,,ii  #aai? ,,congress  #a/ ,session    
,s4 #bjag  ,,9 ,,! ,,s5ate ,,( ,,!      
,,unit$ ,,/ates  ,june #aj1 #bjbe ,mr4  
,%eehy introduc$ ! foll[+ bill2 :i* 0   
read twice & ref]r$ to ! ,committee on  
,f9ance  ,a ,,bill  ,to am5d ! ,int]nal 
,rev5ue ,code ( #aihf to provide = ,s   
corporation re=m1 & = o!r purposes4  #a4
  ,%ort title2 ref]5ce  7a7  ,%ort      
,title  ,?is ,act may be cit$ z ! ,s    
,corporation ,mod]nization ,act ( #bjbe4
  7b7  ,am5dm5t ( #aihf ,code  ,except z
 o!rwise expressly provid$1 :5ev] 9 ?is 
,act an am5dm5t or repeal is express$ 9 
t]ms ( an am5dm5t to1 or repeal (1 a    
section or o!r provision1 ! ref]5ce %all
 be consid]$ to be made to a section or 
o!r provision ( ! ,int]nal ,rev5ue ,code
 ( #aihf4  #b4  ,treatm5t ( ,s          
corporation built-9 ga9 am\nt ^u dea? ( 
%>ehold]  7a7  ,9 g5]al  ,"p ,,ii (     
sub*apt] ,s ( *apt] #a is am5d$ by add+ 
at ! end ! foll[+3  #acfi4  ,treatm5t ( 
,s corporation built-9 ga9 am\nt ^u dea?
 ( %>ehold]  7a7  ,9 g5]al  ,a p]son    

hold+ /ock 9 an elect+ ,s corporation ! 
basis ( :i* is det]m9$ "u section       
#ajad7;a7 7h]eaft] 9 ?is section ref]r$ 
to z ! %>ehold]7 %all be all[$ a        
d$uction ) respect to ! amortizable ,s  
corporation built-9 ga9 am\nt4 ,except z
 provid$ "u subsection 7b71 ! am\nt (   
su* d$uction = any taxable ye> %all be  
det]m9$ by amortiz+ ! amortizable ,s    
corporation built-9 ga9 am\nt ov] !     
#ae-ye> p]iod beg9n+ ) ! mon? :i*       
includes ! applicable valuation date4   
7b7  ,d$uction 9 case ( disposition ( ,s
 corporation prop]ty  7#a7  ,accel]at$  
d$uction 9 case ( disposition (         
amortizable ,s corporation built-9 ga9  
prop]ty  7,a7  ,9 g5]al  ,if !re is a   
disposition ( any amortizable ,s        
corporation built-9 ga9 prop]ty1 !n !   
d$uction all[$ "u subsection 7a7 )      
respect to any /ock 7det]m9$ )\t reg>d  
to p>agraph 7#b77 = ! taxable ye> ( !   
%>ehold] 9 :i* or ) :i* ! taxable ye> ( 
! ,s corporation :i* includes ! date (  
su* disposition ends1 %all 7except z    

o!rwise provid$ 9 ?is section7 n be less
 ?an ! less] (--  7i7 ! pro rata %>e ( !
 ga9 recogniz$ on su* disposition1 or   
7ii7 ! am\nt det]m9$ "u subsection      
7c77#a77;,b7 by only tak+ into acc\nt   
su* prop]ty4  7,b7  ,ov]all all[ance n  
increas$  ,except z provid$ 9 p>agraph  
7#b71 no d$uction %all be all[$ "u      
subsection 7a7 ) respect to any /ock =  
any taxable ye> to ! ext5t t su*        
d$uction 7:5 add$ to ! d$uctions        
attributable to amortizable ,s          
corporation built-9 ga9 prop]ty s all[$ 
= all prior taxable ye>s7 exce$s !      
amortizable ,s corporation built-9 ga9  
am\nt ) respect to su* /ock4  7#b7      
,additional d$uction 9 case (           
disposition ( nonamortizable ,s         
corporation built-9 ga9 prop]ty  7,a7   
,9 g5]al  ,if !re is a disposition ( any
 nonamortizable ,s corporation built-9  
ga9 prop]ty1 !n ! am\nt all[able z      
d$uction "u subsection 7a7 ) respect to 
any /ock = ! taxable ye> ( ! %>ehold] 9 
:i* or ) :i* ! taxable ye> ( ! ,s       

