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TITLE 26-INTERNAL REVENUE CODE (A) the amount by which the limitation under section 904(a) for the taxable year re- ferred to in paragraph (1)(A) was increased by reason of the inclusion in gross income under section 951(a) of the amount in re- spect of the controlled foreign corporation, reduced by (B) the amount of any income, war prof- its, and excess profits taxes paid, or deemed paid, or accrued to any foreign country or possession of the United States which were allowable as a credit under section 901 for the taxable year referred to in paragraph (1)(A) and which would not have been al- lowable but for the inclusion in gross incorme of the amount described in subpara- graph (A). (3) Cases In which taxes not to be allowed as de- duction In the case of any taxpayer who- (A) chose to have the benefits of subpart A of this part for a taxable year in which he was required under section 951(a) to include in his gross income an amount in respect of a controlled foreign corporation, and (B) does not choose to have the benefits of subpart A of this part for the taxable year in which he receives a distribution or amount which is excluded from gross income under section 959(a) and which is attributable to earnings and profits of the controlled foreign corporation which was included in his gross income for the taxable year referred to in subparagraph (A), no deduction shall be allowed under section 164 for the taxable year in which such distri- bution or amount is received for any income, war profits, or excess profits taxes paid or ac- crued to any foreign country or to any posses- sion of the United States on or with respect to such distribution or amount. (4) Insufficient taxable income If an increase in the limitation under this subsection exceedi, the tax imposed by this chapter for such year, the amount of such excess shall be deemed an overpayment of tax for such year. (Added Pub. L. 87-834, § 12(a), Oct. 16, 1962, 76 Stat. 1020, and amended Pub. L. 94-455, title X, §§ 1031(b)(1), 1033(b)(2), 1037(a), Oct. 4, 1976, 90 Stat. 1622, 1628, 1633.) AMENDMENTS 1976-Subsec. (a)(1). Pub. L. 94-455, §§ 1033(b)(2), 1037(a), substituted "bears to the entire amount of the earnings and profits of such foreign corporation for such taxable year" for "bears to-" following "gross income of the domestic corporation", struck out sub- pars. (C) and (D) relating to corporations which are and are not less developed country corporations, added in subpar. (A) "(hereafter in this subsection referred to as the 'first foreign corporation')" following "for- eign corporation", substituted in subpar. (B) "of a second foreign corporation (hereinafter in this subsec- tion referred to as the 'second foreign corporation') at least 10 percent of the voting stock of which is owned by the first foreign corporation, or" for "of a foreign corporation at least 50 percent of the voting stock of which is owned by a foreign corporation at least 10 percent of the voting stock of which in turn owned by such domestic corporation" following "(B)", added subpar. (C), and added "This paragraph shall not apply with respect to any amount included in the gross income of such domestic corporation attribut- able to earning and profits of the second foreign cor- poration or of the third foreign corporation unless, in the case of the second foreign corporation, the per- centage-of-voting-stock requirement of section 902(b)(3)(A) Is satisfied, and in the case of the third foreign corporation, the percentage-of-voting-stock re- quirement of section 902(b)(3)(B) is satisfied" follow- ing "such taxable year". Subsec. (b). Pub. L. 94-455, § 1031(b)(1), struck out "applicable" in par. (1) following "amount, the", in par. (2) following "increase of the", and in subpar. (A) of par. (2) following "by which the". ErncTivz DATE OF 1976 AmENDMMErr Amendment of subsec. (b) by section 1031(b)(l) of Pub. L. 94-455 applicable to taxable years beginning after Dec. 31, 1975, see section 1031(c) of Pub. L. 94- 455, set out as an Effective Date of 1976 Amendment note under section 904 of this title. Amendment of subsec. (a) by section 1033(b)(2) of Pub. L. 94-455 applicable in respect of any distribution received by a domestic corporation after Dec. 31, 1977, and in respect of any distribution received by a domes- tic corporation before Jan. 1, 1978, in a taxable year ox such corporation beginning after Dec. 31, 1975, but only to the extent that such distribution is made out of the accumulated profits of a foreign corporation for a taxable year beginning after Dec. 31, 1975, see sec- tion 1033(c) of Pub. L. 94-455, set out as an Effective Date of 1976 Amendment note under section 902 of this title. Section 1037(b) of Pub. L. 94-455 provided that: "The amendment made by this section [to subsec. (a)(1) of this section] shall apply with respect to earn- ings and profits of a foreign corporation, included, under section 951(a) of the Internal Revenue Code of 1954 [section 951(a) of this title], in the gross income of a domestic corporation in taxable years beginning after December 31, 1976." SECTION REFERRED TO IN OTHER SECTIONS This section is refcrred to in sections 78, 535, 545, 901, 902, 904, 907, 908, 958, 959, 962, 6038 of this title. § 961. Adjustments to basis of stock In controlled for- eign corporations and of other property (a) Increase in basis Under regulations prescribed by the Secre- tary, the basis of a United States shareholder's stock in a controlled foreign corporation, and the basis of property of a United States hare- holder by reason of which he is conidered under section 958(a)(2) as owning stock of a controlled foreign corporation, shall be in- creased by the amount required to be included in his gross income under section 951(a) with respect to such stock or with respect to such property, as the case may be, but only to the extent to which such amount was included in the gross income of such United States share- holder. In the case of a United States share- holder who has made an election under section 962 for the taxable year, the increase in basis provided by this subsection shall not exceed an amount equal to the amount of tax paid under this chapter with respect to the amounts re- quired to be included in his gross income under section 951(a). (b) Reduction in basis (1) In general Under regulations prescribed by the Secre- tary, the adjusted basis of stock.: or other property with respect to which a United States shareholder or a United States person receives an amount which is excluded from 71-999 0 - '78 - 41 (Vol. 7) Page 613