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Reform Act of 1976, Congress added subparagraph (F) to section
956(b)(2).10 Subparagraph (F) of section 956(b)(2) provides that
U.S. property does not include stock or debt of a domestic
corporation (unless the corporation is itself a U.S. shareholder
of the foreign controlled corporation) if the U.S. shareholders
of the controlled foreign corporation have less than 25-percent
control of the domestic corporation.
E. Analysis
1. The Banking Business
The repatriation provision was enacted in 1962 on the theory
that the repatriation of previously untaxed (by the United
States) earnings by a controlled foreign corporation was
substantially the equivalent of a dividend being paid to the U.S.
shareholders of that corporation (dividend equivalency theory).
Excepted were a group of transactions that the tax writing
committees believed were “normal commercial transactions without
intention to permit funds to remain in the United States
indefinitely”. S. Rept. 1881, supra, 1962-3 C.B. at 794; accord
H. Rept. 1447, supra, 1962-3 C.B. at 469. One such exception is
for “deposits with persons carrying on the banking business”.
The phrase “carrying on the banking business” is a phrase
10 Congress also added subparagraph (G) to sec. 956(b)(2),
which deals with certain oil drilling rigs used on the U.S.
continental shelf and is not relevant to our discussion.
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