HouseH.R. 10431119th Congress
U.S. Innovation and Global Competitiveness Act of 2026
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[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 10431 Introduced in House (IH)]
<DOC>
119th CONGRESS
2d Session
H. R. 10431
To amend the Internal Revenue Code of 1986 to modify certain provisions
relating to the taxation of international entities.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
September 16, 2026
Mr. Estes introduced the following bill; which was referred to the
Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to modify certain provisions
relating to the taxation of international entities.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE, ETC.
(a) Short Title.--This Act may be cited as the ``U.S. Innovation
and Global Competitiveness Act of 2026''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressed in
terms of an amendment to, or repeal of, a section or other provision,
the reference shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title, etc.
Sec. 2. Modification of deduction for foreign-derived intangible income
and net controlled foreign corporation
tested income.
Sec. 3. Modifications to base erosion minimum tax.
Sec. 4. Modification of foreign tax credit limitation baskets.
Sec. 5. Carryover of net CFC tested loss.
Sec. 6. Redetermination of foreign taxes and related claims.
Sec. 7. Repeal of foreign tax credit haircut for net controlled foreign
corporation tested income.
Sec. 8. Repeal of inclusion percentage applicable to deemed paid credit
for taxes properly attributable to tested
income.
Sec. 9. Application of foreign-source dividend deduction to amounts
received by controlled foreign
corporations.
Sec. 10. Elimination of inclusion of foreign base company sales income
and foreign base company services income.
Sec. 11. Corporations exempt from subpart F inclusion for investment in
United States property.
Sec. 12. Special rules for transfers of intangible property from
controlled foreign corporations to United
States shareholders.
Sec. 13. Net CFC tested income determined without regard to certain
income derived from services performed in
the United States Virgin Islands.
Sec. 14. Repeal of modification to definition of adjusted taxable
income for purposes of the limitation on
business interest.
Sec. 15. Research credit treated as a specified credit for all
taxpayers for purposes of general business
credit.
Sec. 16. Regulations to prevent duplicative charges to capital account
for certain research and development
expenditures.
SEC. 2. MODIFICATION OF DEDUCTION FOR FOREIGN-DERIVED INTANGIBLE INCOME
AND NET CONTROLLED FOREIGN CORPORATION TESTED INCOME.
(a) Increase in Deduction.--Section 250(a)(1)(A) is amended by
striking ``33.34 percent'' and inserting ``40 percent''.
(b) Deduction Not To Apply Against Dividends Received Deduction
Limitation.--Section 246(b)(1) is amended by striking ``subsection (a)
and (b) of section 245, and section 250'' the first place it appears
and inserting ``and subsections (a) and (b) of section 245''.
(c) Deduction Taken Into Account in Determining Net Operating Loss
Deduction.--Section 172(d) is amended by striking paragraph (9).
(d) Look-Through for Interest Payments.--Section 250(b)(2) is
amended by adding at the end the following new subparagraph:
``(F) Interest paid by controlled foreign
corporation.--Foreign-derived deduction eligible income
shall include interest paid by a controlled foreign
corporation to a corporation that is a United States
shareholder with respect to such foreign corporation if
such controlled foreign corporation is related (within
the meaning of section 954(d)) to such United States
shareholder and such interest is an amount which is
described in section 951A(c)(2)(A)(ii) with respect to
such controlled foreign corporation. To the extent
provided by the Secretary in regulations, the preceding
sentence shall not apply to interest paid by a
controlled foreign corporation to a related United
States shareholder if such interest is directly related
to interest expense of such shareholder (or another
related person).''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2026.
SEC. 3. MODIFICATIONS TO BASE EROSION MINIMUM TAX.
(a) Base Erosion Minimum Tax Amount Determined Without Regard to
Credits.--Section 59A(b)(1)(B) is amended to read as follows:
``(B) an amount equal to the regular tax liability
(as defined in section 26(b)) of the taxpayer for the
taxable year.''.
(b) Application of General Business Credit Against BEAT.--The
second sentence of section 38(c)(1) is amended by striking ``and the
tax imposed by section 55'' and inserting ``, the tax imposed by
section 55, and the tax imposed by section 59A''.
