Permits a foreign corporation that elected to be treated as a domestic corporation to revoke such election and be treated as a domestic corporation transferring its property to a foreign corporation with no gain recognized on such transfer.
Provides: (1) a transitional 2004 through 2008 sliding-scale deduction for an FSC/ETI beneficiary based on the corporation's 2001 FSC/ETI benefit; and (2) special rules for 2003 and for fiscal year taxpayers. Defines "FSC/ETI benefit."
Allows a deduction for income attributable to U.S. production activities equal to ten percent of qualified production activities. Provides a 2006 through 2009 phase-in period. Defines "qualified production activities" as: (1) the portion of the modified taxable income attributable to domestic activities; and (2) the domestic/foreign fraction.
Sets forth related provisions with respect to: (1) determination of income attributable to domestic production activities; (2) domestic production gross receipts; (3) qualifying production property; (4) domestic/foreign fraction; and (5) special rules.
[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 970 Introduced in Senate (IS)]
108th CONGRESS
1st Session
S. 970
To amend the Internal Revenue Code of 1986 to preserve jobs and
production activities in the United States.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
May 1, 2003
Mr. Hollings 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 preserve jobs and
production activities in the United States.
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 ``Job Protection Act of 2003''.
SEC. 2. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.
(a) In General.--Section 114 of the Internal Revenue Code of 1986
is hereby repealed.
(b) Conforming Amendments.--
(1) Subpart E of part III of subchapter N of chapter 1 of
such Code (relating to qualifying foreign trade income) is
hereby repealed.
(2) The table of subparts for such part III is amended by
striking the item relating to subpart E.
(3) The table of sections for part III of subchapter B of
chapter 1 of such Code is amended by striking the item relating
to section 114.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to transactions occurring after the date of the enactment
of this Act.
(2) Binding contracts.--The amendments made by this section
shall not apply to any transaction in the ordinary course of a
trade or business which occurs pursuant to a binding contract--
(A) which is between the taxpayer and a person who
is not a related person (as defined in section
943(b)(3) of such Code, as in effect on the day before
the date of the enactment of this Act), and
(B) which is in effect on April 11, 2003, and at
all times thereafter.
For purposes of this paragraph, a binding contract shall
include a purchase option, renewal option, or replacement
option which is included in such contract.
(d) Revocation of Section 943(e) Elections.--
(1) In general.--In the case of a corporation that elected
to be treated as a domestic corporation under section 943(e) of
the Internal Revenue Code of 1986 (as in effect on the day
before the date of the enactment of this Act)--
(A) the corporation may revoke such election,
effective as of the date of the enactment of this Act,
and
(B) if the corporation does revoke such election--
(i) such corporation shall be treated as a
domestic corporation transferring (as of the
date of the enactment of this Act) all of its
property to a foreign corporation in connection
with an exchange described in section 354 of
the Internal Revenue Code of 1986, and
(ii) no gain or loss shall be recognized on
such transfer.
(2) Exception.--Subparagraph (B)(ii) of paragraph (1) shall
not apply to gain on any asset held by the revoking corporation
if--
(A) the basis of such asset is determined in whole
or in part by reference to the basis of such asset in
the hands of the person from whom the revoking
corporation acquired such asset,
(B) the asset was acquired by transfer (not as a
result of the election under section 943(e) of such
Code) occurring on or after the 1st day on which its
election under section 943(e) of such Code was
effective, and
(C) a principal purpose of the acquisition was the
reduction or avoidance of tax.
(e) General Transition.--
(1) In general.--In the case of a taxable year ending after
the date of the enactment of this Act and beginning before
January 1, 2009, for purposes of chapter 1 of such Code, each
current FSC/ETI beneficiary shall be allowed a deduction equal
to the transition amount determined under this subsection with
respect to such beneficiary for such year.
(2) Current fsc/eti beneficiary.--The term ``current FSC/
ETI beneficiary'' means any corporation which entered into one
or more transactions during its taxable year beginning in
calendar year 2001 with respect to which FSC/ETI benefits were
allowable.