corporation :i* includes ! date (       
disposition ends1 %all be increas$ by ! 
less] (--  7i7 ! pro-rata %>e ( ! ga9   
recogniz$ on su* disposition1 or  7ii7 !
 am\nt det]m9$ "u subsection            
7c77#a77;,b7 by only tak+ into acc\nt   
su* prop]ty4  7,b7  ,limitation         
,subp>agraph 7,a7 %all n apply ) respect
 to any /ock = any taxable ye> to !     
ext5t t su* increase 7:5 add$ to !      
increas$ d$uctions s all[$ "u           
subp>agraph 7,a7 = all prior taxable    
ye>s7 exce$s ! non-amortizable ,s       
corporation built-9 ga9 am\nt ) respect 
to su* /ock4  7c7  ,def9itions & special
 rules  ,= purposes ( ?is section-- 7#a7
 ,s corporation built-9 ga9 am\nt ,! t]m
 ,s corporation built-9 ga9 am\nt means 
! less] (--  7,a7 ! excess 7if any7 (-- 
7i7 ! basis ( ! /ock ref]r$ to 9        
subsection 7a7 z det]m9$ "u section     
#ajad7;a71 ov]  7ii7 ! adju/$ basis (   
su* /ock imm$iately be=e ! dea? ( !     
dec$5t1 or  7,b7 ! pro rata %>e 7det]m9$
 z ( ! applicable valuation date7 (--   

7i7 ! aggregate fair m>ket value ( all  
prop]ty held by ! ,s corporation :i* is 
amortizable ,s corporation built-9 ga9  
prop]ty or nonamortizable ,s corporation
 built-9 ga9 prop]ty1 ov]  7ii7 !       
aggregate adju/$ basis ( all su* prop]ty
 held by ! ,s corporation z ( su* date4 
7#b7  ,amortizable ,s corporation       
built-9 ga9 prop]ty  ,! t]m amortizable 
,s corporation built-9 ga9 prop]ty      
means1 z ( ! applicable valuation date1 
! ,s corporation prop]ty t is ( a "*    
subject to depreciation or amortization4
  7#c7  ,amortizable ,s corporation     
built-9 ga9 am\nt  ,! t]m amortizable ,s
 corporation built-9 ga9 am\nt means !  
pro rata %>e ( ! portion ( ! ,s         
corporation built-9 ga9 am\nt t is      
attributable to amortizable ,s          
corporation built-9 ga9 prop]ty4  7#d7  
,non-amortizable ,s corporation built-9 
ga9 prop]ty  ,! t]m non-amortizable ,s  
corporation built-9 ga9 prop]ty means1 z
 ( ! applicable valuation date1 ! ,s    
corporation prop]ty t is n ( a "*       

subject to depreciation or amortization 
7o!r ?an an equity int]e/ 9 an elect+ ,s
 corporation p>tn]%ip74  7#e7           
,non-amortizable ,s corporation built-9 
ga9 am\nt  ,! t]m non-amortizable ,s    
corporation built-9 ga9 am\nt means !   
pro rata %>e ( ! portion ( ! ,s         
corporation built-9 ga9 am\nt t is      
attributable to non-amortizable ,s      
corporation built-9 ga9 prop]ty4  7#f7  
,special rule = p>tn]%ip int]e/s  ,if an
 elect+ ,s corporation owns1 directly or
 indirectly1 an equity int]e/ 9 an      
elect+ ,s corporation p>tn]%ip1 includ+ 
a l[]-ti] elect+ ,s corporation         
p>tn]%ip1 ! amortizable ,s corporation  
built-9 ga9 prop]ty & ! non-amortizable 
,s corporation built-9 ga9 prop]ty %all 
include ! elect+ ,s corporation's       
di/ributive %>e ( su* prop]ty held by ! 
p>tn]%ip4 ,rules simil> to ! rules "u   
p>agraphs 7#a71 7#b71 7#c71 7#d71 & 7#e7
 ( ?is subsection %all apply to det]m9e 
! elect+ ,s corporation's di/ributive   
%>e ( ! amortizable ,s corporation      

built-9 ga9 prop]ty & ! non-amortizable 
,s corporation built-9 ga9 prop]ty held 
by su* p>tn]%ip = purposes ( ?is        
section4 ,= purposes ( subsection 7b71 a
 disposition ( an int]e/ 9 an elect+ ,s 
corporation p>tn]%ip %all be treat$ z a 
disposition ( ! elect+ ,s corporation's 
di/ributive %>e ( ! prop]ty held by su* 
p>tn]%ip4  7#g7  ,elect+ ,s corporation 
,! t]m elect+ ,s corporation means1 )   
respect to any %>ehold]1 any ,s         
corporation :i* elects ! application (  
?is section ) respect to su* %>ehold] at
 su* "t & 9 su* =m & mann] z ! ,secret>y
 may prescribe4  7#h7  ,elect+ ,s       
corporation p>tn]%ip  ,! t]m elect+ ,s  
corporation p>tn]%ip means1 ) respect to
 any %>ehold]1 any equity int]e/ 9 a    
p>tn]%ip own$ directly or indirectly by 
! elect+ ,s corporation1 includ+ a      
l[]-ti] p>tn]%ip1 = :i* ! ,s corporation
 elects ! application ( ?is section )   
respect to su* %>ehold] at su* "t & 9   
su* =m & mann] z ! ,secret>y may        
prescribe4  7#i7  ,applicable valuation 