(c) Expansion and Consolidation of Rules To Exempt Certain Payments
From Treatment as Base Erosion Payments.--
(1) In general.--Section 59A is amended by redesignating
subsection (i) as subsection (j) and by inserting after
subsection (h) the following new subsection:
``(i) Certain Payments Not Treated as Base Erosion Payments.--
``(1) Exception for payments on which tax is imposed.--
``(A) In general.--An amount shall not be treated
as a base erosion payment if--
``(i) such amount (or any portion thereof)
is includible in the gross income of any
taxpayer by reason of--
``(I) section 951(a),
``(II) section 951A(a),
``(III) section 871(b), or
``(IV) section 882(a), or
``(ii) the Secretary determines such amount
is otherwise subject to sufficient tax under
this chapter (other than by this section).
``(B) Treatment of certain deductions.--For
purposes of subparagraph (A), tax shall be treated as
imposed by this chapter without regard to any deduction
allowed under part VIII of subchapter B.
``(C) Application of certain rules.--The amount not
treated as a base erosion payment by reason of this
paragraph shall be determined under rules similar to
the rules of section 163(j)(5) (as in effect before the
date of the enactment of Public Law 115-97).
``(2) Exception for certain payments subject to sufficient
foreign tax.--
``(A) In general.--An amount shall not be treated
as a base erosion payment if the taxpayer establishes
to the satisfaction of the Secretary that such amount
was made to a foreign person which is a related party
of the taxpayer that is subject to an effective rate of
foreign income tax (as defined in section 954(b)(4))
which is not less than 18.9 percent.
``(B) Certain payments to related parties.--To the
extent provided by the Secretary in regulations, an
amount paid to a foreign person which is a related
party of the taxpayer shall be treated as paid to
another foreign person which is a related party of the
taxpayer if such second foreign person is subject to an
effective rate of foreign income tax (as defined in
section 954(b)(4)) which is less than 18.9 percent, to
the extent the amount so paid directly or indirectly
funds a payment to such second foreign person.
``(3) Certain payments to exclusion for corporations
located in a jurisdiction with a discriminatory tax.--
``(A) In general.--Paragraph (2) shall not apply to
any payment made during any calendar year if the
payment is made to a related party (as defined in
section 59A(g)(1))--
``(i) that is a tax resident of a
jurisdiction which imposes a discriminatory tax
on a domestic corporation at any time during
such calendar year, or
``(ii) if any 25-percent owner (as defined
in section 59A(g)(2)) of such related party is
a tax resident in a jurisdiction which imposes
a discriminatory tax on any domestic
corporation at any time during such calendar
year.
``(B) Discriminatory tax.--
``(i) In general.--The term `discriminatory
tax' means--
``(I) any digital services tax,
``(II) to the extent provided by
the Secretary, any tax imposed by a
foreign country if--
``(aa) such tax applies
more than incidentally to items
of income that would not be
considered to be from sources,
or effectively connected to a
trade or business, within the
foreign country under the rules
of part I of this subchapter if
such part were applied by
treating such foreign country
as though it were the United
States,
``(bb) such tax is imposed
on a base other than net income
and is not computed by
permitting recovery of costs
and expenses,
``(cc) such tax is
exclusively or predominantly
applicable, in practice or by
its terms, to nonresident
individuals and foreign
corporations or partnerships
(determined under rules similar
to paragraphs (4) and (5) of
section 7701(a) by treating the
foreign country as though it
were the United States) because
of the application of revenue
thresholds, exemptions, or
exclusions for taxpayers
subject to such foreign
country's corporate income tax,
or
``(dd) such tax is not
treated as an income tax under
the laws of such foreign
country or is otherwise treated
by such foreign country as
outside the scope of any
agreements that are in force
between such foreign country
and one or more other
jurisdictions for the avoidance
of double taxation with respect
to taxes on income, or
``(III) to the extent provided by
the Secretary, any other tax imposed by
a foreign country enacted with a public
or stated purpose indicating that the
tax will be economically borne,
directly or indirectly,
disproportionately by United States
persons.
