102 STAT. 3512 PUBLIC LAW 100-647-NOV. 10, 1988

"(III) foreign base company sales income,

"(IV) foreign base company services income/1.

(24) Clause (ii) of section 952(c)(l)(B) of the 1986 Code is
amended by adding at the end thereof the following new sen-
tence: "In determining the deficit attributable to qualified
activities described in clause (iiiXIII) or (IV), deficits in earnings
and profits (to the extent not previously taken into account
under this section) for taxable years beginning after 1962 and
before 1987 also shall be taken into account. In the case of the
qualified activity described in clause (iii)(II), the rule of the
preceding sentence shall apply, except that 1982' shall be sub-
stituted for 1962'."

(25XA) Paragraph (1) of section 952(c) of the 1986 Code is
amended by adding at the end thereof the following new
subparagraph:

"(C) CERTAIN DEFICITS OF MEMBER OF THE SAME CHAIN OF

CORPORATIONS MAY BE TAKEN INTO ACCOUNT.—

"(i) IN GENERAL.—A controlled foreign corporation
may elect to reduce the amount of its subpart F income
for any taxable year which is attributable to any quali-
fied activity by the amount of any deficit in earnings
and profits of a qualified chain member for a taxable
year ending with (or within) the taxable year of such
controlled foreign corporation to the extent such deficit
is attributable to such activity. To the extent any defi-
cit reduces subpart F income under the preceding sen-
tence, such deficit shall not be taken into account
under subparagraph (B).

"(ii) QUALIFIED CHAIN MEMBER.—For purposes of this
subparagraph, the term 'qualified chain member'
means, with respect to any controlled foreign corpora-
tion, any other corporation which is created or orga-
nized under the laws of the same foreign country as the
controlled foreign corporation but only if—

"(I) all the stock of such other corporation (other
than directors' qualifying shares) is owned at all
times during the taxable year in which the deficit
arose (directly or through 1 or more corporations
other than the common parent) by such controlled
foreign corporation, or

"(II) all the stock of such controlled foreign cor-
poration (other than directors' qualifying shares) is
owned at all times during the taxable year in
which the deficit arose (directly or through 1 or
more corporations other than the common parent)
by such other corporation.

"(iii) CooRDiNATiON.—This subparagraph shall be ap-
plied after subparagraphs (A) and (B).'

(B) Subparagraph (B) of section 954(c)(3) of the 1986 Code is
amended by inserting before the period at the end thereof the
Rowing: or creates (or increases) a deficit which under sec-
tion 952(c) may reduce the subpart F income of the payor or
another controlled foreign corporation".
0") AMENDMENT RELATED TO SECTION 1224 OF THE REFORM ACT.—

?S3?Sfe (f\£f Si^°^ 201(g) of the 1986 Code a**1 section

S-X3X?L?fv,the P.S* Code are each amended by striking out

section 957(c) and inserting in lieu thereof "section 957(c) (as in