date  ,! t]m applicable valuation date  
means--  7,a7 9 ! case ( a dec$5t )     
respect to :i* ! executor ( ! dec$5t's  
e/ate elects ! application ( section    
#bjcb1 ! date mon?s aft] ! dec$5t's     
dea?1 &  7,b7 9 ! case ( any o!r dec$5t1
 ! date ( ! dec$5t's dea?4  7d7         
,re*>act]ization ( ga9s z ord9>y income 
to ext5t ( d$uction  ,if-- 7#a7 /ock (  
an ,s corporation ) respect to :i* a    
d$uction 0 all[$ "u ?is section1  7#b7  
amortizable ,s corporation built-9 ga9  
prop]ty ) respect to :i* a d$uction 0   
all[$ "u subsection 7b77#a71 or  7#c7   
nonamortizable ,s corporation built-9   
ga9 prop]ty ) respect to :i* a d$uction 
0 all[$ "u subsection 7b77#b71  is      
dispos$ ( at a ga9 7det]m9$ )\t reg>d to
 :e!r or n su* ga9 is recogniz$ & r$uc$ 
by any am\nt ( ga9 :i* is treat$ z      
ord9>y income "u any o!r provision ( ?is
 subtitle71 ! am\nt ( su* ga9 7or !     
%>ehold]'s pro rata %>e ( su* ga9 9 !   
case ( prop]ty describ$ 9 p>agraph 7#b7 
or 7#c77 %all be treat$ z ga9 :i* is    

ord9>y income 7& %all be recogniz$      
not)/&+ any o!r provision ( ?is         
subtitle7 to ! ext5t ( ! excess ( !     
aggregate d$uctions all[able "u ?is     
section ) respect to su* /ock = !       
taxable ye> ( su* disposition & all     
prior taxable ye>s ov] ! am\nts tak5    
into acc\nt "u ?is subsection = all     
prior taxable ye>s4  7e7  ,t]m9ation (  
d$uction  ,no d$uction %all be all[$ "u 
subsection 7a7 ) respect to any /ock 9  
an elect+ ,s corporation ) respect to   
any p]iod beg9n+ aft] ! e>li] (--  7#a7 
! date on :i* ! corporation's election  
"u section #acfb t]m9ates1 or  7#b7 !   
date on :i* ! %>ehold] transf]s su* /ock
 to any o!r p]son4  7f7  ,treatm5t (    
c]ta9 transf]s  7#a7  ,di/ributions f   
e/ates or tru/s  ,not)/&+ any o!r       
provision ( ?is section1 9 ! case ( a   
di/ribution ( /ock f an e/ate or tru/ to
 a b5efici>y1 ! b5efici>y 7& n ! e/ate  
or tru/7 %all be treat$ z ! %>ehold] to 
:i* ?is section applies ) respect to    
p]iods aft] su* di/ribution4  7#b7      

,c]ta9 transf]s involv+ sp\ses  ,not)/&+
 any o!r provision ( ?is section1 9 !   
case ( a transf] describ$ 9 section1 !  
transf]ee 7& n ! transf]or7 %all be     
treat$ z ! %>ehold] to :i* ?is section  
applies ) respect to p]iods aft] su*    
transf]4  7#c7  ,gifts  ,not)/&+ any o!r
 provision ( ?is section1 9 ! case ( a  
gift1 ! donee 7& n ! donor7 %all be     
treat$ z ! %>ehold] to :i* ?is section  
applies ) respect to p]iods aft] su*    
gift4  7#d7  ,transf]s to tru/s         
,not)/&+ any o!r provision ( ?is        
section1 9 ! case ( a transf] to a tru/1
 ! tru/ 7& n ! transf]or7 %all be treat$
 z ! %>ehold] to :i* ?is section applies
 ) respect to p]iods aft] su* transf]4  
7g7  ,treatm5t ( income 9 respect ( !   
dec$5t  7#a7  ,adju/m5t to built-9 ga9 (
 prop]ty held by s corporation  ,=      
purposes ( subsection 7c77#a77;,b71 !   
fair m>ket value ( any prop]ty tak5 into
 acc\nt "u subp>agraph 7,b77i7 !re( %all
 be decreas$ by any am\nt ( income 9    
respect ( ! dec$5t ) respect to su*     