``(ii) Exceptions.--Such term shall not
include, except as otherwise provided by the
Secretary, any tax which is a generally
applicable tax which is--
``(I) an income tax generally
imposed on the income of citizens or
residents of the foreign country, even
if the computation of income includes
payments that would be foreign source
income under part I of this subchapter,
``(II) an income tax which would be
a discriminatory tax (determined
without regard to this clause) solely
because it is imposed on the income of
nonresidents attributable to a trade or
business in such foreign country,
``(III) an income tax which would
be a discriminatory tax (determined
without regard to this clause) solely
because it is imposed on citizens or
residents of such foreign country by
reference to the income of a corporate
subsidiary of such person,
``(IV) a withholding tax, or other
gross basis tax, on any amount
described in section 871(a)(1) or
881(a), other than any withholding tax,
or other gross basis tax, imposed with
respect to services performed by
persons other than individuals,
``(V) a value added tax, goods and
services tax, sales tax, or other
similar tax on consumption,
``(VI) a tax imposed with respect
to transactions on a per-unit or per-
transaction basis rather than on an ad
valorem basis,
``(VII) a tax on real or personal
property, an estate tax, a gift tax,
other similar tax,
``(VIII) a tax which would not be
an extraterritorial tax or
discriminatory tax (determined without
regard to this clause) except by reason
of consolidation or loss sharing rules
that generally apply only with respect
to income of tax residents of the
foreign country, or
``(IX) any other tax identified by
the Secretary for purposes of this
paragraph.
``(C) Determination on basis of applicable
financial statements.--Except as otherwise provided by
the Secretary under subparagraph (D), the effective
rate of foreign income tax with respect to any amount
may be established on the basis of applicable financial
statements (as defined in section 451(b)(3)).
``(D) Regulations.--The Secretary shall issue such
regulations or other guidance as may be necessary or
appropriate to carry out the purposes of this
paragraph, including regulations or other guidance
providing procedures for determining the effective rate
of foreign income tax to which any amount is subject.
Such procedures may require that any transaction or
series of transactions among multiple parties be
recharacterized as one or more transactions directly
among any 2 or more of such parties where the Secretary
determines that such recharacterization is appropriate
to carry out, or prevent avoidance of, the purposes of
this section.
``(4) Exception for certain amounts with respect to
services.--Subsections (d)(1) and (d)(2) shall not apply to so
much of any amount paid or accrued by a taxpayer for services
as does not exceed the total services cost of such services.
The preceding sentence shall not apply unless such services
meet the requirements for eligibility for use of the services
cost method under section 482 (determined without regard to the
requirement that the services not contribute significantly to
fundamental risks of business success or failure).''.
(2) Conforming amendment.--Section 59A(d) is amended by
striking paragraph (5).
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2026.
SEC. 4. MODIFICATION OF FOREIGN TAX CREDIT LIMITATION BASKETS.
(a) Modification of Foreign Tax Credit Limitation Baskets.--
(1) In general.--Section 904(d)(1) is amended by striking
subparagraphs (A) and (B) and by redesignating subparagraphs
(C) and (D) as subparagraphs (A) and (B), respectively.
(2) Conforming amendments.--
(A) Section 904(d)(2)(A)(ii) is amended by striking
``income described in paragraph (1)(A), foreign branch
income, and''.
(B) Section 904(c) is amended by striking the last
sentence.
(C) Section 904(d)(2) is amended by striking subparagraph
(J) and by redesignating subparagraph (K) as subparagraph (J).
(D) Section 250(b)(3)(A)(i)(VI) is amended to read as
follows:
``(VI) the business profits of such
corporation which are attributable
(under rules established by the
Secretary) to 1 or more qualified
business units (as defined in section
989(a)) in 1 or more foreign countries,
over''.
(E) Section 904(d)(2)(J), as redesignated by
subparagraph (C)(i), is amended by striking ``2007''
each place such term appears (including in the heading)
and inserting ``2026''.
(3) Transition rule.--The Secretary of the Treasury (or the
Secretary's delegate) shall establish rules for the application
of section 960(c)(2) with respect to categories of income
described in subparagraphs (A) and (B) of section 904(d)(2) (as
in effect for taxable years beginning before January 1, 2026).
