102 STAT. 3502	PUBLIC LAW 100-647—NOV. 10, 1988
"(B) nonas-moated id-percent owned corporation.—
For purposes of this paragraph, the term 'nonaffiliated
10-percent owned corporation' means any corporation if—
"(i) such corporation is not included in the taxpayer's
affiliated group, and
"(ii) members of such affiliated group own 10 percent
or more of the total combined voting power of all
classes of stock of such corporation entitled to vote.
"(C) earnings and profits of lower tier corporations
TAKEN INTO ACCOUNT.—
"(i) in general.—If, by reason of holding stock in a
nonaffiliated 10-percent owned corporation, the tax-
payer is treated under clause (iii) as owning stock in
another corporation with respect to which the stock
ownership requirements of clause (ii) are met, the
adjustment under subparagraph (A) shall include an
adjustment for the amount of the earnings and profits
(or deficit therein) of such other corporation which are
attributable to the stock the taxpayer is so treated as
owning and to the period during which the taxpayer is
treated as owning such stock.
"(ii) stock ownership requirements.—The stock
ownership requirements of this clause are met with
respect to any corporation if members of the taxpayer's
affiliated group own (directly or through the applica-
tion of clause (iii)) 10 percent or more of the total
combined voting power of all classes of stock of such
corporation entitled to vote.
"(iii) stock owned through entities.—For purposes
of this subparagraph, stock owned (directly or in-
directly) by a corporation, partnership, or trust shall be
treated as being owned proportionately by its share-
holders, partners, or beneficiaries. Stock considered to
be owned by a person by reason of the application of
the preceding sentence, shall, for purposes of applying
such sentence, be treated as actually owned by such
person,
"(D) coordination wrre subpart f, etc.—For purposes of
this paragraph, proper adjustment shall be made to the
earnings and profits of any corporation to take into account
any ^ earnings and profits included in gross income under
section 951 or under any other provision of this title and
reflected in the adjusted basis of the stock."
(2XA) Paragraph (1) of section 864(e) of the 1986 Code is
amended by striking out "from sources outside the United
States",
(B)	Subsection (h) of section 936 of the 1986 Code is amended
by redesignating paragraph (7) as paragraph (8) and by insert-
ing after paragraph (6) the following new paragraph:
"(7) section 864(exi) not to apply.—This subsection shall
be applied as if section 864(eXD (relating to treatment of affili-
ated groups) had not been enacted."
(C)	The heading for part I of subchapter N of chapter 1 of the
1986 Code is amended to read as follows: