article: SECTION 1. EXCLUSION FROM GROSS INCOME FOR DISTRIBUTIONS FROM CONTROLLED FOREIGN CORPORATIONS WHICH ARE INVESTED IN CERTAIN PROPERTY LOCATED IN THE UNITED STATES OR USED TO HIRE NEW EMPLOYEES IN THE UNITED STATES. (a) In General.--Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to items specifically excluded from gross income) is amended by redesignating section 137 as section 138 and by inserting after section 136 the following new section: ``SEC. 137. DISTRIBUTIONS FROM CONTROLLED FOREIGN CORPORATIONS WHICH ARE INVESTED IN CERTAIN UNITED STATES PROPERTY OR WHICH ARE USED TO HIRE NEW EMPLOYEES IN THE UNITED STATES. ``(a) Exclusion.--The gross income of a United States shareholder of a controlled foreign corporation shall not include the amount of any qualified distribution received during the taxable year by such shareholder from such corporation. ``(b) Reinvestment Requirements.-- ``(1) In general.--If, as of the close of the reinvestment period with respect to any distribution, the taxpayer fails to meet-- ``(A) the investment in property requirement of subsection (c), or ``(B) the job creation requirement of subsection (d), then the taxpayer's tax imposed by this chapter for the taxable year in which such reinvestment period ends shall be increased by an amount equal to the recapture amount with respect to such distribution. ``(2) Recapture amount.--For purposes of paragraph (1), the term `recapture amount' means an amount equal to the sum of-- ``(A) the shortfall percentage of the reduction in the taxpayer's liability for tax under this chapter which resulted from excluding such distribution from gross income under subsection (a), plus ``(B) the aggregate amount of interest (determined in the manner provided in subsection (e)(4)) on the amount determined under subparagraph (A). ``(3) Shortfall percentage.--For purposes of paragraph (2), the term `shortfall percentage' means the greater of-- ``(A) the investment in property shortfall percentage, or ``(B) the job creation shortfall percentage. ``(4) Investment in property shortfall percentage.--For purposes of paragraph (3), the term `investment in property shortfall percentage' means the percentage which-- ``(A) the excess (if any) of-- ``(i) an amount equal to 50 percent of the distribution involved, over ``(ii) the amount of qualified investment made during the reinvestment period which allocable to such distribution, bears to ``(B) the amount described in subparagraph (A)(i). ``(5) Job creation shortfall percentage.--For purposes of paragraph (3), the term `job creation shortfall percentage' means the percentage which-- ``(A) the excess (if any) of-- ``(i) an amount equal to 12.5 percent of the distribution involved, over ``(ii) the amount of new employee wages paid during the last taxable year of the reinvestment period allocable to such distribution, bears to ``(B) the amount described in subparagraph (A)(i). ``(c) Investment in Property Requirement.--For purposes of this section-- ``(1) Requirement.--A taxpayer meets the investment in property requirement of this subsection if the qualified investment of the taxpayer during the reinvestment period (to the extent not taken into account under this paragraph with respect to any prior distribution) is not less than 50 percent of the amount of the distribution. ``(2) Qualified investment.--The term `qualified investment' means the sum of-- ``(A) the aggregate bases of new qualified property placed in service by the taxpayer, and ``(B) the aggregate cost of used qualified property placed in service by the taxpayer. Rules similar to the rules of subsections (b) and (c) of section 48 (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) shall apply for purposes of this paragraph. ``(3) Qualified property.--For purposes of paragraph (2), the term `qualified property' means-- ``(A) section 38 property (as defined by section 48(a) as in effect on the day before the date of the enactment of the Omnibus Budget Reconciliation Act of 1990), and ``(B) real property (not described in subparagraph (A)) used as an integral part of manufacturing facility (as defined in section 144(a)(12)(C)). The term `qualified property' shall not include any property if the taxpayer is the lessor of the property. ``(4) Recapture if property disposed of, etc.-- ``(A) In general.--If any qualified property is disposed of, or otherwise ceases to be qualified property with respect to the taxpayer, before the close of the recapture period, then the taxpayer's tax imposed by this chapter for the taxable year in which such disposition or cessation occurs shall be increased by the sum of-- ``(i) the recapture percentage of such property's share of the tax benefit under this section, plus ``(ii) the aggregate amount of interest (determined in the manner provided in subsection (e)(4)) on the amount determined under subparagraph (A). ``(B) Definitions.--For purposes of this paragraph-- ``(i) Recapture period.--The term `recapture period' means, with respect to any property, the period consisting of the first full year after the property is placed in service and-- ``(I) the 2 succeeding full years in the case of 3-year property (within the meaning of section 168), ``(II) the 4 succeeding full years in the case of section 38 property other than 3-year property, and ``(III) the 9 succeeding full years in the case of property referred to in paragraph (2)(B). ``(ii) Recapture percentage.--The term `recapture percentage' means the percentage determined under section 50(a)(1)(B); except that-- ``(I) in the case of 3-year property, the percentage set forth in clause (ii) of the table contained in paragraph (1)(B) shall be 66 percent, the percentage set forth in clause (iii) of such table shall be 33 percent, and clauses (iv) and (v) of such table shall not apply, and ``(II) in the case of property referred to in paragraph (2)(B), the percentage shall be 100 percent for the first full year of the recapture period and, for each full year thereafter, shall be 10 percentage points less than the recapture percentage for the prior year. ``(C) Property's share of tax benefit.--A property's share of the tax benefit under this section shall be-- ``(i) an amount which bears the same ratio to the reduction in the taxpayer's liability for tax under this chapter which resulted from excluding the distribution involved from gross income under subsection (a), as ``(ii) the unadjusted basis of such property bears to the aggregate unadjusted bases of all qualified property placed in service during the reinvestment period with respect to such distribution. ``(d) Job Creation Requirement.--For purposes of this section-- ``(1) Requirement.--A taxpayer meets the job creation requirement of this subsection if the new employee wages paid by the taxpayer during the last taxable year of the reinvestment period (to the extent not taken into account under this paragraph with respect to any prior distribution) is not less than 12.5 percent of the amount of the distribution. ``(2) New employee wages.--The term `new employee wages' means, with respect to any distribution, wages paid to employees-- ``(A) who are first hired after the date of such distribution, and ``(B) whose employment represents an increase in the aggregate number of employees of the taxpayer in the United States. ``(3) Wages.--The term `wages' has the same meaning as when used in section 51. ``(4) Increased employment must be maintained for 4 years.-- ``(A) In general.--If for any taxable year in the employment maintenance period (hereafter in this paragraph referred to as the `redetermination year') the new employee wages with respect to any distribution are less than the new employee wages for the last taxable year of the reinvestment period with respect to such distribution, the taxpayer's tax imposed by this chapter for the redetermination year shall be increased by an amount equal to the adjusted recapture amount with respect to such distribution. ``(B) Adjusted recapture amount.--For purposes of subparagraph (A), the term `adjusted recapture amount' means an amount equal to the sum of-- ``(A) the excess (if any) of-- ``(i) the job creation shortfall percentage of the reduction in the taxpayer's liability for tax under this chapter which resulted from excluding such distribution from gross income under subsection (a) (determined for the redetermination year), over ``(ii) the amount determined under subsection (b)(2)(A) (increased by any prior increase in tax under this paragraph with respect to such distribution), plus ``(B) the aggregate amount of interest (determined in the manner provided in subsection (e)(4)) on the excess determined under subparagraph (A). ``(C) Employment maintenance period.--For purposes of this paragraph, the term `employment maintenance period' means any period of 4 consecutive taxable years selected by the taxpayer so long as at least 1 of such taxable years is during the reinvestment period. ``(e) Other Definitions and Special Rules.--For purposes of this section-- ``(1) Qualified distribution.--The term `qualified distribution' means any distribution to the extent that the amount thereof reduces the amount includible in gross income under section 956A (relating to earnings invested in excess passive assets). ``(2) Reinvestment period.--The term `reinvestment period' means, with respect to any distribution received during a taxable year, such taxable year and the 4 succeeding taxable years. ``(3) United States shareholder; controlled foreign corporation.--The terms `United States shareholder' and `controlled foreign corporation' have the respective meanings given such terms by sections 951 and 957. ``(4) Rules relating to determination of interest.-- ``(A) In general.--The amount of interest referred to in subsections (b)(2), (c)(4), and (d)(3) for any taxable year shall be determined for the period-- ``(i) beginning on the due date for taxable year during which the distribution involved was made, and ``(ii) ending on the due date for the taxable year for which the increase in tax is being determined, by using the rates and method applicable under section 6621 for underpayment of tax for such period. ``(B) Due date.--For purposes of subparagraph (A), the term `due date' means the date prescribed by law (determined without regard to extensions) for filing the return of the tax imposed by this chapter for the taxable year. ``(C) Treatment of increase in tax attributable to interest as interest.--Any increase in tax imposed by this chapter for a taxable year by reason of this section to the extent attributable to an amount referred to in subsection (b)(2)(B), (c)(4)(A)(ii), or (d)(3)(B) shall be treated as interest paid under section 6601 on the due date for such taxable year. ``(5) Controlled Groups.--All taxpayers treated as a single employer under subsection (a) or (b) of section 52 shall be treated as a single taxpayer. ``(f) Basis Adjustment.-- ``(1) In general.--For purposes of this subtitle, the basis of any qualified property placed in service during any taxable year for which an amount was excluded from gross income under this section shall be reduced by an amount equal to such property's share of such exclusion (determined under subsection (c)(3)). ``(2) Certain dispositions.--If there is an increase in tax by reason of this section for any taxable year, proper adjustments shall be made under regulations prescribed by the Secretary with respect to any property the basis of which was reduced under paragraph (1).'' (b) Technical Amendment.--Subsection (a) of section 1016 of such Code is amended by striking ``and'' at the end of paragraph (24), by striking the period at the end of paragraph (25) and inserting ``, and'', and by adding at the end thereof the following new paragraph: ``(26) to the extent provided in section 137(f).'' (c) Clerical Amendment.--The table of sections for part III of subchapter B of chapter 1 of such Code is amended by striking the last item and inserting the following new items: ``Sec. 137. Distributions from controlled foreign corporations which are invested in certain United States property or which are used to hire new employees in the United States. ``Sec. 138. Cross references to other Acts.'' (d) Effective Date.--The amendments made by this section shall apply to distributions received after the date of the enactment of this Act in taxable years ending after such date.
summary: Amends the Internal Revenue Code to exclude from the gross income of shareholders of controlled foreign corporations the amount of any distribution received from such corporation, if the shareholder meets the requirements for reinvestment in U.S. property or the creation of domestic jobs.