prop]ty to :i* section #fia applies4 ,= 
purposes ( subsections 7b77#a77;,a7 &   
7b77#b77;,a71 ! ga9 recogniz$ on !      
disposition ( su* prop]ty %all be r$uc$ 
by su* am\nt4  7#b7  ,adju/m5t to basis 
( s corporation /ock  ,= adju/m5t to    
basis ( ,s corporation /ock1 see section
 #acfg7;b77#d77;,b74  7h7  ,report+     
,except z o!rwise provid$ by !          
,secret>y1 = purposes ( section #fjcg1 !
 am\nts det]m9$ "u subsections 7b77#a71 
7b77#b71 7c77#a77;,b71 7c77#c71 7c77#e71
 7c77#f71 7d77#b71 & 7d77#c7 %all be    
treat$ z items ( ! corporation & ! pro  
rata %>e det]m9$ "u su* subsection %all 
be furni%$ to ! %>ehold] "u section     
#fjcg7;b74  4  7b7  ,adju/m5t to basis (
 /ock  7#a7  ,9 g5]al  ,section         
#acfg7;a77#b7 is am5d$ by /rik+ & at !  
end ( subp>agraph 7,d71 by /rik+ ! p]iod
 at ! end ( subp>agraph 7,e7 & ins]t+ 1 
&1 & by ins]t+ aft] subp>agraph 7,e7 !  
foll[+ new subp>agraph3  7,f7 ! am\nt ( 
! %>ehold]'s d$uction "u section #acfi4 
4  7#b7  ,adju/m5t n tak5 into acc\nt 9 

det]m9+ treatm5t ( di/ributions         
,section #acfh is am5d$-- 7,a7 9        
subsection 7d77#a71 by ins]t+ 7o!r ?an  
subsection 7a77#b77;,f7 !re(7 aft]      
section #acfg1 &  7,b7 9 subsection     
7e77#a77;,a7-- 7i7 by /rik+ ?is title & 
! phrase & ins]t+ ?is title1 ! phrase1 &
  7ii7 by ins]t+ 1 & no adju/m5t %all be
 made "u section #acfg7;a77#b77;,f7 aft]
 section #acfg7;a77#b74  7c7  ,cl]ical  
am5dm5t  ,! table ( sections = "p ,,ii (
 sub*apt] ,s ( *apt] #a is am5d$ by add+
 at ! end ! foll[+ new item3  ,sec4     
#acfi4 ,treatm5t ( ,s corporation       
built-9 ga9 am\nt ^u dea? ( %>ehold]4  4
  7d7  ,effective date  ,! am5dm5ts made
 by ?is section %all apply ) respect to 
dec$5ts dy+ aft] ! date ( ! enactm5t (  
?is ,act1 9 taxable ye>s end+ aft] su*  
date4  #c4  ,modifications to ,s        
corporation passive inve/m5t income     
rules  7a7  ,increas$ p]c5tage limit    
,section #acge7;a77#b7 is am5d$ by /rik+
 #be p]c5t & ins]t+ #fj p]c5t4  7b7     
,repeal ( excessive passive income z a  

t]m9ation ev5t  ,section #acfb7;d7 is   
am5d$ by /rik+ p>agraph 7#c74  7c7      
,con=m+ am5dm5ts  7#a7 ,section         
#acge7;b7 is am5d$ by /rik+ p>agraphs   
7#c7 & 7#d7 & ins]t+ ! foll[+ new       
p>agraph3  7#c7  ,passive inve/m5t      
income def9$  7,a7  ,9 g5]al  ,except z 
o!rwise provid$ 9 ?is p>agraph1 ! t]m   
passive inve/m5t income means gross     
receipts d]iv$ f royalties1 r5ts1       
divid5ds1 int]e/1 & annuities4  7,b7    
,exception = int]e/ on notes f sales (  
inv5tory  ,! t]m passive inve/m5t income
 %all n include int]e/ on any obligation
 acquir$ 9 ! ord9>y c\rse ( !           
corporation's trade or bus9ess f its    
sale ( prop]ty describ$ 9 section       
#abba7;a77#a74  7,c7  ,treatm5t ( c]ta9 
l5d+ or f9ance companies  ,if ! ,s      
corporation meets ! requirem5ts (       
section #edb7;c77#f7 = ! taxable ye>1 ! 
t]m passive inve/m5t income %all n      
include gross receipts = ! taxable ye>  
:i* are d]iv$ directly f ! active &     
regul> conduct ( a l5d+ or f9ance       

bus9ess 7z def9$ 9 section              
#edb7;d77#a774  7,d7  ,treatm5t ( c]ta9 
divid5ds  ,if an ,s corporation holds   
/ock 9 a ,c corporation meet+ !         
requirem5ts ( section #aejd7;a77#b71 !  
t]m passive inve/m5t income %all n      
include divid5ds f su* ,c corporation to
 ! ext5t su* divid5ds are attributable  
to ! e>n+s & pr(its ( su* ,c corporation
 d]iv$ f ! active conduct ( a trade or  
bus9ess4  7,e7  ,exception = banks1 etc 
,9 ! case ( a bank 7z def9$ 9 section   
#eha7 or a depository in/itution hold+  
company 7z def9$ 9 section #c7w77#a7 ( !
 ,f$]al ,deposit ,insurance ,act 7#ab   
,u4,s4,c4 #ahac7w77#a7771 ! t]m passive 
inve/m5t income %all n include--  7i7   
int]e/ income e>n$ by su* bank or       
company1 or  7ii7 divid5ds on assets    
requir$ to be held by su* bank or       
company1 includ+ /ock 9 ! ,f$]al ,res]ve
 ,bank1 ! ,f$]al ,home ,loan ,bank1 or !
 ,f$]al ,agricultural ,mortgage ,bank or
 p>ticipation c]tificates issu$ by a    
,f$]al ,int]m$iate ,cr$it ,bank4  7,f7  

