102 STAT. 3502
PUBLIC LAW 100-647—NOV. 10, 1988 "(B) NONAFFILIATED IO-PERCENT OWNED CORPORATION.—
For purposes of this paragraph, the term 'nonaffiliated 10-percent owned corporation' means any corporation if— "(i) such corporation is not included in the taxpayer's affiliated group, and "(ii) members of such affiliated group own 10 percent or more of the total combined voting power of all classes of stock of such corporation entitled to vote. "(C) EARNINGS AND PROFITS OF LOWER TIER CORPORATIONS TAKEN I N TO ACCOUNT.—
"(i) IN GENERAL.—If, by reason of holding stock in a nonaffiliated 10-percent owned corporation, the taxpayer is treated under clause (iii) as owning stock in another corporation with respect to which the stock ownership requirements of clause (ii) are met, the adjustment under subparagraph (A) shall include an adjustment for the amount of the earnings and profits (or deficit therein) of such other corporation which are attributable to the stock the taxpayer is so treated as owning and to the period during which the taxpayer is treated as owning such stock. "(ii)
STOCK OWNERSHIP REQUIREMENTS.—The stock
ownership requirements of this clause are met with respect to any corporation if members of the taxpayer's affiliated group own (directly or through the application of clause (iii)) 10 percent or more of the total combined voting power of all classes of stock of such corporation entitled to vote. "(iii) STOCK OWNED THROUGH ENTITIES.—For purposes of this subparagraph, stock owned (directly or indirectly) by a corporation, partnership, or trust shall be treated as being owned proportionately by its shareholders, partners, or beneficiaries. Stock considered to be owned by a person by reason of the application of the preceding sentence, shall, for purposes of applying such sentence, be treated as actually owned by such person. "(D) COORDINATION WITH SUBPART F, ETC.—For purposes of this paragraph, proper adjustment shall be made to the earnings and profits of any corporation to take into account any earnings and profits included in gross income under section 951 or under any other provision of this title and reflected in the adjusted basis of the stock." (2)(A) Paragraph (1) of section 864(e) of the 1986 Code is amended by striking out "from sources outside the United States". (B) Subsection (h) of section 936 of the 1986 Code is amended by redesignating paragraph (7) as paragraph (8) and by inserting after paragraph (6) the following new paragraph: "(7) SECTION 864(eKi) NOT TO APPLY.—This subsection shall be applied as if section 864(e)(l) (relating to treatment of affiliated groups) had not been enacted." (C) The heading for part I of subchapter N of chapter 1 of the 1986 Code is amended to read as follows:
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