PUBLIC LAW 100-647—NOV. 10, 1988 102 STAT. 3497

(c) AMENDMENT RELATED TO SECTION 1203 OF THE REFORM ACT.—
Paragraph (5) of section 904(f) of the 1986 Code is amended by
adding at the end thereof the following new subparagraph:

"(F) DISPOSITIONS.—If any separate limitation loss for any
taxable year is allocated against any separate limitation
income for such taxable year, except to the extent provided
in regulations, rules similar to the rules of paragraph (3)
shall apply to any disposition of property if gain from such
disposition would be in the income category with respect to
which there was such separate limitation loss."

(d) AMENDMENTS RELATED TO SECTION 1211 OF THE REFORM ACT.—

(1) Subsection (d) of section 865 of the 1986 Code is amended
by adding at the end thereof the following new paragraph:

"(4) COORDINATION WITH SUBSECTION (c).—

"(A) GAIN NOT IN EXCESS OF DEPRECIATION ADJUSTMENTS

SOURCED UNDER SUBSECTION (c).—Notwithstanding para-
graph (1), any gain from the sale of an intangible shall be
sourced under subsection (c) to the extent such gain does
not exceed the depreciation adjustments with respect to
such intangible.

"(B) SUBSECTION (c) (2) NOT TO APPLY TO INTANGIBLES.—
Paragraph (2) of subsection (c) shall not apply to any gain
from the sale of an intangible."

(2) Subparagraph (A) of section 865(eXD of the 1986 Code is
amended by striking out "(d), or (f)" and inserting in lieu
thereof "(d)(l)(B) or (3), or (f)".

(3)(A) Clause (ii) of section 865(g)(l)(A) of the 1986 Code is
amended by striking out "partnership,".

(B) Subsection (h) of section 865 of the 1986 Code is amended
by adding at the end thereof the. following new paragraph;

"(5) TREATMENT OF PARTNERSHIPS.—In the case of a partner-
ship, except as provided in regulations, this section shall be
applied at the partner level."

(4) Subsection (f) of section 865 of the 1986 Code is amended to
read as follows:

"(f) STOCK OF AFFILIATES.—If—-

"(1) a United States resident sells stock in an affiliate which is
a foreign corporation,

"(2) such sale occurs in a foreign country in which such
affiliate is engaged in the active conduct of a trade or business,
and

"(3) more than 50 percent of the gross income of such affiliate
for the 3-year period ending with the close of such affiliate's
taxable year immediately preceding the year in which the sale
occurred was derived from the active conduct of a trade or
business in such foreign country,

any gain from such sale shall be sourced outside the United States.
For purposes of paragraphs (2) and (3), the United States resident
may elect to treat an affiliate and all other corporations which are
wholly owned (directly or indirectly) by the affiliate as one
corporation."

(5) Effective with respect to taxable years beginning after
December 31, 1987, subparagraph (B) of section 865(eX2) of the
1986 Code is amended to read as follows:

"(B) EXCEPTION.—Subparagraph (A) shall not apply to
any sale of inventory property which is sold for use, disposi-
tion, or consumption outside the United States if an office