
of 2002''.

SEC. 2. 10-YEAR FOREIGN TAX CREDIT CARRYFORWARD.

    (a) In General.--Section 904(c) of the Internal Revenue Code of 
1986 (relating to carryback and carryover of excess tax paid) is 
amended by striking ``in the first, second, third, fourth, or fifth'' 
and inserting ``in any of the first 10''.
    (b) Effective Date.--The amendment made by this section shall apply 
to excess foreign taxes which (without regard to such amendment) may be 
carried forward to any taxable year ending after the date of the 
enactment of this Act.

SEC. 3. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM NONCONTROLLED 
              SECTION 902 CORPORATIONS.

    (a) In General.--Section 904(d)(4) of the Internal Revenue Code of 
1986 (relating to application of look-thru rules to dividends from 
noncontrolled section 902 corporations) is amended to read as follows:
            ``(4) Look-thru applies to dividends from noncontrolled 
        section 902 corporations.--
                    ``(A) In general.--For purposes of this subsection, 
                any dividend from a noncontrolled section 902 
                corporation with respect to the taxpayer shall be 
                treated as income in a separate category in proportion 
                to the ratio of--
                            ``(i) the portion of earnings and profits 
                        attributable to income in such category, to
                            ``(ii) the total amount of earnings and 
                        profits.
                    ``(B) Special rules.--For purposes of this 
                paragraph--
                            ``(i) In general.--Rules similar to the 
                        rules of paragraph (3)(F) shall apply; except 
                        that the term `separate category' shall include 
                        the category of income described in paragraph 
                        (1)(I).
                            ``(ii) Earnings and profits.--
                                    ``(I) In general.--The rules of 
                                section 316 shall apply.
                                    ``(II) Regulations.--The Secretary 
                                may prescribe regulations regarding the 
                                treatment of distributions out of 
                                earnings and profits for periods before 
                                the taxpayer's acquisition of the stock 
                                to which the distributions relate.
                            ``(iii) Dividends not allocable to separate 
                        category.--The portion of any dividend from a 
                        noncontrolled section 902 corporation which is 
                        not treated as income in a separate category 
                        under subparagraph (A) shall be treated as a 
                        dividend to which subparagraph (A) does not 
                        apply.
                            ``(iv) Look-thru with respect to 
                        carryforwards of credit.--Rules similar to 
                        subparagraph (A) also shall apply to any 
                        carryforward under subsection (c) from a 
                        taxable year beginning before January 1, 2003, 
                        of tax allocable to a dividend from a 
                        noncontrolled section 902 corporation with 
                        respect to the taxpayer.''.
    (b) Conforming Amendments.--
            (1) Subparagraph (E) of section 904(d)(1) of such Code, as 
        in effect both before and after the amendments made by section 
        1105 of the Taxpayer Relief Act of 1997, is hereby repealed.
            (2) Section 904(d)(2)(C)(iii) of such Code, as so in 
        effect, is amended by striking subclause (II) and by 
        redesignating subclause (III) as subclause (II).
            (3) The last sentence of section 904(d)(2)(D) of such Code, 
        as so in effect, is amended to read as follows: ``Such term 
        does not include any financial services income.''.
            (4) Section 904(d)(2)(E) of such Code is amended by 
        striking clauses (ii) and (iv) and by redesignating clause 
        (iii) as clause (ii).
            (5) Section 904(d)(3)(F) of such Code is amended by 
        striking ``(D), or (E)'' and inserting ``or (D)''.
            (6) Section 864(d)(5)(A)(i) of such Code is amended by 
        striking ``(C)(iii)(III)'' and inserting ``(C)(iii)(II)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.
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