(3) Transition amount.--For purposes of this subsection--
(A) In general.--The transition amount applicable
to any current FSC/ETI beneficiary for any taxable year
is the phaseout percentage of the adjusted base period
amount.
(B) Phaseout percentage.--
(i) In general.--In the case of a taxpayer
using the calendar year as its taxable year,
the phaseout percentage shall be determined
under the following table:
The phaseout
``Years: percentage is:
2004 and 2005......
100
2006...............
75
2007...............
75
2008...............
50
2009 and thereafter
0.''
(ii) Special rule for 2003.--The phaseout
percentage for 2003 shall be the amount that
bears the same ratio to 100 percent as the
number of days after the date of the enactment of this Act bears to
365.
(iii) Special rule for fiscal year
taxpayers.--In the case of a taxpayer not using
the calendar year as its taxable year, the
phaseout percentage is the weighted average of
the phaseout percentages determined under the
preceding provisions of this paragraph with
respect to calendar years any portion of which
is included in the taxpayer's taxable year. The
weighted average shall be determined on the
basis of the respective portions of the taxable
year in each calendar year.
(4) Adjusted base period amount.--For purposes of this
subsection--
(A) In general.--In the case of a taxpayer using
the calendar year as its taxable year, the adjusted
base period amount for any taxable year is the base
period amount multiplied by the applicable percentage,
as determined in the following table:
The applicable
``Years: percentage is:
2003...............
100
2004...............
100
2005...............
105
2006...............
110
2007...............
115
2008...............
120
2009 and thereafter
0.''
(B) Base period amount.--The base period amount is
the aggregate FSC/ETI benefits for the taxpayer's
taxable year beginning in calendar year 2001.
(C) Special rules for fiscal year taxpayers, etc.--
Rules similar to rules of clauses (ii) and (iii) of
paragraph (3)(B) shall apply for purposes of this
paragraph.
(5) FSC/ETI benefit.--For purposes of this subsection, the
term ``FSC/ETI benefit'' means--
(A) amounts excludable from gross income under
section 114 of such Code, and
(B) the exempt foreign trade income of related
foreign sales corporations from property acquired from
the taxpayer (determined without regard to section
923(a)(5) of such Code (relating to special rule for
military property), as in effect on the day before the
date of the enactment of the FSC Repeal and
Extraterritorial Income Exclusion Act of 2000).
In determining the FSC/ETI benefit there shall be excluded any
amount attributable to a transaction with respect to which the
taxpayer is the lessor unless the leased property was
manufactured or produced in whole or in part by the taxpayer.
(6) Special rule for farm cooperatives.--Under regulations
prescribed by the Secretary, determinations under this
subsection with respect to an organization described in section
943(g)(1) of such Code, as in effect on the day before the date
of the enactment of this Act, shall be made at the cooperative
level and the purposes of this subsection shall be carried out
by excluding amounts from the gross income of its patrons.
(7) Certain rules to apply.--Rules similar to the rules of
section 41(f) of such Code shall apply for purposes of this
subsection.
(8) Coordination with binding contract rule.--The deduction
determined under paragraph (1) for any taxable year shall be
reduced by the phaseout percentage of any FSC/ETI benefit
realized for the taxable year by reason of subsection (c)(2).
The preceding sentence shall not apply to any FSC/ETI benefit
attributable to a transaction described in the last sentence of
paragraph (5).
(9) Special rule for taxable year which includes date of
enactment.--In the case of a taxable year which includes the
date of the enactment of this Act, the deduction allowed under
this subsection to any current FSC/ETI beneficiary shall in no
event exceed--
(A) 100 percent of such beneficiary's adjusted base
period amount for calendar year 2003, reduced by
(B) the aggregate FSC/ETI benefits of such
beneficiary with respect to transactions occurring
during the portion of the taxable year ending on the
date of the enactment of this Act.
SEC. 3. DEDUCTION RELATING TO INCOME ATTRIBUTABLE TO UNITED STATES
PRODUCTION ACTIVITIES.
