80 STAT.]
PUBLIC LAW 89-809-NOV. 13, 1966
"(3) EXCEPTION.—Paragraph (1) shall not apply to any dividends if an election under section 1562 is effective for either— " (A) the taxable year of the domestic corporation in which such dividends are received, or " (B) the taxable year of the foreign corporation out of the earnings and profits of which such dividends are paid. (2) Subsection (a) of such section 245 is amended by adding at the end thereof (after the sentence added by subsection (d)(4)) the following new sentence: " For purposes of paragraph (2), there shall not be taken into account any taxable year within such uninterrupted period if, with respect to dividends paid out of the earnings and profits of such year, the deduction provided by subsection (b) would be allowable." (3) Subsection (c) of such section 245 (as redesignated by paragraph (1)) is amended by striking out "subsection (a) " and inserting in lieu thereof "subsections (a) and (b)". (f)
DISTRIBUTIONS or
1559 ^s Stat. u?.
Ante, p. 1558.
CERTAIN FOREIGN CORPORATIONS.—Section
301(b)(1)(C) (relating to certain corporate distributees of foreign corporations) is amended— (1) by striking out "gross income from sources within the United States" in clause (i) and inserting in lieu thereof "gross income which is effectively connected with the conduct of a trade or business within the United States"; (2) by striking out "gross income from sources without the United States" in clause (ii) and inserting in lieu thereof "gross income which is not effectively connected with the conduct of a trade or business within the United States"; and (3) by adding at the end thereof the following new sentences: "For purposes of clause (i), the gross income of a foreign corporation for any period before its first taxable year beginning after December 31, 1966, which is effectively connected with the conduct of a trade or business within the United States is an amount equal to the gross income for such period from sources within the United States. For purposes of clause (ii), the gross income of a foreign corporation for any period before its first taxable year beginning after December 31, 1966, which is not effectively connected with the conduct of a trade or business within the United States is an amount equal to the gross income for such period from sources without the United States." (g) UNRELATED BUSINESS TAXABLE INCOME.—The last sentence of section 512(a) (relating to definition) is amended to read as follows: "In the case of an organization described in section 511 which is a foreign organization, the unrelated business taxable income shall be its unrelated business taxable income which is effectively connected with the conduct of a trade or business within the United States."
76 Stat. 977.
^^^ s*^* 1^°
(h) CORPORATIONS SUBJECT TO PERSONAL HOLMNG COMPANY T A X. —
(1) Paragraph (7) of section 542(c) (relating to corporations yg^^f t^*f ^^^' not subject to personal holding company tax) is amended to read as follows: "(7) a foreign corporation (other than a corporation which has income to which section 543(a)(7) applies for the taxable ^s Stat. si. year), if all of its stock outstanding during the last half of the taxable year is owned by nonresident alien individuals, whether directly or indirectly through foreign estates, foreign trusts, foreign partnerships, or other foreign corporations;". (2) Section 543(b)(1) (relating to definition of ordinary gross income) is amended— (A) by striking out "and" at the end of subparagraph (A),
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