(b) Rules for Allocation of Certain Deductions to Foreign Source
Net CFC Tested Income for Purposes of Foreign Tax Credit Limitation.--
Section 904(b) is amended by adding at the end the following new
paragraph:
``(7) Deductions treated as allocable to foreign source net
cfc tested income.--In the case of a domestic corporation and
solely for purposes of the application of subsection (a) with
respect to amounts includible in gross income by reason of
section 951A (other than passive category income), the
taxpayer's taxable income from sources without the United
States shall be determined--
``(A) by allocating and apportioning any deduction
allowed under section 250(a)(2) (and any deduction
allowed under section 164(a)(3) for taxes imposed on
amounts described in section 250(a)(2)) to such income,
and,
``(B) by allocating and apportioning any other
deduction to such income only if the Secretary
determines that such deduction is directly allocable to
such income.
Any deduction which would (but for subparagraph (B)) have been
allocated or apportioned to such income shall only be allocated
or apportioned to income which is from sources within the
United States.''.
(c) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2026.
(2) Modification of foreign tax credit carryback and
carryforward.--The amendment made by subsection (a)(2)(B) shall
apply to taxes paid or accrued in taxable years beginning after
December 31, 2026.
SEC. 5. CARRYOVER OF NET CFC TESTED LOSS.
(a) In General.--Section 951A(b) is amended by adding at the end
the following new paragraph:
``(3) Carryover of net cfc tested loss.--
``(A) In general.--If the amount described in
paragraph (1)(B) with respect to any United States
shareholder for any taxable year of such United States
shareholder (determined after the application of this
paragraph with respect to amounts arising in the
preceding 5 taxable years) exceeds the amount described
in paragraph (1)(A) with respect to such shareholder of
such taxable year, the amount otherwise described in
paragraph (1)(B) with respect to such shareholder for
the succeeding taxable year shall be increased by the
amount of such excess.
``(B) Proper adjustment in allocations of net cfc
tested income to controlled foreign corporations.--
Proper adjustments shall be made in the application of
subsection (d)(2)(B) to take into account any decrease
in global intangible low-taxed income by reason of the
application of subparagraph (A).''.
(b) Application of Rules With Respect to Ownership Changes.--
Section 382(d) is amended by adding at the end the following new
paragraph:
``(4) Application to carryover of net cfc tested loss.--The
term `pre-change loss' shall include any excess carried over
under section 951A(b)(3) under rules similar to the rules of
paragraph (1).''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after December
31, 2026, and to taxable years of United States shareholders in which
or with which such taxable years of foreign corporations end.
SEC. 6. REDETERMINATION OF FOREIGN TAXES AND RELATED CLAIMS.
(a) In General.--Section 905(c) is amended--
(1) in paragraph (1), by striking ``or'' at the end of
subparagraph (B) and by inserting after subparagraph (C) the
following new subparagraphs:
``(D) the taxpayer makes a timely change in its
choice to claim a credit or deduction for taxes paid or
accrued, or
``(E) there is any other change in the amount, or
treatment, of taxes, which affects the taxpayer's tax
liability under this chapter,'',
(2) in paragraph (2)(B)(i), by inserting ``, except as
otherwise provided by the Secretary,'' after ``shall'', and
(3) in the heading, by striking ``Accrued''.
(b) Election To Treat Redetermined Tax as Paid or Accrued in Year
of Redetermination.--Section 905(c) is amended by adding at the end the
following new paragraph:
``(6) Election to treat redetermined tax as paid or accrued
in year of redetermination.--
``(A) In general.--At the irrevocable election of
the taxpayer, in the case of a redetermination under
paragraph (1)--
``(i) accrued taxes relating to such
redetermination shall be treated as accrued in
the taxable year in which such redetermination
occurs and shall be treated solely for the
purpose of determining the amount of such
increase as incurred on the date such taxes
were accrued, and
``(ii) the amount of any credit allowed to
the taxpayer by reason of such redetermination
shall be treated as allowed to such taxpayer in
the taxable year in which such redetermination
occurs.
``(B) Regulations.--The Secretary may issue such
regulations to prevent abuse of this paragraph as the
Secretary determines appropriate.''.
(c) Modification to Special Period of Limitation.--Section
6511(d)(3) is amended--
(1) in subparagraph (A)--
(A) by inserting ``a change in the liability for''
before ``any taxes paid or accrued'',
(B) by striking ``actually paid'' and inserting
``paid (or deemed paid under section 960)'', and
(C) by inserting ``change in the liability for''
before ``foreign taxes'' in the heading thereof, and
(2) in subparagraph (B), by striking ``the allowance of a
credit for the taxes'' and inserting ``the allowance of an
additional credit by reason of the change in liability for the
taxes''.
