(3) Disqualified portion For purposes of this section— (A) In general The term “disqualified portion” means, with respect to any covered asset acquisition, for any taxable year, the ratio (expressed as a percentage) of— (i) the aggregate basis differences (but not below zero) allocable to such taxable year under subparagraph (B) with respect to all relevant foreign assets, divided by (ii) the income on which the foreign income tax referred to in paragraph (1) is determined (or, if the taxpayer fails to substantiate such income to the satisfaction of the Secretary, such income shall be determined by dividing the amount of such foreign income tax by the highest marginal tax rate applicable to such income in the relevant jurisdiction). (B) Allocation of basis difference For purposes of subparagraph (A)(i)— (i) In general The basis difference with respect to any relevant foreign asset shall be allocated to taxable years using the applicable cost recovery method under this chapter. (ii) Special rule for disposition of assets Except as otherwise provided by the Secretary, in the case of the disposition of any relevant foreign asset— (I) the basis difference allocated to the taxable year which includes the date of such disposition shall be the excess of the basis difference with respect to such asset over the aggregate basis difference with respect to such asset which has been allocated under clause (i) to all prior taxable years, and (II) no basis difference with respect to such asset shall be allocated under clause (i) to any taxable year thereafter. (C) Basis difference (i) In general The term “basis difference” means, with respect to any relevant foreign asset, the excess of— (I) the adjusted basis of such asset immediately after the covered asset acquisition, over (II) the adjusted basis of such asset immediately before the covered asset acquisition. (ii) Built-in loss assets In the case of a relevant foreign asset with respect to which the amount described in clause (i)(II) exceeds the amount described in clause (i)(I), such excess shall be taken into account under this subsection as a basis difference of a negative amount. (iii) Special rule for section 338 elections In the case of a covered asset acquisition described in paragraph (2)(A), the covered asset acquisition shall be treated for purposes of this subparagraph as occurring at the close of the acquisition date (as defined in section 338(h)(2) ).