PUBLIC LAW 105-34—AUG. 5, 1997 111 STAT. 943 exception provided by this paragraph and to treat other taxes as qualified taxes. "(5) CERTAIN RULES TO APPLY.— For purposes of this subsection, the rules of paragraphs (3) and (4) of section 246(c) shall apply. "(6) TREATMENT OF BONA FIDE SALES. — If a person's holding period is reduced by reason of the application of the rules of section 246(c)(4) to any contract for the bona fide sale of stock, the determination of whether such person's holding period meets the requirements of paragraph (2) with respect to taxes deemed paid under section 902 or 960 shall be made as of the date such contract is entered into. " (7) TAXES ALLOWED AS DEDUCTION, ETC.— Sections 275 and 78 shall not apply to any tax which is not allowable as a credit under subsection (a) by reason of this subsection.". (b) NOTICE OF WITHHOLDING TAXES PAID BY REGULATED INVEST- MENT COMPANY.— Subsection (c) of section 853 (relating to foreign tax credit allowed to shareholders) is amended by adding at the end the following new sentence: "Such notice shall also include the amount of such taxes which (without regard to the election under this section) would not be allowable as a credit under section 901(a) to the regulated investment company by reason of section 901(k). ". (c) EFFECTIVE DATE. —The amendments made by this section 26 USC 853 note, shall apply to dividends paid or accrued more than 30 days after the date of the enactment of this Act. SEC. 1054. DENIAL OF TREATY BENEFITS FOR CERTAIN PAYMENTS THROUGH HYBRID ENTITIES. « (a) IN GENERAL.—Section 894 (relating to income affected by treaty) is amended by inserting after subsection (b) the following new subsection: "(c) DENL\L OF TREATY BENEFITS FOR CERTAIN PAYMENTS THROUGH HYBRID ENTITIES.— "(1) APPLICATION TO CERTAIN PAYMENTS. — A foreign person shall not be entitled under any income tax treaty of the United States with a foreign country to any reduced rate of any withholding tax imposed by this title on an item of income derived through an entity which is treated as a partnership (or is otherwise treated as fiscally transparent) for purposes of this title if— "(A) such item is not treated for purposes of the taxation laws of such foreign country as an item of income of such person, "(B) the treaty does not contain a provision addressing the applicability of the treaty in the case of an item of income derived through a partnership, and "(C) the foreign country does not impose tax on a distribution of such item of income from such entity to such person. "(2) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to determine the extent to which a taxpayer to which paragraph (1) does not apply shall not be entitled to benefits under any income tax treaty of the United States with respect to any payment received by, or income attributable to any activities of, an entity organized in any jurisdiction (including the United
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