(d) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
taxes paid or accrued in taxable years beginning after December
31, 2026.
(2) Certain changes.--The amendments made by paragraphs (1)
and (3) of subsection (a) shall apply to changes that occur on
or after the date which is 60 days after the date of the
enactment of this Act.
(3) Modification to special period of limitation.--The
amendments made by subsection (c) shall apply to taxes paid,
accrued, or deemed paid in taxable years beginning after
December 31, 2026.
SEC. 7. REPEAL OF FOREIGN TAX CREDIT HAIRCUT FOR NET CONTROLLED FOREIGN
CORPORATION TESTED INCOME.
(a) In General.--Section 960(d)(1) is amended by striking ``90
percent of''.
(b) Conforming Amendments.--
(1) Section 960(d) is amended by striking paragraph (4).
(2) Section 78 is amended by striking ``(determined without
regard to the phrase `90 percent of' in subsection (d)(1)
thereof)''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2026.
SEC. 8. REPEAL OF INCLUSION PERCENTAGE APPLICABLE TO DEEMED PAID CREDIT
FOR TAXES PROPERLY ATTRIBUTABLE TO TESTED INCOME.
(a) In General.--Section 960(d) is amended--
(1) by amending paragraph (1) to read as follows:
``(1) In general.--For purposes of subpart A of this part,
if any amount is includible in the gross income of a domestic
corporation under section 951A, such domestic corporation shall
be deemed to have paid foreign income taxes equal to the
aggregate tested foreign income taxes paid or accrued by
controlled foreign corporations of such corporation.'', and
(2) by striking paragraph (2).
(b) Effective Date.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after December
31, 2026, and to taxable years of United States shareholders in which
or with which such taxable years of foreign corporations end.
SEC. 9. APPLICATION OF FOREIGN-SOURCE DIVIDEND DEDUCTION TO AMOUNTS
RECEIVED BY CONTROLLED FOREIGN CORPORATIONS.
(a) In General.--Section 245A is amended by redesignating
subsection (g) as subsection (h) and by inserting after subsection (f)
the following new subsection:
``(g) Application to Certain Dividends Received by Controlled
Foreign Corporations From Specified 10-Percent Owned Foreign
Corporations.--If a controlled foreign corporation with respect to
which a domestic corporation is a United States shareholder receives a
dividend (other than a hybrid dividend) from a specified 10-percent
owned foreign corporation with respect to which such domestic
corporation is also a United States shareholder, the amount includible
in the gross income of such United States shareholder under section
951(a)(1)(A) by reason of the foreign-source portion of such dividend
shall be treated for purposes of this section in the same manner as if
such amount were the foreign-source portion of a dividend received by
such United States shareholder from such specified 10-percent owned
foreign corporation (and by applying section 246(c) in respect of such
amount by substituting `owned (within the meaning of section 958(a))'
for `held' each place such term appears).''.
(b) Effective Date.--The amendments made by this section shall
apply to distributions made in taxable years of foreign corporations
beginning after December 31, 2026, and to taxable years of United
States shareholders in which or with which such taxable years of
foreign corporations end.
(c) No Inference.--Nothing in the amendments made by subsection (a)
shall be construed to create any inference with respect to the
treatment of dividends described in section 245A(g) of the Internal
Revenue Code of 1986 (as added by subsection (a)) in taxable years
beginning before the taxable year described in subsection (b).
SEC. 10. ELIMINATION OF INCLUSION OF FOREIGN BASE COMPANY SALES INCOME
AND FOREIGN BASE COMPANY SERVICES INCOME.
(a) Repeal.--Section 954(a) is amended to read as follows:
``(a) Foreign Base Company Income.--For purposes of section
952(a)(2), the term `foreign base company income' means for any taxable
year the foreign personal holding company income for the taxable year
(determined under subsection (c) and reduced as provided in subsection
(b)(5)).''.
(b) Conforming Amendments.--
(1)(A) Section 954(d) is amended to read as follows:
``(d) Related Person Defined.--For purposes of this section, a
person is a related person with respect to a controlled foreign
corporation, if--
``(1) such person is an individual, corporation,
partnership, trust, or estate which controls, or is controlled
by, the controlled foreign corporation, or
``(2) such person is a corporation, partnership, trust, or
estate which is controlled by the same person or persons which
control the controlled foreign corporation.
For purposes of the preceding sentence, control means, with respect to
a corporation, the ownership, directly or indirectly, of stock
possessing more than 50 percent of the total voting power of all
classes of stock entitled to vote or of the total value of stock of
such corporation. In the case of a partnership, trust, or estate,
control means the ownership, directly or indirectly, of more than 50
percent (by value) of the beneficial interests in such partnership,
trust, or estate. For purposes of this subsection, rules similar to the
rules of section 958 shall apply.''.
(B) The following sections are amended by striking
``954(d)(3)'' each place such term appears and inserting
``954(d)'':
(i) Section 162(r)(6)(B)(ii).
(ii) Section 250(b)(2)(D) (as redesignated by the
preceding provisions of this Act).
(iii) Section 267A(b)(2).
(iv) Section 904(d)(2)(I).
(v) Section 951A(c)(2)(A)(i)(IV).
(vi) Section 953(e).
(vii) Section 956(c)(2)(L)(ii)(II).
(viii) Section 958(b).
(ix) Section 971(f).
(x) Section 988(a)(3)(C).
(xi) Section 1297(b)(2).
(xii) Subsections (d)(3)(A) and (e)(2)(B)(i) of
section 1298.
(xiii) Section 1471(e)(2).
(xiv) Section 3121(z)(2).
(C) Section 954(h)(5)(E) is amended by striking
``subsection (d)(3)'' and inserting ``subsection (d)''.
(D) Subparagraphs (A) and (B) of section 954(i)(2) are each
amended by striking ``subsection (d)(3)'' and inserting
``subsection (d)''.
(2) Section 954 is amended by striking subsection (e).
(c) Effective Date.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after December
31, 2026, and to taxable years of United States shareholders with or
within which such taxable years of foreign corporations end.
SEC. 11. CORPORATIONS EXEMPT FROM SUBPART F INCLUSION FOR INVESTMENT IN
UNITED STATES PROPERTY.
(a) In General.--Section 956(a) is amended by inserting ``(other
than a corporation)'' after ``United States shareholder'' in the matter
preceding paragraph (1).
(b) Effective Date.--The amendment made by this section shall apply
to taxable years of controlled foreign corporations ending after
December 31, 2026, and to taxable years of United States shareholders
with or within which such taxable years of controlled foreign
corporations end.
SEC. 12. SPECIAL RULES FOR TRANSFERS OF INTANGIBLE PROPERTY FROM
CONTROLLED FOREIGN CORPORATIONS TO UNITED STATES
SHAREHOLDERS.
(a) In General.--Subpart F of part III of subchapter N of chapter 1
is amended by adding at the end the following new section:
``SEC. 966. TRANSFERS OF INTANGIBLE PROPERTY TO UNITED STATES
SHAREHOLDERS.
``(a) In General.--In the case of any distribution of intangible
property which is held by a controlled foreign corporation on the date
of enactment of this section and which is described in subsection (b)--
``(1) for purposes of part I of subchapter C and any other
provision of this title specified by the Secretary, the fair
market value of such property on the date of such distribution
shall be treated as not exceeding the adjusted basis of such
property immediately before such distribution, and
``(2) if the distribution is not a dividend--
``(A) the United States shareholder's adjusted
basis in the stock of the controlled foreign
corporation with respect to which such distribution is
made shall be increased by the amount (if any) of such
distribution which would (but for this subsection) be
includible in gross income, and
``(B) the adjusted basis of such property in the
hands of such United States shareholder immediately
after such distribution shall be such adjusted basis
immediately before such distribution reduced by the
amount of the increase described in subparagraph (A).
``(b) Distribution.--A distribution is described in this section if
the distribution is--
``(1) received by a domestic corporation from a controlled
foreign corporation with respect to which such corporation is a
United States shareholder, and
``(2) made by the controlled foreign corporation before the
last day of the third taxable year of the controlled foreign
corporation beginning after December 31, 2025.
``(c) Intangible Property.--For purposes of this subsection, the
term `intangible property' means property which is--
``(1) intangible property (as defined in section 367(d)(4)
determined without regard to subparagraph (F) thereof), or
``(2) computer software described in section
197(e)(3)(B).''.