(a) In General.--Part VIII of subchapter B of chapter 1 of the
Internal Revenue Code of 1986 (relating to special deductions for
corporations) is amended by adding at the end the following new
section:
``SEC. 250. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES.
``(a) In General.--In the case of a corporation, there shall be
allowed as a deduction an amount equal to 10 percent of the qualified
production activities income of the corporation for the taxable year.
``(b) Phasein.--In the case of taxable years beginning in 2006,
2007, 2008 or 2009, subsection (a) shall be applied by substituting for
the percentage contained therein the transition percentage determined
under the following table:
``Taxable years The transition
beginning in: percentage is:
2006...............
1
2007...............
2
2008...............
4
2009...............
9
``(c) Qualified Production Activities Income.--For purposes of this
section, the term `qualified production activities income' means the
product of--
``(1) the portion of the modified taxable income of the
taxpayer which is attributable to domestic production
activities, and
``(2) the domestic/foreign fraction.
``(d) Determination of Income Attributable to Domestic Production
Activities.--For purposes of this section--
``(1) In general.--The portion of the modified taxable
income which is attributable to domestic production activities
is so much of the modified taxable income for the taxable year
as does not exceed--
``(A) the taxpayer's domestic production gross
receipts for such taxable year, reduced by
``(B) the sum of--
``(i) the costs of goods sold that are
allocable to such receipts,
``(ii) other deductions, expenses, or
losses directly allocable to such receipts, and
``(iii) a ratable portion of other
deductions, expenses, and losses that are not
directly allocable to such receipts or another
class of income.
``(2) Allocation method.--Except as provided in
regulations, allocations under clauses (ii) and (iii) of
paragraph (1)(B) shall be made under the principles used in
determining the portion of taxable income from sources within
and without the United States.
``(3) Special rule.--
``(A) For purposes of determining costs under
clause (i) of paragraph (1)(B), any item or service
brought into the United States without a transfer price
meeting the requirements of section 482 shall be
treated as acquired by purchase, and its cost shall be
treated as not less than its value when it entered the
United States. A similar rule shall apply in
determining the adjusted basis of leased or rented
property where the lease or rental gives rise to
domestic production gross receipts.
``(B) In the case of any property described in
subparagraph (A) that had been exported by the taxpayer
for further manufacture, the increase in cost (or
adjusted basis) under subparagraph (A) shall not exceed
the difference between the value of the property when
exported and the value of the property when brought
back into the United States after the further
manufacture.
``(4) Modified taxable income.--The term `modified taxable
income' means taxable income computed without regard to the
deduction allowable under this section.
``(e) Domestic Production Gross Receipts.--For purposes of this
section--
``(1) In general.--The term `domestic production gross
receipts' means the gross receipts of the taxpayer which are
derived from--
``(A) any sale, exchange, or other disposition of,
or
``(B) any lease, rental or license of,
qualifying production property which was manufactured,
produced, grown, or extracted in whole or in significant part
by the taxpayer within the United States.
``(2) Special rule.--The term `domestic production gross
receipts' includes gross receipts of the taxpayer from the
sale, exchange, or other disposition of replacement parts if--
``(A) such parts are sold by the taxpayer as
replacement parts for qualified production property
produced or manufactured in whole or significant part
by the taxpayer in the United States, and
``(B) the taxpayer (or a related party) owns the
designs for such parts.
``(3) Related party.--The term `related party' means any
corporation which is a member of the taxpayer's expanded
affiliated group.
``(f) Qualifying Production Property.--For purposes of this
section--
``(1) In general.--Except as otherwise provided in this
paragraph, the term `qualifying production property' means--
``(A) any tangible personal property,
``(B) any computer software, and
``(C) any films, tapes, records, or similar
reproductions.
