951. Amounts included in gross income of United States shareholders
(a) Amounts included. --
(i) his pro rata share (determined under paragraph (2)) of the corporation's subpart F income for such year,
(ii) his pro rata share (determined under section 955(a)(3) as in effect before the enactment of the Tax Reduction Act of 1975) of the corporation's previously excluded subpart F income withdraws from investment in less developed countries for such year, and
(iii) his pro rata share (determined under section 955(a)(3)) of the corporation's previously excluded subpart F income withdrawn from foreign base company shipping operations for such year; and
(B) his pro rata share (determined under section 956(a)(2) of the corporation's increase in earnings invested in United States property for such year (but only to the extent not excluded from gross income under section 959(a)(2)).
(2) Pro rata share of subpart F income. -- The pro rate share referred to in paragraph (1)(A)(i) in the case of any United States shareholder is the amount --
(A) which would have been distributed with respect to the stock which such shareholder owns (within the meaning of section 958(a)) in such corporation if on the last day, in its taxable year, on which the corporation is a controlled foreign corporation it had distributed pro rata to its shareholders an amount (i) which bears the same ratio to its subpart F income for the taxable year, as (ii) the part of such year during which the corporation is a controlled foreign corporation bears to the entire year, reduced by
(B) the amount of distributions received by any other person during such as a dividend with respect to such stock, but only to the extent of the dividend which would have been received if the distribution by the corporation had been the amount (i) which bears the same ratio to the subpart F income of such corporation for the taxable year, as (ii) the part of such year during which such shareholder did not own (within the meaning of section 958(a)) such stock bears to the entire year.
(3) Limitation on pro rata share of previously excluded subpart F income withdrawn from investment. -- For purposes of paragraph (1)(A)(iii), the pro rata share of any United States shareholder of the previously excluded subpart F income of a controlled foreign corporation withdrawn from investment in foreign base company shipping operations shall not exceed an amount --
(A) which bears the same ratio to his pro rata share of such income withdrawn (as determined under section 955(a)(3)) for the taxable year, as
(B) the part of such year during which the corporation is a controlled foreign corporation bears to the entire year.
(4) Limitation on pro rata share of investment in United States property. -- For purposes of paragraph (1)(B), the pro rata share of any United States shareholder in the increase of the earnings of a controlled foreign corporation invested in United States property shall not exceed an amount (A) which bears the same ratio to his pro rata share of such increase (as determined under section 956(a)(2)) for the taxable year, as (B) the part of such year during which the corporation is a controlled foreign corporation bears to the entire year.
(b) United States shareholder defined. -- For purposes of this subpart, the term "United States shareholder" means, with respect to any foreign corporation, a United States Person (as defined in section 957(c)) who owns (within the meaning of section 958(a)), or is considered as owning by applying the rules of ownership of section 958(b), 10 percent of more of the total combined voting power of all classes of stock entitled to vote of such foreign corporation.
(c) Coordination with election of a foreign investment company to distribute income. -- A United States shareholder who, for his taxable year, is a qualified shareholder (within the meaning of section 1247(c)) of a foreign investment company with respect to which an election under section 1247 is in effect shall not be required to include in gross income, for such taxable year, any amount under subsection (a) with respect to such company.
(d) Coordination with foreign personal holding company provisions. -- If, but for this subsection, an amount would be included in the gross income of a United States shareholder for any taxable year both under subsection (a)(1)(A)(i) and under section 551(b) (relating to foreign personal holding company income included in gross income of Untied States shareholder), such amount shall be included in the gross income of such shareholder only under subsection (a)(1)(A).
(e) Foreign trade income not taken into account. --
(1) In general. -- The foreign trade income of a FSC and any deductions which are apportioned or allocated to such income shall not be taken into account under this subpart.
(2) Foreign trade income. -- For purposes of this subsection, the term "foreign trade income" has the meaning given such term by section 923(b), but does not include section 923(a)(2) nonexempt income (within the meaning of section 927(d)(6)).
(f) Coordination with passive foreign investment company provisions. -- If, but for this subsection, an amount would be included in the gross income of a United States shareholder for any taxable year both under subsection (a)(1)(A)(i) and under section 1293 (relating to current taxation of income from certain passive foreign investment companies), such amount shall be included in the gross income of such shareholder only under subsection (a)(1)(A).
952. Subpart F income defined
(a) In general. -- For purposes of this subpart, the term "subpart F income" means, in the case of any controlled foreign corporation, the sum of --
(1) insurance income (as defined under section 953),
(2) the foreign base company income (as determined under section 954),
(3) an amount equal to the product of --
(A) the income of such corporation other than income which --
(i) is attributable to earnings and profits of the foreign corporation included in the gross income of a United States person under section 951 (other than by reason of this paragraph), or
(ii) is described in subsection (b),
multiplied by
(B) the international boycott factor (as determined under section 999),
(4) the sum of the amounts of any illegal bribes, kickbacks, or other payments (within the meaning of section 162(c)) paid by or on behalf of the corporation during the taxable year of the corporation directly or indirectly in an official, employee, or agent in fact of a government, and
(5) the income of such corporation derived from any foreign country during any period during which section 901(j) applies to such foreign country.
The payments referred to in paragraph (4) are payments which would be unlawful under the Foreign Corrupt Practices Act of 1977 of the payor were a United States person. For purposes of paragraph (5), the income described therein shall be reduced, under regulations prescribed by the Secretary, so as to take into account deductions (including taxes) properly allocable to such income.
(b) Exclusion of United States income. -- In the case of a controlled foreign corporation, subpart F income does not include any item of income from sources within the United States which is effectively connected with the conduct by such corporation of a trade or business within the United States unless such item is exempt from taxation (or is subject to a reduced rate of tax) pursuant to a treaty obligation of the United states. For purposes of the preceding sentence, income described in paragraph (2) or (3) of section 921(d) shall be treated as derived form sources within the United states.
(c) Limitation. --
(1) In general. --
(A) Subpart F income limited to current earnings and profits. -- For purposes of subsection (a), the subpart F income of any controlled foreign corporation for any taxable year shall not exceed the earnings and profits of such corporation for any taxable year.
(B) Certain prior year deficits may be taken into account. --
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