,gross receipts f ! sales ( c]ta9 assets
  ,= purposes ( ?is p>agraph-- 7i7      
,capital assets o!r ?an /ock &          
securities ,9 ! case ( dispositions (   
capital assets 7o!r ?an /ock &          
securities71 gross receipts f su*       
dispositions %all be tak5 into acc\nt   
only to ! ext5t ( capital ga9 net income
 !refrom4  7ii7  ,/ock & securities  ,9 
! case ( sales or ex*anges ( /ock or    
securities1 gross receipts %all be tak5 
into acc\nt only to ! ext5t ( ! ga9     
!refrom4  7,g7  ,coord9ation ) section  
#acgd  ,! am\nt ( passive inve/m5t      
income %all be det]m9$ by n tak+ into   
acc\nt any recogniz$ built-9 ga9 or loss
 ( ! ,s corporation = any taxable ye> 9 
! recognition p]iod4 ,t]ms us$ 9 !      
prec$+ s5t5ce %all h ! same respective  
mean+s z :5 us$ 9 section #acgd4  4     
7#b7  7,a7 ,section #bf7;b77#b77;,j7 is 
am5d$ by /rik+ #be p]c5t & ins]t+ #fj   
p]c5t4  7,b7 ,section                   
#acge7;b77#a77;,a77i7 is am5d$ by /rik+ 
#be p]c5t & ins]t+ #fj p]c5t4  7,c7 ,!  

head+ = section #acge is am5d$ by /rik+ 
#be p]c5t & ins]t+ #fj p]c5t4  7,d7 ,!  
item relat+ to section #acge 9 ! table (
 sections = "p ,,iii ( sub*apt] ,s (    
*apt] #a is am5d$ by /rik+ #be p]c5t &  
ins]t+ #fj p]c5t4  7#c7 ,section        
#ajdb7;c77#d77;,a77i7 is am5d$ by /rik+ 
section #acfb7;d77#c77;,c7 & ins]t+     
section #acge7;b77#c74  7#d7 ,section   
#acfb7;f77#a77;,b7 is am5d$ by /rik+    
p>agraph 7#b7 or 7#c7 ( subsection 7d7 &
 ins]t+ subsection 7d77#b74  7d7        
,effective ,date  ,! am5dm5ts made by   
?is section %all apply to taxable ye>s  
beg9n+ aft] ,decemb] #ca1 #bjbd4  #d4   
,nonresid5t ali5 individuals p]mitt$ z  
,s corporation %>ehold]s  7a7  ,9 g5]al 
,section #acfa7;b77#a7 is am5d$ by add+ 
& at ! end ( subp>agraph 7,b71 by /rik+ 
subp>agraph 7,c71 & by r$esignat+       
subp>agraph 7,d7 z subp>agraph 7,c74    
7b7  ,ga9 or loss ( nonresid5t ali5s f  
sale or ex*ange ( ,s corporation /ock   
,section #hfd7;c7 is am5d$ by add+ at ! 
end ! foll[+ new p>agraph3  7#i7  ,ga9  

or loss ( nonresid5t ali5s f sale or    
ex*ange ( ,s corporation /ock  7,a7  ,9 
g5]al  ,not)/&+ any o!r provision ( ?is 
subtitle1 if a nonresid5t ali5          
individual owns1 directly or indirectly1
 /ock ( an ,s corporation :i* is engag$ 
9 any trade or bus9ess )9 ! ,unit$      
,/ates1 ga9 or loss on ! sale or ex*ange
 ( all 7or any portion (7 su* /ock %all 
be treat$ z effectively connect$ ) !    
conduct ( su* trade or bus9ess to !     
ext5t su* ga9 or loss does n exce$ !    
am\nt det]m9$ "u subp>agraph 7,b74  7,b7
  ,am\nt treat$ z effectively connect$  
,! am\nt det]m9$ "u ?is subp>agraph )   
respect to any ,s corporation /ock sold 
or ex*ang$--  7i7 9 ! case ( any ga9 on 
! sale or ex*ange ( ! ,s corporation    
/ock1 is--  7,i7 ! portion ( !          
%>ehold]'s pro rata %>e ( ! am\nt ( ga9 
:i* w\ld h be5 effectively connect$ ) ! 
conduct ( a trade or bus9ess )9 ! ,unit$
 ,/ates if ! ,s corporation _h sold all 
( its assets at _! fair m>ket value z ( 
! date ( ! sale or ex*ange ( su* /ock1  

