To amend the Internal Revenue Code of 1986 to restore the limitation on downward attribution of stock ownership in applying constructive ownership rules.

This bill amends the Internal Revenue Code of 1986 to restore a limitation on how stock ownership is attributed downward in constructive ownership rules for foreign corporations, and creates new rules for foreign controlled U.S. shareholders and foreign controlled foreign corporations.

Sec. 1, Restoration of limitation on downward attribution: The bill modifies Section 958(b) of the tax code to prevent rules in Section 318(a)(3) from treating a U.S. person as owning stock that is owned by a non-U.S. person. It also adds a new Section 951B to Subpart F, which applies special rules for foreign controlled U.S. shareholders of foreign controlled foreign corporations. These rules treat such shareholders and corporations similarly to U.S. shareholders and controlled foreign corporations for certain tax purposes, but with a higher ownership threshold (more than 50% instead of 10% or more) and without the new downward attribution limitation. The Secretary is authorized to issue regulations to implement these rules and prevent avoidance.

Effective date: The changes apply to the last taxable year of foreign corporations beginning before January 1, 2025, and subsequent years, as well as corresponding taxable years of U.S. persons. No inference is created for prior tax years.