(b) Conforming Amendments.--
(1) Section 197(f)(2)(B)(i) is amended by inserting
``966(a),'' after ``731,''.
(2) The table of sections for subpart F of part III of
subchapter N of chapter 1 is amended by adding at the end the
following new item:
``Sec. 966. Transfers of intangible property to United States
shareholders.''.
(c) Effective Date.--The amendments made by this section shall
apply to distributions made in taxable years of foreign corporations
beginning after December 31, 2026, and to taxable years of United
States shareholders in which or with which such taxable years of
foreign corporations end.
SEC. 13. NET CFC TESTED INCOME DETERMINED WITHOUT REGARD TO CERTAIN
INCOME DERIVED FROM SERVICES PERFORMED IN THE UNITED
STATES VIRGIN ISLANDS.
(a) In General.--Section 951A(b)(2)(A)(i) is amended by striking
``and'' at the end of subclause (IV), by striking ``over'' at the end
of subclause (V) and inserting ``and'', and by adding at the end the
following new subclause:
``(VI) in the case of any specified
United States shareholder, any
qualified United States Virgin Islands
services income, over''.
(b) Definitions and Special Rules.--Section 951A(b)(2) is amended
by adding at the end the following new subparagraph:
``(C) Provisions related to qualified united states
virgin islands services income.--For purposes of
subparagraph (A)(i)(VI)--
``(i) Qualified virgin islands services
income.--The term `qualified United States
Virgin Islands services income' means any gross
income which satisfies all of the following
requirements:
``(I) Such gross income is
compensation for labor or personal
services (within the meaning of section
862(a)(3)) performed in the United
States Virgin Islands by a corporation
formed under the laws of the United
States Virgin Islands.
``(II) Such gross income is
attributable to services performed from
within the United States Virgin Islands
by individuals for the benefit of such
corporation.
``(III) Such gross income is
effectively connected with the conduct
of a trade or business within the
United States Virgin Islands.
``(ii) Specified united states
shareholder.--The term `specified United States
shareholder' means any United States
shareholder which is--
``(I) an individual, trust, or
estate, or
``(II) a closely held C corporation
(as defined in section 469(j)(1)) if
such corporation acquired its direct or
indirect equity interest in the foreign
corporation which derived the qualified
United States Virgin Islands services
income before December 31, 2023.
``(iii) Regulations.--The Secretary shall
prescribe such regulations or other guidance as
may be necessary or appropriate to carry out
this subparagraph and subparagraph (A)(i)(VI),
including regulations or other guidance to
prevent the abuse of such subparagraphs.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after the date
of the enactment of this Act, and to taxable years of United States
shareholders with or within which such taxable years of foreign
corporations end.
SEC. 14. REPEAL OF MODIFICATION TO DEFINITION OF ADJUSTED TAXABLE
INCOME FOR PURPOSES OF THE LIMITATION ON BUSINESS
INTEREST.
(a) In General.--Section 163(j)(8)(A) is amended--
(1) in clause (iv), by inserting ``and'' after the comma,
and
(2) by striking clause (vi).
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2026.
SEC. 15. RESEARCH CREDIT TREATED AS A SPECIFIED CREDIT FOR ALL
TAXPAYERS FOR PURPOSES OF GENERAL BUSINESS CREDIT.
(a) In General.--Section 38(c)(4)(B)(ii) is amended by striking
``for the taxable year with respect to an eligible small business (as
defined in paragraph (5)(A) after application of the rules of paragraph
(5)(B))''.
(b) Conforming Amendment.--Section 38(c) is amended by striking
paragraph (5).
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2026.
SEC. 16. REGULATIONS TO PREVENT DUPLICATIVE CHARGES TO CAPITAL ACCOUNT
FOR CERTAIN RESEARCH AND DEVELOPMENT EXPENDITURES.
(a) In General.--Section 174 is amended by adding at the end the
following new subsection:
``(e) Regulations.--The Secretary shall prescribe regulations or
other guidance as may be necessary or appropriate to carry out the
purposes of this section, including regulations or other guidance that
prevents the same economic expense from being charged to capital
account by more than 1 member of a controlled group of corporations (as
defined in section 41(f)(5)). Such regulations shall not change the
treatment of such expenses for other purposes of this title.''.
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