or  7,,ii7 z]o if no ga9 on su* deem$   
sale w\ld h be5 s effectively connect$1 
&  7ii7 9 ! case ( any loss on ! sale or
 ex*ange ( ! ,s corporation /ock1 is--  
7,i7 ! portion ( ! %>ehold]'s pro rata  
%>e ( ! am\nt ( loss on ! deem$ sale    
describ$ 9 clause 7i77,i7 :i* w\ld h be5
 s effectively connect$1 or  7,,ii7 z]o 
if no loss on su* deem$ sale w\ld h be5 
s effectively connect$4  7,c7           
,application ( c]ta9 o!r rules  ,except 
z o!rwise provid$ by ! ,secret>y1 rules 
simil> to ! rules ( subp>agraphs 7,c71  
7,d71 & 7,e7 ( p>agraph 7#h7 %all apply 
= purposes ( ?is p>agraph4  4  7c7      
,)hold+ tax  ,sub*apt] ,a ( *apt] #c is 
am5d$ by add+ at ! end ! foll[+ new     
section3  #addg4  ,)hold+ tax on        
nonresid5t ali5 ,s corporation          
%>ehold]'s pro rata %>e ( effectively   
connect$ income  7a7  ,9 g5]al  ,if--   
7#a7 an ,s corporation has effectively  
connect$ taxable income = any taxable   
ye>1 &  7#b7 any %>ehold] ( su* ,s      
corporation is a nonresid5t ali51  su*  

,s corporation %all pay a )hold+ tax "u 
?is section at su* "t & 9 su* mann] z ! 
,secret>y may provide4  7b7  ,am\nt (   
)hold+ tax  ,! am\nt ( ! )hold+ tax     
payable by any ,s corporation "u        
subsection 7a7 %all be equal to !       
product (--  7#a7 ! highe/ rate ( tax   
specifi$ 9 section #a1 multipli$ by     
7#b7 ! aggregate pro rata %>es ( !      
effectively connect$ taxable income (   
su* ,s corporation ) respect to         
%>ehold]s :o are nonresid5t ali5s4  7c7 
,effectively connect$ taxable income  ,=
 purposes ( ?is section1 ! t]m          
effectively connect$ taxable income     
means ! taxable income ( ! ,s           
corporation :i* is effectively connect$ 
7or treat$ z effectively connect$7 ) !  
conduct to a trade or bus9ess 9 ! ,unit$
 ,/ates4 ,= purposes ( ! prec$+ s5t5ce1 
! ,s corporation %all be all[$ a        
d$uction = depletion ) respect to oil & 
gas wells b ! am\nt ( su* d$uction %all 
be det]m9$ )\t reg>d to sections #fac & 
#fac;,a4  7d7  ,treatm5t ( nonresid5t   

ali5 %>ehold]s  7#a7  ,all[ance ( cr$it 
,ea* nonresid5t ali5 :o is a %>ehold] ( 
an ,s corporation %all be all[$ a cr$it 
"u section #cc = su* %>ehold]'s %>e ( ! 
)hold+ tax paid by ! ,s corporation "u  
?is section4 ,su* cr$it %all be all[$ = 
! %>ehold]'s taxable ye> 9 :i* 7or )    
:i*7 ! ,s corporation taxable ye> 7= :i*
 su* tax 0 paid7 ends4  7#b7  ,cr$it    
treat$ z di/ribut$ to %>ehold]  ,except 
z provid$ 9 regulations1 a nonresid5t   
ali5 %>ehold]'s %>e ( any )hold+ tax    
paid by ! ,s corporation "u ?is section 
%all be treat$ z di/ribut$ to su*       
%>ehold] by su* ,s corporation on !     
e>li] (--  7,a7 ! day on :i* su* tax 0  
paid by ! ,s corporation1 or  7,b7 ! la/
 day ( ! ,s corporation's taxable ye> = 
:i* su* tax 0 paid4  7e7  ,special rules
 = )hold+ on dispositions ( ,s          
corporation /ock  7#a7  ,9 g5]al        
,except z provid$ 9 ?is subsection1 if  
any portion ( ! ga9 7if any7 on any     
disposition ( /ock 9 an ,s corporation  
w\ld be treat$ "u section #hfd7;c77#i7 z

 effectively connect$ ) ! conduct ( a   
trade or bus9ess )9 ! ,unit$ ,/ates1 !  
transf]ee %all be requir$ to d$uct &    
)hold a tax equal to #aj p]c5t ( ! am\nt
 realiz$ on ! disposition4  7#b7        
,exception if non=eign affidavit        
furni%$2 o!r special rules  ,except z   
o!rwise provid$ by ! ,secret>y1 rules   
simil> to ! rules ( p>agraphs 7#b7 ?r\gh
 7#f7 ( section #addf7;f7 %all apply =  
purposes ( ?is subsection4  7f7         
,regulations  ,! ,secret>y %all         
prescrib$ su* regulations or o!r        
guidance z may be necess>y or           
appropriate to c>ry out ! purposes ( ?is
 section1 includ+ regulations or o!r    
guidance provid+--  7#a7 t = purposes ( 
section #ffee1 ! )hold+ tax impos$ "u   
?is section %all be treat$ z a tax      
impos$ by section #aa & any ,s          
corporation requir$ to pay su* tax %all 
be treat$ z a corporation to :i* su*    
section applies1 &  7#b7 appropriate    
adju/m5ts 9 apply+ section #ffee )      
respect to su* )hold+ tax4  4  7d7      

