SEC. 70311. Modifications related to foreign tax credit limitation.
(a) 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:
“(5) DEDUCTIONS TREATED AS ALLOCABLE TO FOREIGN SOURCE NET CFC TESTED INCOME.—Solely for purposes of the application of subsection (a) with respect to amounts described in subsection (d)(1)(A), the taxpayer’s taxable income from sources without the United States shall be determined by allocating and apportioning—
“(A) any deduction allowed under section 250(a)(1)(B) (and any deduction allowed under section 164(a)(3) for taxes imposed on amounts described in section 250(a)(1)(B)) to such income,
“(B) no amount of interest expense or research and experimental expenditures to such income, and
“(C) any other deduction to such income only if such deduction is directly allocable to such income.
Any amount or deduction which would (but for subparagraphs (B) and (C)) have been allocated or apportioned to such income shall only be allocated or apportioned to income which is from sources within the United States.”.
(b) Other modifications.—
(1) Section 904(d)(2)(H)(i) is amended by striking “paragraph (1)(B)” and inserting “paragraph (1)(D)”.
(2) Section 904(d)(4)(C)(ii) is amended by striking “paragraph (1)(A)” and inserting “paragraph (1)(C)”.
(3) Section 951A(f)(1)(A) is amended by striking “904(h)(1)” and inserting “904(h)”.
(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.
SEC. 70312. Modifications to determination of deemed paid credit for taxes properly attributable to tested income.
(a) Increase in deemed paid credit.—
(1) IN GENERAL.—Section 960(d)(1) is amended by striking “80 percent” and inserting “90 percent”.
(2) GROSS UP FOR DEEMED PAID FOREIGN TAX CREDIT.—Section 78 is amended—
(A) by striking “subsections (a), (b), and (d)” and inserting “subsections (a) and (d)”, and
(B) by striking “80 percent” and inserting “90 percent”.
(b) Disallowance of foreign tax credit with respect to distributions of previously taxed net CFC tested income.—Section 960(d) is amended by adding at the end the following new paragraph:
“(4) DISALLOWANCE OF FOREIGN TAX CREDIT WITH RESPECT TO DISTRIBUTIONS OF PREVIOUSLY TAXED NET CFC TESTED INCOME.—No credit shall be allowed under section 901 for 10 percent of any foreign income taxes paid or accrued (or deemed paid under subsection (b)(1)) with respect to any amount excluded from gross income under section 959(a) by reason of an inclusion in gross income under section 951A(a).”.
(c) Effective dates.—
(1) IN GENERAL.—The amendments made by subsection (a) shall apply to taxable years beginning after December 31, 2025.
(2) DISALLOWANCE.—The amendment made by subsection (b) shall apply to foreign income taxes paid or accrued (or deemed paid under section 960(b)(1) of the Internal Revenue Code of 1986) with respect to any amount excluded from gross income under section 959(a) of such Code by reason of an inclusion in gross income under section 951A(a) of such Code after June 28, 2025.
SEC. 70313. Sourcing certain income from the sale of inventory produced in the United States.
(a) In general.—Section 904(b), as amended by section 70311, is amended by adding at the end the following new paragraph:
“(6) SOURCE RULES FOR CERTAIN INVENTORY PRODUCED IN THE UNITED STATES AND SOLD THROUGH FOREIGN BRANCHES.—For purposes of this section, if a United States person maintains an office or other fixed place of business in a foreign country (determined under rules similar to the rules of section 864(c)(5)), the portion of income which—
“(A) is from the sale or exchange outside the United States of inventory property (within the meaning of section 865(i)(1))—
“(i) which is produced in the United States,
“(ii) which is for use outside the United States, and
“(iii) to which the third sentence of section 863(b) applies, and
“(B) is attributable (determined under rules similar to the rules of section 864(c)(5)) to such office or other fixed place of business,
shall be treated as from sources without the United States, except that the amount so treated shall not exceed 50 percent of the income from the sale or exchange of such inventory property.”.
(b) Effective date.—The amendment made by this section shall apply to taxable years beginning after December 31, 2025.