``(2) Exclusions from qualifying production property.--The
term `qualifying production property' shall not include--
``(A) consumable property that is sold, leased, or
licensed by the taxpayer as an integral part of the
provision of services,
``(B) oil or gas (or any primary product thereof),
``(C) electricity,
``(D) water supplied by pipeline to the consumer,
``(E) any unprocessed timber which is softwood,
``(F) utility services, or
``(G) any property (not described in paragraph
(1)(B)) which is a film, tape, recording, book,
magazine, newspaper, or similar property the market for
which is primarily topical or otherwise essentially
transitory in nature.
For purposes of subparagraph (E), the term `unprocessed timber'
means any log, cant, or similar form of timber.
``(g) Domestic/Foreign Fraction.--For purposes of this section--
``(1) In general.--The term `domestic/foreign fraction'
means a fraction--
``(A) the numerator of which is the value of the
domestic production of the taxpayer, and
``(B) the denominator of which is the value of the
worldwide production of the taxpayer.
``(2) Value of domestic production.--The value of domestic
production is the excess of--
``(A) the domestic production gross receipts, over
``(B) the cost of purchased inputs allocable to
such receipts that are deductible under this chapter
for the taxable year.
``(3) Purchased inputs.--
``(A) In general.--Purchased inputs are any of the
following items acquired by purchase:
``(i) Services (other than services of
employees) used in manufacture, production,
growth, or extraction activities.
``(ii) Items consumed in connection with
such activities.
``(iii) Items incorporated as part of the
property being manufactured, produced, grown,
or extracted.
``(B) Special rule.--Rules similar to the rules of
subsection (d)(3) shall apply for purposes of this
subsection.
``(4) Value of worldwide production.--
``(A) In general.--The value of worldwide
production shall be determined under the principles of
paragraph (2), except that--
``(i) worldwide production gross receipts
shall be taken into account, and
``(ii) paragraph (3)(B) shall not apply.
``(B) Worldwide production gross receipts.--The
worldwide production gross receipts is the amount that
would be determined under subsection (e) if such
subsection were applied without any reference to the
United States.
``(5) Special rule for affiliated groups.--
``(A) In general.--In the case of a taxpayer that
is a member of an expanded affiliated group, the
domestic/foreign fraction shall be the amount
determined under the preceding provisions of this
subsection by treating all members of such group as a
single corporation.
``(B) Expanded affiliated group.--The term
`expanded affiliated group' means an affiliated group
as defined in section 1504(a), determined--
``(i) by substituting `50 percent' for `80
percent' each place it appears, and
``(ii) without regard to paragraphs (2),
(3), and (4) of section 1504(b).
``(h) Definitions and Special Rules.--
``(1) United states.--For purposes of this section, the
term `United States' includes the Commonwealth of Puerto Rico
and any other possession of the United States.
``(2) Special rule for partnerships.--For purposes of this
section, a corporation's distributive share of any partnership
item shall be taken into account as if directly realized by the
corporation.
``(3) Coordination with minimum tax.--The deduction under
this section shall be allowed for purposes of the tax imposed
by section 55; except that for purposes of section 55,
alternative minimum taxable income shall be taken into account
in determining the deduction under this section.
``(4) Ordering rule.--The amount of any other deduction
allowable under this chapter shall be determined as if this
section had not been enacted.
``(5) Coordination with transition rules.--For purposes of
this section--
``(A) domestic production gross receipts shall not
include gross receipts from any transaction if the
binding contract transition relief of section 2(c)(2)
of the Job Protection Act of 2003 applies to such
transaction, and
``(B) any deduction allowed under section 2(e) of
such Act shall be disregarded in determining the
portion of the taxable income which is attributable to
domestic production gross receipts.''.
(b) Clerical Amendment.--The table of sections for part VIII of
subchapter B of chapter 1 of such Code is amended by adding at the end
the following new item:
``Sec. 250. Income attributable to
domestic production
activities.''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after 2005.
(2) Application of section 15.--Section 15 of the Internal
Revenue Code of 1986 shall apply to the amendments made by this
section as if they were changes in a rate of tax.
<all>
Introduced in Senate
Sponsor introductory remarks on measure. (CR S5657-5658)
Read twice and referred to the Committee on Finance. (text of measure as introduced: CR S5658-5660)
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