,con=m+ am5dm5ts  7#a7 ,section         
#acfa7;c77#b77;,b77v7 is am5d$ by /rik+ 
! la/ s5t5ce4  7#b7 ,section            
#fdja7;b77#b7 is am5d$ by ins]t+ or     
#addg aft] section #addf4  7#c7 ,! table
 ( sections = sub*apt] ,a ( *apt] #c is 
am5d$ by add+ at ! end ! foll[+ new     
item3  ,sec4 #addg4 ,)hold+ tax on      
nonresid5t ali5 ,s corporation          
%>ehold]'s pro rata %>e ( effectively   
connect$ income4  4  7e7  ,effective    
dates  7#a7  ,9 g5]al  ,except z o!rwise
 provid$ 9 ?is subsection1 ! am5dm5ts   
made by ?is section %all apply to       
taxable ye>s beg9n+ aft] ,decemb] #ca1  
#bjbd4  7#b7  ,ga9 or loss2 )hold+  ,!  
am5dm5ts made by subsections 7b71 7c71  
7d77#b71 & 7d77#c7 %all apply to sales1 
ex*anges1 & dispositions aft] ,decemb]  
#ca1 #bjbd4  #e4  ,employees ( a firm   
c\nt$ z a s+le %>ehold] t[>d %>ehold]   
limit ( ,s corporation  7a7  ,9 g5]al   
,subsection 7c7 ( section #acfa is am5d$
 by add+ at ! end ! foll[+3  7#g7       
,employees treat$ z "o %>ehold]  7,a7   

,9 g5]al  ,= purposes ( subsection      
7b77#a77;,a71 !re %all be treat$ z "o   
%>ehold] all employees 7& _! e/ates7 ( a
 corporation & any :olly own$ bus9ess   
entities 7z det]m9$ by ! ,secret>y7 (   
su* corporation4  7,b7  ,employee def9$ 
,= purposes ( ?is p>agraph1 ! t]m       
employee means any individual t w\ld be 
an employee describ$ "u p>agraph 7#a7 or
 7#b7 ( section #caba7;d74  4  7b7      
,effective date  ,! am5dm5t made by ?is 
section %all apply to taxable ye>s      
beg9n+ aft] ,decemb] #ca1 #bjbd4  #f4   
,expansion ( ,s corporation eligible    
%>ehold]s to include ,i,r,as  7a7  ,9   
,g5]al  ,section #acfa7;c77#b77;,a77vi7 
is am5d$ to read z foll[s3  7vi7 ,a tru/
 :i* con/itutes an individual retirem5t 
acc\nt "u section #djh7;a71 includ+ "o  
designat$ z a ,ro? ,,ira "u section     
#djh;,a4  4  7b7  ,sale ( ,/ock 9 ,,ira 
,relat+ to ,s ,corporation ,election    
,exempt ,f ,prohibit$ ,transaction      
,rules  ,section #dige7;d77#af7 is      
am5d$-- 7#a7 by /rik+ subp>agraphs 7,a7 

& 7,b7 & by r$esignat+ subp>agraphs     
7,c71 7,d71 7,e71 & 7,f7 z subp>agraphs 
7,a71 7,b71 7,c71 & 7,d71 respectively1 
&  7#b7 by /rik+ su* bank or company 9  
subp>agraph 7,a7 7z s r$esignat$7 &     
ins]t+ ! issu] ( su* /ock4  7c7         
,effective ,date  ,! am5dm5ts made by   
?is section %all take effect on ,janu>y 
#a1 #bjbf4  #g4  ,transf] ( susp5d$     
losses incid5t to dea?  7a7  ,9 g5]al   
,section #acff7;d77#b77;,b7 is am5d$ by 
ins]t+ 1 or any transf] incid5t to !    
dea? ( ! transf]or1 aft] any transf]    
describ$ 9 section #ajda7;a74  7b7      
,effective date  ,! am5dm5t made by ?is 
section %all apply to transf]s incid5t  
to dea?s occurr+ aft] ! date ( !        
enactm5t ( ?is ,act4  #h4  ,repeal (    
inclusion 9 gross income ( def]r$       
comp5sation "u nonqualifi$ def]r$       
comp5sation plans  7a7  ,9 g5]al        
,subp>t ,a ( "p ,i ( sub*apt] ,d ( *apt]
 #a is am5d$ by /rik+ section #dji;,a 7&
 by /rik+ ! item relat+ to su* section f
 ! table ( sections = su* subp>t74  7b7 

