PUBLIC LAW 100-647—NOV. 10, 1988	102 STAT. 3495
paragraph, none of its foreign base company income (as
defined in section 954(a) without regard to section 954(bX5))
and none of its gross insurance income (as defined in sec-
tion 954(bX3XC)) for such taxable year shall be treated as
income in a separate category, except that this sentence
shall not apply to any income which (without regard to this
sentence) would be treated as financial services income.",
and
(B) by striking out "income (other than high withholding
tax interest and dividends from a noncontrofied section 902
corporation)" and inserting in lieu thereof "passive
income".
(5)	Paragraph (2) of section 1201(e) of the Reform Act is   26 USC 904 note.
amended by adding at the end thereof the following new
subparagraph:
"(J) treatment of affiliated group fimng consoli-
dated return.—For purposes of this paragraph, all mem-
bers of an affiliated group of corporations filing a consoli-
dated return shall be treated as 1 corporation."
(6)	Subparagraph (A) of section 904(dX2) of the 1986 Code is
amended—
 (A)	by striking out "The term" in clause (ii) and inserting
in lieu thereof "Except as provided in clause (Mi), the term ,
and
 (B)	by adding at the end thereof the following new clause:
(iv) clarification of application of section
864 (d) (6).—In determining whether any income is of a
kind which would be foreign personal holding company
income, the rules of section 864(dX6) shall apply only in
the case of income of a controlled foreign corporation."
(7)	Subparagraph (F) of section 904(dX3) of the 1986 Code is
amended to read as follows:
"(F) separate category.—For purposes of this para-
graph—
"(i) in general.—Except as provided in clause (ii),
the term 'separate category' means any category of
income described in subparagraph (A), (B), (C), (D), or
(E) of paragraph (IX
"(ii) coordination with high-taxed income provi-
sions.—
"(I) In determining whether any income of a
controlled foreign corporation is in a separate cat-
egory, subclause (ID) of paragraph (2XAXMi) shall
not apply.
"(ID Any income of the taxpayer which is treated
as income in a separate category under this para-
graph shall be so treated notwithstanding any
provision of paragraph (2); except that the deter-
mination of whether any amount is high-taxed
income	be made after the application of this
paragraph,,"
(8)	(iii) of section	of the 1986 Code is
to read as follows:
"(iii) regulations.—The Secretary may by regula-
tions provide that—
"(I) amounts (not otherwise high withholding tax
interest) shall be treated as high withholding tax