,con=m+ am5dm5ts  7#a7 ,section         
#bf7;b77#b7 is am5d$ by /rik+           
subp>agraph 7,v7 & by r$esignat+        
subp>agraphs 7,w7 ?r\gh 7,z7 z          
subp>agraphs 7,v7 ?r\gh 7,y71           
respectively4  7#b7 ,section            
#dcj7;c77#g77;,d77iv77,i7 is am5d$ by   
ins]t+ z 9 effect be=e its repeal aft]  
section #dji;,a4  7#c7  7,a7 ,section   
#deg;,a is am5d$ by r$esignat+          
subsections 7d7 & 7e7 z subsections 7e7 
& 7f7 & by ins]t+ aft] subsection 7c7 ! 
foll[+ new subsection3  7d7             
,nonqualifi$ def]r$ comp5sation plan  ,=
 purposes ( ?is section--  7#a7  ,9     
g5]al  ,! t]m nonqualifi$ def]r$        
comp5sation plan means--  7,a7 any plan 
t provides = ! def]ral ( comp5sation1   
o!r ?an--  7i7 a qualifi$ employ] plan1 
&  7ii7 any bona fide vacation leave1   
sick leave1 comp5satory "t1 disability  
pay1 or dea? b5efit plan1 &  7,b7 any   
plan t provides a "r to comp5sation bas$
 on ! appreciation 9 value ( a specifi$ 
numb] ( equity units ( ! s]vice         

recipi5t4  7#b7  ,qualifi$ employ] plan 
,! t]m qualifi$ employ] plan means--    
7,a7 any plan1 contract1 p5sion1 acc\nt1
 or tru/ describ$ 9 subp>agraph 7,a7 or 
7,b7 ( section #bai7;g77#e7 7)\t reg>d  
to subp>agraph 7,a77iii771  7,b7 any    
eligible def]r$ comp5sation plan 7)9 !  
mean+ ( section #deg7;b771 &  7,c7 any  
plan describ$ 9 section #dae7m74  7#c7  
,plan includes arrangem5ts1 etc ,! t]m  
plan includes any agreem5t or           
arrangem5t1 includ+ an agreem5t or      
arrangem5t t includes "o p]son4  7#d7   
,treatm5t ( e>n+s  ,ref]5ces to def]r$  
comp5sation %all be treat$ z includ+    
ref]5ces to income 7:e!r actual or      
notional7 attributable to su*           
comp5sation or su* income4  7#e7        
,aggregation rules  ,except z provid$ by
 ! ,secret>y1 rules simil> to ! rules ( 
subsections 7b7 & 7c7 ( section #dad    
%all apply4  7#f7  ,treatm5t ( qualifi$ 
/ock  ,an arrangem5t "u :i* an employee 
may receive qualifi$ /ock 7z def9$ 9    
section #hc7;i77#b77 %all n be treat$ z 

a nonqualifi$ def]r$ comp5sation plan ) 
respect to su* employee solely because (
 su* employee's election1 or ability to 
make an election1 to def] recognition ( 
income "u section #hc7;i74  4  7,b7     
,section #deg;,a7e77#c71 z r$esignat$ by
 subp>agraph 7,a71 is am5d$ to read z   
foll[s3  7#c7  #ab-mon? exception       
,comp5sation %all n be treat$ z def]r$ =
 purposes ( ?is section if ! s]vice     
provid] receives paym5t ( su*           
comp5sation n lat] ?an #ab mon?s aft] ! 
end ( ! taxable ye> ( ! s]vice recipi5t 
dur+ :i* ! "r to ! paym5t ( su*         
comp5sation is no long] subject to a    
sub/antial risk ( =feiture4  4  7,c7    
,section #deg;,a7e71 z r$esignat$ by    
subp>agraph 7,a71 is am5d$ by /rik+     
p>agraph 7#e74  7#d7 ,section           
#hgg;,a7g77#f7 is am5d$ by /rik+        
#dji;,a7a77#a77;,b714  7#e7 ,section    
#cdja7;a7 is am5d$ by /rik+ ! la/       
s5t5ce4  7#f7 ,section #fjda is am5d$ by
 /rik+ subsection 7g74  7#g7 ,section   
#fjea7;a7 is am5d$-- 7,a7 by /rik+      

p>agraph 7#ac7 & r$esg9at+ p>agraphs    
7#ad7 ?r\gh 7#ag7 z p>agraphs 7#ac7     
?r\gh 7#af71 respectively1 &  7,b7 by   
/rik+ ! la/ s5t5ce4  7c7 ,effective date
 ,! am5dm5ts made by ?is section %all   
apply to taxable ye>s beg9n+ aft]       
,decemb] #ca1 #bjbe4